<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 1-11903
AMERICAN GENERAL HOSPITALITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 75-2648842
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3860 W. NORTHWEST HWY., SUITE 300 75220
DALLAS, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(214) 904-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL DOCUMENTS
AND 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 REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT
TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT OF THIS
FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK AT MARCH 27,
1997 HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $395,742,807.
THE NUMBER OF SHARES OF COMMON STOCK OF AMERICAN GENERAL HOSPITALITY
CORPORATION OUTSTANDING ON MARCH 27, 1997 WAS 14,657,141.
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
INDEX
<TABLE>
<CAPTION>
FORM 10-K
REPORT
ITEM NO. PAGE
- ------- ---------
PART I
<S> <C>
1. Business................................................... 3
2. Properties................................................. 8
3. Legal Proceedings.......................................... 21
4. Submission of Matters to a Vote of
Security Holders........................................... 22
PART II
5. Market for Registrant's Common
Equity and Related Stockholder Matters..................... 22
6. Selected Financial Information............................. 23
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation.................................................. 26
8. Financial Statements and
Supplementary Data......................................... 34
9. Changes in Disagreements With Accountants
on Accounting and Financial Disclosure..................... 34
PART III
10. Directors and Executive Officers
of the Registrant.......................................... 34
11. Executive Compensation..................................... 34
12. Security Ownership of Certain
Beneficial Owners and Management........................... 34
13. Certain Relationships and Related
Transactions............................................... 35
PART IV
14. Exhibits, Financial Statements,
Schedules, and Reports on Form 8-K......................... 35
</TABLE>
SIGNATURES
GLOSSARY
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" AS
SET FORTH IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-11 (FILE NO. 333-
19585) AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR
TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
2
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
American General Hospitality Corporation (together with its subsidiaries,
the "Company") was incorporated and formed on April 12, 1996, as a Maryland
corporation, for the purpose of continuing and expanding the hotel acquisition,
development and repositioning operations of American General Hospitality, Inc.,
and certain of its affiliates ("AGHI"). The Company is a self-administered real
estate investment trust ("REIT"). On July 31, 1996, the Company completed an
initial public offering (the "IPO") of 7,500,000 shares of its common stock (the
"Common Stock"), acquired equity interests in 13 hotels (the "Initial Hotels")
and commenced operations. The Company contributed all of the net proceeds of
the IPO to American General Hospitality Operating Partnership, L.P. (the
"Operating Partnership") in which the Company acquired approximately 81.3% of
the limited partnership interests of the Operating Partnership ("OP Units"); the
remaining OP Units were issued to the sellers of the Initial Hotels. In
connection with the IPO, the Operating Partnership acquired the Initial Hotels
with a total of 3,012 guest rooms. The principal transactions in connection
with the formation of the Company and the acquisition of the Initial Hotels are
referred to herein as the "Formation Transactions."
Since the IPO, the Company has acquired seven hotels with an aggregate of
1,617 guest rooms. The Company currently owns 20 hotels in thirteen states with
an aggregate of 4,633 guest rooms (the "Hotels"). In February 1997, the Company
completed a follow-on public offering (the "1997 Public Offering") of 6,368,300
shares of its Common Stock (inclusive of the shares issued pursuant to the
exercise of the Underwriters' overallotment option in March 1997). The Company
contributed all of the net proceeds of the 1997 Public Offering to the Operating
Partnership and now holds an approximate 88.5% interest in the Operating
Partnership.
In order to qualify as a REIT, the Company may not operate hotels. As a
result, the Company leases the Hotels to AGH Leasing, L.P. (the "Lessee"), which
is owned in part by certain executive officers of the Company, pursuant to
separate participating leases (the "Participating Leases"). Each Participating
Lease has a term of twelve years from the inception of the lease, subject to
earlier termination upon the occurrence of certain events. Under the
Participating Leases, the Lessee is obligated to pay the Company the greater of
fixed weekly base rent ("Base Rent") and monthly participating rent
("Participating Rent") based on a percentage of revenues at each of the Hotels.
The Participating Leases are designed to allow the Company to achieve
substantial participation in any future growth of revenues generated at the
Hotels.
In addition, the Lessee has engaged AGHI to manage all of the Hotels
pursuant to separate management agreements (the "Management Agreements") other
than the Wyndham Garden Hotel-Marietta (formerly the Four Points by
Sheraton(R)), which is managed by Wyndham Hotel Corporation. The Company does
not have any economic interest in AGHI's hotel management operations.
Upon the closing of the IPO, the Company closed a $100 million line of
credit (the "Line of Credit") with a consortium of banks led by Societe General,
Southwest Agency and Bank One, Texas N.A. In February 1997 the Line of Credit
was increased to $150 million (the "Line of Credit"). The Line of Credit is
secured by among other things, first mortgage liens on all of the Hotels, other
than Holiday Inn(R) Dallas DFW Airport South, Courtyard by Marriott(R)-
Meadowlands, Radisson Hotel(R) Arlington Heights and French Quarter Suites
Hotel. The Line of Credit has an initial term of three years that is subject to
extension under certain circumstances for an additional one-year term. While its
organizational documents contain no limitation on the amount of debt it may
incur, the Line of Credit limits its consolidated indebtedness (measured at the
time the debt is incurred) to not more than 45.0% of the Company's investment in
hotels.
3
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Recent Developments
Recent Acquisitions:
- -------------------
Since the IPO, the Company has invested approximately $128.6 million in
hotel acquisitions. Set forth below are summary descriptions of the Company's
acquisitions since the IPO.
Days Inn(R) Lake Buena Vista-Lake Buena Vista, Florida. On October 22,
1996, the Company acquired the 490-room Days Inn Lake Buena Vista for an
aggregate purchase price of approximately $30.5 million. In connection with the
acquisition, the Company also paid an aggregate of approximately $2.4 million to
acquire a license and an association membership related to the hotel's African
royal safari theme (as described below) and for certain hotel-related design
services. The hotel contains 94 suites and approximately 4,200 square feet of
meeting and convention space. The Company has budgeted approximately $9.3
million to complete an extensive renovation program to upgrade the entire hotel
and to reposition the hotel as a Wyndham Hotel(R) during the fourth quarter of
1997. The renovations will include the addition of approximately 9,000 square
feet of convention space and the redesign of the exterior of the hotel to
reflect an African royal safari theme that will tie in with Disney's Animal
Kingdom theme park, which is expected to open in 1998.
Holiday Inn Resort Monterey-Monterey, California. On November 21, 1996,
the Company acquired the 204-room Holiday Inn Resort Monterey for approximately
$15.5 million in cash. The Company has budgeted approximately $3.9 million in
renovations to upgrade the hotel's guest rooms and public areas in order to
reposition the hotel as a Hilton Hotel(R) during the fourth quarter of 1997.
Hilton Hotel-Durham-Durham, North Carolina. On January 8, 1997, the
Company acquired the 152-room Hilton Hotel-Durham for approximately $12.1
million in cash. During 1997 the Company expects to add 42 guest rooms to the
hotel at an anticipated cost of approximately $2.4 million and invest
approximately $465,000 in other renovations.
Radisson Hotel(R) Arlington Heights-Arlington Heights, Illinois. On
February 28, 1997, the Company acquired the Radisson Hotel Arlington Heights for
approximately $11.5 million, payable as follows: (i) $3.3 million in cash and
(ii) the assumption of a one-year, $8.2 million first mortgage note, which bears
interest at the rate of 7.5% per annum. The Company granted the seller a future
cash flow right in order to compensate the sellers for the expected improvement
in the hotel's performance that is not fully reflected in the historical
operating results. The Radisson Hotel Arlington Heights is a 201-room full-
service hotel constructed in 1981. During 1998, the Company intends to complete
a $10.7 million renovation and expansion of the hotel, which is expected to
include the addition of approximately 100 guest rooms.
Portfolio Purchase. On March 17, 1997, the Company acquired a portfolio of
hotels, including the Wyndham Garden Hotel - Marietta, Georgia (formerly the
Four Points by Sheraton(R)), the Sheraton Key Largo and the French Quarter
Suites Hotel for purchase prices aggregating approximately $59.1 million (the
"Portfolio Purchase"). The purchase price for the Portfolio Purchase was
payable as follows: (i) approximately $49.5 million in cash and (ii) the
assumption of approximately $9.6 million of mortgage indebtedness secured by the
French Quarter Suites Hotel.
Wyndham Garden Hotel-Marietta, Georgia (formerly Four Points by Sheraton).
The Company has allocated a cash purchase price of $17.0 million to the 219-room
Wyndham Garden Hotel - Marietta. During 1997, the Company expects to invest
approximately $2.8 million to renovate the hotel. The hotel was repositioned to
operate as a Wyndham Garden Hotel(R) concurrent with the purchase. The Company
leases the hotel to the Lessee which, in turn, has retained Wyndham Hotel
Corporation to manage the hotel.
Sheraton Key Largo-Key Largo, Florida. The Company has allocated a cash
purchase price of $26.1 million to the Sheraton Key Largo. This hotel is a 200-
room resort complex situated on a private beach on the western coastline of the
Florida Keys. During 1997, the Company expects to invest approximately $3.0
million in improvements to the hotel and to reposition the hotel to operate as a
Westin Resort(R).
French Quarter Suites Hotel-Atlanta, Georgia. The Company has allocated a
$16.0 million purchase price to the French Quarter Suites Hotel that was payable
as follows: (i) approximately $6.4 million in cash and (ii) the assumption of
approximately $9.6 million in mortgage indebtedness, which bears interest at the
rate of 9.75% per annum. The hotel was constructed in 1985 and contains a total
of 155 guest rooms, of which 144 are suites. During 1997, the Company plans to
invest approximately $2.8 million to complete an extensive renovation of the
hotel and to reposition the hotel to operate as a DoubleTree Guest Suites(R).
4
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Wyndham Alliance:
- ----------------
On January 9, 1997, the Company entered into an agreement with Wyndham
Hotel Corporation and its affiliates (collectively, "Wyndham") relating to a
strategic alliance (the "Wyndham Alliance") between Wyndham and the Company.
Pursuant to the Wyndham Alliance, (i) in connection with the conversion of a
hotel owned by the Company to the Wyndham brand, Wyndham will acquire, as
directed by the Company, Common Stock or OP Units (the "Alliance Securities") in
an amount equal to nine times the estimated franchise fee payable to Wyndham
during the first twelve months such hotel is operated as a Wyndham brand, (ii)
Wyndham will have the non-exclusive right to franchise new hotel acquisitions
that the Company has determined should undergo a brand conversion and (iii) the
Company will be given the opportunity to bid on any hotels to be acquired by
Wyndham that it intends to assign to a REIT or any hotel with respect to which
Wyndham intends to enter into a sale-leaseback arrangement with a REIT
simultaneously with the hotel's purchase. Wyndham's purchase of the Alliance
Securities pursuant to the Wyndham Alliance is subject to the satisfaction of
certain conditions, including the consent of Wyndham's lenders, and will be at a
price per share of Common Stock or OP Unit equal to the average closing sale
price of the Common Stock on the New York Stock Exchange, Inc. (the "NYSE") for
the 30 trading days preceding the earlier of (i) the date on which Wyndham
consents to the conversion of a Company hotel to a Wyndham brand or (ii) the
date on which the Company publicly announces its proposed acquisition of a hotel
that is to be converted to a Wyndham brand. Any such purchase of Alliance
Securities will occur within 30 days after a Company hotel is converted to a
Wyndham brand. No purchase of Alliance Securities occurred in connection with
the conversion of the Best Western(R) Albuquerque Airport Hotel to the Wyndham
brand nor will such a purchase occur in connection with the planned conversion
of the Days Inn Lake Buena Vista and the Wyndham Garden Hotel-Marietta (formerly
the Four Points by Sheraton(R)) to Wyndham brands. Within 30 days after the
conversion of the Le Baron Airport Hotel to the Wyndham Hotel brand, Wyndham has
agreed, subject to certain conditions, to purchase 112,969 shares of Common
Stock at a negotiated price of $22.13 per share. The Wyndham Alliance will
expire on December 31, 1999.
CONTRACTS FOR HOTEL ACQUISITIONS:
- --------------------------------
On March 26, 1997, the Company announced that it had signed contracts to
purchase two hotels for approximately $32.9 million from two independent
sellers. The hotels are the 249 room Holiday Inn Corporate Center in Phoenix,
Arizona and the 226 room Hilton Airport Hotel in Grand Rapids, Michigan. The
acquisition cost will be provided by funds from the Company's 1997 Public
Offering and borrowings from the Line of Credit. The acquisition is contingent
upon the completion and satisfactory results of the business and financial due
diligence reviews.
EMPLOYEES
The Company is self-administered and employs Messrs. Jorns, Wiles, Barr,
Valentine and four additional individuals as well as appropriate support
personnel to manage its operations.
ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner knew of, or was responsible
for, the presence of hazardous or toxic substances. Furthermore, a person who
arranges for (or transports for) the disposal or treatment of a hazardous or
toxic substance at a property owned by another may be liable for the costs of
removal or remediation of such substance released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. In connection
with the ownership and operation of the Hotels, the Company, the Operating
Partnership or the Lessee, as the case may be, may be potentially liable for
such costs.
In reliance upon the Phase I ESAs, the Company believes the Hotels are in
material compliance with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters. Neither
the Company nor, to the knowledge of the Company, any of the current owners of
the Current Hotels has been notified by any governmental authority of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in connection with any of its
hotels.
GROWTH STRATEGIES
Acquisition Strategies:
- ----------------------
The Company will seek to maximize current returns to stockholders through
increases in Cash Available for Distribution and to increase long-term total
returns to stockholders through appreciation in value of the Common Stock. The
Company plans to achieve these objectives through participation in any increased
revenues from the Hotels, pursuant
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to the Participating Rent payments under the Participating Leases and by the
acquisition and selective development of additional hotels.
The Company intends to continue to acquire additional hotels that meet one
or more of the investment criteria outlined below:
. full-service hotels located in major metropolitan markets, including
hotels that are in close proximity to the airports that serve such
markets, as well as selective prominent hotels in major tourist areas;
. hotels that are underperforming and are candidates for implementation
of market repositioning, franchise conversion and turnaround strategies;
. hotels where the Company believes that necessary renovation or
redevelopment can be completed expeditiously and will result in an
immediate improvement in the hotel's revenues and an attractive return
on its renovation or redevelopment investment;
. hotels with sound operating fundamentals that are performing below
their potential because they are owned or controlled by financially
distressed owners or involuntary owners that may have acquired hotels
through foreclosure, including owners that lack the financial resources
or the commitment to make capital improvements appropriate for such
hotels;
. hotels in attractive locations that the Company believes would benefit
significantly by changing franchises to a recognized brand affiliation
that is capable of increasing penetration in a particular market;
. nationally franchised hotels in locations with a relatively high demand
for rooms, relatively low supply of competing hotels and high barriers
to entry; and
. portfolios of hotels that exhibit some or all of the other criteria
discussed above, where purchasing several hotels in one transaction
enables the Company to obtain a favorable price, or to purchase
attractive hotels that otherwise would not be available to the Company.
Internal Growth Strategy:
- ------------------------
The Company believes that, based on the historical operating results of the
Hotels, the strength of the Company's and AGHI's existing management teams and
the structure of the Participating Leases, the Hotels provide the Company with
the opportunity for significant revenue growth. The Company believes that it
has structured its business relationships with AGHI and the Lessee to provide
incentives to operate and maintain the Hotels in a manner that will increase
revenue and the Cash Available for Distribution.
Operational Repositioning. The Company expects to achieve internal growth
through the application of AGHI's operating strategies, which stress
responsiveness and adaptability to changing market conditions to maximize
revenue growth. The Company's objectives include increasing REVPAR through
increases in occupancy and ADR through AGHI's continuing use of (i) interactive
yield management techniques, (ii) highly developed operating systems and
controls, (iii) targeted sales and marketing plans, (iv) proactive financial
management, (v) extensive training programs and (vi) an incentive-based
compensation structure.
Participating Leases Structure. The Participating Leases are designed to
allow the Company to participate in any increased revenues from the hotels in
which it invests. The Company also believes that AGHI's marketing and yield
management techniques contribute to maximizing revenues at the hotels managed by
it, thereby increasing the rent payable to the Company by the Lessee under the
Participating Leases. While the rent provisions of the Participating Leases are
revenue-based, such provisions have been developed with consideration of the
fixed and variable nature of hotel operating expenses and changes in operating
margins typically associated with increases in revenues.
Other Operators. The Company intends to selectively seek other qualified
hotel brand owner/operators and hotel management companies, in addition to the
Lessee and AGHI, to lease and/or manage certain of the Company's future hotel
acquisitions. The Company anticipates that it will lease hotels to independent
hotel operators or, as a condition to
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entering into a Participating Lease with the Lessee, will require the Lessee to
retain an independent hotel manager in connection with selected acquisitions,
provided such lessee or manager has demonstrated, in the Company's judgment, (i)
certain unique knowledge of the hotel or the market in which the hotel operates,
(ii) a proven track record for implementing product, brand and operational
repositioning strategies, (iii) a significant national or regional lodging
reputation or (iv) substantial financial resources. In addition, the Company
will seek to develop lessee or management relationships with operators that are
capable of providing the Company with attractive acquisition opportunities that
satisfy its investment criteria. The Company believes that the use of a flexible
lessee or manager structure, coupled with the continued expansion of its brand
and franchise relationships, will result in additional acquisition opportunities
for the Company. Consistent with this strategy, the Lessee retained Wyndham
Hotel Corporation to manage the Wyndham Garden Hotel-Marietta (formerly the Four
Points by Sheraton(R)) hotel following its acquisition by the Company. The
engagement of a lessee or manager other than the Lessee or AGHI to operate the
Company's hotels is subject to the approval of the Line of Credit lenders.
Capital Improvements, Renovations and Brand Conversions. The Company
believes a regular program of capital improvements, including replacement and
refurbishment of FF&E at the Hotels, as well as the renovation and redevelopment
of selected hotels, is essential to maintaining the competitiveness of the
hotels and maximizing revenue growth. Consistent with this strategy, as of
February 28, 1997, the Company had invested approximately $19.7 million (an
average of approximately $4,248 per guest room) in capital improvements and
renovations at the Hotels. The Company has budgeted for the remainder of 1997
and 1998 approximately $45.6 million (an average of approximately $9,850 per
guest room) for additional renovations and capital improvements at these hotels.
The Company attempts to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruptions to
the hotel's operations. In addition, the Company has agreements in place that
will permit the Company to convert, by the first quarter of 1998, thirteen of
the Hotels to new brand affiliations with nationally recognized hotel companies.
COMPETITION
The hotel industry is highly competitive. Each of the Hotels is located in
a developed area that includes other hotel properties. The number of competitive
hotel properties in a particular area could have a material adverse effect on
occupancy, ADR and REVPAR of the Hotels or at hotel properties acquired in the
future.
The Company may be competing for investment opportunities with entities
that have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to the
Company and increase the bargaining power of property owners seeking to sell.
Further, the Company believes competition from entities organized for purposes
substantially similar to the Company's objectives could increase significantly
if the Company is successful. There is no restriction in the Participating
Leases or the Management Agreements on the Lessee's or AGHI's ability to lease
or manage hotels which may compete with the Company's hotels. Although not
currently anticipated, AGHI and the Lessee may manage or lease (but may not
acquire or develop) hotels that compete with the Company's hotels.
SEASONALITY
The hotel industry is seasonal in nature. Generally, hotel revenue is
greater in the second and third quarters of a calendar year, although this may
not be true for hotels in major tourist destinations. Seasonal variations in
revenue at the Hotels may cause quarterly fluctuations in the Company's lease
revenue.
TAX STATUS
The Company elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1996. If the Company qualifies for
taxation as a REIT, the Company (subject to certain exceptions) will not be
subject to federal income taxation at the corporate level on its taxable income
that is distributed to the stockholders of the Company. A REIT is subject to a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95.0% of its annual taxable income.
Failure to qualify as a REIT would render the Company subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates, and distributions to the stockholders in any such year would
not be deductible by the Company. Although the Company has not requested a
ruling from the Internal Revenue Service (the "IRS") as to its REIT status,
the Company has received the opinion of its legal
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counsel that the Company qualifies for taxation as a REIT, which opinion is
based on certain assumptions and representations and is not binding on the IRS
or any court. Even if the Company qualifies for taxation as a REIT, the Company
may be subject to certain federal, state and local taxes on its income and
property. In connection with the Company's election to be taxed as a REIT, the
Company's Charter imposes restrictions on the transfer of shares of Common
Stock. The Company has adopted the calendar year as its taxable year.
ITEM 2. PROPERTIES
The Hotels are diversified by seven different national hotel brands and
include eighteen full-service hotels and two limited-service hotels. In
addition, the Company plans to reposition, by the first quarter of 1998,
thirteen of the Hotels (six Holiday Inns, two Days Inns, two Sheratons, and
three independent hotels), through an upgrade and conversion, into hotels that
operate under the Wyndham Hotel, Wyndham Garden Hotel, Westin Resort, Hilton
Hotel, DoubleTree Guest Suites, Crowne Plaza(R), Holiday Inn Select(R), and
Hampton Inn(R) brands. The Company believes that following such upgrading and
conversion, these hotels will experience increases in occupancy and room rates
as a result of the new franchisors' national brand recognition, reservation
systems and group sales organization. There can be no assurance that any or all
of such brand conversions and repositionings will occur as planned or that, if
such brand conversions and repositionings occur, the affected hotels will
experience occupancy and rate increases. The Company believes that the diversity
of its portfolio moderates the potential effects on the Company of regional
economic conditions or local market competition affecting specific hotel
franchises, hotel markets or price segments within the industry.
The following table sets forth certain information with respect to the
Hotels. The chart summarizes the historical performance of the Hotels for each
of the years ended December 31, 1995 and 1996. The operating performance of the
Holiday Inn Dallas DFW Airport West and the Hampton Inn Richmond Airport was
impacted during 1995 by extensive and ongoing renovations at those hotels.
<TABLE>
<CAPTION>
Year Ended December 31
Year Opened/ Number of ------------------------
Hotels/Location(1) Renovated(2) Guest Rooms 1995 1996 % Change
- ------------------------------------- --------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Holiday Inn Dallas DFW Airport West(3)
Bedford, Texas 1974/1995 243
Occupancy 69.4% 72.5% (4.5)%
ADR $ 60.08 $ 63.57 5.8 %
REVPAR $ 41.70 $ 46.11 10.6%
Courtyard by Marriott-Meadowlands(3)
Secaucus, New Jersey 1989/1994 165
Occupancy 77.8% 80.3% 3.2 %
ADR $ 81.77 $ 92.16 12.7 %
REVPAR $ 63.58 $ 73.99 16.4 %
Hampton Inn Richmond Airport(3)
Richmond, Virginia 1987/1995 124
Occupancy 70.8% 74.0% 4.5 %
ADR $ 57.69 $ 60.67 5.2 %
REVPAR $ 40.86 $ 44.89 9.9 %
Hotel Maison de Ville(3)
New Orleans, Louisiana 1788/1994 23
Occupancy 66.5% 66.2% (0.5)%
ADR $232.97 $241.64 3.7 %
REVPAR $154.91 $159.85 3.2 %
Hilton Hotel-Toledo(3)
Toledo, Ohio 1987/1994 213
Occupancy 72.8% 70.6% (3.0)%
ADR $ 59.98 $ 63.52 5.9 %
REVPAR $ 43.65 $ 44.84 2.8
Holiday Inn Dallas DFW Airport
South(3)(4)(5)
Irving, Texas 1974/1995 409
Occupancy 76.9% 75.6% (1.7)%
ADR $ 71.26 $ 75.49 5.9 %
REVPAR $ 54.78 $ 57.05 4.1 %
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
Year Opened/ Number of ------------ ------------
Hotels/Location(1) Renovated(2) Guest Rooms 1995 1996 % Change
- ------------------------------------- --------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Holiday Inn New Orleans International
Airport(3)(4)(5)
Kenner, Louisiana 1973/1994 304
Occupancy 81.2% 74.6% (8.1)%
ADR $ 72.83 $ 80.09 10.0 %
REVPAR $ 59.16 $ 59.74 1.0 %
Days Inn Ocean City(3)(5)(6)
Ocean City, Maryland 1989/1994 162
Occupancy 49.3% 50.4% 2.2 %
ADR $ 76.10 $ 78.07 2.6 %
REVPAR $ 37.50 $ 39.31 4.8 %
Crowne Plaza-Madison
Madison, Wisconsin 1987/1995 227
Occupancy 79.3% 76.5% (3.5)%
ADR $ 78.46 $ 82.39 5.0 %
REVPAR $ 62.26 $ 63.04 1.3 %
Holiday Inn Park Center Plaza(5)(7)
San Jose, California 1975/1990 231
Occupancy 72.1% 74.7% 3.6 %
ADR $ 78.16 $ 87.95 12.5 %
REVPAR $ 56.38 $ 65.69 16.5 %
Wyndham Albuquerque Airport Hotel
Albuquerque, New Mexico 1972/1994 266
Occupancy 83.7% 80.4% (4.0)%
ADR $ 53.24 $ 56.08 5.3 %
REVPAR $ 44.55 $ 45.07 1.2 %
Le Baron Airport Hotel(5)(8)
San Jose, California 1973/1995 327
Occupancy 65.2% 73.4% 12.6 %
ADR $ 64.40 $ 77.13 19.8 %
REVPAR $ 42.01 $ 56.80 35.2 %
Holiday Inn Mission Valley(4)(5)
San Diego, California 1970/1995 318
Occupancy 68.5% 67.4% (1.6)%
ADR $ 65.17 $ 67.29 3.3 %
REVPAR $ 44.63 $ 45.32 1.5 %
Days Inn Lake Buena Vista(5)(8)
Orlando, Florida 1985/1994 490
Occupancy 77.8% 72.5% (6.8)%
ADR $ 49.02 $ 61.12 24.7 %
REVPAR $ 38.16 $ 44.31 16.1 %
Holiday Inn Resort Monterey(5)(9)
Monterey, California 1971/1996 204
Occupancy 63.8% 67.4% 5.6 %
ADR $ 91.25 $100.44 10.1 %
REVPAR $ 58.19 $ 67.72 16.4 %
Hilton Hotel
Durham, North, Carolina 1987/1995 152
Occupancy 72.1% 75.1% 4.2 %
ADR $ 76.42 $ 83.90 9.8 %
REVPAR $ 55.08 63.04 14.5 %
Wyndham Garden Hotel-Marietta (formerly
the Four Points by Sheraton(R))(5)(10)
Marietta, Georgia 1985/1996 219
Occupancy 70.4% 63.7% (9.5)%
ADR $ 69.02 $ 82.77 19.9 %
REVPAR $ 48.60 $ 52.72 8.5 %
Sheraton Key Largo(5)(11)
Key Largo, Florida 1985/1996 200
Occupancy 73.3% 76.6% 4.5 %
ADR $112.70 $118.80 5.4 %
REVPAR $ 82.59 $ 90.97 10.2 %
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
Year Opened/ Number of ------------ ------------
Hotels/Location(1) Renovated(2) Guest Rooms 1995 1996 % Change
- ------------------------------------- --------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
French Quarter Suites Hotel(5)(12)
Atlanta, Georgia 1985/1996 155
Occupancy 78.5% 70.6% (10.1)%
ADR $96.21 $107.96 12.2%
REVPAR $75.52 $ 76.23 0.9%
Radisson Hotel Arlington Heights(3)
Arlington Heights, Illinois 1981/1995 201
Occupancy 63.5% 70.2% 10.6%
ADR $68.08 $ 76.91 13.0%
REVPAR $43.25 $ 54.00 24.9%
-------
Totals 4,633
=======
Weighted Averages:
Occupancy 72.7% 72.3% (0.6) %
ADR $70.82 $ 78.33 10.6 %
REVPAR $51.48 $ 56.63 10.0 %
</TABLE>
(1) The occupancy, ADR and REVPAR calculations for the Hotels are derived from
room revenue included in the audited financial data relating to each of the
Hotels for each of the periods indicated except for the following hotels,
for which information is audited only from the date of acquisition of such
hotel by the company or AGHI (such date is set forth in parentheses):
Holiday Inn Resort Monterey (November 1996) and Holiday Inn Dallas DFW
Airport West (June 1995). The occupancy, ADR and REVPAR calculations for
the periods prior to the date of acquisition of the hotels have been
provided to management by the prior owners of such hotels.
(2) Year renovated reflects the calendar year in which management deems that a
significant renovation was completed at the hotel.
(3) This hotel was managed by AGHI prior to its acquisition by the Company.
(4) The Company plans to reposition this hotel to operate as a Holiday Inn
Select.
(5) There can be no assurance that the brand conversion and repositioning of
this hotel will occur as planned.
(6) The Company plans to reposition this hotel to operate as a Hampton Inn.
(7) The Company plans to reposition this hotel to operate as a Crowne Plaza.
(8) The Company plans to reposition this hotel to operate as a Wyndham Hotel.
(9) The Company plans to reposition this hotel to operate as a Hilton Hotel.
(10) The Company repositioned this hotel to operate as a Wyndham Garden Hotel.
The Lessee has retained Wyndham Hotel Corporation as the manager of this
hotel.
(11) The Company plans to reposition this hotel to operate as a Westin Resort.
(12) The Company plans to reposition this hotel to operate as a DoubleTree Guest
Suites.
OPTIONS TO PURCHASE AND RIGHTS OF FIRST REFUSAL
Pursuant to the option agreements (the "Option Agreements") relating to the
Courtyard by Marriott in Boise, Idaho and the Courtyard by Marriott in Durham,
North Carolina (the "Option Hotels), the Company has the option and right of
first refusal to acquire AGHI's (i) 50.0% partnership interest in the
partnership that owns the Boise, Idaho Option Hotel and (ii) 16.7% partnership
interest in the partnership that owns the Durham, North Carolina Option Hotel.
The Boise, Idaho Option Hotel was opened in October 1996. The Durham, North
Carolina Option Hotel is currently under development and is expected to open
during April 1997.
THE PARTICIPATING LEASES
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership may operate hotels or related properties. The Operating
Partnership leases each Hotel to the Lessee for a term of twelve years from the
inception of the lease pursuant to separate Participating Leases that provide
for rent equal to the greater of Base Rent or Participating Rent. In addition,
the Company and the Lessee are party to a Lease Master Agreement (the "Lease
Master Agreement"), which sets forth the terms of the Lessee Pledge and certain
other matters. Each Participating Lease with the Lessee contains terms
substantially similar to those described below.
Participating Lease Terms. Each Participating Lease has a term of twelve
years from the date of the Company's acquisition of the hotel subject to such
lease, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Lease.
10
<PAGE>
Base Rent; Participating Rent; Additional Charges. Each Participating
Lease requires the Lessee to pay (i) fixed weekly Base Rent, (ii) on a monthly
basis, the excess of Participating Rent over Base Rent, with Participating Rent
based on certain percentages of room revenue, food and beverage revenue and
telephone and other revenue at each Hotel, and (iii) certain other amounts,
including interest accrued on any late payments or charges ("Additional
Charges"). Base Rent and Participating Rent departmental thresholds
(departmental revenue on which the rent percentage is based) are increased
annually by a percentage equal to the percentage increase in the CPI (as defined
in "Glossary") (CPI percentage increase plus 0.75% in the case of the
Participating Rent departmental revenue thresholds) compared to the prior year.
Base Rent is payable weekly in arrears. Participating Rent is payable in arrears
based on a predetermined monthly schedule. The monthly departmental thresholds
and the weekly Base Rent are set based on each Hotel's annual budget, which
reflects the seasonal variations in the Hotel's revenues. Participating Rent
payments during each calendar quarter will be adjusted at the end of each
quarter to reflect actual results. A final adjustment of the Participating Rent
for each fiscal year will be made, based on audited statements of revenue for
each hotel.
The table below sets forth (i) the annual Base Rent, (ii) Participating
Rent formulas and (iii) the pro forma rent that would have been paid for each
hotel pursuant to the terms of the Participating Leases based on the historical
revenues for the twelve months ended December 31, 1996, as if the Company had
owned the hotels and the Participating Leases were in effect during such twelve-
month period and January 1, 1996 was the beginning of the lease year.
<TABLE>
<CAPTION>
LEASE PARTICIPATING
EXPIRATION DATE BASE RENT RENT FORMULA
(MONTH/ (DOLLARS IN (DOLLARS IN TWELVE MONTHS ENDED
HOTEL PROPERTIES YEAR THOUSANDS) THOUSANDS) DECEMBER 31, 1996
--------------- --------------- ----------- ------------- ---------------------------------------------------
PRO FORMA
PARTICIPATING
RENT
-------------------------------------
PRO FORMA
TOTAL TELEPHONE
REVENUE ROOM F&B AND OTHER
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn Dallas DFW
DFW Airport West
-Bedford, Texas.......... 6/08 $827 Rooms: 25.0% of $5,632 $1,607 $ 80 $ 57
first $2,650;
60.0% of next
$825; 70.0%
thereafter; F&B:
5.0% of first
$905; 10.0%
thereafter;
Telephone and
Other: 22.5%
Courtyard by Marriott-
Meadowlands (1)
-Secaucus, New Jersey.... 6/08 946 Rooms: 20.0% of 5,067 1,938 0 70
first $2,150;
60.0% of next
$1,351; 70.0%
thereafter;
Telephone and
Other: 25.0%
Hampton Inn Richmond
Airport
-Richmond,
Virginia................ 6/08 530 Rooms: 30.0% of 2,164 972 0 35
first $1,155;
70.0%
thereafter;
Telephone and
Other: 30.0%
Hotel Maison de Ville(2)
-New Orleans,
Louisiana............... 6/08 274 Rooms: 15.0% of 2,026 437 38 12
first $890; 60.0%
of next
$210; 70.0%
$thereafter; F&B:
5.0% of first
$430; 10.0%
thereafter;
Telephone and
Other: 15.0%
Hilton Hotel - Toledo
-Toledo, Ohio............ 6/08 832 Rooms: 15.0% of 6,077 1,062 250 54
first $2,400;
60.0% of next
$650; 70.0%
thereafter; F&B:
7.5% of first
$1,800; 22.5%
thereafter;
Telephone and
Other: 20.0%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
LEASE PARTICIPATING
EXPIRATION DATE BASE RENT RENT FORMULA
(MONTH/ (DOLLARS IN (DOLLARS IN TWELVE MONTHS ENDED
HOTEL PROPERTIES YEAR THOUSANDS) THOUSANDS) DECEMBER 31, 1996
--------------- --------------- ----------- ------------- ---------------------------------------------------
PRO FORMA
PARTICIPATING
RENT
------------------------------------------------------
PRO FORMA
TOTAL TELEPHONE
REVENUE ROOM F&B AND OTHER
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn Dallas DFW
Airport South (3)
-Irving, Texas......... 6/08 2,410 Rooms: 25.0% of first 12,188 3,623 465 59
$4,650; 60.0% of next
$2,950; 70.0% thereafter;
F&B: 10.0% of
first $2,280; 30.0%
thereafter; Telephone
and Other 12.5%
Holiday Inn New Orleans
International Airport
-Kenner, Louisiana..... 6/08 2,099 Rooms: 25.0% of first 8,441 3,225 152 113
$3,050; 65.0% of next
$2,350; 75.0% thereafter;
F&B: 7.5% of first
$930; 20.0% thereafter;
Telephone and
Other: 25.0%
Days Inn Ocean City (4)
-Ocean City,
Maryland.............. 6/08 719 Rooms: 30.0% of first 2,446 1,221 0 34
$1,025; 70.0%
thereafter; Telephone
and Other: 30.0%
Crowne Plaza-
Madison (5)(6)
-Madison, Wisconsin.... 6/08 1,597 Rooms: 25.0% of first 8,105 2,509 314 70
$2,250; 60.0% of next
$1,950; 70.0% thereafter;
F&B: 10.0% of first
$1,900; 20.0% thereafter;
Telephone and Other: 25.0%
Holiday Inn Park
Center Plaza(7)(8)
-San Jose,
California............ 6/08 1,091 Rooms: 20.0% of first 8,007 2,080 120 177
$3,600; 65.0% of next
$1,050; 75.0% thereafter;
F&B: 5.0% of first
$1,350; 10.0% thereafter;
Telephone and Other: 30.0%
Wyndham Albuquerque
Airport Hotel (9)
-Albuquerque,
New Mexico............ 6/08 1,202 Rooms: 25.0% of first 6,518 1,847 109 99
$2,560; 60.0% of next
$1,060; 70.0% thereafter;
F&B: 5.0% of first $1,190;
10.0% thereafter; Telephone
and Other: 25.0%
LeBaron Airport
Hotel (10)(11)
-San Jose, California.. 6/08 1,323 Rooms: 20.0% of first 10,179 3,011 183 106
$3,100; 60.0% of next
$1,975; 70.0% thereafter;
F&B: 5.0% of first $2,320;
15.0% thereafter; Telephone
and Other: 30.0%
Holiday Inn Mission
Valley(12)(13)
-San Diego, 6/08 1,542 Rooms: 25.0% of first 6,797 2,081 71 97
California............ $3,570; 65.0% of next
$900; 75.0% thereafter;
F&B: 5.0% of first
$845; 15.0% thereafter;
Telephone and Other: 25.0%
Days Inn Lake Buena
Vista(14)(15)
-Lake Buena Vista, 10/08 5,044* Rooms: 25.0% of first 9,447 4,615 40 389
Florida............... $2,152; 60.0% of next
$2,686, 70.0% thereafter;
F&B: 5.0% of first $589,
10.0% thereafter; Telephone
and Other: 50.0%
Holiday Inn Resort -
Monterey(16)(17)
-Monterey, California.. 11/08 1,279 Rooms: 20.0% of first 6,277 1,754 30 96
$3,240; 60.0% of next
$1,660; 70.0% thereafter;
F&B: 2.5% of first $765,
5.0% thereafter; Telephone
and Other: 40.0%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
LEASE PARTICIPATING
EXPIRATION DATE BASE RENT RENT FORMULA
(MONTH/ (DOLLARS IN (DOLLARS IN TWELVE MONTHS ENDED
HOTEL PROPERTIES YEAR THOUSANDS) THOUSANDS) DECEMBER 31, 1996
--------------- --------------- ----------- ------------- ---------------------------------------------------
PRO FORMA
PARTICIPATING
RENT
-------------------------------------
PRO FORMA
TOTAL TELEPHONE
REVENUE ROOM F&B AND OTHER
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Hilton Hotel -
Durham(18)
-Durham, 1/09 1,133 Rooms: 25.0% of first 5,568 1,452 183 61
North Carolina $2,075; 60.0% of next
$692; 70.0% thereafter;
F&B: 7.5% of first
$1,276; 15.0% thereafter;
Telephone and
Other: 30.0%
Wyndham Garden Hotel-
Marietta (formerly Four
Points by Sheraton(19)
-Marietta, Georgia 3/09 1,350 Rooms: 20.0% of first 5,751 1,719 127 69
$2,400; 65.0% of next
$1,150; 75.0% thereafter;
F&B: 7.5% of first $1,090;
20.0% thereafter; Telephone
and Other: 30.0%
Sheraton Key
Largo(20)(21)
-Key Largo, Florida 3/09 2,184 Rooms: 20.0% of first 9,279 2,499 72 85
$3,950; 60.0% of next
$1,875; 70.0% thereafter;
F&B: 2.5% of first
$1,674; 5.0% thereafter;
Telephone and
Other: 25.0%
French Quarter Suites
Hotel(22)(23)
-Atlanta, Georgia 3/09 1,373 Rooms: 25.0% of first 5,518 2,126 64 49
$2,050; 65.0% of next
$925; 75.0% thereafter;
F&B: 5.0% of first
$715; 10.0% thereafter;
Telephone and
Other: 25.0%
Radisson Hotel
Arlington Heights(24)
-Arlington Heights, 2/09 922 Rooms: 20.0% of first 4,664 1,459 110 76
Illinois $2,450; 60.0% of next
$820; 70.0% thereafter;
F&B: 15.0% of first
$300; 60.0% thereafter;
Telephone and
Other: 25.0%
---------- -------------------------------------------
TOTAL - All
Hotels $28,677 $130,151 $41,237 $2,408 $1,808
========== ===========================================
</TABLE>
* Pro forma Base Rent at the Days Inn Lake Buena Vista exceeded Participating
Rent by $306 and therefore Participating Rent has been increased by this
amount to reflect the excess of Base Rent over Participating Rent for the
applicable period.
(1) If food & beverage ("F&B") revenue exceeds $1,000, Participating Rent will
include 5% of total F&B revenue.
(2) There was an additional adjustment to the room department Participating
Rent thresholds of 4.0% in 1997.
(3) There was an additional adjustment to the room department Participating
Rent thresholds of 2.0% in 1997 and 2.0% in 1998.
(4) The Participating Rent formula was reset in 1997 to the following: Rooms:
30.0% of first $1,400; 70.0% thereafter; Telephone and Other: 30.0%. Base
Rent was reset in 1997 to $800 and will grow at CPI thereafter.
(5) There will be an additional adjustment to the room department Participating
Rent thresholds of 3.0% in 2000.
(6) The Participating Rent formula was reset in 1997 to the following: Rooms:
25.0% of the first $2,500; 60.0% of next $2,400; 70.0% thereafter; F&B:
10.0% of first $2,000; 20.0% thereafter; Telephone and Other: 30.0%. Base
Rent was reset in 1997 to $1,750 and will grow at CPI thereafter.
(7) The Participating Rent formula was reset in 1997 to the following: Rooms:
20.0% of first $3,875; 65.0% of next $1,300; 75.0% thereafter; F&B: 5.0% of
first $1,625; 10.0% thereafter; Telephone and Other: 30.0%. Base Rent was
reset in 1997 to $1,400 and will grow at CPI thereafter.
(8) There will be an additional adjustment to the room department Participating
Rent thresholds of 2.0% in 1999 and 2.0% in 2000.
(9) The Participating Rent formula was reset in 1997 to the following: Rooms:
25.0% of first $3,350; 60.0% of next $1,400; 70.0% thereafter; F&B: 5.0% of
first $1,350; 10.0% thereafter; Telephone and Other: 25.0%. Base Rent was
reset in 1997 to $1,400 and will grow at CPI thereafter.
(10) The Participating Rent formula was reset in 1997 to the following: Rooms:
20.0% of first $3,350; 60.0% of next $2,800; 70.0% thereafter; F&B: 5.0% of
first $1,850; 15.0% thereafter; Telephone and Other: 30.0%. The
Participating Rent formula will be reset in 1998 to the following: Rooms:
20.0% of first $3,950; 60.0% of next $3,100; 70.0% thereafter; F&B: 5.0% of
first $1,950; 15.0% thereafter; Telephone and Other: 30.0%. Base Rent was
reset in 1997 to $2,100 and will grow at CPI thereafter.
(11) There will be an additional adjustment to the room department Participating
Rent thresholds of 4.0% in 1999.
13
<PAGE>
(12) The Participating Rent formula was reset in 1997 to the following: Rooms:
25.0% of first $3,825; 65.0% of next $950; 75.0% thereafter; F&B: 5.0% of
first $1,000; 10.0% thereafter; Telephone and Other: 25.0%. Base Rent was
reset in 1997 to $1,800 and will grow at CPI thereafter.
(13) There will be an additional adjustment to the room department Participating
Rent thresholds of 3.0% in 1999.
(14) There will be an additional adjustment to the room department Participating
Rent thresholds of 2.0% in 1999 and 2.0% in 2000.
(15) The Participating Rent formula will reset in 1998 to the following: Rooms:
25.0% of first $5,744; 60.0% of next $4,468; 70.0% thereafter; F&B: 5.0% of
first $747; 10.0% thereafter; Telephone and Other: 50.0%. Base Rent will
reset in 1998 to $4,459 and grow at CPI thereafter.
(16) There will be an additional adjustment to the room department Participating
Rent thresholds of 6.5% in 1999 and 3.0% in 2000.
(17) The Participating Rent formula will reset in 1998 to the following: Rooms:
20.0% of first $3,180; 60.0% of next $1,430; 70.0% thereafter; F&B: 2.5% of
first $794; 5.0% thereafter; Telephone and Other: 50.0%. Base Rent will
reset in 1998 to $1,543 and grow at CPI thereafter.
(18) The Participating Rent formula will reset in 1998 to the following: Rooms:
25.0% of first $2,460; 60.0% of next $911; 70.0% thereafter; F&B: 7.5% of
first $1,522; 15.0% thereafter; Telephone and Other: 30.0%. Base Rent will
reset in 1998 to $1,564 and grow at CPI thereafter.
(19) The Participating Rent formula will reset in 1998 to the following: Rooms:
25.0% of first $2,625; 65.0% of next $1,275; 75.0% thereafter; F&B 7.5% of
first $1,130; 20.0% thereafter; Telephone and Other 30.0%. Base Rent will
be reset to $1,460 and grow at CPI thereafter.
(20) There will be an additional adjustment to the room department Participating
Rent thresholds of 2.5% in 1999 and 2.5% in 2000 and 1.0% in 2001.
(21) The Participating Rent formula will reset in 1998 to the following: Rooms:
20.0% of first $3,875; 60.0% of next $2,200; 70.0% thereafter; F&B: 2.5%
of first $1,737; 5.0% thereafter; Telephone and Other: 25.0%. Base Rent
will reset in 1998 to $2,284 and grow at CPI thereafter.
(22) There will be an additional adjustment to the room department Participating
Rent thresholds of 3.0% in 1999 and 1.0% in 2000.
(23) The Participating Rent formula will reset in 1998 to the following: Rooms:
25.0% of first $2,450; 65.0% of next $1,050; 75.0% thereafter; F&B: 5.0%
of first $742; 10.0% thereafter; Telephone and Other: 25.0%. Base Rent
will reset in 1998 to $1,466 and grow at CPI thereafter.
(24) The Participating Rent formula will reset in 1998 to the following: Rooms:
20.0% of first $2,575; 60.0% of next $1,000; 70.0% thereafter; F&B: 7.5%
of first $1,100; 15.0% thereafter; Telephone and Other: 25.0%. Base Rent
will reset in 1998 to $1,162 and grow at CPI thereafter.
Other than real estate and personal property taxes and assessments, rent
payable under the ground leases, casualty insurance, including loss of income
insurance, capital impositions and capital replacements and refurbishments
(determined in accordance with generally accepted accounting principles), which
are obligations of the Company, the Participating Leases require the Lessee to
pay rent, liability insurance (see "Insurance and Property Taxes and
Assessments"), all costs and expenses and all utility and other charges incurred
in the operation of the Hotels. The Participating Leases also provide for rent
reductions and abatements in the event of damage or destruction or a partial
taking of any Hotel as described under "Damage to Hotels" and "Condemnation of
Hotels."
Lessee Capitalization; Lessee Pledge. At the time of the IPO, the
partners of the Lessee (i) capitalized the Lessee with $500,000 in cash and (ii)
pursuant to the Lessee Pledge, pledged 275,000 OP Units to the Company to secure
the Lessee's obligations under the Participating Leases. OP Units subject to the
Lessee Pledge may be released therefrom without duplication, (a) on a one-for-
one basis as the Lessee acquires OP Units or shares of Common Stock or (b) upon
the contribution to the Lessee of cash or an increase in undistributed earnings
in an amount equal to the then current market value of the OP Units to be
released from the Lessee Pledge.
Distribution Restrictions. The Lessee may not pay any distributions to its
partners (except for the purpose of permitting its partners to pay taxes on the
income attributable to them from the Lessee and except for distributions
relating to interest or dividends received by the Lessee from cash or securities
held by it) or make any other distributions to affiliates of the Lessee, other
than limited amounts relating to Lessee overhead or pursuant to the Management
Agreements, until the Lessee's net worth equals the greater of (i) $6.0 million
or (ii) 17.5% of actual rent payments from hotels leased to the Lessee during
the preceding calendar year (annualized for 1996) (the "Lessee Distribution
Restriction"). During the period of the Lessee Distribution Restriction, the
Lessee will be required, subject to compliance with applicable securities laws,
to purchase annually Common Stock on the open market or, if any such purchase
would violate the ownership limitation in the Company's Charter, or at the
option of the Operating Partnership, OP Units, in an amount equal to the
Lessee's cash flow attributable to the Participating Leases for the preceding
fiscal year (after establishing a reserve for partner tax distributions). For
purposes of calculating the net worth threshold for the Lessee Distribution
Restriction, annual rent payments will be determined on a calendar year basis
and will be annualized for any partial calendar year. If the Lessee's net worth
exceeds the net worth threshold for the Lessee Distribution Restriction, the
Lessee may make distributions to its partners, provided that, after such
distribution, the Lessee's net worth equals or exceeds the net worth threshold
for the Lessee Distribution Restriction and provided that at such time there
exists no Event of Default (as defined in the Participating Leases) under the
Participating Leases. All Common Stock or OP Units
14
<PAGE>
acquired by the Lessee during the period of the Lessee Distribution Restriction
may not be sold or transferred for a period of two years after their acquisition
(other than to partners in the Lessee) unless, following such transfer, the net
worth threshold for the Lessee Distribution Restriction is satisfied.
Subordination of Management Fees. The Lessee has engaged AGHI to operate
19 of the Hotels. The Participating Leases provide that effective upon written
notice by the Company of any monetary Event of Default under the Participating
Leases or a default under the Furniture, Fixtures and Equipment ("FF&E") Note,
and during the continuance thereof, no management fees will be paid to AGHI with
respect to any Hotel. Any deferred management fee will accrue without interest
until any such default has been cured. In addition, each Management Agreement
which the Lessee enters into must provide that AGHI will repay to the Company
any payments made to it by the Lessee while any such default has occurred and is
continuing.
Maintenance and Improvements. The Participating Leases obligate the
Company to establish annually a reserve for capital improvements at each Hotel
(including the periodic replacement or refurbishment of FF&E). The aggregate
amount of such reserves is equal to 4.0% of total revenue for each Hotel (which,
on a consolidated pro forma basis for the twelve months ended September 30,
1996, represented approximately 5.4% of room revenue). Any unexpended amounts
will remain the property of the Company upon termination of the Participating
Leases. Otherwise, the Lessee will be required, at its expense, to maintain the
Hotels in good order and repair, except for ordinary wear and tear, and to make
non-structural, foreseen and unforeseen, and ordinary and extraordinary, repairs
(other than capital repairs) which may be necessary and appropriate to keep the
Hotels in good order and repair.
The Lessee is not obligated to bear the cost of any capital improvements or
capital repairs to the Hotels. With the consent of the Company, however, the
Lessee, at its expense, may make capital additions, modifications or
improvements to the Hotels, provided that such action does not significantly
alter their character or purposes and maintains or enhances the value of the
Hotels. All such alterations, replacements and improvements are subject to all
the terms and provisions of the Participating Leases and will become the
property of the Company upon termination of the Participating Leases. The
Company owns substantially all personal property (other than inventory) not
affixed to, or deemed a part of, the real estate or improvements at the Hotels,
but does not own such personal property which would cause any portion of the
rents under the Participating Leases not to qualify as "rents from real
property" for REIT income test purposes.
Insurance and Property Taxes and Assessments. The Company is responsible
for paying for (i) real estate and personal property taxes and assessments at
the Hotels (except to the extent that personal property associated with the
Hotels is owned by the Lessee), (ii) casualty insurance on the Hotels and (iii)
business interruption insurance covering the Base Rent and Participating Rent.
The aggregate real estate and personal property tax obligations for the Hotels
during the twelve months ended December 31, 1996 was approximately $4.3 million.
The Lessee is required to pay or reimburse the Company for all liability
insurance on the Hotels, with extended coverage, including comprehensive general
public liability, workers' compensation and other insurance appropriate and
customary for properties similar to the Hotels and naming the Company as an
additional named insured.
Events of Default. Events of Default under the Participating Leases and
the Lease Master Agreement include, among others, the following:
(i) the failure by the Lessee to pay Base or Participating Rent when due
and the continuation of such failure for a period of ten days after receipt by
the Lessee of notice from the Company;
(ii) the failure by the Lessee to observe or perform any other term of a
Participating Lease or the Lease Master Agreement and the continuation of such
failure for a period of 30 days after receipt by the Lessee of notice from the
Company thereof, unless the Lessee is diligently proceeding to cure, in which
case the cure period will be extended to 180 days;
(iii) if the Lessee shall generally not be paying its debts as they become
due or file a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, make a general assignment for the benefit
of its creditors, consent to the appointment of a custodian, receiver, trustee
or other similar officer with respect to it or any substantial part of its
assets, be adjudicated insolvent or take corporate action for the purpose of any
of the foregoing;
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(iv) if the Lessee is liquidated or dissolved or commences proceedings to
effect the same, or ceases to do business or sells all or substantially all of
its assets;
(v) if the Lessee voluntarily discontinues operations of a Hotel for more
than three days, except as a result of damage, destruction, condemnation or
force majeure; or
(vi) if an event of default beyond applicable cure periods occurs under the
Franchise License with respect to any Hotel as a result of any action or failure
to act by the Lessee or its agents (including AGHI).
In addition, a default of the type described above will result in a cross-
default of all other Participating Leases to which the Lessee is a party.
Indemnification. Under each of the Participating Leases, the Lessee has
agreed to indemnify, and is obligated to hold harmless, the Company from and
against all liabilities, costs and expenses (including reasonable attorneys'
fees and expenses) incurred by, imposed upon or asserted against the Company on
account of, among other things, (i) any accident or injury to persons or
property on or about the Hotels, including claims under liquor liability, "dram
shop" or similar laws; (ii) any misuse by the Lessee or any of its agents of the
leased property; (iii) any environmental liability (except to the extent such
liability results from a pre-existing condition) (see "Environmental Matters"
below); (iv) taxes and assessments in respect of the Hotels (other than real
estate and personal property taxes and assessments (other than on property owned
by the Lessee) and income taxes of the Company on income attributable to the
Hotels and capital impositions); (v) any breach of the Participating Leases by
the Lessee; or (vi) any breach of any subleases related to the Hotels, provided,
however, that such indemnification does not require the Lessee to indemnify the
Company against the Company's own negligent acts or omissions or willful
misconduct.
Assignment and Subleasing. The Lessee is not permitted to sublet all or
any part of the Hotels or assign its interest under any of the Participating
Leases, other than to an affiliate of the Lessee, without the prior written
consent of the Company. The Company has generally agreed to consent to any
sublease of any portion of any Hotel that sells alcoholic beverages to the
Beverage Corporations (as defined in "Formation Transactions") or of a retail
portion of any Hotel (provided such sublease will not cause any portion of the
Rents to fail to qualify as "rents from real property" for REIT income
qualification test purposes). See "Sublease" below. No such assignment or
subletting will release the Lessee from any of its obligations under the
Participating Leases.
Damage to Hotels. In the event of damage to or destruction of any Hotel
covered by insurance which then renders the hotel unsuitable for its intended
use and occupancy, the Company may elect not to repair, rebuild or restore the
hotel, in which event the Participating Lease shall terminate, and the Company
generally shall be entitled to retain any proceeds of insurance related to such
damage or destruction. In the event the Company terminates a Participating Lease
under such circumstances, the Company, at its option, must either (i) pay the
Lessee the fair market value of the Lessee's leasehold interest in the remaining
term of the lease (which amount will be determined by discounting to present
value, for each year of the remainder of the lease term, cash flow attributable
to such lease after deducting the cost component of the applicable management
fees, at an annual discount rate of 12% (for the purposes of such calculation,
the annual cash flow for each remaining year of the lease term shall be equal to
the cash flow attributable to such lease for the twelve months ended on the
lease termination date)) or (ii) offer to lease to the Lessee a substitute hotel
on terms that would create a leasehold interest in such hotel with a fair market
value equal to or exceeding the fair market value of the Lessee's remaining
leasehold interest under the Participating Lease to be terminated.
In the event that damage to or destruction of a Hotel which is covered by
insurance does not render such hotel unsuitable for its intended use and
occupancy as a hotel, the Company or, at the Company's option, the Lessee,
generally will be obligated to repair or restore such hotel. In the event of
material damage to or destruction of any Hotel which is not covered by
insurance, the Company may either repair, rebuild or restore the hotel (at the
Company's expense) to substantially the same condition as existed immediately
prior to such damage or terminate the Participating Lease without penalty. In
the event of non-material damage to a Hotel, the Company is required to repair,
rebuild or restore the hotel at its expense. During any period required for
repair or restoration of any damaged or destroyed Hotel, rent will be equitably
abated.
Condemnation of Hotels. In the event of a total condemnation of a Current
Hotel, the relevant Participating Lease will terminate with respect to such
hotel as of the date of taking, and the Company and the Lessee will be entitled
to their shares of any condemnation award in accordance with the provisions of
the Participating Lease. In the event of a partial taking which does not render
the hotel unsuitable for the Lessee's use, the Lessee shall restore the untaken
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portion of the hotel to a complete architectural unit, and the Company shall
contribute to the cost of such restoration that part of the condemnation award
required for such restoration.
Termination of Participating Leases upon Disposition of the Current Hotels.
In the event the Company enters into an agreement to sell or otherwise transfer
a Current Hotel, the Company will have the right to terminate the Participating
Lease with respect to such hotel upon 30 days' prior written notice upon either
(i) paying the Lessee the fair market value of the Lessee's leasehold interest
in the remaining term of the Participating Lease to be terminated (which amount
will be determined by discounting to present value, for each year of the
remainder of the lease term, cash flow attributable to such lease after
deducting the cost component of the applicable management fees, at an annual
discount rate of 12% (for the purposes of such calculation, the annual cash flow
for each remaining year of the lease term shall be equal to the cash flow
attributable to such lease for the twelve months ended on the lease termination
date)) or (ii) offering to lease to the Lessee a substitute hotel on terms that
would create a leasehold interest in such hotel with a fair market value equal
to or exceeding the fair market value of the Lessee's remaining leasehold
interest under the Participating Lease to be terminated.
Termination of Participating Leases upon Change in Tax Laws. In the event
that changes in federal income tax laws allow the Company or a subsidiary or
affiliate to directly operate hotels, the Company will have the right to
terminate all, but not less than all, Participating leases with the Lessee, in
which event the Company will pay the Lessee the fair market value of the
remaining term of the Participating Lease.
Franchise Licenses. The Company has agreed that the Lessee will be the
licensee under each of the Franchise Licenses on the Hotels. Holiday Inn, Promus
(on behalf of Hampton Inn), Marriott and Hilton have agreed that upon the
occurrence of certain events of default by the Lessee under a Franchise License,
such franchisors will temporarily transfer the Franchise License for the hotel
to an operator designated by the Company and acceptable to such franchisor to
allow the new operator time to apply for a new Franchise License. The Company
intends to seek similar temporary operational rights with respect to new
Franchise Licenses that are expected to be entered into with Wyndham,
DoubleTree, Crowne Plaza, Westin and Sheraton.
Sublease. In order to facilitate compliance with state and local liquor
laws and regulations, the Lessee subleases those areas of the Hotels (other than
the Radisson Hotel Arlington Heights and Wyndham Garden Hotel-Marietta (formerly
the Four Points by Sheraton(R))) that comprise the restaurant and other areas
where alcoholic beverages are served to the Beverage Corporations. In accordance
with the terms of the Beverage Subleases, each Beverage Corporation is obligated
to pay to the Lessee rent payments equal to 30% of each such corporation's
annual gross revenues generated from the sale of food and beverages generated
from such areas; however, pursuant to the Participating Leases, such subleases
will not reduce the Participating Rent payments to the Company, which it is
entitled to receive from such food and beverage sales.
Other Lease Covenants. The Lessee has agreed that during the term of the
Participating Leases it will maintain a ratio of total debt to Consolidated Net
Worth (as determined in the Participating Leases) of less than or equal to
50.0%, exclusive of capitalized leases and the FF&E Note. In the event the
Lessee is required to pledge any of its assets to the Company's lenders in
connection with a Company hotel financing, and such assets are subsequently sold
in a foreclosure proceeding, the Lessee will be entitled to be reimbursed by the
Company for the fair market value of such assets.
Inventory. The initial standard inventory of goods and supplies required
in the operation of the hotels has been purchased at the Lessee's expense and is
owned by the Lessee. Any inventory used by the Lessee in the operation of each
Hotel shall, upon termination of its Participating Lease, be purchased by the
Company or its designee for its fair market value.
Approval of Managers by Company. The Company has the right to approve
(which approval will not be unreasonably withheld) the engagement by the Lessee
of any operator of a Hotel other than AGHI or an affiliate of AGHI. The Company
has the right to approve the payment of management fees to AGHI under the
Management Agreements in excess of 3.5% of the gross revenues at a particular
hotel.
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The Management Agreements
AGHI
The Lessee has engaged AGHI to manage 19 of the Hotels pursuant to the
Management Agreements. The following is a summary of the Management Agreements
and certain related agreements:
Management Agreement Terms. Each Management Agreement has an initial
twelve-year term. In the event of the extension or renewal of the term of the
applicable Participating Lease, the Management Agreement will be similarly
extended or renewed.
Management Fees. Each Management Agreement requires the Lessee to pay AGHI
a monthly base fee equal to 1.5% of gross revenues, plus an incentive fee of up
to 2.0% of gross revenues. AGHI is entitled to receive an incentive fee equal
to 0.025% of annual gross revenues for each 0.1% increase in annual gross
revenues over the gross revenues for the preceding twelve-month period up to the
maximum incentive fee. Such incentive fee is payable quarterly and is adjusted
at the end of each calendar year to reflect actual results. Every four years
the basis upon which the incentive fee is calculated is required to be
renegotiated between the Lessee and the Manager. The payment of the management
fees to AGHI by the Lessee are subordinate to the Lessee's obligations to the
Company under the Participating Leases. The management fees payable to AGHI
during 1996 and 1997, respectively, will be earned only to the extent that the
Lessee's taxable income during each such year exceeds the sum of rent payable
under the Participating Leases, plus Lessee overhead expense, plus $50,000.
Each Management Agreement requires AGHI to repay to the Lessee within 60 days
after the end of each such year any management fees previously paid but not
earned by AGHI under the Management Agreements. In addition, the Lessee has
agreed to reimburse AGHI at cost for all expenses incurred in supervising
capital improvements to be performed at the hotels. AGHI will be reimbursed, at
the rate of $1,500 per month for each full-service hotel and $1,000 per month
for each limited-service hotel for accounting and financial services performed
by AGHI, which will be funded by the Lessee under the Participating Leases.
Termination of Participating Lease. In the event of a termination of a
Participating Lease for a Hotel, the Management Agreement for such hotel also
will terminate.
Obligation to Purchase Common Stock. Messrs. Jorns and Wiles, who are
stockholders of AGHI and are also executive officers of the Company, have agreed
to use 50.0% of the dividends (net of the tax liability attributed to such
dividends) received by them from AGHI that are attributable to AGHI's earnings
from the management of hotels owned by the Company (as determined in good faith
by such officers) to purchase, subject to compliance with applicable securities
laws, annually in the open market, during each of the twelve years following the
closing of the IPO, additional shares of Common Stock, or, if any such purchase
would violate the ownership limitation in the Company's Charter, or at the
option of the Operating Partnership, OP Units. For the year ended December 31,
1996, Messrs. Jorns and Wiles were required to purchase 700 and 200 shares of
common stock respectively.
Certain Transfer Restrictions. The stockholders of AGHI have agreed, for
so long as more than 50.0% of the Management Agreements with respect to the
Initial Hotels remain in place, to grant to the Lessee or its designee a right
of first refusal to acquire, under certain circumstances, any stock of AGHI that
is proposed to be sold in a Change of Control Transaction (as defined below).
The Lessee assigned this right to the Company or its designee. This right is
subordinate to a right of first refusal in favor of AGHI and the existing
stockholders of AGHI set forth in AGHI's existing stockholders' agreement. For
this purpose, a Change in Control Transaction means a sale of stock in AGHI that
will result in the ability of a person (other than a current stockholder of
AGHI) and his or its controlled Affiliates to elect at least a majority of the
Board of Directors of AGHI. A Change in Control Transaction does not include (i)
an underwritten public offering of common stock of AGHI, (ii) the transfer of
stock to a spouse of an AGHI stockholder, (iii) the transfer of stock to a trust
for the benefit of the spouse and/or children of an AGHI stockholder, or (iv)
the transfer of stock to any corporation or other entity of which a stockholder
controls at least 50.0% of the voting interests. The stockholders of AGHI have
also granted to the Lessee or its designee, for so long as more than 50.0% of
the initial Management Agreements remain in place, a right of first offer to
acquire such stockholders' interests in AGHI prior to any proposed merger or
business combination transaction involving AGHI that would result in the
stockholders of AGHI or their affiliates holding less than 25.0% of the
interests in the surviving entity. The Lessee has assigned this right to the
Company or its designee.
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Wyndham
The Lessee has engaged Wyndham to manage the Wyndham Garden Hotel-Marietta
(formerly the Four Points by Sheraton(R)). The management agreement with
Wyndham has an initial twelve year term and provides for the payment of a base
management fee equal to 1.5% of gross revenues at the hotel plus an incentive
management fee of up to 1.5% of gross revenues. Wyndham will be entitled to
receive the incentive management fee during the first two years of the term of
the agreement if (i) annualized 1997 gross revenues for the hotel exceed 1996
gross revenues for the hotel by at least 6% and (ii) 1998 gross revenues for the
hotel exceed 1996 gross revenues for the hotel by at least 12%. Thereafter, the
incentive management fee will be earned if annual gross revenues for the hotel
exceed the 1998 gross revenues for the hotel by at least the cumulative
percentage increase in CPI since 1998. The Lessee's payment of the base
management fee to Wyndham is subordinated to the payment of Base Rent under the
Participating Lease relating to the hotel, and the payment of the incentive
management fee to Wyndham is subordinated to the payment of the Base Rent and
Participating Rent thereunder. In addition, Wyndham will be reimbursed by the
Lessee, at an initial rate of approximately $4,960 per month, for accounting and
financial services performed by Wyndham.
MORTGAGE INDEBTEDNESS
The Holiday Inn Dallas DFW South is subject to non-recourse mortgage
indebtedness in the outstanding principal amount of $14.0 million as of December
31, 1996 (the "DFW South Loan"). The DFW South Loan was entered into on January
30, 1996, bears interest at the rate of 8.75% per annum and is payable in equal
monthly installments of principal and interest of approximately $125,930 each.
The DFW South Loan matures on January 1, 2011, at which time a balloon payment
in the amount of approximately $6,120,000 will be due and payable. The loan may
not be prepaid in whole or in part until after February 1, 1998 and after such
date may only be prepaid in whole with payment of a yield maintenance premium
generally equal to the discounted present value of all interest payments due
between the prepayment date and maturity of the loan.
The Courtyard by Marriott-Meadowlands is subject to non-recourse mortgage
indebtedness that secures two notes in the outstanding principal amounts of
approximately $4.5 million and $575,800, respectively, as of December 31, 1996
(the "Secaucus Loans"). The $4.5 million portion of the Secaucus Loans, which
was entered into on December 30, 1993, bears interest at a rate of 7.5% per
annum and is payable in equal monthly installments of principal and interest of
approximately $39,300 each. This portion of the Secaucus Loans matures on
January 1, 2001, at which time a balloon payment in the amount of approximately
$3,985,000 will be due and payable.
The $575,800 portion of the Secaucus Loans was entered into on January 11,
1996, bears interest at a rate of 7.89% per annum and is payable in equal
monthly installments of principal and interest of approximately $14,750 that
will fully amortize the loan as of January 1, 2001. In connection with the IPO
and the transfer of the Courtyard by Marriott-Meadowlands hotel to a subsidiary
of the Operating Partnership, the Company agreed to guarantee to the holder of
the Secaucus Loans payment of rent under the ground lease relating to the hotel
($150,000 per annum), real estate taxes ($190,500 for the twelve months ended
December 31, 1996) and capital reserves required by the Secaucus Loans (4% of
the gross revenues), and guarantee that, after a default under the Secaucus
Loans, Base Rent from the Participating Lease will be applied to the Secaucus
Loans, in each case until such loans are satisfied or such hotel is transferred
(by foreclosure or otherwise) to the holder of such loans.
The French Quarter Suites Hotel is subject to a non-recourse mortgage note
encumbering the hotel in the outstanding principal amount, as of December 31,
1996, of approximately $9.6 million (the "French Quarter Loan"). The French
Quarter Loan was entered into on June 14, 1995, bears interest at the rate of
9.75% per annum and is payable in equal monthly installments of principal and
interest of approximately $93,100 each. The French Quarter Loan matures on July
1, 2002, at which time a balloon payment of approximately $8.2 million will be
due and payable.
The Radisson Hotel Arlington Heights is subject to a one-year mortgage note
in the principal amount of approximately $8.2 million (the "Radisson Loan"). The
Radisson Loan bears interest at the rate of 7.5% per annum, and will require
quarterly payments in arrears of interest only of $154,100. The Radisson Loan
matures on March 3, 1998, at which time a balloon payment of approximately $8.2
million will be due and payable.
LINE OF CREDIT
Neither the Company's Bylaws nor its Charter limits the amount of
indebtedness the Company may incur. To ensure that the Company has sufficient
liquidity to conduct its operations, including funding the acquisition of
additional
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hotels, making renovations and capital improvements to hotels and for
working capital requirements, the Company has access to the Line of Credit. The
Line of Credit is secured by, among other things, first mortgage liens on all of
the Hotels, other than Holiday Inn Dallas DFW Airport South, Courtyard by
Marriott-Meadowlands, Radisson Hotel Arlington Heights and French Quarter Suites
Hotel. The Line of Credit also will be secured by a mortgage lien on any
subsequently acquired hotels purchased without outstanding mortgage
indebtedness. While the Company currently has a maximum borrowing limit of up to
$150 million under the Line of Credit, the Company's aggregate advances under
the Line of Credit are limited to the lesser of (i) 40% of the aggregate
appraised value of the Hotels and any other hotel securing the Line of Credit
after giving effect to the Company's use of proceeds from any indebtedness
towards hotel acquisitions and certain renovations and capital improvements,
(ii) 40% of the aggregate purchase price of the Hotels and any other hotel
acquisitions securing the Line of Credit after giving effect to the Company's
use of proceeds from any indebtedness towards hotel acquisitions and certain
renovations and capital improvements, and (iii) the combined trailing twelve
months EBITDA (defined under the Line of Credit as net income of the Company
before interest expense, taxes, depreciation and amortization to the extent each
reduces net income less a 4% reserve for replacements of FF&E) generated by the
Hotels and any other hotels securing the Line of Credit, multiplied by 5.0. In
addition, the Line of Credit provides that the lenders must consent to any
development activities by the Company other than development in connection with
the limited expansion of existing hotels. Also, the Line of Credit lenders must
approve the lessee, manager and the franchise brand of any hotel securing the
Line of Credit in the future. In addition, the Line of Credit requires that the
current limited partners of the Lessee own no less than 65% of the limited
partnership interests of the Lessee at all times.
Outside of the Line of Credit, the Company and its subsidiaries may
incur up to $50 million in additional qualified debt including the debt assumed
in connection with the acquisitions of the Holiday Inn Dallas DFW Airport South,
Courtyard by Marriott-Meadowlands Hotel, Radisson Hotel Arlington Heights and
French Quarter Suites Hotel without prior consent of its Line of Credit lenders.
The Line of Credit expires on July 31, 1999 and is subject to extension under
certain circumstances for an additional one-year term. Borrowings under the Line
of Credit bear interest at 30-day, 60-day or 90-day LIBOR, (5.50%, 5.53% and
5.56% at December 31, 1996), at the option of the Company, plus 1.85% per annum,
payable monthly in arrears. Economic conditions could result in higher interest
rates, which could increase debt service requirements on borrowings under the
Line of Credit and which could reduce the amount of Cash Available for
Distribution.
GROUND LEASES
Four of the Hotels are subject to ground leases with third parties with
respect to the land underlying each such hotel. The ground leases are triple net
leases which require the tenant to pay all expenses of owning and operating the
hotel, including real estate taxes and structural maintenance and repair. One
other Hotel is subject to a ground lease with the state of Florida for certain
offshore real property accessible by the guests of the hotel.
The Courtyard by Marriott-Meadowlands is subject to a ground lease with
respect to approximately 0.37 acres. The ground lease terminates in March 2036,
with two ten-year options to renew. The lease requires a fixed rent payment
equal to $150,000 per year, subject to a 25.0% increase every five years
thereafter beginning in 2001 and a percentage rent payment equal to 3.0% of
gross room revenues.
The Wyndham Albuquerque Airport Hotel is subject to a ground lease with
respect to approximately 10 acres. The ground lease terminates in December 2013,
with two five-year options to renew. The lease requires a fixed rent payment
equal to $19,180 per year subject to annual consumer price index adjustment and
a percentage rent payment equal to 5.0% of gross room revenues, 3.0% of gross
receipts from the sale of alcoholic beverages, 2.0% of gross receipts from the
sale of food and non-alcoholic beverages and 1.0% of gross receipts from the
sale of other merchandise or services. The lease also provides the landlord with
the right, subject to certain conditions, to require the Company, at its
expense, to construct 100 additional hotel rooms if the occupancy rate at the
hotel is 85.0% or more for 24 consecutive months and to approve any significant
renovations scheduled at the hotel. The occupancy rate at the Wyndham
Albuquerque Airport Hotel for the year ended December 31, 1996 was 80.4%.
The Hilton Hotel-Toledo is subject to a ground lease with respect to
approximately 8.8 acres. The ground lease terminates in June 2026, with four
successive renewal options, each for a ten-year term. The lease requires annual
rent payments equal to $25,000, increasing to $50,000 or $75,000 if annual gross
room revenues exceed $3.5 million or $4.5 million, respectively.
The Le Baron Airport Hotel is subject to a ground sublease with respect to
approximately 5.3 acres, which in turn is subject to a ground lease covering a
larger tract of land. The sublease terminates in 2022, with one 30-year option
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to renew. The sublease requires the greater of a fixed minimum annual rent of
$75,945 (increasing to an annual minimum rent of $100,000 if the option is
exercised) or, in the aggregate, 4.0% of gross room revenues, 2.0% of gross food
receipts, and 3.0% of gross bar and miscellaneous operations receipts. The
sublease also provides the sublessor with the right to approve any significant
renovations scheduled at the hotel.
The Sheraton Key Largo property includes approximately 42,500 square feet
of off-shore bay bottom land in Florida Bay on which a commercial marina is
operated pursuant to a lease from the Board of Trustees of the Internal
Improvement Trust Fund of the State of Florida, as lessor. The lease, which
terminates in May 2021, requires an annual lease fee of approximately $3,100.
SKL of Florida, Inc., the lessee under the lease and the seller of the hotel,
gave a quit claim assignment of its interest in the lease to the Company upon
the closing of the purchase of the hotel.
FRANCHISE AGREEMENTS
Seventeen of the Hotels are operated under Franchise Licenses with
nationally recognized hotel companies. In addition, two of the Hotels that are
not currently subject to franchise agreements are expected to become subject to
franchise agreements during the second quarter of 1997. The Company anticipates
that most of the additional hotels in which it invests will be operated under
Franchise Licenses. The Franchise Licenses generally specify certain management,
operating, recordkeeping, accounting, reporting, and marketing standards and
procedures with which the Lessee must comply. The Franchise Licenses obligate
the Lessee to comply with each franchisor's standards and requirements with
respect to training of operational personnel, safety, maintaining specified
insurance, the types of services and products ancillary to guest room services
that may be provided by the Lessee, display of signage, and the type, quality,
and age of FF&E included in guest rooms, lobbies, and other common areas.
The Franchise Licenses provide for termination at each franchisor's option
upon the occurrence of certain events, including the Lessee's failure to pay
royalties and fees or perform its other covenants under the respective license
agreement, bankruptcy, abandonment of the franchise, commission of a felony,
assignment of the license without the consent of the franchisor, or failure to
comply with applicable law in the operation of the relevant Hotel. Certain of
the Franchise Licenses require that the Company guarantee the payment of
franchise fees, liquidated damages and termination fees on behalf of the Lessee.
The Lessee is not entitled to terminate the Franchise Licenses unless it
receives the prior written consent of the Company. The Franchise Licenses do not
renew automatically upon expiration. The Lessee is responsible for making all
payments under the Franchise Licenses to the franchisors. Under the franchise
agreements, the Lessee pays franchise royalty fees ranging from 2.0% to 5.0% of
room revenue.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to the Hotels, with policy
specifications, insured limits and deductibles customarily carried for similar
hotels. The Company will carry similar insurance with respect to any other
hotels developed or acquired in the future. There are, however, certain types of
losses (such as losses arising from wars, certain losses arising from hurricanes
and earthquakes, and losses arising from other acts of nature) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits occur,
the Company could lose its capital invested in the affected hotel, as well as
the anticipated future revenues from such hotel, and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
hotel. Any such loss could adversely affect the business of the Company.
Management of the Company believes the Hotels are adequately insured in
accordance with industry practices.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Operating Partnership is currently involved in
any material litigation nor, to the Company's knowledge, is any material
litigation currently threatened against the Company or the Operating
Partnership. AGHI and the Lessee have advised the Company that they currently
are not involved in any material litigation, other than routine litigation
arising in the ordinary course of business, substantially all of which is
expected to be covered by liability insurance.
21
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET AND DISTRIBUTION INFORMATION
The Company's Common Stock began trading on the NYSE on July 26, 1996 under
the symbol "AGT." On March 27, 1997, the last reported sale price per share of
Common Stock on the NYSE was $27.00 and there were 52 holders of record of
the Company's Common Stock. The following table sets forth the quarterly high
and low closing sale prices per share of Common Stock reported on the NYSE and
the cash distributions declared per share by the Company with respect to each
such period.
<TABLE>
<CAPTION>
Price Range Cash
Distributions
Declared
Per Share
----------------------
High Low
-------------------------------------
<S> <C> <C> <C>
1996
Third Quarter, from July 26, 1996 $19 $17 1/2 $0.2476(1)
Fourth Quarter 23 3/4 18 $0.4075(2)
</TABLE>
(1) Represents a pro rata distribution of the Company's initial quarterly
distribution of $0.4075 per share of Common Stock, based on a partial
calendar quarter beginning on July 31, 1996 (the closing date of the IPO)
through September 30, 1996.
(2) On December 18, 1996, the Company declared a distribution of $0.4075 per
share relating to the fourth quarter of 1996 that was paid on January 30,
1997 to stockholders of record as of December 30, 1996.
The Company intends to make regular quarterly distributions to its stockholders.
Future distributions by the Company will be at the discretion of the Board of
Directors and will depend on the Company's financial condition, its capital
requirements, the annual distribution requirements under the REIT provisions of
the Code and such other factors as the Board of Directors deems relevant. There
can be no assurance that any such distributions will be made by the Company.
In order to maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, the Company may be
required to make distributions in excess of Cash Available for Distribution in
order to meet such distribution requirements. In such event, the Company would
seek to borrow the amount to obtain the cash necessary to make distributions to
retain its qualification as a REIT for federal income tax purposes.
RECENT SALES OF UNREGISTERED SECURITIES
In connection with the IPO, the Company also issued 137,008 shares of
Common Stock to AGHI's Employee Retirement Savings Plan (the "Plan"), valued at
approximately $2.4 million, based on the offering price of the shares in the
IPO, in exchange for the Plan's interests in five of the Initial Hotels. The
shares were purchased for investment purposes only, and not with a view to any
resale, fractionalization or distribution thereof, and for the purpose of
organizing the Company. The shares were purchased by the Plan and issued by the
Company in reliance on the exemption provided by Section 4(2) of the Securities
Act of 1933, as amended (the "Act").
In connection with the acquisition of the Days Inn Lake Buena Vista on
October 22, 1996, the Company issued 25,397 shares of Common Stock to an
investor, valued at approximately $500,000 based on the value of the shares at
the time of closing of the transaction, in exchange for his interest in the
hotel. The shares of Common Stock were issued for investment purposes only, and
not with a view to any resale, fractionalization or distribution thereof. The
shares of Common Stock were purchased by that investor and issued by the Company
in reliance on the exemption provided by Section 4(2) of the Act.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth (1) selected historical financial data for
the Company as of December 31, 1996 and for the period from July 31, 1996
through December 31, 1996 and selected pro forma consolidated financial data for
the Company as of and for the years ended December 31, 1995 and 1996, (2)
selected historical financial data for the Lessee for the period from July 31,
1996 through December 31, 1996 and pro forma financial data for the Lessee for
the years ended December 31, 1995 and 1996, (3) selected historical combined
financial data for the AGH Predecessor Hotels (as defined in the Index to
Financial Statements on page F-1) for each of the years in the three-year period
ended December 31, 1995, and the period from January 1, 1996 through July 30,
1996. The selected historical combined financial data of the Company, Lessee
and AGH Predecessor Hotels for the periods presented have been derived from the
historical financial statements and notes thereto of the Company and AGH
Predecessor Hotels audited by Coopers & Lybrand L.L.P., independent accountants,
whose reports with respect thereto are included elsewhere in this Form 10-K.
The pro forma operating and other operating data are presented as if the
IPO and related Formation Transactions, the acquisition of all Hotels and the
consummation of the 1997 Public Offering and the application of the net proceeds
therefrom had occurred on January 1, 1995. The pro forma operating data for the
Lessee is presented to reflect the pro forma operations of the Lessee for the
periods presented, whose operations are the source of the Lessee's Participating
Lease payments to the Company. The pro forma balance sheet data is presented as
if the acquisition of all Hotels and the consummation of the 1997 Public
Offering had occurred on December 31, 1996.
The pro forma information does not purport to represent what the Company's
financial position or the Company's or the Lessee's results of operations would
have been if the IPO and related Formation Transactions, the acquisition of all
Hotels and the consummation of the 1997 Public Offering had, in fact, occurred
on such dates, or to project the Company's or the Lessee's financial position or
results of operations at any future date or for any future period.
The historical financial information includes the operations of the AGH
Predecessor Hotels for the periods owned by affiliates of AGHI. The Courtyard by
Marriott-Meadowlands was acquired in December 1993; the Hotel Maison de Ville
was acquired in August 1994; the Hampton Inn Richmond Airport was acquired in
December 1994 and the Holiday Inn Dallas DFW Airport West was acquired in June
1995. Complete historical financial information for each of the AGH Predecessor
Hotels prior to their respective acquisition dates is unavailable.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this document.
23
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Historical Pro Forma (1)
July 31, 1996 -----------------------------------------
through Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1996
------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATa:
Participating lease revenue(2) $ 13,387,719 $ 39,837,690 $ 45,452,534
Interest income 108,075 31,500 99,473
------------------------------------------------------------
Total revenue 13,495,794 39,869,190 45,552,007
------------------------------------------------------------
Depreciation 2,635,380 11,086,724 9,618,995
Amortization 273,425 904,625 909,453
Real estate and personal property taxes
and property insurance 1,444,592 4,637,615 5,056,325
General and administrative 822,113 1,700,000 1,700,000
Ground lease expense 545,279 881,217 1,049,524
Amortization of unearned officers'
compensation 36,979 88,750 88,750
Interest expense 1,412,117 3,119,221 3,119,221
------------------------------------------------------------
Total expenses 7,169,885 22,418,152 21,542,268
------------------------------------------------------------
Income before minority interest 6,325,909 17,451,038 24,009,739
Minority interest 1,196,728 2,006,869 2,761,120
------------------------------------------------------------
Net income applicable to common
stockholders $ 5,129,181 $ 15,444,169 $ 21,248,619
============================================================
Net income per common share $0.63 $1.05 $1.45
============================================================
Weighted average number of shares of
Common Stock outstanding 8,170,029 14,657,141 14,657,141
============================================================
</TABLE>
<TABLE>
<CAPTION>
Historical Pro Forma(1)
December 31, 1996 December 31, 1996
--------------------------------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 3,888,281 $ 41,323,461
Investment in hotel properties, net 230,760,819 314,954,574
Total assets 243,115,355 365,709,290
Debt 76,622,398 36,900,963
Minority interest in Operating Partnership 29,125,020 36,659,298
Stockholders' equity 127,461,111 282,117,203
</TABLE>
<TABLE>
<CAPTION>
Historical Pro Forma (1)
July 31, 1996 -----------------------------------------
through Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1996
------------------------------------------------------------
<S> <C> <C> <C>
OTHER DATA:
Funds From Operations(3) $ 7,266,474 $ 25,255,920 $ 29,761,430
Cash Available for Distribution(4) 6,105,233 21,869,270 26,037,487
Net cash provided by operating
activities 8,825,793 29,531,137 34,626,937
Net cash used in investing activities (186,447,491) (4,820,098) (5,206,048)
Net cash provided by (used in) financing
activities 181,509,979 (26,222,705) (26,222,705)
Weighted average number of shares of
Common Stock and of OP Units
outstanding 10,067,025 16,554,137 16,554,137
</TABLE>
See notes on page 26
24
<PAGE>
LESSEE
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
Historical
July 31, 1996 Year Year
through Ended Ended
December 31, December 31, December 31,
1996 1995 1996
-----------------------------------------------
<S> <C> <C> <C>
Statement of Operations Data:
Room revenue $26,725,200 $ 86,924,872 $ 96,202,438
Food and beverage revenue 8,374,459 27,119,189 27,615,041
Other revenue 1,691,472 6,458,397 6,333,717
-----------------------------------------------
Total revenue 36,791,131 120,502,458 130,151,196
Hotel operating expenses 24,051,041 81,479,020 85,565,268
Depreciation and amortization 33,003 63,000 69,753
Interest expense 13,314 31,500 31,689
Other expenses 27,093 154,151 291,964
Participating Lease expenses(2) 13,387,719 39,837,690 45,452,534
-----------------------------------------------
Net loss(5) $ (721,039) $ (1,062,903) $ (1,260,012)
===============================================
</TABLE>
AGH PREDECESSOR HOTELS
SELECTED HISTORICAL COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
Year Ended December 31, Seven Months
------------------------------------------------------ Ended
1993 1994 1995 July 30, 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Room revenue $ 17,941 $3,431,654 $ 9,020,479 $6,770,568
Food and beverage revenue 6,158 552,697 1,293,238 1,175,807
Other revenue 1,448 223,211 568,415 432,750
--------------------------------------------------------------------
Total revenue 25,547 4,207,562 10,882,132 8,379,125
Hotel operating expenses 8,741 3,173,721 7,565,824 5,682,473
Depreciation and amortization 46,982 364,513 2,480,054 645,195
Interest expense 430,535 1,572,244 1,129,060
Other expenses 831 525,287 754,193 443,295
--------------------------------------------------------------------
Net income (loss) $(31,007) $ (286,494) $(1,490,183 ) $ 479,102
====================================================================
</TABLE>
(1) The pro forma information does not purport to represent what the Company's
financial position or the Company's and the Lessee's results of operations
would actually have been if the IPO and related Formation Transactions, the
acquisitions of all Hotels and the consummation of the 1997 Public Offering
and the application of the net proceeds therefrom, in fact, occurred on such
dates, or to project the Company's financial position or the Company's and
Lessee's results of operations at any future date or for any future period.
(2) Pro forma amounts represent lease payments from the Lessee to the Operating
Partnership pursuant to the Participating Leases calculated on a pro forma
basis by applying the rent provisions of the Participating Leases to the
revenues of the Hotels. The departmental revenue thresholds in the
Participating Leases are seasonally adjusted for interim periods and certain
of the Participating Lease formulas adjust beginning in January 1997 or
January 1998.
(3) Represents Funds From Operations of the Company. The items added back to net
income applicable to common stockholders have been adjusted by the Company's
ownership percentage in the Operating Partnership of 81.1% for the
historical period from July 31, 1996 through December 31, 1996 and 88.5% for
all pro forma periods presented. The following table computes Funds From
Operations under the NAREIT definition. Funds From Operations consists of
net income applicable to common stockholders (computed in accordance with
generally accepted accounting principles) excluding gains (losses) from debt
restructuring and sales of property (including furniture and equipment) plus
real estate related depreciation and amortization (excluding amortization of
deferred financing costs) and after adjustments for unconsolidated
partnerships and joint ventures. The Company considers Funds From Operations
to be an appropriate measure of the performance of an equity REIT. Funds
From Operations should not be considered as an alternative to net income or
other measurements
25
<PAGE>
under generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. Although Funds From Operations has
been calculated in accordance with the NAREIT definition, Funds From
Operations as presented may not be comparable to other similarly titled
measures used by other REITs. Funds From Operation does not reflect cash
expenditures for capital improvements or principal amortization of
indebtedness on the Hotels.
<TABLE>
<CAPTION>
Historical Pro Forma (1)
July 31, 1996 ----------------------------
through Year Ended Year Ended
December 31, December 31, December 31,
1996 1995(1) 1996(1)
----------------------------------------------
<S> <C> <C> <C>
Net income applicable to common
stockholders $5,129,181 $15,444,169 $21,248,619
Depreciation 2,137,293 9,811,751 8,512,811
----------------------------------------------
Funds From Operations $7,266,474 $25,255,920 $29,761,430
==============================================
Weighted average number of shares of
Common Stock outstanding 8,170,029 14,657,141 14,657,141
</TABLE>
(4) Cash Available for Distribution represents Funds From Operations of the
Company plus the Company's weighted average ownership percentage in the
Operating Partnership of 81.1% for the historical period from July 31, 1996
through December 31, 1996 and 88.5% for all pro forma periods presented
multiplied by the sum of amortization of deferred financing costs, franchise
transfer costs and unearned officers' compensation. This amount is then
reduced by the Company's same percentage share of the sum of 4.0% of total
revenue for each of the Hotels that is required to be set aside by the
Operating Partnership for refurbishment and replacement of FF&E, capital
expenditures and other non-routine items as required by the terms of the
Participating Leases. Cash Available for Distribution does not include the
interest expense allocated to borrowings under the Line of Credit that are
expected to be made in order to fund capital expenditures at the Hotels. In
addition, Cash Available for Distribution does not include the effects of
any revenue increases expected to result from capital expenditures at the
Hotels.
(5) The Lessee's loss is attributable to the cash flow guarantee received from
one of the sellers of the Days Inn Lake Buena Vista which was recorded as
deferred income and will not be included in revenues until the commencement
of an association fee agreement on January 1, 1998. For the period of
historical operations in 1996, the Lessee generated a positive cash flow.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
The following should be read in conjunction with the Company's consolidated
financial statements and the selected financial information included elsewhere
in this report.
On July 31, 1996, the Company completed its IPO of 8,075,000 shares of
Common Stock (including 575,000 shares of common stock issued upon exercise of
the underwriters' over-allotment option on August 28, 1996) and commenced
operations. The Company contributed substantially all of the net proceeds from
the IPO in exchange for an approximate 81.3% interest in the Operating
Partnership.
The Operating Partnership used approximately $119.8 million of the net
proceeds from the IPO together with the proceeds of initial borrowings of $10.0
million under the Line of Credit (which was repaid upon the exercise of the
underwriters' over-allotment option) to acquire the thirteen Initial Hotels and
to repay existing mortgage indebtedness encumbering the Initial Hotels. In
addition, in connection with the IPO, the Company closed on its $100 million
Line of Credit that it utilizes primarily for the acquisition and renovation of
hotels, and for working capital.
Consistent with the Company's acquisition strategy, the Company has
acquired the following hotels since the IPO for the purchase prices (including
closing costs) set forth below:
26
<PAGE>
<TABLE>
<CAPTION>
Hotels:
<S> <C>
Days Inn Lake Buena Vista............. $ 33,150,000
Holiday Inn Resort Monterey........... 15,790,000
Hilton Hotel-Durham................... 12,400,000
Radisson Hotel Arlington Heights...... 11,818,755
Wyndham Garden Hotel-Marietta
(formerly the Four Points by
Sheraton(R))......................... 17,300,000
French Quarter Suites Hotel........... 16,300,000
Sheraton Key Largo.................... 26,375,000
------------
Total Hotels.......................... $133,133,755
============
</TABLE>
On February 7, 1997, the Company completed the 1997 Public Offering of
6,368,300 shares of Common Stock (including 568,300 shares of Common Stock
issued upon exercise of the underwriters' over-allotment on March 7, 1997). The
Company contributed all of the net proceeds to the Operating Partnership and,
following such contribution, owned an approximate 88.5% interest in the
Operating Partnership. The Operating Partnership used the net proceeds (i) to
repay amounts borrowed under the Line of Credit, (ii) to pay fees and expenses
in connection with the increase in the borrowing limit under the Line of Credit,
(iii) to fund the cash portion of the purchase price of the Radisson Hotel
Arlington Heights and the Portfolio Purchase, (iv) for hotel renovations and
(v) for working capital purposes.
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate hotels. The Operating Partnership leases the
Hotels to the Lessee for terms of twelve years pursuant to separate
Participating Leases providing for the payment of base rent and participating
rent. The principal source of revenue for the Operating Partnership and the
Company is lease payments paid by the Lessee under the Participating Leases. The
Lessee's ability to make payments to the Company under the Participating Leases
is dependent on the ability of the Lessee, AGHI and any other lessees or
operators to generate cash flow from the operations of the Hotels. The Lessee
has entered into management agreements whereby 19 of the Hotels are managed by
AGHI and the remaining Hotel is managed by Wyndham Hotel Corporation. The
management agreements are for a period of twelve years from the date each Hotel
was acquired.
RESULTS OF OPERATIONS
Actual for the period July 31, 1996 through December 31, 1996
The Company earned $13,387,719 in Participating Lease revenue from the
Lessee. Interest income, which was $108,075 for the period, consisted primarily
of income earned on excess cash balances. Depreciation of the Company's
investment in hotel properties was $2,635,380. Amortization, consisting
primarily of deferred financing costs and franchise transfer fees, was $310,404
and real estate and personal property taxes and insurance was $1,444,592. The
Company reported $1,412,117 of interest expense for the period which consists of
$512,936 attributable to the indebtedness on the Holiday Inn Dallas DFW Airport
South, $166,737 attributable to the indebtedness on the Courtyard by Marriott-
Meadowlands and $732,455 attributable to the borrowings on the Line of Credit.
The borrowings on the Line of Credit include the $10,000,000 borrowed at the IPO
and repaid with the proceeds of the underwriters' over-allotment and $57,500
borrowed throughout the period for property acquisitions, renovations and
working capital needs. The minority interest in income was $1,196,728 and the
resulting net income applicable to the common stockholders was $5,129,181 for
the period.
Pro Forma Comparison of the Year ended December 31, 1996 and 1995
Participating Lease revenue would have increased $5,614,844 or 14.1% to
$45,452,534 from $39,837,690 for 1995 primarily due to ADR increases at many of
the hotels. Interest income would have increased $67,973 to $99,473 from
$31,500 primarily due to the actual interest earned on excess cash balances.
Depreciation expense would have decreased $1,467,729 to $9,618,995 from
$11,086,724. Depreciation expense represents depreciation of the AGH Predecessor
Hotels' historical carryover cost basis plus depreciation of the new cost basis
of the Other Initial Hotels and Acquired Hotels. This decrease is due to the
accelerated depreciation recorded in 1995 on FF&E that was replaced in
connection with renovations at the AGH Predecessor Hotels. General and
administrative expenses would have been $1,700,000 for the year ended December
31, 1996 and 1995 representing salaries and wages of $561,000, professional
27
<PAGE>
fees of $482,000, directors and officers' insurance expense of $94,500 and other
expenses of $562,500. Interest expense for the year ended December 31, 1996 and
1995 would have been $3,119,221 on indebtedness totaling approximately $36.9
million which is comprised of mortgage indebtedness relating to: the Holiday Inn
Dallas DFW Airport South hotel of approximately $14.0 million, 8.75% interest
rate; the Courtyard by Marriott-Meadowlands of approximately $5.1 million, 7.54%
average interest rate; the French Quarter Suites Hotel of approximately $9.6
million, 9.75% interest rate; and the Radisson Hotel Arlington Heights, 7.5%
interest rate.
Pro Forma Funds From Operations
Funds from Operations, calculated using the NAREIT definition of Funds From
Operations, was $7,266,474, which is the sum of net income applicable to common
stockholders and the Company's share of depreciation.
The Company considers Funds From Operations to be a key measure of the
performance of an equity REIT. Funds From Operations should not be considered as
an alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or as an
alternative to cash flows from operating, investing or financing activities as
a measure of liquidity.
The following is a reconciliation of pro forma net income applicable to
common stockholders to Pro Forma Funds From Operations and illustrates the
difference in the two measures of operating performance:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------------------
1995 1996
----------------------------
<S> <C> <C>
Pro forma net income applicable to
common stockholders................... $15,444,169 $21,248,619
Depreciation (Company share)........... 9,811,751 8,512,811
----------------------------
Funds from operations.................. $25,255,920 $29,761,430
============================
Weighted Average Number of shares of
Common Stock Outstanding.............. 14,657,141 14,657,141
</TABLE>
RESULTS OF OPERATIONS OF AGH PREDECESSOR HOTELS
The accompanying discussion and analysis of financial condition and results
of operations is based on the consolidated historical financial statements of
the Company and the Lessee and the combined historical financial statements of
the AGH Predecessor Hotels that are included elsewhere in this Form 10-K. The
AGH Predecessor Hotels' financial statements include the results of operations
of the following hotels since their dates of acquisition by affiliates of AGHI:
Courtyard by Marriott-Meadowlands (December 1993), Hotel Maison de Ville (August
1994), Hampton Inn Richmond Airport (December 1994) and Holiday Inn Dallas DFW
Airport West (June 1995). The four AGH Predecessor Hotels were combined into one
set of financial statements since they were acquired by the Company from a group
of limited partnerships controlled by shareholders of AGHI.
The following table sets forth certain combined historical financial
information for the AGH Predecessor Hotels as a percentage of combined AGH
Predecessor Hotels' revenues for the periods indicated:
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1994 1995
---------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Room revenue.............................. 81.6% 82.9%
Food and beverage revenue................. 13.1 11.9
Other revenue............................. 5.3 5.2
---------- -----------
Total revenue............................. 100.0 100.0
Hotel operating expenses.................. 75.4 69.6
Depreciation and amortization............. 8.7 22.8
Interest expense.......................... 10.2 14.4
Other corporate expenses.................. 12.5 6.9
---------- -----------
Net loss.................................. (6.8%) (13.7%)
========== ===========
Year Ended
December 31,
------------------------
1994 1995
---------- ----------
KEY FACTORS:
Occupancy................................. 71.1% 72.1%
ADR....................................... $62.10 $73.26
REVPAR.................................... $44.14 $52.84
</TABLE>
The year-to-year comparisons of the results of operations of the AGH
Predecessor Hotels are significantly impacted by the hotel acquisitions. Net
losses incurred for each of the three years ended December 31, 1993, 1994 and
1995 were ($31,007), ($286,494) and ($1,490,183), respectively. The AGH
Predecessor Hotels generated net cash from operating activities of $147,616,
$217,282 and $790,304 for each of the three years ended December 31, 1993, 1994
and 1995, respectively.
Comparison of year ended December 31, 1995 and 1994
Room revenue increased to $9,020,479 from $3,431,654, an increase of
$5,588,825 or 162.9%, principally resulting from: (i) an increase of
approximately $2,056,000 in revenue due to the acquisition of the Holiday Inn
Dallas DFW West in June 1995, approximately $1,850,000 in revenue from the
Hampton Inn Richmond Airport since its acquisition in late December 1994, and
approximately $955,000 in revenues from the Hotel Maison de Ville since its
acquisition in August 1994; (ii) an increase in the Courtyard by Marriott-
Meadowlands' ADR to $81.77 from $73.37; and (iii) an improvement in the
Courtyard by Marriott-Meadowlands' occupancy percentage to 77.8% from 70.1%. The
increases in both ADR and occupancy were due primarily to the repositioning
strategy implemented when the Courtyard by Marriott-Meadowlands was converted
from a Days Hotel in 1994.
Food and beverage revenue increased to $1,293,238 from $552,697, an
increase of $740,541 or 134.0%, due primarily to activity at two of the three
acquisitions described above. Other revenue increased to $568,415 from $223,211,
or 154.7%, due to the activity at the three acquisitions described above.
Hotel operating expenses increased to $7,565,824 from $3,173,721, an
increase of $4,392,103 or 138.4%. The acquisition of the Hotel Maison de Ville
(acquired August 1994), the Hampton Inn Richmond Airport (acquired December
1994) and the Holiday Inn Dallas DFW Airport West (acquired June 1995) accounted
for $968,511, $1,066,733 and $1,932,980 of the expense increase, respectively.
The remainder of the increase is related to the conversion of the Courtyard by
Marriott-Meadowlands from a Days Hotel. The hotel experienced an increase in
revenues of approximately $750,000 following the franchise repositioning and
consequently had an increase in operating expenses. Hotel operating expenses as
a percentage of total revenue decreased from 75.4% in 1994 to 69.5% in 1995. The
decrease is primarily attributable to the inclusion of only the Courtyard by
Marriott-Meadowlands and the Hotel Maison de Ville in the 1994 operating
results, which at the time were being transitioned to the AGH Predecessor
Hotels' management. Consequently, hotel operating expenses as a percentage of
total revenue were higher for these hotels in 1994 than in 1995.
Depreciation and amortization increased to $2,480,054 from $364,513, an
increase of $2,115,541 due in part to the following: (i) depreciation on the
assets of the three acquisitions described above, (ii) depreciation on
approximately $1,300,000 and approximately $2,200,000 of FF&E renovations and
additions during 1994 and 1995, respectively, and (iii) accelerated depreciation
on the FF&E replaced during such renovations.
29
<PAGE>
Interest and other expenses increased to $2,326,437 from $955,822, an
increase of $1,370,615. The acquisitions in 1995 and 1994 increased debt by
approximately $8,300,000 and approximately $6,100,000, respectively. Related
interest expense increased by $1,141,709 due to the additional indebtedness
outstanding.
Comparison of year ended December 31, 1994 and 1993
Room revenue increased to $3,431,654 from $17,941, an increase of
$3,413,713, principally resulting from (i) an increase of approximately
$3,072,000 in revenue from the Courtyard by Marriott-Meadowlands following its
acquisition on December 30, 1993 and (ii) approximately $342,000 in revenue
attributable to the acquisition of the Hotel Maison de Ville in August 1994. The
only room revenue reported for 1993 for the AGH Predecessor Hotels was $17,941
from the acquisition of the Courtyard by Marriott-Meadowlands on December 30,
1993.
Food and beverage revenue increased to $552,697 from $6,158, a change of
$546,539, due primarily to the late 1993 acquisition of the Courtyard by
Marriott-Meadowlands compared to a full year's food and beverage revenue in 1994
and the acquisition of the Hotel Maison de Ville in August 1994. Other revenue
increased to $223,211 from $1,448, an increase of $221,763, due primarily to the
acquisitions described above.
Hotel operating expenses increased to $3,173,721 from $8,741, an increase
of $3,164,980. The expenses from 1993 include only two days of operations for
the Courtyard by Marriott-Meadowlands. Hotel operating expenses as a percentage
of total revenue were 75.4% in 1994.
Depreciation and amortization, interest and other expenses increased to
$1,320,335 from $47,813, representing an increase of $1,272,522, attributable to
depreciation of assets acquired in the hotel acquisitions described above.
THE LESSEE
Actual for the period from July 31, 1996 through December 31, 1996
The Lessee had total revenues of $36,791,131 from the Hotels. The
Participating Lease payments and property operating costs and expenses were
$13,387,719 and $24,124,451, respectively. Net loss for the period was $721,039.
Pro Forma Operations
The following table sets forth pro forma financial information for the
Lessee, as a percentage of revenue, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1995 1996
------------------------
<S> <C> <C>
Statements of Operations Data:
Room revenue........................ 72.1% 73.9%
Food and beverage revenue........... 22.5 21.2
Other revenue....................... 5.4 4.9
------------------------
Total revenue.................... 100.0 100.0
Hotel operating expenses............ 67.6 65.7
Other corporate expenses............ 0.2 0.3
Participating Lease expenses........ 33.1 34.9
------------------------
Net Loss......................... (0.9%) (1.0%)
========================
Year Ended
December 31,
------------------------
1995 1996
------------------------
Key Factors:
Occupancy........................ 72.7% 72.3%
ADR.............................. $70.82 $78.33
REVPAR........................... $51.48 $56.63
</TABLE>
30
<PAGE>
The following table sets forth room revenue for each of the Hotels and the
percentage changes between the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
Percent
1995 1996 Change
-----------------------------------
<S> <C> <C> <C>
Hotels:
Holiday Inn Dallas DFW Airport West..... $ 3,604,471 $ 4,125,721 14.5%
Courtyard by Marriott--Meadowlands...... 3,818,729 4,492,583 17.6
Hampton Inn Richmond Airport............ 1,849,105 2,048,294 10.8
Hotel Maison de Ville................... 1,296,934 1,352,943 4.3
Hilton Hotel-Toledo..................... 3,393,195 3,496,005 3.0
Holiday Inn Dallas DFW Airport South.... 8,180,021 8,594,306 5.1
Holiday Inn New Orleans
International Airport.................. 6,563,609 6,646,456 1.3
Days Inn Ocean City..................... 2,217,358 2,330,562 5.1
Crowne Plaza-Madison.................... 5,144,182 5,344,182 3.9
Holiday Inn Park Center Plaza........... 4,754,077 5,565,177 17.1
Wyndham Albuquerque Airport Hotel....... 4,313,729 4,435,554 2.8
Le Baron Airport Hotel.................. 5,014,124 6,798,278 35.6
Holiday Inn Mission Valley.............. 5,180,637 5,274,949 1.8
Days Inn Lake Buena Vista............... 6,825,271 7,993,548 17.1
Holiday Inn Resort Monterey............. 4,332,575 5,056,511 16.7
Hilton Hotel-Durham..................... 3,082,994 3,507,074 13.8
Radisson Hotel Arlington Heights........ 3,164,449 3,951,221 24.9
Wyndham Garden Hotel-Marietta
(formerly the Four Points by
Sheraton(R))........................... 3,887,289 4,205,562 8.2
French Quarter Suites Hotel............. 4,272,769 4,324,802 1.2
Sheraton Key Largo...................... 6,029,354 6,658,710 10.4
------------------------------------
Totals (All Hotels)..................... $86,924,872 $96,202,438 10.7%
====================================
</TABLE>
Pro Forma Comparison for the year ended December 31, 1996 and 1995
Room revenue increased to $96,202,438 from $86,924,872, an increase of
$9,277,566 or 10.7%, principally resulting from: (i) an increase of $673,854 in
Courtyard by Marriott Meadowlands' room revenue due to an increase in ADR to
$92.16 from $81.77, (ii) an increase of $811,100 in Holiday Inn-Park Center
Plaza's room revenues due to an increase in ADR to $88.13 from $78.16, (iii) an
increase in LeBaron Airport Hotel's room revenue of $1,784,154 due to an
increase in ADR to $77.13 from $64.40, (iv) an increase of $1,168,277 in Days
Inn Lake Buena Vista to $61.47 from $49.02, (v) an increase of $521,250 in
Holiday Inn Dallas D/FW West due to an increase in ADR to $63.70 from $60.36,
(vi) an increase of $723,936 in Holiday Inn Resort Monterey due to an increase
in ADR to $100.44 from $91.25, (vii) an increase of $723,936 in Radisson Hotel
Arlington Heights due to an increase in ADR to $76.91 from $68.08, (viii) an
increase of $424,080 in Hilton Hotel Durham due to an increase in ADR to $83.90
from $76.42.
Food and beverage revenue increased to $27,615,041 from $27,119,189, an
increase of $495,852 or 1.8%. The increase is primarily due to the increase in
Holiday Inn Dallas DFW Airport West's food and beverage revenues in 1996 of
$398,708. The increase was mainly due to renovation of the restaurant during
fourth quarter 1995. Also, LeBaron Hotel's food and beverage revenue increased
by $295,742 in 1996 due to increase in banquet and catering revenues.
Hotel operating expenses increased to $85,565,268 from $81,479,020, an
increase of $4,086,248 or 5.0%; however, as a percentage of total revenue,
expenses decreased to 65.7% from 67.6%, due primarily to revenue increases that
were not accompanied by corresponding increases in hotel operating expenses.
Participating Lease expenses increased to $45,452,534 from $39,837,690, an
increase of $5,614,844 or 14.1%. The increase is primarily due to increased
revenues at the hotels which resulted in increased Participating Lease payments
to the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to stockholders, is its share of the Operating
Partnership's cash flow from the Participating Leases. For the period from July
31, 1996 through December 31, 1996, cash flow provided by the operating
activities, consisting primarily of Participating Lease revenues, was $8,825,793
and Funds from Operations was $7,266,476. The Lessee's obligations under the
Participating Leases are secured by the pledge of 275,000 OP Units. The Lessee's
ability to make rent payments under the Participating Leases and the Company's
liquidity, including its ability to make distributions to stockholders, are
31
<PAGE>
substantially dependent on the ability of the Lessee, AGHI and other operators
and managers to generate sufficient cash flow from the operation of the Hotels.
Upon the consummation of the IPO, the Company closed on its $100 million
Line of Credit and on February 11, 1997, the Company increased its Line of
Credit to $150 million. At December 31, 1996 the Company had approximately $57.5
million outstanding under the Line of Credit which was repaid subsequent to year
end with the proceeds of the 1997 Public Offering. The Company's borrowing
capacity under the Line of Credit will be approximately $106.9 million after all
currently eligible properties are qualified for the borrowing base. Borrowings
under the Line of Credit bear interest at 30-day, 60-day or 90-day LIBOR (5.50%,
5.53% and 5.56% at December 31, 1996) at the option of the Company, plus 1.85%
per annum, payable monthly in arrears or one-half percent in excess of the prime
rate. The Company has entered into contracts to acquire two hotels for
approximately $32.9 million and expects that during 1997 additional acquisitions
will be completed and funded with borrowings under the Line of Credit or
permanent debt or equity financing. The Line of Credit requires the Company to
limit consolidated indebtedness (measured at the time the debt is incurred) to
no more than 45.0% of the Company's investments in hotels.
Cash and cash equivalents as of December 31, 1996 were $3,388,281.
Restricted cash of $544,541 includes escrow deposits on the Holiday Inn Dallas
DFW Airport South hotel as required by its loan agreement and an escrow deposit
used to pay certain unused facility fees under the Line of Credit. Cash flow
from operating activities of the Company was $8,825,793 for the period from July
31, 1996 through December 31, 1996, which primarily represents the collection of
rents under the Participating Leases, less the Company's operating expenses for
the period. Cash flow used in investing activities during that period in the
amount of $186,447,491 resulted from the purchase and improvements made to the
Hotels. Cash flows from financing activities of $181,509,979 during this period
was primarily related to the receipt of proceeds from the IPO and borrowings on
the Line of Credit, net of principal payments on borrowings and payments for
deferred loan costs.
RENOVATIONS AND OTHER CAPITAL IMPROVEMENTS
The Participating Leases require the Company to establish annual minimum
reserves equal to 4.0% of total revenue of the Hotels which will be utilized by
the Lessee for the replacement and refurbishment of FF&E and other capital
expenditures to enhance the competitive position of the Hotels. The Company and
the Lessee will jointly determine the use of funds in this reserve, and the
Company will have the right to approve the Lessee's capital expenditure budgets.
While the Company expects its reserve to be adequate to fund recurring capital
needs, including periodic renovations, the Company may use Cash Available for
Distribution in excess of distributions paid or funds drawn under the Line of
Credit or other borrowings to fund additional capital improvements, as
necessary, including major renovations at the Company's hotels.
The Company has budgeted $65.3 million to fund capital improvements and
renovations at the Hotels. As of February 28, 1997, the Company had spent
approximately $19.7 million in capital improvements and renovations. The
Company has budgeted to spend approximately $45.6 million of the renovation
dollars during the remainder of 1997 and 1998. In certain circumstances such
capital improvements are being completed in connection with franchisor
requirements. The following table describes such renovations and improvements:
<TABLE>
<CAPTION>
Remaining 1997
Description of and 1998
Hotels: Renovation/Improvement Budgeted Amount
- ------- ---------------------- ---------------
<S> <C> <C>
Radisson Hotel Arlington
Heights.................... Upgrade and renovation of guest $ 10,700,000
rooms and public areas as well as
addition of approximately 100
guest rooms.
Days Inn Lake Buena Vista... Upgrade and renovation of guest 5,695,000
rooms and public areas, including
the addition of approximately
9,000 square feet of convention
space as well as the addition of
extensive landscaping and
entertainment attractions to
hotel exterior in connection with
conversion to the Wyndham Hotel
brand.
Sheraton Key Largo.......... Upgrade and renovation of guest 4,000,000
rooms, public areas and exterior
in connection with conversion to
the Westin Resort brand.
Holiday Inn
Resort--Monterey........... Upgrade and renovation of guest 3,900,000
rooms and public areas in
connection with conversion to the
Hilton Hotel brand.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Remaining 1997
Description of and 1998
Hotels: Renovation/Improvement Budgeted Amount
- ------- ---------------------- ---------------
<S> <C> <C>
Le Baron Airport Hotel...... Upgrade of public areas and guest 3,478,000
rooms and conversion of ninth floor
to concierge floor in connection
with conversion to the Wyndham
Hotel brand.
Hilton Hotel--Durham........ Addition of 42 guest rooms and 2,865,000
renovation of guest rooms and
public areas.
Wyndham Garden
Hotel-Marietta (formerly
the Four Points by
Sheraton(R))............... Upgrade and renovation of guest 2,800,000
rooms, public areas and
restaurant in connection with
conversion to the Wyndham Hotel
brand.
French Quarter Suites Hotel. Upgrade and renovation of guest 2,800,000
rooms, atrium and public areas in
connection with conversion to the
DoubleTree Guest Suites brand.
Holiday Inn Park Center
Plaza...................... Upgrade of guest rooms and public 2,434,000
areas and conversion of the ninth
floor to "club" level in
connection with conversion to the
Crowne Plaza brand.
Wyndham Albuquerque
Airport Hotel.............. Upgrade of guest rooms and public 1,938,000
areas and conversion of meeting space
to additional guest rooms in
connection with conversion to the
Wyndham Hotel brand.
Holiday Inn Mission Valley.. Upgrade of guest rooms and public 1,922,000
areas in connection with
conversion to the Holiday Inn
Select brand.
Holiday Inn Dallas DFW
Airport South.............. Upgrade of guest rooms, public 1,046,000
areas and hotel exterior in
connection with conversion to the
Holiday Inn Select brand.
Holiday Inn New Orleans
International Airport...... Upgrade of guest rooms and public 666,000
areas and renovation of roof in
connection with conversion to the
Holiday Inn Select brand.
Days Inn Ocean City......... Upgrade of guest rooms and public 485,000
areas in connection with
conversion to the Hampton Inn
brand.
Hilton Hotel-Toledo......... Upgrade of guest rooms and 336,000
renovation of public areas.
Holiday Inn Crowne
Plaza-Madison.............. Upgrade of guest rooms, public 325,000
areas and reservation equipment
in connection with conversion to
the Crowne Plaza brand.
Holiday Inn Dallas DFW
Airport West............... Upgrade of guest rooms and 232,000
corridors.
Hampton Inn Richmond
Airport.................... Upgrade of public areas and 10,000
replacement of roof.
Hotel Maison de Ville....... Upgrade of selected guest rooms 5,000
and public areas.
-----------
All Hotels-Total: $45,637,000
===========
</TABLE>
There can be no assurance that the Company will be able to complete the
scheduled capital improvements within the expected time frames or that the
anticipated costs for the capital improvements will not exceed the amounts
budgeted for that purpose. The Company intends to use borrowings under the Line
of Credit and the FF&E reserve established under the Participating Leases to
fund these expenditures. The Company attempts to schedule renovations and
improvements during traditionally lower occupancy periods in an effort to
minimize disruption to the hotels' operations.
33
<PAGE>
Inflation
Operators of hotels, in general, possess the ability to adjust room rates
quickly. Competitive pressures may, however, limit the Lessee's ability to raise
room rates in the face of inflation.
SEASONALITY
The hotel industry is seasonal in nature. Generally, hotel revenue is
greater in the second and third quarters of a calendar year, although this may
not be true for hotels in major tourist destinations. Seasonal variations in
revenue at the Hotels may cause quarterly fluctuations in the Company's lease
revenue. To the extent that cash flow from operations may be insufficient during
any quarter to pay distributions at its current distribution rate due to
temporary or seasonal fluctuations in lease revenues, the Company expects to
utilize other cash on hand or borrowings under the Line of Credit to make such
distributions.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditor's reports, financial statements and financial
statement schedules listed in the accompanying index are included in Item 14 of
this report. See Index to Financial Statements and Financial Statement
Schedules on page F-1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors and executive officers of the
Company is set forth in the Proxy Statement (the "Proxy Statement") to be sent
to stockholders in connection with the Company's 1997 Annual Meeting of
Stockholders, under the heading "Election of Directors - Proposal 1, which
information is incorporated herein by reference. With the exception of the
information specifically incorporated herein by reference, the Company's Proxy
Statement is not to be deemed filed as part of this report for the purposes of
this Item.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference. With the exception of the information
specifically incorporated herein by reference, The Company's Proxy Statement is
not to be deemed filed as part of this report for the purposes of this Item.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated herein by reference. With the exception of the information
specifically incorporated herein by reference, the Company's Proxy Statement is
not to be deemed filed as part of this report for the purposes of this Item.
34
<PAGE>
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Certain Transactions,"
which information is incorporated herein by reference. With the exception of
the information specifically incorporated herein by reference, the Company's
Proxy Statement is not to be deemed filed as part of this report for the
purposes of this Item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Included herein at pages F-1 through F-37.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included herein at pages F-18
and F-38.
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1996.
Schedule III - Real Estate and Accumulated Depreciation as of July 30, 1996.
All other schedules for which provision is made in Regulation S-X are either not
required to be included herein under the related instructions or are
inapplicable or the related information is included in the footnotes to the
applicable financial statement and, therefore, have been omitted
3. EXHIBITS
The following exhibits are filed as part of this Annual Report on Form 10-K:
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-11, No. 333-4568).
3.2 Articles of Amendment and Restatement of the Registrant
(Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-11, No. 333-4568).
3.3 Bylaws of the Registrant (Incorporated by reference to Exhibit
3.3 to the Company's Registration Statement on Form S-11, No. 333-
4568).
3.4 Form of Second Articles of Amendment and Restatement of the
Registrant (Incorporated by reference to Exhibit 3.4 to the
Company's Registration Statement on Form S-11, No. 333-4568).
4.1 Form of Common Stock Certificate for the Registrant
(Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-11, No. 333-4568).
10.1 American General Hospitality Operating Partnership, L.P. Limited
Partnership Formation Agreement (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-11,
No. 333-4568).
10.2 Form of Amended and Restated Agreement of Limited Partnership
of American General Hospitality Operating Partnership, L.P.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-11, No. 333-4568.)
35
<PAGE>
Exhibit No. Description
- ----------- -----------
10.3 Form of Participating Lease between the Registrant and AGH Leasing,
L.P. (Incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-11, No. 333-4568).
10.4 Form of Lease Master Agreement between the Registrant and AGH
Leasing, L.P. (Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-11, No. 333-4568).
10.5 Form of Management Agreement between AGH Leasing, L.P. and American
General Hospitality, Inc. (Incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-11, No.
333-4568).
10.6 Form of Supplemental Representations, Warranties and Indemnity
Agreement (Incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-11, No. 333-4568).
10.7 Form of Exchange Rights Agreement (Incorporated by reference of
Exhibit 10.7 to the Company's Registration Statement on Form S-11,
No. 333-4568).
10.8 Form of Registration Rights Agreement (Incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-11,
No. 333-4568).
10.9 Form of Lock-up Agreement (Incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-11, No.
333-4568).
10.10 Credit Agreement among the American General Hospitality Operating
Partnership, L.P., Societe Generale, Southwest Agency, Bank One,
Texas, N.A. and the banks named therein (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement on Form
S-11, No. 333-19585).
10.11 Form of American General Hospitality Corporation 1996 Incentive
Plan (Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-11, No. 333-4568).+
10.12 Form of American General Hospitality Corporation Non-Employee
Directors' Incentive Plan (Incorporated by reference to Exhibit
10.12 to the Company's Registration Statement on Form S-11, No.
333-4568).+
10.13 Form of Employment Agreement between the Registrant and Steven D.
Jorns (Incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-11, No. 333-4568).+
10.14 Form of Employment Agreement between the Registrant and Bruce G.
Wiles (Incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-11, No. 333-4568).+
10.15 Form of Employment Agreement between the Registrant and Kenneth E.
Barr (Incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-11, No. 333-4568).+
10.16 Form of Employment Agreement between the Registrant and Russ C.
Valentine (Incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-11, No. 333-4568).+
10.17 Form of Shared Services Office Space Agreement (Incorporated
by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-11, No. 333-4568).
36
<PAGE>
Exhibit No. Description
- ----------- -----------
10.18 Form of Option Agreement and Right of First Offer/Refusal between
1815 Hotel Associates Limited Partnership and American General
Hospitality Operating Partnership L.P. (with respect to the Durham,
North Carolina Option Hotel) (Incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-11, No.
333-4568).
10.19 Form of Indemnification Agreement between the Registrant and its
executive officers and directors (Incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on Form S-11,
No. 333-4568).
10.20 Form of Option Agreement and Right of First Offer/Refusal between
Broadway Morrison Limited Partnership and American General
Hospitality Operating Partnership, L.P. (with respect to the Boise,
Idaho Option Hotel) (Incorporated by reference to Exhibit 10.36 to
the Company's Registration Statement on Form S-11, No. 333-4568).
10.21 Form of Management Company Master Agreement among AGH Leasing,
L.P., American General Hospitality, Inc., Steven D. Jorns and Bruce
G. Wiles (Incorporated by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-11, No. 333-4568).
10.22 Master Alliance Agreement by and among American General Hospitality
Corporation, American General Hospitality Operating Partnership,
L.P. and WHC Franchise Corporation, WHC Development Corporation
(Incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-11, No. 333-19585).
10.23 Commitment Letter for Line of Credit (Incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on Form S-11,
No. 333-19585).
10.24 First Amendment to the Line of Credit.*
10.25 Second Amendment to the Line of Credit.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on the Signature Page hereto).*
27.1 Financial Data Schedule.*
(b) Reports on Form 8-K.
1. A Current Report on Form 8-K, dated October 22, 1996, was filed by the
Company with the Commission in connection with acquisition of the Days Inn Lake
Buena Vista on November 5, 1996. A Current Report on Form 8-K/A, dated January
3, 1997, which included Items 2 and 7, "Acquisition or Disposition of Assets"
and "Financial Statements and Exhibits" with respect to this acquisition was
filed with the Commission.
(c) See Response to Item 14(a)(3) above.
(d) None.
* Filed herewith
+ Management contract or compensatory plan or arrangement.
37
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AMERICAN GENERAL HOSPITALITY CORPORATION
a Maryland corporation (Registrant)
By: /s/ Steven D. Jorns
-----------------------------------
STEVEN D. JORNS
Chairman of the Board, Chief Executive
Officer, and President
EACH OF THE OFFICERS AND DIRECTORS OF AMERICAN GENERAL HOSPITALITY CORPORATION
WHOSE SIGNATURE APPEARS BELOW, IN SO SIGNING, ALSO MAKES, CONSTITUTES AND
APPOINTS STEVEN D. JORNS AND KENNETH E. BARR, AND EACH OF THEM ACTING ALONG, HIS
TRUE AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER AND SUBSTITUTION, FOR HIM IN
ANY AND ALL CAPACITIES, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ANY AND ALL AMENDMENT OR AMENDMENTS TO THIS REPORT ON FORM
10-K, WITH EXHIBITS THERETO AND OTHER DOCUMENTS CONNECTED THEREWITH AND TO
PERFORM ANY ACTS NECESSARY TO BE DONE IN ORDER TO FILE SUCH DOCUMENTS, AND
HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Steven D. Jorns Chairman of the Board,
- --------------------------- Chief Executive Officer,
STEVEN D. JORNS and President March __, 1997
/s/ Kenneth E. Barr Executive Vice President,
- --------------------------- Chief Financial Officer,
KENNETH E. BARR Principal Accounting Officer,
Secretary and Treasurer March __, 1997
/s/ H. Cabot Lodge III Director March __, 1997
- ---------------------------
H. CABOT LODGE III
/s/ James R. Worms Director March __, 1997
- ---------------------------
JAMES R. WORMS
/s/ James McCurry Director March __, 1997
- ---------------------------
JAMES MCCURRY
/s/ Kent R. Hance Director March __, 1997
- ---------------------------
KENT R. HANCE
38
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms have
the meanings set forth below for the purposes of this Prospectus.
"1996 Plan" means the American General Hospitality Corporation 1996 Incentive
Plan.
"ACMs" means asbestos-containing materials.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Additional Charges" means certain amounts of money, including interest
accrued on any late payments on charges, that the Lessee will be obligated to
pay to the Company in addition to Base Rent or Participating Rent, pursuant to
the Participating Leases.
"Adjusted Basis Ratio" means, for each Hotel, the ratio that the average of
the adjusted bases of the personal property in a Hotel at the beginning and at
the end of a taxable year bears to the average of the aggregate adjusted bases
of both the real and personal property comprising the Hotel at the beginning and
at the end of a taxable year.
"ADR" means average daily room rate.
"AGH GP" means AGH GP, Inc., a Nevada corporation and wholly owned subsidiary
of the Company, which is the sole general partner of the Operating Partnership.
"AGH LP" means AGH LP, Inc. a Nevada corporation and wholly owned subsidiary
of the Company, which is a Limited Partner of the Operating Partnership.
"AGH Predecessor Hotels" means the following four Initial Hotels that were
acquired primarily from partnerships controlled by stockholders of AGHI: the
Holiday Inn Dallas DFW Airport West, Courtyard by Marriott-Meadowlands, Hotel
Maison de Ville, and the Hampton Inn Richmond Airport.
"AGHI" means American General Hospitality, Inc., which operates the Current
Hotels pursuant to the Management Agreements, and certain of its affiliates.
"Alliance Securities" means those shares of Common Stock or OP Units issued to
Wyndham Hotel Corporation and its affiliates pursuant to the Wyndham Alliance.
"Anti-Abuse Rule" means the regulations issued by the United States Treasury
Department under the Partnership Provisions of the Code that authorize the IRS,
in certain "abusive" transactions involving partnerships, to disregard the form
of a transaction and recast it for federal tax purposes as it deems appropriate.
"Base Rent" means the fixed obligation of the Lessee to pay a sum certain in
weekly rent under each of the Participating Leases.
"Beverage Corporations" means those corporations wholly owned by Steven D.
Jorns that sublease from the Lessee the portion of fourteen of the Current
Hotels that sell alcoholic beverages.
"Beverage Subleases" means those subleases between the Lessee and the Beverage
Corporations relating to the sublease of the areas at the Current Hotels where
alcoholic beverages are sold.
"Board of Directors" means the Board of Directors of the Company.
"Bylaws" means the Bylaws of the Company.
"Cash Available for Distribution" means Funds From Operations adjusted for
amortization of deferred financing costs, franchise transfer costs and unearned
officers' compensation, less reserves for capital expenditures.
39
<PAGE>
"Charter" means the charter of the Company filed for record with the State
Department of Assessments and Taxation of Maryland, as may be amended from time
to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the shares of Common Stock, $0.01 par value per share, of
the Company.
"Company" means American General Hospitality Corporation, a Maryland
corporation, which was incorporated on April 12, 1996, together with AGH GP, AGH
LP, and the Operating Partnership, and any subsidiaries thereof.
"Company Expenses" means all administrative costs and expenses of the Company,
AGH GP, and AGH LP.
"Comptroller" means the office of the Texas State Comptroller of Public
Accounts.
"Counsel" means Battle Fowler LLP.
"CPI" means the United States Consumer Price Index, All Urban Consumers, U.S.
City Average, All Items (1982-84 = 100)
"Current Hotels" means the fifteen hotels that the Company owned as of
December 31, 1996.
"DFW South Loan" means the non-recourse mortgage on Holiday Inn Dallas DFW
Airport South in the outstanding principal amount as of February 28, 1997 of
approximately $14.0 million.
"ESAs" means phase I environmental site assessments.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"F&B" means food and beverage.
"FF&E" means furniture, fixtures and equipment.
"FF&E Note" means collectively the one or more five-year amortizing recourse
promissory notes in the aggregate principal amount of $315,000 issued by the
Lessee to the Operating Partnership in connection with the sale by the Operating
Partnership of certain personal property relating to certain of the Initial
Hotels.
"Formation Transactions" means the principal transactions in connection with
the formation of the Company and the acquisition of the Initial Hotels.
"Franchise Licenses" means those franchise licenses relating to the franchised
Hotels.
"French Quarter Loan" means the non-recourse note in the outstanding principal
amount of approximately $9.6 million, as of December 31, 1996, assumed by
the Company in connection with the purchase of the French Quarter Suites Hotel.
"Funds From Operations" means income (loss) before minority interest (computed
in accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs), and
after adjustments for unconsolidated partnerships and joint ventures.
"General Partner" means AGH GP, Inc., a Nevada corporation.
"Initial Hotels" means the thirteen hotels that the Company acquired pursuant
to the Formation Transactions at the time of the IPO.
40
<PAGE>
"IPO" means the Company's initial public offering of Common Stock.
"IRS" means the U.S. Internal Revenue Service.
"Lease Master Agreement" means the agreement between the Operating Partnership
and the Lessee which sets forth the terms of the Lessee's required
capitalization and certain other matters.
"Lessee" means AGH Leasing, L.P., which leases the Hotels from the Operating
Partnership pursuant to the Participating Leases.
"Lessee Pledge" means the pledge by the partners of the Lessee of 275,000 OP
Units to the Company to secure the Lessee's obligations under the Participating
Leases.
"Limited Partners" means the limited partners of the Operating Partnership.
"Line of Credit" means the Company's $150 million line of credit with Societe
Generale, Southwest Agency, Bank One Texas, N.A. and certain other lenders.
"Management Agreements" means the agreements between AGHI and the Lessee to
operate the Hotels.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NYSE" means the New York Stock Exchange, Inc.
"OP Units" means units of limited partnership interest in the Operating
Partnership.
"Operating Partnership" means American General Hospitality Operating
Partnership, L.P., a limited partnership organized under the laws of Delaware.
Unless the context requires otherwise, Operating Partnership includes any
subsidiaries of the Operating Partnership.
"Option Hotels" means the two Courtyard by Marriott hotels currently located
in Boise, Idaho and in Durham, North Carolina in which AGHI holds an interest.
"Other Initial Hotels" means the following nine Initial Hotels that were
acquired primarily from persons unaffiliated with AGHI in connection with the
IPO and the related Formation Transactions: the Holiday Inn Dallas DFW Airport
South, Hilton Hotel-Toledo, Holiday Inn New Orleans International Airport,
Holiday Inn Park Center Plaza, Holiday Inn Select-Madison, Holiday Inn Mission
Valley, LeBaron Airport Hotel, Days Inn Ocean City, and Best Western Albuquerque
Airport Hotel.
"Participating Leases" means the operating leases between the Lessee and the
Operating Partnership pursuant to which the Lessee leases the current Hotels
from the Operating Partnership.
"Participating Rent" means rent based on percentages of room revenue, food and
beverage revenues and telephone and other revenue payable by the Lessee pursuant
to the Participating Leases.
"Partnership Agreement" means the partnership agreement relating to the
Operating Partnership.
"Partnership Provisions" means the partnership provisions of the Code.
"PCBs" means polychlorinated biphenyls.
"Plan" means AGHI's Retirement Savings Plan
"Portfolio Purchase" means the Company's acquisition of the Wyndham Garden
Hotel-Marietta (formerly the Four Points by Sheraton(R)) Hotel, the French
Quarter Suites Hotel and the Sheraton Key Largo from French Quarter Holdings,
Inc. for an aggregate purchase price of approximately $59.1 million.
41
<PAGE>
"Radisson Loan" means the one-year mortgage note in the principal amount of
approximately $8.2 million assumed by the Company in connection with the
purchase of Radisson Hotel Arlington Heights.
"REIT" means real estate investment trust as defined in Section 856 of the
Code.
"Rents" means, collectively, Base Rent and Participating Rent.
"REVPAR" means average total revenue per available room and is determined by
dividing room revenue by available rooms for the applicable period.
"Secaucus Loans" means the two promissory notes secured by a non-recourse
mortgage on the Courtyard by Marriott-Meadowlands hotel that were in the
outstanding principal amount as of February 28, 1997 of approximately $4.5
million and $554,000, respectively.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary Partnerships" means one or more subsidiary partnerships, joint
ventures, general partnerships and limited liability companies through which the
Operating Partnership owns certain of the Hotels.
"Treasury Regulations" means the income tax regulations promulgated under the
code.
"Weighted Average Daily Room Rate" means the total guest room revenue derived
from all of the Hotels divided by the total Number of guest rooms sold at all of
the Hotels.
"Weighted Average Occupancy" means the total number of guest rooms sold at all
of the Hotels divided by the total number of guest rooms available at all of the
Hotels.
"Wyndham" means Wyndham Hotel Corporation, together with its subsidiaries.
"Wyndham Alliance" means the strategic alliance between the Company and
Wyndham.
42
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
INDEX TO FINANCIAL STATEMENTS
American General Hospitality Corporation
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet as of December 31, 1996...................... F-3
Consolidated Statement of Operations for the Period from
July 31, 1996 (inception of operations) through
December 31, 1996...................................................... F-4
Consolidated Statement of Shareholders' Equity for the Period from
July 31, 1996 (inception of operations) through December 31, 1996...... F-5
Consolidated Statement of Cash Flows for the Period from July 31,
1996 (inception of operations) through December 31, 1996............... F-6
Notes to Consolidated Financial Statements.............................. F-7
Schedule III-Real Estate and Accumulated Depreciation as of
December 31, 1996...................................................... F-18
AGH Leasing, L.P
Report of Independent Accountants....................................... F-19
Balance Sheet as of December 31, 1996................................... F-20
Statement of Operations for the Period from July 31, 1996
(inception of operations) through December 31, 1996.................... F-21
Statement of Partners' Deficit for the period from July 31, 1996
(inception of operations) through December 31, 1996.................... F-22
Statement of Cash Flows for the Period from July 31, 1996
(inception of operations) through December 31, 1996.................... F-23
Notes to Financial Statements........................................... F-24
AGH Predecessor Hotels
The AGH Predecessor Hotels represent four of the Initial Hotels
acquired, concurrent with the Company's initial public offering
primarily from limited partnerships controlled by shareholders of
American General Hospitality, Inc. The AGH Predecessor Hotels are
deemed to be the predecessor of the Company
Report of Independent Accountants....................................... F-28
Combined Balance Sheets as of December 30, 1994, December 29, 1995
and July 30, 1996...................................................... F-29
Combined Statements of Operations for the Period from December 30,
1993 through December 31, 1993 the Years Ended December 30, 1994
and December 29, 1995 and for the period from December 30, 1995
through July 30, 1996.................................................. F-30
Combined Statements of Equity for the Period from December 30, 1993
through December 31, 1993, the Years Ended December 30, 1994 and
December 29, 1995 and for the period from December 30, 1995 through
July 30, 1996.......................................................... F-31
Combined Statements of Cash Flows for the Period from December 30,
1993 through December 31, 1993, the Years Ended December 30, 1994
and December 29, 1995 and for the period from December 30, 1995
through July 30, 1996.................................................. F-32
Notes to Combined Financial Statements.................................. F-33
Schedule III-Real Estate and Accumulated Depreciation as of July 30,
1996................................................................... F-38
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American General Hospitality Corporation
We have audited the accompanying consolidated balance sheet of American
General Hospitality Corporation as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period from July 31, 1996 (inception of operations) through December 31,
1996. Our audit also included the financial statement schedule listed in the
Index at Item 14. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Hospitality Corporation as of December 31, 1996 and the consolidated results of
their operations and their cash flows for the period from July 31, 1996
(inception of operations) through December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Dallas, Texas
January 25, 1997, except for Note 10, as to
which the date is March 26, 1997
F-2
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
Investment in hotel properties:
<S> <C>
Land and land improvements...................... $ 17,287,136
Buildings and improvements...................... 195,294,012
Furniture, fixtures and equipment............... 11,505,892
Construction-in-progress........................ 10,861,976
--------------
234,949,016
Less: accumulated depreciation................... (4,188,198)
--------------
Net investment in hotel properties............ 230,760,818
Cash and cash equivalents........................ 3,888,281
Restricted cash.................................. 544,541
Participating Lease receivable-AGH
Leasing, L.P.................................... 3,982,424
Deferred expenses, net........................... 2,986,946
Other assets..................................... 664,661
Note receivable-Lessee........................... 287,684
--------------
Total assets................................ $243,115,355
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt............................................. $ 19,122,398
Debt, Line of Credit............................. 57,500,000
Distributions payable............................ 4,150,729
Accounts payable, accrued expenses and
other liabilities............................... 5,756,097
Minority interest in Operating
Partnership..................................... 29,125,020
--------------
Total liabilities........................... 115,654,244
--------------
Commitments and contingencies (Notes 4 and 5)
Shareholders' equity:
Common stock $0.01 par value per share,
100,000,000 shares authorized,
8,288,841 shares issued and outstanding........ 82,888
Additional paid-in capital....................... 128,746,013
Unearned officers' compensation.................. (850,521)
Distributions inexcess of earnings............... (517,269)
--------------
Total shareholders' equity.................. 127,461,111
--------------
Total liabilities and
shareholders' equity....................... $243,115,355
==============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Revenues:
<S> <C>
Participating Lease revenue................... $13,387,719
Interest income............................... 108,075
-------------
Total revenue............................. 13,495,794
-------------
Expenses:
Depreciation.................................. 2,635,380
Amortization of deferred loan costs........... 234,375
Amortization of franchise fees................ 31,621
Amortization of other deferred
expenses..................................... 7,429
Real estate and personal property
taxes and property insurance................. 1,444,592
General and administrative.................... 822,113
Ground lease expense.......................... 545,279
Amortization of unearned officers'
compensation................................. 36,979
Interest expense.............................. 1,412,117
-------------
Total expenses............................ 7,169,885
-------------
Income before minority interest.................. 6,325,909
Minority interest................................ 1,196,728
-------------
Net income applicable to common
shareholders.................................... $ 5,129,181
=============
Net income per common share...................... $0.63
=============
Weighted average number of common
shares outstanding.............................. 8,170,029
=============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock ADDITIONAL UNEARNED DISTRIBUTIONS IN
------------------------------- PAID-IN OFFICERS' EXCESS OF
SHARES DOLLARS CAPITAL COMPENSATION EARNINGS TOTAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common shares,
net of offering expenses
and allocation to minority
interest ($1,974,994)... 8,212,008 $82,120 $127,276,784 $127,358,904
Issuance of restricted
common shares to officers 50,000 500 887,000 $(887,500)
Distributions paid
October 30, 1996
($0.2746 per share)... $(2,268,748) (2,268,748)
Distributions declared
December 18, 1996
($0.4075 per share)... (3,377,702) (3,377,702)
Issuance of common shares
to directors........... 1,436 14 25,475 25,489
Issuance of common shares
for the acquisition of the
Days Inn Lake Buena
Vista adjusted for
allocation to minority
interest ($57,008).... 25,397 254 556,754 557,008
Amortization of unearned
officers' compensation 36,979 36,979
Net income.............. 5,129,181 5,129,181
----------------------------------------------------------------------------------------------------
Balance at December 31,
1996.................. 8,288,841 $82,888 $128,746,013 $(850,521) $ (517,269) $127,461,111
====================================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net income.......................................................... $ 5,129,181
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation...................................................... 2,635,380
Amortization...................................................... 310,404
Minority interest................................................. 1,196,728
Changes in assets and liabilities:
Restricted cash................................................... (544,541)
Participating Lease receivable-AGH
Leasing, L.P.................................................... (3,982,424)
Payments of organization costs and
franchise fees................................................... (1,010,371)
Other assets...................................................... (664,661)
Accounts payable, accrued expenses
and other liabilities............................................ 5,756,097
---------------
Net cash flow provided by
operating activities........................................... 8,825,793
---------------
Cash flows from investing activities:
Purchase of hotel properties and
related assets..................................................... (175,612,831)
Improvements and additions to hotel
properties......................................................... (10,861,976)
Payments received on note receivable
AGH Leasing, L.P................................................... 27,316
---------------
Net cash flow used in investing activities...................... (186,447,491)
---------------
Cash flows from financing activities:
Proceeds from borrowings............................................ 67,500,000
Net proceeds from public offering................................... 129,333,898
Principal payments on borrowings.................................... (10,283,862)
Payments for deferred loan costs.................................... (2,250,000)
Distributions paid.................................................. (2,790,057)
---------------
Net cash flow provided by financing activities.................. 181,509,979
----------------
Net change in cash and cash equivalents............................. 3,888,281
Cash and cash equivalents as of July 31, 1996
(inception of operations)...........................................
---------------
Cash and cash equivalents as of December 31, 1996.................... $ 3,888,281
===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................ $ 1,251,610
===============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
Organization-American General Hospitality Corporation (the "Company" or the
"Registrant") was incorporated and formed on April 12, 1996 as a Maryland
corporation which intends to qualify as a real estate investment trust ("REIT").
The Company commenced operations on July 31, 1996 (see Initial Public Offering
discussion below). Upon commencement of operations, the Company acquired equity
interests in 13 hotels (the "Initial Hotels"). Four of the Initial Hotels (the
"AGH Predecessor Hotels") were acquired primarily from limited partnerships
controlled by the shareholders of American General Hospitality, Inc. (the "AGHI
Affiliates"). The remaining nine Initial Hotels (the "Other Initial Hotels")
were acquired primarily from parties unaffiliated with the Company through
contracts with the sellers acquired from an AGHI affiliate.
Upon completion of the initial public offering described below, the Company,
through wholly owned subsidiaries, acquired an approximate 81.3% equity interest
in American General Hospitality Operating Partnership, L.P. (the "Operating
Partnership"). A wholly owned subsidiary of the Company is the sole general
partner of the Operating Partnership. The Operating Partnership and entities
which it controls own the Initial Hotels and lease them to AGH Leasing, L.P.
(the "Lessee"), which is owned, in part, by certain officers of the Company,
under operating leases ("Participating Leases") which provide for rent based on
the revenues of the Initial Hotels. The Lessee has entered into management
agreements pursuant to which the Initial Hotels are managed by American General
Hospitality, Inc. ("AGHI").
Initial Public Offering-As of July 31, 1996, the Company completed an initial
public offering of 7,500,000 shares of its Common Stock and an additional
575,000 shares of common stock were issued by the Company on August 28, 1996
upon exercise of the underwriters' over-allotment option at a price per share of
$17.75 (the "IPO"). In addition, concurrently with the July 31, 1996 closing of
the IPO, the Company acquired interests in five of the Initial Hotels from the
AGHI Employee Retirement Savings Plan (the "Retirement Plan") in exchange for
137,008 shares. Upon consummation of the IPO, the Company contributed all of the
net proceeds of the IPO ($129.3 million after deducting IPO expenses), together
with interests in five of the Initial Hotels acquired in connection with the
Retirement Plan acquisition, to AGH GP, Inc. ("General Partner") and AGH LP,
Inc. ("Limited Partner"), which, in turn, contributed such proceeds and
interests to the Operating Partnership in exchange for an approximate 81.3%
equity interest in the Operating Partnership. The General Partner, a wholly
owned subsidiary of the Company, owns a 1.0% interest in the Operating
Partnership. The Limited Partner, also a wholly owned subsidiary of the Company,
owns an approximate 80.3% limited partnership interest in the Operating
Partnership.
Also on July 31, 1996 the Operating Partnership acquired directly or
indirectly the remaining interests in each of the Initial Hotels for an
aggregate of 1,896,996 units of limited partnership interest in the Operating
Partnership ("OP Units") (560,178 OP Units to the Primary Contributors, which
consist of the principals of AGHI and the Lessee and certain of their respective
affiliates and 1,336,818 OP Units to parties unaffiliated with the Primary
Contributors) and approximately $91.0 million in cash to parties unaffiliated
with the Primary Contributors. At the time of their acquisition, the Initial
Hotels were subject to approximately $52.9 million in mortgage indebtedness of
which approximately $33.5 million was repaid from the net proceeds of the
Offering and the initial draw from the Line of Credit. On August 28, 1996, the
outstanding borrowings under the Line of Credit were repaid with proceeds of the
exercise of the underwriters' over-allotment option. The Operating Partnership
reimbursed AGHI for approximately $900,000 for direct out-of-pocket expenses
incurred in connection with the acquisition of the Initial Hotels, including
legal, environmental and engineering expenses. In addition, concurrent with the
consummation of the IPO, the Operating Partnership sold certain personal
property relating to certain of the Initial Hotels to the Lessee in exchange for
a series of three five-year recourse promissory notes in the aggregate principal
amount of $315,000 that are collateralized by such personal property.
Upon the closing of the Offering, the Company closed a $100 million line of
credit with a consortium of banks led by Societe Generale, Southwest Agency and
Bank One, Texas, N.A. (the "Line of Credit"). The Line of Credit is
collateralized by, among other things, first mortgage liens on all of the
Initial Hotels, other than the Holiday Inn Dallas DFW Airport South and the
Courtyard by Marriott-Meadowlands, which hotels collateralize other
indebtedness. The Line of Credit has an initial term of three years that is
subject to extension under certain circumstances for an additional one-year
term. Borrowings under the Line of Credit bear interest at 30-day, 60-day or 90-
day LIBOR (the "London Interbank
F-7
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
Offered Rate"), at the option of the Company, plus 1.85% per annum, payable
monthly in arrears or one-half percent in excess of the prime rate.
At December 31, 1996, the Company owned an 81.4% interest in the Operating
Partnership which owned 15 hotels (the "Current Hotels") and leased them to the
Lessee. The Lessee has entered into management agreements pursuant to which all
hotels are managed by AGHI.
On October 22, 1996, the Company acquired the 490-room Days Inn Lake Buena
Vista for an aggregate purchase price of approximately $30.5 million that was
paid as follows: (i) $30.0 million in cash and (ii) $500,000 through the
issuance of 25,397 shares of restricted Common Stock. In connection with the
acquisition, the Company also paid an aggregate of approximately $2.4 million to
acquire a license and an association membership related to the hotel's African
royal safari theme (as described below) and for certain hotel related design
services. The Company has budgeted approximately $9.3 million to complete an
extensive renovation program to upgrade the entire hotel and to reposition the
hotel as a Wyndham Hotel during the fourth quarter of 1997.
On November 21, 1996, the Company acquired the 204-room Holiday Inn Resort
Monterey for approximately $15.5 million in cash. The Company has budgeted
approximately $3.9 million in renovations to upgrade the hotel's guest rooms and
public areas in order to reposition the hotel as a Hilton Hotel during the
fourth quarter of 1997.
The Company completed a second offering ("1997 Public Offering") of 6,365,300
shares of common stock in February 1997 - see Subsequent Events, Note 10.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation-The consolidated financial statements include the
accounts of the Company and the Operating Partnership. All significant
intercompany balances and transactions have been eliminated.
Investment in Hotel Properties-Hotel properties are stated at cost and are
depreciated using the straight-line method over estimated useful lives of 39
years for buildings and improvements and 5 to 7 years for furniture, fixtures
and equipment.
The Company periodically reviews the carrying value of each of its investments
in hotel properties to determine if circumstances exist indicating an impairment
in the carrying value of the investment in hotel property or that depreciation
periods should be modified. If facts or circumstances support the possibility of
impairment, the Company will prepare a projection of the undiscounted future
cash flows, without interest charges, of the specific hotel property and
determine if the investment in hotel property is recoverable based on the
undiscounted future cash flows. Management of the Company does not believe that
their are any factors or circumstances indicating impairment of any of its
investment in hotel properties.
Maintenance and repairs are charged to operations as incurred; major renewals
and improvements are capitalized. Upon the sale or disposition of a fixed asset,
the asset and related accumulated depreciation accounts are removed from the
accounts and the related gain or loss is included in operations.
Cash and Cash Equivalents-All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
Restricted Cash-Escrow deposits required by the Holiday Inn Dallas DFW Airport
South hotel and an escrow deposit used to pay certain unused facility fees under
the Line of Credit are considered to be restricted cash.
Deferred Expenses-Organizational costs of approximately $94,771, deferred loan
costs of approximately $2,250,000 and franchise fees of approximately $915,600
at December 31, 1996 are stated at cost. Amortization of organization costs is
computed using the straight-line method over five years. Amortization of
deferred loan costs is computed using the effective yield method over the
original term of the related debt of four years. Amortization of franchise fees
is computed
F-8
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
using the straight-line method over the average life of the franchise agreements
of approximately 10 years. Accumulated amortization at December 31, 1996 is
$273,425.
Revenue Recognition-Participating Lease revenue is recognized when earned from
the Lessee under the Participating Lease agreements (see Note 4). The
Participating Lease revenue is based on a percentage of room revenues, food and
beverage revenues and telephone and other revenues. The departmental revenue
thresholds in the Participating Leases are seasonally adjusted for interim
periods and the Participating Lease formulas adjust effective January 1, 1997
by a percentage equal to the percentage increase in the Consumer Price Index as
compared to the prior year plus .75 percent. Additionally, seven of the Initial
Hotels will have further adjustments to the Participating Lease formulas due to
the significant renovations expected to be completed on those hotels in 1997.
The Lessee is in compliance with its obligations stipulated in the Percentage
Leases.
At December 31, 1996, the Lessee owed the Company $3,982,424 under the
Participating Leases which was paid in January 1997.
Net Income Per Common Share-Net income per common share is computed by
dividing net income applicable to common shareholders by the weighted average
number of shares of common stock and equivalents outstanding. Common share
equivalents that have a dilutive effect represent the restricted shares issued
to certain officers. For the period from July 31, 1996 through December 31,
1996, the outstanding common stock options had an immaterial dilutive effect.
Distributions-The Company pays regular quarterly distributions which are
dependent on receipt of distributions from the Operating Partnership.
Distributions made in 1996 represent an 18% return of capital for federal income
tax purposes.
Minority Interest-Minority interest in the Operating Partnership represents
the limited partners' proportionate share of the equity in the Operating
Partnership. Income is allocated to minority interest based on the weighted
average percentage ownership through the year.
Income Taxes-The Company intends to qualify as a REIT under Section 856
through 860 of the Internal Revenue Code. Accordingly, no provision for federal
income taxes has been reflected in the consolidated financial statements.
Earnings and profits, which will determine the taxability of distributions to
stockholders, will differ from income reported for financial reporting purposes
due to the differences for federal tax purposes primarily in the estimated
useful lives used to compute depreciation.
Concentrations of Risk-The Company places cash deposits at a major bank. At
December 31, 1996, bank account balances exceeded Federal Deposit Insurance
Corporation limits by approximately $3.0 million. Management believes credit
risk related to these deposits is minimal.
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company's Current Hotels are diversified by five different national brands
and include thirteen full-service hotels and two limited service hotels located
in ten states.
F-9
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
3. Debt Obligations
Debt at December 31, 1996 consists of the following:
First mortgage note payable in monthly installments
including interest at the fixed rate of 8.75%;
maturing on February 1, 2011 at which time a balloon
payment of approximately $6,120,000 will be due and
payable; and collateralized by the Holiday Inn
Dallas DFW Airport South hotel......................... $13,998,724
First mortgage note payable in monthly installments
including interest at the fixed rate of 7.5%;
maturing on December 1, 2001 at which time a balloon
payment of approximately $3,985,000 will be due and
payable; and collateralized by the Courtyard by
Marriott-Meadowlands hotel............................. 4,547,894
Construction loan payable in monthly installments
including interest at the fixed rate of 7.89%;
maturing on January 1, 2001 collateralized by the
Courtyard by Marriott-Meadowlands hotel................ 575,780
-------------
19,122,398
Line of Credit........................................... 57,500,000
-------------
Total debt obligations................................... $76,622,398
=============
The Company has a $100 million Line of Credit which matures on July 31, 1999.
At December 31, 1996, the Company has approximately $23.4 million available for
borrowing under the Line of Credit ($16.1 million after closing the Hilton Hotel
Durham acquisition and its admission into the approved borrowing base-see note
10). The Company expects that its borrowing capacity under the Line of Credit
will increase to approximately $100 million, assuming all additional borrowings
are used to fund capital improvements to the hotels or the acquisition of
additional hotels. Borrowings under the Line of Credit bear interest at 30-day,
60-day or 90-day LIBOR, at the option of the Company, plus 1.85% per annum
(7.35% at December 31, 1996), payable monthly in arrears or one-half percent in
excess of prime rate.
The Line of Credit is collateralized by the Company's investment in hotel
properties other than the hotel properties collateralizing the previous debt
obligations.
Aggregate annual principal payments for the Company's debt at December 31,
1996 are as follows.
YEAR
----
1997................................... $ 557,816
1998................................... 584,965
1999................................... 58,114,586
2000................................... 646,906
2001 and thereafter.................... 16,718,125
-----------
$ 76,622,398
===========
The Company's Line of Credit limits consolidated indebtedness (measured at
the time the debt is incurred) to no more than 45% of the Company's investments
in hotels.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Franchise and Management Fees
Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements which expire
from 1998 to 2013. Franchise costs are based upon varying percentages of gross
room revenue ranging from 1.0% to 5.0%. These fees are paid by the Lessee. No
franchise costs were incurred for the Hotel Maison de Ville or the Le Baron
Airport Hotel.
The hotels are managed by AGHI on behalf of the Lessee. The Lessee pays AGHI a
base management fee of 1.5% of total revenue and an incentive fee of up to 2.0%
of total revenue. The incentive fee, if applicable, is equal to 0.025%
F-10
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
of annual total revenue for each 0.1% increase in annual total revenue over the
total revenues for the preceding twelve month period up to the maximum incentive
fee.
Each hotel, except the Le Baron Airport Hotel and the Hotel Maison de Ville,
is required to remit varying percentages of gross room revenues ranging from
1.0% to 5.0% to the various franchisors for sales and advertising expenses
incurred to promote the hotel at the national level. Additional sales and
advertising costs are incurred at the local property level. These fees are paid
by the Lessee.
The Company entered into an agreement for a license and an association
membership from one of the sellers of the Days Inn Lake Buena Vista which the
Company immediately assigned to the Lessee. Commencing January 1998, in
connection with the license and the association membership, the Lessee is
required to pay recurring association fees including a base monthly fee equal to
1.0% of the prior month's gross room revenues generated at the hotel, and an
additional fee of 0.5% to 1.0% of gross monthly revenues if the trailing twelve
month's gross room revenues at the hotel exceed a threshold of approximately
$13 million, (subject to increase based on the percentage increase in the CHI).
In addition, the Lessee is obligated to pay a recurring royalty for the African
royal safari theme equal to an amount which ranges from 10% to 25% of net
operating income in excess of $6 million (subject to adjustment if the Lessee
invests more than $40 million in the hotel). The Lessee is also obligated to
pay a marketing assistance fee equal to .25% of gross room revenues. The
marketing and association fees are not expected to exceed 2.25% of gross room
revenues for any twelve-month period. The association membership agreement
terminates in October 2008; the Lessee is obligated to pay liquidated damages if
the agreement is terminated earlier.
Participating Leases
The Lessee has future lease commitments to the Company under the Participating
Leases which expire from July 2008 to November 2009. Minimum future rental
income (i.e., base rents) under these noncancellable Participating Leases at
December 31, 1996 is as follows:
Year Amount
---- ------------
1997........................ $ 26,419,208
1998........................ 26,851,816
1999........................ 27,813,684
2000........................ 28,810,872
2001 and thereafter......... 253,080,680
------------
Total $362,976,260
============
Under the Participating Leases, the Company is obligated to pay the costs of
real estate and personal property taxes, property insurance and maintaining
underground utilities and structural elements of the Initial Hotels.
Additionally, the Company is required to establish annual minimum reserves equal
to 4.0% of total revenue for each of the Hotels which will be utilized by the
Lessee for the replacement and refurbishment of furniture, fixtures & equipment
("FF&E") and other capital expenditures to enhance the competitive position of
the Hotels. At December 31, 1996, actual capital expenditures were greater than
the amount required to be reserved.
In the event the Company enters into an agreement to sell or otherwise
transfer a Hotel, the Company will have the right to terminate the Participating
Lease with respect to such hotel upon 30 days' prior written notice upon either
(i) paying the Lessee the fair market value of the Lessee's leasehold interest
in the remaining term of the Participating Lease to be terminated (which amount
will be determined by discounting to present value, for each year of the
remainder of the lease term, cash flow attributable to such lease after
deducting the cost component of the applicable management fees, at an annual
discount rate of 12% (for the purposes of such calculation, the annual cash flow
for each remaining year of the lease term shall be equal to the cash flow
attributable to such lease for the twelve months ended on the lease termination
date)) or (ii) offering to lease to the Lessee a substitute hotel on terms that
would create a leasehold interest in such hotel with a fair market value equal
to or exceeding the fair market value of the Lessee's remaining leasehold
interest under the Participating Lease to be terminated.
F-11
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
Ground Leases
Four of the Initial Hotels are subject to ground leases with third parties
with respect to the land underlying each such hotel. The ground leases are
triple net leases which require the tenant to pay all expenses of owning and
operating the hotel, including real estate taxes and structural maintenance and
repair.
The Courtyard by Marriott-Meadowlands is subject to a ground lease with
respect to approximately 0.37 acres. The ground lease terminates in March, 2036,
with two ten-year options to renew. The lease requires a fixed rent payment
equal to $150,000 per year, subject to a 25.0% increase every five years
thereafter beginning in 2001 and a percentage rent payment equal to 3.0% of
gross room revenues.
The Best Western Albuquerque Airport Hotel is subject to a ground lease with
respect to approximately 10 acres. The ground lease terminates in December 2013,
with two five-year options to renew. The lease requires a fixed rent payment
equal to $19,180 per year subject to annual consumer price index adjustment and
a percentage rent payment equal to 5.0% of gross room revenues, 3.0% of gross
receipts from the sale of alcoholic beverages, 2.0% of gross receipts from the
sale of food and non-alcoholic beverages and 1.0% of gross receipts from the
sale of other merchandise or services. The lease also provides the landlord with
the right, subject to certain conditions, to require the Company, at its
expense, to construction 100 additional hotel rooms if the occupancy rate at the
hotel is 85.0% or more for 24 consecutive months and to approve any significant
renovations scheduled at the hotel. The occupancy rate at the Best Western
Albuquerque Airport Hotel for the year ended December 31, 1996 was 80.4%.
The Hilton Hotel-Toledo is subject to a ground lease with respect to
approximately 8.8 acres. The ground lease terminates in June 2026, with four
successive renewal options, each for a ten-year term. The lease requires annual
rent payments equal to $25,000, increasing to $50,000 or $75,000 if annual gross
room revenues exceed $3.5 million or $4.5 million, respectively.
The Le Baron Airport Hotel is subject to a ground sublease with respect to
approximately 5.3 acres, which in turn is subject to a ground lease covering a
larger tract of land. The sublease terminates in 2022, with one 30-year option
to renew. The sublease requires the greater of a fixed minimum annual rent of
$75,945 (increasing to an annual minimum rent of $100,000 if the option is
exercised) or, in the aggregate, 4.0% of gross room revenues, 2.0% of gross food
receipts, and 3.0% of gross bar and miscellaneous operations receipts. The
sublease also provides the sublessor with the right to approve any significant
renovations scheduled at the hotel.
Minimum future rental payments for the ground leases to be paid by Company at
December 31, 1996 are as follows:
Year Amount
---- -----------
1997....................... $ 343,846
1998....................... 361,416
1999....................... 366,866
2000....................... 372,725
2001 and thereafter........ 18,425,301
-----------
Total................. $19,870,154
===========
5. EMPLOYEE BENEFITS
The Board of Directors adopted the American General Hospitality Corporation
1996 Incentive Plan (the "1996 Plan") and the American General Hospitality
Corporation Non-Employee Directors' Incentive Plan (the "Directors' Plan".)
The 1996 Plan-Each employee of the Company or of an affiliate of the Company
(other than employees of the Lessee and AGHI who are not also employees of the
Company), or any other person whose efforts contribute to the Company's
performance is eligible to participate in the 1996 Plan. The Compensation
Committee of the Board of Directors may grant stock options, stock awards,
incentive awards or performance shares to participants. Under the 1996
F-12
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
Plan, the total number of shares available for grant is 900,000 shares of Common
Stock of which not more than 50,000 shares may be granted as stock awards.
The Directors' Plan-A maximum of 100,000 shares of Common Stock may be issued
under the Directors' Plan. The Directors' Plan provides that each director will
be awarded nonqualified options to purchase 10,000 shares of Common Stock at the
fair market value at the date of grant. On October 1, 1996, the Directors were
issued 1,436 shares (359 per Director) at the IPO price ($17.75) in accordance
with the agreement.
Concurrent with the IPO, the Company granted to the Company's officers and
directors options (''Options'') to acquire an aggregate 400,000 shares of Common
Stock at an exercise price of $17.75 per share (the Offering Price) and stock
awards ("Awards") representing 50,000 shares of restricted Common Stock. The
Options and Awards vest and are exercisable over five years. The Options expire
in 2006. As of December 31, 1996, no options had been exercised.
Employment Agreements-The Company entered into an employment agreement with
Mr. Steven D. Jorns, the Company's Chairman of the Board, President and Chief
Executive Officer for a term of five years at an initial annual base
compensation of $100,000, subject to any increases in base compensation approved
by the Compensation Committee. In addition, the Company entered into employment
agreements with three other executive officers each for a term of five years at
an aggregate annual base compensation of $230,000.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107 requires all
entities to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, the Company reports the carrying amount of
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities at cost which approximates fair value due to the
short maturity of these instruments. The carrying amount of the Company's debt
obligations approximates fair value due to the Company's ability to obtain such
borrowings at comparable interest rates.
7. STOCK BASED COMPENSATION PLANS
The Company sponsors the "American General Hospitality Corporation 1996
Incentive Plan" (the "1996 Plan") and the "American General Hospitality
Corporation Non-Employee Directors' Incentive Plan" (the "Directors' Plan")
(collectively, the "Plans"), which are stock-based incentive compensation plans
as described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for the plans. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which,
if fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the Plans. Adoption of the cost recognition provisions
of SFAS 123 is optional and the Company has elected to follow the disclosure
provisions of SFAS 123. Accordingly, pro forma disclosures as if the Company
adopted the cost recognition provisions of SFAS 123 in 1995 are presented below.
STOCK OPTIONS
The Company is authorized to issue 900,000 shares of Common Stock under the
1996 Plan pursuant to "Awards" granted in the form of incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended,
non-qualified stock options, restricted stock, performance shares and other
incentive awards. Awards may be granted to key executives and other key
employees of the Company and its affiliates. The options granted in 1996 were
composed of both incentive and nonqualified stock options with 10-year
contractual terms. The options vest 25% per year beginning on the grant date.
The Compensation Committee administers the Plan and has broad discretion in
selecting Plan participants and determining the vesting period and other terms
applicable to Awards granted under the Plan.
Under the Directors Plan, the Company automatically grants nonqualified stock
options to non-employee directors on designated "award dates." The options
granted in 1996 have 10-year contractual terms and vest 33.33% per year
beginning on the grant date. The Compensation Committee administers the Plans
and has limited discretion in determining the terms applicable to Awards granted
under the Plan.
F-13
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
Under the Plans, the Company granted a total of 400,000 stock options in 1996.
A summary of the status of the Company's stock options as of December 31, 1996
and the changes during the year ended on that date is presented below:
<TABLE>
<CAPTION>
1996
-------------
Number of Weighted
Shares of Average
Underlying Excercise
Options Prices
-------------------------------------
<S> <C> <C>
Outstanding at beginning of
the year 0 n/a
Granted 400,000 $17.75
Exercised 0 n/a
Forfeited n/a n/a
Expired n/a n/a
Outstanding at end of year 400,000 $17.75
Exercisable at end of year 103,333 $17.75
Weighted-average fair
value of options granted
during the year $0.96
</TABLE>
The remaining contractual term for options outstanding as of December 31, 1996
is 9.58 years. The fair value of each stock option granted is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 9.2%; risk-free interest
rates range from 6.63% to 6.82%; the expected lives of options are 6 to 8 years;
and the stock price volatility is 15.46% for all grants.
RESTRICTED STOCK
According to the 1996 Plan, a total of 50,000 of the 900,000 reserved shares
of Common Stock may be issued as restricted Common Stock. In 1996, the Company
issued 50,000 shares of restricted Common Stock. These shares vest at the rate
of 10% on the date of grant, 20% on the second and third anniversaries of the
date of grant, and 25% on the third and fourth anniversaries of the date of
grant.
In accordance with APB 25, upon the issuance of restricted shares of Common
Stock under the Plans, the Company recognized a deferred compensation cost for
the restricted Common Stock in the amount of $887,500. This cost is charged to
shareholders' equity and recognized as amortization expense over the applicable
vesting period, in the amount of $36,979 for 1996. The weighted average share
price at the date of grant for the 50,000 shares of restricted Common Stock
issued in 1996 was $17.75.
A summary of the status of the Company's restricted shares of Common Stock as
of December 31, 1996 and the changes during the year ended on that date is
presented below:
<TABLE>
<CAPTION>
1996
-------------
Weighted
Average
Number of Fair Market
Shares Value at Grant
-------------------------------------
<S> <C> <C>
Outstanding at beginning of
the year 0 n/a
Granted 50,000 $17.75
Outstanding at end of year 50,000 $17.75
Vested at end of year 5,000 $17.75
</TABLE>
PRO FORMA NET INCOME AND
NET INCOME PER COMMON SHARE
Had the compensation cost for the Company's stock-based compensation plans
been recognized as expense, the Company's net income and net income per common
share for 1996 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
As Reported Pro Forma
12/31/96 12/31/96
<S> <C> <C>
SFAS 123 Charge $0.00 $41.956
APB25 Charge $36,979 $36,979
Net Income $5,129,181 $5,087,225
Net Income Per common Share $0.63 $0.62
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. In addition, the Company anticipates making
awards in the future under its stock-based compensation plans.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES.
The Operating Partnership issued 506,825 OP Units to AGHI Affiliates, 137,008
shares of restricted common stock to the Retirement Plan and cash of $282,229 in
exchange for the AGH Predecessor Hotels' investment in hotel properties of
$22,757,560 (recorded at carryover historical cost) and assumed related debt of
$5,267,990.
F-14
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
The Operating Partnership issued 1,336,818 OP Units to parties unaffiliated
with the Primary Contributors and 53,353 OP Units to the Primary Contributors
which had an aggregate value of $24,675,535 and assumed $14,138,270 of
indebtedness in exchange for partial interests in four of the Other Initial
Hotels.
The Operating Partnership advanced $315,000 in the form of a note receivable
to the Lessee for the purchase of FF&E.
The Company issued 50,000 shares of restricted common stock to four executive
officers which, at the date of issuance, were valued at $17.75 per share.
The Company issued 1,436 shares of Common Stock to the Board of Directors for
compensation in accordance with their agreement which were valued at $17.75 per
share.
Concurrent with the acquisition of the Days Inn Lake Buena Vista, the Company
issued 25,397 shares of Common Stock to one of the sellers which were valued at
$19.69 per share at the date of issuance.
On December 18, 1996, $4,150,729 in distributions to common stock and OP Unit
holders had been declared but not yet paid.
9. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the IPO and related Formation Transactions including the
acquisitions of the Initial Hotels and the other hotel acquisitions in 1996 as
described in Note 1, the historical results of operations may not be indicative
of future results of operations and net income per common share. The following
unaudited pro forma information for the year ended December 31, 1995 and 1996
are presented as if the transactions previously described had occurred on
January 1, 1995, and all of the current hotels had been leased to the Lessee
pursuant to the Percentage Leases since that date.
In management's opinion, all adjustments necessary to reflect the effects of
the transactions previously described have been made. The pro forma information
does not purport to present what actual results of operations would have been if
the acquisitions and the consummation of the IPO had occurred on such date or to
project results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------------
<S> <C> <C>
Revenues
Participating Lease revenue......... $31,195,065 $35,302,430
Interest income..................... 31,500 99,473
--------------------------------------
Total revenue.................... 31,226,565 35,401,903
--------------------------------------
Expenses
Depreciation........................ 8,703,393 7,235,664
Amortization........................ 653,211 659,739
Real estate and personal property
taxes and property insurance....... 3,098,755 3,517,465
General and administrative.......... 1,298,469 1,543,771
Ground lease expense................ 881,217 1,049,524
Amortization of unearned officers'
compensation....................... 88,750 88,750
Interest expense.................... 1,886,733 2,222,207
--------------------------------------
Total expenses................... 16,610,529 16,317,120
--------------------------------------
</TABLE>
F-15
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------------
<S> <C> <C>
Income before minority interest.... 14,616,036 19,084,783
Minority interest.................. 2,722,070 3,549,770
--------------------------------------
Net income applicable to common
shareholders...................... $11,893,966 $15,535,013
======================================
Per common share information:
Net income per common share........ $ 1.43 $ 1.87
======================================
Weighted average number of shares
of Common stock outstanding....... 8,288,841 8,288,841
======================================
</TABLE>
10. SUBSEQUENT EVENTS
On January 8, 1997, the Company and the Operating Partnership purchased the
152-room Hilton Hotel in Durham, North Carolina from an unrelated third party.
The acquisition cost of approximately $12.1 million was provided by cash on hand
and borrowings from the Line of Credit.
On February 7, 1997, the Company completed the 1997 Public Offering of
5,800,000 shares of Common stock. The Company contributed all of the net
proceeds of the Offering to the Operating Partnership. The Company now owns an
88.1% interest in the Operating Partnership.
On February 11, 1997, the Company increased its Line of Credit from $100
million to $150 million. The Company paid a commitment fee of $500,000 in
connection with the increase and expects to pay approximately $200,000 in other
fees.
On February 28, 1997, the Company and the Operating Partnership purchased the
201-room full service Radisson Hotel Arlington Heights in Arlington Heights,
Illinois, from an unaffiliated third party. The acquisition cost of
approximately $11.5 million consists of $3.3 million in cash provided by
proceeds from the 1997 Public Offering and the assumption of a one-year, $8.2
million first mortgage note, which bears interest at the rate of 7.5% per annum.
The note assumed is collateralized by the Radisson Hotel Arlington Heights.
On March 7, 1997, the Company sold an additional 568,300 shares of Common
Stock in connection with the exercise of the 1997 Public Offering underwriters
over-allotment option. The Company contributed the net proceeds from the
exercise of this over allotment option to the operating partnership in exchange
for additional partnership interest therein, thereby raising its aggregate
percentage interest to approximately 88.5%.
On March 17, 1997, the Company acquired a portfolio of hotels, including the
Wyndham Garden Hotel-Marietta (formerly the Four Points by Sheraton(R)), the
Sheraton Key Largo and the French Quarter Suites Hotel for purchase prices
aggregating approximately $59.1 million (the "Portfolio Purchase"). The
purchase price for the Portfolio Purchase was payable as follows: (i)
approximately $49.5 million in cash provided by the proceeds from the 1997
Public Offering and (ii) the assumption of approximately $9.6 million of
mortgage indebtedness secured by the French Quarter Suites Hotel.
Wyndham Garden Hotel-Marietta (formerly the Four Points by Sheraton(R)) -
Marietta, Georgia. On March 17, 1997, the Company acquired the Wyndham Garden
Hotel-Marietta (formerly the Four Points by Sheraton(R)) as part of the
Portfolio Purchase. The company has allocated a cash purchase price of $17.0
million to the 219-room Wyndham Garden Hotel-Marietta (formerly the Four Points
by Sheraton(R)). During 1997, the Company expects to invest approximately $2.8
million to renovate the hotel and to reposition the hotel to operate as a
Wyndham Garden Hotel(R). The company leases the hotel to the Lessee which, in
turn, has retained Wyndham Hotel Corporation to manage the hotel.
Sheraton Key Largo - Key Largo, Florida. On March 17, 1997, the Company
acquired the Sheraton Key Largo as part of the Portfolio Purchase. The Company
has allocated a cash purchase price of $26.1 million to the Sheraton Key
F-16
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT-(Continued)
Largo. This hotel is a 200-room resort complex situated on a private beach on
the western coastline of the Florida Keys. During 1997, the Company expects to
invest approximately $4.0 million in improvements to the hotel and to reposition
the hotel to operate as a Westin Resort(R).
French Quarter Suites Hotel - Atlanta, Georgia. On March 17, 1997, the
Company acquired the French Quarter Suites Hotel as part of the Portfolio
Purchase. The Company has allocated a $16.0 million purchase price to the
French Quarter Suites Hotel that was payable as follows: (i) approximately $6.4
million in cash and (ii) the assumption of approximately $9.6 million in
mortgage indebtedness, which bears interest at the rate of 9.75% per annum.
The hotel was constructed in 1985 and contains a total of 155 guest rooms, of
which 144 are suites. During 1997, the Company plans to invest approximately
$2.8 million to complete an extensive renovation of the hotel and to reposition
the hotel to operate as a Doubletree Guest Suites(R).
The following unaudited pro forma financial data for the years ended December
31, 1995 and 1996 are presented as if the IPO and the related Formation
Transactions, the acquisition of all Hotels and the consummation of the Offering
and the application of net proceeds therefrom had occurred on January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------------
<S> <C> <C>
Participating lease revenue........ $39,837,690 $45,452,534
Net income applicable to common
shareholders..................... $15,444,169 $21,248,619
Net income per common share........ $ 1.05 $ 1.45
Weighted average number of common
shares outstanding............... 14,657,141 14,657,141
</TABLE>
On March 26, 1997, the Company announced that it had signed contracts to
purchase two hotels for approximately $32.9 million from two independent
sellers. The hotels are the 249 room Holiday Inn Corporate Center in Phonenix,
Arizona and the 226 room Hilton Airport Hotel in Grand Rapids, Michigan. The
acquisition cost will be provided by funds from the Company's 1997 Public
Offering and borrowings from the Line of Credit. The acquisitions are
contingent upon the completion and satisfactory results of the business and
financial due diligence reviews.
F-17
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cost Capitalized Gross Amounts At
Subsequent to Which Carried
Initial Cost Acquisition at Close of Period
------------------------ ---------------------- ------------------------
Building Building Building
and and and
Description Encumbrances Land Improvements Land Improvements Land Improvements
----------- ------------ ---- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Courtyard by Marriott
Meadowlands $ 5,123,674 $ 4,780,496 $ 977,821 $ 5,758,317
Secaucus, NJ
Hampton Inn Richmond
Airport $ 505,000 3,590,369 $ 28,755 469,272 $ 533,754 4,059,641
Richmond, VA
Holiday Inn Dallas DFW
Airport West 816,515 6,532,118 23,950 1,178,455 840,465 7,710,573
Bedford, TX
Hotel Maison De Ville
New Orleans, LA 175,000 1,641,777 39,519 1,046,202 214,519 2,687,979
Holiday Inn Dallas DFW
Airport South 13,998,724 2,468,943 20,986,013 365 3,103 2,469,308 20,989,115
Dallas, TX
Holiday Inn Park Center
Plaza 1,249,414 10,869,901 5,385 47,765 1,254,799 10,917,666
San Jose, CA
Best Western Albuquerque
Airport Hotel 9,037,689 3,076 9,040,765
Albuquerque, NM
Holiday Inn Select-Madison
Madison, WI 2,135,059 18,148,002 801 10,506 2,135,860 18,158,508
Holiday Inn New Orleans
International
Airport Kenner, LA 2,391,580 20,328,433 745 6,333 2,392,325 20,334,766
Days Inn Ocean City
Ocean City, MD 736,514 6,407,673 555 5,278 737,069 6,412,951
Le Baron Airport Hotel
San Jose, CA 19,102,129 1,469 19,103,598
Holiday Inn Mission Valley
San Diego, CA 1,954,204 17,001,577 715 8,466 1,954,919 17,010,044
Hilton Hotel-Toledo
Toledo, OH 9,982,263 6,293 9,988,556
Days Inn Lake Buena Vista
Lake Buena Vista, FL 3,191,074 29,519,668 3,191,074 29,519,668
Holiday Inn Resort Monterey
Monterey, CA 1,563,043 13,601,865 1,563,043 13,601,865
----------- ----------- ------------ -------- ---------- ----------- ------------
$19,122,398 $17,287,346 $191,529,973 $100,790 $3,764,039 $17,287,136 $195,294,012
=========== =========== ============ ======== ========== =========== ============
<CAPTION>
Accumulated Net Life
Depreciation Book Value Upon Which
Building Building Depreciation
and and Date of Date of in Statement
Total Improvements Improvements Construction Acquisition is Computed
------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Courtyard by Marriott
Meadowlands
Secaucus, NJ $ 5,758,317 $ 379,555 $ 5,378,762 1989 1993 39 YRS
Hampton Inn Richmond
Airport
Richmond, VA 4,593,395 192,025 4,401,370 1972 1994 39 YRS
Holiday Inn Dallas DFW
Airport West
Bedford, TX 8,551,516 253,516 8,297,522 1974 1995 39 YRS
Hotel Maison De Ville
New Orleans, LA 2,902,498 125,538 2,776,960 1778 1994 39 YRS
Holiday Inn Dallas DFW
Airport South
Dallas, TX 23,458,423 224,243 23,234,180 1974 1996 39 YRS
Holiday Inn Park Center
Plaza
San Jose, CA 12,172,465 116,642 12,055,823 1975 1996 39 YRS
Best Western Albuquerque
Airport Hotel
Albuquerque, NM 9,040,765 96,589 8,944,176 1972 1996 39 YRS
Holiday Inn Select-Madison
Madison, WI 20,294,368 193,962 20,100,406 1987 1996 39 YRS
Holiday Inn New Orleans
International
Airport
Kenner, LA 22,727,091 217,252 22,509,839 1973 1996 39 YRS
Days Inn Ocean City
Ocean City, MD 7,150,020 68,522 7,081,498 1989 1996 39 YRS
Le Baron Airport Hotel
San Jose, CA 19,103,598 204,098 18,899,500 1974 1996 39 YRS
Holiday Inn Mission Valley
San Diego, CA 18,964,963 181,762 18,783,201 1970 1996 39 YRS
Hilton Hotel-Toledo
Toledo, OH 9,988,556 106,715 9,881,841 1987 1996 39 YRS
Days Inn Lake Buena Vista
Lake Buena Vista, FL 32,710,742 127,541 32,583,201 1985 1996 39 YRS
Holiday Inn Resort Monterey
Monterey, CA 15,164,908 29,071 15,135,837 1971 1996 39 YRS
------------ ---------- ------------
$212,581,148 $2,517,031 $210,064,117
============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
Period July 31
through
December 31,
1996
--------------
<S> <C>
(a) Reconciliation of Land and Buildings and Improvements
Balance at July 31, 1996(1) $ 20,078,175
Additions for the period 192,502,973
------------
Balance at December 31, 1996 $212,581,148
============
(b) Reconciliation of Accumulated Depreciation:
Balance at July 31, 1996 (1) $ 737,503
Depreciation for the period 1,779,528
------------
Balance at December 31, 1996 $ 2,517,031
============
</TABLE>
- --------------------
(1) Represents amounts from AGH Predecessor Hotels as of July 30, 1996
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
AGH Leasing, L.P.
We have audited the accompanying balance sheet of AGH Leasing, L.P. (The
"Partnership") as of December 31, 1996, and the related statements of
operations, changes in partners' deficit, and cash flows for the period from
July 31, 1996 (inception of operations) through December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AGH Leasing, L.P. as of
December 31, 1996 and its results of operations and its cash flows for the
period from July 31, 1996 (inception of operations) through December 31, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 21, 1997, except for Note 7
as to which the date is March 26, 1997
F-19
<PAGE>
AGH LEASING, L.P.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
Investment in hotel properties, at cost:
<S> <C>
Furniture, fixtures and equipment........................ $ 315,000
Less accumulated depreciation............................ (26,250)
-----------
Net investment in hotel properties......................... 288,750
Cash and cash equivalents.................................. 5,673,232
Accounts receivable, net of allowance
for doubtful accounts of $5,291........................... 2,822,936
Inventories................................................ 448,234
Prepaid expenses........................................... 553,400
Deferred expenses.......................................... 194,287
Other assets............................................... 47,985
-----------
Total assets............................................. $10,028,824
===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable, trade.................................... $ 1,054,902
Participating Lease payable, American
General Hospitality Operating
Partnership, L.P.......................................... 3,979,242
Note payable to American General
Hospitality Operating Partnership, L.P.................... 287,684
Accrued expenses and other liabilities..................... 4,198,035
Deferred income............................................ 730,000
-----------
Total liabilities........................................ 10,249,863
-----------
Commitments (Notes 1 and 2)
Partners' capital.......................................... 500,000
Accumulated deficit........................................ (721,039)
-----------
Total partners' deficit.................................. (221,039)
-----------
Total liabilities and partners' deficit.................. $10,028,824
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
AGH LEASING, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Revenues:
<S> <C>
Room revenue............................................ $26,725,200
Food and beverage revenue............................... 8,374,459
Other revenue........................................... 1,691,472
-----------
Total revenue....................................... 36,791,131
-----------
Expenses:
Property operating costs and expenses................... 7,235,297
Food and beverage costs and expenses.................... 6,262,071
General and administrative.............................. 3,270,481
Advertising and promotion............................... 2,305,776
Repairs and maintenance................................. 1,450,987
Utilities............................................... 1,628,490
Management fees......................................... 947,632
Franchise costs......................................... 950,307
Depreciation............................................ 26,250
Amortization............................................ 6,753
Interest expense........................................ 13,314
Other expense........................................... 27,093
Participating Lease expenses............................ 13,387,719
-----------
Total expenses...................................... 37,512,170
-----------
Net loss............................................ $ (721,039)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
AGH LEASING L.P.
STATEMENT OF PARTNERS' DEFICIT
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Initial capitalization at inception.......................... $ 500,000
Net loss..................................................... (721,039)
---------
Balance at December 31, 1996................................. $(221,039)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
AGH LEASING, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cash flow from operating activities:
<S> <C>
Net loss......................................................... $ (721,039)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation................................................ 26,250
Amortization................................................ 6,753
Changes in assets and liabilities:
Accounts receivable......................................... (2,822,936)
Inventories................................................. (448,234)
Prepaid expenses............................................ (553,400)
Deferred expense............................................ (201,040)
Other assets................................................ (47,985)
Accounts payable, trade..................................... 1,054,902
Participating Lease payable, American General
Hospitality Operating Partnership, L.P..................... 3,979,242
Accrued expenses and other liabilities...................... 4,198,035
Deferred gain............................................... 730,000
-----------
Net cash provided by operating
activities........................................... 5,200,548
-----------
Cash flows from financing activities:
Principal payments on note payable to
American General Hospitality
Operating partnership, L.P............................... (27,316)
Capital contributions..................................... 500,000
-----------
Net cash provided by financing
activities........................................... 472,684
-----------
Net change in cash and cash equivalents..................... 5,673,232
Cash and cash equivalents at beginning
of period..................................................
-----------
Cash and cash equivalents at end of
period..................................................... $ 5,673,232
===========
Supplemental schedule of cash flow information and
non cash investing and financing activities:
Cash paid during the period for interest.................. $ 13,314
===========
</TABLE>
The Lessee borrowed $315,000 in the form of a note payable to the American
General Hospitality Operating Partnership, L.P. for the purchase of furniture,
fixtures and equipment.
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
AGH LEASING, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
Organization-AGH Leasing, L.P. (the "Lessee"), was formed on May 29, 1996 as
a Delaware limited partnership. Upon completion of the initial public offering
("IPO") described below and commencement of operations on July 31, 1996,
American General Hospitality Corporation (the "Company") acquired an approximate
81.3% interest in American General Hospitality Operating Partnership, L.P. (the
"Operating Partnership"). In order for the Company to qualify as a real estate
investment trust ("REIT"), neither the Company nor the Operating Partnership can
operate hotels; therefore, the Operating Partnership, which owned 13 hotels (the
"Initial Hotels" at the IPO), leases the Initial Hotels to the Lessee under
operating leases ("Participating Leases") which provide for rent based on the
revenues of the Initial Hotels.
The Hotels include thirteen full service and two limited service hotels
located primarily in major metropolitan markets. At December 31, 1996, the
Company owned an 81.4% interest in the Operating Partnership which owned 15
hotels (the "Current Hotels") and leased them to the Lessee.
The financial statements of the Lessee include the results of operations of
the hotels leased from the Operating Partnership due to the Lessee's control
over the operations of the hotels during the 12 year term of the Participating
Leases. The Lessee has complete discretion in establishing room rates and all
rates for hotel goods and services. Likewise, all operating expenses of the
hotels are under the control of the Lessee. The Lessee has the right to manage
or to enter into management contracts with other parties to manage the hotels.
If the Lessee elects to enter into management contracts with parties other than
American General Hospitality, Inc. ("AGHI"), the Lessee must obtain the prior
written consent of the Operating Partnership, which consent may not be
unreasonably withheld. The Lessee, with the written consent of the Operating
Partnership, has entered into management agreements pursuant to which all of the
Current Hotels are managed by AGHI. The Lessee is owned in part by certain
executive officers of the Company and AGHI.
The Lessee's results of operations are seasonal. The aggregate revenues
in the second and third quarters of each fiscal year are generally higher than
revenues in the first and the fourth quarters of each fiscal year. Consequently,
the Lessee may have net income in the second and third quarters and may have a
net loss in the first and fourth quarters.
Initial Public Offering-As of July 31, 1996, the Company completed an
initial public offering of 7,500,000 shares of its common stock and an
additional 575,000 shares of common stock were issued by the Company on August
28, 1996 upon exercise of the underwriters' over-allotment option at a price per
common share of $17.75. Upon consummation of the IPO, the Company contributed
all of the net proceeds of the IPO to the Operating Partnership in exchange for
an approximate 81.3% equity interest in the Operating Partnership. The Operating
Partnership used such funds to purchase certain of the Initial Hotels, repay
debt and other obligations of the Initial Hotels, and for working capital.
Upon consummation of the IPO, the partners of the Lessee capitalized the
Lessee with $500,000 cash and pledged 275,000 units of limited partnership
interest in the Operating Partnership ("OP Units") to the Company to
collateralize the Lessee's obligations under the Participating Leases.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Hotel Properties-Hotel properties consist principally of
furniture, fixtures and equipment and are stated at the lower of cost or net
realizable value and are depreciated using the straight-line method over
estimated useful lives ranging from 3 to 7 years.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and the related accumulated depreciation are removed from
the accounts and the gain or loss is included in operations.
F-24
<PAGE>
AGH LEASING, L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Cash and Cash Equivalents-All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
Inventories-Inventories, consisting primarily of food and beverage items,
are stated at the lower of cost (generally, first-in first-out) or market.
Deferred Expenses-Deferred expenses include organizational costs of $1,041
and a $200,000 payment made in connection with The Days Inn Lake Buena Vista
cash flow guarantee. Amortization is computed using the straight-line method
over five years.
Deferred Income - Deferred income represents the income from the Days Inn
Lake Buena Vista fee arrangements with one of the sellers as described in Note
4. The gain will be amortized over the term of the agreements commencing
January 1, 1998.
Income Taxes-The Lessee is a Delaware limited partnership which is not a
taxable entity. The results of operations are included in the tax returns of the
partners. The partnerships' tax returns and the amount of allocable income or
loss are subject to examination by federal and state taxing authorities. If such
examinations result in changes to income or loss, the tax liability of the
partners could be changed accordingly.
Revenue Recognition-Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible.
Advertising Cost-The Hotels participate in various advertising and marketing
programs. All advertising costs are expensed in the period incurred. The
Lessee recognized advertising expense of $1.3 million for the period July 31,
1996 through December 31, 1996.
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk-The Lessee places cash deposits at a major
bank. At December 31, 1996, bank account balances exceeded Federal Deposit
Insurance Corporation limits by approximately $2.5 million. Management believes
the credit risk related to these deposits is minimal.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Lessee reports the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, participating lease
payable, note payable, accrued expenses and other liabilities at cost, which
approximates fair value due to the short maturity of these instruments.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements which expire
from 1998 to 2013. Franchise costs are based upon varying percentages of gross
room revenue ranging from 2.0% to 5.0%. These fees are paid by the Lessee. No
franchise costs were incurred for the Hotel Maison de Ville or the Le Baron
Airport Hotel.
The Current Hotels are managed by AGHI on behalf of the Lessee. The Lessee
pays AGHI a base management fee of 1.5% of total revenue and an incentive fee of
up to 2.0% of total revenue. The incentive fee, if applicable, is equal to
0.025% of annual total revenue for each 0.1% increase in annual total revenue
over the total revenues for the preceding twelve month period up to the maximum
incentive fee. Such incentive fee is payable quarterly and is adjusted at the
end of each calendar year to reflect actual results. Every four years the basis
upon which the incentive fee is
F-25
<PAGE>
AGH LEASING, L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
calculated shall be renegotiated between the Lessee and AGHI. The payment of the
management fees to AGHI by the Lessee is subordinate to the Lessee's obligations
to the Company under the Participating Leases. The full management fees payable
during 1996 and 1997, will be earned only to the extent that the Lessee has
taxable income equal to or greater than $50,000. If the Lessee's taxable income
is below $50,000 in 1996 and or 1997 management fees are forfeited by AGHI to
increase the Lessee's taxable income to $50,000.
Each hotel, except the Le Baron Airport Hotel and the Hotel Maison de Ville,
is required to remit varying percentages of gross room revenue ranging from 1.0%
to 5.0% to the various franchisors for sales and advertising expenses incurred
to promote the hotel at the national level. Additional sales and advertising
costs are incurred at the local property level. These fees are paid by the
Lessee.
The Company entered into an agreement for a license and an association
membership from one of the sellers of the Days Inn Lake Buena Vista which the
Company immediately assigned to the Lessee. Commencing January 1998, in
connection with the license and the association membership, the Lessee is
required to pay recurring association fees including a base monthly fee equal to
1.0% of the prior month's gross room revenues generated at the hotel, and an
additional fee of 0.5% to 1.0% of gross monthly revenues if the trailing twelve
month's gross room revenues at the hotel exceed a threshold of approximately
$13 million, (subject to increase based on the percentage increase in the CPI).
In addition, the Lessee is obligated to pay a recurring royalty for the African
royal safari theme equal to an amount which ranges from 10% to 25% of net
operating income in excess of $6 million (subject to adjustment if the Lessee
invests more than $40 million in the hotel). The Lessee is also obligated to
pay a marketing assistance fee equal to .25% of gross room revenues. The
marketing and association fees are not expected to exceed 2.25% of gross room
revenues for any twelve-month period. The association membership agreement
terminates in October 2008; the Lessee is obligated to pay liquidated damages if
the agreement is terminated earlier.
The Lessee has future lease commitments to the Company under the
Participating Leases which have various expiration dates between July 2008 to
November 2008. The Participating Lease expenses are based on a percentage of
room revenues, food and beverage revenues and telephone and other revenues. The
departmental revenue thresholds in the Participating Leases are seasonally
adjusted for interim periods and the Participating Lease formulas adjust
effective January 1, 1997 by a percentage equal to the percentage increase in
the Consumer Price Index as compared to the prior year prior plus .75%.
Additionally, several of the Initial Hotels will have further adjustments to the
Participating Lease formulas due to the significant renovations expected to be
completed in those hotels in 1997. Minimum future rental expense (i.e. base
rents) under these noncancellable Participating Leases is as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997........................................ $ 26,419,208
1998........................................ 26,851,816
1999........................................ 27,813,684
2000........................................ 28,810,872
2001 and thereafter......................... 253,080,680
------------
Total....................................... $362,976,260
============
</TABLE>
Four of the Current Hotels are subject to ground leases with third parties
with respect to the land underlying each such hotel. The ground leases are
triple net leases which require the tenant to pay all expenses of owning and
operating the hotel, including real estate taxes and structural maintenance and
repair. The Company is responsible for payments under the ground leases.
5. ACCUMULATED DEFICIT
From inception, the Lessee has incurred a cumulative loss of $721,039. The
loss is attributable to the $730,000 received from one of the sellers of the
Days Inn Lake Buena Vista in connection with a cash flow guarantee and recurring
association fee agreements. This amount is recorded as deferred income and
consequently is not included in revenues until the commencement of the
association fee agreement on January 1, 1998.
F-26
<PAGE>
AGH LEASING, L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
For the period of operations in 1996, the Lessee generated a significant
cash flow. The Lessee has remained current in its payments to the Company under
the terms of the Participating Leases, and during 1997, management anticipates
generating taxable income and positive operating cash flow.
6. PRO FORMA INFORMATION
Due to the impact of the IPO and related Formation Transactions and other
hotel acquisitions made by the Company and leased to the Lessee, the historical
results of operations may not be indicative of future results of operations. The
following unaudited pro forma information of the Lessee is presented as if the
transactions previously described had occurred on January 1, 1995 and all of the
Current Hotels had been leased pursuant to the Participating Leases since that
date.
In management's opinion, all adjustments necessary to reflect the effects of
the transactions previously described have been made. The pro forma information
does not purport to present what the actual results of operations of the Lessee
would have been if the previously mentioned transactions had occurred on such
date or to project the future financial position or results of operations of the
Lessee for any future period.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Room Revenue............................ $66,488,017 $73,555,070
Food and beverage revenue............... 20,039,912 20,761,969
Other revenue........................... 5,210,460 5,061,302
----------- -----------
Total revenue................. 91,738,389 99,378,341
Hotel operating expenses................ 61,456,984 64,732,455
Depreciation and amortization........... 63,000 69,753
Interest expense........................ 31,500 31,689
Other expenses.......................... 54,743 198,232
Participating Lease expenses (2)........ 31,195,065 35,302,430
----------- -----------
Net loss................................ $(1,062,903) $ (956,218)
=========== ===========
</TABLE>
7. SUBSEQUENT EVENTS
Subsequent to year end, the Lessee and the Operating Partnership entered
into five operating lease agreements for five hotels which were acquired by the
Operating Partnership. The leases are substantially similar to the other
Participating Lease agreements between the Lessee and the Operating Partnership.
The base rent for the five hotels will be approximately $6,962,000 for 1997.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Room revenue......................... $ 86,924,872 $ 96,202,438
Total revenue........................ $120,502,458 $130,151,196
Percentage lease expenses............ $ 39,837,690 $ 45,452,534
Net loss............................. $ (1,062,903) $ (1,260,012)
</TABLE>
On March 26, 1997, the Company announced that it had signed contracts to
purchase two hotels for approximately $32.9 million from two independent
sellers. The hotels are the 249 room Holiday Inn Corporate Center in Phoenix,
Arizona and the 226 room Hilton Airport Hotel in Grand Rapids, Michigan. The
acquisition cost will be provided by funds from the Company's 1997 Public
Offering and borrowings from the Line of Credit. The acquisitions are contingent
upon the completion and satisfactory results of the business and financial due
diligence reviews.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American General Hospitality Corporation
We have audited the accompanying combined balance sheets and financial
statement schedule of the AGH Predecessor Hotels (described in Note 1) as of
December 30, 1994, December 29, 1995, and July 30, 1996, and the related
combined statements of operations, equity and cash flows for the period from
December 30, 1993 through December 31, 1993, the years ended December 30, 1994
and December 29, 1995 and for the period from December 30, 1995 through July 30,
1996. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the AGH Predecessor
Hotels as of December 30, 1994, December 29, 1995 and July 30, 1996 and the
combined results of their operations and their cash flows for the period from
December 30, 1993 through December 31, 1993, the years ended December 30, 1994
and December 29, 1995 and for the period from December 30, 1995 through July 30,
1996 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Dallas, Texas
September 19, 1996
F-28
<PAGE>
AGH PREDECESSOR HOTELS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, December 29, July 30,
1994 1995 1996
-------------- ------------ ----------
<S> <C> <C> <C>
ASSETS
Investment in hotel properties, at cost
Land.................................... $ 680,000 $ 1,496,515 $ 1,496,515
Buildings and improvements.............. 11,162,793 18,427,855 18,581,660
Furniture, fixtures and equipment....... 3,028,860 3,439,484 4,232,203
----------- ----------- -----------
14,871,653 23,363,854 24,310,378
Less accumulated depreciation............. (409,067) (945,502) (1,552,818)
----------- ----------- -----------
Net investment in hotel properties........ 14,462,586 22,418,352 22,757,560
Cash and cash equivalents................. 615,066 857,608 1,415,865
Restricted cash........................... 130,386 441,445 386,827
Accounts receivable, net.................. 109,719 281,169 305,097
Inventories............................... 41,407 55,611 63,937
Prepaid expenses.......................... 44,400 166,463 162,985
Deferred expenses......................... 50,212 370,046 365,621
Other assets.............................. 9,000 85,410 156,538
----------- ----------- -----------
Total assets............................ $15,462,776 $24,676,104 $25,614,430
=========== =========== ===========
LIABILITIES AND EQUITY
Debt...................................... $11,016,322 $19,277,646 $20,114,415
Accounts payable, trade................... 199,312 560,862 481,993
Accrued expenses and other liabilities.... 419,643 832,889 719,213
----------- ----------- -----------
Total liabilities....................... 11,635,277 20,671,397 21,315,621
----------- ----------- -----------
Commitments and contingencies (Note 4)
Capital................................... 4,145,000 5,812,391 5,627,391
Accumulated deficit....................... (317,501) (1,807,684) (1,328,582)
----------- ----------- -----------
Total equity.............................. 3,827,499 4,004,707 4,298,809
----------- ----------- -----------
Total liabilities and equity............ $15,462,776 $24,676,104 $25,614,430
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE>
AGH PREDECESSOR HOTELS
COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 30, 1993 THROUGH DECEMBER 31, 1993,
THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 29, 1995 AND
FOR THE PERIOD FROM DECEMBER 30, 1995 THROUGH JULY 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Room revenue........................... $ 17,941 $3,431,654 $ 9,020,479 $6,770,568
Food and beverage revenue.............. 6,158 552,697 1,293,238 1,175,807
Other revenue.......................... 1,448 223,211 568,415 432,750
-------- ---------- ----------- ----------
Total revenue........................ 25,547 4,207,562 10,882,132 8,379,125
-------- ---------- ----------- ----------
Expenses:
Property operating costs and expenses.. 2,907 1,070,415 2,610,089 1,911,317
Food and beverage costs and expenses... 1,115 503,537 1,318,712 1,072,852
General and administrative............. 1,922 561,140 1,270,163 954,143
Advertising and promotion.............. 966 308,497 663,285 468,248
Repairs and maintenance................ 809 195,279 478,552 338,456
Utilities.............................. 217,496 509,142 370,969
Management fees........................ 1,022 162,151 383,607 295,538
Franchise costs........................ 155,206 332,274 270,950
Depreciation........................... 46,982 362,085 2,409,211 607,316
Amortization........................... 2,428 70,843 37,879
Real estate and personal property
taxes, and property insurance......... 831 177,717 389,955 245,263
Interest expense....................... 430,535 1,572,244 1,129,060
Other expense.......................... 347,570 364,238 198,032
-------- ---------- ----------- ----------
Total expenses....................... 56,554 4,494,056 12,372,315 7,900,023
-------- ---------- ----------- ----------
Net income (loss).................... $(31,007) $ (286,494) $(1,490,183) $ 479,102
======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-30
<PAGE>
AGH PREDECESSOR HOTELS
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
Balance, December 30, 1993
<S> <C>
Net loss................................................. $ (31,007)
Capital contributions.................................... 1,600,000
-----------
Balance, December 31, 1993................................. 1,568,993
Net loss................................................. (286,494)
Capital contributions.................................... 3,086,000
Distributions............................................ (541,000)
-----------
Balance, December 30, 1994................................. 3,827,499
Net loss................................................. (1,490,183)
Capital contributions.................................... 1,863,118
Distributions............................................ (195,727)
-----------
Balance, December 29, 1995................................. 4,004,707
Net income............................................... 479,102
Capital contributions.................................... 50,000
Distributions............................................ (235,000)
-----------
Balance, July 30, 1996..................................... $ 4,298,809
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
AGH PREDECESSOR HOTELS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 30, 1993 THROUGH DECEMBER 31, 1993,
THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 29, 1995 AND
FOR THE PERIOD FROM DECEMBER 30, 1995 THROUGH JULY 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)...................... $ (31,007) $ (286,494) $ (1,490,183) $ 479,102
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation......................... 46,982 362,085 2,409,211 607,316
Amortization......................... 2,428 70,843 37,879
Changes in assets and liabilities
Restricted cash.................... (130,386) (311,059) (23,928)
Accounts receivable................ (8,120) (101,599) (171,450) (8,326)
Inventories........................ (8,275) (33,132) (14,204) 3,478
Prepaid expenses................... (15,770) (28,630) (122,063) (71,128)
Other assets....................... (9,000) (76,410)
Franchise agreements............... (170,500) (13,680)
Organization costs................. (13,139) (108,677) (86,691)
Accounts payable, trade............ 440 198,872 361,550 (105,854)
Accrued expenses and other
liabilities...................... 163,366 256,277 413,246 54,618
----------- ---------- ----------- ----------
Net cash provided by operating
activities............... 147,616 217,282 790,304 872,786
----------- ---------- ----------- ----------
Cash flows from investing activities:
Improvements and additions to hotel
properties............................ (1,294,387) (2,199,840) (946,524)
Acquisition of hotel properties, net
of cash acquired...................... (5,879,500) (7,697,767) (8,165,137)
----------- ---------- ------------ ----------
Net cash used in investing
activities.................... (5,879,500) (8,992,154) (10,364,977) (946,524)
---------- ---------- ----------- ----------
Cash flows from financing activities:
Proceeds from borrowings............... 4,875,000 6,350,000 10,357,250 1,056,237
Principal payments on borrowings....... (208,678) (2,095,926) (219,468)
Payments for deferred loan costs....... (39,500) (111,500) (19,774)
Capital contribution................... 1,600,000 3,086,000 1,863,118 50,000
Distributions paid..................... (541,000) (195,727) (235,000)
---------- ---------- ---------- ---------
Net cash provided by financing
activities.................... 6,475,000 8,646,822 9,817,215 631,995
----------- ----------- ----------- ----------
Net change in cash and cash equivalents 743,116 (128,050) 242,542 558,257
Cash and cash equivalents at beginning
of periods........................... 743,116 615,066 857,608
----------- ----------- ----------- ----------
Cash and cash equivalents at end of
periods.............................. $ 743,116 $ 615,066 $ 857,608 $1,415,865
=========== =========== =========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the year
for interest......................... $ 430,535 $ 1,572,244 $1,017,316
=========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-32
<PAGE>
AGH PREDECESSOR HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION AND PROPOSED INITIAL PUBLIC OFFERING
Organization-American General Hospitality Corporation (the "Company" or the
"Registrant") was incorporated and formed on April 12, 1996, as a Maryland
corporation which intends to qualify as a real estate investment trust
("REIT"). The Company commenced operations on July 31, 1996 (see Initial
Public Offering discussion below). Upon commencement of operations, the Company
acquired equity interests in 13 hotels (the "Initial Hotels"). Four of the
Initial Hotels (the "AGH Predecessor Hotels") were acquired primarily from
limited partnerships controlled by the shareholders of American General
Hospitality, Inc. (the "AGHI Affiliates"). The remaining nine Initial Hotels
(the "Other Initial Hotels") were acquired primarily from parties unaffiliated
with the Company through contracts with the sellers acquired from an AGHI
affiliate.
Upon completion of the initial public offering described below, the Company,
through wholly owned subsidiaries, acquired an approximate 81.3% equity interest
in American General Hospitality Operating Partnership, L.P. (the "Operating
Partnership"). A wholly owned subsidiary of the Company is the sole general
partner of the Operating Partnership. The Operating Partnership and entities
which it controls own the Initial Hotels and lease them to AGH Leasing, L.P.
(the "Lessee"), which is owned, in part, by certain officers of the Company,
under operating leases ("Participating Leases") which provide for rent based on
the revenues of the Initial Hotels. The Lessee has entered into management
agreements pursuant to which all of the Initial Hotels are managed by American
General Hospitality, Inc. ("AGHI").
Basis of Presentation-The accompanying combined financial statements of the
AGH Predecessor Hotels have been presented on a combined basis due to common
ownership and management and because the entities were the subject of a business
combination with the Company upon consummation of the proposed initial public
offering.
The AGH Predecessor Hotels consist of the 165 room Courtyard by Marriott-
Meadowlands located in Secaucus, New Jersey (purchased land, buildings and
improvements, and furniture, fixtures and equipment ("FF&E") for cash in
December 1993 for approximately $5.9 million), the 23 room Hotel Maison de Ville
located in New Orleans, Louisiana (purchased land, buildings and improvements,
and FF&E for cash in August 1994 for approximately $2.5 million), the 124 room
Hampton Inn Richmond Airport located in Richmond, Virginia (purchased land,
buildings and improvements, and FF&E for cash in December 1994 for approximately
$5.1 million) and the 243 room Holiday Inn Dallas DFW Airport West located in
Bedford, Texas (purchased land, buildings and improvements, and FF&E for cash in
June 1995 for approximately $8.0 million).
The acquisition of each AGH Predecessor Hotel has been accounted for as a
purchase and accordingly, the results of operations for each AGH Predecessor
Hotel has been included in the combined statements of operations since the
respective dates of acquisition.
Initial Public Offering-As of July 31, 1996, the Company completed an
initial public offering of 7,500,000 shares of its common stock and an
additional 575,000 shares of common stock were issued by the Company on August
28, 1996 upon exercise of the underwriters' over-allotment option at a price per
common share of $17.75 (the ''IPO''). Upon consummation of the IPO, the Company
contributed all of the net proceeds of the IPO to the Operating Partnership in
exchange for an approximate 81.3% equity interest in the Operating Partnership.
The Operating Partnership used such funds to purchase certain of the Initial
Hotels, repay debt and other obligations of the Initial Hotels, and for working
capital .
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Hotel Properties-Hotel properties are stated at the lower of
cost or net realizable value and are depreciated using the straight-line method
over estimated useful lives ranging from 39 years for building and improvements
and 3 to 7 years for FF&E.
Management of the AGHI Affiliates review the carrying value of each property
to determine if circumstances exist indicating an impairment in the carrying
value of the investment of the hotel property or that depreciation periods
should
F-33
<PAGE>
AGH PREDECESSOR HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
be modified. If facts or circumstances support the possibility of impairment,
management of the AGHI Affiliates will prepare a projection of the undiscounted
future cash flows, without interest charges, of the specific hotel property and
determine if the investment in hotel property is recoverable based on the
undiscounted future cash flows. Management of the AGHI Affiliates does not
believe that there are any factors or circumstances indicating impairment of any
of its investment in hotel properties.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and the related accumulated depreciation are removed from
the accounts and the gain or loss is included in operations.
Cash and Cash Equivalents-All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
Restricted Cash-Restricted cash consists primarily of amounts held in escrow
for capital and property tax reserves.
Inventories-Inventories consisting primarily of food and beverage items and
are stated at the lower of cost (generally, first-in first-out) or market.
Deferred Expenses-Deferred expenses primarily consist of deferred loan
costs, franchise fees and organization costs and are recorded at cost.
Amortization of deferred loan cost is computed using the effective yield method
based upon the terms of the loan agreements. Amortization of franchise fees is
computed using the straight-line method based upon the terms of the agreements.
Amortization of organization costs is computed using the straight-line method
over five years. Accumulated amortization at July 30, 1996 is $111,150.
Income Taxes-The AGH Predecessor Hotels are owned by Texas limited
partnerships which are not taxable entities. The results of operations are
included in the tax returns of the partners. The partnerships' tax returns and
the amount of allocable income or loss are subject to examination by federal and
state taxing authorities. If such examinations result in changes to income or
loss, the tax liability of the partners could be changed accordingly. The
Company intends to qualify as a REIT under the Code, and will therefore not be
subject to corporate income taxes. Accordingly, the combined statements of
operations contain no provision for federal income taxes.
Revenue Recognition-Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible.
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk-Management of the AGHI Affiliates places cash
deposits at a major bank. At July 30, 1996, bank account balances exceeded
Federal Deposit Insurance Corporation limits by approximately $700,000.
Management believes credit risk related to these deposits is minimal.
Recently Issued Statement of Financial Accounting Standards-The AGH
Predecessor Hotels adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the year ended December 29, 1995.
The adoption of SFAS No. 121 has no material effect on the AGH Predecessor
Hotels' financial statements.
F-34
<PAGE>
AGH PREDECESSOR HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Debt
Debt as of December 30, 1994, December 29, 1995 and July 30, 1996, consists of
the following:
<TABLE>
<CAPTION>
JULY 30,
1994 1995 1996
---------------------------- --------------
<S> <C> <C> <C><C>
First mortgage notes payable in various
monthly installments including
interest at rates ranging from
LIBOR plus 4.25% (5.44% at
December 29, 1995) to prime plus
1% (8.5% at December 29,
1995); maturing at various dates from
August 1999 through December 2001........ $10,916,322 $17,666,294 $17,547,924
Product improvement plan note payable
in various monthly installments
including interest at LIBOR
plus 4.25%............................... 1,511,352 1,907,090
Note payable to AGHI...................... 100,000 100,000
Construction loan payable in monthly
installments including
interest at the fixed rate of 7.89%;
maturing on January 1, 2001.............. 659,401
----------- ----------- -----------
$11,016,322 $19,277,646 $20,114,415
=========== =========== ===========
</TABLE>
All debt is collateralized by the investment in hotel properties.
Aggregate annual principal payments for the AGHI Affiliates' debt at July 30,
1996, are as follows:
<TABLE>
<CAPTION>
Year Amount
- ---- ------
<S> <C>
Remaining five months of 1996 ......................... $ 825,647
1997.................................................... 786,928
1998.................................................... 818,102
1999.................................................... 2,225,175
2000.................................................... 12,952,549
2001 and thereafter..................................... 2,506,014
-----------
$20,114,415
===========
</TABLE>
4. COMMITMENTS
Management fees represent amounts paid to AGHI based upon percentages of
gross revenue ranging from 3% to 4%.
Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements expiring in
2005 (Holiday Inn), 2007 (Hampton Inn), and 2013 (Courtyard by Marriott).
Franchise costs are based upon varying percentages of gross room revenue ranging
from 4% to 5%. No franchise costs were incurred for the Hotel Maison de Ville.
Each hotel, except for the Hotel Maison de Ville, is required to remit
varying percentages of gross room revenue ranging from 1.5% to 4% to the various
franchisors for sales and advertising expenses incurred to promote the hotel at
the national level. Additional sales and advertising costs are incurred at the
local property level.
The AGHI Affiliates lease the Courtyard by Marriott-Meadowlands hotel land,
under a noncancellable operating lease agreement which expires in 2036. The AGHI
Affiliates have the option to extend the lease for an additional twenty years
upon the same terms. The lease provides for contingent rental payments based on
3% of gross room revenue which for the periods ended December 30, 1994, December
29, 1995 and July 30, 1996 approximated 65% of the aggregate rental expense
under the operating lease. Additionally, certain equipment is leased under
noncancellable operating lease agreements expiring at varying intervals through
August 1996. Minimum future rental payments required under operating leases as
of July 30, 1996 are as follows:
F-35
<PAGE>
AGH PREDECESSOR HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
Remaining five months of 1996....................$ 95,975
1997............................................. 175,300
1998............................................. 187,800
1999............................................. 187,800
2000............................................. 189,690
2001 and thereafter.............................. 14,242,650
----------
$15,079,215
===========
</TABLE>
Rental expense was $311,007 and $360,011 and $192,190 for the years ended
December 30, 1994, December 29, 1995 and the period ended July 30, 1996,
respectively.
As a result of the IPO and the resulting prepayment of debt, a portion of
the proceeds of the IPO was utilized to pay prepayment penalties on two notes
payable totaling approximately $734,000 which were included in the Company's
financial statements.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the AGHI Affiliates report the carrying amount of cash
and cash equivalents, restricted cash, accounts payable, accrued expenses and
other liabilities at cost which approximates fair value due to the short
maturity of these instruments. The carrying amount of the AGHI Affiliates' debt
approximates fair value due to the AGHI Affiliates ability to obtain such
borrowings at comparable interest rates.
6. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the acquisitions discussed in Note 1, the historical
results of operations may not be indicative of future results of operations. The
following unaudited pro forma condensed combined statements of operations for
the years ended December 30, 1994 and December 29, 1995 are presented as if the
hotel acquisitions described in Note 1 occurred on January 1, 1994.
The unaudited pro forma condensed combined statements of operations do not
purport to represent what actual results of operations would have been if the
acquisitions had occurred on such date or to project results for any future
period. The following unaudited pro forma information does not include pro forma
adjustments related to the proposed initial public offering and related
transactions.
<TABLE>
<CAPTION>
1994 1995
------------- ------------
<S> <C> <C>
Total revenue............................ $11,171,889 $12,927,954
Hotel operating expenses................. 8,257,439 8,905,916
Depreciation............................. 1,198,055 2,618,055
Interest................................. 2,543,015 1,973,765
Other corporate expenses................. 761,215 791,599
----------- -----------
Net loss................................. $(1,587,835) $(1,361,381)
=========== ===========
</TABLE>
F-36
<PAGE>
AGH PREDECESSOR HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
7. Subsequent event
As discussed in Note 1, the four AGH Predecessor Hotels were acquired by the
Operating Partnership on July 31, 1996. The Company and the Operating
Partnership exchanged shares of Common Stock and OP Units for interests in the
selling entities and certain net assets were transferred at historical cost
basis. In addition, the hotels were refinanced upon acquisition and post-
acquisition debt is different than the historical debt reflected in the
accompanying financial statements. Furthermore, all management agreements were
terminated and new management agreements were implemented. The combined
financial statements do not reflect any of the transactions in connection with
the IPO and related transactions.
The AGH Predecessor Hotels repaid in full the December 29, 1995 outstanding
debt of $100,000 and the accounts payable of $195,000 to AGHI.
F-37
<PAGE>
AGH PREDECESSOR HOTELS
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF JULY 30, 1996
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------------------ --------------------------
Encum- Building and Building and
Description brances Land Improvements Land Improvements
----------- ------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Courtyard by Marriott
Meadowlands
Secaucus, N.J. $ 5,257,770 $ 4,780,496 $ 259,189
Hampton Inn Richmond
Airport
Richmond, VA 4,763,550 $ 505,000 3,590,369 246,049
Holiday Inn DFW West
Bedford, TX 8,557,090 816,515 6,532,118 963,609
Hotel Maison DeVille
New Orleans, LA 1,536,005 175,000 1,641,777 568,053
----------- ---------- ----------- ----------
$20,114,415 $1,496,515 $16,544,760 $2,036,900
=========== ========== =========== ==========
<CAPTION>
Gross Amounts At Which Accumulated Net Book Life Upon
Carried at Close of Period Depreciation Value Which
---------------------------- Buildings Buildings Date of Date Depreciation
Building and and Improve- and Improve- Con- of Ac- In Statement
Description Land Improvements Total ements ements struction quisition Is Computed
----------- -------- ------------ ----- ------------ ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Courtyard by Marriott
Meadowlands
Secaucus, N.J. $ 5,039,685 $ 5,039,685 $317,967 $ 4,721,718 1989 12/30/93 40 YRS
Hampton Inn Richmond
Airport
Richmond, VA $ 505,000 3,836,418 4,341,418 150,258 4,191,160 1972 12/29/94 40 YRS
Holiday Inn DFW West
Bedford, TX 816,515 7,495,727 8,312,242 171,138 8,141,104 1974 6/7/95 40 YRS
Hotel Maison DeVille
New Orleans, LA 175,000 2,209,830 2,384,830 98,140 2,286,690 1788 8/8/94 40 YRS
---------- ----------- ------------ -------- -----------
$1,496,515 $18,581,660 $20,078,175 $737,503 $19,340,672
========== =========== =========== ======== ===========
</TABLE>
<TABLE>
<S> <C>
(a) Reconciliation of land and buildings and improvements:
Balance at January 1, 1995 $ 4,780,496
Additions during the year 1994:
Improvements 7,062,297
-----------
Balance at December 30, 1994 11,842,793
-----------
Additions during the year 1995 8,081,577
-----------
Balance at December 29, 1995 19,924,370
Additions for the year to date July 30, 1996: 153,805
-----------
Balance at July 30, 1996 $20,078,175
===========
(b) Reconciliation of Accumulated Depreciation
Balance at beginning of year January 1, 1994 $ 46,982
-----------
Depreciation for the year 1994: 185,175
-----------
Balance at December 30, 1994 232,157
Depreciation for the year 1995: 274,250
-----------
Balance at December 29, 1995 506,407
Depreciation for the year to date July 30, 1996 231,096
-----------
Balance at July 30, 1996 $ 737,503
===========
</TABLE>
F-38
<PAGE>
EXHIBIT 10.24
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
October 18, 1996 and is among AMERICAN GENERAL HOSPITALITY OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership ("Borrower"), BANK ONE, TEXAS,
N.A., as Administrative Agent (the "Administrative Agent"), SOCIETE
GENERALE, SOUTHWEST AGENCY, as Structuring Agent (the "Structuring Agent"), and
the banks and other financial institutions (the "Banks") that are a party
hereto.
RECITALS:
A. The Borrower, the Administrative Agent, the Structuring Agent and the
Banks are parties to that certain Credit Agreement (the "Original Credit
Agreement") dated as of July 31, 1996.
B. The parties hereto desire to amend the Original Credit Agreement as
hereinafter provided.
NOW, THEREFORE, for and in consideration of the covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree to amend the Original Credit
Agreement and the other Credit Documents (as defined in the Original Credit
Agreement) as follows:
1. All terms used in the Amendment, but not defined herein, shall have
the meaning given such terms in the Original Credit Agreement.
2. From and after the date of this Amendment, the term "Credit Agreement"
as used in the Credit Documents, shall mean the Original Credit Agreement, as
amended by this Amendment.
3. The definition of "Cost Basis" in the Credit Agreement is deleted in
its entirety and replaced with the following:
"Cost Basis" means for any Hotel Property the sum of
----------
(a) for any Initial Property, the amount set forth for
such Initial Property on Schedule 1.01(b) attached
hereto, and for any other Hotel Property, the aggregate
purchase price paid by the Borrower or its Subsidiary
for such other Hotel Property (giving effect to any
securities used to purchase a Hotel Property at the
fair market value of the securities at
<PAGE>
the time of purchase based upon the price at which such
securities could be exchanged into the Parent's common stock
assuming such exchange occurred on the date of acquiring the
Hotel Property), and (b) the actual cost of any Capital
Expenditures for such Hotel Property made by the Borrower or
its Subsidiaries pursuant to an Approved Preliminary
Property Plan as preliminarily certified monthly by the
Borrower in connection with a request for a Borrowing or
request from withdrawal from the CAPEX Reserve, provided
that, at the Borrower's expense, both upon the completion of
any calendar quarter and upon completion of such Capital
Expenditures, the actual cost of such Capital Expenditures
is further certified by a property condition consultant or
engineer reasonably acceptable to the Agents who shall have
inspected the Hotel Property and delivered to the
Administrative Agent a certificate that such Capital
Expenditures have been made or purchased and delivered to
such Hotel Property."
4. Schedule 1.01(b) attached to this Amendment is Schedule 1.01(b) of the
Credit Agreement.
5. Section 2.02(c)(ii) in the Credit Agreement is deleted in its entirety
and replaced with the following:
"(ii) except for Borrowings for the acquisition of
Future Properties by the Borrower or a Permitted New
Subsidiary, (A) the Borrower may not request Borrowings on
more than two days in any calendar month, and (B) the
Borrower shall not request more than one Borrowing in any
calendar month for the payment of Capital Expenditures and
FF&E and any such request shall be made contemporaneously
with any request to withdraw funds from the CAPEX Reserve as
set forth in Section 5.07 in such month and shall be
accompanied by the same documentation as required for a
withdraw from the CAPEX Reserve."
6. The phrase "in connection with a Major Renovation" as used in Section
3.02(c) in the Credit Agreement is deleted in its entirety.
7. The second to last sentence in Section 5.06 in the Credit Agreement is
deleted in its entirety and replaced with the following:
-2-
<PAGE>
"At the end of every calendar quarter and upon the
completion of any Capital Expenditures for a Hotel
Property made pursuant to an Approved Preliminary
Property Plan, at the Borrower's expense, a property
condition consultant or engineer acceptable to the
Agents shall inspect the Hotel Property and deliver to
the Administrative Agent a certificate that the Capital
Expenditures has been made or purchased and delivered
to such Hotel Property."
8. The phrase "a Major Renovation" as used in the last sentence in
Section 5.07 in the Credit Agreement is deleted in its entirety and replaced
with the phrase "Capital Expenditures or FF&E".
9. The Borrower shall have until November 18, 1996 to complete the
requirements of Section 5.12(d) of the Credit Agreement with respect to the
Initial Properties.
10. Except as otherwise provided in this Amendment, the terms and
provisions of the Credit Documents remain in full force and effect.
Executed as of the date first set forth above.
BORROWER:
--------
AMERICAN GENERAL HOSPITALITY OPERATING
PARTNERSHIP, L.P.
By: AGH GP, Inc., its general partner
/s/ Kenneth E. Barr
--------------------------------------
Name: KENNETH E. BARR
---------------------------------
Title: EXECUTIVE VICE PRESIDENT
--------------------------------
-3-
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
BANK ONE, TEXAS, N.A.
/s/ Dan H. Easley
----------------------------------
Name: DAN H. EASLEY
-----------------------------
Title: V.P.
----------------------------
STRUCTURING AGENT:
-----------------
SOCIETE GENERALE,
SOUTHWEST AGENCY
__________________________________
Name:_____________________________
Title:____________________________
BANKS:
-----
SOCIETE GENERALE,
SOUTHWEST AGENCY
__________________________________
Name:_____________________________
Title:____________________________
BANK ONE, TEXAS, N.A.
/s/ Dan H. Easley
----------------------------------
Name: DAN H. EASLEY
----------------------------
Title: V.P.
----------------------------
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
BANK ONE, TEXAS, N.A.
___________________________________
Name:______________________________
Title:_____________________________
STRUCTURING AGENT:
-----------------
SOCIETE GENERALE,
SOUTHWEST AGENCY
/s/ Jeffrey A. Etter
-----------------------------------
Name: Jeffrey A. Etter
------------------------------
Title: Vice President
-----------------------------
BANKS:
-----
SOCIETE GENERALE
SOUTHWEST AGENCY
/s/ Jeffrey A. Etter
-----------------------------------
Name: Jeffrey A. Etter
------------------------------
Title: Vice President
-----------------------------
BANK ONE, TEXAS, N.A.
___________________________________
Name:______________________________
Title:_____________________________
<PAGE>
FIRST NATIONAL BANK OF COMMERCE
/s/ Stephen M. Valdes
---------------------------------------------
Name: Stephen M. Valdes
----------------------------------------
Title: Vice President
---------------------------------------
BANK OF NOVA SCOTIA
_____________________________________________
Name: _______________________________________
Title: ______________________________________
-5-
<PAGE>
FIRST NATIONAL BANK OF COMMERCE
____________________________________
Name:_______________________________
Title:______________________________
BANK OF NOVA SCOTIA
/s/ B. Lorne Ogmundson
------------------------------------
Name: B. Lorne Ogmundson
------------------------------
Title: OFFICE HEAD REAL ESTATE BANKING
-------------------------------
<PAGE>
Schedule 1.01(b) - Initial Properties
Allocated Debt Amount, Appraised Values and Cost Basis
<TABLE>
<CAPTION>
Appraised Appraised Allocated
"As Is" "As Improved" Cost Debt
Property Name Location Value Value Basis Amount
- ------------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
LeBaron/Doubletree San Jose, CA 20,000 30,000 19,969 7,987
Holiday Inn - Mission Valley San Diego, CA 19,400 21,700 19,480 7,760
Holiday Inn - Crowne Plaza San Jose, CA 15,500 21,000 14,986 5,994
Holiday Inn - Airport New Orleans, LA 26,000 28,500 23,780 9,512
Maison de Ville New Orleans, LA 3,000 3,000 2,775 1,110
Hampton Inn - Airport Richmond, VA 7,500 7,500 6,998 2,799
Days Inn/Hampton Inn Ocean City, MD 8,000 10,000 7,936 3,174
Holiday Inn DFW-West Bedford, TX 14,000 14,000 12,945 5,178
Toledo Hilton Toledo, OH 10,600 10,600 10,289 4,116
Madison Holiday Inn Madison, WI 21,500 23,000 21,281 8,512
Best Western Harvey Albuquerque,NM 12,500 17,500 11,853 4,741
</TABLE>
<PAGE>
EXHIBIT 10.25
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
February 11, 1997 (the "Amendment Date") and is among AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
("Borrower"), BANK ONE, TEXAS, N.A., as Administrative Agent (the
"Administrative Agent"), SOCIETE GENERALE, SOUTHWEST AGENCY, as Structuring
Agent (the "Structuring Agent"), and the banks and other financial institutions
(the "Banks") that are a party hereto.
RECITALS:
A. The Borrower, the Administrative Agent, the Structuring Agent and the
Banks are parties to that certain Credit Agreement dated as of July 31, 1996, as
amended by First Amendment to Credit Agreement dated as of October 18, 1996 by
and among such parties (the Credit Agreement as so amended being referred to
herein as the "Original Credit Agreement").
B. The parties hereto desire to amend the Original Credit Agreement and
the other Credit Documents (as defined in the Original Credit Agreement) as
hereinafter provided.
NOW, THEREFORE, for and in consideration of the covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. All terms used in this Amendment, but not defined herein, shall have
the meaning given such terms in the Original Credit Agreement.
2. This Amendment shall become effective as of the Amendment Date if on or
prior to the close of business on February 28, 1997 (the "Termination Date") the
following conditions precedent have been satisfied:
(a) Documentation. The Administrative Agent shall have received
-------------
counterparts of this Amendment executed by the Borrower and the Banks, and the
following duly executed by all the parties thereto, in form and substance
satisfactory to the Agents:
(1) Notes payable to the Banks each in the amount of such Bank's
Commitment as hereinafter provided in this Amendment;
(2) the Guaranties and the other documents set forth on Exhibit "A"
attached hereto;
<PAGE>
(3) certificates dated as of the Amendment Date from the Borrower,
each Guarantor, the Parent and the Participating Lessee covering such
matters as the Agents shall reasonably request;
(4) the following in each case addressed to the Agents and the Banks,
dated as of the Amendment Date and satisfactory in form and substance to
the Agents: (A) one or more favorable written opinions of Battle Fowler
L.L.P., special counsel for the Borrower and the Parent, and their
Subsidiaries, (B) a reliance letter from Battle Fowler L.L.P., as counsel
to the Parent, and each other counsel (other than underwriters' counsel)
delivering an opinion in connection with the Secondary Public Offering (as
hereinafter defined), stating that the Agents and the Banks may rely on
such opinions as if they were original addressees thereof, and in each case
attaching an executed original thereof, (C) one or more favorable written
opinions of the local counsel for the Borrower, the Parent and their
Subsidiaries for each state in which a Hotel Property is located, (D) one
or more favorable written opinions of Ballard, Spahr, Andrews & Ingersoll,
special Maryland counsel for the Parent;
(5) a Borrowing Base Certificate dated as of the Amendment Date, each
duly completed and executed by the Chief Financial Officer or Treasurer of
the General Partner on behalf of the Borrower; and
(6) such other documents, governmental certificates, agreements or,
lien searches as either Agent may reasonably request.
(b) Representations and Warranties. The representations and warranties
------------------------------
contained in this Amendment, and in each Credit Document and Participating
Lessee Document shall be true and correct in all material respects both as of
the Amendment Date and the date the other conditions to this Amendment's
effectiveness are satisfied.
(c) No Default. No Default or Event of Default shall exist as of either
----------
the Amendment Date or the date the other conditions to this Amendment's
effectiveness are satisfied.
(d) Certain Payments. The Borrower shall have paid the fees required to
----------------
be paid pursuant to the Amendment Fee Letter.
(e) Secondary Public Offering. The Agents shall have received evidence
-------------------------
satisfactory to them that (i) the secondary public offering of approximately
5,500,000 shares of Parent Common Stock (the "Secondary Public Offering") shall
have been
-2-
<PAGE>
consummated, (ii) the Administrative Agent shall have received executed or
conformed copies of each of the registration statement and each material
certificate, opinion, agreement, instrument or other document delivered by
Parent or any underwriter pursuant thereto (collectively, the "Secondary Public
Offering Documents"), all in form and substance reasonably satisfactory to the
Structuring Agent, (iii) each of the Secondary Public Offering Documents shall
be in full force and effect, (iv) the Parent shall have received not less than
$100,000,000 in aggregate gross proceeds from the Secondary Public Offering, (v)
the Parent shall have contributed the net proceeds from the Secondary Public
Offering (after deducting expenses and underwriting discounts and commissions)
to the Borrower as an equity contribution, (vi) the Borrower shall have used
such contributions to, among other things, repay the outstanding Advances, (vii)
any additional net proceeds shall be deposited in a Concentration Account with
the Cash Manager to be held until used by the Borrower for a use for which an
Advance would have been permitted to be used under the Credit Agreement and
(viii) all other matters with respect to the Secondary Public Offering shall be
reasonably satisfactory to the Agents. Notwithstanding the foregoing, (a)
outstanding Advances in the amount of $1,000 shall be maintained at all times
prior to the Maturity Date and (b) in connection with the use of net proceeds
from the Secondary Public Offering, the Borrower shall not be obligated to
reduce, pay down or deposit funds as collateral for any Letter of Credit
Exposure at the time of the Secondary Public Offering.
If this Amendment does not become effective prior to the Termination Date, this
Amendment shall be null and void; provided however that the Borrower and the
Parent shall still be obligated to pay the certain fees to Societe Generale,
Southwest Agency and Bank One, Texas, N.A. and reimburse such Banks for costs
and expenses incurred in connection with this Amendment as provided in the Fee
Letter (the "Amendment Fee Letter") and the Commitment Letter (the "Amendment
Commitment Letter"), both executed by such Banks, the Borrower and the Parent
and dated as of January 15, 1997.
3. From and after the Amendment Date, the term "Credit Agreement" as used
in the Credit Documents, shall mean the Original Credit Agreement, as amended by
this Amendment.
4. As of the Amendment Date, "Commitment" means, with respect to any Bank,
the amount set opposite such Bank's signature to this Amendment, or if such Bank
has entered into any Assignment and Acceptance after the Amendment Date, the
amount set forth for such Bank as its Commitment in the Register maintained by
the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement, as
such amount may be reduced pursuant to Section 2.04 of the Credit Agreement.
-3-
<PAGE>
5. With respect to the definition of "Cost Basis" under the Credit
Agreement, expenditures for FF&E purchased pursuant to an Approved Preliminary
Property Plan shall be included within the calculation of Cost Basis for such
Hotel Property. In connection with expenditures for such FF&E, the Borrower
will have to comply with the requirements in the Credit Agreement for providing
any information about or confirmation of Capital Expenditures as well as the
requirements for requesting a Borrowing or a withdrawal from the CAPEX Reserve
pertaining to Capital Expenditures.
6. The definition of "Permitted Other Subsidiary Indebtedness" in the
Credit Agreement is modified by adding the following phrase prior to the period
ending such definition: "and (c) such other Indebtedness of Permitted Other
Subsidiaries (but not the Borrower) which when added to all other Permitted
Other Subsidiary Indebtedness will not in the aggregate exceed $50,000,000."
7. Section 6.02 of the Original Credit Agreement is amended by adding the
phrase "and (c) executing indemnities for certain acts of malfeasance,
misappropriation and misconduct and environmental indemnities for the lenders of
other Permitted Other Subsidiary Indebtedness in connection with such
Indebtedness" at the end of the last sentence in such Section.
8. The definition of "Real Estate Value" in the Credit Agreement is
modified by adding the phrase "and FF&E" after the phrase "once the Capital
Expenditures."
9. The forms of Credit Documents attached to the Credit Agreement are
modified to reflect that the aggregate stated principal amount of the Notes and
the maximum amount of the Obligations is $150,000,000.
10. Section 3.04(h)(ii) of the Original Credit Agreement is amended by
adding the following sentence at the end of such Section: "In addition, the
Administrative Agent shall have received either an original Irrevocable
Direction to Pay Rent executed by such Subsidiary or an accession agreement
executed by such Subsidiary pursuant to which such Subsidiary is made a party to
the Irrevocable Direction to Pay Rent."
11. The Bank of Nova Scotia shall be named a Co-Agent under the Credit
Documents. A new section 8.07 shall be added to the Credit Agreement, which
reads as follows:
"Section 8.07 Co-Agent. The Bank of Nova Scotia shall be named a Co-
Agent under the Credit Documents, but the Co-Agent shall have no duty to
act as agent on behalf of the Banks."
-4-
<PAGE>
12. Each party hereto represents to the other parties hereto that such
party is authorized to execute this Amendment. In addition, the Borrower
represents and warrants to the Banks and the Agents that the Borrower and the
Guarantors are authorized to execute the Notes and the other documents set forth
on Exhibit "A" attached hereto to be executed by such Persons, the
representations and warranties contained in this Amendment, and in each Credit
Document and Participating Lessee Document are true and correct in all material
respects as of the Amendment Date and no Default or Event of Default exists as
of the Amendment Date.
13. This Amendment may be executed in multiple counterparts, each of which
shall be an original, but all of which shall constitute but one Amendment.
-5-
<PAGE>
Executed as of the date first set forth above.
BORROWER:
--------
AMERICAN GENERAL HOSPITALITY OPERATING
PARTNERSHIP, L.P.
By: AGH GP, Inc., its general partner
/s/ Kenneth E. Barr
--------------------------------------
Name: Kenneth E. Barr
---------------------------------
Title: Executive Vice President
--------------------------------
ADMINISTRATIVE AGENT:
--------------------
BANK ONE, TEXAS, N.A.
/s/ Jeff Lindsey
--------------------------------------------
Name: Jeff Lindsey
---------------------------------------
Title: Vice President
--------------------------------------
STRUCTURING AGENT:
-----------------
SOCIETE GENERALE, SOUTHWEST AGENCY
/s/ Thomas K. Day
--------------------------------------------
Name: Thomas K. Day
---------------------------------------
Title: Vice President
--------------------------------------
COMMITMENT BANKS:
- ---------- -----
$46,666,666.67 SOCIETE GENERALE, SOUTHWEST AGENCY
/s/ Thomas K. Day
--------------------------------------------
Name: Thomas K. Day
---------------------------------------
Title: Vice President
--------------------------------------
-6-
<PAGE>
$46,666,666.67 BANK ONE, TEXAS, N.A.
/s/ Jeff Lindsey
--------------------------------------------
Name: Jeff Lindsey
---------------------------------------
Title: Vice President
--------------------------------------
$10,000,000.00 FIRST NATIONAL BANK OF COMMERCE
/s/ Louis Ballero
--------------------------------------------
Name: Louis Ballero
--------------------------------------
Title: Senior Vice President
--------------------------------------
$46,666,666.67 BANK OF NOVA SCOTIA
/s/ Paul Stiplosek
--------------------------------------------
Name: Paul Stiplosek
---------------------------------------
Title: Relationship Manager
--------------------------------------
-7-
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
MODIFICATION OF CREDIT FACILITY FOR
AMERICAN GENERAL HOSPITALITY OPERATING PARTNERSHIP, L.P.
TO INCREASE CREDIT FACILITY TO $150,000,000.00
CLOSING CHECKLIST
Administrative Agent-Bank One, Texas, N.A. Donohoe-Donohoe, Jameson & Carrol
Structuring Agent - Societe Generale, B&P = Bracewell & Patterson, L.L.P.
Southwest Agency
Agents - Structuring Agent and Administrative Agent
Issuing Bank - Bank One, Texas, N.A.
Cash Manager - Bank One, Texas, N.A.
Banks - See Schedule 1 attached
Borrower - American General Hospitality BF-Battle Fowler LLP
Operating Partnership, L.P.
Parent - American General Hospitality Corporation
Manager - American General Hospitality, Inc.
Lessee - AGH Leasing, Inc.
Guarantors - See Schedule 2 Subsidiaries - See Schedule 3 attached
attached
<TABLE>
<CAPTION>
Responsible Satisfied/
Item Party Signatories Status Executed
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Principal Credit Modification Documents
- --------------------------------------------------------------------------------------------------------------------------------
A. Second Amendment to Credit Agreement B&P Borrower, Agents,
Banks
- --------------------------------------------------------------------------------------------------------------------------------
1. Exhibit A - List of Documents B&P -----
- --------------------------------------------------------------------------------------------------------------------------------
B. Promissory Notes made payable to the B&P Borrower
Banks
- --------------------------------------------------------------------------------------------------------------------------------
C. Environmental Indemnity B&P Borrower, Parent &
1. Annex 1 - Accession Agreement Guarantors
- --------------------------------------------------------------------------------------------------------------------------------
D. Guaranty and Contribution Agreement B&P Guarantors/Parent
executed by Initial Guarantors
1. Annex 1- Accession Agreement
- ---------------------------------------------------------------------------------------------------------------------------------
E. Security Agreement executed by B&P Borrower/Guarantors
Borrower and Guarantors
- ---------------------------------------------------------------------------------------------------------------------------------
F. Irrevocable Direction to Pay B&P Lessee, Borrower,
1. Annex 1 - Accession Agreement Guarantors
- ----------------------------------------------------------------------------------------------------------------------------------
II. Organizational Documents, Resolutions
and Authorizations
- ----------------------------------------------------------------------------------------------------------------------------------
A. Borrower's and Guarantors' Certificates Borrower and Borrower and
Guarantors Guarantors
- ----------------------------------------------------------------------------------------------------------------------------------
B. Parent's Certificate Parent Parent
- ----------------------------------------------------------------------------------------------------------------------------------
1. Certificates of Incorporation,
Bylaws and Resolutions
- ----------------------------------------------------------------------------------------------------------------------------------
C. Participating Lessee's Certificate Lessee Lessee
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Responsible Satisfied/
Item Party Signatories Status Executed
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D. Organizational Documents for American
General Hospitaltity Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
1. Certificate of Incorporation - Borrower
Maryland
- ----------------------------------------------------------------------------------------------------------------------------------
2. Certificate of Good Standing - Borrower
Maryland
- ----------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Articles of Borrower
Incorporation
- ----------------------------------------------------------------------------------------------------------------------------------
4. Certified Copy of Bylaws Borrower
- ----------------------------------------------------------------------------------------------------------------------------------
5. Corporate Resolutions and Borrower
Certificates of Incumbency
- ---------------------------------------------------------------------------------------------------------------------------------
6. Certified Copy of Prospectus and Borrower
Other Documentation Executed
in Connection with Secondary
Offering
- ---------------------------------------------------------------------------------------------------------------------------------
E. Organizational Documents of AGH, GP,
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
1. Certificate of Incorporation - Borrower
Nevada
- ---------------------------------------------------------------------------------------------------------------------------------
2. Certificate of Good Standing - Borrower
Nevada
- ---------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Articles of Borrower
Incorporation
- ---------------------------------------------------------------------------------------------------------------------------------
4. Certified Copy of Bylaws Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
5. Corporate Resolutions and Borrower
Certificates of Incumbency
- ---------------------------------------------------------------------------------------------------------------------------------
F. Organizational Documents of AGH LP,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
1. Certificate of Incorporation - Borrower
Nevada
- ---------------------------------------------------------------------------------------------------------------------------------
2. Certificate of Good Standing - Borrower
Nevada
- ----------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Articles of Borrower
Incorporation
- ----------------------------------------------------------------------------------------------------------------------------------
4. Certified Copy of Bylaws Borrower
---------------------------------------------------------------------------------------------------------------------------------
5. Corporate Resolutions and Borrower
Certificates of Incumbency
- ----------------------------------------------------------------------------------------------------------------------------------
G. Organizational Documents of American
General Hospitality Operating
Parntership, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Limited Partnership Agreement Borrower
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Responsible Satisfied/
Item Party Signatories Status Executed
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. Certificate of Existence - Borrower
Delaware
- ----------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Partnership Borrower
Certificate - Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
4. Partnership Authority and Borrower
Consent
- -----------------------------------------------------------------------------------------------------------------------------------
5. Partnership Authority and Borrower
Consent
- -----------------------------------------------------------------------------------------------------------------------------------
H. Organizational Documents for AGHL GP,
Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Certificate of Incorporation - Borrower
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
2. Certificate of Good Standing - Borrower
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Articles of Borrower
Incorporation
- -----------------------------------------------------------------------------------------------------------------------------------
4. Certified Copy of Bylaws Borrower
- -----------------------------------------------------------------------------------------------------------------------------------
5. Corporate Resolutions and Borrower
Certificates of Incumbency
- -----------------------------------------------------------------------------------------------------------------------------------
I. Organizational Documents for AGH
Leasing, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Limited Partnership Agreement Borrower
----------------------------------------------------------------------------------------------------------------------------------
2. Certificate of Existence - Borrower
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Partnership Borrower
Certificate - Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
4. Partnership Authority and
Consent
- -----------------------------------------------------------------------------------------------------------------------------------
J. Organizational Documents for American
General Hospitality UPREIT, Limited
Liability Company
- -----------------------------------------------------------------------------------------------------------------------------------
1. Certificate of Formation - Borrower
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
2. Certificate of Good Standing - Borrower
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
3. Certified Copy of Limited Borrower
Liability Company Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
4. LLC Authority and Consent Borrower
- -----------------------------------------------------------------------------------------------------------------------------------
III. Legal Opinions
- -----------------------------------------------------------------------------------------------------------------------------------
A. Battle Fowler LLP Legal Opinion BF BF
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Responsible Satisfied/
Item Party Signatories Status Executed
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B. Reliance Letter BF BF
- ----------------------------------------------------------------------------------------------------------------------------------
C. McDonald, Carano, Wilson, McCune, McDonald, McDonald, etc.
Bergin, Frankovich & Hicks LLP Legal etc.
Opinion
- ----------------------------------------------------------------------------------------------------------------------------------
D. Ballard, Spahr, Andrews & Ingersoll Ballard, etc. Ballard, etc.
Legal Opinion
- ----------------------------------------------------------------------------------------------------------------------------------
E. Local Counsel Opinions
1. California
2. Florida
3. Georgia
4. Louisiana
5. New Mexico
6. North Carolina
7. Ohio
8. Washington, D.C.
9. Wisconsin
10. Other
- ----------------------------------------------------------------------------------------------------------------------------------
IV. Other Due Diligence
- ----------------------------------------------------------------------------------------------------------------------------------
A. Arlington, IL Radisson Borrower Various
1. Entity Documentation
2. Certificate of Existence, Good
Standing and Authority to do
Business
- State of Creation
- Illinois
3. Management Agreement
4. Lease Agreement
5. Franchise Agreement
6. Loan Documents
7. Lender Estoppel Letter 3 P Lender
- ----------------------------------------------------------------------------------------------------------------------------------
B. Wyndham Hotel Agreements Borrower
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
SCHEDULE 1
Banks
-----
Societe Generale, Southwest Agency
Bank One, Texas, N.A.
First National Bank of Commerce
Bank of Nova Scotia
-12-
<PAGE>
SCHEDULE 2
Guarantors
----------
American General Hospitality Corporation
AGH UPREIT, LLC
3100 Glendale Joint Venture
MDV Limited Partnership
Madison Motel Associates
183 Hotel Associates, Ltd.
Richmond Williamsburg Associates, Ltd.
2929 Williams Limited Liability Company
Lake Buena Vista Partners, Ltd.
-13-
<PAGE>
SCHEDULE 3
Subsidiaries
------------
AGH UPREIT, LLC
3100 Glendale Joint Venture
MDV Limited Partnership
Madison Motel Associates
183 Hotel Associates, Ltd.
Richmond Williamsburg Associates, Ltd.
2929 Williams Limited Liability Company
Lake Buena Vista Partners, Ltd.
-14-
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR DURHAM, NORTH CAROLINA
------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DURHAM, I. Credit Documents
NORTH
CAROLINA ---------------------------------------------------------------------------------------------------------------------------
HILTON A. Amendment to Deed of Trust, B&P Property Owner
Assignment of Leases and Administrative Agent
Collateral Assignment
--------------------------------------------------------------------------------------------------------------------------
II. Other Documents
--------------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
--------------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Smith, Helms, Smith, Helms,
Mulliss & Mulliss &
Moore, L.L.P. Moore, L.L.P.
--------------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
2. Tie-in Endorsement
3. Endorsement increasing policy
amount
4. Revisions to reinsurance
--------------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR ORLANDO, FLORIDA
------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ORLANDO, I. Credit Documents
FLORIDA
DAYS INN ----------------------------------------------------------------------------------------------------------------------
A. Amendment to Deed of Trust, B&P Property Owner
Assignment of Leases and Administrative Agent
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Sterns, Weaver, Sterns, Weaver,
Miller, Weissler, Miller, Weissler,
Alhadeff & Alhadeff &
Sitterson Sitterson
---------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Company Company
Endorsement/Modification (if
available in Florida)
---------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR OCEAN CITY, MARYLAND
----------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OCEAN CITY, I. Credit Documents
MARYLAND
DAYS INN ----------------------------------------------------------------------------------------------------------------------
A. Amendment to Deed of Trust B&P Lessee
Assignment of Leases and Administrative
Collateral Assignment Agent
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Ayres, Jenkins, Ayres, Jenkins,
Gordy & Almand, P.A. Gordy &Almand, P.A.
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Company Company
Endorsement/Modification
2. Endorsement increasing policy
amount
3. Tie-in Endorsement
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR RICHMOND, VIRGINIA
--------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RICHMOND, I. Credit Documents
VIRGINIA
HAMPTON INN ----------------------------------------------------------------------------------------------------------------------
A. Amendment to Deed of Trust, B&P Property Owner
Assignment of Leases and Administrative Agent
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion McGuire, McGuire,
Woods, Battle & Woods, Battle &
Booth, L.P. Booth, L.P.
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Company Company
Endorsement/Modification
2. Tie-in Endorsement
3. Endorsement increasing policy
amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR BEDFORD, TEXAS
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BEDFORD, I. Credit Documents
TEXAS
HOLIDAY INN ----------------------------------------------------------------------------------------------------------------------
A. Amendment to Deed of Trust, B&P Property Owner
Assignment of Leases and Collateral Administrative Agent
Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Title Chicago Title Chicago Title
1. Texas Equivalent to Down date Company Company
Endorsement/Modification dated the
day before Closing
2. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
C. Certificate of Existence, Good Property Owner
Standing and Authority to do Business
for Property Owners and their
Corporate General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR KENNER, LOUISIANA
-------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KENNER, I. Credit Documents
LOUISIANA
HOLIDAY ----------------------------------------------------------------------------------------------------------------------
INN NEW A. Amendment to Mortgage, Assignment B&P Property Owner
ORLEANS of Leases and Collateral Assignment Administrative Agent
AIRPORT ----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Nesser, King & Nesser, King &
LeBlanc LeBlanc
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
2. Tie-in Endorsement
3. Endorsement increasing policy
amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR NEW ORLEANS, LOUISIANA
------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NEW ORLEANS, I. Credit Documents
LOUISIANA ----------------------------------------------------------------------------------------------------------------------
MAISON de A. Amendment to Mortgage, Assignment B&P Property Owner
of Leases and Collateral Assignment Administrative Agent
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Nesser, King & Nesser, King &
LeBlanc LeBlanc
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Company Company
Endorsement/Modification
2. Tie-in Endorsement
3. Endorsement increasing policy
amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR TOLEDO, OHIO
--------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOLEDO, I. Credit Documents
OHIO
HILTON ----------------------------------------------------------------------------------------------------------------------
A. Amendment to Open End Mortgage, B&P Property Owner
Security Agreement, Assignment of Administrative Agent
Rents, and Financing Statement
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion McDonald, McDonald,
Hopkins, Burke Hopkins,Burke
& Haber Co., & Haber Co.,
L.P.A. L.P.A.
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Company Company
Endorsement/Modification
2. Tie-in Endorsement
3. Endorsement increasing policy
amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Property Owner
Standing and Authority to do
Business for Property Owners and
their Corporate General Partners
1. State of Creation
2. State of Property
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR SAN DIEGO, CALIFORNIA
-----------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAN DIEGO, I. Credit Documents
CALIFORNIA ----------------------------------------------------------------------------------------------------------------------
HOLIDAY A. Amendment to Deed of Trust, B&P Property Owner
INN Assignment of Leases and Administrative Agent
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Berliner-Cohen Berliner-Cohen
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
2. Tie-in Endorsement
3. Endorsement increasing policy amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Standing Property Owner
and Authority to do Business for
Property Owners and their Corporate
General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR ALBUQUERQUE, NEW MEXICO
-------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALBUQUERQUE, I. Credit Documents
NEW MEXICO ----------------------------------------------------------------------------------------------------------------------
FRED HARVEY A. Amendment to New Mexico Deed of B&P Property Owner
HOTEL Trust with Statutory Power of Administrative Agent
Sale, Assignment of Leases and
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Sutin, Thayer & Browne Sutin, Thayer & Browne
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
(if available in New Mexico, or
equivalent)
2. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Standing Property Owner
and Authority to do Business for
Property Owners and their Corporate
General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR SAN JOSE, CALIFORNIA
----------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAN JOSE, I. Credit Documents
CALIFORNIA ----------------------------------------------------------------------------------------------------------------------
LeBARON/ A. Amendment to Subleasehold B&P Property Owner
DOUBLETREE Deed of Trust, Assignment of Administrative Agent
Leases and Collateral
Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Berliner-Cohen Berliner-Cohen
----------------------------------------------------------------------------------------------------------------------
C. Title ALL-CALIFORNIA ALL-CALIFORNIA
1. Down date Endorsement/Modification Company Company
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Standing Property Owner
and Authority to do Business for
Property Owners and their Corporate
General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR SAN JOSE, CALIFORNIA
----------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAN JOSE, I. Credit Documents
CALIFORNIA ----------------------------------------------------------------------------------------------------------------------
CROWNE PLAZA A. Amendment to Deed of Trust, B&P Property Owner
Assignment of Leases and Administrative Agent
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Berliner-Cohen Berliner-Cohen
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
2. Tie-in Endorsement
3. Endorsement increasing policy amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Standing Property Owner
and Authority to do Business for
Property Owners and their Corporate
General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR MADISON, WISCONSIN
--------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MADISON, I. Credit Documents
WISCONSIN ----------------------------------------------------------------------------------------------------------------------
HOLIDAY INN A. Amendment to Deed of Trust, B&P Property Owner
SELECT Assignment of Leases and Administrative Agent
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Berliner-Cohen Berliner-Cohen
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
2. Tie-in Endorsement
3. Endorsement increasing policy amount
4. Revisions to reinsurance
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Standing Property Owner
and Authority to do Business for
Property Owners and their Corporate
General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
& BANK ONE, TEXAS, N.A.
CREDIT FACILITY FOR AMERICAN GENERAL
HOSPITALITY OPERATING PARTNERSHIP, L.P.
CHECKLIST FOR MONTEREY, CALIFORNIA
----------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESPONSIBLE SATISFIED/
PROPERTY ITEM PARTY SIGNATORIES STATUS EXECUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONTEREY, I. Credit Documents
CALIFORNIA ----------------------------------------------------------------------------------------------------------------------
HOLIDAY INN A. Amendment to Deed of Trust, B&P Property Owner
RESORT Assignment of Leases and Administrative Agent
Collateral Assignment
----------------------------------------------------------------------------------------------------------------------
II. Other Documents
----------------------------------------------------------------------------------------------------------------------
A. Lessee Ratification Agreement B&P Lessee
----------------------------------------------------------------------------------------------------------------------
B. Local Counsel Legal Opinion Berliner-Cohen Berliner-Cohen
----------------------------------------------------------------------------------------------------------------------
C. Title Chicago Title Chicago Title
1. Down date Endorsement/Modification Company Company
----------------------------------------------------------------------------------------------------------------------
D. Certificate of Existence, Good Standing Property Owner
and Authority to do Business for
Property Owners and their Corporate
General Partners
1. State of Creation
2. State of Property
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
STATE OR OTHER JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION/TYPE OF ENTITY
- -------------------------------------- --------------------------------------
AGH GP, Inc. Nevada/Corporation
AGH LP, Inc. Nevada/Corporation
American General Hospitality Operating
Partnership, L.P. Delaware/Limited Partnership
AGH UPREIT LLC Delaware/Limited Liability Company
AGH SECAUCUS LLC Delaware/Limited Liability Company
AGH DFW South LLC Delaware/Limited Liability Company
AGH 75 Arlington Heights LLC Delaware/Limited Liability Company
AGH 2780 Atlanta LLC Delaware/Limited Liability Company
2929 Williams Limited Liability Company Delaware/Limited Liability Company
3199 Glendale Joint Venture Ohio/General Partnership
MDV Limited Partnership Texas/Limited Partnership
Madison Motel Associates Wisconsin/General Partnership
183 Hotel Associates, Ltd. Texas/Limited Partnership
Richmond Williamsburg Associates, Ltd. Texas/Limited Partnership
455 Meadowlands Associates, Ltd. Texas/Limited Partnership
DFW South I Limited Partnership Texas/Limited Partnership
<PAGE>
Lake Buena Vista Partners, Ltd. Florida/Limited Partnership
75 Arlington Heights Limited Delaware/Limited Partnership
Partnership, L.P.
2780 Atlanta Limited Partnership, L.P. Delaware/Limited Partnership
<PAGE>
EXHIBIT 23
We consent to the incorporation by reference in the registration statements of
American General Hospitality Corporation on Form S-8 (File No. 333-08845) and on
Form S-8 (File No. 333-08841) of our report dated January 25, 1997 except for
Note 10, as to which the date is March 26, 197, on our audit of the consolidated
financial statements and financial statement schedules of American General
Hospitality Corporation as of December 31, 1996 and for the period from July 31,
1996 through December 31, 1996, which report is included in the Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,888,281
<SECURITIES> 0
<RECEIVABLES> 3,982,424
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 234,949,016
<DEPRECIATION> 4,188,198
<TOTAL-ASSETS> 243,115,355
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 82,888
<OTHER-SE> 128,746,013
<TOTAL-LIABILITY-AND-EQUITY> 243,115,355
<SALES> 0
<TOTAL-REVENUES> 13,495,794
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,757,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,412,117
<INCOME-PRETAX> 5,129,181
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,129,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,129,181
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
