<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
COMMISSION FILE NUMBER 1-11903
MERISTAR HOSPITALITY CORPORATION
(Exact name of Registrant as specified in its Charter)
MARYLAND 72-2648842
(State of Incorporation) (IRS Employer Identification No.)
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007
(Address of Principal Executive Offices)(Zip Code)
202-295-1000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period for which the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, par value $0.01 per share, outstanding at
May 9, 2000 was 46,148,472.
<PAGE>
MERISTAR HOSPITALITY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 14
PART II. OTHER INFORMATION 16
ITEM 5: OTHER INFORMATION 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 16
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
March 31, 2000 December 31, 1999
--------------- ------------------
(unaudited)
<S> <C> <C>
Assets
Investments in hotel properties $3,143,594 $3,118,723
Accumulated depreciation (207,918) (182,430)
---------- -----------------
2,935,676 2,936,293
Cash and cash equivalents - 2,556
Accounts receivable, net 2,420 1,328
Prepaid expenses, inventory and other 7,652 9,137
Note receivable from Lessee - 57,110
Due from Lessee 23,725 11,476
Investments in and advances to affiliates 40,518 40,085
Restricted cash 14,984 17,188
Intangible assets, net of accumulated amortization
of 6,697 and $5,742 $ 17,788 19,028
---------- -----------------
$3,042,763 $3,094,201
========== =================
Liabilities, Minority Interests and Stockholders' Equity
Accounts payable $ 1,795 $ 886
Accrued expenses and other liabilities 96,593 57,169
Accrued interest 27,127 31,380
Income taxes payable 647 730
Dividends and distributions payable 26,329 26,263
Deferred income taxes 9,408 9,345
Long-term debt 1,629,672 1,676,771
---------- -----------------
Total liabilities 1,791,571 1,802,544
---------- -----------------
Minority interests 121,028 121,055
Stockholders' Equity:
Common stock, par value $0.01 per share
Authorized, - 250,000 shares
Issued - 48,374 and 47,664 shares 484 477
Preferred stock, par value $0.01 per share
Authorized, - 100,000 shares - -
Additional paid-in capital 1,175,370 1,164,750
Retained earnings (9,827) 16,874
Accumulated other comprehensive income (5,402) (5,247)
Unearned stock-based compensation (10,109) -
Less common stock held in treasury - 1,316 and 407
shares (20,352) (6,252)
---------- -----------------
Total stockholders' equity 1,130,164 1,170,602
---------- -----------------
$3,042,763 $3,094,201
========== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
<S> <C> <C>
2000 1999
------- -------
Revenue:
Participating lease revenue $65,523 $62,811
Office rental and other revenues 1,577 1,282
------- -------
Total revenue 67,100 64,093
------- -------
Office rental and other operating expenses 606 496
Administrative and general 1,771 1,535
Property taxes, insurance and other 12,691 13,602
Depreciation and amortization 26,630 23,888
------- -------
Total operating expenses 41,698 39,521
------- -------
Net operating income 25,402 24,572
Interest expense, net 28,760 24,089
------- -------
Income before minority interests, income taxes and
extraordinary gain (3,358) 483
Minority interests 138 208
------- -------
Income before income taxes and extraordinary gain (3,496) 275
Income taxes (70) 8
------- -------
Income before extraordinary gain (3,426) 267
Extraordinary gain on early extinguishment of debt,
net of tax effect of $62 (3,054) -
------- -------
Net income $ (372) $ 267
======= =======
Earnings per share:
Basic:
Income before extraordinary gain $ (0.07) $0.01
Extraordinary gain 0.06 -
------- -------
Net income $ (0.01) $0.01
======= =======
Diluted:
Income before extraordinary gain $ (0.07) $ -
Extraordinary gain 0.06 -
------- -------
Net income $ (0.01) $ -
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
Three Months Ended
March 31,
------------------
<S> <C> <C>
2000 1999
-------- --------
Operating activities:
Net income $ (372) $ 267
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26,630 23,888
Extraordinary gain on early extinguishment of debt,
before tax effect (3,116) -
Minority interests 138 208
Deferred income taxes 63 4
Changes in operating assets and liabilities:
Accounts receivable, net (1,092) 2,553
Prepaid expenses, inventory and other 1,485 (804)
Income tax receivable - 26
Accounts payable 909 3,068
Accrued expenses and other liabilities 39,424 28,779
Accrued interest (4,253) 634
Income tax payable (83) -
Due from Lessee (12,249) (17,926)
-------- --------
Net cash provided by operating activities, 47,484 40,697
-------- --------
Investing activities:
Investment in hotel properties, net (24,849) (49,780)
Purchases of intangible assets - (1,334)
Investments in and advances to affiliates, net (433) (31,904)
Repayment of notes receivable 57,110 10,000
Change in restricted cash 2,204 537
-------- --------
Net cash provided by (used in) investing activities 34,032 (72,481)
-------- --------
Financing activities:
Deferred costs (49) (688)
Proceeds from issuance of long-term debt 45,097 86,976
Principal payments on long-term debt (89,080) (1,000)
Proceeds from issuance of common stock, net 463 267
Purchase of treasury stock (14,100) -
Dividends paid to stockholders (26,261) (25,998)
Distributions to minority investors (141) (162)
-------- --------
Net cash (used in) provided by financing activities (84,071) 59,395
-------- --------
Effect of exchange rate changes on cash and cash equivalents (1) (2)
-------- --------
Net (decrease) increase in cash and cash equivalents (2,556) 27,609
Cash and cash equivalents, beginning of period 2,556 4,180
-------- --------
Cash and cash equivalents, end of period $ - $ 31,789
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION
MeriStar Hospitality Corporation (the "Company") was formed on August 3, 1998,
as a result of the merger (the "Merger") of CapStar Hotel Company ("CapStar")
with and into American General Hospitality Corporation ("AGH"), a Maryland
corporation operating as a real estate investment trust ("REIT"). The Company
owns a portfolio of primarily upscale, full-service hotels, diversified by
franchise and brand affiliations, in the United States and Canada.
Substantially all of the Company's hotels are leased to and operated by MeriStar
Hotels & Resorts, Inc. ("OpCo"). As of March 31, 2000, the Company owned 116
hotels with 29,348 rooms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") have been omitted
pursuant to such rules and regulations. The unaudited condensed consolidated
interim financial statements should be read in conjunction with the financial
statements, notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. Certain 1999 amounts
have been reclassified to conform to the 2000 presentation.
The accompanying unaudited condensed consolidated interim financial statements
reflect, in the opinion of management, all adjustments, which are of a normal
and recurring nature, necessary for a fair presentation of the financial
condition and results of operations and cash flows for the periods presented.
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires an enterprise to display comprehensive income
and its components in a financial statement to be included in an enterprise's
full set of annual financial statements or in the notes to interim financial
statements. Comprehensive income represents a measure of all changes in equity
of an enterprise that result from recognized transactions and other economic
events for the period other than transactions with owners in their capacity as
owners. Comprehensive income of the Company includes net income and other
comprehensive income from foreign currency items. For the three months ended
March 31, 2000, net income (loss) was $(372), other comprehensive income (loss),
net of tax, was $(155) and comprehensive income (loss) was $(527). For the three
months ended March 31, 1999, net income was $267, other comprehensive income
(loss), net of tax, was $(586) and comprehensive income (loss) was $(319).
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires a public entity to report selected information about
operating segments in financial reports issued to shareholders. Based on the
guidance provided in the standard, the Company has determined that its business
is conducted in one operating segment. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Revenues for Canadian operations totaled $1,425 and $1,418 for the
three months ended March 31, 2000 and 1999, respectively.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements". SAB No.
101 addresses lessor revenue recognition in interim periods related to rental
agreements which provide for minimum rental payments, plus contingent rents
based on the lessee's operations, such as a percentage of sales in excess of an
annual specified sales target. SAB No. 101 requires the deferral
6
<PAGE>
of contingent rental income until the specified targets are met. This accounting
pronouncement relates only to the Company's recognition of lease revenue in
interim periods for financial reporting purposes; it has no effect on the timing
of rent payments under the Company's leases. During 1999, the Company's interim
financial results were reported in accordance with the requirements of SAB No.
101. The effect of SAB No. 101 was to defer recognition of contingent rental
income of $32,679 and $29,384 for the three months ended March 31, 2000 and
1999, respectively. These amounts are included in accrued expenses and other
liabilities on the Company's condensed consolidated balance sheets.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
In June 1999, the FASB issued SFAS No. 137 which amended SFAS No. 133 to defer
the effective date to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company is currently in the process of evaluating the effect
this new standard will have on its financial statements.
3. NOTE RECEIVABLE FROM LESSEE
On March 1, 2000, OpCo repaid the remaining balance of $57,100 on its revolving
credit agreement with the Company. The revolving credit agreement was also
amended to reduce the maximum borrowing limit from $75,000 to $50,000. Any
amounts outstanding will bear interest at the rate of the 30-day London
Interbank Offered Rate plus 350 basis points.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
New Credit Facility............... $ 883,000 $ 908,000
New Secured Facility.............. 327,887 328,954
Subordinated Notes................ 202,138 202,041
Convertible Notes................. 154,300 172,500
Mortgage debt and other........... 62,347 65,276
---------- ----------
$1,629,672 $1,676,771
========== ==========
As of March 31, 2000 the Company has repurchased $18,200 of its Convertible
Notes at a discount. This resulted in an extraordinary gain of $3,116 ($3,054,
net of tax effect).
As of March 31, 2000 aggregate future maturities of the above obligations are as
follows:
2000........................................ $ 8,039
2001........................................ 28,251
2002........................................ 47,896
2003........................................ 651,589
2004........................................ 361,168
Thereafter.................................. 532,729
----------
$1,629,672
==========
5. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On March 20, 2000, the Company declared a dividend for the three months ended
March 31, 2000 of $0.505 per share of common stock ("Common Stock") and per unit
of limited partnership interest ("OP Unit") in the Company's subsidiary
operating partnership. The dividend was paid on April 28, 2000.
7
<PAGE>
<TABLE>
<CAPTION>
6. EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per
share ("EPS"):
Three Months Ended
------------------
March 31,
-------------
<S> <C> <C>
2000 1999
------- -------
BASIC EPS
COMPUTATION:
Income before extraordinary gain $(3,426) $ 267
Weighted average number
of shares of Common
Stock outstanding 47,084 46,796
------- -------
Basic EPS before extraordinary gain $ (0.07) $ 0.01
======= =======
DILUTED EPS
COMPUTATION:
Income before extraordinary gain $(3,426) $ 267
Minority interest, net of tax - (120)
------- -------
Adjusted net income $(3,426) $ 147
======= =======
Weighted average number
of shares of Common
Stock outstanding 47,084 46,796
Common stock equivalents-
OP Units - 672
Common stock equivalents-
Stock options - 87
------- -------
Total weighted average number
of diluted shares of
Common Stock outstanding 47,084 47,555
======= =======
Diluted EPS before extraordinary gain $ (0.07) $ -
======= =======
</TABLE>
<TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended March 31,
----------------------------
2000 1999
------- -------
<S> <C> <C>
Cash paid for interest and income taxes:
Interest, net of capitalized interest of
$1,743 and $2,610, respectively.............. $33,013 $23,456
Income taxes.................................. 13 55
Non-cash investing and financing activities:
Deferred financing costs written-off 334 -
OP Units issued in purchase of property and
equipment..................................... - 1,488
Conversion of OP Units to Common Stock 25 1
Dividends reinvested 23 -
Issuance of restricted stock 10,109
</TABLE>
8
<PAGE>
8. PARTICIPATING LEASE AGREEMENTS
The Company's Participating Leases have noncancelable remaining terms ranging
from 9 to 11 years, subject to earlier termination on the occurrence of certain
contingencies, as defined in the Participating Leases. The rent due under each
Participating Lease is the greater of base rent or percentage rent, as defined.
Percentage rent applicable to room and food and beverage hotel revenue varies by
lease and is calculated by multiplying fixed percentages by the total amounts of
such revenues over specified threshold amounts. Both the minimum rent and the
revenue thresholds used in computing percentage rents are subject to annual
adjustments based on increases in the United States Consumer Price Index.
Percentage rent applicable to other revenues is calculated by multiplying fixed
percentages by the total amounts of such revenues. Total lease payments on all
of the Company's leases were $92,754 and $92,145 for the three months ended
March 31, 2000 and 1999, respectively. Lease payments from OpCo for the three
months ended March 31, 2000 and 1999 were $88,196 and $87,606, respectively.
9. STOCK-BASED COMPENSATION
In December 1999, the Company's Compensation Committee approved the grant of
common stock and other equity compensation to certain of the Company's
employees.
As of March 31, 2000, the Company had granted 595,000 shares of common stock,
subject to certain restrictions. The restricted stock is valued at the market
value at the date of grant and vests ratably over a three-year period. The
issuance of restricted stock has resulted in $10,109 of unearned stock-based
compensation which is recorded as a reduction to stockholders' equity on the
Company's condensed consolidated balance sheet as of March 31, 2000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
MeriStar Hospitality Corporation (the "Company") owns a portfolio of primarily
upscale, full-service hotels, diversified by franchise and brand affiliations,
in the United States and Canada. Substantially all of the Company's hotels are
leased to and operated by MeriStar Hotel & Resorts, Inc. ("OpCo"), an affiliated
entity. As of March 31, 2000, the Company owned 116 hotels with 29,348 rooms,
108 of which are leased and operated by OpCo.
On August 3, 1998, CapStar Hotel Company ("CapStar") merged (the "Merger") with
and into American General Hospitality Corporation ("AGH"), with the surviving
entity being named MeriStar Hospitality Corporation. In conjunction with the
Merger, CapStar also distributed on a pro rata basis to its stockholders all of
the capital stock of OpCo, which consisted of CapStar's hotel operations
(including leased hotels) and management business (the "Spin-Off").
In order to maintain its tax status as a Real Estate Investment Trust ("REIT"),
the Company has not been permitted to engage in the operations of its hotel
properties. To comply with this requirement, the Company has leased all of its
real property to third-party lessee/managers - OpCo and Prime Hospitality. In
December 1999, the REIT Modernization Act (the "RMA") became law. The RMA now
permits the Company to create a taxable REIT subsidiary (the "TRS"), which will
be subject to taxation similar to a C-Corporation. The TRS will be allowed to
lease the real property owned by the Company.
The RMA does not permit a REIT to establish a TRS until January 1, 2001. Also,
although a TRS can lease real property from a REIT, it will be restricted from
being involved in certain activities prohibited by the RMA. First, a TRS will
not be permitted to manage the properties itself; it will need to enter into an
"arms length" management agreement with an independent third-party manager that
is actively involved in the trade or business of hotel management and manages
properties on behalf of other owners. Second, a TRS will not be permitted to
lease a property that contains gambling operations. Third, a TRS will be
restricted from owning a brand or franchise.
The Company believes that establishing a TRS to lease its properties will
provide a more efficient alignment of and ability to capture the economic
interests of property ownership. The Company has established a subcommittee of
independent members of the Board of Directors to negotiate the transfer of its
existing leases with OpCo to the Company's TRS. Since this process is a
significant change from the business structure the Company has maintained as a
REIT, it is not currently possible to predict the outcome of these negotiations.
The amount of consideration, if any, to be exchanged between the Company and
OpCo is subject to completion of these negotiations. The Company intends to
conclude these negotiations during 2000 and to transfer those leases to its TRS
effective January 1, 2001. Concurrent with the transfer of the leases to the
TRS, the Company expects to enter into management agreements with OpCo to manage
its properties in accordance with the RMA rules described above.
FINANCIAL CONDITION
MARCH 31, 2000 COMPARED WITH DECEMBER 31, 1999
Total assets decreased by $51.4 million to $3,042.8 million at March 31, 2000
from $3,094.2 million at December 31, 1999. This decrease was due mainly to
OpCo's repayment of the note receivable from lessee offset by net additional
investments in hotel properties.
Total liabilities decreased by $10.9 million to $1,791.6 million at March 31,
2000 from $1,802.5 million at December 31, 1999. This decrease was due mainly to
a decrease in long-term debt partially offset by the effect of deferring $32.7
million of revenue under the provisions of Staff Accounting Bulletin ("SAB") No.
101. Long-term debt decreased by $47.1 million to $1,629.7 million at March 31,
2000 from $1,676.8 million at December 31, 1999 as a result of net repayments on
the New Credit Facility and the repurchase of the Company's Convertible Notes.
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED March 31,
1999.
Total revenue increased by $3.0 million to $67.1 million in the three months
ended March 31, 2000 from $64.1 million in the three months ended March 31,
1999. This increase was primarily attributable to an increase in participating
lease revenue resulting from an increase in room rates obtained at our hotels
under lease. On a pro forma basis for the quarter, revenue per available room
("RevPAR"), same-store average daily rate ("ADR") and occupancy were as follows.
<TABLE>
2000 1999 Change
--------- ---------- --------
<S> <C> <C> <C>
RevPAR $ 78.72 $ 76.22 3.3%
ADR $111.45 $107.09 4.1%
Occupancy 70.6% 71.2% (0.8)%
</TABLE>
Net interest expense increased to $28.8 million for the three months ended March
31, 2000 from $24.1 million for the same period in 1999. This increase was
attributable to the increase in interest rates during 1999 and 2000, partially
offset by a lower average debt balance during the first quarter of 2000.
The White Paper on Funds From Operations ("FFO") approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in October 1999 defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")), excluding
gains (or losses) from sales of properties, plus real estate related
depreciation and amortization and after comparable adjustments for the Company's
portion of these items related to unconsolidated entities and joint ventures.
Extraordinary items under GAAP are excluded from the calculation of FFO. The
Company believes that FFO is helpful to investors as a measure of the
performance of an equity real estate investment trust ("REIT") because, along
with cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. FFO does not represent cash generated from operating
activities determined by GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make cash distributions. FFO may include funds that
may not be available for management's discretionary use due to functional
requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties.
The following is a reconciliation between net income before extraordinary items
and diluted FFO for the three month periods ended March 31, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------- ------------------
<S> <C> <C>
Income before extraordinary gain $(3,426) $ 267
Minority interest to Common OP Unit Holders (4) 45
Interest on convertible debt 1,991 2,093
Hotel depreciation and amortization 25,698 23,023
------- -------
Diluted FFO $24,259 $25,428
======= =======
</TABLE>
11
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB
No. 101 addresses lessor revenue recognition in interim periods related to
rental agreements which provide for minimum rental payments, plus contingent
rents based on the lessee's operations, such as a percentage of sales in excess
of an annual specified sales target. SAB No. 101 requires the deferral of
contingent rental income until specified targets are met. This accounting
pronouncement relates only to the Company's recognition of lease revenue in
interim periods for financial reporting purposes; it has no effect on the timing
of rent payments under the Company's leases. The effect of SAB No. 101 is to
defer recognition of additional contingent rental income of $32,679 and $29,384
for the three months ended March 31, 2000 and 1999, respectively. These
amounts are included in accrued expenses and other liabilities on the Company's
condensed consolidated balance sheets.
The effect of SAB No. 101 on the Company's financial statements is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
----------------------------------
Prior to Effect Effect After Effect
of of of
SAB No. 101 SAB No. 101 SAB No. 101
---------------- ------------ -------------
<S> <C> <C> <C>
Net operating income $ 58,081 $(32,679) $ 25,402
Interest expense (28,760) - (28,760)
Minority interests (2,949) 2,811 (138)
Income taxes (527) 597 70
Extraordinary gain, net of tax 3,054 - 3,054
-------- -------- --------
Net income $ 28,899 $(29,271) $ (372)
======== ======== ========
Diluted funds from operations $ 56,341 $(32,082) $ 24,259
======== ======== ========
Retained Earnings $ 19,444 $(29,271) $ (9,827)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
Prior to Effect Effect After Effect
of of of
SAB No. 101 SAB No. 101 SAB No. 101
---------------- ------------ -------------
<S> <C> <C> <C>
Net operating income $ 53,956 $(29,384) $ 24,572
Interest expense (24,089) - (24,089)
Minority interests (3,104) 2,896 (208)
Income taxes (821) 813 (8)
-------- -------- --------
Net income $ 25,942 $(25,675) $ 267
======== ======== ========
Diluted funds from operations $ 53,999 $(28,571) $ 25,428
======== ======== ========
</TABLE>
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash generated
from operations, and funds from external borrowings and debt and equity
offerings. The Company expects to fund its continuing operations through cash
generated by its participating leases. The Company also expects to finance hotel
acquisitions and joint venture investments through a combination of internally
generated cash, external borrowings, and the issuance of units of the Company's
subsidiary operating partnership and/or common stock. Additionally, the Company
must, in order to maintain favorable tax treatment accorded to a REIT under the
Internal Revenue Code, distribute to stockholders at least 95% of its REIT
taxable income. The Company expects to fund such distributions through cash
generated from operations, borrowings on the Company's credit facilities or
through its preferred return on its investment in MeriStar Investment Partners.
Operating activities provided $47.5 million of net cash in the three months
ended March 31, 2000 mainly due to higher levels of accrued expenses and other
liabilities. Investing activities provided $34.0 million of cash during the
first three months of 2000, primarily due to the repayment of the note
receivable from OpCo offset by capital expenditures. Net cash used in financing
activities of $84.1 million resulted primarily from dividends paid, repurchase
of Company stock and net repayments on the Company's credit facilities.
At March 31, 2000 and May 9, 2000, the Company had $114.0 million and $64.0
million, respectively, available under the New Credit Facility.
Capital for renovation work is expected to be provided by a combination of
internally generated cash and external borrowings. Once initial renovation
programs for a hotel are completed, the Company expects to spend approximately
4% annually of hotel revenues for ongoing capital expenditure programs,
including room and facilities refurbishments, renovations, and furniture and
equipment replacements. During the three months ended March 31, 2000, the
Company spent approximately $24.8 million on capital expenditures. The Company
expects to spend approximately $47.0 million during the remainder of 2000 to
complete initial renovation programs and to fund ongoing capital expenditures
for its hotels.
The Company's Board of Directors has authorized the Company to repurchase up to
five million shares of its common stock from time to time in open market or
privately negotiated transactions. Stock repurchases are subject to prevailing
market conditions and other considerations. The Company expects the program to
be funded primarily through selected asset sales. As of March 31, 2000, the
Company has repurchased a total of 1,316,200 shares for $20.4 million.
The Company believes cash generated by operations, together with borrowing
capacity under its credit facilities will be sufficient to fund its existing
working capital, ongoing capital expenditures, and debt service requirements.
The Company believes, however, that its future capital decisions will also be
made in response to specific acquisition and/or investment opportunities,
depending on conditions in the capital and other financial markets. Accordingly,
the Company may consider increasing its borrowing capacity or issuing additional
debt or equity securities, the proceeds of which could be used to finance
acquisitions or investments, to refinance existing debt, or repurchase common
stock.
SEASONALITY
Demand in the lodging industry is affected by recurring seasonal patterns. For
non-resort properties, demand is lower in the winter months due to decreased
travel and higher in the spring and summer months during peak travel season.
For resort properties, demand is generally higher in winter and early spring.
Since the majority of the Company's hotels are non-resort properties, the
Company's operations generally reflect non-resort seasonality patterns.
Excluding the effect of SAB No. 101, the Company has lower revenue, operating
income and cash flow in the first and fourth quarters and higher revenue,
operating income and cash flow in the second and third quarters.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on long-
term debt obligations that impact the fair value of these obligations. The
Company's policy is to manage interest rates through the use of a combination of
fixed and variable rate debt. The Company's interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows and to lower its overall borrowing costs. To achieve its objectives, the
Company borrows at a combination of fixed and variable rates, and may enter into
derivative financial instruments such as interest rate swaps, caps and treasury
locks in order to mitigate its interest rate risk on a related financial
instrument. The Company does not enter into derivative or interest rate
transactions for speculative purposes. The Company has no cash flow exposure
due to general interest rate changes for its fixed long-term debt obligations.
The table below presents the principal amounts (in thousands of dollars) for the
Company's fixed and variable rate debt instruments, weighted-average interest
rates, and fair values by year of expected maturity to evaluate the expected
cash flows and sensitivity to interest rate changes. The Company considers all
of its debt instruments to be non-trading.
<TABLE>
<CAPTION>
Long-term Debt
-----------------------------------------------------------------------------
Average Variable Average
Expected Maturity Fixed Rate Interest Rate Rate Interest Rate
- ------------------------ ---------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
2000 $ 7,039 8.0% $ 1,000 7.5%
2001 11,251 8.0% 17,000 7.5%
2002 15,896 8.1% 32,000 7.5%
2003 8,589 7.9% 643,000 7.8%
2004 171,168 5.1% 190,000 7.5%
Thereafter 532,729 8.1% - N/A
---------------- ----------------- --------------- --------------
Total $746,672 7.4% $883,000 7.7%
================ ================= =============== ==============
Fair Value at 3/31/00 $683,577 $883,000
================ ===============
</TABLE>
In anticipation of the August 1999 completion the New Secured Facility, the
Company entered into two separate hedge transactions during July 1999. Upon
completion of the New Secured Facility, the Company terminated the underlying
treasury lock agreements, resulting in a net payment to the Company of $5.1
million. This amount was deferred and is being recognized as a reduction to
interest expense over the life of the underlying debt. As a result, the
effective interest rate on the New Secured Facility is 7.76%.
During September 1999, the Company entered into two separate $100 million swap
agreements with financial institutions in order to hedge against the impact
future interest rate fluctuations may have on the Company's existing floating
rate debt instruments. The swap agreements replaced two $100 million swap
agreements that were to expire in November 1999. The swap agreements effectively
fix 30-day LIBOR at 6.0%. During the period ended March 31, 2000, the Company
received $27,000 relating to these hedges. These amounts are included in
interest expense. The hedge agreements terminate in September 2001.
During 1998, the Company entered into six separate $100 million swap agreements.
The swap agreements effectively fix 30-day LIBOR at between 4.9% and 5.4%.
During the periods ended March 31, 2000 and 1999, the Company (received) made
net payments of $(674,000) and $233,000, respectively, relating to these
hedges. These amounts are included in interest expense. The hedge agreements
terminate at various times between November 1999 and September 2000.
Additionally, in anticipation of the August 1997 offering of $150 million
aggregate principal amount of its 8.75% senior subordinated notes due 2007 (the
"Subordinated Notes"), the Company entered into separate hedge transactions
during June and July 1997. Upon completion of the Subordinated Notes offering,
the Company terminated the underlying swap agreements, resulting in a net
payment to the Company of $836,000. This amount was deferred and is being
recognized as a reduction to interest expense over the life of the underlying
debt. As a result, the effective interest rate on the Subordinated Notes is
8.69%.
Although the Company conducts business in Canada, the Canadian operations were
not material to the Company's consolidated financial position, results of
14
<PAGE>
operations or cash flows as of March 31, 2000 and 1999. Additionally, foreign
currency transaction gains and losses were not material to the Company's results
of operations for the three months ended March 31, 2000 and 1999. Accordingly,
the Company was not subject to material foreign currency exchange rate risk from
the effects that exchange rate movements of foreign currencies would have on the
Company's future costs or on future cash flows it would receive from its foreign
subsidiaries. To date, the Company has not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
Certain statements in this Form 10-Q and in the future filings by the Company
with the SEC, in the Company's press releases, and in oral statements made by or
with the approval of an authorized executive officer constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievement expressed or implied by such forward-looking
statements. Such factors include: the ability of the Company to implement its
acquisition strategy and operating strategy; the Company's ability to manage
rapid expansion; changes in economic cycles; competition from other hospitality
companies; and changes in the laws and governmental regulations applicable to
the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.14 -- Form of MeriStar Hospitality Corporation Profits-Only Operating
Partnership Units Plan
27 -- Financial Data Schedule
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MeriStar Hospitality Corporation
Dated: May 9, 2000 /s/ John Emery
--------------------------
John Emery
Chief Operating Officer
17
<PAGE>
Meristar Hospitality Corporation Profits-Only
Operating Partnership Units ("POPs") Plan
I. Purpose. The purposes of this Meristar Hospitality Corporation
-------
Profits-Only Operating Partnership Units ("POPs") Plan (the "Plan") are to
promote the interests of Meristar Hospitality Corporation (the "Issuer") and its
participating affiliates, including Meristar Hospitality Operating Partnership,
L.P. (the "Company") by (i) attracting and retaining officers, directors,
employees and consultants of the Issuer and its participating affiliates and
(ii) enabling such individuals to acquire an equity interest in and participate
in the long-term growth and financial success of the Company.
II. Definitions. As used in the Plan, the following terms shall have
-----------
the meanings set forth below:
"affiliate" shall mean, with respect to any Person, any other Person
that, at the date of determination, directly or indirectly, controls or is
controlled by or under common control with such Person, as determined by the
Committee. For the purposes of this definition, the term "controls," "is
controlled by," or "under common control with" means possession, direct or
indirect, of the power to direct or cause the direction of the management or
policies of a Person whether through the ownership of voting securities, by
contract or otherwise. Without limiting the generality of the foregoing,
"affiliate" with respect to the Issuer shall at all times be defined to include
the Company.
"Board" shall mean the Board of Directors of the Issuer.
"Cause" shall mean (i) with respect to a Participant who is a party to
an employment agreement with the Issuer or any of its affiliates, the
Participant engaging in behavior that constitutes "cause" under such employment
agreement; and (ii) with respect to any Participant, (A) willful misconduct or
willful malfeasance by the Participant in connection with his employment; (B)
the Participant's conviction of, or plea of guilty or no contest to, any crime
constituting a felony under the laws of the United States or any state thereof,
any crime against the Issuer or any of its affiliates or any crime involving
moral turpitude; or (C) the Participant's material breach of any of the
provisions of the Partnership Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the Compensation Committee of the Board or any
other person or persons designated by the Board to administer the Plan.
"Company" shall mean Meristar Hospitality Operating Partnership, L.P.,
a Delaware limited partnership, together with any successor thereto.
"Disability" shall mean a Participant's becoming physically or
mentally incapacitated so that he is therefore reasonably expected to be unable
with reasonable accommodation, for a period of six consecutive months or for an
aggregate of nine
<PAGE>
(9) months in any eighteen (18) consecutive month period, to perform the
essential functions of his job for the Issuer and/or its affiliates, as the case
may be.
"Effective Date" shall have the meaning set forth in Section 10(a) of
this Plan.
"Employment" and "termination of employment" and similar references
shall include employment with and termination of employment from the Issuer and
its participating affiliates. For this purpose, "employment" shall also be
deemed to include service as a consultant to the Issuer and/or any of its
participating affiliates on an independent contractor basis or, with respect to
the Company, as a service partner thereof, but only for periods of a continuing
and substantial consulting or service partner relationship, as determined by the
Committee in its sole discretion. All determinations regarding employment shall
be made by the Committee. In addition, the Committee shall, in its sole
discretion, determine whether or not a leave of absence is a termination of
employment.
"Issuer" shall mean Meristar Hospitality Corporation, a Maryland
corporation, together with any successor thereto.
"Limited Partners" shall have the meaning set forth in the Partnership
Agreement.
"Participant" shall mean any officer, director, employee or consultant
of the Issuer or its participating affiliates (or service partner of the
Company) who is eligible for, and selected by the Committee to receive, an
Option or Restricted Unit under the Plan.
"Partnership Agreement" shall mean the Second Amended and Restated
Operating Agreement of Meristar Hospitality Operating Partnership, L.P., dated
August 3, 1998, as in effect from time to time.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
"Plan" shall mean this Meristar Hospitality Corporation Profits-Only
Operating Partnership Units ("POPs") Plan.
"POPs" shall mean [Class P profits-only operating partnership units]
of the Company.
"Restricted Units" shall mean restricted POPs granted hereunder, as
set forth in Section 7 of the Plan.
2
<PAGE>
"Restricted Unit Agreement" shall mean any written agreement,
contract, or other instrument or document (which may include provisions of an
employment agreement to which the Issuer is a party) in a form approved by the
Board which evidences any Restricted Unit granted hereunder, which may, but need
not, be executed or acknowledged by a Participant.
III. Administration.
--------------
A. The Plan shall be administered by the Committee. Subject to
the terms of the Plan and applicable law, and in addition to other express
powers and authorizations conferred on the Committee by the Plan, the Committee
shall have full power and authority to:
1. designate Participants;
2. determine the number of POPs or fractions thereof to be
covered by, or with respect to which payments, rights or other matters are to be
calculated in connection with, any grant under the Plan;
3. determine the terms and conditions of any grant under
the Plan;
4. determine whether, to what extent, and under what
circumstances grants under the Plan may be settled or exercised in cash, POPs,
other securities or other property, or canceled, forfeited or suspended and the
method or methods by which the grants under the Plan may be settled, exercised,
canceled, forfeited or suspended;
5. interpret, administer, reconcile any inconsistency,
correct any defect and/or supply any omission in the Plan and any instrument or
agreement relating to, or any grant made under, the Plan; establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and
6. make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan.
B. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any grant made under the Plan shall be within the sole
discretion of the Committee, may be made at any time and shall be final,
conclusive and binding upon all Persons, including the Issuer and its
affiliates, any Participant, and any holder or beneficiary of any grant made
under the Plan.
3
<PAGE>
C. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any grant made
under the Plan.
IV. POPs.
----
A. POPs. Subject to adjustment as set forth in Section 4(b),
----
the aggregate number of POPs with respect to which grants may be made under the
Plan shall be 2,000,000. If, after the Effective Date, any Restricted Units, are
forfeited, or if any Restricted Unit has expired, terminated or been canceled
for any reason whatsoever (other than by reason of exercise) and in either such
case a Participant has received no benefits of ownership with respect to the
forfeited POPs to which such expired, terminated or canceled Restricted Unit
relates, then the POPs covered by such Restricted Unit shall again be available
to be granted hereunder.
B. Adjustments. In the event that the Committee determines
-----------
that any dividend or other distribution (whether in the form of cash, POPs,
securities or other property), recapitalization, reorganization, merger,
consolidation, issuance or exchange of POPs, other ownership interests or other
securities of the Issuer, issuance of warrants or other rights to purchase POPs,
other ownership interests or other securities of the Company or other similar
corporate transaction or event affects the POPs such that an adjustment is
determined by the Committee in its discretion to be appropriate in order to
prevent inappropriate dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Committee may,
in such manner as it may deem equitable, adjust any or all of (i) the number
and/or kind of POPs, other ownership interests or other securities of the
Company (or number and kind of other securities or property) with respect to
which grants may be made under the Plan and (ii) the number and/or kind of POPs,
other ownership interests or other securities of the Company (or number and kind
of other securities or property) subject to outstanding grants made under the
Plan or (iii) make provision for a cash payment to the holder of an outstanding
Restricted Unit under the Plan in consideration for the cancellation of such
Restricted Unit. No adjustment shall be made on account of the grant of
Restricted Units. Upon the issuance or redemption of Partnership Interests (as
defined in the Partnership Agreement) in the Company, the number of POPs
available under the Plan and the number of POPs subject to outstanding grants
made under the Plan shall be equitably adjusted as determined by the Committee
in its sole discretion to prevent inappropriate dilution or enlargement of the
economic interest represented by such POPs.
V. Eligibility. Any officer, director, employee or consultant of the
-----------
Issuer and/or its participating affiliates (including any prospective officer or
key employee or consultant) shall be eligible to be designated as a Participant
in the Plan by the Committee.
4
<PAGE>
VI. Restricted Units Grants. The Committee may issue or transfer
-----------------------
Restricted Units to a Participant, upon such terms as the Committee deems
appropriate. The following provisions are applicable to Restricted Units:
A. General Requirements. Restricted Units issued or transferred
--------------------
pursuant to a Restricted Unit Agreement may be issued or transferred for
consideration or for no consideration, as determined by the Committee, The
Committee may establish conditions under which restrictions on Restricted Units
shall lapse over a period of time or according to such other criteria as the
Committee deems appropriate. The period of time during which the Restricted
Units will remain subject to restrictions will be designated in the applicable
Restricted Unit Agreement as the "Restriction Period."
B. Number of Units. The Committee shall determine the number of
---------------
Restricted Units to be issued or transferred and the restrictions applicable to
such grant.
C. Requirement of Employment. If the Participant ceases to be
-------------------------
employed by the Issuer or any of its affiliates during a period designated in
the applicable Restricted Unit Agreement as the Restriction Period, or if other
specified conditions are not met, the Restricted Unit Agreement shall terminate
as to all Restricted Units covered by the grant as to which the restriction have
not lapsed, and those Restricted Units must be immediately returned to the
Company. The Committee may, however, provide for complete or partial exceptions
to this requirement as it deems appropriate.
D. Restrictions on Transfer and Legend on Certificate. During
--------------------------------------------------
the Restriction Period, a Participant may not sell, assign, transfer, pledge or
otherwise dispose of the Restricted Units except as permitted under Section 9.
Each certificate for Restricted Units shall contain a legend giving appropriate
notice of the restrictions in the Restricted Unit Agreement. The Participant
shall be entitled to have the legend removed from the certificate covering the
Restricted Units subject to restrictions when all restrictions in such
Restricted Units have lapsed. The Committee may determine that the Issuer will
not issue certificates for Restricted Units until all restrictions on such
Restricted Units have lapsed, or that the Issuer will retain possession of
certificates for Restricted Units until all restrictions on such Restricted
Units have lapsed.
E. Lapse of Restrictions. All restrictions imposed on
---------------------
Restricted Units shall lapse upon the expiration of the applicable Restriction
Period and the satisfaction of all conditions imposed by the Committee. The
Committee may determine, as to any or all Restricted Unit Grants, that the
restrictions thereon shall lapse without regard to any Restriction Period.
5
<PAGE>
VII. Amendment and Termination. The Committee may amend, alter,
-------------------------
suspend, discontinue, or terminate the Plan or any portion thereof at any time;
provided, that any such amendment, alteration, suspension, discontinuance or
termination that would materially adversely affect the rights of any Participant
shall not to that extent be effective without the written consent of the
affected Participant.
VIII. General Provisions.
------------------
A. Nontransferability. Except as provided in this paragraph,
------------------
no Restricted Unit granted under the Plan shall be assignable or otherwise
transferable by the Participant, either voluntarily or involuntarily, except by
will or the laws of descent and distribution or in a sale or other transfer to
the Company. Except as provided in this paragraph, prior to an IPO, POPs may
not be assignable or otherwise transferrable other than by will or by the laws
of descent and distribution, and any such transfer shall be void and
unenforceable against the Company or an Affiliate. The Committee may in the
applicable Restricted Unit Agreement or at any time thereafter in an amendment
to such Restricted Unit Agreement, provide that Restricted Units granted
hereunder may be transferred with or without consideration by the Participant,
subject to such rules as the Committee may adopt to preserve the purposes of the
Plan, to one or more of:
1. the Participant's spouse, children or grandchildren
(including adopted children, stepchildren and grandchildren) (collectively, the
"Immediate Family");
2. a trust solely for the benefit of the Participant
and/or his Immediate Family;
3. a partnership or limited liability company, the partners
or members of which are limited to the Participant and his Immediate Family; or
4. any other person or entity authorized by the Committee.
(each transferee is hereinafter referred to as a "Permitted Transferee");
provided, however, that the Participant gives the Committee advance written
notice describing the terms and conditions of the proposed transfer and the
Committee notifies the Participant in writing that such a transfer would comply
with the requirements of the Plan, any applicable Restricted Unit Agreement and
any amendments thereto.
The terms and conditions of any Restricted Unit transferred in accordance with
the immediately preceding sentence shall apply to the Permitted Transferee and
any reference in the Plan or in an applicable Restricted Unit Agreement, or any
amendment thereto, to a Participant shall be deemed to refer to the Permitted
Transferee, except that: (x) Permitted Transferees shall not be entitled to
transfer any Restricted Units other than by will or the laws of descent and
distribution; (y) the Committee and the Issuer shall not
6
<PAGE>
be required to provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the Participant
under the Plan or otherwise; and (z) the effects of termination of employment as
to the Restricted Units shall continue to be determined with respect to the
employment and termination from employment of the Participant.
B. Beneficiaries. Each Participant may designate any
-------------
person(s) or legal entity(ies), including his estate, as his beneficiary under
the Plan. Such designation shall be made in writing on a form filed with the
Secretary of the Company or his designee and may be revoked or changed by such
Participant at any time by filing written notice of such revocation or change
with the Secretary or the Company or his designee. If no person shall be
designated by a Participant as his beneficiary or if no person designated as a
beneficiary survives such Participant, the Participant's beneficiary shall be
his estate.
C. No Rights to Grants. No Person shall have any claim to
-------------------
receive any grant under the Plan, and there is no obligation for uniformity of
treatment of Participants or holders or beneficiaries of grants made under this
Plan. The terms and conditions of grants made under the Plan and the Committee's
determinations and interpretations with respect thereto need not be the same
with respect to each Participant (whether or not such Participants are similarly
situated).
D. Certificates. All certificates, if any, evidencing POPs
------------
or other interests in or securities of the Company or any Affiliate delivered
under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which such securities are then listed and any applicable
Federal or state laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
E. Delegation. Subject to the terms of the Plan, the
----------
provisions of any Restricted Unit Agreement and applicable law, the Committee
may delegate to one or more officers or managers of the Company or any
Affiliate, or to a Committee of such officers or managers, the authority,
subject to such terms and limitations as the Committee shall determine, to grant
Restricted Units to, or to cancel, modify or waive rights with respect to, or to
alter, discontinue, suspend or terminate Restricted Units held by Participants.
F. Section 83(b) Election. Unless the Committee determines
----------------------
otherwise, an individual granted a Restricted Unit will be required to make a
timely, valid election under section 83(b) of the Internal Revenue Code of 1986,
as amended.
7
<PAGE>
G. Withholding. A Participant may be required to pay to the
-----------
Issuer, and the Issuer and its affiliates shall have the right and are hereby
authorized to withhold from any payment due or transfer made under any
Restricted Unit, under the Plan or from any compensation or other amount owing
to a Participant, the amount (in cash, securities or other property) of any
applicable federal, state and other governmental withholding taxes in respect of
a Restricted Unit, its exercise or any payment or transfer under a Restricted
Unit or the Plan and to take such other action as may be necessary in the
opinion of the Issuer to satisfy all obligations for the payment of such taxes.
H. Agreements. Each Restricted Unit hereunder shall be
----------
evidenced by a Restricted Unit Agreement which shall be delivered to the
Participant and shall specify the terms and conditions of the Restricted Unit,
and any rules applicable thereto.
I. No Limit on Other Compensation Arrangements. Nothing
-------------------------------------------
contained in the Plan shall prevent the Issuer or any affiliate from adopting or
continuing in effect other compensation arrangements, which may, but need not,
provide for the grant of Restricted Units, securities and other types of awards,
and such arrangements may be either generally applicable or applicable only in
specific cases.
J. No Right to Employment. No grant made hereunder shall be
----------------------
construed as giving a Participant the right to be retained in the employ of, or
in any other continuing relationship with, the Issuer or any affiliate of the
Issuer.
K. Special Incentive Compensation. By acceptance of a grant
------------------------------
hereunder, each Participant shall be deemed to have agreed that such grant is
special incentive compensation that will not be taken into account, in any
manner, as salary, compensation or bonus in determining the amount of any
payment under any pension, retirement, life insurance, disability or other
employee benefit plan of the Company or any affiliate of any other Person. In
addition, each beneficiary of a deceased Participant shall be deemed to have
agreed that such grant will not affect the amount of any life insurance
coverage, if any, provided by any Person on the life of the Participant which is
payable to such beneficiary under any life insurance plan covering employees.
L. Governing Law. The validity, construction and effect of
-------------
the Plan and any rules and regulations relating to the Plan and any Restricted
Unit Agreement shall be determined in accordance with the laws of the State of
New York applicable to agreements made and to be performed entirely within such
state.
M. Severability. If any provision of the Plan or any grant
------------
made hereunder is, becomes or is deemed to be invalid, illegal or unenforceable
in any jurisdiction or as to any Person or grant, or would disqualify the Plan
or any grant under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it
cannot be construed or
8
<PAGE>
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the grant, such provision shall be stricken
as to such jurisdiction, Person or granted and the remainder of the Plan and any
such grant shall remain in full force and effect.
N. Other Laws. The Committee may refuse to issue or
----------
transfer any Restricted Units if, acting in its sole discretion, it determines
that the issuance or transfer of such Restricted Units would violate any
applicable law or regulation and any payment tendered to the Company by a
Participant, other holder or beneficiary in connection with the grant of such
Restricted Units shall be promptly refunded. Without limiting the generality of
the foregoing, no Restricted Unit granted hereunder shall be construed as an
offer to sell securities of the Company, and no such offer shall be outstanding,
unless and until the Committee in its sole discretion has determined that any
such offer, if made, would be in compliance with all applicable securities laws.
O. No Trust or Fund Created. Neither the Plan nor any grant
------------------------
made under the Plan shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Issuer or any affiliate
and a Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Issuer or any affiliate pursuant to a grant
made under the Plan such right shall be no greater than the right of any
unsecured general creditor of the Company or any affiliate.
P. Headings. Headings are used herein solely as a
--------
convenience to facilitate reference and shall not be deemed in any way material
or relevant to the construction or interpretation of the Plan or any provision
thereof.
Q. Amendment to Operating Agreement. Neither the adoption of
--------------------------------
this Plan nor any grant hereunder shall restrict in any way the adoption of any
amendment to the Partnership Agreement in accordance with the terms of such
Agreement.
IX. Term of the Plan.
----------------
A. Effective Date. The Plan, when approved by the Board,
--------------
shall be effective as of March 29, 2000 (the "Effective Date").
B. Expiration Date. No grant shall be made under the Plan
---------------
after the tenth anniversary of the Effective Date. Unless otherwise expressly
provided in the Plan or in an applicable Restricted Unit, any Restricted Unit
granted hereunder may, and the authority of the Committee to amend, alter,
adjust, suspend, discontinue or terminate any conditions or rights under any
such Restricted Unit shall, continue after the tenth anniversary of the
Effective Date.
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,420
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,143,594
<DEPRECIATION> 207,918
<TOTAL-ASSETS> 3,042,763
<CURRENT-LIABILITIES> 0
<BONDS> 1,679,672
0
0
<COMMON> 484
<OTHER-SE> 1,129,680
<TOTAL-LIABILITY-AND-EQUITY> 3,042,763
<SALES> 0
<TOTAL-REVENUES> 67,100
<CGS> 0
<TOTAL-COSTS> 606
<OTHER-EXPENSES> 41,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,760
<INCOME-PRETAX> (3,496)
<INCOME-TAX> (70)
<INCOME-CONTINUING> (3,426)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,054)
<CHANGES> 0
<NET-INCOME> (372)
<EPS-BASIC> $(0.01)
<EPS-DILUTED> $(0.01)
</TABLE>
