<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
FILED PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 9, 1997
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-12017 52-1979383
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification
Number)
</TABLE>
1010 WISCONSIN AVENUE, N.W.
SUITE 650
WASHINGTON, D.C. 20007
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 965-4455
<PAGE>
ITEM 5. Other Events
For purposes of incorporating by reference into the
Registration Statement of CapStar Hotel Company (the "Company") on
Form S-3 (File No. 333-34253), the financial statements of the
National Airport Hilton as of and for the periods ended June 30,
1997 and December 31, 1996 as required by Rule 3-05 of Regulation
S-X are attached hereto as Exhibit 99.1. For purposes of
incorporating by reference into the Company's Registration
Statement on Form S-3 (File No. 333-34253), the unaudited pro
forma condensed consolidated financial statements of the Company
as of and for the six months ending June 30, 1997 and for the
year ended December 31, 1996 as required by Article 11 of
Regulation S-X are attached hereto as Exhibit 99.2.
ITEM 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(c) Exhibits
Exhibit
Number
99.1 Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996 and Statements of Operations, Owners'
Deficit and Cash Flows for the six months ended June 30,
1997 (unaudited) and the year ended December 31, 1996
for the National Airport Hilton with accompanying notes
and Independent Auditors' Report.
99.2 Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1997 and Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the six months
ended June 30, 1997 and for the year ended December 31,
1997 with accompanying notes.
<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 hereto duly authorized.
Date: September 9, 1997
CAPSTAR HOTEL COMPANY
By: /s/ JOHN EMERY
-----------------
John Emery
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number
99.1 Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996 and Statements of Operations, Owners'
Deficit and Cash Flows for the six months ended June 30,
1997 (unaudited) and the year ended December 31, 1996
for the National Airport Hilton with accompanying notes
and Independent Auditors' Report.
99.2 Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1997 and Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the six months
ended June 30, 1997 and for the year ended December 31,
1997 with accompanying notes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapStar Hotel Company:
We have audited the accompanying balance sheet of the National Airport Hilton
(the Hotel) as of December 31, 1996, and the related statements of operations,
owners' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Hotel's management. Our responsibility
is to express an opinion on these financial statements based on our 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 financial position of the National Airport Hilton
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Washington, D.C.
July 25, 1997
1
<PAGE>
NATIONAL AIRPORT HILTON
BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash................................................................................ $ 254,174 224,725
Escrow accounts..................................................................... 225,957 349,869
Accounts receivable, net............................................................ 1,259,529 338,568
Inventory........................................................................... 328,142 366,078
Hotel property:
Land.............................................................................. 1,900,000 1,900,000
Building and building improvements, net of accumulated depreciation of $6,485,917
as of June 30, 1997 and $6,231,741 as of December 31, 1996...................... 14,515,714 14,255,113
-------------- ------------
Total hotel property................................................................ 16,415,714 16,155,113
Deferred financing costs, net of accumulated amortization of $2,770,829 as of
June 30, 1997 and $1,895,829 as of December 31, 1996.............................. 729,171 1,604,171
Deposits and other assets........................................................... 85,752 75,976
-------------- ------------
$ 19,298,439 19,114,500
-------------- ------------
-------------- ------------
LIABILITIES AND OWNERS' DEFICIT
Accounts payable and accrued expenses:
Accounts payable and other accrued expenses....................................... $ 1,972,325 1,216,663
Deferred interest payable (note 3)................................................ 3,500,000 3,500,000
-------------- ------------
Total accounts payable and accrued expenses......................................... 5,472,325 4,716,663
Notes payable (note 3).............................................................. 23,557,000 23,557,000
Advanced deposits................................................................... 72,201 67,574
-------------- ------------
Total liabilities................................................................... 29,101,526 28,341,237
Owners' deficit..................................................................... (9,803,087) (9,226,737)
-------------- ------------
$ 19,298,439 19,114,500
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NATIONAL AIRPORT HILTON
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(UNAUDITED)
Hotel operating revenue:
Room rental........................................................ $4,763,646 8,212,957
Food and beverage sales............................................ 1,360,668 2,663,449
Other operating departments........................................ 295,037 597,321
--------- ---------
Total hotel operating revenue........................................ 6,419,351 11,473,727
--------- ---------
Hotel operating expenses:
Rooms.............................................................. 1,007,784 1,931,283
Food and beverage.................................................. 1,095,419 2,217,016
Other operating departments........................................ 176,750 406,475
Undistributed operating expenses:
Administrative and general......................................... 751,680 1,449,597
Marketing.......................................................... 350,144 707,010
Utilities.......................................................... 265,520 568,197
Repairs and maintenance............................................ 316,728 440,317
Depreciation....................................................... 254,176 508,350
Management fee (note 4)............................................ 256,774 457,607
Franchise fee (note 5)............................................. 238,182 216,884
Insurance and taxes................................................ 236,756 567,306
Equipment leases................................................... 23,438 51,980
Interest expense (note 3).......................................... 2,084,838 4,124,837
Other.............................................................. 27,512 57,390
--------- ---------
Total expenses....................................................... 7,085,701 13,704,249
--------- ---------
Net loss............................................................. $(666,350)(2,230,522)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NATIONAL AIRPORT HILTON
STATEMENTS OF OWNERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Balance, December 31, 1995..................................................... $(7,135,778)
Capital contribution......................................................... 139,563
Net loss..................................................................... (2,230,522)
-----------
Balance, December 31, 1996..................................................... (9,226,737)
-----------
Capital contribution......................................................... 90,000
Net loss..................................................................... (666,350)
-----------
Balance, June 30, 1997......................................................... $(9,803,087)
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NATIONAL AIRPORT HILTON
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss............................................................................. $ (666,350) (2,230,522)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation expense............................................................... 254,176 508,350
Amortization of deferred financing costs........................................... 875,000 1,749,996
(Increase) decrease in accounts receivable......................................... (920,961) 248,464
Decrease (increase) in inventory................................................... 37,936 (334,418)
Decrease (increase) in escrow accounts............................................. 123,912 (202,577)
Increase in deposits and other assets.............................................. (9,776) (45,232)
Increase (decrease) in accounts payable and accrued expenses....................... 755,662 (492,296)
Increase in advanced deposits...................................................... 4,627 17,671
----------- -----------
Net cash provided by (used in) operating activities.................................... 454,226 (780,564)
----------- -----------
Cash flows from investing activities--purchases of furniture and equipment............. (514,777) (1,843,860)
----------- -----------
Cash flows from financing activities--capital contributions............................ 90,000 139,563
----------- -----------
Net increase (decrease) in cash........................................................ 29,449 (2,484,861)
Cash at beginning of period............................................................ 224,725 2,709,586
----------- -----------
Cash at end of period.................................................................. $ 254,174 224,725
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Interest paid.......................................................................... $ 1,015,934 2,206,706
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NATIONAL AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(1) ORGANIZATION
The National Airport Hilton (the "Hotel") is located near National Airport
in Arlington, Virginia. The Hotel has been operated under a franchise agreement
with Hilton Inns, Inc. since 1995. The Hotel has 386 rooms, an indoor pool and
fitness center, a lobby gift shop, and 24 hour security and room service. In
addition, the Hotel has 17,000 square feet of convention and ballroom space.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotel for the periods presented are included in the
financial records of the partnership that owned the Hotel. The accompanying
financial statements include the accounts of the Hotel only, as if they were
a separate legal entity, and have been prepared using the accrual basis of
accounting.
ESCROW ACCOUNTS
Escrow accounts represent amounts paid into a property tax and insurance
escrow account.
HOTEL PROPERTY
Building, building improvements and land are stated at cost. Depreciation is
computed on the building and building improvements using the straight-line
method over their estimated useful lives of 40 years.
Management periodically evaluates potential permanent impairment of the net
carrying value of the Hotel. If the net carrying value of the Hotel exceeds its
fair value, the excess is charged to operations. No impairment losses were
recorded in 1997 or 1996.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized on a basis which approximates
the interest method, over the two year term of the related loan.
INVENTORY
Inventory primarily consists of food and beverage, linens, silverware, and
glassware and is stated at cost using the first-in, first-out method of
inventory valuation.
REVENUES
Revenue is earned primarily through the operations of the Hotel and is
recognized when earned.
INCOME TAXES
The Hotel is owned by a partnership, and therefore, any income taxes are
reported by the individual partners.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
judgments that affect the reported amounts of assets and
6
<PAGE>
NATIONAL AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and disclosures of contingencies at the date of the financial
statements and revenues and expenses recognized during the reporting period.
Actual results could differ from those estimates.
(3) NOTES PAYABLE
Notes Payable consisted of the following at June 30, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1997 31, 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
LEHMAN BROTHERS HOLDINGS INC.
Mortgage note payable to Lehman Brothers Holdings Inc. secured by a mortgage, deed
of trust and assignment of leases and rents on the Hotel. Interest payable
monthly at LIBOR plus 450 basis points (10.22% at June 30, 1997 and 10.19% at
December 31, 1996). Balance is due November 21, 1997, however may be extended
for one year with interest at LIBOR plus 550 basis points and an extension fee
of two percent of the outstanding principal balance.............................. $ 22,057,000 22,057,000
HILTON INNS, INC.
Loan payable to Hilton Inns, Inc., secured by a pledge and security agreement of
(i) 95 percent of the partnership interests of the Hotel's owner and (ii) a
security interest in the Hotel. Interest payable semi-annually at twelve percent
with the balance due November 21, 1998........................................... 1,500,000 1,500,000
------------- -------------
$ 23,557,000 23,557,000
------------- -------------
------------- -------------
</TABLE>
The mortgage note payable to Lehman Brothers Holdings, Inc. requires the
Hotel to pay additional interest of $3,500,000. In accordance with the terms of
the note, the additional interest is considered fully earned at inception of the
note, and is payable on the maturity date or upon its earlier repayment. These
deferred interest costs are being amortized into interest expense over the
twenty-four month term of the note.
(4) COMMITMENTS
HOTEL MANAGEMENT AGREEMENT
On November 5, 1995, the Hotel entered a 5-year management agreement with US
Hotel Associates, the owner of the Hotel, for management of the Hotel. The
management agreement provides for payment of a management fee of 4% of Gross
Income, as defined in the agreement, payable monthly. Total management fees
under this agreement were $256,774 (unaudited) for the six months ended June
30, 1997 and $457,607 for the year ended December 31, 1996.
(5) LICENSE AGREEMENT
On November 21, 1995, the Hotel entered into an agreement with Hilton Inns,
Inc. for a license and franchise to operate the Hotel under the Hilton name. The
agreement provides for payment of a monthly fee of 2.5 percent (5 percent
effective January 1997) of gross room sales. In addition, the agreement
7
<PAGE>
NATIONAL AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) LICENSE AGREEMENT (CONTINUED)
requires the payment of a monthly advertising fee of 1 percent of gross room
sales. The agreement terminates on November 30, 2005.
(6) SUBSEQUENT EVENTS
On July 1, 1997, the Hotel was purchased by CapStar Hotel Company (CapStar)
for approximately $36.5 million and will thereafter be owned and managed by
CapStar.
8
<PAGE>
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet of the
Company as of June 30, 1997 is presented assuming: (i) all of the 41 hotels
owned by the Company on September 8, 1997 (the "Owned Hotels") and the two
hotels under purchase contract on September 8, 1997 (the "Additional
Acquisitions") were owned on June 30, 1997 and (ii) the $150 million senior
subordinated notes (the "Notes") offering was completed and the Company's
$450 million senior secured credit facility (the "Credit Facility") and the
$100 million non-recourse debt facility (the "Non-Recourse Facility") were
entered into on June 30, 1997.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
of the Company for the six months ended June 30, 1997 and for the year ended
December 31, 1996 are presented assuming: (i) all of the Owned Hotels and the
Additional Acquisitions were owned at the beginning of the periods presented
and (ii) the initial public offering of 9,250,000 shares of common stock, the
secondary offering of 5,750,000 shares of common stock, and the Notes offering
(collectively, the "Offerings"), the Credit Facility and the Non-Recourse
Facility were completed at the beginning of the periods presented.
The National Airport Hilton was acquired subsequent to June 30, 1997,
and is separately disclosed because the acquisition of this hotel constituted
an acquisition of a "significant amount of assets" as such phrase is defined
in Item 2 of Form 8-K and Sections 210.11-01(b), 210.11-01(d) and 210.3-05(b)
(2)(ii) of Regulation S-X.
In management's opinion, all material adjustments necessary to reflect
the transactions are presented in the pro forma adjustments columns, which
are further described in the notes to the Unaudited Pro Forma Condensed
Consolidated Financial Statements. The Unaudited Pro Forma Condensed
Consolidated Financial Statements are not necessarily indicative of what the
Company's financial position or results of operations actually would have
been if all the Owned Hotels and the Additional Acquisitions were, in fact,
owned on such dates presented and if the Offerings, the Credit Facility and
the Non-Recourse Facility were completed on such dates. Additionally, the pro
forma information does not purport to project the Company's financial
position or results of operations at any future date or for any future
period. The Unaudited Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the historical consolidated financial
statements and related notes thereto of the Company.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------------
Owned Hotels,
Credit Facility,
Non-Recourse
Facility and National Additional
Historical (A) Notes (B) Airport Hilton (C) Acquisitions(D) Pro Forma
------------- ------------ ----------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Cash $ 11,489 $ (5,562) $ 15 $ -- $ 5,942
Property and equipment, net:
Land 81,683 32,916 5,529 5,811 125,939
Building and improvements 404,798 141,654 27,644 29,054 603,150
Furniture, fixtures and equipment 44,556 16,359 3,686 3,874 68,475
Construction-in-progress 5,314 5 -- -- 5,319
------------- ---------- ----------- ---------- --------
Total property and equipment, net 536,351 190,934 36,859 38,739 802,883
Deposits and other assets 60,233 345 25 -- 60,603
------------- ---------- ----------- ---------- --------
Total assets $ 608,073 $ 185,717 $ 36,899 $ 38,739 $869,428
------------- ---------- ----------- ---------- --------
------------- ---------- ----------- ---------- --------
Liabilities, Minority Interest and
Stockholders' Equity
Other liabilities $ 35,333 $ 2,904 $ 262 $ -- $ 38,499
Long-term debt:
Senior secured credit facility 168,500 (168,500) -- -- --
Credit Facility -- 198,563 36,637 38,739 273,939
Non-Recourse Facility -- 52,750 -- -- 52,750
Notes -- 150,000 -- -- 150,000
Other obligations 66,495 (50,000) -- -- 16,495
------------- ---------- ----------- ---------- --------
Total liabilities 270,328 185,717 36,899 38,739 531,683
Minority interest 22,270 -- -- -- 22,270
Stockholders' equity 315,475 -- -- -- 315,475
------------- ---------- ----------- ---------- --------
Total liabilities, minority interest
and stockholders' equity $ 608,073 $ 185,717 $ 36,899 $ 38,739 $869,428
------------- ---------- ----------- ---------- --------
------------- ---------- ----------- ---------- --------
</TABLE>
(A) Reflects the historical unaudited condensed consolidated balance sheet of
the Company as of June 30, 1997.
(B) Reflects the Company's cost basis and financing for 8 of the Owned Hotels
acquired subsequent to June 30, 1997. Also included are the effects of
the Company's Credit Facility, Non-Recourse Facility and Notes offering
which were consummated after June 30, 1997. Deposits and other assets
reflect the deferral of financing fees related to the new financing
activities net of the write-off associated with refinanced facilities, and
the use of purchase deposits.
(C) Reflects the Company's cost basis and financing for the National Airport
Hilton.
(D) Reflects the Company's cost basis and financing for the Additional
Acquisitions.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------
Owned Hotels,
Offerings,
Credit Facility,
Non-Recourse National
Facility Airport Additional
Historical(A) and Notes(B) Hilton(B) Acquisitions(B) Pro Forma
------------- ------------ -------------- ------------- ---------
<C> <C> <C> <C> <C> <C>
Revenue from hotel operations:
Rooms $ 79,254 $ 36,676 $ 4,764 $ 4,859 $ 125,553
Food and beverage 34,676 12,141 1,361 2,215 50,393
Other hotel revenue 5,664 2,931 295 251 9,141
Office rental and other revenues -- 2,844 -- -- 2,844
Hotel management, accounting and other 2,225 (98) -- -- 2,127
------------- ----------- -------------- ------------ ---------
Total revenue 121,819 54,494 6,420 7,325 190,058
Hotel operating expense by department:
Rooms 18,954 9,849 1,008 1,233 31,044
Food and beverage 27,338 9,889 1,095 1,629 39,951
Other operating departments 3,008 1,680 177 153 5,018
Office rental and other expenses -- 1,184 -- -- 1,184
Undistributed operating expenses:
Administrative and general 19,839 5,422 1,102 783 27,146
Property operating costs 13,960 10,997 820 1,065 26,842
Property taxes, insurance and other 5,064 3,472 288 289 9,113
Depreciation and amortization 8,220 4,359 609 640 13,828
------------- ----------- -------------- ------------ ---------
96,383 46,852 5,099 5,792 154,126
Interest expense, net 8,440 8,642 476 1,059 18,617
Total expenses 104,823 55,494 5,575 6,851 172,743
------------- ----------- -------------- ------------ ---------
Income (loss) before minority interest and
income taxes 16,996 (1,000) 845 474 17,315
Minority interest (620) (693) -- -- (1,313)
------------- ----------- -------------- ------------ ---------
Income (loss) before income taxes 16,376 (1,693) 845 474 16,002
Income tax provision 6,288 (650) 325 182 6,145
------------- ----------- -------------- ------------ ---------
Net income (loss) (C) $ 10,088 $ (1,043) $ 520 $ 292 $ 9,857
------------- ----------- -------------- ------------ ---------
------------- ----------- -------------- ------------ ---------
Earnings per share (D) $ 0.62 $ 0.53
------------- ---------
------------- ---------
</TABLE>
<PAGE>
(A) Reflects the historical unaudited condensed consolidated statement of
operations of the Company for the six months ended June 30, 1997.
(B) Reflects the pre-acquisition operations of the Owned Hotels (including
separate disclosure for the National Airport Hilton) and Additional
Acquisitions to provide six months of hotel operations. The pre-acquisition
operations were obtained from the hotel pre-acquisition financial
statements. Also reflects adjustments to (i) eliminate management fee
revenues for the Owned Hotels for services that were provided by the
Company, (ii) reflect federal and state income taxes (assuming a 38.4%
combined effective rate), (iii) reflect pro forma depreciation and
amortization expense on the Company's cost basis as if the hotels had been
acquired as of the beginning of the period, (iv) reflect net amortization
expense associated with financing activities and (v) record interest based
on the terms of the Company's credit facilities.
(C) Subsequent to June 30, 1997, the Company incurred expenses associated with
the write-off of deferred financing costs related to the refinanced credit
facilities. These extraordinary costs are charged to operations as incurred
and have not been included in the Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
(D) In computing historical and pro forma earnings per share, weighted average
shares of common stock and common stock equivalents of 16,356,343 and
19,547,910, respectively, were used and net income has been adjusted for
certain minority interests.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------
Owned Hotels,
Offerings,
Credit Facility,
Non-Recourse National
Facility Airport Additional
Historical(A) and Notes(B) Hilton(B) Acquisitions(B) Pro Forma
------------- ----------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue from hotel operations
Rooms $ 68,498 $ 147,042 $ 8,213 $ 8,756 $ 232,509
Food and beverage 30,968 53,921 2,663 4,771 92,323
Other hotel revenue 5,981 12,744 597 494 19,816
Office rental and other revenues -- 5,668 -- -- 5,668
Hotel management, accounting and other 4,345 (1,487) -- -- 2,858
------------- ----------- -------------- ------------ --------
Total revenue 109,792 217,888 11,473 14,021 353,174
Hotel operating expenses by department:
Rooms 17,509 35,990 1,931 2,209 57,639
Food and beverage 24,589 42,805 2,217 3,801 73,412
Other operating departments 2,513 8,091 406 328 11,338
Office rental and other expenses -- 2,683 -- -- 2,683
Undistributed operating expenses:
Administrative and general 20,448 31,752 1,450 658 54,308
Property operating costs 12,586 33,131 1,932 2,232 49,881
Property taxes, insurance and other 4,565 12,639 677 574 18,455
Depreciation and amortization 8,248 17,213 1,218 1,280 27,959
-------------- ---------- -------------- ----------- ---------
Total operating expenses 90,458 184,304 9,831 11,082 295,675
Interest expense, net 12,346 21,924 951 2,096 37,317
Total expenses 102,804 206,228 10,782 13,178 332,992
--------------- ----------- -------------- ----------- --------
Income before minority interest
and income taxes 6,988 11,660 691 843 20,182
Minority interest 39 (1,112) -- -- (1,073)
--------------- ----------- -------------- ----------- --------
Income before income taxes 7,027 10,548 691 843 19,109
Income tax provision 2,674 4,356 276 338 7,644
--------------- ----------- --------------- ----------- --------
Net income from continuing operations (C) $ 4,353 $ 6,192 $ 415 $ 505 $ 11,465
--------------- ----------- --------------- ----------- --------
--------------- ----------- --------------- ----------- --------
Earnings per share (D) $ 0.31 $ 0.61
--------------- --------
--------------- --------
</TABLE>
<PAGE>
(A) Reflects the historical condensed consolidated statement of operations of
the Company for the year ended December 31, 1997.
(B) Reflects the pre-acquisition operations of the Owned Hotels (including
separate disclosures for the National Airport Hilton) and Additional
Acquisitions to provide a full year of hotel operations. The
pre-acquisition operations were obtained from the hotel pre-acquisition
financial statements. Also reflects adjustments to (i) eliminate management
fee revenues for the Owned Hotels for services that were provided by the
Company, (ii) reflect federal and state income taxes (assuming a 40%
combined effective rate), (iii) reflect estimated incremental general and
administrative expenses associated with public ownership, (iv) reflect pro
forma depreciation and amortization expense on the Company's cost basis as
if the hotels had been acquired as of the beginning of the period,
(v) reflect net amortization expense associated with financing activities
and (vi) record interest based on the terms of the Company's credit
facilities.
(C) Subsequent to June 30, 1997, the Company incurred expenses associated with
the write-off of deferred financing costs related to the refinanced credit
facilities. These extraordinary costs are charged to operations as incurred
and have not been included in the Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
(D) Historical earnings per share have been calculated using actual income
for the period from the initial public offering on August 20, 1996
through December 31, 1996. The weighted average number of common shares
and common share equivalents used in the calculation was 12,754,321.
In computing pro forma earnings per share, weighted average shares of
common stock and common stock equivalents of 19,313,844 were used and
net income has been adjusted for certain minority interests.
