<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997 Commission file number 001-11975
---------
Boykin Lodging Company
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1824586
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Terminal Tower, Suite 1500, 50 Public Square 44113
-------------------------------------------- -----------
(Address of Principal Executive Office) (Zip Code)
(216) 241-6375
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of Common Shares, without par value, outstanding as of
August 14, 1997: 9,516,251
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
On November 4, 1996, the Company completed an initial public offering
(the "Offering") of 8,275,000 shares. An additional 1,241,250 common shares were
issued by the Company on November 29, 1996 upon an exercise in full of the
underwriters' over-allotment option. The net proceeds to the Company from these
transactions were $173,898,000. The Company contributed all of the net proceeds
to Boykin Hotel Properties, L.P., an Ohio limited partnership (the
"Partnership") in exchange for (i) an 84.5% general partnership interest in the
Partnership, and (ii) a $40,000,000 intercompany convertible note (the "Note").
The Note matures on the fifth anniversary of the Offering. If the Note is
converted, the Company will receive an additional general partnership interest
in the Partnership of 2.9%. The Company is the sole general partner of the
Partnership.
The Partnership used a substantial portion of the proceeds from the
Company and issued limited partnership interests representing approximately
15.5% of the Partnership to acquire nine hotels (the "Initial Hotels"). Through
June 30, 1997, the Company had acquired three additional hotels (these three
hotels, along with the Initial Hotels, are collectively referred to as the
"Hotels"). The Partnership leases the Hotels to Boykin Management Company
Limited Liability Company, an Ohio limited liability company (the "Initial
Lessee") pursuant to leases (the "Percentage Leases").
The Company's principal source of revenue is lease payments from the
Initial Lessee pursuant to the Percentage Leases. Percentage Lease revenue is
based upon the room, food and beverage and other revenues of the Hotels. The
Initial Lessee's ability to make payments to the Company pursuant to the
Percentage Leases is dependent primarily upon the operations of the Hotels.
Therefore, management believes that a discussion of the historical and pro forma
operations of the Initial Lessee and the historical operations of the Initial
Hotels is important to an understanding of the business of the Company.
During the quarter ended March 31, 1997, the Company acquired two hotel
properties for an aggregate consideration of $16.8 million, which was funded
with cash proceeds from the Offering. The hotel properties acquired were the
118-room Hilton Melbourne Beach in Melbourne, Florida and the 176-room Holiday
Inn Crabtree in Raleigh, North Carolina. The Company plans to invest
approximately $3 million in capital improvements in the Holiday Inn Crabtree
over the next twelve months. The funds for these improvements will come from
borrowings under the Company's $75 million credit facility (the "Credit
Facility"). These properties were leased to the Initial Lessee, which will
operate the properties under long-term Percentage Leases. Also, in March 1997
the Company purchased the real and personal property of the Whitehall Inn
located in Daytona Beach, Florida. The Company's total investment was $4.2
million, which was funded with cash proceeds from the Offering. In May 1997 the
Company wound up operations there and began a complete renovation of the
property. The renovation, which is expected to cost approximately $6 million, is
being funded from borrowings under the Credit Facility. The Company expects to
begin business operations as a resort with a Radisson franchise affiliation in
January 1998. The property will be leased to the Initial Lessee, which will
operate the resort under a long-term Percentage Lease.
During the quarter ended June 30, 1997, the Company acquired the 485
room French Lick Springs Resort in French Lick, Indiana. The acquisition price
was $20 million and was funded with proceeds from the Company's Credit Facility.
The Company has leased the resort to the Initial Lessee.
<PAGE> 3
The following discusses (i) the Company's actual results of operations
for the quarter and six months ended June 30, 1997 and pro forma results of
operations for the quarters and six months ended June 30, 1997 and 1996, (ii)
the Initial Lessee's actual results of operations for the quarter and six months
ended June 30, 1997 and pro forma results of operations for the quarter and six
months ended June 30, 1997 and 1996, and (iii) the historical results of
operations for the Initial Hotels for the quarter and six months ended June 30,
1996.
The pro forma results of operations assume that (i) the Offering and
related transactions, and (ii) the acquisitions of the Melbourne Beach Hilton,
Holiday Inn Crabtree and French Lick Springs Resort, all occurred on January 1,
1996.
RESULTS OF OPERATIONS
THE COMPANY
Actual Results of Operations - Quarter ended June 30, 1997
For the quarter ended June 30, 1997, the Company earned $9,699,000 of
Percentage Lease revenue. Interest income earned on available funds was $29,000.
Real estate related depreciation and amortization was $2,405,000. Real estate
and personal property taxes, insurance and ground rent were $1,323,000 in the
aggregate. General and administrative expenses were $551,000. Interest expense
and amortization of financing costs related to the Credit Facility were
$450,000. The minority interest in the income of the Partnership was $626,000.
The Company's net income was $4,373,000. Funds From Operations ("FFO") was
$7,404,000. FFO consists of income (loss) before minority interest (computed in
accordance with generally accepted accounting principles) excluding gains
(losses) from debt restructuring and sales of property (including furniture and
equipment) plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Industry analysts consider FFO
to be an appropriate measure of the performance of an equity REIT. FFO should
not be considered as a basis for computing distributions or as an alternative
(i) to net income or other measurements under generally accepted accounting
principles, as an indicator of operating performance, or (ii) to cash flows from
operating, investing, or financing activities, as a measure of liquidity. FFO
would not reflect cash expenditures for capital improvements or principal
amortization of indebtedness with respect to the Hotels.
Actual Results of Operations - Six months ended June 30, 1997
For the six months ended June 30, 1997, the Company earned $16,907,000
of Percentage Lease revenue. Interest income earned on available funds was
$260,000. Real estate related depreciation and amortization was $4,346,000. Real
estate and personal property taxes, insurance and ground rent were $2,345,000 in
the aggregate. General and administrative expenses were $1,039,000. Interest
expense and amortization of financing costs related to the Credit Facility were
$611,000. The minority interest in the income of the Partnership was $1,072,000.
The Company's net income was $7,754,000. FFO was $13,172,000.
Pro Forma Results of Operations - Quarters ended June 30, 1996 and 1997
For the quarter ended June 30, 1997, the Company's pro forma revenue
from Percentage Leases was $9,678,000, representing a $770,000, or 8.6%,
increase over pro forma Percentage Lease revenue for the quarter ended June 30,
1996. Pro forma Percentage Lease revenue for the second quarter 1997 increased
over that of 1996 primarily as a result of (i) increases in the average daily
rates at the Hotels, and (ii) $92,000 of revenues from the Daytona property
prior to its closure. See "Results of Operations -- The Initial Lessee -- Pro
Forma Results of Operations."
2
<PAGE> 4
Property taxes, insurance and ground rent for the quarter increased
$164,000, or 14.1%, reflecting increased real estate taxes and additional ground
rent based upon percentages of increased sales. General and administrative
expenses increased $189,000, or 52.2%, as a result of increased staff levels and
incentive compensation plans introduced in 1997.
Net income increased $331,000, or 8.3%, primarily through increased
revenues. FFO for the quarter ended June 30, 1997 and pro forma FFO for the
quarter ended June 30, 1996 was $7,301,000 and $6,884,000, respectively. The
increase in FFO in 1997 is attributable to the increase in Percentage Lease
revenues.
Pro Forma Results of Operations - Six months ended June 30, 1996 and 1997
For the six months ended June 30, 1997, the Company's pro forma revenue
from Percentage Leases was $18,141,000, representing a $1,489,000, or 8.9%,
increase over pro forma Percentage Lease revenue for the six months ended June
30, 1996. Pro forma Percentage Lease revenue for the first half of 1997
increased over that of 1996 primarily as a result of (i) increases in the
occupancies and average daily rates at the Hotels, and (ii) $250,000 of revenues
from the Daytona property prior to its closure. See "Results of Operations --
The Initial Lessee -- Pro Forma Results of Operations."
Property taxes, insurance and ground rent for the period increased
$198,000, or 8.6%, reflecting increased real estate taxes and additional ground
rent based upon percentages of increased sales. General and administrative
expenses increased $314,000, or 43.3%, as a result of increased staff levels and
incentive compensation plans introduced in 1997.
Net income increased $882,000, or 12.6%, primarily through increased
revenues. Pro forma FFO for the six months ended June 30, 1997 and 1996 was
$13,597,000 and $12,620,000, respectively. The increase in FFO in 1997 is
attributable to the increase in Percentage Lease revenues.
THE INITIAL LESSEE
Actual Results of Operations - Quarter ended June 30, 1997
For the quarter ended June 30, 1997, the Initial Lessee had revenues of
$30,875,000. The Percentage Lease expense during the period was $9,699,000 while
departmental expenses of the Hotels and other expenses of the Initial Lessee
were $20,246,000 in the aggregate. Net income for the period was $930,000.
Actual Results of Operations - Six months ended June 30, 1997
For the six months ended June 30, 1997, the Initial Lessee had revenues
of $54,626,000. The Percentage Lease expense during the period was $16,907,000
while departmental expenses of the Hotels and other expenses of the Initial
Lessee were $36,251,000 in the aggregate. Net income for the period was
$1,468,000.
Pro Forma Results of Operations - Quarter ended June 30, 1996 and 1997
Room revenue increased by $1,281,000, or 7.0% in 1997 over 1996, as a
result of an increase in ADR from $87.00 in 1996 to $92.14 in 1997. Occupancy
rates were the same at 73.5% in each period. Also, $168,000 of the increase in
room revenues relates to room revenues from the Daytona property prior to its
closure.
Food, beverage, and other hotel revenues increased $333,000, or 3.3%,
reflecting stable occupancy levels and price increases. Non-hotel revenues
decreased slightly because of a shift away from furniture and equipment sales
towards fee based purchasing services at the interior design subsidiary.
3
<PAGE> 5
Departmental expenses increased $334,000, or 3.0%, because of increased
revenue levels and general inflationary pressures, but decreased as a percentage
of revenues from 37.4% in 1996 to 36.7% in 1997. Cost of goods sold for
non-hotel operations decreased significantly because of a shift away from
furniture and equipment sales towards fee-based purchasing services at the
interior design subsidiary. General and administrative expenses increased
$650,000, or 23.0%, as a result of increased sales levels, staffing changes, and
management incentive compensation plans implemented in 1997. Sales and marketing
expenses increased $187,000, or 17.6%, because of increased revenues and
additional promotional efforts at the hotels.
Pro forma Percentage Lease expense increased 8.6%, or $770,000, due to
revenue increases at the Hotels and the application of the Percentage Lease
formulas. Approximately $92,000 of the increase in Percentage Lease expense
related to lease payments for the Daytona property prior to its closure.
Pro forma net income decreased $169,000, reflecting the variations in
operating expenses discussed above.
Pro Forma Results of Operations - Six months ended June 30, 1996 and 1997
Room revenue increased by $2,815,000, or 8.2%, in 1997 over 1996, as a
result of an increase in ADR from $86.27 in 1996 to $91.16 in 1997, and an
increase in occupancy from 69.5% in 1996 to 70.6% in 1997. Also, $442,000 of the
increase in room revenues relates to room revenues from the Daytona property
prior to its closure.
Food, beverage, and other hotel revenues increased $725,000, or 4.0%,
reflecting increased occupancy levels and price increases. Non-hotel revenues
increased from $1,355,000 to $1,508,000, largely from fees from third-party
management contracts which commenced at the end of the first quarter of 1996.
Departmental expenses increased $770,000, or 3.8%, because of increased
revenue and occupancy levels and general inflationary pressures, but decreased
as a percentage of revenues from 37.8% in 1996 to 36.7% in 1997. Cost of goods
sold for non-hotel operations decreased significantly because of a shift away
from furniture and equipment sales towards fee based purchasing services at the
interior design subsidiary. General and administrative expenses increased
$1,063,000, or 18.6%, as a result of increased sales levels, staffing changes,
and management incentive compensation plans implemented in 1997. Sales and
marketing expenses increased $234,000, or 10.7%, because of increased revenues
and additional promotional efforts at the hotels.
Pro forma Percentage Lease expense increased 8.9%, or $1,489,000,
because of revenue increases at the Hotels and the application of the Percentage
Lease formulas. Approximately $250,000 of the increase in percentage lease
expense related to lease payments for the Daytona property prior to its closure.
Pro forma net income increased $337,000, reflecting relatively stable
profitability at the leased Hotels and increases in non-hotel revenues.
THE INITIAL HOTELS - ACTUAL RESULTS OF OPERATIONS
Actual Results of Operations - Quarter ended June 30, 1996
For the quarter ended June 30, 1996, revenues at the Initial Hotels
were $23,286,000. Departmental expenses were $8,674,000, or 37.2% of revenues.
Hotel operating expenses exclusive of interest, depreciation and amortization
were $7,988,000 or 34.3% of revenues. The income before extraordinary item was
$699,000.
Actual Results of Operations - Six months ended June 30, 1996
For the six months ended June 30, 1996, revenues at the Initial Hotels
were $43,897,000. Departmental expenses were $16,541,000, or 37.7% of revenues.
Hotel operating expenses exclusive of interest, depreciation and amortization
were $15,564,000 or 35.5% of revenues. The income before extraordinary item was
$103,000. The
4
<PAGE> 6
extraordinary item reflected a loss of $1,315,000 on early extinguishment of
debt from the refinancing of the mortgage notes payable at two of the Initial
Hotels in January 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its share of the Partnership's cash
flow from the Percentage Leases. The Initial Lessee's obligations under the
Percentage Leases are unsecured and the Initial Lessee's ability to make rent
payments to the Partnership under the Percentage Leases, and the Company's
liquidity, including its ability to make distributions to shareholders, are
dependent on the Initial Lessee's ability to generate sufficient cash flow from
the operation of the Hotels.
On June 30, 1997, the Company had $301,000 of cash and cash equivalents
and had $20,000,000 of borrowings against the Credit Facility. After quarter
end, the borrowings under the Credit Facility increased to $59 million to fund
the acquisition of the Holiday Inn Minneapolis West and Marriott's Hunt Valley
Inn, discussed below.
The Company intends to acquire and develop additional hotel properties
and will incur indebtedness to fund such acquisitions and development. The
Company may also incur indebtedness to meet distribution requirements imposed on
a REIT under the Internal Revenue Code to the extent that working capital and
cash flow from the Company's investments are insufficient to make the required
distributions. The terms of the Company's $75 million Credit Facility permit
borrowings for that purpose, but impose certain limitations on the Company's
ability to engage in other borrowings.
The Credit Facility has a three-year term ending on November 3, 1999.
Borrowings against the Credit Facility bear interest at a floating rate of prime
plus .5%, or at the Company's election, 2% over various Eurodollar (LIBOR)
rates. The Company is required to pay a .25% fee on the unused portion of the
Credit Facility. The Credit Facility requires, among other things, the
maintenance of a minium net worth, and specified coverage ratios of EBITDA to
debt service and EBITDA to debt service and fixed charges.
The Company obtained the Credit Facility to assist it in funding its
acquisitions and development of additional hotels and for certain other
purposes, including capital expenditures and working capital, as necessary.
Borrowings under the Credit Facility are secured by first mortgages on seven of
the Initial Hotels including lease revenues generated from such properties. The
Company may seek to increase the amount of the Credit Facility, negotiate
additional credit facilities, or issue debt instruments. Any debt incurred or
issued by the Company may be secured or unsecured, long-term, medium-term or
short-term, bear interest at a fixed or variable rate, and be subject to such
other terms as the Board of Directors considers prudent.
The Company will acquire or develop additional hotel properties only as
suitable opportunities arise, and the Company will not undertake acquisition or
development of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Credit Facility or other
borrowings or from the proceeds from additional issuances of common shares or
other securities.
The Percentage Leases require the Company to establish aggregate
minimum reserves for capital expenditures of 4% of total revenues of the Hotels.
In addition, the Company intends to make funds available from the Credit
Facility, as needed. The Company intends to use the reserve for capital
improvements to the Hotels and refurbishment and replacement of FF&E, but may
make other uses of amounts reserved that it considers appropriate from time to
time. The Company anticipates making similar arrangements with respect to future
hotels that it may acquire or develop. During the six months ended June 30,
1997, the Company made $3,193,000 of capital expenditures. The Company considers
the majority of these improvements to be revenue-producing and therefore these
amounts have been capitalized and are being depreciated over their estimated
useful lives.
5
<PAGE> 7
On July 16, 1997, the Company formed a joint venture with CapStar Hotel
Company ("Capstar"), a publicly traded hotel investment and management company,
with the intent to acquire full service commercial and resort hotels to be
leased to Capstar. The joint venture, Boystar Ventures, L.P. ("Boystar"), is 91%
owned by the Company, which serves as its sole general partner. On that day,
Boystar acquired the 196 room Holiday Inn Minneapolis West in Saint Louis Park,
Minnesota. The acquisition price was $12.3 million. Boystar intends to commence
a $1.5 million upgrade and renovation of the hotel. The Company's 91% share of
the acquisition price was funded with proceeds from the Company's Credit
Facility. Boystar has leased the hotel to Capstar, which will operate the hotel.
On July 24, 1997, the Company acquired a 91% interest in Shawan Road
Hotel Limited Partnership (the "Davidson Venture") from affiliates of Davidson
Hotel Company ("Davidson"), a privately held national hotel management company.
A Davidson affiliate continues to own the remaining 9% interest in the Davidson
Venture. The Davidson Venture retired all of its indebtedness in connection with
the transaction. The Davidson Venture owns Marriott's Hunt Valley Inn, a 392
room full service hotel located in the Baltimore, Maryland suburb of Hunt
Valley. The Company and Davidson intend to use the Davidson Venture to acquire
additional full service commercial and resort hotels to be leased to Davidson.
The Company serves as the Davidson Venture's sole general partner. The
acquisition price for the 91% interest acquired by the Company was $27.3
million. The Company's investment was funded with proceeds from the Company's
Credit Facility. The Davidson Venture has leased the hotel to Davidson, which
will continue the business of operating the hotel.
INFLATION
The Company's revenues are based on percentage leases, which results in
changes in the Company's revenues based on changes in the revenues of the hotels
operated by its lessees. Therefore, the Company relies entirely on the
performance of the hotels and its lessees' ability to increase revenues to keep
pace with inflation. Operators of hotels in general, and the Company's lessees,
can change room rates quickly, but competitive pressures may limit the lessees'
ability to raise rates faster than inflation.
The Company's largest expense item is the depreciation of its
investments in hotel properties. The Company's other expenses (general and
administrative costs, real estate and personal property taxes, property and
casualty insurance, and ground rent) are subject to inflation and are expected
to increase with the general rate of inflation.
SEASONALITY
The Hotels' operations historically have been seasonal. The Hotels
located in Florida experience their highest occupancy in the first quarter. The
balance of the Hotels maintain higher occupancy rates during the second and
third quarters. The seasonality pattern can be expected to cause fluctuations in
the Company's quarterly lease revenue under its hotel leases. The Company
anticipates that its cash flow from its hotel leases will be sufficient to
enable the Company to make quarterly distributions. To the extent that cash flow
from operations is insufficient during any quarter because of temporary or
seasonal fluctuations in hotel lease revenue, the Company expects to utilize
cash on hand or borrowings to make those distributions. No assurance can be
given that the Company will make distributions in the future at the current
rate, or at all.
6
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
The Company held its annual meeting of shareholders on May 6, 1997 at
the Cleveland Marriott East Hotel in Beachwood, Ohio. At the meeting, the
individuals listed below were elected to the Company's Board of Directors, each
to hold office until the annual meeting next succeeding his election and until
his successor is elected and qualified, or until his earlier resignation,
removal from office or death. The following describes the votes for and against
as well as the abstentions and broker non-votes for each nominee:
<TABLE>
<CAPTION>
Name Votes For Votes Against Abstentions Broker Non-Votes
- ---- --------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Robert W. Boykin 7,608,955 0 36,534 1,870,762
Raymond P. Heitland 7,614,555 0 30,934 1,870,762
Albert T. Adams 7,613,755 0 31,734 1,870,762
Lee C. Howley, Jr 7,613,455 0 32,034 1,870,762
William N. Hulett 7,613,555 0 31,934 1,870,762
Frank E. Mosier 7,613,955 0 31,534 1,870,762
Ivan J. Winfield 7,296,975 0 348,514 1,870,762
</TABLE>
No other matters were voted upon at the annual meeting. On May 30, 1997, Mr.
Hulett resigned from the Board of Directors to become President and Chief
Executive Officer of BridgeStreet Accommodations, Inc. Effective August 12,
1997, William H. Schecter, an executive officer with National City Bank in
Cleveland, Ohio, was elected by the Board of Directors to fill the vacancy
created by Mr. Hulett's resignation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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3.1* Amended and Restated Articles of Incorporation
3.2* Code of Regulations
4.1* Specimen Share Certificate
10.1* Limited Partnership Agreement of Boykin Hotel Properties, L.P.
10.2* Form of Registration Rights Agreement
10.3* Long-Term Incentive Plan
10.4* Directors' Deferred Compensation Plan
10.5* Employment Agreement between the Company and Robert W. Boykin
7
<PAGE> 9
10.6* Employment Agreement between the Company and Raymond P.
Heitland
10.7* Employment Agreement between the Company and Mark L. Bishop
10.8* Form of Percentage Lease
10.9* Intercompany Convertible Note
10.10* Agreements with General Partners of the Contributed
Partnerships
10.11* Form of Noncompetition Agreement
10.12* Alignment of Interests Agreement
10.13 Description of Employment Arrangement between the Company and
Paul A. O'Neil
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedules
* Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form
S-11") filed on October 24, 1996. Each of the above exhibits has the same
exhibit number in the Form S-11.
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(b) Reports on Form 8-K
-------------------
<TABLE>
<CAPTION>
Date Filed Items Reported Summary
---------- -------------- -------
<S> <C> <C>
1) April 21, 1997 Item 2 The Company acquired the French Lick Springs
(Form 8K) (Acquisition of Assets) Resort in French Lick, Indiana
2) June 2, 1997 Item 2 Amendment to March 21, 1997 Form 8K adding
(Form 8K/A) (Acquisition of Assets) certain financial statements with respect to
the acquisition of the Holiday Inn Crabtree
in Raleigh, North Carolina
3) June 17, 1997 Item 2 Amendment to March 21, 1997 Form 8K adding
(Form 8K/A) (Acquisition of Assets) certain pro forma financial information with
respect to the acquisition of the Holiday Inn
Crabtree in Raleigh, North Carolina
4) June 17, 1997 Item 2 Amendment to April 21, 1997 Form 8K adding
(Form 8K/A) (Acquisition of Assets) the financial statements and pro forma
financial information with respect to the
acquisition of the French Lick Springs
Resort in French Lick, Indiana
5) June 19, 1997 Item 2 Amendment to March 21, 1997 Form 8K adding
(Form 8K/A) (Acquisition of Assets) certain pro forma financial information with
respect to the acquisition of the Holiday Inn
Crabtree in Raleigh, North Carolina
</TABLE>
FORWARD-LOOKING STATEMENTS
--------------------------
This Form 10-Q contains forward-looking statements. Although the
Company believes that its acquisition and redevelopment plans are based upon
reasonable assumptions, it can give no assurance that such expectations will be
realized. Factors that could cause actual results to differ materially from the
Company's expectations include the Company's financial performance, real estate
market conditions, execution of the Company's hotel acquisition programs,
difficulties with contractors hired to redevelop or renovate properties, changes
in local or national economic conditions, and other similar risks.
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.
BOYKIN LODGING COMPANY
/s/ Robert W. Boykin
---------------------------------------
August 14, 1997 Robert W. Boykin
Director, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
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/s/ Raymond P. Heitland
---------------------------------
August 14, 1997 Raymond P. Heitland
Director, Chief Financial Officer
(Principal Accounting Officer)
10
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Pages
------- ------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation *
3.2 Code of Regulations *
4.1 Specimen Share Certificate *
10.1 Limited Partnership Agreement of Boykin Hotel Properties, L.P. *
10.2 Form of Registration Rights Agreement *
10.3 Long-Term Incentive Plan *
10.4 Directors' Deferred Compensation Plan *
10.5 Employment Agreement between the Company and Robert W. Boykin *
10.6 Employment Agreement between the Company and Raymond P. Heitland *
10.7 Employment Agreement between the Company and Mark L. Bishop *
10.8 Form of Percentage Lease *
10.9 Intercompany Convertible Note *
10.10 Agreements with General Partners of the Contributed Partnerships *
10.11 Form of Noncompetition Agreement *
10.12 Alignment of Interests Agreement *
10.13 Description of Employment Arrangement between the Company and
Paul A. O'Neil
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedules
</TABLE>
* Incorporated by reference from Amendment No. 3 to the Company's
registration statement on Form S-11 (the "Form S-11") filed on (Registration No.
333-6341) October 24, 1996. Each of the above exhibits has the same exhibit
number in the Form S-11.
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BOYKIN LODGING COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BOYKIN LODGING COMPANY:
<S> <C>
Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.......................... F-2
Consolidated Statements of Income for the three and six-month periods
ended June 30, 1997........................................................................ F-3
Consolidated Statement of Shareholders' Equity for the six months ended
June 30, 1997.............................................................................. F-4
Consolidated Statement of Cash Flows for the six months ended June 30, 1997.................... F-5
Notes to Consolidated Financial Statements..................................................... F-6
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY
AND SUBSIDIARIES:
Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.......................... F-11
Consolidated Statements of Operations for the three and six-month periods
ended June 30, 1997........................................................................ F-12
Consolidated Statement of Cash Flows for the six months ended June 30, 1997.................... F-13
Notes to Consolidated Financial Statements..................................................... F-14
INITIAL HOTELS:
Combined Balance Sheet as of June 30, 1996..................................................... F-17
Combined Statements of Operations for the three and six-month periods
ended June 30, 1996........................................................................ F-19
Combined Statement of Cash Flows for the six months ended June 30, 1996........................ F-20
Notes to Combined Financial Statements......................................................... F-22
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND
BOPA DESIGN COMPANY:
Combined Statement of Net Assets as of June 30, 1996........................................... F-26
Combined Statements of Revenues and Expenses for the three and six-month
periods ended June 30, 1996................................................................ F-27
Notes to Combined Financial Statements......................................................... F-28
</TABLE>
F-1
<PAGE> 14
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31,1996
----------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -----------------
ASSETS
------
<S> <C> <C>
INVESTMENT IN HOTEL PROPERTIES, net $153,455 $113,322
CASH AND CASH EQUIVALENTS 301 21,362
RENT RECEIVABLE FROM THE LESSEE 3,633 306
DEFERRED EXPENSES, net 1,387 1,509
OTHER ASSETS 1,386 772
------------ ------------
Total assets $160,162 $137,271
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
BORROWINGS AGAINST CREDIT FACILITY $ 20,000 $ -
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,839 2,433
DIVIDENDS/DISTRIBUTIONS PAYABLE 4,892 3,091
DUE TO LESSEE 1,580 681
MINORITY INTEREST IN PARTNERSHIP 13,654 14,045
SHAREHOLDERS' EQUITY:
Preferred shares, without par value; 10,000,000 shares
authorized; no shares issued and outstanding - -
Common shares, without par value; 40,000,000 shares
authorized; 9,516,251 shares issued and outstanding,
stated at - -
Additional paid-in capital 123,814 123,828
Retained deficit (7,617) (6,807)
------------ ------------
116,197 117,021
------------ ------------
Total shareholders' equity $160,162 $137,271
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-2
<PAGE> 15
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997
-------------------------------------------------------
(unaudited, amounts in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
1997 1997
------------------ ----------------
REVENUES:
<S> <C> <C>
Lease revenue $9,699 $16,907
Interest income 29 260
---------- -----------
9,728 17,167
---------- -----------
EXPENSES:
Real estate related depreciation and amortization 2,405 4,346
Real estate and personal property taxes, insurance and
ground rent 1,323 2,345
General and administrative 551 1,039
Interest expense 341 393
Amortization of deferred financing costs 109 218
---------- -----------
4,729 8,341
---------- -----------
INCOME BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEM 4,999 8,826
MINORITY INTEREST (626) (1,072)
---------- -----------
NET INCOME APPLICABLE TO COMMON SHARES $4,373 $ 7,754
========== ===========
EARNINGS PER SHARE $.46 $.81
========== ===========
Weighted average number of shares 9,516 9,516
========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE> 16
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(unaudited, dollar amounts in thousands)
<TABLE>
<CAPTION>
Common Paid-In Retained
Shares Capital Deficit Total
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 9,516,251 $123,828 $(6,807) $117,021
Additional offering expenses - (14) - (14)
Dividends declared - - (8,564) (8,564)
Net income - - 7,754 7,754
----------- ------------ ---------- ------------
Balance, June 30, 1997 9,516,251 $123,814 $(7,617) $116,197
=========== ============ ========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-4
<PAGE> 17
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,754
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 4,588
Minority interest 1,072
Changes in assets and liabilities-
Rent receivable from the Lessee (3,327)
Other assets (652)
Accounts payable and accrued expenses 1,406
Due to affiliates 899
-----------
Net cash provided by operating activities 11,740
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of hotel properties (41,099)
Improvements and additions to hotel properties (3,193)
-----------
Net cash flow used for investing activities (44,292)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends and distributions (7,995)
Cash payment for redemption of certain limited partnership
interests (500)
Borrowings against credit facility 20,000
Additional offering costs (14)
-----------
Net cash flow provided by financing activities 11,491
-----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (21,061)
CASH AND CASH EQUIVALENTS, beginning of period 21,362
-----------
CASH AND CASH EQUIVALENTS, end of period $ 301
===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-5
<PAGE> 18
BOYKIN LODGING COMPANY
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1997
-------------
(unaudited, dollar amounts in thousands except per share data)
1. ORGANIZATION AND INITIAL PUBLIC OFFERING:
-----------------------------------------
Boykin Lodging Company (the Company) was incorporated February 8, 1996 to
acquire equity interests in hotel properties. The Company had no operations
prior to November 4, 1996. On November 4, 1996, the Company completed an initial
public offering of 8,275,000 shares of common stock. An additional 1,241,250
shares of common stock were issued by the Company on November 29, 1996 upon an
exercise in-full of the underwriters' over-allotment option (together with the
initial public offering, the Offering). The Offering price of all shares sold
was $20 per share, resulting in gross proceeds of approximately $190,325 and net
proceeds (less the underwriters' discount and offering expenses) of
approximately $173,898. The Company contributed all of the net proceeds of the
Offering to Boykin Hotel Properties, L.P., a limited partnership (the
Partnership) in exchange for (i) an 84.5% general partnership interest in the
Partnership, and (ii) a $40,000 Intercompany Convertible Note (the Note). The
Note matures on the fifth anniversary of the closing of the Offering. Interest
on the Note accrues at a rate equal to 9.5% per annum, increasing to 9.75% per
annum on the third anniversary of the completion of the Offering, and is payable
quarterly. The Note may be prepaid in full, but not in part, at any time. The
Company will have the right to convert the Note after the second anniversary of
the completion of the Offering, and prior to maturity and in advance of any
proposed prepayment by the Partnership, into additional equity interests in the
Partnership at face value based on the initial offering price of the Company's
common shares (and assuming that the value of one Partnership unit equals the
value of one common share). The Company is the sole general partner of the
Partnership. The Note is secured by mortgages on certain hotel properties.
The Partnership used a substantial portion of the proceeds from the Company and
issued limited partnership interests representing approximately 15.5% of the
Partnership to acquire nine hotel properties (the Initial Hotels) from various
entities, to finance certain capital improvements, and for general working
capital purposes. The Partnership leases the Initial Hotels to Boykin Management
Company Limited Liability Company (the Lessee) pursuant to leases which contain
provisions for rent based on the revenues of the hotels (the Percentage Leases).
Each Percentage Lease obligates the Lessee to pay rent equal to the greater of
the minimum rent or a percentage rent based on the gross revenues of each hotel.
The Lessee holds the franchise agreement for each hotel. The Lessee is owned by
Robert W. Boykin, Chairman, President and Chief Executive Officer of the Company
(53.8%) and his brother, John E. Boykin (46.2%).
Pursuant to the Partnership Agreement, the limited partners of the Partnership
received exchange rights, which enable them to cause the Partnership to pay cash
for their interests in the Partnership, or at the Company's election, to
exchange common shares for such interests. The exchange rights may be exercised
in whole or in part. The number of common shares initially issuable to the
limited partners upon exercise of the exchange rights is 1,378,000. The number
of shares issuable upon exercise of the exchange rights will be adjusted upon
the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions,
F-6
<PAGE> 19
which otherwise would have the effect of diluting the ownership interests of the
limited partners or the shareholders of the Company.
Basis of Presentation
- ---------------------
The Company exercises unilateral control over the Partnership. Therefore, the
financial statements of the Company and the Partnership are consolidated. All
significant intercompany transactions and balances have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three- and six-month periods ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the period ended December 31, 1996.
2. NET INCOME PER SHARE AND PARTNERSHIP UNITS:
-------------------------------------------
Net income per share is based on the weighted average number of common shares
and common equivalent shares outstanding during the period. Outstanding options
are included as common equivalent shares using the treasury stock method when
the effect is dilutive. The weighted average number of shares used in
determining net income per share was 9,516,251 for the three- and six-month
periods ended June 30, 1997. At June 30, 1997, a total of 1,355,104 limited
partnership units were issued and outstanding. The weighted average number of
common shares and limited partnership units outstanding for the three- and
six-month periods ended June 30, 1996 were 10,889,722 and 10,891,974,
respectively.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," in March 1997, which
will revise the calculation methods and disclosures regarding earnings per
share. As required by the Statement, the Company will adopt SFAS No. 128 in the
fourth quarter of 1997.
The Company's pro forma earnings per share that would have been reported had the
new standard been previously in effect are as follows:
<TABLE>
<CAPTION>
Three Six
Months Months
Ended Ended
June 30, June 30,
1997 1997
----------- ------------
<S> <C> <C>
Basic earnings per common share $.46 $.81
Diluted earnings per common share $.46 $.81
</TABLE>
F-7
<PAGE> 20
3. ACQUISITIONS OF HOTEL PROPERTIES:
---------------------------------
Acquisitions of Businesses
- --------------------------
During the quarter ended March 31, 1997, the Company acquired two hotel
properties for an aggregate consideration of $16.8 million which was funded with
cash proceeds from the Offering. The hotel properties acquired were the 118-room
Hilton Melbourne Beach in Melbourne, Florida and the 176-room Holiday Inn
Crabtree in Raleigh, North Carolina. The Company plans to invest approximately
$3 million in capital improvements in the Holiday Inn Crabtree over the next
twelve months. The funds for these improvements will come from borrowings under
the credit facility. These properties were leased to the Lessee which operates
the properties under long-term Percentage Leases. These acquisitions were
accounted for as purchases and accordingly, the operating results of the
acquired properties have been included in the accompanying consolidated
financial statements commencing on their respective dates of acquisition.
In April, the Company acquired a 485-room resort in French Lick, Indiana for an
aggregate consideration of $20 million. The purchase price was funded with
borrowings under the Company's credit facility. This property was leased to the
Lessee which operates the property under a long-term Percentage Lease.
Acquisition of Hotel Assets
- ---------------------------
In March 1997, the Company purchased the real and personal property of the
Whitehall Inn in Daytona Beach, Florida. The Company's total investment was $4.2
million, which was funded with cash proceeds from the Offering. The Company
discontinued operations at the Whitehall Inn in May 1997 and began a complete
renovation of the property. The renovation, which is expected to cost $6
million, will be funded from borrowings under the credit facility. The Company
expects to begin business operations as a resort with a major hotel franchise
affiliation in January 1998. The property will be leased to the Lessee which
will manage the resort under a long-term Percentage Lease.
4. REDEMPTION OF PARTNERSHIP INTERESTS:
------------------------------------
In June 1997, 22,896 limited partnership units in the Partnership were redeemed
for aggregate cash consideration of $500. The excess of the redemption price
paid over the capital account balances of the units redeemed was $269 and
was recorded as additional investment in hotel properties. After the redemption,
the Partnership has 1,355,104 limited partnership units outstanding. As a result
of the redemption, assuming conversion of the Note, the Company's general
partnership interest in the Partnership increased from 87.4% to 87.5%.
5. CREDIT FACILITY:
----------------
In November 1996, the Company obtained a three-year commitment for a $75,000
credit facility to be used for acquisitions, capital improvements, working
capital and general corporate purposes. Borrowings against the credit facility
bear interest at a floating rate of prime rate plus .5% (8.75% and 9% at
December 31, 1996 and June 30, 1997, respectively) or, at the Company's
election, 2% over various Eurodollar (LIBOR) rates. The Company is required to
pay a .25% fee on the unused portion of the credit facility. As of December 31,
1996, the Company had no outstanding borrowings against the credit facility. As
of June 30, 1997, the Company had $20,000 outstanding against the credit
facility.
The credit facility is secured by mortgage interests in seven of the Initial
Hotel properties including lease revenues generated from such properties.
F-8
<PAGE> 21
The credit facility requires, among other things, the Company to maintain a
minimum net worth, a coverage ratio of EBITDA to debt service, and a coverage
ratio of EBITDA to debt service and fixed charges. Further, the Company is
required to maintain its franchise agreement at each of the hotel properties and
to maintain its REIT status. The Company was in compliance with its covenants at
December 31, 1996 and June 30, 1997.
6. PERCENTAGE LEASE AGREEMENTS:
----------------------------
The Percentage Leases have noncancelable terms ranging from four to 10 years,
subject to earlier termination on the occurrence of certain contingencies, as
defined. The rent due under each Percentage Lease is the greater of minimum
rent, as defined, or percentage rent. Percentage rent applicable to room and
other 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 beginning January 1, 1997,
based on increases in the United States Consumer Price Index. Percentage rent
applicable to food and beverage revenues is calculated as 6% of such revenues.
Percentage Lease revenue for the three- and six-month periods ended June 30,
1997 was $9,699 and $16,907, respectively, of which approximately $3,686 and
$5,858, respectively, was in excess of minimum rent.
Future minimum rentals (ignoring future CPI increases) to be received by the
Company from the Lessee pursuant to the Percentage Leases for each of the years
in the period 1997 to 2001 and in total thereafter are as follows:
<TABLE>
<S> <C>
1997 $ 22,954
1998 23,791
1999 23,791
2000 23,791
2001 17,693
Thereafter 41,261
-----------
$153,281
===========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
---------------------------
The Chairman, President and Chief Executive Officer of the Company is the
majority shareholder of the Lessee. The Lessee was the sole source of the
Company's Percentage Lease revenue through June 30, 1997. At June 30, 1997 and
December 31, 1996, the Company has rent receivable of $3,633 and $306,
respectively, due from the Lessee.
At June 30, 1997 and December 31, 1996, the Company has a payable to the Lessee
of $1,580 and $681, respectively, primarily for the reimbursement of capital
expenditure costs incurred on behalf of the Company.
8. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
--------------------------------------------------
During the six-month period ended June 30, 1997, the noncash financing
transactions consisted of $4,892 of dividends and Partnership distributions
which were declared but not paid as of June 30, 1997.
Interest paid during the six-month period ended June 30, 1997 was $82.
F-9
<PAGE> 22
9. SUBSEQUENT EVENTS:
------------------
In July 1997, the Company entered a joint venture with CapStar Hotel Company
(CapStar) forming BoyStar Ventures, in which the Partnership will have a 91%
interest. BoyStar Ventures purchased the 196 room Holiday Inn - Minneapolis West
located in Minneapolis, Minnesota for a cash purchase price of $12.3 million.
The Company's share of the purchase price was funded through borrowings under
the Company's credit facility. The venture plans to invest approximately $1.5
million in capital improvements to the property. CapStar will lease and manage
the property.
In July 1997, the Company acquired a 91% interest in Marriott's Hunt Valley Inn,
a 392-room, full-service hotel located in a suburb of Baltimore, Maryland, for
cash consideration of $27.3 million. The purchase price was funded through
borrowings under the Company's credit facility. Davidson Hotel Company will
lease and manage the property.
10. PRO FORMA FINANCIAL INFORMATION:
--------------------------------
The pro forma financial information set forth below is presented as if (i) the
Offering and the related formation transactions and (ii) the acquisitions of the
Hilton Melbourne Beach and the Holiday Inn Crabtree and the French Lick Resort
discussed in Note 3 had been consummated as of January 1, 1996. The pro forma
financial information is not necessarily indicative of what actual results of
operations of the Company would have been assuming the Offering and the related
formation transactions and the acquisitions had been consummated as of January
1, 1996 nor does it purport to represent the results of operations for future
periods.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1997 1996
---------- ---------
<S> <C> <C>
Lease revenue $18,141 $16,652
Real estate related depreciation and
amortization 4,640 4,705
Real estate and personal property
taxes, insurance and ground rent 2,512 2,314
General and administrative 1,039 725
Interest expense 775 775
Amortization of deferred financing
costs 218 218
---------- ---------
Income before minority interest and
extraordinary item 8,957 7,915
Minority interest 1,092 932
---------- ---------
Income before extraordinary item $7,865 $6,983
========== =========
Income per share before extraordinary
item $ .83 $ .73
========== =========
</TABLE>
F-10
<PAGE> 23
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
(unaudited, amounts in thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Cash and cash equivalents $ 8,507 $ 5,469
Accounts receivable-
Trade, net of allowance for doubtful accounts of $33
and $68 at June 30, 1997 and December 31, 1996,
respectively 4,247 2,933
Boykin Hotel Properties, L.P. 1,580 681
Former owners - 69
Other 275 -
Inventories 788 470
Property and equipment, net 298 312
Prepaid expenses and other assets 1,605 587
---------- ----------
$ 17,300 $10,521
========== ==========
LIABILITIES AND MEMBERS' CAPITAL
--------------------------------
Rent payable to Boykin Hotel Properties, L.P. $ 3,633 $ 306
Accounts payable-
Trade 1,536 1,567
Advance deposits 525 224
Bank overdraft liability 2,610 1,234
Former owners - 373
Affiliate - 267
Other 355 8
Accrued expenses-
Accrued payroll 427 716
Accrued vacation 931 784
Accrued sales, use and occupancy taxes 892 702
Other accrued liabilities 2,369 1,786
---------- ----------
13,278 7,967
Members' capital-
Capital contributed 3,000 3,000
Retained earnings (deficit) 1,022 (446)
---------- ----------
4,022 2,554
---------- ----------
$ 17,300 $10,521
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-11
<PAGE> 24
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997
-------------------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
----------------- ----------------
<S> <C> <C>
REVENUES:
Room revenue $19,652 $ 35,412
Food and beverage revenue 8,303 14,374
Other hotel revenue 2,183 3,332
Other revenue 737 1,508
----------- ----------
Total revenues 30,875 54,626
----------- ----------
EXPENSES:
Departmental expenses of hotels-
Rooms 4,366 7,874
Food and beverage 5,857 10,396
Other 1,116 1,686
Cost of goods sold of nonhotel operations 247 415
Percentage lease expense 9,699 16,907
General and administrative 3,463 6,400
Advertising and promotion 1,249 2,272
Utilities 1,197 2,151
Franchisor royalties and other charges 1,416 2,557
Repairs and maintenance 1,330 2,430
Depreciation and amortization 21 41
Other (16) 29
----------- ----------
Total expenses 29,945 53,158
----------- ----------
NET INCOME $ 930 $ 1,468
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-12
<PAGE> 25
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,468
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 41
Changes in assets and liabilities-
Accounts receivable (2,488)
Inventories (318)
Prepaid expenses and other assets (1,018)
Accounts payable 1,726
Rent payable 3,327
Other accrued liabilities 631
----------
Net cash provided by operating activities 3,369
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (27)
----------
Net cash used for investing activities (27)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of obligations to former owners (373)
Collections of amounts due from former owners 69
----------
Net cash used for financing activities (304)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,038
CASH AND CASH EQUIVALENTS, beginning of period 5,469
----------
CASH AND CASH EQUIVALENTS, end of period $ 8,507
==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-13
<PAGE> 26
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1997
-------------
(unaudited, dollar amounts in thousands)
1. DESCRIPTION OF BUSINESS:
------------------------
Boykin Management Company Limited Liability Company and its subsidiaries
(collectively, the Lessee) (i) manage and operate full and limited service
hotels located throughout the United States; (ii) provide national purchasing
services to hotels, and (iii) provide interior design services to hotels and
other businesses.
2. ORGANIZATION:
-------------
The Lessee commenced operations on November 4, 1996 as an Ohio limited liability
company. The Lessee is effectively owned by Robert W. Boykin (53.8%) and John E.
Boykin (46.2%). Robert W. Boykin is the Chairman, President and Chief Executive
Officer of Boykin Lodging Company (the Company).
Pursuant to formation transactions related to the November 4, 1996 initial
public offering of the Company, Boykin Management Company (BMC) and Bopa Design
Company (doing business as Spectrum Services), wholly owned subsidiaries of The
Boykin Company (TBC), were merged into subsidiaries of the Lessee. In addition,
Purchasing Concepts, Inc. (PCI) contributed its assets to a subsidiary of the
Lessee and that subsidiary assumed PCI's liabilities. TBC and PCI are related
through common ownership. The Lessee and its subsidiaries are the successors to
the businesses of BMC, Spectrum Services and PCI. As the Lessee, BMC, Spectrum
Services and PCI were related through common ownership, there were no purchase
accounting adjustments to the historical carrying values of the assets and
liabilities of BMC, Spectrum Services and PCI upon merger into or contribution
to the subsidiaries of the Lessee. In connection with the formation of the
Lessee, certain assets and liabilities of nine of the Hotels (Note 4) were
assumed by the Lessee.
3. BASIS OF PRESENTATION:
----------------------
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended June 30, 1997 and the six-month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer to
the Lessee's consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the period ended December 31, 1996.
F-14
<PAGE> 27
4. PERCENTAGE LEASE AGREEMENTS:
----------------------------
The Lessee leases 12 hotels (the Hotels) from Boykin Hotel Properties, L.P. (the
Partnership), a partnership in which the Company has a general partnership
interest, pursuant to long-term leases (Percentage Leases). The Hotels are
located in Cleveland, Ohio (2), Columbus, Ohio; Buffalo, New York; Berkeley,
California; Raleigh, North Carolina; Charlotte, North Carolina (2); Ft. Myers,
Florida; Melbourne, Florida (2); and French Lick, Indiana.
The Percentage Leases have noncancelable terms ranging from four to ten years,
subject to earlier termination on the occurrence of certain contingencies, as
defined. The Percentage Leases do not contain renewal terms. The Lessee is
required to pay the higher of minimum rent, as defined, or a percentage rent.
Percentage rent applicable to room and other hotel revenue varies by lease and
is calculated by multiplying fixed percentages by the total amounts of such
revenues over specified threshold amounts. Percentage rent related to food and
beverage revenues is at 6% of such revenues in all of the Percentage Leases.
Both the threshold amounts used in computing percentage rent and minimum rent
are subject to annual adjustments beginning January 1, 1997 based on increases
in the United States Consumer Price Index.
Other than real estate and personal property taxes, casualty insurance and
capital improvements, which are obligations of the Partnership, the Percentage
Leases require the Lessee to pay all costs and expenses incurred in the
operation of the Hotels.
The Percentage Leases require the Lessee to indemnify the Company against all
liabilities, costs and expenses incurred by, imposed on or asserted against the
Partnership in the normal course of operating the Hotels.
Future minimum rent (ignoring CPI increases) to be paid by the Lessee under the
Percentage Leases at June 30, 1997 for each of the years in the period 1997 to
2001 and in total thereafter is as follows:
<TABLE>
<S> <C>
1997 $ 22,954
1998 23,791
1999 23,791
2000 23,791
2001 17,693
Thereafter 41,261
--------
$153,281
========
</TABLE>
Rent expense for the three- and six-month periods ended June 30, 1997 was $9,699
and $16,907, respectively, of which approximately $3,686 and $5,858,
respectively, was in excess of minimum rent.
5. RELATED PARTY TRANSACTIONS:
---------------------------
At June 30, 1997, the Lessee has a receivable from the Partnership of $1,580,
primarily for the reimbursement of capital expenditure costs incurred on behalf
of the Partnership.
F-15
<PAGE> 28
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
--------------------------------------------
The following unaudited pro forma condensed statements of operations for the
six-month periods ended June 30, 1997 and 1996 are presented as if the Lessee
leased and operated from January 1, 1996 all of the Hotels owned by the
Partnership as of June 30, 1997.
The pro forma condensed statements of operations do not purport to present what
actual results of operations would have been if the Hotels were operated by the
Lessee pursuant to the Percentage Leases from January 1, 1996 or to project
results for any future period.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Room revenue $37,343 $ 34,528
Food and beverage revenue 15,281 14,761
Other hotel revenue 3,702 3,497
Other revenue 1,508 1,355
--------- ----------
Total revenues 57,834 54,141
--------- ----------
Departmental expenses of hotels 21,221 20,451
Cost of goods sold of nonhotel operations 415 756
Percentage Lease expense 18,141 15,632
Other expenses 17,070 16,652
--------- ----------
Net income $ 987 $ 650
========= ==========
</TABLE>
F-16
<PAGE> 29
INITIAL HOTELS
--------------
COMBINED BALANCE SHEET
----------------------
AS OF JUNE 30, 1996
-------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
INVESTMENTS IN HOTEL PROPERTIES, at cost:
Land $ 8,572
Buildings and improvements 96,983
Furniture and equipment 38,240
Construction in progress 392
------------
144,187
Less- Accumulated depreciation 66,545
------------
Net investment in hotel properties 77,642
CASH AND CASH EQUIVALENTS 4,206
ACCOUNTS RECEIVABLE, net of allowance for doubtful
accounts of $21 3,741
INSURANCE CLAIM RECEIVABLE 663
RECEIVABLES FROM AFFILIATE 119
INVENTORIES 469
PREPAIDS AND OTHER ASSETS 851
CASH HELD IN ESCROW 3,551
DEFERRED EXPENSES, net 2,644
------------
$ 93,886
============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined balance sheet.
F-17
<PAGE> 30
INITIAL HOTELS
--------------
COMBINED BALANCE SHEET
----------------------
AS OF JUNE 30, 1996
-------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C>
MORTGAGE NOTES PAYABLE $133,344
ADVANCES FROM AND ACCRUED INTEREST
DUE TO PARTNERS 7,725
ACCOUNTS PAYABLE:
Trade 1,960
Management fees to related party 891
Bank overdraft 757
ACCRUED EXPENSES AND OTHER LIABILITIES 5,945
COMMITMENTS AND CONTINGENCIES -
-----------
150,622
PARTNERS' DEFICIT (56,736)
-----------
$ 93,886
===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined balance sheet.
F-18
<PAGE> 31
INITIAL HOTELS
--------------
COMBINED STATEMENTS OF OPERATIONS
---------------------------------
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
-------------------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
1996 1996
------------------- ------------------
<S> <C> <C>
REVENUES FROM HOTEL OPERATIONS:
Room revenue $15,731 $29,572
Food and beverage revenue 6,313 11,986
Other revenue 1,242 2,339
----------- -----------
Total revenues 23,286 43,897
----------- -----------
EXPENSES:
Departmental expenses-
Rooms 3,546 6,755
Food and beverage 4,488 8,571
Other 640 1,215
General and administrative 1,929 3,754
Advertising and promotion 867 1,795
Utilities 817 1,750
Management fees to related party 1,050 1,909
Franchisor royalties and other charges 1,225 2,260
Repairs and maintenance 1,043 2,021
Real estate and personal property taxes, insurance
and rent 982 1,905
Interest expense 3,812 7,575
Interest expense on partner advances 180 374
Depreciation and amortization 1,933 3,740
Other 75 170
----------- -----------
Total expenses 22,587 43,794
----------- -----------
Income before extraordinary item 699 103
EXTRAORDINARY ITEM -- LOSS ON EARLY
EXTINGUISHMENT OF DEBT - (1,315)
----------- -----------
NET INCOME (LOSS) $ 699 $ (1,212)
=========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined statement.
F-19
<PAGE> 32
INITIAL HOTELS
--------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,212)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Net loss of Pacific Ohio Partners for the period October 1, 1995
to December 31, 1995, excluded from
the combined statement of operations (69)
Depreciation and amortization expense 5,450
Deferred interest expense on partner advances 374
Extraordinary loss on early extinguishment of debt 1,315
Payments for franchise fees and other deferred costs (155)
Changes in assets and liabilities-
Receivables (1,112)
Inventories, prepaids and other assets (52)
Cash held in escrow (944)
Accounts payable, accrued expenses and other
liabilities (85)
------------
Net cash provided by operating
activities 3,510
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to hotel properties, net (1,573)
Purchase of assets of Lake Norman Hotels (9,719)
------------
Net cash used for investing activities (11,292)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (42,101)
Proceeds from refinancing and new borrowings of
mortgage debt 51,173
Payment of debt prepayment premium and debt
issuance costs (228)
Payments on advances from partners (400)
Payments for deferred financing costs (171)
Capital contributions 1,406
Cash distributions paid (600)
------------
Net cash provided by financing
activities 9,079
------------
</TABLE>
F-20
<PAGE> 33
<TABLE>
<S> <C>
NET CHANGE IN CASH AND CASH EQUIVALENTS $ 1,297
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,909
------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 4,206
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 6,887
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Prepayment penalty financed with additional
borrowing $ 1,246
The accompanying notes to combined financial statements
are an integral part of this combined statement.
</TABLE>
F-21
<PAGE> 34
INITIAL HOTELS
--------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
AS OF JUNE 30, 1996
-------------------
(unaudited, dollar amounts in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION:
---------------------------------------
Organization
- ------------
The Initial Hotels consist of the following hotels:
<TABLE>
<CAPTION>
Number of
Property Name Location Rooms
- -------------------------------------- --------------------------- ----------------
<S> <C> <C>
Berkeley Marina Marriott Berkeley, California 373
Buffalo Marriott Buffalo, New York 356
Cleveland Airport Marriott Cleveland, Ohio 375
Cleveland Marriott East Beachwood, Ohio 403
Columbus Marriott North Columbus, Ohio 300
Melbourne Quality Suites Inn Melbourne, Florida 208
Radisson Inn Sanibel Gateway Ft. Myers, Florida 157
Hampton Inn Charlotte, N. Carolina 117
Holiday Inn Charlotte, N. Carolina 119
</TABLE>
Boykin Management Company (BMC) was involved in the development of each of the
above hotels except the Hampton Inn and Holiday Inn and has managed all of the
Initial Hotels excluding the Hampton Inn and Holiday Inn since their respective
inceptions. The hotels were owned by partnerships (Boykin Partnerships) in which
the shareholders of The Boykin Company (TBC), BMC's parent company, and certain
officers and employees of BMC (collectively, BMC Affiliates) had significant
direct and indirect ownership interests.
As of June 30, 1996, the Initial Hotels were owned as follows:
<TABLE>
<CAPTION>
Partnership Interest
-----------------------
BMC Third
Affiliates Party
------------ ----------
<S> <C> <C>
Berkeley Marina Associates, L.P. (BMLP) 100% 0%
Buffalo Hotel Joint Venture (BHJV) 50% 50%
Pacific Ohio Partners (POP) 100% 0%
Beachwood Hotel Joint Venture (Beachwood) 35% 65%
Columbus Hotel Joint Venture (CHJV) 50% 50%
Melbourne Oceanfront Hotel Associates (MOHA) 100% 0%
Fort Myers Hotel Partnership (FMHP) 100% 0%
B.B.G., I, L.L.C. (BBG) 46% 54%
</TABLE>
F-22
<PAGE> 35
Boykin Lodging Company (the Company) is an Ohio corporation which has been
established to acquire equity interests in hotel properties.
The Company sold 8,275,000 shares of its common stock in an initial public
offering on November 4, 1996. On November 29, 1996, the underwriters exercised
their overallotment option and purchased an additional 1,241,250 of the
Company's common shares (together with the initial public offering, the
Offering). The Company contributed all of the net proceeds of the Offering to
Boykin Hotel Properties, L.P., an Ohio limited partnership (the Partnership) in
exchange for an approximate 84.5% general partnership interest and a $40 million
convertible note (the Note). The Company intends to qualify as a real estate
investment trust pursuant to Sections 856 - 860 of the Internal Revenue Code.
The partners of the Boykin Partnerships contributed their respective partnership
interests to the Partnership in exchange for cash and partnership interests. The
Partnership used a portion of the proceeds from the sale of the general
partnership interest and the Note to the Company to retire mortgage indebtedness
encumbering the Initial Hotels. All of the Initial Hotels are leased to Boykin
Management Company Limited Liability Company (the Lessee) pursuant to operating
leases which contain provisions for rent based on the revenues of the Initial
Hotels. The Lessee is an affiliate of TBC.
Basis of Presentation
- ---------------------
Management believes that these combined financial statements result in a more
meaningful presentation of the Initial Hotel businesses acquired by the
Partnership and thus appropriately reflect the historical financial position and
results of operations of the predecessor of the Company. All significant
intercompany balances and transactions have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the combined financial position of the
Initial Hotels as of June 30, 1996 and the results of their operations and cash
flows for the three- and six-month periods ended June 30, 1996 have been
included.
Operating results for the interim periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information refer to the combined financial
statements of the Initial Hotels and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1996.
2. ACCOUNTING PERIODS:
-------------------
POP has a fiscal year end of September 30. In order to show comparable
operations during the three- and six-month periods ended June 30, 1996, POP's
operating results were adjusted to exclude the three-month period October 1 to
December 31, 1995. The total revenues of POP excluded from the combined
statement of operations for the six-month period ended June 30, 1996 was $3,328
and total net loss was $69.
In the opinion of management, the effect of nonconforming period ends is not
material to the combined financial statements.
F-23
<PAGE> 36
3. ACQUISITION:
------------
On February 8, 1996, BBG acquired the Holiday Inn and Hampton Inn from Norman
Associates and Norman Associates II in exchange for aggregate cash consideration
of $9,721. BBG funded the purchase price with first and second mortgage debt
borrowings aggregating $9,500 and contributed capital. The acquisition was
accounted for as a purchase and, accordingly, the operating results of the
Holiday Inn and Hampton Inn have been included in the accompanying combined
financial statements commencing February 8, 1996.
Following is pro forma data assuming that the acquisition of the Holiday Inn and
the Hampton Inn discussed above occurred as of January 1, 1996. The primary pro
forma adjustments to historical operating results are (i) to increase
depreciation expense for the effect of the purchase accounting adjustments to
the carrying values of investments in hotel properties; (ii) to adjust
management fee expense of the Holiday Inn and Hampton Inn; and (iii) to increase
interest expense to reflect the terms of the new mortgage debt and the
amortization of related deferred financing costs.
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
1996 1996
------------------- -------------------
<S> <C> <C>
Total revenues $23,287 $44,314
Income (loss) before extraordinary item 671 (16)
Net loss 671 (1,331)
</TABLE>
4. MORTGAGE NOTES PAYABLE:
-----------------------
Mortgage notes payable had various repayment terms and had various scheduled
maturity dates during the period 1998 to 2004. Interest rates on the mortgage
notes ranged from 8.54% to 13.25%. Certain of the mortgage notes required the
payment of additional interest upon maturity or repayment in full. The
additional interest was charged to interest expense utilizing the effective
interest rate method over the contractual term of the notes and was $311 and
$691 for the three- and six-month periods ended June 30, 1996, respectively. All
of the mortgage notes payable were collateralized by investments in hotel
properties and were paid off with a portion of the proceeds from the Offering.
Debt Extinguishment
- -------------------
The refinancing and concurrent payment of a prepayment penalty on the BHJV note
resulted in an extraordinary loss due to the early extinguishment of debt in the
amount of $1,315 for the six-month period ended June 30, 1996.
5. RELATED PARTY TRANSACTIONS:
--------------------------
A substantial portion of the Initial Hotels' management and accounting functions
were performed by BMC, for a fee computed as specified in each hotel's
management agreement. The base management fee was based on percentages of hotel
revenues of 3% or 3.5% except for the Holiday Inn and Hampton Inn for which the
fees were calculated as 5% of hotel revenues. In addition, if specified
operating results were achieved, an incentive fee was due to BMC. The management
agreements with BMC expired at various dates through September 30, 2010.
Certain other costs relating to purchasing and design services are incurred by
an affiliate of BMC and billed to the hotels. Such purchases approximated $25
and $50 for the three- and six-month periods ended June 30, 1996, respectively.
Furthermore, the hotels made
F-24
<PAGE> 37
purchases of hotel furnishings through an affiliate of BMC. These purchases
amounted to approximately $568 and $698 for the three- and six-month periods
ended June 30, 1996, respectively.
Receivables from and payables to affiliates represent amounts due from or to BMC
and its affiliates applicable to insurance charges and various other items.
BBG paid a 1% asset management fee to an affiliate of its third-party owner.
6. ADVANCES FROM PARTNERS:
-----------------------
<TABLE>
<CAPTION>
Partner advances consisted of the following:
<S> <C>
Advances from partners used to complete
construction and to fund operation, bearing interest
at 10% per annum $2,637
Accrued interest payable on advances from partners 5,088
------
$7,725
======
</TABLE>
The advances from partners and related accrued interest therein were paid off by
the Partnership with a portion of the proceeds from the Offering.
Total interest expense on partner advances was $180 and $374 for the three- and
six-month periods ended June 30, 1996, respectively.
F-25
<PAGE> 38
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
----------------------------------------------------
AND BOPA DESIGN COMPANY
-----------------------
COMBINED STATEMENT OF NET ASSETS
--------------------------------
AS OF JUNE 30, 1996
-------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS $ 4
MANAGEMENT FEES AND OTHER RECEIVABLES
DUE FROM:
Affiliates 4,082
Other 1,463
PROPERTY AND EQUIPMENT, net 334
PREPAID EXPENSES, DEPOSITS AND OTHER
ASSETS 149
---------
Total assets 6,032
---------
ACCOUNTS PAYABLE:
Affiliates 229
Bank overdraft liability 21
Other 170
ADVANCE BILLINGS FOR DESIGN SERVICES 296
ACCRUED PAYROLL 216
OTHER ACCRUED EXPENSES 905
NOTES PAYABLE 1,495
---------
Total liabilities 3,332
---------
NET ASSETS $2,700
=========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this combined statement.
F-26
<PAGE> 39
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
----------------------------------------------------
AND BOPA DESIGN COMPANY
-----------------------
COMBINED STATEMENTS OF REVENUES AND EXPENSES
--------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1996
----------------------------------------
AND THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
1996 1996
------------------ ------------------
<S> <C> <C>
REVENUES:
Management fees-
Affiliates $ 1,061 $ 1,935
Other 285 427
Design and other fees-
Affiliates 1,048 1,300
Other 428 727
Interest income-
Affiliates 86 153
Other 6 9
Other 34 77
--------- ---------
Total revenues 2,948 4,628
--------- ---------
EXPENSES:
Cost of sales and operating expenses 1,390 1,894
Selling, general and administrative expenses 734 1,586
Depreciation and amortization expense 22 40
Rent 31 62
Interest 25 61
Other, net (3) 2
--------- ---------
Total expenses 2,199 3,645
--------- ---------
REVENUES IN EXCESS OF EXPENSES $ 749 $ 983
========= =========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-27
<PAGE> 40
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
----------------------------------------------------
AND BOPA DESIGN COMPANY
-----------------------
AS OF JUNE 30, 1996
-------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
(unaudited, dollar amounts in thousands)
1. DESCRIPTION OF BUSINESSES:
--------------------------
Boykin Management Company (BMC), a wholly owned subsidiary of The Boykin Company
(TBC), and certain of its subsidiaries managed and operated full and limited
service hotels located throughout the United States pursuant to management
agreements. Purchasing Concepts, Inc. (PCI), related to TBC through common
ownership, provided national purchasing services to hotels and restaurants. Bopa
Design Company (doing business as Spectrum Services), a wholly owned subsidiary
of TBC since January 1, 1996, provided interior design services to hotels and
other businesses. Certain of the hotels managed by BMC and served by PCI and
Spectrum Services were related to BMC, PCI and Spectrum Services through common
ownership.
2. BASIS OF PRESENTATION:
----------------------
Pursuant to formation transactions related to the November 4, 1996 initial
public offering of Boykin Lodging Company, BMC and Spectrum Services merged into
subsidiaries of Boykin Management Company Limited Liability Company (BMCL), a
newly formed Ohio Limited Liability Company. Prior to such mergers, BMC and
Spectrum Services transferred certain assets and liabilities to TBC pursuant to
an Assignment and Assumption Agreement. In addition, PCI contributed its assets
to a subsidiary of BMCL and that subsidiary assumed PCI's liabilities.
BMCL and its subsidiaries are the successors to the businesses of BMC, PCI and
Spectrum Services. BMCL is the lessee of nine hotels formerly affiliated with
TBC which were acquired by Boykin Hotel Properties, L.P., a partnership in which
Boykin Lodging Company is the general partner. The hotels are leased pursuant to
long-term leases which provide for the payment of rents based on percentages of
hotel revenues.
The accompanying financial statements present on a historical combined basis the
net assets of BMC, PCI and Spectrum Services that ultimately were merged into or
contributed to BMCL and its subsidiaries and the related revenues and expenses
of such businesses. Assets and liabilities of BMC, PCI and Spectrum Services
which were not merged into or contributed to BMCL and its subsidiaries and the
items of revenues and expenses related to such assets and liabilities have been
excluded from the accompanying financial statements. Accordingly, the
accompanying financial statements are not intended to be a complete presentation
of the combined assets, liabilities, revenues and expenses of BMC, PCI and
Spectrum Services (collectively, the Combined Entities).
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete
F-28
<PAGE> 41
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the net assets of the Combined Entities as of June 30, 1996 and their revenues
and expenses for the three- and six-month periods ended June 30, 1996 have been
included.
Operating results for the three- and six-month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for a full year.
For further information, refer to the combined financial statements of the
Combined Entities and footnotes thereto included in Boykin Lodging Company's
annual report on Form 10-K for the year ended December 31, 1996.
3. REVENUES:
---------
BMC has management agreements with several entities to manage the operations of
hotels and restaurants. Generally, BMC receives a fee based upon percentages of
revenues. In certain management contracts, BMC is entitled to additional
incentive fees in the event the managed property achieves specified operating
results. Certain contracts also include limitations on management fees, or
restrict payment of earned fees to BMC based upon the defined cash flow of the
related property. PCI provides national purchasing services to hotels and
restaurants and Spectrum Services provides interior design services to hotels
and other businesses.
Revenues from affiliates in the accompanying combined statements of revenues and
expenses represent revenues earned by the Combined Entities on goods or services
provided to various hotel properties in which the respective owners of the
Combined Entities or their affiliates had direct or indirect ownership
interests.
Other revenues consisted primarily of telephone commissions.
4. NOTES PAYABLE:
--------------
<TABLE>
<CAPTION>
Notes payable consisted of the following at June 30, 1996:
<S> <C>
Installment note payable to a bank in quarterly
installments of $75, plus interest at prime plus
1/2%; last installment due September 1, 1999;
guaranteed by TBC and certain TBC shareholders $ 850
$1,000 line of credit with a bank, due on demand;
bearing interest at prime; guaranteed by TBC and
certain TBC shareholders 645
-------
$1,495
=======
</TABLE>
All of the debt shown above was retired by BMCL upon completion of the formation
transactions discussed in Note 2.
5. COMMITMENTS AND CONTINGENCIES:
------------------------------
BMC was a guarantor of the mortgage debt (only in the event certain specified
limited events occur) of the following entities:
F-29
<PAGE> 42
<TABLE>
<CAPTION>
Debt Outstanding
Borrower June 30, 1996
---------------------------------------------- ----------------
<S> <C>
Melbourne Oceanfront Hotel Associates $13,000
Fort Myers Hotel Partnership 4,900
Berkeley Marina Associates Limited Partnership 29,000
Pacific Ohio Partners 19,350
</TABLE>
All of the guaranteed debt shown above was paid off by Boykin Hotel Properties,
L.P. on November 4, 1996.
6. RELATED PARTY TRANSACTIONS:
---------------------------
Management fees and other receivables due from affiliates are comprised of the
following at June 30, 1996:
<TABLE>
<S> <C>
Management fees receivable $ 908
Design fees receivable 157
Loans and interest receivable from Boykin Columbus Joint
Venture (BCJV) 3,017
--------
$4,082
========
</TABLE>
In general, the above amounts are due from partnerships or joint ventures in
which certain owners and officers of PCI, Spectrum Services or TBC, had
ownership interests. These partnerships or joint ventures owned hotel properties
which were managed by BMC.
The shareholders of TBC, certain of their family members and certain officers of
BMC are material partners in BCJV. BMC advanced funds to BCJV in connection with
the construction of a hotel in Columbus, Ohio and to fund operating deficits of
that hotel. The loans receivable from BCJV accrued interest at 10% per annum.
Interest income earned on the loans to BCJV was $67 and $134 for the three- and
six-month periods ended June 30, 1996, respectively. The loans and interest
receivable from BCJV were paid off on November 4, 1996.
Accounts payable to affiliates are comprised of property insurance retro premium
adjustments and telephone commissions received by BMC and payable to the various
affiliated hotels at the respective statement dates.
Advance billings for design services are related primarily to billings to
affiliates.
F-30
<PAGE> 1
EXHIBIT 10.13
Description of Employment Arrangement between the Company and Paul A. O'Neil
Paul A. O'Neil joined the Company to serve as its Treasurer on May 20,
1997. Mr. O'Neil's base compensation is $140,000. Mr. O'Neil is entitled to a
bonus of from 5% to 45% of his base salary if Funds From Operations per Common
Share for any year exceed, by 5% to 20% or more, the Funds From Operations per
Common Share for the immediately preceding year. Mr. O'Neil's employment is for
an initial one year term that will be extended for an additional year at the end
of each year of the arrangement, subject to the right of either party to
terminate the employment relationship by giving six months prior written notice.
Mr. O'Neil is entitled to the use of an automobile, medical and dental benefits,
vacation and sick leave and certain additional benefits available to the
Company's other executive officers. The Long-Term Incentive Plan Committee also
granted to Mr. O'Neil options to purchase an aggregate of 75,000 Common Shares
under the Long-Term Incentive Plan at an exercise price of $22.31 per share,
commencing on November 20, 1997.
<PAGE> 1
Exhibit 11
BOYKIN LODGING COMPANY
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30,1997 June 30,1997
------------ ------------
<S> <C> <C>
INCOME:
Income before extraordinary item $ 4,373 $ 7,754
Extraordinary loss, net of minority interest - -
-------------- -------------
Net Income $ 4,373 $ 7,754
============== =============
PER SHARE AMOUNTS REPORTED TO SHAREHOLDERS--NOTE 1:
Income before extraordinary item $ 0.46 $ 0.81
Extraordinary loss, net of minority interest - -
-------------- -------------
Net loss $ 0.46 $ 0.81
============== =============
PRIMARY:
Weighted average shares outstanding 9,516 9,516
Dilutive stock options--Note 2 37 70
-------------- -------------
Totals 9,553 9,586
============== =============
Per share amounts
Income before extraordinary item $ 0.46 0.81
Extraordinary loss, net of minority interest - -
-------------- -------------
Net Income $ 0.46 0.81
============== =============
FULLY DILUTED:
Weighted average shares outstanding 9,516 9,516
Dilutive stock options 70 70
-------------- -------------
Totals 9,586 9,586
============== =============
Per share amounts
Income before extraordinary item $ 0.46 $ 0.81
Extraordinary loss, net of min int - -
-------------- -------------
Net income $ 0.46 $ 0.81
============== =============
</TABLE>
Note 1 --Per share earnings have been computed and reported to the shareholders
pursuant to APB Opinion No. 15, which provides that "any reduction
of less than 3% in the aggregate need not be considered as dilution
in the computation and presentation of earnings per share data."
Note 2-Dilutive stock options are calculated based on the treasury stock method.
For primary per share earnings, the average market price per share
during the period is used. For fully diluted per share earnings, the
period end market price per share, if higher than the average market
price, is used.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF JUNE 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 301,000
<SECURITIES> 0
<RECEIVABLES> 3,633,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 153,455,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 160,162,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 20,000,000
<COMMON> 0
0
0
<OTHER-SE> 116,197,000
<TOTAL-LIABILITY-AND-EQUITY> 160,162,000
<SALES> 0
<TOTAL-REVENUES> 17,167,000
<CGS> 0
<TOTAL-COSTS> 7,730,000
<OTHER-EXPENSES> 1,072,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 611,000
<INCOME-PRETAX> 7,754,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,754,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,754,000
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<FN>
<F1>THE REGISTRANT USES AN UNCLASSIFIED BALANCE SHEET. THEREFORE, TOTAL CURRENT
ASSETS AND TOTAL CURRENT LIABILITIES ARE NOT APPLICABLE.
</FN>
</TABLE>
