<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 September 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
November 14, 1997: 9,536,251
<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 2.8%. 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
September 30, 1997, the Company had acquired interests in five additional hotels
(these five hotels, along with the Initial Hotels, are collectively referred to
as the "Hotels") and the real and personal property of a sixth facility. The
Partnership and its subsidiaries lease twelve of the Hotels to Boykin Management
Company Limited Liability Company, an Ohio limited liability company (the
"Initial Lessee"), and one hotel each to Capstar Hotel Company ("Capstar") and
Davidson Hotel Company ("Davidson"), pursuant to leases (the "Percentage
Leases"). The Initial Lessee, Capstar and Davidson are referred to as the
"Lessees."
The Company's principal source of revenue is lease payments from the
Lessees pursuant to the Percentage Leases. Percentage Lease revenue is based
upon the room, food and beverage and other revenues of the Hotels. The Lessees'
ability to make payments to the Company pursuant to the Percentage Leases is
dependent primarily upon the operations of the Hotels. Because of the foregoing
and the significance of the Initial Lessee to the Company, 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 $150 million credit facility (the "Credit
Facility"). These properties were leased to the Initial Lessee, which operates
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
operating the property 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.
<PAGE> 3
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 borrowings under the Company's Credit
Facility. The Company has leased the resort to the Initial Lessee.
In the third quarter of 1997, the Company formed a joint venture with
Capstar, a publicly traded hotel investment and management company. The joint
venture, Boystar Ventures, L.P. ("Boystar"), is 91% owned by the Company, which
serves as its sole general partner. Boystar acquired the 196-room Holiday Inn
Minneapolis West in Saint Louis Park, Minnesota from an unrelated third-party.
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 borrowings under the Company's Credit
Facility. Boystar has leased the hotel to Capstar, which operates the business
of the hotel.
In the third quarter of 1997, the Company also acquired a 91% interest
in Shawan Road Hotel Limited Partnership (the "Davidson Venture," and together
with Boystar, the "Joint Ventures") from affiliates of 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 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 borrowings under the Company's Credit Facility. The Davidson
Venture has leased the hotel to Davidson, which continues the business of
operating the hotel.
The following discusses (i) the Company's actual results of operations
for the quarter and nine months ended September 30, 1997 and pro forma results
of operations for the quarters and nine months ended September 30, 1997 and
1996, (ii) the Initial Lessee's actual results of operations for the quarter and
nine months ended September 30, 1997 and pro forma results of operations for the
quarter and nine months ended September 30, 1997 and 1996, and (iii) the
historical results of operations for the Initial Hotels for the quarter and nine
months ended September 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, French Lick Springs Resort, Holiday Inn Minneapolis West,
and Marriott's Hunt Valley Inn, all occurred on January 1, 1996.
RESULTS OF OPERATIONS
THE COMPANY
Actual Results of Operations - Quarter ended September 30, 1997
For the quarter ended September 30, 1997, the Company earned
$11,959,000 of Percentage Lease revenue. Interest income earned on available
funds was $77,000. Real estate related depreciation and amortization was
$2,584,000. Real estate and personal property taxes, insurance and ground rent
were $1,489,000 in the aggregate. General and administrative expenses were
$669,000. Interest expense and amortization of financing costs related to the
Credit Facility were $1,075,000. The minority interest in the income of the
Partnership and the Joint Ventures described above was $846,000. The Company's
net income before extraordinary item was $5,373,000. An extraordinary item of
$141,000 resulted from the early extinguishment of debt assumed in the
acquisition of Marriott's Hunt Valley Inn. Net income was $5,232,000. Funds From
Operations ("FFO") was $8,688,000. 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
2
<PAGE> 4
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 - Nine months ended September 30, 1997
For the nine months ended September 30, 1997, the Company earned
$28,866,000 of Percentage Lease revenue. Interest income earned on available
funds was $337,000. Real estate related depreciation and amortization was
$6,931,000. Real estate and personal property taxes, insurance and ground rent
were $3,834,000 in the aggregate. General and administrative expenses were
$1,708,000. Interest expense and amortization of financing costs related to the
Credit Facility were $1,686,000. The minority interest in the income of the
Partnership and the Joint Ventures was $1,917,000. The Company's net income was
$12,986,000. FFO was $21,883,000.
Pro Forma Results of Operations - Quarters ended September 30, 1996
and 1997
For the quarter ended September 30, 1997, the Company's pro forma
revenue from Percentage Leases was $11,557,000, representing a $986,000, or
9.3%, increase over pro forma Percentage Lease revenue for the quarter ended
September 30, 1996. Pro forma Percentage Lease revenue for the third quarter
1997 increased over that of 1996 primarily as a result of increases in the
average daily rates and occupancy at the Hotels. See "Results of Operations --
The Initial Lessee -- Pro Forma Results of Operations."
Property taxes, insurance and ground rent for the quarter increased
$190,000, or 13.9%, reflecting increased real estate taxes and additional ground
rent based upon percentages of increased sales. General and administrative
expenses increased $306,000, or 84.3%, as a result of increased staff levels and
incentive compensation plans introduced in 1997.
Net income before extraordinary item increased $488,000, or 10.6%,
primarily through increased revenues. FFO for the quarter ended September 30,
1997 and pro forma FFO for the quarter ended June 30, 1996 was $8,054,000 and
$7,582,000, respectively. The increase in FFO in 1997 is attributable to the
increase in Percentage Lease revenues.
Pro Forma Results of Operations - Nine months ended September 30, 1996 and
1997
For the nine months ended September 30, 1997, the Company's pro forma
revenue from Percentage Leases was $32,560,000, representing a $2,534,000, or
8.4%, increase over pro forma Percentage Lease revenue for the nine months ended
September 30, 1996. Pro forma Percentage Lease revenue for the first three
quarters 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
$389,000, or 9.6%, reflecting increased real estate taxes and additional ground
rent based upon percentages of increased sales. General and administrative
expenses increased $620,000, or 57.0%, as a result of increased staff levels and
incentive compensation plans introduced in 1997.
Net income before extraordinary item increased $1,415,000, or 11.9%,
primarily through increased revenues. Pro forma FFO for the nine months ended
September 30, 1997 and 1996 was $22,589,000 and $21,087,000, respectively. The
increase in FFO in 1997 is attributable to the increase in Percentage Lease
revenues.
3
<PAGE> 5
THE INITIAL LESSEE
Actual Results of Operations - Quarter ended September 30, 1997
For the quarter ended September 30, 1997, the Initial Lessee had
revenues of $31,566,000. The Percentage Lease expense during the period was
$10,556,000 while departmental expenses of the Hotels and other expenses of the
Initial Lessee were $20,600,000 in the aggregate. Net income for the period was
$410,000.
Actual Results of Operations - Nine months ended September 30, 1997
For the nine months ended September 30, 1997, the Initial Lessee had
revenues of $86,192,000. The Percentage Lease expense during the period was
$27,463,000 while departmental expenses of the Hotels and other expenses of the
Initial Lessee were $56,851,000 in the aggregate. Net income for the period was
$1,878,000.
Pro Forma Results of Operations - Quarter ended September 30, 1996 and 1997
Room revenue increased by $1,810,000, or 9.6% in 1997 over 1996, as a
result of an increase in ADR from $87.48 in 1996 to $93.59 in 1997 and an
increase in occupancy rates from 74.8% in 1996 to 75.9% in 1997.
Food, beverage, and other hotel revenues increased $323,000, or 3.2%,
reflecting slightly increased occupancy levels and price increases. Non-hotel
revenues increased $234,000 as a result of increased third party service fees.
Departmental expenses increased $880,000, or 8.2%, because of increased
revenue levels and general inflationary pressures, but stayed relatively stable
as a percentage of hotel revenues, increasing from 37.1% in 1996 to 37.4% 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 $839,000, or 33.1%, as a result of increased
sales levels, staffing changes, and management incentive compensation plans
implemented in 1997. Sales and marketing expenses increased $278,000, or 26.6%,
in line with increased revenues and additional promotional efforts at the
hotels.
Pro forma Percentage Lease expense increased 10.0%, or $921,000, due to
revenue increases at the Hotels and the application of the Percentage Lease
formulas.
Pro forma net income decreased $204,000, reflecting the variations in
operating expenses discussed above.
Pro Forma Results of Operations - Nine months ended September 30, 1996 and
1997
Room revenue increased by $4,625,000, or 8.7%, in 1997 over 1996, as a
result of an increase in ADR from $86.69 in 1996 to $91.99 in 1997, and an
increase in occupancy from 71.3% in 1996 to 72.4% 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 $1,048,000, or 3.7%,
reflecting increased occupancy levels and price increases. Non-hotel revenues
increased from $1,663,000 to $2,050,000, largely from fees from third-party
management contracts which commenced at the end of the first quarter of 1996.
Departmental expenses increased $1,650,000, or 5.3%, because of
increased revenue and occupancy levels and general inflationary pressures, but
decreased as a percentage of hotel revenues from 38.2% in 1996 to 37.6% in 1997
generally due to increased ADR. 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 $1,902,000, or 23.1%, as a result
of increased sales levels,
4
<PAGE> 6
staffing changes, and management incentive compensation plans implemented in
1997. Sales and marketing expenses increased $512,000, or 15.9%, because of
increased revenues and additional promotional efforts at the hotels.
Pro forma Percentage Lease expense increased 9.3%, or $2,410,000,
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 $133,000, 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 September 30, 1996
For the quarter ended September 30, 1996, revenues at the Initial
Hotels were $22,826,000. Departmental expenses were $8,196,000, or 35.9% of
revenues. Hotel operating expenses exclusive of interest, depreciation and
amortization were $8,478,000 or 37.1% of revenues. The income before
extraordinary item was $207,000.
Actual Results of Operations - Nine months ended September 30, 1996
For the nine months ended September 30, 1996, revenues at the Initial
Hotels were $66,723,000. Departmental expenses were $24,737,000, or 37.1% of
revenues. Hotel operating expenses exclusive of interest, depreciation and
amortization were $24,043,000 or 36.0% of revenues. The income before
extraordinary item was $391,000. The extraordinary item reflected a loss of
$1,315,000 on early extinguishment of debt from the refinancing of the mortgage
notes payable with respect to 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. Except for the Joint Ventures, where the
Lessee's partnership interests are pledged to the Company, the Lessees'
obligations under the Percentage Leases are unsecured and the Lessees' 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 Lessees' ability to generate sufficient cash
flow from the operation of the Hotels.
On September 30, 1997, the Company had $1,467,000 of cash and cash
equivalents and had $59,000,000 of borrowings against the Credit Facility.
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 $150 million Credit Facility permit
borrowings for that purpose, but impose certain limitations on the Company's
ability to engage in other borrowings.
The original $75 million Credit Facility had a three-year term ending
on November 3, 1999. Borrowings against the Credit Facility bore interest at a
floating rate of prime plus .5%, or at the Company's election, 2.0% over various
Eurodollar (LIBOR) rates.
The Credit Facility was amended on October 15, 1997 to increase the
maximum amount of borrowings to $150 million. The amendment also reduced the
interest rate so that it fluctuates from 1.40% to 1.75% over LIBOR, depending
upon the Company's debt levels, and extended the term of the Credit Facility by
one year. The Company
5
<PAGE> 7
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 thirteen
of the 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 nine months ended September
30, 1997, the Company made $6,816,000 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.
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
<PAGE> 8
BOYKIN LODGING COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BOYKIN LODGING COMPANY:
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 .............F-2
Consolidated Statements of Income for the three and nine-month periods
ended September 30, 1997 ...........................................................F-4
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 1997 .................................................................F-5
Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 ......F-6
Notes to Consolidated Financial Statements .............................................F-7
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY
AND SUBSIDIARIES:
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 .............F-13
Consolidated Statements of Operations for the three and nine-month periods
ended September 30, 1997 ...........................................................F-14
Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 ......F-15
Notes to Consolidated Financial Statements .............................................F-16
INITIAL HOTELS:
Combined Balance Sheet as of September 30, 1996 ........................................F-20
Combined Statement of Operations for the three and nine-month periods
ended September 30, 1996 ...........................................................F-21
Combined Statement of Cash Flows for the nine months ended September 30, 1996 ..........F-22
Notes to Combined Financial Statements .................................................F-24
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND
BOPA DESIGN COMPANY:
Combined Statement of Net Assets as of September 30, 1996 ..............................F-28
Combined Statement of Revenues and Expenses for the three and nine-month
periods ended September 30, 1996 ...................................................F-29
Notes to Combined Financial Statements .................................................F-30
</TABLE>
F-1
<PAGE> 9
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31,1996
---------------------------------------------
(unaudited, dollar amounts in thousands)
----------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS
------
<S> <C> <C>
INVESTMENT IN HOTEL PROPERTIES, net $194,213 $113,322
CASH AND CASH EQUIVALENTS 1,467 21,362
RENT RECEIVABLE FROM LESSEE-
Related party lessee 4,471 306
Third party lessee 659 -
DEFERRED EXPENSES, net 1,483 1,509
OTHER ASSETS 952 772
-------- --------
Total assets $203,245 $137,271
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
BORROWINGS AGAINST CREDIT FACILITY $ 59,000 $
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,137 2,433
DIVIDENDS/DISTRIBUTIONS PAYABLE 4,894 3,091
DUE TO RELATED PARTY LESSEE 2,496 681
MINORITY INTEREST IN JOINT VENTURES 1,433 -
MINORITY INTEREST IN OPERATING
PARTNERSHIP 13,657 14,045
</TABLE>
F-2
<PAGE> 10
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
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; 9,536,251 and 9,516,251 shares
issued and outstanding at September 30, 1997 and
December 31, 1996, respectively, stated at - -
Additional paid-in capital 124,304 123,828
Retained deficit (6,676) (6,807)
--------- ---------
117,628 117,021
--------- ---------
Total shareholders' equity $ 203,245 $ 137,271
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 11
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------
(unaudited, amounts in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
------------- -------------
REVENUES:
<S> <C> <C>
Lease revenue from related party $ 10,556 $ 27,463
Other lease revenue 1,403 1,403
Interest income 77 337
-------- --------
12,036 29,203
-------- --------
EXPENSES:
Real estate related depreciation and amortization 2,584 6,931
Real estate and personal property taxes, insurance and
ground rent 1,489 3,834
General and administrative 669 1,708
Interest expense 966 1,359
Amortization of deferred financing costs 109 327
-------- --------
5,817 14,159
-------- --------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 6,219 15,044
MINORITY INTEREST IN JOINT VENTURES (92) (92)
MINORITY INTEREST IN OPERATING PARTNERSHIP (754) (1,825)
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM 5,373 13,127
EXTRAORDINARY ITEM -- loss on early extinguishment of debt,
net of minority interest of $14 (141) (141)
-------- --------
NET INCOME APPLICABLE TO COMMON SHARES $ 5,232 $ 12,986
======== ========
EARNINGS PER SHARE:
Income before extraordinary item $ .56 $ 1.37
Extraordinary item (.01) (.01)
-------- --------
Net income $ .55 $ 1.36
======== ========
Weighted average number of shares 9,522 9,518
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 12
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 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 - - (12,855) (12,855)
Shares issued 20,000 490 - 490
Net income - - 12,986 12,986
----------- ------------ ------------ ------------
Balance, September 30, 1997 9,536,251 $124,304 $ (6,676) $117,628
=========== ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-5
<PAGE> 13
BOYKIN LODGING COMPANY
----------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,986
Adjustments to reconcile net income to net cash provided
by operating activities-
Extraordinary item - loss on early extinguishment of
debt, net of minority interest 141
Depreciation and amortization 7,017
Minority interest 1,917
Changes in assets and liabilities-
Rent receivable (4,824)
Other assets (207)
Accounts payable and accrued expenses 1,313
Due to affiliate 1,815
--------
Net cash provided by operating activities 20,158
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of hotel properties (68,734)
Improvements and additions to hotel properties (6,816)
--------
Net cash flow used for investing activities (75,550)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends and distributions (12,886)
Cash payments for redemption of certain limited
partnership interests (827)
Borrowings against credit facility 59,000
Proceeds from issuance of common shares 490
Retirement of mortgage debt assumed (10,266)
Additional offering costs (14)
--------
Net cash flow provided by financing activities 35,497
--------
NET CHANGE IN CASH AND CASH EQUIVALENTS (19,895)
CASH AND CASH EQUIVALENTS, beginning of period 21,362
--------
CASH AND CASH EQUIVALENTS, end of period $ 1,467
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-6
<PAGE> 14
BOYKIN LODGING COMPANY
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SEPTEMBER 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 Initial Lessee) pursuant to leases which
contain provisions for rent based on the revenues of the hotels (the Percentage
Leases). Each Percentage Lease obligates the Initial 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 Initial Lessee holds the franchise agreement for each hotel.
The Initial 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 was 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-7
<PAGE> 15
-2-
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 nine-month periods ended September 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 9,521,903 and 9,518,156 for the three- and
nine-month periods ended September 30, 1997, respectively. At September 30,
1997, a total of 1,340,718 limited partnership units were issued and
outstanding. The weighted average number of common shares and limited
partnership units outstanding for the three- and nine-month periods ended
September 30, 1997 were 10,872,942 and 10,871,890, 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 Months Nine Months
Ended September Ended September
30, 1997 30, 1997
----------------- -----------------
<S> <C> <C>
Basic earnings per common share $.55 $1.36
Diluted earnings per common share .55 1.36
</TABLE>
F-8
<PAGE> 16
-3-
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. These properties were leased to the Initial
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
Initial Lessee which operates the property under a long-term Percentage Lease.
In July 1997, the Company entered a joint venture with CapStar Hotel Company
(CapStar) forming BoyStar Ventures, in which the Partnership has 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. CapStar leases and manages 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 leases
and manages the property. The retirement of mortgage debt assumed in this
transaction resulted in an extraordinary charge of $141, net of minority
interest.
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, is being 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 Initial 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 $500,000. In September 1997, 14,356 limited
partnership units were redeemed for aggregate cash consideration of $327,000.
The excess of the aggregate redemption price paid over the capital account
balances of the units redeemed was $448,000 and was recorded as additional
investment in hotel properties. As a result of the redemptions, the Company's
general partnership interest in the Partnership increased from 84.5% to 84.9%.
F-9
<PAGE> 17
-4-
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 September 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 September 30, 1997, the Company had $59,000 outstanding against the credit
facility.
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 September 30, 1997.
On October 15, 1997, the Company secured a $75,000 increase in the existing
credit facility and a one year extension of the term of the credit facility. The
maximum amount of borrowings that may be made under the credit facility is
$150,000 (subject to borrowing base and loan-to-value limitations). Until
November 30, 1997, interest on credit facility borrowings will be at LIBOR plus
1.75%; after November 30, 1997, interest will fluctuate at LIBOR plus 1.40% to
1.75%. The credit facility is secured by first mortgages on thirteen of the
Company's hotel properties.
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 nine-month periods ended September
30, 1997 was $11,959 and $28,866, respectively, of which approximately $5,014
and $10,872, respectively, was in excess of minimum rent.
Future minimum rentals (ignoring future CPI increases) to be received by the
Company from the Initial Lessee and from other lessees pursuant to the
Percentage Leases for each of the years in the period 1998 to 2002 and in total
thereafter are as follows:
<TABLE>
<CAPTION>
Initial Other
Lessee Lessees Totals
----------- ---------- -----------
<S> <C> <C> <C>
1998 $ 23,791 $ 5,071 $ 28,862
1999 23,791 5,071 28,862
2000 23,791 5,071 28,862
2001 17,693 5,071 22,764
2002 10,952 5,071 16,023
Thereafter 30,309 24,349 54,658
----------- ---------- -----------
$130,327 $ 49,704 $180,031
=========== ========== ===========
</TABLE>
F-10
<PAGE> 18
-5-
7. RELATED PARTY TRANSACTIONS:
---------------------------
The Chairman, President and Chief Executive Officer of the Company is the
majority shareholder of the Initial Lessee. The Initial Lessee was a significant
source of the Company's Percentage Lease revenue through September 30, 1997. At
September 30, 1997 and December 31, 1996, the Company has rent receivable of
$4,471 and $306, respectively, due from the Initial Lessee.
At September 30, 1997 and December 31, 1996, the Company had a payable to the
Lessee of $2,496 and $681, respectively, primarily for the reimbursement of
capital expenditure costs incurred on behalf of the Company.
In September 1997, the Initial Lessee purchased 20,000 common shares of the
Company for cash consideration if $490. The Company utilized the proceeds to
purchase 20,000 additional general partner units in the Partnership.
8. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
--------------------------------------------------
During the nine-month period ended September 30, 1997, the noncash financing
transactions consisted of $4,894 of dividends and Partnership distributions
which were declared but not paid as of September 30, 1997.
Interest paid during the nine-month period ended September 30, 1997 was $875.
9. SUBSEQUENT EVENTS:
------------------
In October 1997, the Company announced that it would begin a $5,000 renovation
of the Berkeley, California hotel property. In addition, the franchise at the
property will be changed from Marriott to Radisson effective January 1, 1998.
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
properties 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.
F-11
<PAGE> 19
-6-
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Lease revenue $ 32,560 $ 30,026
Real estate related depreciation and
amortization (7,883) (7,981)
Real estate and personal property taxes, insurance
and ground rent (4,430) (4,041)
General and administrative (1,708) (1,088)
Interest expense (3,403) (3,403)
Amortization of deferred financing costs (327) (327)
-------- --------
Income before minority interest and
extraordinary item 14,809 13,186
Minority interest (1,866) (1,658)
-------- --------
Income before extraordinary item $ 12,943 $ 11,528
======== ========
Income per share before extraordinary item $ 1.36 $ 1.21
======== ========
</TABLE>
F-12
<PAGE> 20
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
----------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
------ September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 11,493 $ 5,469
Accounts receivable-
Trade, net of allowance for doubtful accounts of $44
and $68 at September 30,
1997 and December 31, 1996,
respectively 5,199 2,933
Boykin Hotel Properties, L.P. 2,496 681
Former owners - 69
Inventories 777 470
Property and equipment, net 306 312
Investment in Boykin Lodging Company 490 -
Prepaid expenses and other assets 898 587
-------- --------
$ 21,659 $ 10,521
======== ========
LIABILITIES AND MEMBERS' CAPITAL
--------------------------------
Rent payable to Boykin Hotel Properties, L.P. $ 4,471 $ 306
Accounts payable-
Trade 1,806 1,567
Advance deposits 342 224
Bank overdraft liability 4,249 1,234
Former owners - 373
Affiliate - 267
Other 355 8
Accrued expenses-
Accrued payroll 810 716
Accrued vacation 986 784
Accrued sales, use and occupancy taxes 1,021 702
Other accrued liabilities 3,187 1,786
-------- --------
17,227 7,967
Members' capital-
Capital contributed 3,000 3,000
Retained earnings (deficit) 1,432 (446)
-------- --------
4,432 2,554
-------- --------
$ 21,659 $ 10,521
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-13
<PAGE> 21
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
--------------- ---------------
<S> <C> <C>
REVENUES:
Room revenue $ 20,705 $ 56,117
Food and beverage revenue 7,841 22,215
Other hotel revenue 2,478 5,810
Other revenue 542 2,050
-------- --------
Total revenues 31,566 86,192
-------- --------
EXPENSES:
Departmental expenses of hotels-
Rooms 4,568 12,442
Food and beverage 5,794 16,190
Other 1,241 2,927
Cost of goods sold of nonhotel operations 69 484
Percentage lease expense 10,556 27,463
General and administrative 3,376 9,776
Advertising and promotion 1,324 3,596
Utilities 1,278 3,429
Franchisor royalties and other charges 1,564 4,121
Repairs and maintenance 1,376 3,806
Depreciation and amortization 20 61
Other (10) 19
-------- --------
Total expenses 31,156 84,314
-------- --------
NET INCOME $ 410 $ 1,878
======== ========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-14
<PAGE> 22
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,878
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 61
Changes in assets and liabilities-
Accounts receivable (4,081)
Inventories (307)
Prepaid expenses and other assets (311)
Accounts payable 3,452
Rent payable 4,165
Other accrued liabilities 2,016
--------
Net cash provided by operating activities 6,873
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (55)
Investment in Boykin Lodging Company (490)
--------
Net cash used for investing activities (545)
--------
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 6,024
CASH AND CASH EQUIVALENTS, beginning of period 5,469
--------
CASH AND CASH EQUIVALENTS, end of period $ 11,493
========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of this statement.
F-15
<PAGE> 23
BOYKIN MANAGEMENT COMPANY
-------------------------
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SEPTEMBER 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- and the nine-month periods ended September 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-16
<PAGE> 24
-2-
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 September 30, 1997 for each of the years in the period 1998
to 2002 and in total thereafter is as follows:
<TABLE>
<S> <C>
1998 $ 23,791
1999 23,791
2000 23,791
2001 17,693
2002 10,952
Thereafter 30,309
--------
$130,327
========
</TABLE>
Rent expense for the three- and nine-month periods ended September 30, 1997 was
$10,556 and $27,463, respectively, of which approximately $4,607 and $10,465,
respectively, was in excess of minimum rent.
5. RELATED PARTY TRANSACTIONS:
---------------------------
At September 30, 1997, the Lessee has a receivable from the Partnership of
$2,496, primarily for the reimbursement of capital expenditure costs incurred on
behalf of the Partnership.
In September 1997, the Lessee purchased 20,000 common shares of the Company for
cash consideration of $490.
F-17
<PAGE> 25
-3-
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
--------------------------------------------
The following unaudited pro forma condensed statements of operations for the
nine-month periods ended September 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 September 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>
Nine Months Ended
September 30,
----------------------
1997 1996
------- -------
<S> <C> <C>
Room revenue $58,048 $53,423
Food and beverage revenue 23,122 22,281
Other hotel revenue 6,180 5,973
Other revenue 2,050 1,663
------- -------
Total revenues 89,400 83,340
------- -------
Departmental expenses of hotels 32,824 31,174
Cost of goods sold of nonhotel operations 484 993
Percentage Lease expense 28,229 25,819
Other expenses 25,998 23,622
------- -------
Net income $ 1,865 $ 1,732
======= =======
</TABLE>
F-18
<PAGE> 26
INITIAL HOTELS
--------------
COMBINED BALANCE SHEET
----------------------
AS OF SEPTEMBER 30, 1996
------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
INVESTMENTS IN HOTEL PROPERTIES, at cost:
Land $ 8,572
Buildings and improvements 96,989
Furniture and equipment 38,581
Construction in progress 980
--------
145,122
Less- Accumulated depreciation 68,394
--------
Net investment in hotel properties 76,728
CASH AND CASH EQUIVALENTS 2,666
ACCOUNTS RECEIVABLE, net of allowance
for doubtful accounts of $24 3,698
INSURANCE CLAIM RECEIVABLE 380
RECEIVABLE FROM AFFILIATE 525
INVENTORIES 441
PREPAIDS AND OTHER ASSETS 1,195
CASH HELD IN ESCROW 3,141
DEFERRED EXPENSES, net 2,347
--------
$ 91,121
========
</TABLE>
The accompanying notes to combined financial statements are an
integral part of this combined balance sheet.
F-19
<PAGE> 27
INITIAL HOTELS
--------------
COMBINED BALANCE SHEET
----------------------
AS OF SEPTEMBER 30, 1996
------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C>
MORTGAGE NOTES PAYABLE $ 132,439
ADVANCES FROM AND ACCRUED INTEREST DUE TO PARTNERS 7,909
ACCOUNTS PAYABLE:
Trade 2,028
Management fees to related party 1,132
Bank overdraft 125
ACCRUED EXPENSES AND OTHER LIABILITIES 5,135
COMMITMENTS AND CONTINGENCIES -
---------
148,768
PARTNERS' DEFICIT (57,647)
---------
$ 91,121
=========
</TABLE>
The accompanying notes to combined financial statements are an
integral part of this combined balance sheet.
F-20
<PAGE> 28
INITIAL HOTELS
--------------
COMBINED STATEMENTS OF OPERATIONS
---------------------------------
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1996
------------- -------------
<S> <C> <C>
REVENUES FROM HOTEL OPERATIONS:
Room revenue $ 15,960 $ 45,532
Food and beverage revenue 5,549 17,535
Other revenue 1,317 3,656
-------- --------
Total revenues 22,826 66,723
-------- --------
EXPENSES:
Departmental expenses-
Rooms 3,374 10,129
Food and beverage 4,160 12,731
Other 662 1,877
General and administrative 1,933 5,687
Advertising and promotion 855 2,650
Utilities 981 2,731
Management fees to related party 1,059 2,968
Franchisor royalties and other charges 1,340 3,600
Repairs and maintenance 1,040 3,061
Real estate and personal property taxes, insurance
and rent 1,006 2,911
Interest expense 3,800 11,375
Interest expense on partner advances 184 558
Depreciation and amortization 1,961 5,619
Other 264 435
-------- --------
Total expenses 22,619 66,332
-------- --------
Income before extraordinary item 207 391
EXTRAORDINARY ITEM -- LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- (1,315)
-------- --------
NET INCOME (LOSS) $ 207 $ (924)
======== ========
</TABLE>
The accompanying notes to combined financial statements are an
integral part of these combined statements.
F-21
<PAGE> 29
INITIAL HOTELS
--------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (924)
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 8,005
Deferred interest expense on partner advances 558
Extraordinary loss on early extinguishment of debt 1,315
Payments for franchise fees and other deferred costs (155)
Changes in assets and liabilities-
Receivables (1,192)
Inventories, prepaids and other assets (368)
Cash held in escrow (534)
Accounts payable, accrued expenses and other
liabilities (1,218)
--------
Net cash provided by operating activities
5,418
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to hotel properties, net (2,503)
Purchase of assets of Lake Norman Hotels (9,721)
--------
Net cash used for investing activities (12,224)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (43,417)
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 (1,800)
--------
Net cash provided by financing activities 6,563
--------
</TABLE>
F-22
<PAGE> 30
-2-
<TABLE>
<S> <C>
NET CHANGE IN CASH AND CASH EQUIVALENTS $ (243)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,909
-------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,666
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 9,785
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Prepayment penalty financed with additional borrowing $ 1,246
</TABLE>
The accompanying notes to combined financial statements are an
integral part of this combined statement.
F-23
<PAGE> 31
INITIAL HOTELS
--------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
AS OF SEPTEMBER 30, 1996
------------------------
(unaudited, dollar amounts in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION:
---------------------------------------
Organization
- ------------
The Initial Hotels consist of the following hotels:
Number of
Property Name Location Rooms
- -------------------------------------- --------------------------- -----------
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
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 September 30, 1996, the Initial Hotels were owned as follows:
Partnership Interest
-----------------------
BMC Third
Affiliates Party
------------ ----------
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%
F-24
<PAGE> 32
-2-
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 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 September 30, 1996 and the results of their operations and
cash flows for the three- and nine-month periods ended September 30, 1996 have
been included.
Operating results for the interim periods ended September 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 nine-month periods ended September 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 nine-month period ended September 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-25
<PAGE> 33
-3-
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 Nine Months
Ended Ended
September 30, September 30,
1996 1996
------------- ------------
<S> <C> <C>
Total revenues $22,825 $67,139
Income (loss) before extraordinary item 275 (259)
Net income (loss) 275 (1,056)
</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 $543 and
$1,234 for the three- and nine-month periods ended September 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
mortgage note resulted in an extraordinary loss due to the early extinguishment
of debt in the amount of $1,315 for the nine-month period ended September 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 $48
and $98 for the three- and
F-26
<PAGE> 34
-4-
nine-month periods ended September 30, 1996, respectively. Furthermore, the
hotels made purchases of hotel furnishings through an affiliate of BMC. These
purchases amounted to approximately $217 and $915 for the three- and nine-month
periods ended September 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:
-----------------------
Partner advances consisted of the following:
<TABLE>
<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 5,272
------
$7,909
======
</TABLE>
The advances from partners and related accrued interest thereon were paid off by
the Partnership with a portion of the proceeds from the Offering.
Total interest expense on partner advances was $184 and $558 for the three- and
nine-month periods ended September 30, 1996, respectively.
F-27
<PAGE> 35
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
----------------------------------------------------
AND BOPA DESIGN COMPANY
-----------------------
COMBINED STATEMENT OF NET ASSETS
--------------------------------
AS OF SEPTEMBER 30, 1996
------------------------
(unaudited, amounts in thousands)
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS $ 39
MANAGEMENT FEES AND OTHER RECEIVABLES DUE FROM:
Affiliates 3,438
Other 2,172
PROPERTY AND EQUIPMENT, net 367
DESIGN COSTS IN EXCESS OF BILLINGS 170
PREPAID EXPENSES, DEPOSITS AND OTHER ASSETS 54
------
Total assets 6,240
------
ACCOUNTS PAYABLE:
Affiliates 211
Other 61
ADVANCE BILLINGS FOR DESIGN SERVICES 392
ACCRUED PAYROLL 173
OTHER ACCRUED EXPENSES 633
NOTES PAYABLE 1,420
------
Total liabilities 2,890
------
NET ASSETS $3,350
======
</TABLE>
The accompanying notes to combined financial statements are an
integral part of this combined statement.
F-28
<PAGE> 36
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
----------------------------------------------------
AND BOPA DESIGN COMPANY
-----------------------
COMBINED STATEMENTS OF REVENUES AND EXPENSES
--------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1996
------------- -------------
<S> <C> <C>
REVENUES:
Management fees-
Affiliates $1,066 $3,001
Other 272 699
Design and other fees-
Affiliates 335 1,635
Other 148 875
Interest income-
Affiliates 36 198
Other 12 89
------ ------
Total revenues 1,869 6,497
------ ------
EXPENSES:
Cost of sales and operating expenses 405 2,299
Selling, general and administrative expenses 776 2,362
Depreciation and amortization expense 22 62
Rent 27 89
Interest 27 88
Other, net 8 10
------ ------
Total expenses 1,265 4,910
------ ------
REVENUES IN EXCESS OF EXPENSES $ 604 $1,587
====== ======
</TABLE>
The accompanying notes to combined financial statements are an
integral part of these combined statements.
F-29
<PAGE> 37
BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
----------------------------------------------------
AND BOPA DESIGN COMPANY
-----------------------
AS OF SEPTEMBER 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-30
<PAGE> 38
-2-
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 September 30, 1996 and their
revenues and expenses for the three- and nine-month periods ended September 30,
1996 have been included.
Operating results for the three- and nine-month periods ended September 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:
--------------
Notes payable consisted of the following at September 30, 1996:
<TABLE>
<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 $ 775
$1,000 line of credit with a bank, due on demand;
bearing interest at prime; guaranteed by TBC and
certain TBC shareholders 645
------
$1,420
======
</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 Melbourne Oceanfront Hotel Associate, Fort Myers Hotel
Partnership, Berkley Marina Associates Limited Partnership and Pacific Ohio
Partners, all of which were related parties.
F-31
<PAGE> 39
-3-
All of the guaranteed debt 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 September 30, 1996:
<TABLE>
<S> <C>
Management fees receivable $ 297
Design fees receivable 47
Loans and interest receivable from Boykin Columbus Joint
Venture (BCJV) 3,094
------
$3,438
======
</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 $77 and $211 for the three- and
nine-month periods ended September 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 and design costs incurred in excess of
billings are related primarily to projects for affiliates.
F-32
<PAGE> 40
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 2. RECENT SALES OF UNREGISTERED SECURITIES
On September 5, 1997, the Company sold 20,000 Common Shares to the
Initial Lessee for $490,625 or $24.53 per share. The Initial Lessee purchased
the shares in connection with its employee incentive compensation program. The
sale was exempt from registration under the Securities Act of 1933, as amended,
pursuant to Regulation D, Rule 506.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
<TABLE>
<S> <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 (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.
** Incorporated by reference from the Company's Form 10-Q for the
quarter ended June 30, 1997.
(b) Reports on Form 8-K
-------------------
None
<PAGE> 41
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
-------------------------------------
November 14, 1997 Robert W. Boykin
Director, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Raymond P. Heitland
-------------------------------------
November 14, 1997 Raymond P. Heitland
Director, Chief Financial Officer
(Principal Accounting Officer)
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Pages
------- ------------
<S> <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.
** Incorporated by reference from the Company's Form 10-Q for the
quarter ended June 30, 1997.
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
BOYKIN LODGING COMPANY
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(amounts in thousands, except per share data)
For the Three For the Nine
Months Ended Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
INCOME:
Income before extraordinary item $ 5,373 $ 13,127
Extraordinary loss, net of minority interest (141) (141)
-------------- --------------
Net income $ 5,232 $ 12,986
============== ==============
PER SHARE AMOUNTS REPORTED TO SHAREHOLDERS--NOTE 1:
Income before extraordinary item $ 0.56 $ 1.37
Extraordinary loss, net of minority interest (0.01) (0.01)
-------------- --------------
Net loss $ 0.55 $ 1.36
============== ==============
PRIMARY:
Weighted average shares outstanding 9,522 9,518
Dilutive stock options--note 2 74 57
-------------- --------------
Totals 9,596 9,575
============== ==============
Per share amounts
Income before extraordinary item $ 0.56 1.37
Extraordinary loss, net of minority interest (0.01) (0.01)
-------------- --------------
Net income $ 0.55 $ 1.36
============== ==============
FULLY DILUTED:
Weighted average shares outstanding 9,522 9,518
Dilutive stock options 123 123
-------------- --------------
Totals 9,645 9,641
============== ==============
Per share amounts
Income before extraordinary item $ 0.56 $ 1.36
Extraordinary loss, net of minority interest (.01) (.01)
-------------- --------------
Net income $ 0.55 $ 1.35
============== ==============
<FN>
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 yearend market price
per share, if higher than the average market price is used.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF SEPTEMBER 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,467,000
<SECURITIES> 0
<RECEIVABLES> 5,130,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 194,213,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 203,245,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 59,000,000
0
0
<COMMON> 0
<OTHER-SE> 117,628,000
<TOTAL-LIABILITY-AND-EQUITY> 203,245,000
<SALES> 0
<TOTAL-REVENUES> 29,203,000
<CGS> 0
<TOTAL-COSTS> 12,473,000
<OTHER-EXPENSES> 1,917,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,686,000
<INCOME-PRETAX> 13,127,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,127,000
<DISCONTINUED> 0
<EXTRAORDINARY> 141,000
<CHANGES> 0
<NET-INCOME> 12,986,000
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.35
<FN>
<F1>The registrant uses an unclassified balance sheet. Therefore, total current
assets and total current liabilities are not applicable.
</FN>
</TABLE>
