<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------
FORM 10-Q/A
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998 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.)
Guildhall Building, Suite 1500, 45 W. Prospect Avenue 44115
- ----------------------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
(216) 430-1200
- ----------------------------------------------------
(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 May
15, 1998: 14,042,251
<PAGE> 2
PART I
This Form 10-Q/A is being filed to reflect the restatement of Boykin Lodging
Company's first quarter 1998 financial statements for the adoption of Emerging
Issues Task Force Issue No. 98-9, "Accounting for Contingent Rent in Interim
Financial Periods." Reference is made to Note 4 of the Notes to Consolidated
Financial Statements of Boykin Lodging Company within this Form 10-Q/A for the
provisions of this change in accounting and its impact on Boykin Lodging
Company's first quarter 1998 financial statements.
ITEM 1. FINANCIAL STATEMENTS
BOYKIN LODGING COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BOYKIN LODGING COMPANY:
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997.....................................................3
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 (unaudited).................................4
Consolidated Statement of Shareholders' Equity for the Three Months
Ended March 31, 1998 (unaudited)..........................................5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (unaudited).................................6
Notes to Consolidated Financial Statements.....................................7
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND
SUBSIDIARIES:
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997....................................................12
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (unaudited)................................13
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (unaudited)................................14
Notes to Consolidated Financial Statements....................................15
</TABLE>
<PAGE> 3
BOYKIN LODGING COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION> Restated
(Unaudited)
March 31, December 31,
1998 1997
--------- ------------
ASSETS
------
<S> <C> <C>
INVESTMENT IN HOTEL PROPERTIES, net $ 273,505 $ 231,651
CASH AND CASH EQUIVALENTS 2,828 1,855
RENT RECEIVABLE FROM LESSEES:
Related party lessee 1,547 897
Third party lessees 379 360
DEFERRED EXPENSES, net 1,941 2,055
OTHER ASSETS 2,510 2,037
--------- ---------
Total assets $ 282,710 $ 238,855
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
BORROWINGS AGAINST CREDIT FACILITY $ 31,200 $ 91,750
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,215 4,688
DEFERRED LEASE REVENUE 1,267 --
DIVIDENDS/DISTRIBUTIONS PAYABLE 7,207 4,893
DUE TO LESSEES:
Related party lessee 2,339 1,069
Third party lessees 1,106 1,268
MINORITY INTEREST IN JOINT VENTURES 7,223 7,318
MINORITY INTEREST IN OPERATING PARTNERSHIP 12,264 13,054
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; 14,042,251 and 9,542,251 shares issued and outstanding
March 31, 1998 and December 31, 1997, respectively, stated at -- --
Additional paid-in capital 229,564 124,430
Retained deficit (13,675) (9,615)
--------- ---------
Total shareholders' equity 215,889 114,815
--------- ---------
Total liabilities and shareholders' equity $ 282,710 $ 238,855
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
-3-
<PAGE> 4
BOYKIN LODGING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Restated
1998 1997
-------- --------
<S> <C> <C>
REVENUES:
Lease revenue from related party $ 7,380 $ 7,208
Other lease revenue 2,213 --
Interest income 54 231
-------- --------
9,647 7,439
-------- --------
EXPENSES:
Real estate related depreciation and amortization 3,220 1,941
Real estate and personal property taxes, insurance and ground rent 1,524 1,022
General and administrative 799 488
Interest expense 1,168 52
Amortization of deferred financing costs 130 109
-------- --------
6,841 3,612
-------- --------
INCOME BEFORE MINORITY INTERESTS 2,806 3,827
MINORITY INTEREST IN JOINT VENTURES (44) --
MINORITY INTEREST IN OPERATING PARTNERSHIP (222) (446)
-------- --------
NET INCOME APPLICABLE TO COMMON SHARES $ 2,540 $ 3,381
======== ========
EARNINGS PER SHARE:
Basic $ 0.22 $ 0.36
Diluted $ 0.22 $ 0.35
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic 11,342 9,516
Diluted 11,447 9,575
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-4-
<PAGE> 5
BOYKIN LODGING COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Shares Capital Deficit Total
------ ------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1997 9,542,251 $ 124,430 $ (9,615) $ 114,815
Issuance of common shares, net of offering
expenses of $7,366 4,500,000 105,134 -- 105,134
Dividends declared -- -- (6,600) (6,600)
Net income -- -- 2,540 2,540
---------- ---------- ---------- ----------
Balance, March 31, 1998 (Restated) 14,042,251 $ 229,564 $ (13,675) $ 215,889
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
-5-
<PAGE> 6
BOYKIN LODGING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION> Restated
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,540 $ 3,381
Adjustments to reconcile net income to net cash flow
provided by operating activities-
Depreciation and amortization 3,350 2,076
Minority interests 266 446
Changes in assets and liabilities-
Rent receivable (669) (1,866)
Other assets (489) (328)
Accounts payable and accrued expenses (473) (148)
Deferred lease revenue 1,267 --
Due to lessees 1,108 (239)
--------- ---------
Net cash flow provided by operating activities 6,900 3,322
--------- ---------
Cash flows from investing activities:
Acquisitions of hotel properties (37,075) (21,099)
Improvements and additions to hotel properties (7,437) (1,004)
--------- ---------
Net cash flow used for investing activities (44,512) (22,103)
--------- ---------
Cash flows from financing activities:
Payments of dividends and distributions (5,032) (3,091)
Borrowings against credit facility 36,200 1,000
Repayment of borrowings against bank credit facility (96,750) --
Net proceeds from issuance of common shares 105,134 --
Additional offering costs -- (14)
Cash payments for redemption of certain limited partnership interests (967) --
--------- ---------
Net cash flow provided by (used for) financing activities 38,585 (2,105)
--------- ---------
Net change in cash and cash equivalents 973 (20,886)
Cash and cash equivalents, beginning of period 1,855 21,362
--------- ---------
Cash and cash equivalents, end of period $ 2,828 $ 476
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-6-
<PAGE> 7
BOYKIN LODGING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. ORGANIZATION AND INITIAL PUBLIC OFFERING:
-----------------------------------------
Boykin Lodging Company (the "Company") is a self-administered equity real
estate investment trust ("REIT") that 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 common 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 (together with the initial public
offering, the "Initial 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
Initial 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 Initial 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 Initial
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 Initial 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. 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"). In 1997,
the Company acquired interests in eight additional hotels and two more during
the first quarter of 1998, bringing the total number of hotels owned at March
31, 1998 to 19 with an aggregate of 5,136 guest rooms (collectively, the
"Hotels"). The Partnership and its subsidiaries lease fifteen of the Hotels to
Boykin Management Company Limited Liability Company, an Ohio limited liability
company ("BMC"), two Hotels to CapStar Hotel Company ("CapStar"), one Hotel to
Davidson Hotel Company ("Davidson") and one Hotel to Outrigger Lodging Services
("Outrigger") pursuant to leases which contain provisions for rent based on the
revenues of the Hotels (the Percentage Leases). Each Percentage Lease obligates
the lessees' to pay rent equal to the greater of the minimum rent or a
percentage rent based on the gross revenues of each hotel. The lessees hold the
franchise agreement for each franchised hotel. The Partnership owns a 100%
equity interest in the fifteen Hotels leased by BMC. The remaining four Hotels
are owned by joint ventures, three of which the Partnership has a 91% equity
interest and the other an 80% equity interest. The minority interests in these
Hotels are owned by CapStar, Davidson and Outrigger, or their affiliates,
respectively. BMC 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, which otherwise would have the effect of diluting the
ownership interests of the limited partners or the shareholders of the Company.
-7-
<PAGE> 8
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-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. 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, 1997.
2. FOLLOW-ON EQUITY OFFERING AND PURCHASE OF PARTNERSHIP UNITS:
------------------------------------------------------------
In February 1998, the Company completed a follow-on equity offering (the
"Offering") of 4,500,000 common shares. The Offering price of the shares was $25
per share, resulting in gross proceeds of approximately $112,500 and net
proceeds (less the underwriters' discount and offering expenses) of
approximately $106,313. The Company contributed all of the net proceeds to the
Partnership which were used by the Partnership to pay existing indebtedness
under the Company's credit facility, purchase limited partnership units from two
unaffiliated limited partners, fund the acquisitions of two hotels purchased in
March 1998 (Note 6) and for general corporate purposes.
The Company purchased 40,976 outstanding limited partnership units for
aggregate cash consideration of $967. The excess of the aggregate purchase price
paid over the capital account balances of the units purchased was $562 and was
recorded as additional investment in hotel properties.
As a result of the Offering and the purchase of the limited partnership
units, the Company increased its ownership percentage in the Partnership to
90.3%
3. PROPOSED MERGER WITH RED LION INNS LIMITED PARTNERSHIP:
-------------------------------------------------------
The Company entered into an agreement and plan of merger (the "Merger
Agreement") on December 30, 1997 with Red Lion Inns Limited Partnership ("Red
Lion"), under which the Company agreed to acquire the portfolio of 10
DoubleTree-licensed hotels owned by Red Lion (the "DoubleTree Hotels"). If the
proposed merger is consummated, the DoubleTree Hotels will continue to be
managed by DoubleTree Hotels Corporation and will be leased to Westboy LLC, a
wholly-owned subsidiary of BMC. Under the Merger Agreement, the Company will
issue 3,110,048 common shares and pay approximately $35,300 in cash to the Red
Lion limited partners and general partner. The Partnership will become
responsible for Red Lion's liabilities, which the Company estimates will be
approximately $156,000. At the time of the announcement of the Merger Agreement,
the consideration value was expected to total approximately $271,250.
4. NEW ACCOUNTING STANDARDS:
-------------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income," which
requires disclosure of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as changes
in shareholders' equity from nonowner sources. SFAS No. 130 is not applicable to
the Company as it has no items of other comprehensive income, as defined.
-8-
<PAGE> 9
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position (SOP) 98-5 "Reporting on the Costs of
Start-Up Activities" which is effective for the Company as of January 1, 1999.
This SOP requires start-up and organization costs to be expensed as incurred and
also requires previously deferred start-up costs to be recognized as a
cumulative effect adjustment in the statement of income. In the opinion of
management, the effect of adopting this SOP will not have a material impact on
the Company's consolidated financial statements.
In May 1998, the Emerging Issues Task Force ("EITF") issued EITF 98-9,
"Accounting for Contingent Rent in Interim Periods." EITF 98-9 provides that a
lessor shall defer recognition of contingent rental income in interim periods
until specified targets that trigger the contingent income are met. The Company
has elected to adopt the provisions of EITF 98-9 effective January 1, 1998, and
has restated its financial results for the first quarter of 1998. Prior to EITF
98-9, in accordance with industry practice, the Company recognized Percentage
Lease revenue in interim periods as calculated and paid under the terms of its
lease agreements. For the Company, the application of EITF 98-9 generally
results in monthly base rent being recognized in the first and second quarters
and percentage rents collected or due from the lessees in the first and second
quarters being deferred and recognized in the third and fourth quarters. EITF
98-9 relates solely to the Company's recognition of lease revenue for financial
reporting purposes and has no effect on rent payments under the Company's
leases, quarterly funds from operations, or the Company's cash flows and does
not affect the Company's annual reported lease revenue. At March 31, 1998, the
Company's deferred lease revenue was $1,267, representing the difference
between the revenue recognized under EITF 98-9 and the percentage rent
collected or due from lessees during the first quarter under the quarterly rent
calculations in the leases. The Company will recognize the deferred revenue as
lease revenue in the later quarters of 1998.
5. NET INCOME PER SHARE AND PARTNERSHIP UNITS:
-------------------------------------------
The Company's basic and diluted earnings per share for three months ended
March 31, 1998 under SFAS No. 128, "Earnings per Share" are as follows:
<TABLE>
<S> <C>
Basic earnings per common share $ .22
Diluted earnings per common share $ .22
</TABLE>
Basic earnings per share is based on the weighted average number of common
shares outstanding during the period whereas diluted earnings per share adjusts
the weighted average shares outstanding for the effect of all dilutive
securities. The weighted average number of shares used in determining basic and
diluted earnings per share was 11,342,000 and 11,447,000, respectively, for the
three months ended March 31, 1998. At March 31, 1998, a total of 1,291,000
limited partnership units were issued and outstanding. The basic and diluted
weighted average number of common shares and limited partnership units
outstanding for the three months ended March 31, 1998 was 12,658,000 and
12,763,000, respectively.
6. ACQUISITIONS OF HOTEL PROPERTIES:
---------------------------------
During the quarter ended March 31, 1998, the Company acquired, in a single
transaction, two hotel properties for an aggregate consideration of $37,000
which was funded with cash proceeds from the Offering and borrowings under the
Company's credit facility. The hotel properties acquired were the 317-room
Knoxville Hilton in Knoxville, Tennessee and the 251-room High Point Radisson in
High Point, North Carolina. These properties are leased to and managed by BMC
under long-term Percentage Leases. The 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 the date of acquisition.
7. CREDIT FACILITY:
----------------
The Company has a credit facility with a group of banks which enables the
Company to borrow up to $150,000, subject to borrowing base and loan-to-value
limitations, at a rate of interest that fluctuates at LIBOR plus 1.40% to 1.75%
(7.19% at March 31, 1998), as defined. The Company is required to pay a .25% fee
on the unused portion of the credit facility. The credit facility expires in
November 1999, with an additional one-year extension at the Company's option,
and is secured by first mortgages on thirteen of the Hotels. As of March 31,
1998 and December 31, 1997, the Company had $31,200 and $91,750, respectively,
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 Hotel and to maintain its
REIT status. The Company was in compliance with its covenants at March 31, 1998
and December 31, 1997.
-9-
<PAGE> 10
8. PERCENTAGE LEASE AGREEMENTS:
----------------------------
The Percentage Leases have noncancelable remaining terms ranging from three
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 based on
increases in the United States Consumer Price Index ("CPI"). Percentage rent
applicable to food and beverage revenues is calculated by multiplying fixed
percentages by the total amounts of such revenues. Percentage Lease revenue for
the three months ended March 31, 1998 and 1997 was $9,593 and $7,208,
respectively, of which approximately $1,035 and $2,172, respectively, was in
excess of minimum rent. The 1998 amounts reflect the adoption of EITF 98-9 as
discussed in Note 4.
Future minimum rentals (ignoring future CPI increases) to be received by
the Company from BMC 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>
Other
BMC Lessees Totals
--- ------- ------
<S> <C> <C> <C>
1998 $ 27,542 $ 8,431 $ 35,973
1999 28,107 8,725 36,832
2000 28,107 8,925 37,032
2001 21,905 8,925 30,830
2002 15,074 7,526 22,600
Thereafter 37,257 27,201 64,458
------ ------ ------
$157,992 $69,733 $227,725
======== ======= ========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
---------------------------
The Chairman, President and Chief Executive Officer of the Company is the
majority shareholder of BMC. BMC was a significant source of the Company's
Percentage Lease revenue through March 31, 1998. At March 31, 1998 and December
31, 1997, the Company had rent receivable of $1,547 and $897, respectively, due
from BMC.
At March 31, 1998 and December 31, 1997, the Company had a payable to BMC
of $2,339 and $1,069, respectively, primarily for the reimbursement of capital
expenditure costs incurred on behalf of the Company.
10. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
--------------------------------------------------
During the quarters ended March 31, 1998 and 1997, the noncash financing
transactions consisted of $7,207 and $4,902, respectively, of dividends and
Partnership distributions which were declared but not paid as of March 31, 1998
and 1997, respectively.
Interest paid during the quarter ended March 31, 1998 was $1,598. There was
no interest paid during the quarter ended March 31, 1997.
11. SUBSEQUENT EVENTS:
------------------
In May 1998, the Company acquired the 208-room Pink Shell Resort in Fort
Myers Beach, Florida for net cash consideration of $19,250, after $2 million of
purchase price funded by South Seas Resorts (South Seas), the lessee of the
hotel. The acquisition was funded through borrowings under the Company's credit
facility. South Seas leases and manages the property under a long-term
Percentage Lease.
-10-
<PAGE> 11
12. PRO FORMA FINANCIAL INFORMATION:
--------------------------------
The unaudited pro forma financial information set forth below is
presented as if (i) the Offering discussed in Note 2 and (ii) the acquisitions
of properties in 1997 and the 1998 acquisitions discussed in Note 6 had been
consummated as of January 1, 1997. The 1998 pro forma financial information
also reflects the adoption of EITF 98-9 which had the impact of reducing 1998
lease revenue and net income by $1,495 and $1,350, respectively. The 1997
results have not been adjusted for EITF 98-9. The pro forma financial
information is not necessarily indicative of what the actual results of
operations of the Company would have been assuming the Offering and the
acquisitions had been consummated as of January 1, 1997, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Revenues:
<S> <C> <C>
Lease revenue $10,042 $11,431
Interest income 39 --
------- -------
10,081 11,431
Expenses:
Real estate related depreciation and amortization 3,566 3,382
Real estate and personal property taxes, insurance and ground rent 1,584 1,430
General and administrative 799 488
Interest expense 621 583
Amortization of deferred financing costs 130 109
------- -------
Income before minority interests 3,381 5,439
Minority interests 367 550
------- -------
Net income $ 3,014 $ 4,889
Net income per share ======= =======
Basic $.21 $.35
Diluted $.21 $.35
</TABLE>
11
<PAGE> 12
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
------ ---------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 5,622 $ 6,862
ACCOUNTS RECEIVABLE:
Trade, net of allowance for doubtful accounts of $128 and $84 at
March 31, 1998 and December 31, 1997, respectively 11,155 3,859
Boykin Hotel Properties, L.P. 2,339 1,069
Red Lion Inns Limited Partnership 1,328 --
INVENTORIES 2,192 788
PROPERTY AND EQUIPMENT, net 419 366
INVESTMENT IN BOYKIN LODGING COMPANY 529 529
PREPAID EXPENSES AND OTHER ASSETS 2,326 908
------- -------
Total assets $25,910 $14,381
======= =======
LIABILITIES AND MEMBERS' CAPITAL
--------------------------------
RENT PAYABLE:
Boykin Hotel Properties, L.P. $ 1,547 $ 897
Red Lion Inns Limited Partnership 941 --
ACCOUNTS PAYABLE:
Trade 3,612 1,746
Advance deposits 1,310 259
Bank overdraft liability 1,721 2,837
Former owners and affiliate -- 2
ACCRUED EXPENSES:
Accrued payroll 1,961 391
Accrued vacation 2,492 893
Accrued sales, use and occupancy taxes 2,068 646
Other accrued liabilities 7,116 2,437
------- -------
Total liabilities 22,768 10,108
------- -------
MEMBERS' CAPITAL:
Capital contributed 3,000 3,000
Retained earnings (deficit) 104 1,235
Unrealized appreciation on investment 38 38
------- -------
Total members' capital 3,142 4,273
------- -------
Total liabilities and members' capital $25,910 $14,381
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
-12-
<PAGE> 13
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
REVENUES:
Room revenue $ 32,518 $ 15,760
Food and beverage revenue 15,928 6,071
Other hotel revenue 2,989 1,149
Other revenue 755 771
-------- --------
Total revenues 52,190 23,751
-------- --------
EXPENSES:
Departmental expenses of hotels --
Rooms 8,001 3,508
Food and beverage 12,161 4,539
Other 1,563 570
Cost of goods sold of nonhotel operations 251 168
Percentage lease expense 14,734 7,208
General and administrative 5,937 2,937
Advertising and promotion 2,631 1,023
Utilities 2,520 954
Franchisor royalties and other charges 1,683 1,141
Repairs and maintenance 2,015 1,100
Depreciation and amortization 22 20
Management fee expense 1,787 --
Other 16 45
-------- --------
Total expenses 53,321 23,213
-------- --------
NET (LOSS) INCOME $ (1,131) $ 538
======== ========
COMPREHENSIVE (LOSS) INCOME $ (1,131) $ 538
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-13-
<PAGE> 14
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,131) $ 538
Adjustments to reconcile net (loss) income to net cash provided by
(used for) operating activities
Depreciation and amortization 22 20
Changes in assets and liabilities--
Accounts receivable (9,894) (454)
Inventories (1,404) (66)
Prepaid expenses and other assets (1,418) (476)
Rent payable 1,591 1,866
Accounts payable 1,799 (30)
Other accrued liabilities 9,270 1,091
------- -------
Net cash (used for) provided by operating activities (1,165) 2,489
------- -------
Cash flows from investing activities:
Property additions (75) (11)
------- -------
Net cash used for investing activities (75) (11)
------- -------
Cash flows from financing activities:
Payments of obligations to former owners -- (16)
Collections of amounts due from former owners -- 7
------- -------
Net cash used for financing activities -- (9)
------- -------
Net change in cash and cash equivalents (1,240) 2,469
Cash and cash equivalents, beginning of period 6,862 5,469
------- -------
Cash and cash equivalents, end of period $ 5,622 $ 7,938
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-14-
<PAGE> 15
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS:
------------------------
Boykin Management Company Limited Liability Company and its subsidiaries
(collectively, "BMC") (i) lease and operate full and limited service hotels
located throughout the United States pursuant to long-term percentage leases;
(ii) manage full and limited service hotels located throughout the United States
pursuant to management agreements; (iii) provide national purchasing services to
hotels, and (iv) provide interior design services to hotels and other
businesses.
2. ORGANIZATION:
-------------
BMC commenced operations on November 4, 1996 as an Ohio limited liability
company. BMC is indirectly 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 ("former BMC") and
Bopa Design Company (doing business as Spectrum Services), wholly owned
subsidiaries of The Boykin Company ("TBC"), were merged into subsidiaries of
BMC. In addition, Purchasing Concepts, Inc. ("PCI") contributed its assets to a
subsidiary of BMC and that subsidiary assumed PCI's liabilities. TBC and PCI are
related through common ownership. BMC and its subsidiaries are the successors to
the businesses of former BMC, Spectrum Services and PCI. As BMC, former 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 former BMC, Spectrum Services and PCI upon merger into or
contribution to the subsidiaries of BMC. In connection with the formation of
BMC, certain assets and liabilities of nine of the BMC Hotels (Note 5) were
assumed by BMC.
3. BASIS OF PRESENTATION:
----------------------
These financial statements have been prepared in accordance with generally
accepted accounting principles for the interim financial information and with
the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to BMC's consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the period ended December 31, 1997.
4. NEW ACCOUNTING STANDARDS:
-------------------------
Effective January 1, 1998, BMC adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income," which requires
disclosure of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as changes
in members' capital from nonowner sources, which for BMC, consist of differences
between the cost basis and fair market value of its
-15-
<PAGE> 16
investment of 20,000 common shares in the Company . For the quarter ended March
31, 1998, there were no differences between net income and comprehensive income.
In May 1998, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial
Periods." This issue addresses lessor revenue and lessee expense recognition in
interim periods related to rental agreements which provide for minimum rental
payments, plus contingent rents based on the lessee's operations, such as a
percentage of sales in excess of an annual specified sales target. The EITF
reached a final consensus that lessees, such as BMC, should accrue contingent
rental expense in interim periods prior to the lessee's achievement of the
specified target that triggers the contingent rent expense, provided that
achievement of the target by the end of the fiscal year is considered probable.
The application of EITF 98-9 has no impact on BMC.
5. PERCENTAGE LEASE AGREEMENTS:
----------------------------
BMC leases 15 hotels (the "BMC Hotels") from the Partnership, pursuant to
long-term leases (Percentage Leases). The BMC Hotels are located in Cleveland,
Ohio (2); Columbus, Ohio; Buffalo, New York; Berkeley, California; Raleigh,
North Carolina; Charlotte, North Carolina (2); High Point, North Carolina;
Knoxville, Tennessee; Ft. Myers, Florida; Melbourne, Florida (2); Daytona Beach,
Florida; and French Lick, Indiana.
The Percentage Leases have noncancellable remaining terms ranging from
three to ten years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The Percentage Leases do not contain renewal terms.
BMC 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 generally at 6% of such revenues. Both the threshold
amounts used in computing percentage rent and minimum rent on room and other
hotel revenues are subject to annual adjustments as of January 1 of each year
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 BMC to pay all costs and expenses incurred in the operation of
the BMC Hotels.
The Percentage Leases require BMC 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 BMC Hotels.
6. PERCENTAGE LEASE AGREEMENT WITH RED LION:
-----------------------------------------
The Company entered into an Agreement and Plan of Merger (the "Merger
Agreement") on December 30, 1997 with Red Lion Inns Limited Partnership ("Red
Lion"), under which the Company agreed to acquire the portfolio of 10
DoubleTree-licensed hotels owned by Red Lion (the "DoubleTree Hotels"). The
DoubleTree Hotels contain 3,062 guest rooms and are located in California,
Oregon, Washington, Colorado, Idaho and Nebraska. Effective January 1, 1998, the
Doubletree Hotels were leased or subleased to Westboy LLC, a wholly-owned
subsidiary of BMC. Pursuant to this lease agreement, Westboy LLC is required to
pay a base monthly rental of $1,700 plus a percentage rental. The lessor is
responsible for certain costs of the DoubleTree Hotels, including property
taxes, property insurance, capital expenditures, depreciation expense and ground
lease rental. If the proposed merger is consummated, the Doubletree Hotels will
continue to be managed by DoubleTree and to be leased to Westboy LLC.
7. RELATED PARTY TRANSACTIONS:
---------------------------
At March 31, 1998 and December 31, 1997 BMC had receivables from the
Partnership of $2,339 and $1,069, respectively, primarily for the reimbursement
of capital expenditure costs incurred on behalf of the Partnership.
At March 31, 1998 and December 31, 1997 BMC had payables to the Partnership
of $1,547 and $897, respectively, for amounts due pursuant to the Percentage
Leases.
8. PRO FORMA FINANCIAL INFORMATION:
--------------------------------
The following unaudited pro forma condensed statements of operations for
the three-month periods ended March 31, 1998 and 1997 are presented as if
BMC (i) leased and operated from January 1, 1997 all of the BMC Hotels owned by
the Company as of March 31, 1998 and (ii) leased the DoubleTree Hotels from
January 1, 1997. The pro forma condensed statements of operations do not
purport to present what actual results of operations would have been if the BMC
Hotels and DoubleTree Hotels were operated by BMC pursuant to the Percentage
Leases from January 1, 1997 or to project results for any future period.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ---------
REVENUES:
<S> <C> <C>
Room revenue $ 34,044 $ 34,137
Food and beverage revenue 16,504 16,686
Other hotel revenue 3,041 3,111
Other revenue 755 771
---------- ---------
Total revenues 54,344 54,705
EXPENSES:
Departmental expenses of hotels 22,584 22,356
Cost of goods sold of nonhotel operations 251 168
Percentage Lease expense 15,411 15,477
Other expenses 17,372 16,880
---------- ---------
NET LOSS $ (1,274) $ (176)
========== =========
</TABLE>
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Boykin Lodging Company, an Ohio corporation (the "Company"), is a
self-administered equity real estate investment trust ("REIT") that owns hotels
throughout the United States and leases its properties to established hotel
operators. The Company's primary business strategies are:
- acquiring full service commercial and resort hotels on an
accretive basis and at a discount to replacement cost;
- developing strategic alliances and relationships with both a
network of high quality lessees and franchisors of the hotel
industry's premier upscale brands, and;
- achieving revenue growth in its hotels through selective
renovation and its lessees' strong management performance.
On November 4, 1996, the Company completed an initial public offering (the
"Initial 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 $173.9 million. 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 million intercompany convertible note (the "Note").
The Note matures on the fifth anniversary of the Initial Offering. On conversion
of the Note, the Company will receive an additional general partnership interest
in the Partnership of 1.3%. 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 hotel properties (the "Initial Hotels"). In 1997,
the Company acquired interests in eight additional hotels and two more during
the first quarter of 1998, bringing the total number of hotels owned at March
31, 1998 to 19 with an aggregate of 5,136 guest rooms (collectively, the
"Hotels"). The Partnership and its subsidiaries lease fifteen of the Hotels to
Boykin Management Company Limited Liability Company, an Ohio limited liability
company ("BMC"), two Hotels to CapStar Hotel Company ("CapStar"), one Hotel to
Davidson Hotel Company ("Davidson") and one Hotel to Outrigger Lodging Services
("Outrigger") pursuant to leases which contain provisions for rent based on the
revenues of the Hotels (the Percentage Leases). The Partnership owns a 100%
equity interest in the fifteen Hotels leased by BMC. The remaining four Hotels
are owned by joint ventures, three of which the Partnership has a 91% equity
interest and the other an 80% equity interest. The minority interests in these
Hotels are owned by CapStar, Davidson and Outrigger, or their affiliates,
respectively.
On December 30, 1997, the Company entered into an agreement and plan of
merger (the "Merger Agreement") with Red Lion Inns Limited Partnership ("Red
Lion"), under which the Company agreed to acquire the portfolio of 10
DoubleTree-licensed hotels owned by Red Lion (the "DoubleTree Hotels"). The
DoubleTree Hotels contain 3,062 guest rooms and are located in California,
Oregon, Washington, Colorado, Idaho and Nebraska. If the proposed merger is
consummated, the DoubleTree Hotels will continue to be managed by DoubleTree
Hotels Corporation and will be leased to Westboy LLC, a wholly-owned subsidiary
of BMC. Under the Merger Agreement, the Company will issue 3,110,048 common
shares and pay approximately $35.3 million in cash to the Red Lion limited
partners and general partner. The Partnership will become responsible for Red
Lion's liabilities, which the Company estimates will be approximately $156
million. At the time of the announcement of the Merger Agreement, the
consideration value was expected to total approximately $271 million. The
Company expects to complete the proposed merger in May 1998. Consummation of the
proposed merger is subject to various conditions, including approval by the Red
Lion limited partners and approval by the Company's shareholders of the issuance
of the common shares. There is no assurance that the proposed merger will be
completed.
The Company's principal source of revenue is lease payments from its
lessees' pursuant to the Percentage Leases. Percentage Lease revenue is based
upon the room, food and beverage and other revenues of the Company's hotels. The
lessees' ability to make payments to the Company pursuant to the Percentage
Leases is dependent
-17-
<PAGE> 18
primarily upon the operations of the Hotels. Because of the foregoing and the
significance of BMC to the Company, management believes that a discussion of the
operations of BMC is important to an understanding of the business of the
Company.
FIRST QUARTER HIGHLIGHTS
In February 1998, the Company completed a follow-on equity offering (the
"Offering") of 4,500,000 common shares, pursuant to the Company's $300 million
shelf registration statement, which provides for the issuance of up to $300
million in securities over the next two years . The Offering price of the shares
was $25 per share, resulting in gross proceeds of approximately $112.5 million
and net proceeds (less the underwriters' discount and offering expenses) of
approximately $106.3 million. The Company contributed all of the net proceeds to
the Partnership which were used by the Partnership to pay existing indebtedness
under the Company's $150 million credit facility, purchase limited partnership
units from two unaffiliated limited partners, fund the acquisitions of two
Hotels purchased in March 1998 and for general corporate purposes. As a result
of the Offering and the purchase of the limited partnership units, the Company
increased its ownership percentage in the Partnership to 90.3%.
During the quarter ended March 31, 1998, the Company acquired, in a single
transaction, two hotel properties for an aggregate consideration of $37 million
which was funded with cash proceeds from the Offering and borrowings under the
Company's credit facility. The hotel properties acquired were the 317-room
Knoxville Hilton in Knoxville, Tennessee and the 251-room High Point Radisson in
High Point, North Carolina. These properties are leased to and managed by BMC
under long-term Percentage Leases.
In January 1998, the Company reopened the Daytona Beach Radisson Resort
following a complete $7 million renovation of the hotel. During the first
quarter of 1998, the Company also continued its $3.6 million renovation of the
Crabtree Holiday Inn in Raleigh, North Carolina and began significant
renovations at the Berkeley Marina Radisson and the Cleveland Airport Marriott
(estimated at $6 million each). The Company expects to complete these
renovations in the second and third quarters of 1998 and the Company expects
that these properties will be adversely impacted during the renovation periods.
Once complete, however, the Company expects these hotels to contribute
significantly to earnings going forward. The Company also began a $1.5 million
renovation at the Holiday Inn Minneapolis West and $2 million of general
upgrades at the French Lick Springs Resort. Management expects the capital
expenditures of these properties to improve their operating results and should
not be adversely impacted of the magnitude of the Crabtree, Berkeley and
Cleveland Airport hotels.
RESULTS OF OPERATIONS
The following discusses (i) the Company's results of operations for the
quarter ended March 31, 1998 compared to the same period in 1997, and (ii) BMC's
results of operations for the quarter ended March 31, 1998 compared to the same
period in 1997.
THE COMPANY
For the three months ended March 31, 1998 Percentage Lease revenue, after
accounting for EITF 98-9, increased to $9.6 million, or 33.1%, from $7.2
million for the same period in 1997. First quarter revenues would have
increased 50.7% without the application of EITF 98-9. The increase was
primarily because of an increase in the number of Hotels owned by the Company
from 12 to 19 at March 31, 1997 and 1998, respectively. Percentage Lease
revenue payable by BMC represented $7.4 million, or 76.9%, of total Percentage
Lease revenue, compared to 100% in 1997.
Income before minority interests decreased to $2.8 million in 1998 compared
to $3.8 million in 1997, after accounting for EITF 98-9. Without the
application of EITF 98-9, income before minority interests would have been $4.1
million, an increase of 6.4% over 1997. As a percent of total revenue, income
before minority interests decreased to 29.1% in 1998 from 51.4% in 1997,
primarily resulting from (i) a $1.3 million impact on revenues and income
before minority interests for the application of EITF 98-9, (ii) an increase in
interest expense to $1.2 million in 1998, or 12.1%, of total revenues in 1998,
compared to $52, or .1%, in 1997, (iii) an increase in real estate related
depreciation and amortization, as a percent of total revenue, from 26.1% in
1997 to 33.3% in 1998, (iv) an increase in real estate and personal
property taxes, insurance, ground rent to 15.8% of total revenues in 1998,
compared to 13.7% in 1997, and (v) an increase in general and administrative
expenses, as a percent of total revenues, from 6.6% in 1997 to 8.3% in 1998.
-18-
<PAGE> 19
Interest expense in 1997 was unusually low due to minimal borrowings under the
Company's credit facility as the remaining funds from the Company's Initial
Offering were used to fund first quarter 1997 acquisitions.
The Company's net income, after accounting for EITF 98-9, decreased 24.8%
to $2.5 million for the three months ended March 31, 1998, compared to $3.4
million in 1997. The impact of adopting EITF 98-9 lowered net income by $1.1
million for the first quarter of 1998. Minority interest applicable to the
operating partnership decreased to $222 in 1998, or 2.3%, of total revenues,
compared to $446, or 6.0%, in 1997. The common shares issued as part of the
February 1998 Offering had the effect of diluting the limited partners
ownership interests in the Partnership.
The White Paper on Funds From Operations ("FFO") approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 defines FFO as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring and
sales of properties, plus real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items related
to unconsolidated entities and joint ventures. The Company believes that FFO is
helpful to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the ability
of the Company to incur and service debt, to make capital expenditures and to
fund other cash needs. The Company computes FFO for its annual reporting period
in accordance with the NAREIT White Paper. For interim periods, the Company
computes FFO in accordance with the NAREIT White Paper, as adjusted for
deferred lease revenue in accordance with EITF 98-9. The Company's computation
of FFO may not be comparable to FFO reported by other REITs that do not define
the term in accordance with the current NAREIT definition, do not consider a
deferred lease revenue adjustment to FFO, or that interpret the current NAREIT
definition differently than the Company. FFO does not represent cash generated
from operating activities determined by GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make cash distributions. FFO may include funds
that may not be available for management's discretionary use due to functional
requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties. The following is a
reconciliation between net income and FFO for the three months ended March 31,
1998 and 1997, respectively, (in thousands):
<TABLE>
<CAPTION>
Restated
1998 1997
---- ----
<S> <C> <C>
Net income $ 2,540 $ 3,381
Real estate related depreciation
and amortization 3,220 1,941
Minority interest 266 446
Deferred lease revenue 1,267 -
FFO applicable to joint venture
minority interest (71) -
-------- ---------
Funds from operations $ 7,222 $ 5,768
======== =========
</TABLE>
BMC
For the quarter ended March 31, 1998 BMC's hotel revenues increased 123.8%,
to $51.4 million, compared to $23.0 million for the same period in 1997. The
increase was attributable to an increase in the number of hotels leased by BMC
from 12 to 25 at March 31, 1997 and 1998, respectively, primarily because of the
January 1, 1998 commencement of the Percentage Lease related to the 10
DoubleTree Hotels leased by Westboy LLC. The DoubleTree Hotels contributed $25.0
million of revenues to BMC during the quarter ended March 31, 1998. The
remaining increase in hotel revenues resulted from an additional three hotels
leased from the Partnership. BMC recorded a net loss of $1.1 million for the
quarter ended March 31, 1998 compared to $538 of net income in 1997. The loss in
1998 was primarily due to the seasonality of the majority of new hotels leased
which experience their lowest occupancy in the first quarter compared to the
other three quarters of the year. These hotels were expected to
-19-
<PAGE> 20
experience a loss in the first quarter resulting from their requirement to pay
minimum rent under the respective Percentage Leases.
The Percentage Lease expense for the quarter ended March 31, 1998 increased
104.4%, to $14.7 million, compared to $7.2 million for the same period in 1997.
Percentage Lease expense in 1998 of $6.1 million related to the DoubleTree
Hotels was the primary reason for the increase. The remaining increase in
Percentage Lease expense resulted from the increased number of hotels leased
from the Partnership. Departmental and other hotel operating expenses,
consisting primarily of rooms expenses, food and beverage costs, franchise fees,
utilities, repairs and maintenance, management fees, and other general and
administrative expenses of the hotels were $38.3 million in the quarter ended
March 31, 1998 compared to $15.8 million for the same period in 1997. As a
percent of hotel revenues, the departmental and other hotel operating expenses
increased to 74.5% in 1998 from 68.9% in 1997 primarily because of $1.8 million
of management fee expense to DoubleTree, the manager of the DoubleTree Hotels,
pursuant to a management agreement between Westboy LLC and DoubleTree.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its share of the Partnership's cash
flow from the Percentage Leases. The 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 March 31, 1998, the Company had $2.8 million of cash and cash
equivalents and had outstanding borrowings totaling $31.2 million against its
credit facility. On May 1, 1998, the Company acquired the 208-room Pink Shell
Resort in Fort Myers Beach, Florida for net cash consideration of $19.3 million,
after $2 million of purchase price funded by South Seas Resorts ("South Seas"),
the lessee of the hotel. The acquisition was funded through borrowings under the
Company's credit facility. The borrowings under the Company's credit facility
increased to $57.2 million on May 1, 1998 to fund the acquisition of the Pink
Shell Resort and to fund capital expenditures, primarily for renovations.
For information relating to the terms of the Company's current $150 million
credit facility, reference is made to Note 7 of the Notes to Consolidated
Financial Statements of Boykin Lodging Company discussed within this Form 10-Q.
The Company obtained its credit facility to assist in funding its acquisitions
and development of additional hotels and for certain other purposes, including
capital expenditures and working capital, as necessary.
The Company has obtained a commitment for a new unsecured credit facility
of up to $250 million, to be available on completion of the Proposed Merger. The
Company also obtained a commitment for a $130 million 10-year term loan (the
"Fixed Rate Loan") secured by the Doubletree Hotels, with a rate of interest at
a spread over the 10-year United States Treasury Bond upon closing of the loan.
Interest only will be paid for the first two years, with principal repayments
commencing in the third loan year based on a 25-year amortization schedule. The
Company anticipates that the Fixed Rate Loan and new credit facility will enable
the Company to finance the Proposed Merger and to meet its anticipated cash
needs for the next year. The Company may seek to 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 estimates that on a pro forma basis, giving effect to the
purchase of the Pink Shell Resort in May 1998, the closing of the Proposed
Merger, and the borrowings under the Fixed Rate Loan and the new credit
facility, the Company would have approximately $254 million in outstanding
indebtedness and available borrowing capacity under the new credit facility of
$126 million.
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,
-20-
<PAGE> 21
from borrowings under the Fixed Rate Loan, credit facility or other borrowings
or from the proceeds of additional issuances of Common Shares or other
securities. In November 1997, the Company filed a shelf registration statement
with the Securities and Exchange Commission for the issuance of up to $300
million in securities over the next two years. Securities issued under this
registration statement may be preferred shares, depository shares, common shares
or any combination thereof and may be issued at different times, depending on
market conditions. Warrants to purchase these securities may also be issued. The
terms of issuance of any securities covered by this registration statement would
be determined at the time of their offering. The $112.5 million of common shares
sold in the Offering were sold under this registration statement.
The Percentage Leases require the Company to establish aggregate minimum
reserves for capital expenditures equal to specified percentages 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 quarter ended March
31, 1998, the Company made $7.4 million 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 the Percentage Leases, which result in
changes in the Company's revenues based on changes in the revenues of the
Hotels. Therefore, the Company relies entirely on the performance of the Hotels
and the 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 general and administrative costs, as well as real estate and
personal property taxes, property and casualty insurance and ground rent, are
subject to inflation.
SEASONALITY
The Hotels' operations historically have been seasonal. Fifteen of the
Hotels maintain higher occupancy rates during the second and third quarters. The
four Hotels located in Florida, and the Pink Shell Resort, also located in
Florida, experience their highest occupancy rates in the first quarter. The
seasonality pattern can be expected to cause fluctuations in the Company's
quarterly lease payments received under the Percentage Leases. The Company
anticipates that its cash flow from the Percentage Leases will be sufficient to
enable the Company to make quarterly distributions at the current rate for the
next twelve months. To the extent that cash flow from operations is
insufficient during any quarter because of temporary or seasonal fluctuations
in Percentage Lease payments, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In May 1998, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods."
This issue addresses lessor revenue and lessee expense recognition in interim
periods related to rental agreements which provide for minimum rental payments,
plus contingent rents based on the lessee's operations, such as a percentage of
sales in excess of an annual specified sales target. The EITF reached a final
consensus that lessors, such as the Company, should defer recognition of
contingent rental income until specified targets are met.
For information relating to the provisions of EITF 98-9 and its impact on
the Company's results of operations, reference is made to Note 4 of
the Notes to Consolidated Financial Statements of Boykin Lodging Company within
this Form 10-Q/A.
EITF 98-9 relates solely to the Company's recognition of lease revenue for
financial reporting purposes and has no effect on rent payments under the
Company's leases, quarterly funds from operations, or the Company's cash flows
and does not have an effect on the Company's annual reported lease revenue. In
addition, the Company does not expect EITF 98-9 to affect the Company's ability
to continue to pay its quarterly distributions to shareholders on a basis
consistent with past practices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
-21-
<PAGE> 22
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 statements of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 1998, the Company completed the Offering of 4,500,000
common shares, pursuant to the Company's $300 million shelf registration
statement, which provides for the issuance of up to $300 million in securities
over the next two years . The Offering price of the shares was $25 per share,
resulting in gross proceeds of approximately $112.5 million and net proceeds
(less the underwriters' discount and offering expenses) of approximately $106.3
million. The Company contributed all of the net proceeds to the Partnership
which were used by the Partnership to pay existing indebtedness under the
Company's $150 million credit facility, purchase limited partnership units from
two unaffiliated limited partners, fund the acquisitions of two Hotels purchased
in March 1998 and for general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
2.1*** Agreement and Plan of Merger dated as of December 30, 1997 by
and among Red Lion Inns Limited Partnership, Red Lion
Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel
Properties, L.P., Boykin Lodging Company, Boykin Acquisition
Corporation I, Inc., Boykin Acquisition Corporation II, Inc.,
and Boykin Acquisition Partnership, L.P.
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
27 Financial Data Schedule
-22-
<PAGE> 23
99.1*** Partnership Interest Assignment Agreement dated as of December
30, 1997 by and among Red Lion Properties, Inc., Boykin Hotel
Properties, L.P., Boykin Lodging Company and West Doughboy
LLC.
99.2*** Percentage Lease Agreement dated as of December 30, 1997 by
and between Red Lion Inns Operating L.P. and Westboy LLC
99.3*** Termination of Management Agreement dated as of December 30,
1997 by and between Red Lion Inns Operating L.P. and Red Lion
Hotels, Inc.
99.4*** Management Agreement dated as of December 30, 1997 by and
between Red Lion Hotels, Inc. and Westboy LLC.
99.5*** Owner Agreement dated as of December 30, 1997 by and among Red
Lion Inns Operating L.P., Westboy LLC and Red Lion Hotels,
Inc.
99.6*** Joint Press Release of Red Lion Inns Limited Partnership and
Boykin Lodging Company dated as of December 30, 1997.
* 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.
*** Incorporated by reference from the Company's Form 8-K filing on
January 8, 1998 related to the Proposed Merger.
(b) Reports on Form 8-K
-------------------
<TABLE>
<CAPTION>
Date Filed Items Reported Summary
---------- -------------- -------
<S> <C> <C>
1) January 8, 1998 (date of
report - December 30, 1997) Item 5 (other events) The Company announced the
Proposed Merger agreement with
Red Lion Inns Limited Partnership,
Red Lion Properties, Inc. and Red
Lion Inns Operating L.P.
2) January 28, 1998 (date of
report - January 28, 1998) Item 7 (financial statements, Financial statements related to
pro forma financial information Proposed Merger for Red Lions
and exhibits) Inns Limited Partnership.
Item 7 (financial statements, Financial statements related to
pro forma financial information the Company's acquisitions of
and exhibits) Marriott's Hunt Valley Inn and the
Holiday Inn Minneapolis West.
3) February 5, 1998 (date of Amended Form 8-K/A for January
report - January 28, 1998) 28, 1998 Form 8-K filing.
</TABLE>
-23-
<PAGE> 24
<TABLE>
<S> <C> <C>
4) February 18, 1998 (date of Item 7 (financial statements, The Company completed a follow-
report - February 18, 1998) pro forma financial information on equity offering of 4,500,000
and exhibits) common shares.
5) March 27, 1998 (date of
report - March 12, 1998) Item 5 (other events) The Company acquired the High
Point Radisson in High Point,
North Carolina and the Knoxville
Hilton in Knoxville, Tennessee.
</TABLE>
FORWARD-LOOKING STATEMENTS
--------------------------
This Form 10-Q/A contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Form 10-Q/A
and the documents incorporated by reference herein and include statements
regarding the intent, belief or current expectations of the Company, its
directors or its officers with respect to (i) the leasing, management or
performance of the Hotels, the DoubleTree Hotels and other hotels to be
acquired; (ii) the adequacy of reserves for renovation and refurbishment; (iii)
potential acquisitions by the Company, including the Proposed Merger; (iv) the
Company's financing plans; and (v) trends affecting the Company's or any
hotel's financial condition or results of operations.
Prospective investors are cautioned that any such forward-looking
statement is not a guarantee of future performance and involves risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statement as a result of various factors. The information
contained in this Form 10-Q/A and in the documents incorporated by reference
herein identifies important factors that could cause such differences. With
respect to any such forward-looking statement that includes a statement of its
underlying assumptions or bases, the Company cautions that, while it believes
such assumptions or bases to be reasonable and has formed them in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the stated
expectation or belief will result or be achieved or accomplished.
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 16, 1998 Robert W. Boykin
Director, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Paul A. O'Neil
-------------------------------------
November 16, 1998 Paul A. O'Neil
Chief Financial Officer and Treasurer
(Principal Financial Officer)
-24-
<PAGE> 25
EXHIBIT INDEX
Exhibits
--------
2.1*** Agreement and Plan of Merger dated as of December 30, 1997 by
and among Red Lion Inns Limited Partnership, Red Lion
Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel
Properties, L.P., Boykin Lodging Company, Boykin Acquisition
Corporation I, Inc., Boykin Acquisition Corporation II, Inc.,
and Boykin Acquisition Partnership, L.P.
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
27 Financial Data Schedule
99.1*** Partnership Interest Assignment Agreement dated as of December
30, 1997 by and among Red Lion Properties, Inc., Boykin Hotel
Properties, L.P., Boykin Lodging Company and West Doughboy
LLC.
99.2*** Percentage Lease Agreement dated as of December 30, 1997 by
and between Red Lion Inns Operating L.P. and Westboy LLC
99.3*** Termination of Management Agreement dated as of December 30,
1997 by and between Red Lion Inns Operating L.P. and Red Lion
Hotels, Inc.
99.4*** Management Agreement dated as of December 30, 1997 by and
between Red Lion Hotels, Inc. and Westboy LLC.
99.5*** Owner Agreement dated as of December 30, 1997 by and among Red
Lion Inns Operating L.P., Westboy LLC and Red Lion Hotels,
Inc.
99.6*** Joint Press Release of Red Lion Inns Limited Partnership and
Boykin Lodging Company dated as of December 30, 1997.
* 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.
*** Incorporated by reference from the Company's Form 8-K filing on
January 8, 1998 related to the Proposed Merger.
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF MARCH 31,
1998, AFTER BEING RESTATED FOR THE IMPACT OF ADOPTING EITF 98-9 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,828
<SECURITIES> 0
<RECEIVABLES> 1,926
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 273,505
<DEPRECIATION> 0
<TOTAL-ASSETS> 282,710
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 31,200
0
0
<COMMON> 0
<OTHER-SE> 215,889
<TOTAL-LIABILITY-AND-EQUITY> 282,710
<SALES> 0
<TOTAL-REVENUES> 9,647
<CGS> 0
<TOTAL-COSTS> 5,543
<OTHER-EXPENSES> 266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,298
<INCOME-PRETAX> 2,540
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,540
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<FN>
<F1>Registrant utilizes an unclassified Balance Sheet, therefore Total Current
Assets and Total Current Liabilities are not applicable.
</FN>
</TABLE>
