<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 June 30, 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
August 14, 1998: 17,156,857
<PAGE> 2
PART I
This Form 10-Q/A is being filed to reflect the restatement of Boykin Lodging
Company's second 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 5 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 second quarter 1998 financial statements.
ITEM 1. FINANCIAL STATEMENTS
BOYKIN LODGING COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
BOYKIN LODGING COMPANY:
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997...............................................................................3
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1998 and 1997 (unaudited)............................................................4
Consolidated Statement of Shareholders' Equity for the Six Months
Ended June 30, 1998 (unaudited).....................................................................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (unaudited)............................................................6
Notes to Consolidated Financial Statements...............................................................7
BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND
SUBSIDIARIES:
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997..............................................................................13
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1997 (unaudited)...........................................................14
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (unaudited)...........................................................15
Notes to Consolidated Financial Statements..............................................................16
</TABLE>
<PAGE> 3
BOYKIN LODGING COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Restated
(Unaudited)
June 30, December 31,
1998 1997
--------- ------------
ASSETS
------
<S> <C> <C>
INVESTMENT IN HOTEL PROPERTIES, net $ 593,197 $ 231,651
CASH AND CASH EQUIVALENTS 4,686 1,855
RENT RECEIVABLE FROM LESSEES:
Related party lessees 7,382 897
Third party lessees 1,050 360
DEFERRED EXPENSES, net 3,517 2,055
OTHER ASSETS 1,099 2,037
--------- ---------
Total assets $ 610,931 $ 238,855
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
BORROWINGS AGAINST CREDIT FACILITY $ 143,200 $ 91,750
TERM NOTE PAYABLE 130,000 --
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 9,073 4,688
DEFERRED LEASE REVENUE 5,487 --
DIVIDENDS/DISTRIBUTIONS PAYABLE 8,671 4,893
DUE TO LESSEES:
Related party lessees 2,432 1,069
Third party lessees 1,009 1,268
MINORITY INTEREST IN JOINT VENTURES 10,904 7,318
MINORITY INTEREST IN OPERATING PARTNERSHIP 11,618 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; 17,156,857 and 9,542,251 shares issued and outstanding
June 30, 1998 and December 31, 1997, respectively, stated at -- --
Additional paid-in capital 309,326 124,430
Retained deficit (20,789) (9,615)
--------- ---------
Total shareholders' equity 288,537 114,815
--------- ---------
Total liabilities and shareholders' equity $ 610,931 $ 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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
Restated Restated
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Lease revenue from related party $ 10,280 $ 9,699 $ 17,660 $ 16,907
Other lease revenue 2,863 -- 5,076 --
Interest income 128 29 182 260
-------- -------- -------- --------
13,271 9,728 22,918 17,167
-------- -------- -------- --------
EXPENSES:
Real estate related depreciation and amortization 5,096 2,405 8,316 4,346
Real estate and personal property taxes, insurance
and ground rent 2,036 1,323 3,560 2,345
General and administrative 1,103 551 1,901 1,039
Interest expense 2,583 341 3,751 393
Amortization of deferred financing costs 145 109 275 218
-------- -------- -------- --------
10,963 4,729 17,803 8,341
-------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS AND
EXTRAORDINARY ITEM 2,308 4,999 5,115 8,826
MINORITY INTEREST IN JOINT VENTURES (152) -- (195) --
MINORITY INTEREST IN OPERATING PARTNERSHIP (68) (626) (292) (1,072)
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 2,088 4,373 4,628 7,754
EXTRAORDINARY ITEM- Loss on early extinguishment
of debt, net of $110 of minority interest (1,138) -- (1,138) --
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON SHARES $ 950 $ 4,373 $ 3,490 $ 7,754
======== ======== ======== ========
EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM: $ .14 $ 0.46 $ .35 $ 0.81
Basic $ .14 $ 0.46 $ .34 $ 0.81
Diluted
EARNINGS PER SHARE: $ .06 $ 0.46 $ .26 $ 0.81
Basic $ .06 $ 0.46 $ .26 $ 0.81
Diluted
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING: 15,412 9,516 13,388 9,516
Basic 15,436 9,553 13,462 9,586
Diluted
</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 SIX MONTHS ENDED JUNE 30, 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 $8,036 7,614,606 184,896 -- 184,896
Dividends declared -- -- (14,664) (14,664)
Net income -- -- 3,490 3,490
---------- ---------- ---------- ----------
Balance, June 30, 1998 (Restated) 17,156,857 $ 309,326 $ (20,789) $ 288,537
========== ========== ========== ==========
</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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Restated
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,490 $ 7,754
Adjustments to reconcile net income to net cash flow
provided by operating activities-
Extraordinary item - noncash loss on early extinguishment of debt 1,138 --
Depreciation and amortization 8,591 4,588
Minority interests 487 1,072
Changes in assets and liabilities-
Rent receivable (5,726) (3,327)
Other assets 689 (652)
Accounts payable and accrued expenses 3,389 1,406
Deferred lease revenue 5,487 --
Due to lessees 308 899
--------- ---------
Net cash flow provided by operating activities 17,853 11,740
--------- ---------
Cash flows from investing activities:
Acquisition of Red Lion Inns Operating L.P., net of common shares
issued of $80,333 and cash acquired of $11 (191,004) --
Acquisitions of hotel properties (79,817) (41,099)
Improvements and additions to hotel properties (17,563) (3,193)
--------- ---------
Net cash flow used for investing activities (288,384) (44,292)
--------- ---------
Cash flows from financing activities:
Payment of dividends and distributions (12,100) (7,995)
Borrowings against credit facility 148,200 20,000
Repayment of borrowings against credit facility (96,750) --
Term note borrowing 130,000 --
Payment of deferred financing costs (2,975) --
Net proceeds from issuance of common shares 104,563 --
Additional offering costs -- (14)
Distributions to joint venture minority interest partners (162) --
Capital contributions from joint venture minority interest partners 3,553 --
Cash payments for redemption of certain limited partnership interests (967) (500)
--------- ---------
Net cash flow provided by financing activities 273,362 11,491
--------- ---------
Net change in cash and cash equivalents 2,831 (21,061)
Cash and cash equivalents, beginning of period 1,855 21,362
--------- ---------
Cash and cash equivalents, end of period $ 4,686 $ 301
========= =========
</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
JUNE 30, 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 formed 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"). The Company
acquired interests in eight additional hotels in 1997 and 14 more during the
first six months of 1998, bringing the total number of hotels owned at June 30,
1998 to 31 with an aggregate of 8,689 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"), ten hotels to Westboy L.L.C. ("Westboy"), a wholly-owned subsidiary of
BMC, two Hotels to MeriStar Hotels and Resorts, Inc. ("MeriStar"), one Hotel to
Davidson Hotel Company ("Davidson"), one Hotel to Outrigger Lodging Services
("Outrigger"), one Hotel to South Seas Resorts ("South Seas") and one Hotel to
Radisson Hospitality Worldwide ("Radisson"), pursuant to leases which contain
provisions for rent based on the revenues of the Hotels (the "Percentage
Leases"). Each Percentage Lease obligates the lessee to pay rent equal to the
greater of the minimum rent or a percentage rent based on the gross revenues of
the leased hotel. The lessee holds the franchise agreement for each franchised
hotel. The Partnership owns a 100% equity interest in the twenty-five Hotels
leased by BMC and Westboy and the Hotel leased by South Seas. The remaining five
Hotels are owned by joint ventures, in three of which the Partnership has a 91%
equity interest, one an 85% equity interest, and the other an 80% equity
interest. The minority interests in these Hotels are owned by MeriStar (9% and
20%), Davidson (9%), Outrigger (9%) and Radisson (15%), or their affiliates. 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 for the Partnership, 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 control over the Partnership and its majority owned
entities. Therefore, the separate financial statements maintained by the
Company, the Partnership and all majority owned entities have been presented on
a consolidated basis with the Company. All significant intercompany transactions
and balances have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
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 4) 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.
3. MERGER WITH RED LION INNS LIMITED PARTNERSHIP:
----------------------------------------------
On May 22, 1998 the Company completed its merger with Red Lion Inns Limited
Partnership ("Red Lion") under which the Company acquired Red Lion Inns
Operating L.P. ("OLP") which owns a portfolio of ten DoubleTree-licensed hotels
(the "DoubleTree Hotels"). The DoubleTree Hotels contain 3,062 guest rooms and
are located in California, Oregon, Washington, Colorado, Idaho, and Nebraska. A
subsidiary of Promus Hotel Corporation continues to manage the DoubleTree
Hotels, which are leased to Westboy. Under the terms of the transaction, the
Company issued 3,109,606 common shares and paid approximately $35,305 in cash to
the Red Lion limited partners and general partner. The transaction was accounted
for as a purchase. The common shares issued in the merger were valued at $25.83
for accounting purposes (the five day average trading price of the Company's
shares before the merger announcement). The total consideration value, including
assumed liabilities of approximately $155,710 and common shares issued valued at
$80,333, was $271,348 in cash and common shares.
As a result of the Offering, the merger and the purchase of the limited
partnership units, the Company increased its ownership percentage in the
Partnership to 92.2%.
4. ACQUISITIONS OF HOTEL PROPERTIES:
---------------------------------
In March 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.
-8-
<PAGE> 9
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, the lessee of the hotel. The consideration
paid by the Company was funded through borrowings under the Company's credit
facility. South Seas leases and manages the property under a long-term
Percentage Lease.
In June 1998, the Company entered a joint venture with Radisson, forming
RadBoy Mt. Laurel, L.L.C. ("RadBoy"), in which the Partnership owns an 85%
interest. RadBoy purchased the 283-room Radisson Hotel Mount Laurel in Mount
Laurel, New Jersey for net cash consideration of $23,240. The Company's share of
the purchase price was funded through borrowings under the Company's credit
facility. Radisson leases and manages the property under a long-term Percentage
Lease.
5. 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.
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 and second quarters
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
June 30, 1998, the Company's deferred lease revenue was $5,487, representing the
difference between the revenue recognized under EITF 98-9 and the percentage
rent collected or due from lessees during the first half of 1998 under the
quarterly rent calculations in the leases. The Company will recognize the
deferred revenue as lease revenue in the second half of 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." As the Company
has not utilized such instruments or entered into any such activities to date,
this pronouncement has no impact on the Company.
6. NET INCOME PER SHARE AND PARTNERSHIP UNIT:
------------------------------------------
The Company's basic and diluted earnings per share for three and six
months ended June 30, 1998 under SFAS No. 128, "Earnings per Share" are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------------
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Basic earnings per common share $.06 $0.46 $.26 $0.81
Diluted earnings per common share $.06 $0.46 $.26 $0.81
</TABLE>
Basic earnings per share is based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share adjusts
the weighted average shares outstanding for the effect of all dilutive
securities. At June 30, 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 June 30, 1998 was 16,703,000 and 16,727,000, respectively. The basic and
diluted weighted average number of common shares and limited partnership units
outstanding for the six months ended June 30, 1998 was 14,692,000 and
14,766,000, respectively.
-9-
<PAGE> 10
7. CREDIT FACILITY:
----------------
On June 11, 1998, the Company entered into a new unsecured credit facility
with a group of banks, which enables the Company to borrow up to $250,000,
subject to borrowing base and loan-to-value limitations, at a rate of interest
that fluctuates at LIBOR plus 1.40% to 1.75% (7.31% at June 30, 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 June 2000, with an additional
one-year extension at the Company's option. The new facility replaced the
Company's previous $150,000 credit facility, which was secured by first
mortgages on thirteen of the Hotels. As of June 30, 1998 and December 31, 1997,
the Company had $143,200 and $91,750, respectively, outstanding against the
credit facility.
The credit facility requires the Company, among other things, 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 the franchise agreement at each Hotel and to maintain its
REIT status. The Company was in compliance with its covenants at June 30, 1998
and December 31, 1997.
8. TERM NOTE PAYABLE:
------------------
In connection with the Red Lion merger, on May 22, 1998, OLP entered into a
$130,000 term loan agreement. The loan expires in June 2023 and may be prepaid
without penalty or defeasance after May 21, 2008. The loan bears interest at a
fixed rate of 6.9% for ten years, and at a new fixed rate to be determined
thereafter. The loan requires interest-only payments for the first two years,
with principal repayments commencing in the third loan year based on a 25-year
amortization schedule. The loan is secured by the DoubleTree Hotels. Under
covenants in the loan agreement, assets of OLP are not available to pay the
creditors of any other entity, except to the extent of permitted cash
distributions from OLP to the Partnership. Likewise, the assets of other
entities may not be available to pay the creditors of OLP.
9. EXTRAORDINARY ITEM:
-------------------
In connection with obtaining the new unsecured credit facility discussed in
Note 7, the Company wrote off existing deferred financing costs under the
secured facility totaling $1,138. These charges, net of $110 of minority
interest, were reflected as an extraordinary item in the accompanying
consolidated statement of income for the quarter ended June 30, 1998.
10. PERCENTAGE LEASE AGREEMENTS:
----------------------------
The Percentage Leases have noncancelable remaining terms ranging from three
to ten 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 June 30, 1998 and 1997 was $13,143 and $9,699,
respectively, of which approximately $1,236 and $3,686, respectively, was in
excess of minimum rent. Percentage Lease revenue for the six months ended June
30, 1998 and 1997 was $22,736 and $16,907, respectively, of which approximately
$2,271 and $5,858, respectively, was in excess of minimum rent. The 1998 amounts
reflect the adoption of EITF 98-9 as discussed in Note 5.
Future minimum rentals (ignoring future CPI increases) to be received by
the Company from BMC (including Westboy) 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:
-10-
<PAGE> 11
<TABLE>
<CAPTION>
BMC Other Lessees Totals
--- ------------- ------
<S> <C> <C> <C>
Remainder of 1998 $24,254 $5,113 $29,367
1999 48,507 10,425 58,932
2000 48,507 10,625 59,132
2001 42,305 10,625 52,930
2002 35,474 9,226 44,700
Thereafter 37,257 36,450 73,707
-------- ------- --------
$236,304 $82,464 $318,768
======== ======= ========
</TABLE>
11. 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 June 30, 1998. At June 30, 1998 and December
31, 1997, the Company had rent receivable of $7,382 and $897, respectively, due
from BMC.
At June 30, 1998 and December 31, 1997, the Company had a payable to BMC of
$2,432 and $1,069, respectively, primarily for the reimbursement of capital
expenditure costs incurred on behalf of the Company.
12. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
--------------------------------------------------
During the six-month periods ended June 30, 1998 and 1997, noncash
financing transactions consisted of $8,671 and $4,892, respectively, of
dividends and Partnership distributions which were declared but not paid as of
June 30, 1998 and 1997, respectively. In connection with the completion of the
Red Lion merger, the Company issued 3,109,606 common shares, valued at $80,333,
as partial consideration for the acquisition of OLP.
Interest paid during the six-month period ended June 30, 1998 and 1997 was
$1,147 and $82, respectively.
13. PRO FORMA FINANCIAL INFORMATION:
--------------------------------
The unaudited pro forma financial information set forth below is presented
as if (i) the Offering discussed in Note 2, (ii) the merger with Red Lion
discussed in Note 3, including the acquisition of the DoubleTree Hotels and the
issuance of common shares and (iii) the acquisitions of properties in 1997 and
the 1998 acquisitions discussed in Note 4 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
$5,609 and $5,215, 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, the Red Lion merger, and the acquisitions had been consummated as
of January 1, 1997, nor does it purport to represent the results of operations
for future periods.
-11-
<PAGE> 12
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
Restated
1998 1997
---- ----
<S> <C> <C>
Revenues:
Lease revenue $35,802 $41,554
Interest income 167 --
------- -------
35,969 41,554
Expenses:
Real estate related depreciation and amortization 13,307 12,653
Real estate and personal property taxes, insurance and ground rent 4,954 5,204
General and administrative 1,901 1,039
Interest expense 9,556 9,466
Amortization of deferred financing costs 334 294
------- -------
Income before minority interest and extraordinary item 5,917 12,898
Minority interest 652 946
------- -------
Income before extraordinary item $ 5,265 $11,952
======= =======
Income per share before extraordinary item
Basic $ 0.31 $ 0.70
Diluted $ 0.31 $ 0.69
</TABLE>
-12-
<PAGE> 13
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1998 1997
- ------ ----------- ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 13,159 $ 6,862
ACCOUNTS RECEIVABLE:
Trade, net of allowance for doubtful accounts of $184 and $84 at
June 30, 1998 and December 31, 1997, respectively 7,379 3,859
Boykin Hotel Properties, L.P. 1,637 1,069
Red Lion Inns Operating L.P. 795 --
INVENTORIES 2,346 788
PROPERTY AND EQUIPMENT, net 476 366
INVESTMENT IN BOYKIN LODGING COMPANY 434 529
PREPAID EXPENSES AND OTHER ASSETS 1,615 908
-------- --------
Total assets 27,841 14,381
======== ========
LIABILITIES AND MEMBERS' CAPITAL
RENT PAYABLE:
Boykin Hotel Properties, L.P. $ 3,049 $ 897
Red Lion Inns Operating L.P. 4,333 --
ACCOUNTS PAYABLE:
Trade 4,393 1,746
Advance deposits 971 259
Bank overdraft liability 1,321 2,837
Former owners and affiliate -- 2
ACCRUED EXPENSES:
Accrued payroll 1,785 391
Accrued vacation 2,636 893
Accrued sales, use and occupancy taxes 2,431 646
Other accrued liabilities 2,790 2,437
-------- --------
Total liabilities 23,709 10,108
-------- --------
MEMBERS' CAPITAL:
Capital contributed 3,000 3,000
Retained earnings 1,189 1,235
Unrealized (depreciation)/appreciation on investment (57) 38
-------- --------
Total members' capital 4,132 4,273
-------- --------
Total liabilities and members' capital $ 27,841 $ 14,381
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
-13-
<PAGE> 14
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Room revenue $ 39,968 $ 19,652 $ 72,486 $ 35,412
Food and beverage revenue 18,768 8,303 34,696 14,374
Other hotel revenue 4,071 2,183 7,060 3,332
Other revenue 809 737 1,564 1,508
--------- --------- --------- ---------
Total revenues 63,616 30,875 115,806 54,626
--------- --------- --------- ---------
EXPENSES:
Departmental expenses of hotels:
Rooms 9,460 4,366 17,461 7,874
Food and beverage 13,851 5,857 26,012 10,396
Other 2,110 1,116 3,673 1,686
Cost of goods sold of non-hotel operations 145 247 396 415
Percentage lease expense 18,563 9,699 33,297 16,907
General and administrative 6,380 3,463 12,317 6,400
Advertising and promotion 2,703 1,249 5,334 2,272
Utilities 2,503 1,197 5,023 2,151
Franchisor royalties and other charges 2,011 1,416 3,694 2,557
Repairs and maintenance 2,376 1,330 4,391 2,430
Depreciation and amortization 23 21 45 41
Management fee expense 2,534 -- 4,321 --
Other (income)/expense (128) (16) (112) 29
--------- --------- --------- ---------
Total expenses 62,531 29,945 115,852 53,158
--------- --------- --------- ---------
NET INCOME (LOSS) $ 1,085 $ 930 $ (46) $ 1,468
========= ========= ========= =========
COMPREHENSIVE INCOME (LOSS) $ 990 $ 930 $ (141) $ 1,468
========= ========= ========= =========
</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
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (46) $ 1,468
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 45 41
Changes in assets and liabilities:
Accounts receivable (4,883) (2,488)
Inventories (1,558) (318)
Prepaid expenses and other assets (707) (1,018)
Rent payable 6,485 3,327
Accounts payable 1,841 1,726
Other accrued liabilities 5,275 631
-------- --------
Net cash provided by operating activities 6,452 3,369
-------- --------
Cash flows from investing activities:
Property additions (155) (27)
-------- --------
Net cash used for investing activities (155) (27)
-------- --------
Cash flows from financing activities:
Payments of obligations to former owners -- (373)
Collections of amounts due from former owners -- 69
-------- --------
Net cash used for financing activities -- (304)
-------- --------
Net change in cash and cash equivalents 6,297 3,038
Cash and cash equivalents, beginning of period 6,862 5,469
-------- --------
Cash and cash equivalents, end of period $ 13,159 $ 8,507
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-15-
<PAGE> 16
BOYKIN MANAGEMENT COMPANY
LIMITED LIABILITY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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:
----------------------
The separate financial statements of BMC's subsidiaries have been presented
on a consolidated basis with BMC. All significant intercompany transactions and
balances have been eliminated. 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 and six-month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending 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 investment in 20,000 common
shares in the Company. For the three and six-month periods ended June 30, 1998,
there was a difference of $95 between net income and comprehensive income due to
the decline in market value of the investment.
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.
-16-
<PAGE> 17
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 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 ranges from 6% to 10% of such revenues. Both the threshold
amounts used in computing percentage rent and minimum rent on room and other
hotel revenues are subject to 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,
ground lease rental, 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. DOUBLETREE LEASE AGREEMENT:
---------------------------
Effective January 1, 1998, Westboy, LLC ("Westboy"), a wholly-owned
subsidiary of BMC, entered into a long term lease agreement with Red Lion Inns
Operating L.P. ("OLP") with terms similar to those described in Note 5. OLP was
acquired by the Company on May 22, 1998. The ten DoubleTree hotels leased by
Westboy are located in California, Oregon, Washington, Colorado, Idaho and
Nebraska. The hotels are managed by a subsidiary of Promus Hotel Corporation.
BMC made an initial capital contribution to Westboy of $1,000, of which $900 was
funded with a demand promissory note. Assets of Westboy are not available to pay
the creditors of any other entity, except to the extent of permitted cash
distributions from Westboy to BMC. Similarly, except to the extent of the unpaid
promissory note, the assets of BMC may not be available to pay the creditors of
Westboy.
7. RELATED PARTY TRANSACTIONS:
---------------------------
At June 30, 1998 and December 31, 1997 BMC had receivables from the
Partnership of $2,432 and $1,069, respectively, primarily for the reimbursement
of capital expenditure costs incurred on behalf of the Partnership.
At June 30, 1998 and December 31, 1997 BMC had payables to the Partnership
of $7,382 and $897, respectively, for amounts due pursuant to the Percentage
Leases.
-17-
<PAGE> 18
8. PRO FORMA FINANCIAL INFORMATION:
--------------------------------
The following unaudited pro forma condensed statements of operations for
the six-month periods ended June 30, 1998 and 1997 are presented as if BMC
leased and operated from January 1, 1997 all of the BMC Hotels and the
DoubleTree Hotels owned by the Company as of June 30, 1998.
The pro forma condensed statements of operations do no purport to present
what actual results of operations would have been if the BMC Hotels and the
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>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Room revenue $ 74,012 $ 74,523
Food and beverage revenue 35,272 35,887
Other hotel revenue 7,220 7,128
Other revenue 1,564 1,508
--------- ---------
Total revenues 118,068 119,046
EXPENSES:
Departmental expenses of hotels 48,005 47,244
Cost of goods sold of nonhotel operations 396 415
Percentage Lease expense 33,951 34,843
Other expenses 35,774 34,626
--------- ---------
NET (LOSS) INCOME $ (58) $ 1,918
========= =========
</TABLE>
-18-
<PAGE> 19
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. If the Note
is converted, the Company will receive an additional general partnership
interest in the Partnership of .9%. The Company is the sole general partner of
the Partnership.
The Partnership used a substantial portion of the proceeds from the Company
and issued limited partnership interests representing approximately 15.5% of the
Partnership to acquire nine hotel properties (the "Initial Hotels"). The Company
acquired interests in eight additional hotels in 1997 and 14 more during the
first six months of 1998, bringing the total number of hotels owned at June 30,
1998 to 31 with an aggregate of 8,689 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"), ten hotels to Westboy L.L.C. ("Westboy"), a wholly-owned subsidiary of
BMC, two Hotels to MeriStar Hotels and Resorts, Inc. ("MeriStar"), one Hotel to
Davidson Hotel Company ("Davidson"), one Hotel to Outrigger Lodging Services
("Outrigger"), one Hotel to South Seas Resorts ("South Seas") and one Hotel to
Radisson Hospitality Worldwide ("Radisson"), pursuant to leases which contain
provisions for rent based on the revenues of the Hotels (the "Percentage
Leases"). Each Percentage Lease obligates the lessee to pay rent equal to the
greater of the minimum rent or a percentage rent based on the gross revenues of
the leased hotel. The lessee holds the franchise agreement for each franchised
hotel. The Partnership owns a 100% equity interest in the twenty-five Hotels
leased by BMC and Westboy and the Hotel leased by South Seas. The remaining five
Hotels are owned by joint ventures, in three of which the Partnership has a 91%
equity interest, one an 85% equity interest, and the other an 80% equity
interest.
In February 1998, the Company completed a follow-on equity offering (the
"Offering") of 4,500,000 common shares, under the Company's $300 million shelf
registration statement, which provides for the issuance of up to $300 million in
securities through November 1999 . 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.
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 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.
SECOND QUARTER HIGHLIGHTS AND OUTLOOK FOR THE REMAINDER OF 1998
On May 22, 1998 the Company completed its merger with Red Lion Inns Limited
Partnership ("Red Lion") under which the Company acquired Red Lion Inns
Operating L.P. ("OLP") which owns a portfolio of ten DoubleTree-licensed hotels
(the "DoubleTree Hotels"). The DoubleTree Hotels contain 3,062 guest rooms and
are located in California, Oregon, Washington, Colorado, Idaho, and Nebraska. A
subsidiary of Promus Hotel
-19-
<PAGE> 20
Corporation continues to manage the DoubleTree Hotels, which are leased to
Westboy. Under the terms of the transaction, the Company issued 3,109,606 common
shares and paid approximately $35.3 million in cash to the Red Lion limited
partners and general partner. The total consideration value, including assumed
liabilities of approximately $155.7 million, was $271.3 million in cash and
common shares. As a result of the Offering, the merger and the purchase of the
limited partnership units, the Company increased its ownership percentage in the
Partnership to 92.2%.
In May 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, the lessee of the hotel. The
consideration paid by the Company was funded through borrowings under the
Company's credit facility. South Seas leases and manages the property under a
long-term Percentage Lease.
In June 1998, the Company entered into a joint venture with Radisson,
forming RadBoy Mt. Laurel, L.L.C. ("RadBoy"), in which the Partnership owns an
85% interest. RadBoy purchased the 283-room Radisson Hotel Mount Laurel in Mount
Laurel, New Jersey for net cash consideration of $23,240. The Company's share of
the purchase price was funded through borrowings under the Company's credit
facility. Radisson leases and manages the property under a long-term Percentage
Lease.
In June 1998, the Company entered into a new $250 million unsecured credit
facility which replaced the Company's existing $150 million secured facility.
For information relating to the terms of the Company's new 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.
Richard C. Conti joined the Company on May 1, 1998 to serve as its Chief
Operating Officer. Mr. Conti was a Principal and Director with Coopers & Lybrand
L.L.P. Mr. Conti was responsible for Coopers & Lybrand L.L.P.'s hospitality
consulting practice in the Midwest and has been involved in the hospitality
industry for over 21 years. Mr. Conti has worked closely with many of the
leaders in the hospitality industry and brings to the Company a wealth of
industry knowledge and contacts.
The Company's treasurer, Paul A. O'Neil, succeeded Raymond P. Heitland as
chief financial officer on May 26, 1998, in connection with Mr. Heitland's
retirement. Mr. O'Neil became the treasurer of the Company when that position
was created in May 1997. Mr. O'Neil served as the chief financial officer of
Boykin Management Company from 1996 to 1997. He was the treasurer of Boykin
Management form 1994 to 1996. Prior to joining Boykin Management, he managed the
Real Estate Service Group in Arthur Anderson L.L.P.'s Cleveland office from 1990
to 1994. Mr. O'Neil received his BA degree in Economics and Accounting from the
College of the Holy Cross in Worcester, Massachusetts, and is a member of the
American Institute of Certified Public Accountants.
During the second quarter of 1998, the Company completed its $3.6 million
renovation of the Crabtree Holiday Inn in Raleigh, North Carolina and continued
its estimated $6 million renovation at the Berkeley Marina Radisson and the
estimated $6 million renovation at the Cleveland Airport Marriott. The Company
expects to complete these renovations in the third and fourth quarters of 1998,
respectively. The revenues, and therefore the percentage rent, from these
properties were adversely impacted in the second quarter and the Company expects
that these properties will continue to be adversely impacted during the
remaining renovation periods. Once complete, however, the Company expects these
hotels to contribute significantly to earnings growth. The Company also
continued a $1.5 million renovation at the Holiday Inn Minneapolis West, a $2.5
million renovation at the Cleveland Marriott East and $2 million of general
upgrades at the French Lick Springs Resort. Management expects the capital
expenditures at these properties to improve their operating results.
Management believes it is important to keep the Hotels in first-class
condition in an effort to outperform the competition and to deliver superior
room revenue per available room ("REVPAR") gains. Management also believes the
long-term demand for rooms in the Company's markets will continue to grow and
therefore expects to continue to implement its renovation plans aggressively.
Over 15 percent of the hotel rooms in the Company's portfolio were undergoing
significant renovation, refurbishing, or repositioning in the second quarter.
The Company's positioning of its assets for future growth has had some negative
impact on operating results in 1998.
-20-
<PAGE> 21
The following table breaks down the REVPAR changes for the second quarter
and first half to illustrate the impact of the renovation activity and the
performance of the Company's other hotels:
<TABLE>
<CAPTION>
Percentage change in
REVPAR
Quarter Six Months
Number of Ended Ended
Hotels 6/30/98 6/30/98
------ ------- -------
<S> <C> <C> <C>
Hotels undergoing 4 (13.6)% (12.0)%
renovation/repositioning
Balance of portfolio 25* 3.6% 3.5%
Total 29* 0.1% 0.3%
</TABLE>
* Represents the operating results of hotels owned by Boykin at June 30, 1998,
including predecessors' results. These statistics exclude the results of the
DoubleTree Hotel Kansas City and the Daytona Beach Radisson resort as those
hotels were closed for renovation during portions of the 1997 reporting periods.
The Company's acquisition program continues to move forward, however,
management has become more selective about the Company's acquisitions and its
criteria in terms of yield and earnings. Management anticipates a pause in
acquisition activity in the marketplace while its sellers' expectations adjust
downward.
Looking at the remainder of the year and beyond, the Company is very
optimistic about its portfolio's ability to meet the growing needs of both
commercial and private customers of full-service upscale hotels. Because of the
slowing in the Company's acquisition program and the continuation of
renovations, the Company's FFO growth rate for the second half of 1998 will be
less than originally anticipated.
Management continues to be optimistic about 1999. In spite of any
anticipated slowing in the growth rate over the next four quarters, the
Company's cash dividend coverage remains strong -- with an improving payout
ratio -and management's goal is to increase the annual cash dividend during the
next twelve months.
-21-
<PAGE> 22
RESULTS OF OPERATIONS
The following discusses (i) the Company's results of operations for the
quarter and six months ended June 30, 1998 compared to the same period in 1997,
and (ii) BMC's results of operations for the quarter and six months ended June
30, 1998 compared to the same period in 1997.
THE COMPANY
Quarter ended June 30, 1998 compared to 1997
For the three months ended June 30, 1998, Percentage Lease revenue, after
accounting for EITF 98-9, increased to $13.1 million, or 35.5%, from $9.7
million for the same period in 1997. Second quarter revenues would have
increased 79.0% 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 13 to 31 at June 30, 1997 and 1998, respectively. Percentage Lease revenue
payable by BMC and Westboy represented $10.3 million, or 78.2%, of total
Percentage Lease revenue in the 1998 period, compared to $9.7 million, or 100%
of total Percentage Lease revenue, in 1997. The increase in Percentage Lease
revenue from BMC and Westboy is primarily attributable to the lease revenue
from Westboy which commenced upon completion of the Red Lion merger.
Income before minority interests and extraordinary item decreased to $2.3
million in 1998 compared to $5.0 million in 1997, after accounting for EITF
98-9. Without the application of EITF 98-9, income before minority interests and
extraordinary item would have been $6.5 million, an increase of 30.6% over 1997.
As a percent of total revenue, income before minority interest decreased to
17.4% in 1998 from 51.4% in 1997, primarily resulting from (i) a $4.2 million
impact on revenues and income before minority interests and extraordinary item
for the application of EITF 98-9, (ii) an increase in interest expense to $2.6
million in 1998, or 19.5%, of total revenues in 1998, compared to $341, or 3.5%,
in 1997, (iii) an increase in real estate related depreciation and amortization,
as a percent of total revenue, from 24.7% in 1997 to 38.4% in 1998, and (iv) an
increase in general and administrative expenses, as a percent of total revenues,
from 5.7% in 1997 to 8.3% in 1998, due to an increase in the size of the
Company's hotel portfolio. 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 the majority of
acquisitions in the first half of 1997.
The Company's net income, after accounting for EITF 98-9, decreased to
$.9 million for the three months ended June 30, 1998, compared to $4.4 million
in 1997. Minority interest applicable to the operating partnership decreased to
$68 in 1998, or .1%, of total revenues, compared to $626, or 6.4%, in 1997. The
common shares issued as part of the February 1998 Offering and the Red Lion
merger had the effect of diluting the limited partners' ownership interests in
the Partnership. The Company also recorded minority interest applicable to joint
venture partnerships of $201 in 1998 which did not exist in the first half of
1997. The extraordinary charge in the second quarter of 1998 represented the
write-off of deferred financing costs associated with the Company's former $150
secured credit facility, which was replaced with a new $250 million unsecured
credit facility.
Six months ended June 30, 1998 compared to 1997
For the six months ended June 30, 1998, Percentage Lease revenue, after
accounting for EITF 98-9, increased to $22.7 million, or 34.5%, from $16.9
million for the same period in 1997. Revenues would have increased 66.9% 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 13 to 31 at June 30, 1997 and
1998, respectively. Percentage Lease revenue payable by BMC and Westboy
represented $17.7 million, or 77.7%, of total Percentage Lease revenue in the
1998 period, compared to $16.9 million, or 100% of total Percentage Lease
revenue, in 1997. The increase in Percentage Lease revenue from BMC and Westboy
is primarily attributable to the lease revenue from Westboy which commenced upon
completion of the Red Lion merger as well as four Hotels acquired by the Company
in March and April 1997 and leased by BMC.
Income before minority interests and extraordinary item decreased to $5.1
million in 1998 compared to $8.8 million in 1997, after accounting for EITF
98-9. Without the application of EITF 98-9, income before minority interests and
extraordinary item would have been $10.6 million, an increase of 20.1% over
1997. As a percent of total revenue, income before minority interest decreased
to 22.3% in 1998 from 51.4% in 1997, primarily resulting from (i) a $5.5 million
impact on revenues and income before minority interests and extraordinary item
for the application of EITF 98-9, (ii) an increase in interest expense to $3.8
million in 1998, or 16.4%, of total revenues in 1998, compared to $393, or 2.3%,
in 1997, (iii) an increase in real estate related depreciation and amortization,
as a percent of total revenue, from 25.3% in 1997 to 36.3% in 1998, and (iv) an
increase in general and administrative expenses, as a percent of total revenues,
from 6.1% in 1997 to 8.3% in 1998, due to an increase in the size of the
Company's hotel portfolio. 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 fund to the majority of
acquisitions in the first half of 1997.
The Company's net income, after accounting for EITF 98-9, decreased to $3.5
million for the six months ended June 30, 1998, compared to $7.8 million in
1997. Minority interest applicable to the operating partnership decreased to
$292 in 1998, or 1.3%, of total revenues, compared to $1,072, or 6.2%, in 1997.
The common shares issued as part of the February 1998 Offering and the Red Lion
merger had the effect of diluting the limited partners' ownership interests in
the Partnership. The Company also recorded minority interest applicable to joint
venture partnerships of $195 in 1998 which did not exist in the first half of
1997.
-22-
<PAGE> 23
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 and six months ended
June 30, 1998 and 1997, respectively, (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 950 $ 4,373 $ 3,490 $ 7,754
Extraordinary item 1,138 -- 1,138 --
Real estate related depreciation
and amortization 5,096 2,405 8,316 4,346
Minority interest 220 626 487 1,072
Deferred lease revenue 4,221 -- 5,487 --
FFO applicable to joint venture
minority interest (292) -- (363) --
-------- -------- -------- --------
Funds from operations $ 11,333 $ 7,404 $ 18,555 $ 13,172
======== ======== ======== ========
</TABLE>
-23-
<PAGE> 24
The following table illustrates key operating statistics of the Company's
portfolio for the three and six months ended June 30, 1998, regardless of
ownership:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
All hotels (29 properties) (a)
Hotel revenues $73,993 $74,376 $137,153 $136,702
REVPAR $64.89 $64.80 $60.40 $60.20
Occupancy 70.1% 73.6% 65.9% 68.5%
Average daily rate $92.60 $88.03 $91.60 $87.95
Initial Nine Hotels
Hotel revenues $22,749 $24,580 $43,988 $46,726
REVPAR $71.22 $76.25 $69.19 $73.29
Occupancy 73.4% 80.1% 72.1% 77.6%
Average daily rate $97.02 $95.18 $96.03 $94.45
Acquired Hotels (10 properties) (b)
Hotel revenues $21,158 $20,006 $38,045 $35,201
REVPAR $58.25 $53.78 $53.81 $49.39
Occupancy 62.8% 64.1% 57.8% 57.7%
Average daily rate $92.72 $83.91 $93.13 $85.58
Acquired Red Lion DoubleTree Hotels (10
properties)
Hotel revenues $30,087 $29,790 $55,120 $54,775
REVPAR $65.56 $65.21 $59.11 $58.97
Occupancy 73.6% 76.6% 68.1% 70.3%
Average daily rate $89.06 $85.09 $86.82 $83.94
</TABLE>
(a) Represents the operating results of hotels owned by Boykin at June 30, 1998,
including predecessors' results. These statistics exclude the results of the
DoubleTree Hotel Kansas City and the Daytona Beach Radisson resort as those
hotels were closed for renovation during portions of the 1997 reporting periods.
(b) Represents the operating results of hotels acquired by Boykin since its
Initial Public Offering, other than the Red Lion portfolio, including
predecessors' results. These statistics exclude the results of the DoubleTree
Hotel Kansas City and the Daytona Beach Radisson Resort as those hotels were
closed for renovation during portions of the 1997 reporting periods.
-24-
<PAGE> 25
BMC
Quarter ended June 30, 1998 compared to 1997
For the quarter ended June 30, 1998, BMC's hotel revenues increased 108.4%,
to $62.8 million, compared to $30.1 million for the same period in 1997. The
increase was attributable to an increase in the number of hotels leased by BMC
from 13 to 25 at June 30, 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 $30.1
million of revenues to BMC during the quarter ended June 30, 1998. The remaining
increase in hotel revenues resulted from the addition of one hotel leased from
the Partnership, offset by a decrease in revenues at hotels undergoing
significant renovations.
The Percentage Lease expense for the quarter ended June 30, 1998 increased
91.4%, to $18.6 million, compared to $9.7 million for the same period in 1997.
Percentage Lease expense in 1998 of $8.5 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, offset by a decrease in lease expense at hotels undergoing
significant renovations. 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 $43.8 million in the quarter ended
June 30, 1998 compared to $20.0 million for the same period in 1997. As a
percent of hotel revenues, the departmental and other hotel operating expenses
increased to 69.8% in 1998 from 66.4% in 1997 primarily because of $2.5 million
of management fee expense to Promus Hotel Corporation, the manager of the
DoubleTree Hotels, pursuant to a long-term management agreement between Westboy
LLC and Promus Hotel Corporation.
BMC recorded net income of $1.1 million for the quarter ended June 30, 1998
compared to $930 of net income in 1997.
Six months ended June 30, 1998 compared to 1997
For the six months ended June 30, 1998, BMC's hotel revenues increased
115.1%, to $114.2 million, compared to $53.1 million for the same period in
1997. The increase was attributable to an increase in the number of hotels
leased by BMC from 13 to 25 at June 30, 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 $55.1 million of revenues to BMC during the six months ended June
30, 1998. The remaining increase in hotel revenues resulted from the addition of
four hotels leased from the Partnership, offset by a decrease in revenues at
hotels undergoing significant renovations.
The Percentage Lease expense for the six months ended June 30, 1998
increased 96.9%, to $33.3 million, compared to $16.9 million for the same period
in 1997. Percentage Lease expense in 1998 of $14.6 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, offset by a decrease in lease expense at
hotels undergoing significant renovations. 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 $82.2 million in
the six months ended June 30, 1998 compared to $35.8 million for the same period
in 1997. As a percent of hotel revenues, the departmental and other hotel
operating expenses increased to 71.9% in 1998 from 67.5% in 1997 primarily
because of $4.3 million of management fee expense to Promus Hotel Corporation.
BMC recorded a net loss of $46 for the six months ended June 30, 1998
compared to $1,468 of net income in 1997. The loss, generated in the first
quarter of 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 are expected to
experience losses in the first quarter of each year resulting from their
requirement to pay minimum rent under the respective Percentage Leases.
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.
-25-
<PAGE> 26
On June 30, 1998, the Company had $4.7 million of cash and cash equivalents
and had outstanding borrowings totaling $143.2 million and $130.0 million
against its credit facility and term note payable, respectively. In August 1998,
the borrowings under the Company's credit facility increased to $151.0 million
to fund capital expenditures, primarily for significant renovations.
For information relating to the terms of the Company's current $250 million
credit facility and the $130 million term note payable, reference is made to
Notes 7 and 8, respectively, of the Notes to Consolidated Financial Statements
of Boykin Lodging Company within this Form 10-Q/A. 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 anticipates that funds generated from operations and the new
credit facility will enable the Company 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 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 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 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 its credit facility, as needed. The Company intends to use the reserve for
capital improvements to the Hotels and refurbishment and replacement of FF&E,
but may make other uses of amounts reserved that it considers appropriate from
time to time. The Company anticipates making similar arrangements with respect
to future hotels that it may acquire or develop. During the six months ended
June 30, 1998, the Company made $17.6 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.
YEAR 2000 COMPLIANCE
The Company's assessment of its year 2000 compliance is not complete.
However, the Company believes that its existing computer systems and software
applications are adequate to address compliance with the year 2000. The Company
anticipates that the year 2000 will not have a material negative impact on the
Company's business, results of operations, or financial condition.
In addition, although the Company has no reason to believe that its lessees
will not be compliant by the year 2000, the Company is unable to determine the
extent to which the year 2000 issues will affect the operations of the Hotels.
The Company continues to discuss with its lessees the need for implementing
procedures to address this issue.
-26-
<PAGE> 27
SEASONALITY
The Hotels' operations historically have been seasonal. Twenty-six of the
Hotels maintain higher occupancy rates during the second and third quarters. The
five Hotels 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
quarterly and year-to-date results of operations, reference is made to Note 5 of
the Notes to Consolidated Financial Statements of Boykin Lodging Company within
this Form 10-Q/A. Reference is also made to the Company's Form 10-Q/A for the
period ended March 31, 1998 for the impact on the 1998 first quarter results
of operations as restated in that 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.
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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
-27-
<PAGE> 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of the shareholders on May 20, 1998 at
the Shoreby Club in Bratenahl, Ohio. At the meeting, the shareholders approved a
proposal to issue 3,110,048 Common Shares of the Company in connection with the
Company's merger with Red Lion Inns Limited partnership. The results of the vote
were as follows:
Votes for 7,243,174
Votes against 73,004
Abstain 54,438
Shares not voted 6,671,635
The Company held its annual meeting of shareholders on May 26, 1998 at the
Cleveland Marriott East Hotel in Beachwood, Ohio. At the meeting, the
individuals listed below were elected to the Company's Board of Directors, each
to hold office until the annual meeting next succeeding his election and until
his successor is elected and qualified, or until his earlier resignation. The
table below indicates the votes for, votes against, as well as the abstentions
and shares not voted for each nominee.
<TABLE>
<CAPTION>
Name Votes For Votes Against Abstention Shares Not Voted
---- --------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Robert W. Boykin 11,639,438 0 30,418 2,372,395
Raymond P. Heitland 11,640,938 0 28,918 2,372,395
Albert T. Adams 11,608,483 0 61,373 2,372,395
Lee C. Howley, Jr. 11,639,751 0 30,105 2,372,395
William H. Schecter 11,614,731 0 55,125 2,372,395
Frank E. Mosier 11,618,103 0 51,753 2,372,395
Ivan J. Winfield 11,619,083 0 50,773 2,372,395
</TABLE>
ITEM 5. OTHER INFORMATION
Shareholders who wish to submit proposals to be included in the Company's
proxy materials for the 1999 annual meeting may do so in accordance with the
Securities and Exchange Commission Rule 14a-8. The Company's management proxies
may exercise their discretionary voting authority for any shareholder proposal
that is submitted other than in accordance with Rule 14a-8 and is received by
the Company after March 9, 1999 without any discussion of the proposal in the
Company's proxy materials.
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
-28-
<PAGE> 29
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
10.14 Description of Employment Arrangement between the Company
and Richard C. Conti
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 merger with Red Lion Inns Limited Partnership.
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
Date Filed Items Reported Summary
---------- -------------- -------
<S> <C> <C>
1) June 8, 1998 (date of
report - May 22, 1998) Item 7 (financial statements, Financial statements related to
pro forma financial information Completed Merger with Red Lions
and exhibits) Inns Limited Partnership.
</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; (ii) the adequacy of reserves for renovation and
refurbishment; (iii) potential acquisitions by the Company; (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
-29-
<PAGE> 30
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)
-30-
<PAGE> 31
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
10.14 Description of Employment Arrangement between the Company and
Richard C. Conti
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 merger with Red Lion Inns Limited Partnership.
-31-
<PAGE> 1
EXHIBIT 10.14
Richard C. Conti joined the Company to serve as its Chief Operating Officer on
May 1, 1998. Mr. Conti's base compensation is $250,000. Mr. Conti is entitled to
a bonus of from 5% to 70% of his base salary if Funds From Operation per Common
Share for any year exceed, by 5% to 20% or more, the Funds From Operation per
Common Share for the immediately preceding year. Mr. Conti would be entitled to
severance in the amount of two years of his then current base salary in the
event of a change of control of the Company or if he is terminated without
cause. Mr. Conti is entitled to the use of an automobile, medical and dental
benefits, vacation and sick leave and certain other benefits available to the
Company's other executive officers. The Company has agreed to purchase a term
life insurance policy in the amount of one million dollars on Mr. Conti's
behalf. The Long-Term Incentive Plan Committee (the "Committee") granted Mr.
Conti options to purchase an aggregate of 150,000 Common Shares under the
Long-Term Incentive Plan at an exercise price of $23.53 per share. Mr. Conti's
options vest equally over a three-year period, commencing May 1, 1998. In
addition, the Committee granted Mr. Conti 2,000 shares of Company stock.
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF JUNE 30,
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,686
<SECURITIES> 0
<RECEIVABLES> 8,432
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 593,197
<DEPRECIATION> 0
<TOTAL-ASSETS> 610,931
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 273,200
0
0
<COMMON> 0
<OTHER-SE> 288,537
<TOTAL-LIABILITY-AND-EQUITY> 610,931
<SALES> 0
<TOTAL-REVENUES> 22,918
<CGS> 0
<TOTAL-COSTS> 13,777
<OTHER-EXPENSES> 487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,026
<INCOME-PRETAX> 4,628
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,628
<DISCONTINUED> 0
<EXTRAORDINARY> (1,138)
<CHANGES> 0
<NET-INCOME> 3,490
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<FN>
<F1>REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE TOTAL CURRENT
ASSETS AND TOTAL CURRENT LIABILITIES ARE NOT APPLICABLE.
</FN>
</TABLE>
