<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
JANUARY 5, 1998
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COMMISSION FILE NUMBER 1-9319 COMMISSION FILE NUMBER 1-9320
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE DELAWARE
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(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
94-0358820 94-2878485
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(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1950 STEMMONS FREEWAY, SUITE 6001 1950 STEMMONS FREEWAY, SUITE 6001
DALLAS, TEXAS 75207 DALLAS, TEXAS 75207
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(Address of principal executive offices) (Zip Code) (Address of principal executive offices) (Zip Code)
(214) 863-1000 (214) 863-1000
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(Registrant's telephone number, including area code) (Registrant's telephone number, including area code)
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
3030 LBJ FREEWAY, SUITE 1500 3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234 DALLAS, TEXAS 75234
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(Former name, former address and former fiscal year, (Former name, former address and former fiscal year,
if changed since last report) if changed since last report)
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
ITEM 2. SIGNIFICANT EVENTS
Wyndham Merger
On January 5, 1998, pursuant to the Agreement and Plan of Merger dated as
of April 14, 1997, as thereafter amended (the "Wyndham Merger Agreement"),
between Patriot American Hospitality, Inc. ("Patriot REIT"), Patriot American
Hospitality Operating Company ("Patriot Operating Company") and Wyndham Hotel
Corporation ("Wyndham"), Wyndham merged with and into Patriot REIT with Patriot
REIT being the surviving corporation (the "Wyndham Merger"). Following the
Wyndham Merger, Patriot REIT continued to be referred to as "Patriot American
Hospitality, Inc." and Patriot Operating Company changed its name to "Wyndham
International, Inc." ("Wyndham International").
Pursuant to the Wyndham Merger Agreement, subject to certain adjustments
and the right of Wyndham stockholders to elect to receive $42.80 per share in
cash (such election being referred to herein as a "Cash Election" and such cash
received being referred to herein as "Cash Consideration") as described below,
Wyndham stockholders received, for each share of common stock, par value $0.01
per share, of Wyndham ("Wyndham Common Stock") held by them on January 5, 1998
(the "Effective Time" of the Wyndham Merger), 1.372 shares of common stock, par
value $0.01 per share, of Patriot REIT ("Patriot REIT Common Stock") and 1.372
shares of common stock, par value $0.01 per share, of Patriot Operating Company
("Patriot Operating Company Common Stock"), which shares are paired and
transferable only as a single unit. The paired shares of Patriot REIT Common
Stock and Patriot Operating Company Common Stock are referred to herein as
"Paired Shares". The 1.372 conversion ratio is referred to herein as the
"Exchange Ratio." Each Paired Share of Patriot REIT Common Stock and Patriot
Operating Company Common Stock outstanding immediately prior to the Wyndham
Merger remained outstanding after the Wyndham Merger and represented the same
number of Paired Shares of Patriot REIT Common Stock and Patriot Operating
Company Common Stock.
As a result of certain provisions of the Internal Revenue Code applicable
to REITs like Patriot REIT, the shares of Wyndham Common Stock owned by CF
Securities, L.P. ("CF Securities"), the holder of approximately 43.7% of the
Wyndham Common Stock immediately prior to the Wyndham Merger, could not be
converted solely into Paired Shares pursuant to the terms of the Wyndham Merger
Agreement. Accordingly, Patriot REIT and CF Securities entered into a Stock
Purchase Agreement dated April 14, 1997 (the "Stock Purchase Agreement") which
provided for the issuance to CF Securities immediately prior to the consummation
of the Wyndham Merger of a combination of Paired Shares and shares of Series A
Convertible Preferred Stock, par value $0.01 per share, of Patriot REIT (the
"Series A Preferred Stock") at the Exchange Ratio for its shares of Wyndham
Common Stock.
In lieu of receiving Paired Shares, Wyndham stockholders had the right
under the Wyndham Merger Agreement to make a Cash Election to receive Cash
Consideration in an amount equal to $42.80 for each share of Wyndham Common
Stock held by them. Pursuant to the Stock Purchase Agreement, CF Securities had
an equivalent right to make a Cash Election with regard to the shares of Wyndham
Common Stock held by it and elected to receive cash with respect to all
9,447,745 of its shares of Wyndham Common Stock. The maximum aggregate amount of
cash to be paid to Wyndham stockholders and CF Securities pursuant to such Cash
Election rights was a total of $100 million. Accordingly, the maximum number of
shares of Wyndham Common Stock to be converted into Cash Consideration was
2,336,448 shares. CF Securities and other holders of Wyndham Common Stock made
Cash Elections with regard to the shares of Wyndham Common Stock held by them in
excess of the $100 million of available cash. As a result such cash was
allocated on a pro rata basis among such stockholders and CF Securities based
upon the respective number of shares of Wyndham Common Stock as to which a Cash
Election was made. The Wyndham stockholders (other than CF Securities) received
Paired Shares at the Exchange Ratio for their shares of Wyndham Common Stock
which were not converted into Cash Consideration. Pursuant to the terms of the
Stock Purchase Agreement, CF Securities received a combination of 6,427,217
Paired Shares and 4,860,876 shares of Series A Convertible Preferred Stock, par
value $0.01 per share, of Patriot REIT ("Series A Preferred Stock") for its
shares of Wyndham Common Stock which were not converted into Cash Consideration.
In connection with the rescheduling of the record date for Patriot REIT's
dividend payment for the fourth quarter of 1997 to January 8, 1998, stockholders
of Wyndham (including CF Securities) who made Cash Elections also received
$0.43904 for each of their shares of Wyndham Common Stock converted into Cash
Consideration, for an aggregate of approximately $1 million.
As a result of the Wyndham Merger, Wyndham stockholders (including CF
Securities) received a total of 21,594,188 Paired Shares and $100 million of
cash, and CF Securities was issued 4,860,876 shares of Series A Preferred Stock.
Patriot REIT acquired 24 owned hotels, 13 leased hotels, 63 hotels under
management contracts and eight franchised hotels. Patriot REIT also assumed
Wyndham's existing indebtedness, substantially all of which has been refinanced
with funds drawn on the $900 million unsecured revolving line of credit (the
"Revolving Credit Facility").
In connection with the Wyndham Merger, Wyndham completed the tender offer
for its 10 1/2% Senior Subordinated Notes due 2006 (the "Notes"). The tender
offer expired at 12:00 midnight, EST, on January 2, 1998. All Notes validly
tendered in the tender offer, which represented approximately 98.5% of the
outstanding principal amount of the Notes, were accepted for purchase. Payment
of the tender offer consideration, the consent payment (for valid consents
received by 5:00 p.m., EST, on December 11, 1997, the consent date), if
applicable, and accrued and unpaid interest in the aggregate amount of
approximately $116.2 million was made on January 8, 1998 and was financed
primarily with funds drawn on the Revolving Credit Facility.
Crow Assets Acquisition
In connection with the Wyndham Merger, Patriot American Hospitality
Partnership, L.P. (the "Patriot REIT Partnership"), a subsidiary of Patriot
REIT, entered into agreements with certain partnerships that are owned by
certain members of the Trammell S. Crow family and their affiliates, certain
current and former executive officers of Wyndham and others (the "Crow Family
Entities") providing for the acquisition by Patriot REIT Partnership of up to 11
full-service Wyndham-brand hotels with approximately 3,072 rooms (the "Crow
Assets") for approximately $331.7 million in cash, plus approximately $14
million in additional consideration if two hotels meet certain operational
targets (the "Crow Assets Acquisition"). On December 16, 1997, the Patriot REIT
Partnership acquired nine of the Crow Assets hotels with approximately 2,441
rooms for a purchase price of approximately $296.3 million, financed primarily
with funds drawn on Patriot REIT's $350 million unsecured term loan. Patriot
REIT currently expects that the purchase of the Milwaukee Hotel will be delayed
up to 24 months and the acquisition of the Palm Springs Hotel will be delayed
until the first quarter of 1998 pending the receipt of certain third party
consents.
ITEM 5. OTHER EVENTS
Sheraton City Centre Hotel Acquisition
On November 25, 1997, Patriot REIT, through the Patriot REIT Partnership,
acquired a 92.5% general partner interest in a partnership formed for the
purpose of acquiring the 353-room Sheraton City Centre Hotel (the "Sheraton City
Centre Partnership"). A third-party (the "Minority Partner") owns the remaining
7.5% limited partner interest in the Sheraton City Centre Partnership (the
"Minority Interest"). The Patriot REIT Partnership contributed approximately
$36.8 million for its general partner interest, financed primarily from the
Revolving Credit Facility. Patriot REIT has leased the Sheraton City Centre
Hotel to Wyndham International. Beginning in November 1999, the Minority Partner
may require Patriot REIT Partnership to purchase the Minority Interest at its
then estimated value (as calculated in accordance with the Sheraton City Centre
Partnership agreement). In addition, beginning in November 2001, Patriot REIT
Partnership has the option to purchase the Minority Interest for the greater of
$5.5 million or the estimated value of the Minority Interest (as calculated in
accordance with the Sheraton City Centre Partnership agreement).
Wyndham Emerald Plaza Hotel Acquisition
On December 31, 1997, Patriot REIT, through the Patriot REIT Partnership,
acquired from a third-party the 436-room Wyndham Emerald Plaza Hotel in San
Diego, California for an aggregate purchase price of approximately $73 million.
Approximately $6.4 million of the purchase price was paid through the issuance
of 221,553 units of limited partnership interest ("OP Units") of Patriot REIT
Partnership and 221,553 OP Units of Patriot American Hospitality Operating
Partnership, L.P. (the "Patriot Operating Company Partnership"). The balance
of the purchase price was financed with funds drawn on the Revolving Credit
Facility and a new $35 million mortgage loan.
Liquidity and Financial Resources
In addition to the Merger, the Patriot Companies have entered into
agreements with respect to the following: the acquisition by merger of CHC
International, Inc. (the "CHCI Merger"); the acquisition by merger of WHG
Resorts & Casinos (the "WHG Merger"); the acquisition of the Buena Vista Palace
Hotel in Orlando, Florida; and the acquisition of the Holiday Inn Beachwood
Hotel (collectively, the "Other Transactions"). The Patriot Companies estimate
that consummation of the Merger and the Other Transactions will require
approximately $713.6 million in cash and the issuance of approximately $33
million in equity securities of Patriot REIT and/or Wyndham International. The
Patriot Companies will also assume approximately $797.7 million of indebtedness
in connection with these transactions.
The Patriot Companies are currently reviewing various alternatives with
respect to refinancing a significant portion of the indebtedness to be assumed
in the Merger in order to lengthen the average maturity of such debt, convert
certain existing floating rate debt to a fixed rate basis and convert certain
existing secured debt to an unsecured basis. The Patriot Companies have received
"highly confident" letters from both PaineWebber Real Estate Securities Inc.
("Paine Webber Real Estate") and the Chase Manhattan Bank ("Chase") with respect
to financing the cash portion of the Merger Consideration payable to Interstate
shareholders in the Merger. With respect to this cash consideration, as well as
cash requirements associated with the Other Transactions, Patriot REIT and
Wyndham International are currently reviewing various financing alternatives,
including, without limitation, an increase in the availability under the
Revolving Credit Facility and the issuance of public or private debt or equity
securities. While the Patriot Companies expect to be able to obtain the
necessary financing for the Merger and the Other Transactions, no assurance can
be given that such financing will be available on terms favorable to the Patriot
Companies. Neither the Merger nor the Other Transactions are subject to
financing contingencies.
The Patriot Companies believe that market conditions remain favorable for
the acquisition of additional hotels and hotel portfolios and expect that they
will continue their aggressive acquisition activities. Additionally, the Patriot
Companies intend to explore opportunities to acquire hotel management contracts,
hotel leases, hotel operators, owners of hotel franchises and independent hotel
management companies. As part of their ongoing business, the Patriot Companies
continually engage in discussions with public and private real estate entities
regarding possible portfolio or single asset acquisitions, as well as the
acquisition of hotel leasing and management operations. No assurance can be
given, however, that the Patriot Companies will locate attractive acquisition
opportunities or that they will consummate such acquisitions.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The financial statements of Wyndham Hotel Corporation and the Crow Family
Hotel Partnerships related to the Wyndham Merger and Crow Assets Acquisition
have been previously filed on Form 8-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. (formerly known as Patriot American Hospitality
Operating Company) dated December 10, 1997 (filed December 10, 1997).
The index to the financial information for the Sheraton City Centre Hotel
and the Wyndham Emerald Plaza Hotel is included on page F-1 of this report.
The index to the separate and combined pro forma financial information for
Patriot REIT and Wyndham International and for the Combined Lessees is included
on page F-1 of this report.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrants have duly caused the report to be signed on their behalf by the
undersigned thereunto duly authorized.
DATED: January 9, 1998
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ Anne L. Raymond
--------------------------------------------
Anne L. Raymond
Executive Vice President and Chief Financial
Officer (Principal Accounting and Financial
Officer)
WYNDHAM INTERNATIONAL, INC.
By: /s/ Rex E. Stewart
--------------------------------------------
Rex E. Stewart
Executive Vice President and Chief Financial
Officer (Principal Accounting and Financial
Officer)
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL INFORMATION
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PRO FORMA FINANCIAL INFORMATION--PRE WYNDHAM MERGER
PATRIOT AMERICAN HOSPITALITY, INC. AND PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited)........................................... F-12
Pro Forma Condensed Combined Statement of Operations for the nine months
ended
September 30, 1997 (unaudited).......................................... F-14
Pro Forma Condensed Combined Balance Sheet as of September 30, 1997
(unaudited)............................................................. F-17
PATRIOT AMERICAN HOSPITALITY INC.:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)........................................... F-19
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited).......................................... F-22
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)........................................... F-25
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited).......................................... F-28
COMBINED LESSEES:
Pro Forma Condensed Combined Statements of Operations for the year ended
December 31, 1996 (unaudited) and the nine months ended September 30,
1997 (unaudited)........................................................ F-32
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE WYNDHAM TRANSACTIONS
PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited)........................................... F-37
Pro Forma Condensed Combined Statement of Operations for the nine months
ended
September 30, 1997 (unaudited).......................................... F-39
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited).......................................... F-42
PATRIOT AMERICAN HOSPITALITY INC:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)........................................... F-44
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited).......................................... F-46
WYNDHAM INTERNATIONAL:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)........................................... F-48
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited).......................................... F-50
COMBINED LESSEES:
Pro Forma Condensed Combined Statements of Operations for the year ended
December 31, 1996 (unaudited) and the nine months ended September 30,
1997 (unaudited)........................................................ F-53
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F-1
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL INFORMATION--CONTINUED
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE WHG MERGER
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PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... F-56
Pro Forma Condensed Combined Statement of Operations for the nine months
ended
September 30, 1997 (unaudited)......................................... F-58
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)......................................... F-61
WYNDHAM INTERNATIONAL:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... F-63
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited)......................................... F-65
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE PATRIOT/IHC MERGER
PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... F-70
Pro Forma Condensed Combined Statement of Operations for the nine months
ended
September 30, 1997 (unaudited)......................................... F-72
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)......................................... F-75
PATRIOT AMERICAN HOSPITALITY INC.:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... F-78
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited)......................................... F-80
WYNDHAM INTERNATIONAL:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... F-82
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended
September 30, 1997 (unaudited)......................................... F-84
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F-2
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL INFORMATION--CONTINUED
HISTORICAL FINANCIAL INFORMATION
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SHERATON CITY CENTRE:
Report of Independent Accountants--Coopers & Lybrand L.L.P. ............ F-86
Balance Sheets as of December 31, 1996 and September 30, 1997
(unaudited)............................................................ F-87
Statements of Operations for the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ F-88
Statements of Partners' Deficit for the year ended
December 31, 1996 and the nine months ended September 30, 1997
(unaudited)............................................................ F-89
Statements of Cash Flows for the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ F-90
Notes to Financial Statements........................................... F-91
WYNDHAM EMERALD PLAZA:
Report of Independent Accountants--Coopers & Lybrand L.L.P. ............ F-96
Statements of Direct Revenues and Direct Operating Expenses for the year
ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ F-97
Notes to Statements of Direct Revenues and Direct Operating Expenses.... F-98
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F-3
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PATRIOT REIT AND PATRIOT OPERATING COMPANY
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
BACKGROUND
On July 1, 1997, the Virginia corporation formerly known as Patriot American
Hospitality, Inc. ("Old Patriot REIT") merged with and into California Jockey
Club ("Cal Jockey"), with Cal Jockey being the surviving legal entity (the
"Cal Jockey Merger"). In connection with the Cal Jockey Merger, Cal Jockey
changed its name to Patriot American Hospitality, Inc. ("Patriot REIT") and
Bay Meadows Operating Company ("Bay Meadows") changed its name to Patriot
American Hospitality Operating Company ("Patriot Operating Company"). The term
"Patriot Companies" as used herein includes Patriot REIT, Patriot Operating
Company and their respective subsidiaries. Patriot REIT's shares of common
stock are paired and trade together with the shares of common stock of Patriot
Operating Company as a single unit pursuant to a stock pairing arrangement.
By operation of the Cal Jockey Merger, each issued and outstanding share of
common stock, no par value per share of Old Patriot REIT ("Old Patriot REIT
Common Stock") was converted into 0.51895 shares of common stock, par value
$0.01 per share of Patriot REIT ("Patriot REIT Common Stock") and 0.51895
shares of common stock, par value $0.01 per share of Patriot Operating Company
("Patriot Operating Company Common Stock") (prior to giving effect to the
1.927-for-1 stock split discussed below), which shares are paired and
transferable only as a single unit. Each paired share of Cal Jockey and Bay
Meadows common stock remained outstanding and represented the same number of
paired shares of Patriot REIT Common Stock and Patriot Operating Company
Common Stock. Paired shares of Patriot REIT common stock and Patriot Operating
Company Common Stock are referred to herein as "Paired Shares."
In connection with the Cal Jockey Merger, Bay Meadows formed Patriot
American Hospitality Operating Partnership, L.P. (the "Patriot Operating
Company Partnership") into which Bay Meadows contributed its assets in
exchange for units of limited partnership interest ("OP Units") of the Patriot
Operating Company Partnership, and Cal Jockey contributed certain of its
assets to Patriot American Hospitality Partnership, L.P. (the "Patriot REIT
Partnership") in exchange for OP Units of the Patriot REIT Partnership.
Collectively, the Patriot Operating Company Partnership and the Patriot REIT
Partnership are referred to herein as the "Patriot Partnerships." Subsequent
to completion of the Cal Jockey Merger and the related transactions
contemplated by the Cal Jockey Merger agreement, substantially all of the
operations of Patriot REIT and Patriot Operating Company have been conducted
through the Patriot Partnerships and their subsidiaries.
The unaudited Pro Forma Financial Statements have been adjusted for the
purchase method of accounting whereby the Bay Meadows Racecourse (the
"Racecourse") facilities and related leasehold improvements owned by Cal
Jockey and Bay Meadows are adjusted to estimated fair market value. The Cal
Jockey Merger has been accounted for as a reverse acquisition whereby Cal
Jockey is considered to be the acquired company for accounting purposes.
On July 10, 1997, the respective Boards of Directors of Patriot REIT and
Patriot Operating Company declared a 1.927-for-1 stock split on its shares of
common stock effected in the form of a stock dividend distributed on July 25,
1997 to shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the pro forma financial
statements to the number of shares, per share amounts, and market prices of
the common stock and options to purchase common stock have been restated to
reflect the impact of the conversion of each share of Old Patriot REIT Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and the
1.927-for-1 stock split. In addition, all references in the pro forma
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock related to
periods prior to the 2-for-1 stock split on Old Patriot REIT Common Stock
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997 have been restated to reflect the
impact of such stock split.
F-4
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Patriot REIT leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through
special purpose entities (the "Non-Controlled Subsidiaries"), to either
Patriot Operating Company or to other lessees (the "Lessees") who are
responsible for operating the hotels. The hotels are leased for periods
ranging from one to 12-years pursuant to separate participating leases
providing for the payment of the greater of base or participating rent, plus
certain additional charges, as applicable (the "Participating Leases"). The
Lessees, in turn, have entered into separate agreements with hotel management
entities (the "Operators") to manage the hotels. The Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel were structured without lessees and are
managed directly by an Operator.
BUSINESSES ACQUIRED
Since January 1, 1997, Patriot REIT, through the Patriot REIT Partnership
and its subsidiaries, has invested approximately $801,468 in the acquisition
of 22 hotels and four resort properties with a total of 6,460 guest rooms (the
"Recent Acquisitions"). These acquisitions were financed primarily with funds
drawn on the Patriot Companies' $900,000 revolving credit facility (the
"Revolving Credit Facility") and prior to the Cal Jockey Merger, Old Patriot
REIT's line of credit facility, and other mortgage debt, the issuance of
3,425,796 OP Units valued at approximately $80,014, and the assumption of
mortgage debt in the amount of approximately $34,263. In addition, in
connection with certain other transactions described below (see "Acquisition
of Gencom American Hospitality and Merger with CHC International, Inc."),
Patriot REIT, through the Patriot REIT Partnership and its subsidiaries, has
invested approximately $236,984 in the acquisition of ten additional hotels
with a total of 3,119 rooms (the "CHC Hotels"). Patriot REIT, through the
Patriot REIT Partnership also acquired nine additional hotels from affiliates
of the Trammell S. Crow family with a total of approximately 2,441 rooms for
approximately $296,340, and consummated the Wyndham Merger as described below.
On July 14, 1997, Patriot REIT sold approximately 174 acres of land in San
Mateo, California, representing substantially all of the land which was owned
by Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber
Incorporated ("PaineWebber") for a purchase price of approximately $80,864
(the "PaineWebber Land Sale"). These funds were placed in a restricted trust
account in order to facilitate a tax-deferred, like-kind exchange through the
acquisition of suitable hotel properties. During July 1997, three suitable
hotels (the Holiday Inn at the San Francisco International Airport, the
Ambassador West Hotel and the Union Station Hotel) were acquired using a
portion of the proceeds from this restricted account. Patriot REIT retained
ownership of the improvements located on the land, including the Racecourse
and its related facilities. Simultaneously with the consummation of the
PaineWebber Land Sale, the PaineWebber affiliate and Patriot REIT entered into
a ground lease covering a portion of the land on which the Racecourse is
situated for a term of seven years. The lease provides for quarterly rental
payments of $750 through March 1998, $813 through March 1999, $875 through
March 2000, $1,000 through March 2002 and $1,250 through July 2004.
Additionally, Patriot REIT subleased the Racecourse land and leased the
related improvements to Patriot Operating Company in order to permit Patriot
Operating Company to continue horseracing operations at the Racecourse through
the term of Patriot REIT's lease. The sublease is for a term of seven years
with annual payments based on percentages of revenue generated. In addition,
Patriot REIT has leased certain land adjacent to the Racecourse to Borders,
Inc. (the "Borders Lease") for an initial term of 20 years with a fixed net
annual rent of $279 for years 1 through 10, $362 for years 11 through 15 and
$416 for years 16 through 20. In connection with the sale, Patriot REIT
assigned all of its rights and benefits under existing leases, contracts,
permits and entitlements relating to the land sold (excluding the Borders
Lease) to the PaineWebber affiliate, and the PaineWebber affiliate assumed all
of Patriot REIT's development obligations including, but not limited to, all
obligations for on and off-site improvements and all obligations under
existing leases and contracts. The parties have the option to renew such
leases upon their expiration under certain circumstances.
In August 1997, Patriot REIT, through the Patriot REIT Partnership and its
subsidiaries, acquired the 227-room Park Shore Hotel in Honolulu, Hawaii. The
following unaudited Pro Forma Condensed Combined Statements of Operations do
not include adjustments to reflect the results of operations of the Park Shore
Hotel.
In August 1997, Patriot Operating Company acquired Grand Heritage Hotels,
Inc., a hotel management and marketing company, and other Grand Heritage
subsidiaries including Grand Heritage Leasing, L.L.C., which
F-5
<PAGE>
leased three hotels from Patriot REIT (the "Grand Heritage Acquisition"). The
acquisition was financed primarily through the issuance of 931,972 Class A
preferred OP Units of the Patriot Operating Company Partnership.
Effective October 1, 1997, Patriot Operating Company, through certain of its
subsidiaries, acquired the members' interest of PAH RSI, L.L.C., a limited
liability company owned and controlled by certain executive officers of the
Patriot Companies ("PAH RSI Lessee") for approximately $143. PAH RSI Lessee
leased eight of Patriot REIT's hotels. As a result of the acquisition, Patriot
Operating Company holds these leasehold interests.
On November 25, 1997, Patriot REIT, through the Patriot REIT Partnership,
acquired a 92.5% general partner interest in a partnership formed for the
purpose of acquiring the 353-room Sheraton City Centre hotel (the "Sheraton
City Centre Partnership"). A third party (the "Minority Partner") owns the
remaining 7.5% limited partner interest in the Sheraton City Centre
Partnership (the "Minority Interest"). The Patriot REIT Partnership
contributed approximately $36,800 for its general partner interest, financed
primarily with funds drawn on the Revolving Credit Facility. Patriot REIT has
leased the Sheraton City Centre hotel to Patriot Operating Company. Beginning
in November 1999, the Minority Partner may require Patriot REIT Partnership to
purchase the Minority Interest at a price equal to the estimated value (as
calculated in accordance with the provisions of the partnership agreement). In
addition, beginning in November 2001, the Patriot REIT Partnership has the
option to purchase the Minority Interest for the greater of $5,500 or the
estimated value of the Minority Interest (as defined in the partnership
agreement).
On December 31, 1997, Patriot REIT, through the Patriot REIT Partnership,
acquired from a third-party the 436-room Wyndham Emerald Plaza Hotel in San
Diego, California for an adjusted purchase price of approximately $73,030.
Approximately $6,352 of the purchase price was paid through the issuance of
221,553 units of limited partnership interest ("OP Units") of Patriot REIT
Partnership and 221,553 OP Units of Patriot Operating Company Partnership. The
balance of the purchase price was financed with funds drawn on the Revolving
Credit Facility and a new $35,000 mortgage loan. Patriot REIT has leased the
hotel to Patriot Operating Company.
In connection with the execution of an agreement and plan of merger between
Patriot REIT, Patriot Operating Company and Wyndham Hotel Corporation
("Wyndham"), the Patriot REIT Partnership entered into agreements with certain
partnerships that are owned by certain members of the Trammell S. Crow family
and their affiliates, certain current and former executive officers of Wyndham
and others (the "Crow Family Entities") providing for the acquisition by
Patriot REIT Partnership of up to 11 full-service Wyndham-brand hotels with
3,072 rooms (the "Crow Assets") for approximately $331,664 in cash, plus
approximately $14,000 in additional consideration if two hotels meet certain
operational targets (the "Crow Assets Acquisition"). Patriot REIT currently
expects that the purchase of the Milwaukee Hotel will be delayed up to 24
months and the acquisition of the Palm Springs Hotel will be delayed until the
first quarter of 1998 pending the receipt of certain third party consents. On
December 16, 1997, the Patriot REIT Partnership acquired nine of the Crow
Assets hotels with 2,441 rooms for a purchase price of approximately $296,340.
Pro forma adjustments related to the Crow Assets Acquisition are presented
with other planned transactions with Wyndham and its affiliates in the pro
forma financial statements that begin on page F-33.
On January 5, 1998, Patriot REIT consummated its acquisition by merger of
Wyndham. Pursuant to the merger agreement, Wyndham merged with and into
Patriot REIT, with Patriot REIT being the surviving company (the "Wyndham
Merger"). Upon the consummation of the Wyndham Merger, Patriot American
Hospitality Operating Company changed its name to Wyndham International, Inc.
("Wyndham International"). As a result of the Wyndham Merger, Patriot REIT
acquired 24 owned hotels, 13 leased hotels, 63 hotels under management
contracts and eight franchised hotels. Pro forma adjustments related to the
Wyndham Merger are presented with the Crow Assets Acquisition in the pro forma
financial statements that begin on page F-33.
F-6
<PAGE>
FINANCING TRANSACTIONS
On July 21, 1997, the Patriot Companies entered into a revolving line of
credit with PaineWebber Real Estate Securities, Inc. ("PaineWebber Real
Estate"), The Chase Manhattan Bank ("Chase") and certain other lenders for a
three-year $700,000 unsecured revolving line of credit. The amount available
under the revolving line of credit facility was later increased to $900,000
(the "Revolving Credit Facility").
Borrowings were made under the Revolving Credit Facility to repay all
outstanding amounts under Old Patriot REIT's secured line of credit with
PaineWebber Real Estate (the "Old Line of Credit"). The Revolving Credit
Facility generally is used for the acquisition of additional properties,
businesses and other assets, for capital expenditures and for general working
capital purposes. The interest rate for the Revolving Credit Facility ranges
from LIBOR plus 1.0% to 2.0% (depending on the Patriot Companies' leverage
ratio or the investment grade rating received from the rating agencies) or the
customary alternate base rate announced from time to time plus 0.0% to 0.5%
(depending on the Patriot Companies' leverage ratio). The weighted average
interest rate in effect for the Revolving Credit Facility for the period ended
September 30, 1997 was 7.62% per annum.
Additionally, Patriot REIT entered into a $350,000 term loan with
PaineWebber Real Estate and Chase (the "Term Loan"). The Term Loan is
unsecured and has been used primarily to finance payments made in connection
with the Crow Assets Acquisition described herein. The Term Loan has an
interest rate per annum equal to the interest rate incurred on the Revolving
Credit Facility.
In June 1997, Patriot REIT loaned approximately $20,500 to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot REIT loaned approximately $25,600
to another partnership affiliated with members of CHC Lease Partners, relating
to the Sheraton Gateway Hotel in Miami, Florida (also known as the Sheraton
River House Hotel). Both loans mature in two years, bear interest at a rate
per annum equal to 30-day LIBOR plus 2.75%, and are secured by first priority
liens on the respective hotels. Additionally, Patriot REIT has purchased two
additional loans on which partnerships affiliated with the members of CHC
Lease Partners are borrowers for an aggregate purchase price of $57,000. One
of the purchased loans, in the principal amount of approximately $30,700,
matures in December 2000 and bears interest at a rate per annum equal to 8.0%
until November 30, 1997, 8.5% from December 1, 1997 until November 30, 1999,
and 9.0% from December 1, 1999 until December 1, 2000. The second purchased
loan, in the principal amount of approximately $24,400, matures on December
31, 1999 and bears interest at a rate per annum equal to 8.0% until December
31, 1997 and 9.5% from January 1, 1998 until December 31, 1999. Each of the
purchased loans is secured by first priority liens on the respective hotels.
The notes contain certain penalties for early repayment. In connection with
such loans, Patriot REIT has entered into a short-term financing arrangement
with an affiliate of PaineWebber Real Estate (the "PaineWebber Mortgage
Financing"), whereby such affiliate loaned Patriot REIT $103,000 through April
15, 1998 at a rate equal to the greater of 30-day LIBOR plus 1.75% or the
borrowing rate on the Revolving Credit Facility. This financing is secured by
a collateral assignment of the mortgage loans encumbering the four hotels. In
October 1997, Patriot REIT, through certain of its subsidiaries, acquired 100%
of the ownership interests in the four partnerships that own these hotels (see
"Acquisition of Gencom American Hospitality and Merger with CHC International,
Inc." below). As a result, the note balances and the related interest income
and expense are eliminated in Patriot REIT's consolidated financial
statements.
In August 1997, the Patriot Companies completed a public offering (the
"Offering") of 10,580,000 Paired Shares (including 1,380,000 Paired Shares
issued upon exercise of the underwriters' over-allotment option), with net
proceeds (less underwriter discount and expenses) of approximately $240,795.
The net proceeds were primarily used to reduce the outstanding debt under the
Revolving Credit Facility.
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P., and certain related entities (the
F-7
<PAGE>
"Morgan Stanley Call"). The exercise price on the Morgan Stanley Call was
$25.875 per pair of OP Units. The Morgan Stanley Call was funded with the
proceeds of the PaineWebber Direct Placement and the LaSalle Direct Placement
as discussed below.
On November 13, 1997, pursuant to a letter agreement dated September 30,
1997, the Patriot Companies sold 1,000,033 Paired Shares to PaineWebber (the
"PaineWebber Direct Placement") for a purchase price per Paired Share of
$27.6875, or aggregate consideration of approximately $27,688. In addition,
pursuant to a letter agreement dated September 30, 1997, the Patriot Companies
sold 1,000,000 Paired Shares to LaSalle Advisors Limited Partnership
("LaSalle"), as agent for certain clients of LaSalle (the "LaSalle Direct
Placement"), at a purchase price per Paired Share of $27.65, or aggregate
consideration of approximately $27,650.
POTENTIAL HOTEL ACQUISITION
In August 1997, Patriot Operating Company purchased a participating loan
from National Resort Ventures, L.P., a Delaware limited partnership, related
to the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for $23,750 in
cash (the "Participating Note"). The Buena Vista Palace Hotel is owned by a
joint venture (the "Buena Vista Joint Venture") between Equitable Life
Insurance Company ("Equitable"), which owns a 55% interest, and Hotel Venture
Partners, Ltd. ("HVP"), a Florida limited partnership, which owns a 45%
interest. Patriot REIT, through certain of its subsidiaries, has entered into
a Contribution Agreement dated October 7, 1997 to acquire approximately 90% of
HVP's 45% interest in the Buena Vista Joint Venture for approximately $14,000
in cash and units of limited partnership interest in the Patriot REIT
Partnership and the Patriot Operating Company Partnership. Patriot REIT was
also granted an option to acquire HVP's remaining interest in the Buena Vista
Joint Venture. In addition, pursuant to a Purchase and Sale Agreement dated
November 6, 1997, Patriot REIT, through certain of its subsidiaries, agreed to
acquire Equitable's 55% interest in the Buena Vista Joint Venture for
approximately $53,500 in cash. Patriot REIT will also acquire the
Participating Note investment held by Patriot Operating Company for $23,750 in
cash and also agreed to repay outstanding mezzanine debt of approximately
$6,004. Subsequent to acquisition of these joint venture interests (the "Buena
Vista Acquisition"), Patriot REIT, through certain of its subsidiaries, will
hold an aggregate 95% ownership interest (including a 1% general partnership
interest) in the Buena Vista Joint Venture with an option to acquire the
remaining 5% interest in three years. The hotel will remain subject to a
ground lease and a first leasehold mortgage note in the amount of
approximately $50,700.
ACQUISITION OF GENCOM AMERICAN HOSPITALITY AND MERGER WITH CHC INTERNATIONAL,
INC.
In September 1997, Patriot REIT, through certain of its subsidiaries,
acquired seven hotels (including an approximate 50% controlling ownership
interest in the Omni Inner Harbor Hotel) and in October 1997, Patriot REIT,
through certain of its subsidiaries, acquired three additional hotels. The ten
CHC Hotels were acquired from entities affiliated with the Gencom American
Hospitality group of companies ("Gencom") and CHC International, Inc. ("CHCI")
for an aggregate purchase price of approximately $236,984.
In addition, Patriot REIT has entered into an agreement whereby Patriot REIT
may indirectly acquire the remaining ownership interest in the Omni Inner
Harbor Hotel for approximately $19,314. The CHC Hotels are leased to and
managed by Patriot Operating Company and its subsidiaries. The purchase of the
hotels was financed with approximately $45,000 of cash drawn on the Revolving
Credit Facility and by issuing 1,703,943 Paired Shares and 2,174,773 paired OP
Units in the Patriot Partnerships in a private placement. Four of the hotels
are encumbered by the mortgage loans, in the aggregate amount of approximately
$103,443 including accrued interest, that Patriot REIT made in connection with
the PaineWebber Mortgage Financing discussed above.
In addition, Patriot REIT acquired the leasehold interests related to eight
hotels which were previously leased by CHC Lease Partners and re-leased such
hotels to Patriot Operating Company. Prior to such acquisition, the management
contracts with GAH-II, L.P. ("GAH"), an affiliate of CHCI and Gencom, related
to the eight hotels were terminated. The aggregate purchase price of the
leasehold interests was approximately $52,766. Concurrently, Patriot Operating
Company purchased an approximate 50% managing, controlling ownership
F-8
<PAGE>
interest in GAH from affiliates of Gencom for a purchase price of
approximately $13,860. These transactions were financed with approximately
$644 of cash, and by issuing 2,388,932 paired OP Units of the Patriot REIT
Partnership and the Patriot Operating Company Partnership and 476,682 Class C
preferred OP Units of Patriot Operating Company Partnership. In connection
with Patriot REIT's acquisition of the eight leasehold interests from CHC
Lease Partners, CHC Lease Partners was liquidated and its remaining 17
leasehold interests became leasehold interests of CHCI, the ultimate remaining
owner of CHC Lease Partners at the time of its liquidation. These 17 leasehold
interests will be acquired by Patriot Operating Company if the CHCI Merger is
consummated, as described below.
GAH, directly and through certain of its subsidiaries, owns nine management
contracts related to hotels leased by Patriot Operating Company, 15 third-
party management contracts, and certain other hospitality management assets.
Concurrently with Patriot Operating Company's purchase of its controlling
interest in GAH, Patriot Operating Company also entered into a Hospitality
Advisory, Asset Management and Support Services Agreement with CHCI and GAH
whereby Patriot Operating Company will provide certain hospitality advisory,
asset management and support services to certain CHCI and GAH subsidiaries for
base fees aggregating approximately $750 per month plus a percentage of excess
cash flows of the hotels.
Patriot REIT, Patriot Operating Company and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997 for the merger of
the hospitality-related businesses of CHCI with and into Patriot Operating
Company with Patriot Operating Company being the surviving company (the "CHCI
Merger"). Subject to regulatory approvals, CHCI's gaming operations will be
transferred to a new legal entity prior to the CHCI Merger and such operations
will not be a part of the transaction. It is anticipated that the CHCI Merger
will be consummated in the first or second quarter of 1998, although the
precise timing is subject to certain conditions, including receipt of all
necessary regulatory approvals. As a result of the CHCI Merger, Patriot
Operating Company, through its subsidiaries, will acquire the remaining 50%
investment interest in GAH, the remaining 17 leases and 16 of the associated
management contracts related to the Patriot REIT hotels leased by CHC Lease
Partners, 3 management contracts related to Patriot REIT hotels leased by
Patriot Operating Company, 12 third-party management contracts, 2 third-party
lease contracts, the Grand Bay and Registry Hotels & Resorts proprietary brand
names and certain other hospitality management assets. Patriot Operating
Company has also agreed to provide CHCI with a $7,000 line of credit until
such time as the CHCI Merger is completed. Patriot Operating Company's
acquisition of GAH, both the acquisition of an approximate 50% interest in GAH
in September 1997 and the acquisition of the remaining approximate 50%
interest in connection with the CHCI Merger, is referred to as the "GAH
Acquisition" when used in connection with the presentation of pro forma
financial data.
By operation of the CHCI Merger and the transactions related thereto, each
issued and outstanding share of CHCI common stock, par value $0.005 per share
("CHCI Share") and certain stock option rights will be converted into the
right to receive shares of Series A Redeemable Convertible Preferred Stock,
par value $0.01 per share, of Patriot Operating Company ("Operating Company
Series A Preferred Stock") and shares of Series B Redeemable Convertible
Preferred Stock, par value $0.01 per share, of Patriot Operating Company
("Operating Company Series B Preferred Stock," and collectively with the
Operating Company Series A Preferred Stock, the "Operating Company Preferred
Stock"). The formula for determining the exchange ratio of CHCI Shares for
Operating Company Series A Preferred Stock and Operating Company Series B
Preferred Stock is based on issuing an aggregate of approximately 4,396,000
shares of Operating Company Preferred Stock (based on an aggregate purchase
value of approximately $102,200 and a market price per Paired Share of
$23.25), subject to reduction if certain specified events occur and subject to
increase representing adjustments for dividends paid on Paired Shares after
September 30, 1997. Generally, the aggregate number of shares of Operating
Company Preferred Stock that each shareholder shall have the right to receive
pursuant to the CHCI Merger shall consist of, to the extent possible, an equal
number of Operating Company Series A Preferred Stock and Operating Company
Series B Preferred Stock.
Generally, each share of Operating Company Series A Preferred Stock may be
redeemed for one Paired Share at any time following the one-year anniversary
of the closing of the CHCI Merger. Each share of Operating
F-9
<PAGE>
Company Series B Preferred Stock may be redeemed for one Paired Share,
however, such redemption is generally restricted until the fifth-year
anniversary of the closing of the CHCI Merger. The value of a Paired Share at
the time of redemption (the "Redemption Value") may, at Patriot Operating
Company's option, be paid in cash. Further, if Patriot Operating Company fails
to comply with certain restrictions, the preferred shares may be redeemed for
cash or, at Patriot Operating Company's option, Paired Shares at the
Redemption Value plus a premium. The dividend rate on the shares of Operating
Company Preferred Stock is equivalent to the dividend rate on the Paired
Shares. Dividends on Operating Company Series B Preferred Stock are subject to
increase during the five years subsequent to the closing of the CHCI Merger if
the shares are transferred by the original holder. If the dividends on the
shares of Operating Company Preferred Stock are not paid when due, dividends
will instead accrue at the rate of 115% per annum on a compounded basis. The
shares of Operating Company Preferred Stock are redeemable at Patriot
Operating Company's option at the Redemption Value, plus a premium in the case
of the original holders thereof and certain permitted transferees.
In connection with the GAH Acquisition, preferred OP Units of the Patriot
Operating Company Partnership with a value of approximately $5,000 have been
held back, and the CHCI Merger equity consideration is subject to reduction in
the amount of approximately $5,000 if the hotels and leaseholds acquired fail
to achieve certain operating targets over the period prior to the closing of
the CHCI Merger.
In addition, on September 30, 2000 and September 30, 2002, Patriot Operating
Company may be obligated to pay the CHCI stockholders, and a subsidiary of
Patriot Operating Company may be obligated to pay a Gencom-related entity,
additional consideration, in each case based upon the delivery and performance
of certain specified assets.
SUMMARY
As of January 5, 1998, Patriot REIT owned interests in 114 hotels and
resorts. The unaudited Pro Forma Financial Statements reflect an approximate
14.1% minority ownership interest in the Patriot REIT Partnership and a 14.8%
minority ownership interest in the Patriot Operating Company Partnership,
which represents the estimated ownership interest subsequent to consummation
of the GAH Acquisition, the CHCI Merger, the PaineWebber Direct Placement, the
LaSalle Direct Placement, the acquisition of the Wyndham Emerald Plaza Hotel
and the Buena Vista Acquisition.
The following unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 and the nine months ended September 30,
1997 of Patriot REIT and Patriot Operating Company are derived from the
individual unaudited Pro Forma Condensed Consolidated Statements of Operations
of Patriot REIT and Patriot Operating Company which are included in this Joint
Current Report. Such pro forma information is based in part upon:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996;
(ii) the Consolidated Statements of Operations of Old Patriot REIT filed
with the Old Patriot REIT Annual Report on Form 10-K for the year ended
December 31, 1996;
(iii) the Separate and Combined Statements of Operations of Patriot REIT
and Patriot Operating Company filed with the Patriot Companies' Joint
Quarterly Report on Form 10-Q for the nine months ended September 30, 1997;
(iv) the historical financial statements of certain hotels acquired by
Old Patriot REIT filed in Old Patriot REIT's Current Reports on Form 8-K
dated April 2, 1996, as amended, December 5, 1996 and January 16, 1997, as
amended;
(v) the historical financial statements of the certain hotels and
businesses acquired or to be acquired by Patriot REIT and Patriot Operating
Company filed in the Patriot Companies' Joint Current Reports on Form 8-K
dated September 17, 1997, and September 30, 1997, as amended, and December
10, 1997, and located elsewhere in this Joint Current Report; and
F-10
<PAGE>
(vi) the Pro Forma Condensed Combined Statements of Operations of the
Lessees which are located elsewhere in this Joint Current Report.
The following unaudited Pro Forma Condensed Combined Statements of
Operations assume the following transactions (the "Recent Transactions") have
occurred as of January 1, 1996:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased the land and
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility; and
(viii) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition;
(iii) the CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement; and
(iv) Patriot REIT has completed the Buena Vista Acquisition and leased
such hotel to Patriot Operating Company.
The pro forma results of operations for the year ended December 31, 1996
assume the 24 hotels acquired during 1996 and the private placement of equity
securities and the public offering of common stock completed by Old Patriot
REIT during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made. The following unaudited Pro
Forma Condensed Combined Statements of Operations are not necessarily
indicative of what the actual results of operations of Patriot REIT and
Patriot Operating Company would have been assuming such transactions had been
completed as of January 1, 1996, nor do they purport to represent the results
of operations for future periods. Further the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
F-11
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- --------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue.. $246,371 $ -- $(204,622)(A) $ 41,749
Hotel revenue................ -- 665,463 -- 665,463
Racecourse facility and land
lease revenue .............. 5,945 51,946 (5,611)(B) 52,280
Management fee and service
fee income.................. -- 13,522 -- 13,522
Interest and other income.... 2,297 7,234 (3,138)(C) 6,393
-------- -------- --------- --------
Total revenue................ 254,613 738,165 (213,371) 779,407
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.................. -- 280,407 -- 280,407
Racecourse facility
operations.................. -- 46,351 (5,611)(B) 40,740
Direct operating costs of
management company and
service department.......... -- 11,143 -- 11,143
General and administrative... 6,797 79,244 (34)(C) 86,007
Ground lease expense......... 5,693 5,340 -- 11,033
Repair and maintenance....... -- 33,742 -- 33,742
Utilities.................... -- 30,644 -- 30,644
Interest expense............. 81,332 1,393 (3,104)(C) 79,621 (D)
Real estate and personal
property taxes and casualty
insurance................... 26,050 398 -- 26,448
Marketing.................... -- 57,714 -- 57,714
Management fees.............. -- 12,131 -- 12,131
Depreciation and
amortization................ 72,273 10,348 -- 82,621
Participating lease
payments.................... -- 204,622 (204,622)(A) --
-------- -------- --------- --------
Total expenses............... 192,145 773,477 (213,371) 752,251
-------- -------- --------- --------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries, income tax
provision and minority
interests.................... 62,468 (35,312) -- 27,156
Equity in earnings of
unconsolidated
subsidiaries................ 7,559 -- -- 7,559
-------- -------- --------- --------
Income (loss) before income
tax provision and minority
interests.................... 70,027 (35,312) -- 34,715
Income tax provision......... (170) (760) -- (930)
-------- -------- --------- --------
Income (loss) before minority
interests.................... 69,857 (36,072) -- 33,785
Minority interest in the
Patriot Partnerships........ (9,499) 5,339 -- (4,160)
Minority interest in
consolidated subsidiaries... (2,491) -- -- (2,491)
-------- -------- --------- --------
Net income (loss) applicable
to common shareholders(E).... $ 57,867 $(30,733) $ -- $ 27,134 (D)
======== ======== ========= ========
Net income (loss) per common
Paired Share(F).............. $ 0.77 $ (0.43) $ 0.36 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to 62 hotels (including the 17 leases to be acquired in connection with
the CHCI Merger and the lease to be acquired with the Buena Vista
Acquisition) leased by Patriot REIT to Patriot Operating Company. Such
amounts exclude the hotels acquired in the Crow Assets Acquisition which
are presented elsewhere herein.
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot REIT to Patriot Operating
Company.
(C) In connection with the Cal Jockey Merger, Patriot REIT Partnership
subscribed for shares of Bay Meadows common stock (which became shares of
Patriot Operating Company Common Stock in connection with the Cal Jockey
Merger) in an amount equal to the number of shares of Patriot REIT Common
Stock that were issued to Old Patriot REIT stockholders in the Cal Jockey
Merger. In addition, Patriot REIT Partnership similarly subscribed for OP
Units in the Patriot Operating Partnership in an amount equal to the
number of Patriot REIT Partnership OP Units that were outstanding
subsequent to the Cal Jockey Merger. The subscription for the shares and
OP Units was funded through the issuance of promissory notes in the
aggregate amount of $58,901 (the "Subscription Notes") payable to Patriot
Operating Company (which had a remaining principal balance of
approximately $24,170 outstanding as of September 30, 1997). The
Subscription Notes accrue interest at a rate of 8% per annum and mature
December 31, 1997. The pro forma
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<PAGE>
adjustments represent the elimination of $1,934 of interest income and
expense related to the Subscription Notes, the elimination of $1,170 of
interest income and expense related to a note receivable issued to Old
Patriot REIT in connection with the sale of certain assets to PAH RSI
Lessee, which assets were acquired by Patriot Operating Company, and the
elimination of $34 of other intercompany income and expense items.
(D) The pro forma amounts presented assume an average interest rate of 7.183%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
on variable rate debt would increase pro forma interest expense to
$81,702, decrease net income applicable to common shareholders to $25,347
and decrease net income per common share to $0.33.
In connection with the closing of the Revolving Credit Facility, deferred
loan costs totaling approximately $11,605, including fees, legal and other
expenses were incurred and amortization expense of approximately $3,868 is
reflected in pro forma interest expense. Amortization of deferred loan costs
is computed using the straight-line method over the 3-year loan term. As a
result of closing the Revolving Credit Facility, deferred loan costs
totaling approximately $2,910 related to the Old Line of Credit were written
off. This amount was reported as an extraordinary item in the Patriot
Companies' results of operations for the nine months ended September 30,
1997.
(E) In connection with the GAH Acquisition and the CHCI Merger, Patriot REIT
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to Patriot Operating Company) and Patriot Operating Company
acquired the remaining 17 Participating Leases held by CHC Lease Partners
for aggregate consideration of approximately $105,532. Because the intent
of the accompanying pro forma condensed combined statement of operations
for the year ended December 31, 1996 is to reflect the expected continuing
impact of the above-described transactions on the Patriot Companies, the
adjustment to write off the cost of acquiring these leases has been
excluded. This expense will be recorded as an operating expense on Patriot
REIT's and Patriot Operating Company's respective statements of
operations.
(F) The Patriot REIT and combined pro forma earnings per share are computed
based on 75,516 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of shares of Patriot Operating Company Preferred Stock into
Paired Shares. The Patriot Operating Company pro forma earnings per share
is computed based on 70,836 weighted average common Paired Shares
outstanding for the period. Shares of Patriot Operating Company Preferred
Stock and other common Paired Share equivalents outstanding were not
considered in the computation of Patriot Operating Company's pro forma
earnings per share because they are antidilutive. In addition, the net
income per common Paired Share and the weighted average number of common
Paired Shares and common Paired Share equivalents have been adjusted for
(i) the March 1997 2-for-1 stock split on Old Patriot REIT Common Stock
effected in the form of a stock dividend, (ii) the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and (iii) the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128 Earnings Per Share ("Statement 128"). Statement 128
specifies the computation, presentation and disclosure requirements for
basic earnings per share and diluted earnings per share. Under the new
requirements for calculating basic earnings per share, the dilutive effect
of stock options and convertible preferred securities will be excluded.
Pro forma basic combined earnings per share for the year ended December
31, 1996 would be $0.38 per common Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
F-13
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- --------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue.. $199,974 $ -- $(165,601)(A) $ 34,373
Hotel revenue................ -- 540,191 -- 540,191
Racecourse facility and land
lease revenue............... 3,504 33,399 (3,246)(B) 33,657
Management fee and service
fee income.................. -- 14,701 -- 14,701
Interest and other income.... 4,043 6,374 (2,306)(C) 8,111
-------- -------- --------- --------
Total revenue................ 207,521 594,665 (171,153) 631,033
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.................. -- 219,210 -- 219,210
Racecourse facility
operations.................. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company and
service department.......... -- 12,568 -- 12,568
General and administrative... 6,937 60,041 (24)(C) 66,954
Ground lease expense......... 5,535 4,349 -- 9,884
Repair and maintenance....... -- 27,672 -- 27,672
Utilities.................... -- 23,216 -- 23,216
Interest expense............. 61,747 936 (2,282)(C) 60,401 (D)
Real estate and personal
property taxes and casualty
insurance................... 20,641 290 -- 20,931
Marketing.................... -- 46,538 -- 46,538
Management fees.............. -- 11,951 -- 11,951
Depreciation and
amortization................ 54,728 5,449 -- 60,177
Participating lease
payments.................... -- 165,601 (165,601)(A) --
-------- -------- --------- --------
Total expenses............... 149,588 607,935 (171,153) 586,370
-------- -------- --------- --------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries, income tax
provision and minority
interests.................... 57,933 (13,270) -- 44,663
Equity in earnings of
unconsolidated
subsidiaries................ 4,488 -- -- 4,488
-------- -------- --------- --------
Income (loss) before income
tax provision and minority
interests.................... 62,421 (13,270) -- 49,151
Income tax provision......... (125) -- -- (125)
-------- -------- --------- --------
Income (loss) before minority
interests.................... 62,296 (13,270) -- 49,026
Minority interest in the
Patriot Partnerships........ (8,432) 1,964 -- (6,468)
Minority interest in
consolidated subsidiaries... (2,493) -- -- (2,493)
-------- -------- --------- --------
Net income (loss) applicable
to common shareholders(E).... $ 51,371 $(11,306) $ -- $ 40,065 (D)
======== ======== ========= ========
Net income (loss) per common
Paired Share(F).............. $ 0.68 $ (0.16) $ 0.53 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to 62 hotels (including the 17 leases to be acquired in connection with
the CHCI Merger and the lease to be acquired with the Buena Vista
Acquisition) leased by Patriot REIT to Patriot Operating Company. Such
amounts exclude the hotels acquired in the Crow Assets Acquisition which
are presented elsewhere herein.
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot REIT to Patriot Operating
Company.
(C) The pro forma adjustments represent the elimination of $1,450 of interest
income and expense related to the Subscription Notes issued to Patriot
Operating Company in connection with the subscription for shares of
Patriot Operating Company Common Stock and Patriot Operating Partnership
OP Units issued in connection with the Cal Jockey Merger, the elimination
of $832 of interest income and expense related to a note receivable issued
to Old Patriot REIT in connection with the sale of certain assets to PAH
RSI Lessee, which assets were acquired by Patriot Operating Company, and
the elimination of $24 of other intercompany income and expense items.
(D) The pro forma amounts presented assume an average interest rate of 7.303%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
on variable rate debt would increase pro forma interest expense to $61,961
and decrease net income applicable to common shareholders to $38,725. Net
income per common
F-14
<PAGE>
share would be $0.51. In connection with the closing of the Revolving Credit
Facility, deferred loan costs totaling approximately $11,605, including
fees, legal and other expenses were incurred and amortization expense of
approximately $2,901 is reflected in pro forma interest expense.
Amortization of deferred loan costs is computed using the straight-line
method over the 3-year loan term. As a result of closing the Revolving
Credit Facility, deferred loan costs totaling approximately $2,910 related
to the Old Line of Credit were written off. This amount was reported as an
extraordinary item in the Patriot Companies' historical results of
operations for the nine months ended September 30, 1997 and has been
eliminated from operating results for pro forma presentation purposes.
(E) In connection with the GAH Acquisition and the CHCI Merger, Patriot REIT
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to Patriot Operating Company) and Patriot Operating Company
acquired the remaining 17 Participating Leases held by CHC Lease Partners
for aggregate consideration of approximately $105,532. Because the intent
of the accompanying pro forma condensed combined statement of operations
for the nine months ended September 30, 1997 is to reflect the expected
continuing impact of the above-described transactions on the Patriot
Companies, the adjustment to write off the cost of acquiring these leases
has been excluded. This expense will be recorded as an operating expense
on Patriot REIT's and Patriot Operating Company's respective statements of
operations.
(F) The Patriot REIT and combined pro forma earnings per share is computed
based on 76,090 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of shares of Patriot Operating Company Preferred Stock into
Paired Shares. The Patriot Operating Company pro forma earnings per share
is computed based on 70,836 weighted average common Paired Shares
outstanding for the period. Shares of Patriot Operating Company Preferred
Stock and other common Paired Share equivalents outstanding were not
considered in the computation of Patriot Operating Company's pro forma
earnings per share because they are antidilutive. In addition, the net
income per common Paired Share and the weighted average number of common
Paired Shares and common Paired Share equivalents have been adjusted to
reflect the impact of the 1.927-for-1 stock split effected in the form of
a stock dividend.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share for the nine months
ended September 30, 1997 would be $0.57 per common Paired Share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-15
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet assumes
the following transactions have occurred as of September 30, 1997:
(i) Patriot REIT has acquired the three CHC Hotels, The Buttes, Sheraton
City Centre and Wyndham Emerald Plaza Hotel (which were acquired subsequent
to September 30, 1997) and has acquired the remaining approximate 50%
interest in the Omni Inner Harbor Hotel and leased such hotels to Patriot
Operating Company;
(ii) Patriot Operating Company has acquired the members' interests in PAH
RSI Lessee;
(iii) Patriot Operating Company has completed the GAH Acquisition;
(iv) The CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement; and
(v) Patriot REIT has completed the Buena Vista Acquisition and leased
such hotel to Patriot Operating Company.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited Pro Forma Condensed Combined Balance Sheet is
derived from Patriot REIT's and Patriot Operating Company's Combined Balance
Sheet as of September 30, 1997 and should be read in conjunction with the
financial statements filed with the Patriot Companies' Joint Quarterly Report
on Form 10-Q for the nine months ended September 30, 1997.
The following Pro Forma Condensed Combined Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of September 30, 1997, nor does it purport
to represent the future financial position of Patriot REIT and Patriot
Operating Company.
F-16
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT REIT
AND PATRIOT
OPERATING
COMPANY
COMBINED OTHER CHC HOTELS CHCI
HISTORICAL ACQUISITIONS ACQUISITION MERGER BUENA VISTA PRO FORMA
(A) (B) (C) (D) ACQUISITION(E) TOTAL
------------ ------------ ----------- ------- -------------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $1,477,512 $171,616 $116,016 $ -- $145,720 $1,910,864
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 74,053 -- -- -- -- 74,053
Other notes and receiv-
ables.................. 98,538 -- (82,625)(F) -- -- 15,913
Management contracts.... 22,453 -- -- 22,911 (G) -- 45,364
Trade names............. 2,500 -- -- 5,000 (G) -- 7,500
Investment in
unconsolidated
subsidiaries........... 12,061 -- -- -- -- 12,061
Cash and cash equiva-
lents.................. 21,515 3,588 -- -- 1,064 26,167
Restricted cash (H)..... 38,196 -- -- 5,222 43,418
Accounts receivable..... 38,540 -- -- -- 3,895 42,435
Goodwill................ 120,839 -- -- 7,269 (I) -- 128,108
Deferred expenses, net.. 16,626 -- -- -- 2,787 19,413
Deferred acquisition
costs.................. 46,036 -- (6,066) -- (23,750) 16,220
Prepaid expenses and
other assets........... 10,538 1,667 1,393 394 769 14,761
Deferred income taxes... 700 -- -- -- -- 700
---------- -------- -------- ------- -------- ----------
Total assets........... $1,980,107 $176,871 $ 28,718 $35,574 $135,707 $2,356,977
========== ======== ======== ======= ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Borrowings under a line
of credit facility and
mortgage notes......... $ 727,177 $165,268 $ -- $ -- $123,423 $1,015,868
Accounts payable and
accrued expenses....... 48,561 1,663 1,816 (J) -- 8,183 60,223
Dividends and
distributions payable.. 21,727 -- -- -- -- 21,727
Sales taxes payable..... 2,968 -- -- -- -- 2,968
Deposits................ 2,037 -- -- -- 2,023 4,060
Deferred income tax
liability.............. 4,846 -- -- -- -- 4,846
Due to unconsolidated
subsidiaries........... 5,904 -- -- -- -- 5,904
Minority interest in the
Patriot Partnerships... 257,274 (39,316)(K) 7,588 (L) -- 2,078 (M) 227,624
Minority interest in
consolidated
subsidiaries........... 29,284 -- -- -- -- 29,284
Shareholders' equity:
Preferred stock........ -- -- -- 44 (O) -- 44
Common stock........... 1,360 40 (K) 17 (N) -- -- 1,417
Paid-in capital........ 941,674 49,216 (K) 19,297 (N) 88,296 (O) -- 1,098,483
Unearned stock
compensation, net..... (15,075) -- -- -- -- (15,075)
Retained earnings...... (47,630) -- -- (52,766)(O) -- (100,396)
---------- -------- -------- ------- -------- ----------
Total shareholders'
equity................ 880,329 49,256 19,314 35,574 -- 984,473
---------- -------- -------- ------- -------- ----------
Total liabilities and
shareholders' equity.. $1,980,107 $176,871 $ 28,718 $35,574 $135,707 $2,356,977
========== ======== ======== ======= ======== ==========
</TABLE>
See notes on following page.
F-17
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY NOTES TO PRO FORMA CONDENSED
COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT SHARE
AMOUNTS):
(A) Represents the historical combined financial position of Patriot REIT and
Patriot Operating Company as of September 30, 1997.
(B) Represents adjustments to the Patriot Companies' pro forma financial
position assuming Patriot REIT had acquired The Buttes, Sheraton City
Centre and Wyndham Emerald Plaza Hotel as of September 30, 1997.
(C) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the three CHC Hotels purchased in October 1997 and the
remaining approximate 50% ownership interest in the Omni Inner Harbor
Hotel had been acquired as of September 30, 1997.
(D) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the CHCI Merger had been consummated as of September 30,
1997.
(E) Represents adjustments to the Patriot Companies' pro forma financial
position assuming Patriot REIT had completed the Buena Vista Acquisition
as of September 30, 1997.
(F) Represents the elimination of the principal balance of the mortgage notes
held by Patriot REIT encumbering three of the CHC Hotels.
(G) Represents the estimated value of the management contracts and trade names
acquired.
(H) The restricted cash balance represents the cash proceeds from the
PaineWebber Land Sale (in the initial amount of $80,864) that were placed
in a restricted trust account in order to facilitate a tax-deferred, like-
kind exchange through the acquisition of suitable hotel properties. In
order to qualify as a tax-deferred exchange, suitable properties must be
located and exchanged and the exchange must be effectuated within a
relatively short time period allowed by Internal Revenue Service
regulations. Management believes that the three hotel properties that have
been purchased thus far with PaineWebber Land Sale proceeds are suitable
hotel properties that qualify as a tax-deferred, like-kind exchange.
(I) Represents the purchase consideration in excess of the fair market value
of the net assets of CHCI.
(J) Represents adjustment for accounts payable and accrued expenses assumed or
incurred in connection with the acquisition of hotel properties.
(K) Represents adjustments to reflect the redemption of 2,000,033 OP units of
the Patriot Partnerships in connection with the Morgan Stanley Call and
the issuance of an aggregate 2,000,033 Paired Shares in the PaineWebber
Direct Placement and the LaSalle Direct Placement and the issuance of
221,553 OP Units of the Patriot Partnerships in connection with the
acquisition of Wyndham Emerald Plaza Hotel.
(L) Represents adjustments to reflect the issuance of 326,348 OP Units of the
Patriot Partnerships in connection with the acquisition of three of the
CHC Hotels.
(M) Represents adjustments to reflect the issuance of approximately 67,913 OP
Units of the Patriot Partnerships in connection with the Buena Vista
Acquisition.
(N) Represents adjustments to reflect the issuance of 830,713 Paired Shares in
connection with the acquisition of the remaining approximate 50% interest
in the Omni Inner Harbor Hotel.
(O) Represents the following adjustments to Shareholders' Equity:
<TABLE>
<CAPTION>
PREFERRED PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ------- --------
<S> <C> <C> <C>
Pursuant to issuance of a total of
approximately 4,395,700 shares of Series A
Preferred Stock and Series B Preferred
Stock of Patriot Operating Company in
connection with the CHCI Merger............ $44 $88,296 $ --
Write-off the estimated cost to acquire 17
Participating Leases related to hotels
leased by Patriot REIT to CHC Lease
Partners and related transactions.......... -- -- (52,766)
--- ------- --------
$44 $88,296 $(52,766)
=== ======= ========
</TABLE>
In connection with the CHCI Merger, Patriot Operating Company will acquire
the remaining 17 Participating Leases held by CHC Lease Partners, issuing a
combination of Operating Company Series A Preferred Stock and Operating
Company Series B Preferred Stock in connection with the transaction. The
cost of acquiring these leases will be recorded as an operating expense in
Patriot Operating Company's results of operations. However, because the
intent of the pro forma financial statements is to reflect, among other
things, the expected continuing impact of the CHCI Merger on Patriot
Operating Company, this adjustment has been excluded from the pro forma
statements of operations and has been reflected as an adjustment to retained
earnings for pro forma presentation purposes.
F-18
<PAGE>
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OLD PATRIOT
REIT CAL JOCKEY RECENT CHC HOTELS
HISTORICAL HISTORICAL TRANSACTIONS ACQUISITION BUENA VISTA OTHER PRO FORMA
(A) (B) (C) (D) ACQUISITION(E) ADJUSTMENTS TOTAL
----------- ---------- ------------ ----------- -------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $75,893 $ -- $108,497 (F) $39,702 (F) $22,434 (F) $ (155) $246,371
Rental of Racecourse
facility and land..... -- 4,918 1,027 (G) -- -- -- 5,945
Interest and other
income................ 600 494 1,203 (H) -- -- -- 2,297
------- ------- -------- ------- ------- -------- --------
Total revenue.......... 76,493 5,412 110,727 39,702 22,434 (155) 254,613
------- ------- -------- ------- ------- -------- --------
Expenses:
Ground lease expense... 1,075 -- 4,238 (I) 380 -- -- 5,693
General and
administrative........ 4,500 5,696 (3,399)(J) -- -- -- 6,797
Interest expense....... 7,380 -- 52,870 (K) 7,753 (K) 5,083 (K) 8,246 (K) 81,332 (S)
Real estate and
personal property
taxes and casualty
insurance............. 7,150 -- 11,140 (L) 5,217 (L) 2,543 (L) -- 26,050
Depreciation and
amortization.......... 17,420 932 36,752 (M) 11,477 5,692 -- 72,273
------- ------- -------- ------- ------- -------- --------
Total expenses......... 37,525 6,628 101,601 24,827 13,318 8,246 192,145
------- ------- -------- ------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 38,968 (1,216) 9,126 14,875 9,116 (8,401) 62,468
Equity in earnings of
unconsolidated
subsidiaries........... 5,845 -- 1,714 (N) -- -- -- 7,559
------- ------- -------- ------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 44,813 (1,216) 10,840 14,875 9,116 (8,401) 70,027
Income tax provision.... -- -- -- -- -- (170)(O) (170)
------- ------- -------- ------- ------- -------- --------
Income (loss) before
minority interests.... 44,813 (1,216) 10,840 14,875 9,116 (8,571) 69,857
Minority interest in
Patriot REIT
Partnership........... (6,767) -- -- -- -- (2,732)(P) (9,499)
Minority interest in
consolidated
subsidiaries.......... (55) -- (1,980)(Q) -- (456)(Q) -- (2,491)
------- ------- -------- ------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $37,991 $(1,216) $ 8,860 $14,875 $ 8,660 $(11,303) $ 57,867 (S)
======= ======= ======== ======= ======= ======== ========
Net income (loss) per
common
share (R).............. $ 1.06 $ (0.11) $ 0.77 (S)
======= ======= ========
</TABLE>
See notes on following page.
F-19
<PAGE>
NOTES TO PATRIOT REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents Old Patriot REIT's historical results of operations for the
year ended December 31, 1996.
(B) Represents the historical results of operations of Cal Jockey for the year
ended December 31, 1996.
(C) Represents adjustment to Patriot REIT's results of operations assuming (i)
the Cal Jockey Merger and the related transactions have been consummated;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased the Racecourse land to Patriot REIT and Patriot REIT
has subleased this land to Patriot Operating Company; (iii) Patriot REIT
has leased certain land to Borders, Inc.; (iv) Patriot REIT has completed
the Recent Acquisitions (excluding the Park Shore Hotel); (v) the mortgage
notes to affiliates of CHC Lease Partners have been funded; (vi) Patriot
REIT has replaced the Old Line of Credit with the Revolving Credit
Facility and the Term Loan; (vii) the Offering has been completed; and
(viii) the 24 hotels acquired by Patriot REIT, the private placement of
equity securities and the public offering of common stock completed by Old
Patriot REIT during 1996 had occurred as of January 1, 1996.
(D) Represents adjustment to Patriot REIT's results of operations assuming the
CHC Hotels had been acquired as of January 1, 1996.
(E) Represents adjustments to Patriot REIT's results of operations assuming
the Buena Vista Acquisition had occurred as of January 1, 1996.
(F) Represents adjustments to participating lease revenue assuming the 80
hotels owned by Patriot REIT and its subsidiaries (excluding the hotels
acquired in the Crow Assets Acquisition which are presented elsewhere
herein, the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
which are not leased to Lessees and excluding the Park Shore Hotel) had
been leased to the Lessees or Patriot Operating Company as of January 1,
1996.
(G) Represents adjustments to Racecourse facility rental revenue as a result
of (i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and the PaineWebber Land Sale and (ii) rental income related to the
Borders Lease.
(H) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest earned on notes receivable issued to the
Patriot REIT Partnership by PAH RSI Lessee in connection with
the sale of certain assets and the right to receive certain
royalty fees................................................... $ 1,170
Related to the $500 mortgage note receivable issued to the
Patriot REIT Partnership by NorthCoast Hotels, L.L.C. ......... 48
Related to interest earned from notes receivable from an
unconsolidated subsidiary...................................... 21
Related to the elimination of interest earned on the $2,900 note
receivable issued to Old Patriot REIT by Cal Jockey in
connection with the Cal Jockey Merger.......................... (36)
-------
$ 1,203
=======
(I) Represents pro forma ground lease payments pursuant to the ground lease
agreement with an affiliate of PaineWebber of $3,964 and pro forma ground
lease payments to be made with respect to certain of the hotels of $274.
(J) Represents the following adjustments to general and administrative
expense:
Related to elimination of administrative salaries and other
expenses not expected to be incurred by Patriot REIT........... $ (568)
Related to elimination of non-recurring legal fees.............. (1,344)
Related to elimination of Cal Jockey Merger related costs....... (3,284)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public
company and the continued growth of Patriot REIT............... 150
Related to the annual amortization of unearned stock
compensation computed on a straight-line basis over the 3 to 5-
year vesting periods........................................... 1,647
-------
$(3,399)
=======
(K) Interest expense consists of the following components:
Historical interest expense..................................... $ 7,380
Interest expense related to 49 hotels acquired by Patriot REIT
since January 1, 1996 (excluding the Park Shore Hotel, the Crow
Assets Acquisition, the Buena Vista Acquisition and the CHC
Hotels)........................................................ 46,845
Interest expense related to the Subscription Notes payable to
Patriot Operating Company...................................... 1,934
Interest expense related to amortization of deferred loan costs
(including $3,868 of amortization related to costs associated
with the Revolving Credit Facility)............................ 3,998
Interest expense related to amortization of capitalized
interest....................................................... 93
Interest expense related to four of the CHC Hotels encumbered by
mortgage loans held by Patriot REIT............................ 7,753
Interest expense related to first leasehold mortgage debt
assumed in connection with the Buena Vista Acquisition......... 5,083
Interest expense related to the acquisition of the 10 CHC Hotels
and Buena Vista Acquisition.................................... 8,246
-------
$81,332
=======
</TABLE>
F-20
<PAGE>
(L) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot REIT related to the 49 hotels acquired since January
1, 1996 (excluding the Park Shore Hotel and the Crow Assets Acquisition).
(M) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to 49 hotels acquired by Patriot REIT
since January 1, 1996 (excluding the Park Shore Hotel, the
Crow Assets Acquisition, the Buena Vista Acquisition and the
CHC Hotels)................................................... $34,461
Reduction of depreciation expense related to the Racecourse
facility...................................................... (93)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value....................... 2,384
-------
$36,752
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements,
20 years for the Racecourse facility and 5 to 7 years for furniture,
fixtures and equipment ("F, F & E"). These estimated useful lives are based
on management's knowledge of the properties and the industry in general.
Amortization of goodwill is computed using the straight-line method over a
40 year estimated useful life. Because the paired share structure is
"grandfathered" under the Code, management believes the life of the paired
share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets.
(N) Represents equity in income of PAH WindWatch, L.L.C. and PAH Boulders,
Inc. acquired in September 1996 and January 1997, respectively.
(O) Represents an adjustment for estimated state income tax liabilities.
(P) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions of
approximately 14.1%.
(Q) Represents the minority interest related to the partnerships with an
affiliate of Doubletree Hotels Corporation, the limited liability
companies which own certain other hotels, the Sheraton City Centre
Partnership and the Buena Vista Joint Venture assuming such entities had
been formed and the 17 hotels owned by such entities had been acquired at
January 1, 1996.
(R) Pro forma earnings per share is computed based on 75,516 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares. In addition, the net income per common
share and the weighted average number of common shares and common share
equivalents have been adjusted for (i) the March 1997 2-for-1 stock split
on Old Patriot REIT Common Stock effected in the form of a stock dividend,
(ii) the conversion of each share of Old Patriot REIT Common Stock into
0.51895 Paired Shares issued in the Cal Jockey Merger, and (iii) the July
1997 1.927-for-1 stock split effected in the form of a stock dividend, as
applicable. Historical basis earnings per share is computed based on
35,938 and 11,106 weighted average common shares and common share
equivalents outstanding for Old Patriot REIT and Cal Jockey, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.81 per common share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(S) If the interest rate on variable rate debt increased by 0.25%, interest
expense would increase to approximately $83,413, net income would decrease
to $56,080 and net income per common share would decrease to $0.74.
F-21
<PAGE>
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT RECENT CHC HOTELS
HISTORICAL TRANSACTIONS ACQUISITION BUENA VISTA OTHER PRO FORMA
(A) (B) (C) ACQUISITION(D) ADJUSTMENTS TOTAL
---------- ------------ ----------- -------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $117,770 $ 37,224 (E) $25,632 (E) $19,348 (E) $ -- $199,974
Rental of Racecourse
facility and land..... 1,323 2,181 (F) -- -- -- 3,504
Interest and other
income................ 4,215 (172)(G) -- -- -- 4,043
-------- -------- ------- ------- -------- --------
Total revenue.......... 123,308 39,233 25,632 19,348 -- 207,521
-------- -------- ------- ------- -------- --------
Expenses:
Ground lease expense... 1,993 3,340 (H) 202 -- -- 5,535
General and
administrative........ 7,582 (645)(I) -- -- -- 6,937
Interest expense....... 31,977 17,243 (J) 4,719 (J) 3,818 (J) 3,990 (J) 61,747 (S)
Real estate and
personal property
taxes and casualty
insurance............. 11,219 4,191 (K) 3,317 (K) 1,914 (K) -- 20,641
Cost of acquiring
leaseholds............ 43,820 (43,820)(L) -- --
Depreciation and
amortization.......... 30,656 13,285 (M) 6,518 4,269 -- 54,728
-------- -------- ------- ------- -------- --------
Total expenses......... 127,247 (6,406) 14,756 10,001 3,990 149,588
-------- -------- ------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision, minority
interests and
extraordinary item..... (3,939) 45,639 10,876 9,347 (3,990) 57,933
Equity in earnings of
unconsolidated
subsidiaries.......... 4,488 -- -- -- -- 4,488
-------- -------- ------- ------- -------- --------
Income (loss) before
income tax provision,
minority interests and
extraordinary item..... 549 45,639 10,876 9,347 (3,990) 62,421
Income tax provision... -- (125)(N) -- -- -- (125)
-------- -------- ------- ------- -------- --------
Income (loss) before
minority interests and
extraordinary item..... 549 45,514 10,876 9,347 (3,990) 62,296
Minority interest in
Patriot REIT
Partnership........... (1,194) -- -- -- (7,238)(O) (8,432)
Minority interest in
consolidated
subsidiaries.......... (1,368) (658)(P) -- (467)(P) -- (2,493)
-------- -------- ------- ------- -------- --------
Income (loss) before
extraordinary item..... (2,013) 44,856 10,876 8,880 (11,228) 51,371
Extraordinary loss from
early extinguishment
of debt, net of
minority interest..... (2,534) 2,534 (Q) -- -- -- --
-------- -------- ------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ (4,547) $ 47,390 $10,876 $ 8,880 $(11,228) $ 51,371 (S)
======== ======== ======= ======= ======== ========
Net income (loss) per
common share:
Income (loss) before
extraordinary item.... $ (0.04) $ 0.68
Extraordinary loss..... (0.05) --
-------- --------
Net income (loss) per
common share (R)....... $ (0.09) $ 0.68 (S)
======== ========
</TABLE>
See notes on following page.
F-22
<PAGE>
NOTES TO PATRIOT REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
(A) Represents Patriot REIT's historical results of operations for the nine
months ended September 30, 1997.
(B) Represents adjustments to Patriot REIT's results of operations assuming
(i) the Cal Jockey Merger and the related transactions have been
consummated; (ii) the PaineWebber Land Sale has been consummated, the
PaineWebber affiliate has leased the Racecourse land to Patriot REIT and
Patriot REIT has subleased this land to Patriot Operating Company; (iii)
Patriot REIT has leased certain land to Borders, Inc.; (iv) Patriot REIT
has completed the Recent Acquisitions (excluding the Park Shore Hotel);
(v) the mortgage notes to affiliates of CHC Lease Partners have been
funded; (vi) Patriot REIT has replaced the Old Line of Credit with the
Revolving Credit Facility and the Term Loan; and (vii) the Offering has
been completed as of January 1, 1996.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the CHC Hotels had been acquired as of January 1, 1996.
(D) Represents adjustments to Patriot REIT's results of operations assuming
the Buena Vista Acquisition had occurred as of January 1, 1996.
(E) Represents adjustments to participating lease revenue assuming the 80
hotels owned by Patriot REIT and its subsidiaries (excluding the hotels
acquired in the Crow Assets Acquisition which are presented elsewhere
herein, the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
which are not leased to Lessees and excluding the Park Shore Hotel) had
been leased to the Lessees or Patriot Operating Company as of January 1,
1996.
(F) Represents adjustments to Racecourse facility rental revenue including
adjustments as a result of (i) the new lease agreement between Patriot
REIT and Patriot Operating Company subsequent to the Cal Jockey Merger and
the related transactions and the PaineWebber Land Sale and (ii) rental
income related to the Borders Lease.
(G) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest earned on notes receivable issued to the
Patriot REIT Partnership by PAH RSI Lessee in connection with
the sale of certain assets and the right to receive certain
royalty fees.................................................. $ 46
Cal Jockey historical interest income prior to the Cal Jockey
Merger........................................................ 1,715
Eliminate interest earned on the mortgage notes receivable from
affiliates of CHC Lease Partners.............................. (1,869)
Related to interest earned on other notes receivable .......... (64)
-------
$ (172)
=======
(H) Represents ground lease payments pursuant to the ground lease agreement
with an affiliate of PaineWebber.
(I) Represents the following adjustments to general and administrative
expense:
Cal Jockey historical general and administrative expense for
the six month period prior to the Cal Jockey Merger........... $ 2,657
Elimination of non-recurring legal fees and Cal Jockey Merger
related costs................................................. (2,092)
Adjustment to the amortization of unearned stock compensation
computed on the straight-line method over the 3 to 5-year
vesting periods (primarily to allocate a portion of the costs
to Patriot Operating Company)................................. (1,210)
-------
$ (645)
=======
(J) Interest expense consists of the following components:
Historical interest expense.................................... $31,977
Interest expense related to the hotels acquired by Patriot REIT
since January 1, 1997 (excluding the Park Shore Hotel, the
Crow Assets Acquisition, the Buena Vista Acquisition and the
CHC Hotels)................................................... 12,725
Interest expense related to the Subscription Notes payable to
Patriot Operating Company..................................... 1,450
Interest expense related to amortization of deferred loan costs
(including $2,901 of amortization related to costs associated
with the Revolving Credit Facility)........................... 2,998
Interest expense related to amortization of capitalized
interest...................................................... 70
Interest expense related to three CHC Hotels encumbered by
mortgage loans held by Patriot REIT acquired subsequent to
September 30, 1997............................................ 4,719
Interest expense related to the first leasehold mortgage debt
assumed in connection with the Buena Vista Acquisition........ 3,818
Interest expense related to the Buena Vista Acquisition ....... 3,990
-------
$61,747
=======
</TABLE>
(K) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot REIT related to the hotels acquired since January 1,
1997 (excluding the Park Shore Hotel and the Crow Assets Acquisition).
(L) Represents elimination of the cost of acquiring seven leaseholds related
to Participating Lease agreements for seven hotels leased by CHC Lease
Partners recorded as an operating expense in Patriot REIT's historical
results of operations. Because the intent of the pro forma financial
statements is to reflect the expected continuing impact of certain
transactions on the Patriot Companies, this non-recurring expense has been
excluded from the pro forma statements of operations.
F-23
<PAGE>
(M) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to hotels acquired by Patriot REIT from
January 1, 1997 through
September 30, 1997 (excluding the Park Shore Hotel)............. $12,430
Reduction of depreciation expense related to the Racecourse
facility........................................................ (240)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value......................... 1,095
-------
$13,285
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements,
20 years for the Racecourse facility and 5 to 7 years for F, F & E. These
estimated useful lives are based on management's knowledge of the properties
and the industry in general. Amortization of goodwill is computed using the
straight-line method over a 40 year estimated useful life. Because the
paired share structure is "grandfathered" under the Code, management
believes the life of the paired share structure is perpetual. Under
generally accepted accounting principles, however, the maximum amortization
period is 40 years for intangible assets.
(N) Represents an adjustment for estimated state income tax liabilities.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions of
approximately 14.1%.
(P) Represents adjustments to the minority interest related to the
partnerships with an affiliate of Doubletree Hotels Corporation, the
limited liability companies which own certain other hotels, the Sheraton
City Centre Partnership and the Buena Vista Joint Venture assuming such
entities had been formed and the 17 hotels owned by such entities had been
acquired as of January 1, 1996.
(Q) Represents elimination of extraordinary loss from the early extinguishment
of debt. Patriot REIT recognized the loss as a result of the write-off of
unamortized deferred loan costs related to the Old Line of Credit when it
was replaced with the Revolving Credit Facility. Because the intent of the
pro forma financial statements is to reflect the expected continuing
impact of certain transactions on the Patriot Companies, this non-
recurring expense has been excluded from the pro forma statements of
operations.
(R) Pro forma earnings per share is computed based on 76,090 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend, as applicable. Historical basis
earnings per share is computed based on 51,104 weighted average common
shares and common share equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.73 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
(S) If the interest rate on variable rate debt increased by 0.25%, interest
expense would increase to approximately $63,307, net income would decrease
to $50,031 and net income per common share would decrease to $0.66.
F-24
<PAGE>
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BAY CHC HOTELS CHCI
MEADOWS RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION BUENA VISTA
(A) (B) (C) (D) (E) ACQUISITION(F) OTHER
---------- ------------ ----------- ---------- ----------- -------------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $ -- $167,602 $187,365 $ -- $ 5,282 $38,090 $ --
Other hotel revenue... -- 141,122 97,250 -- 4,351 24,401 --
Racecourse facility
revenue.............. 51,946 -- -- -- -- -- --
Management fee and
service fee income... -- 3,165 -- 7,270 9,032 -- (5,945)(G)
Interest and other
income............... 1,526 4,979 (H) -- 14 715 -- --
------- -------- -------- ------ ------- ------- -------
Total revenue......... 53,472 316,868 284,615 7,284 19,380 62,491 (5,945)
------- -------- -------- ------ ------- ------- -------
Expenses:
Departmental costs--
hotel operations..... -- 137,612 112,873 -- 3,995 25,927 --
Racecourse facility
operations........... 45,658 693 (I) -- -- -- -- --
Management company and
service department
operations........... -- 1,595 -- 4,882 4,666 -- --
General and
administrative....... 4,381 31,495 (J) 28,568 (K) 1,056 (K) 9,431 (K) 4,313 (K) --
Ground lease expense.. -- 733 -- -- -- 4,607 --
Repair and
maintenance.......... -- 18,304 13,120 -- -- 2,318 --
Utilities............. -- 13,955 14,167 -- -- 2,522 --
Marketing............. 1,436 25,512 27,085 -- -- 3,681 --
Management fees....... -- 9,728 6,671 -- -- 1,677 (5,945)(G)
Depreciation and
amortization......... 754 1,591 (L) -- 112 853 -- 7,038 (L)
Participating lease
payments............. -- 88,309 (M) 93,879 (M) -- -- 22,434 (M) --
Interest expense...... 130 1,240 -- 23 3,304 -- (3,304)(N)
Real estate and
personal property
taxes and casualty
insurance............ 398 -- -- -- -- -- --
------- -------- -------- ------ ------- ------- -------
Total expenses........ 52,757 330,767 296,363 6,073 22,249 67,479 (2,211)
------- -------- -------- ------ ------- ------- -------
Income (loss) before
income tax provision
and minority
interests............. 715 (13,899) (11,748) 1,211 (2,869) (4,988) (3,734)
Income tax provision.. (260) -- -- -- (92)(O) -- (408)(O)
------- -------- -------- ------ ------- ------- -------
Income (loss) before
minority interest..... 455 (13,899) (11,748) 1,211 (2,961) (4,988) (4,142)
Minority interest in
Patriot Operating
Company Partnership.. -- -- -- -- -- -- 5,339 (P)
------- -------- -------- ------ ------- ------- -------
Net income (loss)
applicable to common
shareholders.......... $ 455 $(13,899) $(11,748) $1,211 $(2,961) $(4,988) $ 1,197
======= ======== ======== ====== ======= ======= =======
Net income (loss) per
common share (Q)...... $ 0.04
=======
<CAPTION>
PRO FORMA
TOTAL
----------
<S> <C>
Revenue:
Room revenue.......... $398,339
Other hotel revenue... 267,124
Racecourse facility
revenue.............. 51,946
Management fee and
service fee income... 13,522
Interest and other
income............... 7,234
----------
Total revenue......... 738,165
----------
Expenses:
Departmental costs--
hotel operations..... 280,407
Racecourse facility
operations........... 46,351
Management company and
service department
operations........... 11,143
General and
administrative....... 79,244
Ground lease expense.. 5,340
Repair and
maintenance.......... 33,742
Utilities............. 30,644
Marketing............. 57,714
Management fees....... 12,131
Depreciation and
amortization......... 10,348
Participating lease
payments............. 204,622
Interest expense...... 1,393
Real estate and
personal property
taxes and casualty
insurance............ 398
----------
Total expenses........ 773,477
----------
Income (loss) before
income tax provision
and minority
interests............. (35,312)
Income tax provision.. (760)
----------
Income (loss) before
minority interest..... (36,072)
Minority interest in
Patriot Operating
Company Partnership.. 5,339
----------
Net income (loss)
applicable to common
shareholders.......... $(30,733)
==========
Net income (loss) per
common share (Q)...... $ (0.43)
==========
</TABLE>
See notes on following page.
F-25
<PAGE>
NOTES TO PATRIOT OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS):
(A) Represents the historical results of operations of Patriot Operating
Company (formerly known as Bay Meadows) for the year ended December 31,
1996.
(B) Represents adjustments to Patriot Operating Company's results of
operations assuming 26 of Patriot REIT's hotel properties had been leased
to Patriot Operating Company as of January 1, 1996. These hotel properties
include 13 of the Recent Acquisitions, the eight hotels previously leased
to PAH RSI Lessee, the three hotels previously leased to Grand Heritage
Leasing, L.L.C., the Doubletree Hotel at Allen Center and the Doubletree
Hotel in Tulsa, Oklahoma.
(C) Represents the combined results of operations for the year ended December
31, 1996 of the 10 CHC Hotels and 25 hotels leased by CHC Lease Partners
assuming that such hotels were leased to Patriot Operating Company as of
January 1, 1996.
(D) Represents the results of operations of GAH for the year ended December
31, 1996, assuming it had been acquired by Patriot Operating Company as of
January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the twelve months ended November 30, 1996,
assuming such contracts had been acquired by Patriot Operating Company as
of January 1, 1996.
(F) Represents the results of operations for the year ended December 31, 1996
of the Buena Vista Palace Hotel assuming such hotel was leased to Patriot
Operating Company as of January 1, 1996.
(G) Represents the elimination of management fees for Patriot REIT hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger, such hotels are assumed to be managed by
Patriot Operating Company.
(H) Adjustments to interest and other income consist of the following
components:
<TABLE>
<S> <C>
Interest and other income related to PAH RSI Lessee............. $ 2,030
Interest income related to the Subscription Notes receivable
from Patriot REIT.............................................. 1,934
Interest income related to the Participating Note............... 1,015
-------
$ 4,979
=======
All other interest and other income balances presented represent historical
amounts recorded by hotels and businesses acquired.
(I) Represents adjustment to Racecourse facility rental expense as a result of
(i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and (ii) the PaineWebber Land Sale.
(J) Represents the following adjustments to general and administrative
expense:
Represents expense related to the hotels recently acquired...... $27,587
Represents general liability insurance expense.................. 1,582
Related to elimination of costs related to the Cal Jockey
Merger......................................................... (861)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public
company and the continued growth of Patriot Operating Company.. 300
Represents expense related to the annual amortization of
unearned stock compensation computed on a straight-line basis
over the 3 to 5-year vesting periods........................... 2,887
-------
$31,495
=======
(K) Represent general and administrative expense related to the 10 CHC Hotels
and general and administrative expense related to the contracts acquired
in connection with the GAH Acquisition and the CHCI Merger.
(L) Represents the following adjustments to depreciation and amortization:
Adjustment to increase depreciation related to F, F & E......... $ 245
Adjustment to reflect amortization of goodwill.................. 438
Adjustment to reflect amortization of trade names............... 125
Adjustment to reflect amortization of management contract
costs.......................................................... 783
-------
$ 1,591
=======
Adjustment to increase depreciation related to F, F & E......... $ 86
Adjustment to reflect amortization of goodwill.................. 600
Adjustment to reflect amortization of trade names............... 250
Adjustment to amortization of management contract costs......... 6,102
-------
$ 7,038
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 5 to 7 years for F, F & E. Amortization of
goodwill related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management believes the life of
the paired share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
F-26
<PAGE>
(M) Represents lease payments from Patriot Operating Company to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(N) Represents the elimination of interest expense related to debt that
Patriot Operating Company will not assume in connection with the CHCI
Merger.
(O) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustments to the operating results of
Patriot Operating Company for the year ended December 31, 1996.
(P) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions of
approximately 14.8%.
(Q) Pro forma earnings per share is computed based on 70,836 weighted average
common shares outstanding for the period. The number of shares used for
the calculation does not include adjustments to reflect the impact of the
conversion of shares of Patriot Operating Company Preferred Stock into
Paired Shares or other common share equivalents outstanding because they
are antidilutive. The historical net income per common share and the
weighted average number of common shares have been adjusted for (i) the
March 1997 2-for-1 stock split on Old Patriot REIT Common Stock effected
in the form of a stock dividend, (ii) the conversion of each share of Old
Patriot REIT Common Stock into 0.51895 Paired Shares issued in the Cal
Jockey Merger, and (iii) the July 1997 1.927-for-1 stock split effected in
the form of a stock dividend, as applicable. Historical basis earnings per
share is computed based on 11,106 weighted average common shares and
common share equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.43 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-27
<PAGE>
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
OPERATING CHC HOTELS CHCI
COMPANY RECENT AND LEASE GAH HOSPITALITY BUENA VISTA
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION ACQUISITION PRO FORMA
(A) (B) (C) (D) (E) (F) OTHER TOTAL
---------- ------------ ----------- ---------- ----------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $20,437 $127,631 $146,163 $ -- $ 4,164 $31,573 $ -- $329,968
Other hotel revenue.... 9,834 104,868 71,352 -- 3,559 20,610 -- 210,223
Racecourse facility
revenue............... 10,861 22,538 -- -- -- -- -- 33,399
Management fee and
service fee income.... 1,577 2,836 -- 6,805 6,747 -- (3,264)(G) 14,701
Interest and other
income................ 1,475 1,876 983 142 590 -- 1,308 (H) 6,374
------- -------- -------- ------ ------- ------- ------- --------
Total revenue.......... 44,184 259,749 218,498 6,947 15,060 52,183 (1,956) 594,665
------- -------- -------- ------ ------- ------- ------- --------
Expenses:
Departmental costs--
hotel operations...... 10,032 100,644 84,047 -- 3,193 21,294 -- 219,210
Racecourse facility
operations............ 10,536 19,664 (I) -- -- -- -- (86)(I) 30,114
Management company and
service department
operations............ 260 1,458 -- 2,147 8,703 -- -- 12,568
General and
administrative........ 4,081 25,147 (J) 21,186 (J) 3,413 (J) 5,573 (J) 3,267 (J) (2,626)(K) 60,041
Ground lease expense... -- 523 -- -- -- 3,826 -- 4,349
Repair and
maintenance........... 1,186 14,280 9,967 -- -- 2,239 -- 27,672
Utilities.............. 1,450 9,662 10,302 -- -- 1,802 -- 23,216
Marketing.............. 3,122 18,677 21,678 532 -- 2,529 -- 46,538
Management fees........ 699 8,224 4,827 -- -- 1,465 (3,264)(G) 11,951
Depreciation and
amortization.......... 1,142 370 -- 103 792 -- 3,042 (L) 5,449
Participating lease
payments.............. 10,686 65,891 (M) 69,676 (M) -- -- 19,348 (M) -- 165,601
Interest expense....... 11 912 -- 13 1,934 -- (1,934)(N) 936
Real estate and
personal property
taxes and casualty
insurance............. 48 220 -- 22 -- -- -- 290
------- -------- -------- ------ ------- ------- ------- --------
Total expenses......... 43,253 265,672 221,683 6,230 20,195 55,770 (4,868) 607,935
------- -------- -------- ------ ------- ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 931 (5,923) (3,185) 717 (5,135) (3,587) 2,912 (13,270)
Income tax (provision)
benefit............... (94) 471 (O) -- -- (74)(O) -- (303)(O) --
------- -------- -------- ------ ------- ------- ------- --------
Income (loss) before
minority interest...... 837 (5,452) (3,185) 717 (5,209) (3,587) 2,609 (13,270)
Minority interest in
Patriot Operating
Company Partnership... (115) -- -- -- -- -- 2,079 (P) 1,964
Minority interest in
consolidated
subsidiaries.......... (13) -- -- -- -- -- 13 --
------- -------- -------- ------ ------- ------- ------- --------
Net income (loss)
applicable to common
shareholders........... $ 709 $ (5,452) $ (3,185) $ 717 $(5,209) $(3,587) $ 4,701 $(11,306)
======= ======== ======== ====== ======= ======= ======= ========
Net income (loss) per
common share (Q)....... $ 0.01 $ (0.16)
======= ========
</TABLE>
See notes on following page.
F-28
<PAGE>
NOTES TO PATRIOT OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS):
(A) Represents the historical results of operations of Patriot Operating
Company for the three months ended September 30, 1997. As a result of the
Cal Jockey Merger on July 1, 1997, Patriot Operating Company is considered
for financial reporting purposes to have commenced operations as of such
date.
(B) Represents adjustments to Patriot Operating Company's results of
operations assuming 26 of Patriot REIT's hotel properties had been leased
to Patriot Operating Company as of January 1, 1996. These hotel properties
include 13 of the Recent Acquisitions, the eight hotels previously leased
to PAH RSI Lessee, the three hotels previously leased to Grand Heritage
Leasing, L.L.C., the Doubletree Hotel at Allen Center and the Doubletree
Hotel in Tulsa, Oklahoma.
(C) Represents the combined results of operations for the nine months ended
September 30, 1997 of the 10 CHC Hotels and 25 leases of CHC Lease
Partners leased by CHC Lease Partners assuming that such hotels were
leased to Patriot Operating Company as of January 1, 1996.
(D) Represents the results of operations of GAH for the nine months ended
September 30, 1997, assuming it had been acquired by Patriot Operating
Company as of January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the nine months ended August 31, 1997, as if
they were acquired by Patriot Operating Company as of January 1, 1996.
(F) Represents adjustments to Patriot Operating Company's results of
operations assuming the Buena Vista Palace Hotel had been leased to
Patriot Operating Company as of January 1, 1996.
(G) Represents the elimination of management fees for Patriot REIT hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger such hotels are assumed to be managed by
Patriot Operating Company.
(H) Adjustments to interest and other income consists of the following
components:
<TABLE>
<S> <C>
Interest income related to the Subscription Notes receivable
from Patriot REIT.............................................. $ 723
Interest income related to the Participating Note............... 585
-------
$ 1,308
=======
All other interest and other income balances presented represent historical
amounts recorded by hotels and businesses acquired.
(I) Represents historical expense amount of $19,664 recorded by Bay Meadows
for the six months prior to the Cal Jockey Merger and an adjustment in the
amount of $86 to Racecourse facility rental expense as a result of (i) the
new lease agreement between Patriot REIT and Patriot Operating Company
subsequent to the Cal Jockey Merger and the related transactions and (ii)
the PaineWebber Land Sale.
(J) Represent general and administrative expense related to the hotels
acquired and general and administrative expense related to the contracts
acquired in connection with the GAH Acquisition and the CHCI Merger.
(K) Represents the following adjustments to general and administrative
expense:
Eliminate costs related to the Cal Jockey Merger................ $(4,792)
Expense related to annual amortization of unearned stock
compensation computed on a straight-line basis over the 3 to 5-
year vesting periods........................................... 2,166
-------
$(2,626)
=======
(L) Depreciation and amortization expense consists of the following
components:
Depreciation related to F, F & E and other assets............... $ 2,306
Amortization of goodwill........................................ 546
Amortization of trade names..................................... 94
Amortization of management contract costs....................... 2,503
-------
$ 5,449
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 5 to 7 years for F, F & E. Amortization of
goodwill related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management believes the life of
the paired share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
(M) Represents lease payments from Patriot Operating Company to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(N) Represents the elimination of interest expense related to debt which
Patriot Operating Company will not assume in connection with the CHCI
Merger.
(O) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustment to Patriot Operating Company for
the nine months ended September 30, 1997.
(P) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions of
approximately 14.8%.
F-29
<PAGE>
(Q) Pro forma earnings per share is computed based on 70,836 weighted average
common shares outstanding for the period. The number of shares used for
the calculation does not include adjustments to reflect the impact of the
conversion of shares of Patriot Operating Company Preferred Stock into
Paired Shares or other common share equivalents outstanding because they
are anitdilutive. The historical net income per common share and the
weighted average number of common shares and common share equivalents have
been adjusted for the conversion of each share of Old Patriot REIT Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger, and the
July 1997 1.927-for-1 stock split effected in the form of a stock
dividend, as applicable. Historical basis earnings per share is computed
based on 51,104 weighted average common shares and common share
equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of $0.16 per common share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-30
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot REIT leases each of its hotels to Lessees, except those hotels
leased to Patriot Operating Company and except the Crowne Plaza Ravinia Hotel
and the Wyndham WindWatch Hotel, which are separately owned through the Non-
Controlled Subsidiaries and are managed directly by Operators. The Combined
Lessees subsequent to (i) the Cal Jockey Merger and the related transactions;
(ii) the Grand Heritage Acquisition (which included the acquisition of Grand
Heritage Leasing, L.L.C. which leased three hotels from Patriot REIT);
(iii) the acquisition of PAH RSI Lessee (which included the acquisition of
eight Patriot REIT hotel leases); and (iv) the GAH Acquisition and the CHCI
Merger (which included the acquisition of 25 Patriot REIT hotel leases from
CHC Lease Partners) consist of NorthCoast Hotels, L.L.C. ("NorthCoast Lessee")
which leases 11 hotels (excluding the Park Shore Hotel), DTR North Canton,
Inc. ("Doubletree Lessee") which leases four hotels, Crow Hotel Lessee, Inc.
which leased two hotels (prior to the acquisition of certain of the hotels in
the Crow Assets Acquisition), and Metro Hotel Leasing Corporation ("Metro
Lease Partners") which leases one hotel. The Participating Leases provide for
staggered terms of one to twelve years and the payment of the greater of base
or participating rent, plus certain additional charges, as applicable.
The Combined Lessees' unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 are presented as if the 18 hotels that Patriot REIT leases
to the Combined Lessees pursuant to Participating Leases (excluding the Park
Shore Hotel) had been leased as of January 1, 1996. The eight hotels which
were leased to PAH RSI Lessee, the 25 hotels which were leased to CHC Lease
Partners, and the three hotels leased to Grand Heritage Leasing, L.L.C. are
assumed to have been leased to Patriot Operating Company and, therefore, have
been eliminated from the Pro Forma Condensed Combined Statements of Operations
for the Combined Lessees. The pro forma information is based in part upon the
Statements of Operations of NorthCoast Lessee filed with Old Patriot REIT's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Statements of Operations of NorthCoast Lessee filed with Patriot REIT's and
Patriot Operating Company's Joint Quarterly Report on Form 10-Q for the nine
months ended September 30, 1997. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of January 1, 1996, nor do they purport to represent the results of
operations for future periods. Further, the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
F-31
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Room................................................ $ 88,410 $ 72,100
Food and beverage................................... 36,878 28,663
Telephone and other................................. 7,837 6,193
-------- --------
Total revenue.................................... 133,125 106,956
-------- --------
Expenses:
Departmental costs and expenses..................... 54,564 42,397
General and administrative.......................... 12,595 9,520
Ground lease expense................................ 2,496 985
Repair and maintenance.............................. 6,670 5,072
Utilities........................................... 5,435 4,038
Marketing........................................... 9,169 7,495
Participating lease payments(A)..................... 41,749 34,373
-------- --------
Total expenses................................... 132,678 103,880
-------- --------
Income before lessee income (expense)................ 447 3,076
-------- --------
Dividend and interest income(B)...................... 142 1,087
Management fees(C)................................... (3,479) (3,102)
Lessee general and administrative(D)................. (577) (478)
-------- --------
(3,914) (2,493)
-------- --------
Net income (loss).................................... $ (3,467) $ 583
======== ========
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. Pro
forma amounts exclude additional dividend income earned on OP Units held
by certain Lessees, and pro forma interest income earned on invested cash
balances.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-32
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On January 5, 1998 pursuant to the Agreement and Plan of Merger dated as of
April 14, 1997, as thereafter amended, (the "Wyndham Merger Agreement")
between Patriot REIT, Patriot Operating Company and Wyndham Hotel Corporation
("Wyndham"), Wyndham merged with and into Patriot REIT, with Patriot REIT
being the surviving corporation (the "Wyndham Merger"). Following the Wyndham
Merger, Patriot REIT continued to be referred to as "Patriot American
Hospitality, Inc." and Patriot Operating Company changed its name to "Wyndham
International, Inc." ("Wyndham International").
Pursuant to the Wyndham Merger Agreement, subject to certain adjustments and
the right of Wyndham stockholders to elect to receive $42.80 per share in cash
(such election being referred to herein as a "Cash Election" and such cash to
be received being referred to herein as "Cash Consideration") as described
below, Wyndham stockholders received, for each share of common stock, par
value $0.01 per share, of Wyndham ("Wyndham Common Stock") held by them on
January 5, 1998 (the "Effective Time" of the Wyndham Merger), 1.372 shares of
Patriot REIT Common Stock and 1.372 shares of Patriot Operating Company Common
Stock which shares are paired and transferable only as a single unit (the
1.372 conversion ratio being referred to herein as the "Exchange Ratio"). The
average closing price of a Paired Share as reported on the New York Stock
Exchange ("NYSE") over the 20 trading days immediately preceding the fifth
business day prior to the special meeting of the stockholders of Wyndham (the
"Patriot Average Closing Price") was $29.556. As a result, no adjustment to
the Exchange Ratio was required pursuant to certain provisions of the Wyndham
Merger Agreement. Each Paired Share of Patriot REIT Common Stock and Patriot
Operating Company Common Stock outstanding immediately prior to the Wyndham
Merger remained outstanding after the Wyndham Merger and represented the same
number of Paired Shares of Patriot REIT Common Stock and Patriot Operating
Company Common Stock.
As a result of certain provisions of the Internal Revenue Code applicable to
REITs like Patriot REIT, the shares of Wyndham Common Stock owned by CF
Securities, L.P. ("CF Securities"), the holder of approximately 43.7% of the
Wyndham Common Stock immediately prior to the Wyndham Merger, could not be
converted solely into Paired Shares pursuant to the terms of the Wyndham
Merger Agreement. Accordingly, Patriot REIT and CF Securities entered into a
Stock Purchase Agreement dated April 14, 1997 (the "Stock Purchase Agreement")
which provided for the issuance to CF Securities immediately prior to the
consummation of the Wyndham Merger of a combination of Paired Shares and
shares of Series A Convertible Preferred Stock, par value $0.01 per share, of
Patriot REIT (the "Series A Preferred Stock") at the Exchange Ratio for its
shares of Wyndham Common Stock.
In lieu of receiving Paired Shares, Wyndham stockholders had the right under
the Wyndham Merger Agreement to make a Cash Election to receive Cash
Consideration in an amount equal to $42.80 for each share of Wyndham Common
Stock held by them. Pursuant to the Stock Purchase Agreement, CF Securities
had an equivalent right to make a Cash Election with regard to the shares of
Wyndham Common Stock held by it and elected to receive cash with respect to
all 9,447,745 of its shares of Wyndham Common Stock. The maximum aggregate
amount of cash to be paid to Wyndham stockholders and CF Securities pursuant
to such Cash Election rights was a total of $100,000. Accordingly, the maximum
number of shares of Wyndham Common Stock to be converted into Cash
Consideration was 2,336,448 shares. CF Securities and other holders of Wyndham
Common Stock made Cash Elections with regard to the shares of Wyndham Common
Stock held by them in excess of the $100,000 of available cash. As a result,
such cash was allocated on a pro rata basis among such stockholders and CF
Securities based upon the respective number of shares of Wyndham Common Stock
as to which a Cash Election was made. The Wyndham stockholders (other than CF
Securities) received Paired Shares at the Exchange Ratio for their shares of
Wyndham Common Stock which were not converted into Cash Consideration.
F-33
<PAGE>
Pursuant to the terms of the Stock Purchase Agreement, CF Securities received
a combination of 6,427,217 Paired Shares and 4,860,876 shares of Series A
Convertible Preferred Stock, par value $0.01 per share, of Patriot REIT
("Series A Preferred Stock") for its shares of Wyndham Common Stock which were
not converted into Cash Consideration. In connection with the rescheduling of
the record date for Patriot REIT's dividend payment for the fourth quarter of
1997 to January 8, 1998, stockholders of Wyndham (including CF Securities) who
made Cash Elections also received $0.43904 for each of their shares of Wyndham
Common Stock converted into Cash Consideration, for an aggregate of
approximately $1,025.
As a result of the Wyndham Merger, Wyndham stockholders (including CF
Securities) received a total of 21,594,188 Paired Shares and $100,000 of cash,
and CF Securities was issued 4,860,876 shares of Series A Preferred Stock.
Patriot REIT acquired Wyndham's assets described in further detail below and
assumed Wyndham's existing indebtedness, substantially all of which has been
refinanced with funds drawn on the Revolving Credit Facility.
As of January 5, 1998, Wyndham's portfolio of owned, leased or managed
hotels (excluding hotels closed for renovation) consisted of 98 hotels
operated by Wyndham, as well as 8 franchised hotels, which in the aggregate
contained approximately 26,000 rooms. Wyndham's portfolio includes 89 upscale
hotel properties and 17 midscale properties operating under the ClubHouse
brand. Wyndham acquired through merger in July 1997 Kansas City-based
ClubHouse, a privately-held hospitality company with a portfolio of 17 hotels.
Of the hotels comprising ClubHouse's portfolio, Wyndham acquired through the
merger or in related acquisition transactions ownership of 13 ClubHouse hotels
and partial ownership of three ClubHouse hotels. Wyndham also acquired through
the merger ownership of the "ClubHouse" brand name, as well as license rights
with respect to one franchised ClubHouse hotel.
Following the Wyndham Merger, Patriot REIT, through certain of its
subsidiaries, (excluding hotels closed for renovation) owned the 10 Wyndham
hotels and 13 ClubHouse hotels and leased such hotels to Wyndham
International. The 13 hotel leases assumed by Patriot REIT were sub-leased to
Wyndham International. Wyndham's remaining 54 management and franchise
contracts (excluding the seven hotels that Wyndham manages that are owned by
Patriot REIT and the ten hotels included in the Crow Assets Acquisition
described below), the Wyndham and the ClubHouse proprietary brand names and
the Wyndham hotel management company were transferred to corporate
subsidiaries of Patriot REIT (collectively, the "New Non-Controlled
Subsidiaries"). Patriot REIT owns a 99% non-voting interest and Wyndham
International owns the 1% controlling voting interest in each of the New Non-
Controlled Subsidiaries. Therefore, the operating results of the New Non-
Controlled Subsidiaries will be combined with those of Wyndham International
for financial reporting purposes. Patriot REIT will account for its investment
in the New Non-Controlled Subsidiaries using the equity method of accounting.
In connection with the Wyndham Merger, Wyndham completed the tender offer
for its 10 1/2% Senior Subordinated Notes due 2006 (the "Notes"). The tender
offer expired at 12:00 midnight, EST, on January 2, 1998. All Notes validly
tendered in the tender offer, which represented approximately 98.5% of the
outstanding principal amount of the Notes, were accepted for purchase. Payment
of the tender offer consideration, the consent payment (for valid consents
received by 5:00 p.m., EST, on December 11, 1997, the consent date), if
applicable, and accrued and unpaid interest in the aggregate amount of
approximately $116,160 was made on January 8, 1998 and was financed primarily
with funds drawn on the Revolving Credit Facility.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by Wyndham are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of Wyndham has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of Wyndham will materially change;
however, the allocation of purchase costs is subject to final determination
based upon estimates and other evaluations of fair market value as of the
close of the transaction. Therefore, the allocation reflected in the following
unaudited Pro Forma Financial Statements may differ from the amounts
ultimately determined.
F-34
<PAGE>
In connection with the execution of the Wyndham Merger Agreement, the
Patriot REIT Partnership also entered into agreements with certain
partnerships that are owned by certain members of the Trammell S. Crow family
and their affiliates, certain current and former executive officers of Wyndham
and others (the "Crow Family Entities") providing for the acquisition by
Patriot REIT of up to 11 full-service Wyndham-brand hotels with 3,072 rooms
(the "Crow Assets") for approximately $331,664 in cash, plus approximately
$14,000 in additional consideration if two hotels meet certain operational
targets (the "Crow Assets Acquisition"). On December 16, 1997, the Patriot
REIT Partnership acquired nine of the hotels in the Crow Assets. Patriot REIT
currently expects that the purchase of the Milwaukee Hotel will be delayed up
to 24 months and the purchase of the Palm Springs Hotel will be delayed until
the first quarter of 1998 pending the receipt of certain third party consents.
Accordingly, the Pro Forma Financial Statements include only the results of
operations of 10 hotels with 2,851 rooms which represent approximately
$308,633 of the total purchase price. The Milwaukee Hotel acquisition has been
excluded due to the length of the expected delay in closing. Subsequent to the
Crow Assets Acquisition, Patriot REIT leased the purchased hotels to Wyndham
International. In addition, in connection with the Crow Assets Acquisition,
the leases with the Wyndham Lessee related to the Wyndham Garden Hotel-Midtown
and the Wyndham Greenspoint Hotel were terminated and Patriot REIT leased
these hotel properties to Wyndham International.
Prior to the closing of the acquisition of the nine hotels on December 16,
1997 discussed above, the Patriot REIT Partnership and the Crow Family
Entities reached an agreement in principle that they would waive any
conditions to the closing that the Wyndham Merger be consummated concurrently
with consummation of the Crow Assets Acquisition.
The Wyndham Merger and the Related Transactions and the Crow Assets
Acquisition are collectively referred to herein as the "Wyndham Transactions."
The following unaudited Pro Forma Condensed Combined Statements of
Operations as adjusted for the Wyndham Transactions for the year ended
December 31, 1996 and the nine months ended September 30, 1997 assume the
Wyndham Merger and the Crow Assets Acquisition had occurred on January 1,
1996. The pro forma information is also presented as if the following Recent
Transactions had occurred on January 1, 1996:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased this land and the
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan; and
(viii) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotel to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition;
(iii) the CHCI Merger has been consummated on terms set forth in the CHCI
Merger Agreement; and
(iv) Patriot REIT has completed the Buena Vista Acquisition and leased
such hotel to Patriot Operating Company.
F-35
<PAGE>
In addition, the pro forma results of operations for the year ended December
31, 1996 assume the 24 hotels acquired during 1996 and the private placement of
equity securities and the public offering of common stock completed by Old
Patriot REIT during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made.
The Pro Forma Condensed Combined Statements of Operations are derived from
(i) the Patriot REIT and Patriot Operating Company Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 included elsewhere in this Joint Current
Report; (ii) the Consolidated Statements of Income of Wyndham for the year
ended December 31, 1996 and the nine months ended September 30, 1997 filed with
Wyndham's Annual Report on Form 10-K for the year ended December 31, 1996 and
Wyndham's Quarterly Report on Form 10-Q for the nine months ended September 30,
1997, respectively; and (iii) the Combined Crow Family Hotel Partnerships
financial statements for the year ended December 31, 1996 and the nine months
ended September 30, 1997 which were filed in the Patriot Companies' Joint
Current Report on Form 8-K dated December 10, 1997. During 1996, one of the
hotels to be acquired in the Crow Assets Acquisition (the La Guardia Airport
Hotel) was closed for renovation. As a result the hotel reported no historical
results of operations for 1996 and therefore is not included in the following
unaudited Pro Forma Condensed Combined Statements of Operations for the year
ended December 31, 1996 and the nine months ended September 30, 1997. The
following pro forma financial information is also based in part upon the
following additional financial information:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996;
(ii) the Consolidated Statements of Operations of Old Patriot REIT filed
with the Old Patriot REIT Annual Report on Form 10-K for the year ended
December 31, 1996;
(iii) the Separate and Combined Statements of Income of Patriot REIT and
Patriot Operating Company filed with the Patriot Companies' Joint Quarterly
Report on Form 10-Q for the nine months ended September 30, 1997;
(iv) the historical financial statements of certain hotels acquired by
Old Patriot REIT filed in Old Patriot REIT's Current Reports on Form 8-K
dated April 2, 1996, as amended, December 5, 1996 and January 16, 1997, as
amended;
(v) the historical financial statements of certain hotels and businesses
acquired or to be acquired by the Patriot Companies filed in the Patriot
Companies' Joint Current Reports on Form 8-K dated September 17, 1997,
September 30, 1997, as amended, and December 10, 1997, and located
elsewhere in this Joint Current Report; and
(vi) the Pro Forma Condensed Combined Statements of Operations of the
Combined Lessees which are located elsewhere in this Joint Current Report.
The following unaudited Pro Forma Condensed Combined Statements of Operations
are not necessarily indicative of what the actual results of operations of
Patriot REIT and Wyndham International as adjusted for the Wyndham Transactions
would have been assuming such transactions had been completed as of January 1,
1996, nor do they purport to represent the results of operations for future
periods. Further, the unaudited Pro Forma Condensed Combined Statement of
Operations for the interim period ended September 30, 1997 is not necessarily
indicative of the results of operations for the full year.
F-36
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $312,451 $ -- $(279,721)(A) $ 32,730
Hotel revenue........... -- 969,834 -- 969,834
Racecourse facility
revenue, hotel and land
lease revenue.......... 17,714 51,946 (17,380)(B) 52,280
Management fee, service
fee and reimbursement
income................. -- 48,621 -- 48,621
Interest and other
income................. 2,797 9,484 (3,138)(C) 9,143
-------- ---------- --------- ----------
Total revenue........... 332,962 1,079,885 (300,239) 1,112,608
-------- ---------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 407,183 -- 407,183
Racecourse facility
operations............. -- 46,351 (5,611)(B) 40,740
Direct operating costs
of management company,
service department, and
reimbursement
expenses............... -- 43,809 -- 43,809
General and
administrative......... 7,097 111,421 (34)(C) 118,484
Ground lease and hotel
lease expense.......... 16,824 17,109 (11,769)(B) 22,164
Repair and maintenance.. -- 45,836 -- 45,836
Utilities............... -- 40,635 -- 40,635
Interest expense........ 142,248 1,393 (3,104)(C) 140,537
Real estate and personal
property taxes and
casualty insurance..... 38,104 847 -- 38,951
Marketing............... -- 77,053 -- 77,053
Management fees......... -- 11,527 -- 11,527
Depreciation and
amortization........... 103,325 29,431 -- 132,756
Participating lease
payments............... -- 279,721 (279,721)(A) --
-------- ---------- --------- ----------
Total expenses.......... 307,598 1,112,316 (300,239) 1,119,675
-------- ---------- --------- ----------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 25,364 (32,431) -- (7,067)
Equity in earnings of
unconsolidated
subsidiaries........... 2,871 -- 5,051 (D) 7,922
-------- ---------- --------- ----------
Income (loss) before
income tax provision and
minority interests...... 28,235 (32,431) 5,051 855
Income tax (provision)
benefit................ (345) 5,282 -- 4,937
-------- ---------- --------- ----------
Income (loss) before
minority interests...... 27,890 (27,149) 5,051 5,792
Minority interests in
the Patriot
Partnerships........... (2,718) 2,519 -- (199)
Minority interest in
consolidated
subsidiaries .......... (2,491) 5,051 (5,051)(D) (2,491)
-------- ---------- --------- ----------
Net income (loss)
applicable to common
shareholders............ $ 22,681 $ (19,579) $ -- $ 3,102 (E)
-------- ---------- --------- ----------
Net income (loss) per
common Paired Share(F).. $ 0.22 $ (0.21) $ 0.03 (E)
======== ========== ==========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 97 hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets were acquired by Patriot Operating Company, the elimination of
$1,934 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger and the elimination of $34 of other intercompany income and expense
items.
F-37
<PAGE>
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances reflect that Wyndham stockholders elected to
receive cash for their shares of Wyndham Common Stock up to the maximum
funds available of $100,000 and the remaining outstanding shares of
Wyndham Common Stock were exchanged for Paired Shares and shares of
Patriot REIT Series A Preferred Stock. The pro forma balances reflect (i)
approximately 2,336 shares of Wyndham Common Stock were purchased for cash
(based on total funds available of $100,000 and Cash Consideration of
$42.80 per share of Wyndham Common Stock); and (ii) an average interest
rate of 7.333% per annum on the borrowings related to the Revolving Credit
Facility and the Term Loan (representing LIBOR plus 1.85%, respectively)
on outstanding debt obligations of approximately $1,698,849.
The following table presents the net impact to pro forma combined net income
applicable to common shareholders and net income per common Paired Share
assuming the interest rate on variable rate debt increases by 0.25%.
<TABLE>
<S> <C>
Loss before income tax benefit and minority interests in the
Patriot Partnerships (after minority interest in consolidated
subsidiaries and other partnerships)........................... $(7,505)
Income tax benefit.............................................. 4,937
Minority interests in the Patriot Partnerships.................. 429
-------
Net loss applicable to common shareholders...................... $(2,139)
=======
Net loss per common Paired Share................................ $ (0.02)
=======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership....................................... 10.7%
=======
Patriot Operating Company Partnership.......................... 11.4%
=======
Weighted average number of common Paired Shares................. 92,429
=======
</TABLE>
The Patriot Companies entered into agreements with PaineWebber Real Estate
and Chase to increase the amount available under the Revolving Credit
Facility to $900,000 and to provide for a new Term Loan commitment for an
unsecured Term Loan of $350,000. The Revolving Credit Facility and the Term
Loan were used in part to finance the Wyndham Transactions. Deferred loan
costs of approximately $6,737 related to the financing associated with the
Wyndham Transactions have been reflected in the pro forma financial
information.
(F) The Patriot REIT and combined pro forma earnings per share is computed
based on 102,552 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of shares of preferred stock into Paired Shares. The Patriot
Operating Company pro forma earnings per share is computed based on 92,429
weighted average common Paired Shares outstanding for the period. Shares
of preferred stock and other common Paired Share equivalents outstanding
were not considered in the computation of Patriot Operating Company's pro
forma earnings per share because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share for the year ended
December 31, 1996 would be $0.03 per Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
F-38
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $257,269 $ -- $(229,902)(A) $ 27,367
Hotel revenue............ -- 798,461 -- 798,461
Racecourse facility
revenue, hotel and land
lease revenue........... 19,759 33,399 (19,501)(B) 33,657
Management fee, service
fee and reimbursement
income.................. -- 45,034 -- 45,034
Interest and other
income.................. 4,043 8,507 (2,306)(C) 10,244
-------- -------- --------- --------
Total revenue............ 281,071 885,401 (251,709) 914,763
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 313,828 -- 313,828
Racecourse facility
operations.............. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company,
service department, and
reimbursement expenses.. -- 40,331 -- 40,331
General and
administrative.......... 7,162 87,586 (24)(C) 94,724
Ground lease and hotel
lease expense........... 20,017 20,604 (16,255)(B) 24,366
Repair and maintenance... -- 37,954 -- 37,954
Utilities................ -- 32,716 -- 32,716
Interest expense......... 108,029 936 (2,282)(C) 106,683
Real estate and personal
property taxes and
casualty insurance...... 29,895 290 -- 30,185
Marketing................ -- 63,899 -- 63,899
Management fees.......... -- 11,436 -- 11,436
Depreciation and
amortization............ 78,017 20,709 -- 98,726
Participating lease
payments................ -- 229,902 (229,902)(A) --
-------- -------- --------- --------
Total expenses........... 243,120 890,305 (251,709) 881,716
-------- -------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 37,951 (4,904) -- 33,047
Equity in earnings of
unconsolidated
subsidiaries............ 6,023 -- (1,415)(D) 4,608
-------- -------- --------- --------
Income (loss) before
income tax provision and
minority interests....... 43,974 (4,904) (1,415) 37,655
Income tax provision..... (256) (3,654) -- (3,910)
-------- -------- --------- --------
Income (loss) before
minority interests....... 43,718 (8,558) (1,415) 33,745
Minority interests in the
Patriot Partnerships.... (4,411) 1,137 -- (3,274)
Minority interest in
consolidated
subsidiaries............ (2,493) (1,415) 1,415 (D) (2,493)
-------- -------- --------- --------
Net income (loss)
applicable to common
shareholders............. $ 36,814 $ (8,836) $ -- $ 27,978 (E)
======== ======== ========= ========
Net income (loss) per
common Paired Share(F)... $ 0.36 $ (0.10) $ 0.27 (E)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 97 hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
were acquired by Patriot Operating Company, the elimination of $1,450 of
interest income and expense related to the Subscription Notes issued to
Patriot Operating Company in connection with the subscription for shares
of Patriot Operating Company Common Stock and Patriot Operating Company
Partnership OP Units issued in connection with the Cal Jockey Merger, and
the elimination of $24 of other intercompany income and expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
F-39
<PAGE>
(E) The pro forma balances reflect that Wyndham stockholders elected to
receive cash for their shares of Wyndham Common Stock up to the maximum
funds available of $100,000 and the remaining outstanding shares of
Wyndham Common Stock were exchanged for Paired Shares and shares of
Patriot REIT Series A Preferred Stock. The pro forma balances reflect (i)
approximately 2,336 shares of Wyndham Common Stock were purchased for cash
(based on total funds available of $100,000 and Cash Consideration of
$42.80 per share of Wyndham Common Stock); and (ii) an average interest
rate of 7.453% per annum on the borrowings related to the Revolving Credit
Facility and the Term Loan (representing LIBOR plus 1.85%) on outstanding
debt obligations of approximately $1,698,849.
The following table presents the net impact to pro forma combined net
income applicable to common stockholders and net income per common Paired
Share assuming the interest rate on variable rate debt increases by 0.25%.
<TABLE>
<S> <C>
Income before income tax provision and minority interests in
the Patriot Partnerships (after minority interest in
consolidated subsidiaries and other partnerships)............. $30,764
Income tax provision........................................... (3,910)
Minority interests in the Patriot Partnerships................. (2,804)
-------
Net income applicable to common shareholders................... $24,050
=======
Net income per common Paired Share............................. $ 0.23
=======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership...................................... 10.7%
=======
Patriot Operating Company Partnership......................... 11.4%
=======
Weighted average number of common Paired Shares and common
Paired Share equivalents outstanding.......................... 103,126
=======
</TABLE>
The Patriot Companies entered into agreements with PaineWebber Real Estate
and Chase to increase the amount available under the Revolving Credit
Facility to $900,000 and to provide for a new Term Loan commitment for an
unsecured Term Loan of $350,000. The Revolving Credit Facility and the Term
Loan were used to finance the Wyndham Transactions. Deferred loan costs of
approximately $6,737 related to the financing associated with the Wyndham
Transactions have been reflected in the pro forma financial information.
(F) The Patriot REIT and combined pro forma earnings per share is computed
based on 103,126 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of shares of preferred stock into Paired Shares. The Patriot
Operating Company pro forma earnings per share is computed based on 92,429
weighted average common Paired Shares outstanding for the period. Shares
of preferred stock and other common Paired Share equivalents outstanding
were not considered in the computation of Patriot Operating Company's pro
forma earnings per share because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share for the nine
months ended September 30, 1997 would be $0.30 per Paired Share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-40
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Wyndham Transactions had occurred as of September 30,
1997. The Pro Forma Condensed Combined Balance Sheet is derived from the
Patriot REIT and Patriot Operating Company Pro Forma Condensed Combined
Balance Sheet as of September 30, 1997 included elsewhere in this Joint
Current Report, which is presented as if the following transactions have
occurred as of September 30, 1997:
(i) Patriot REIT acquired the three CHC Hotels, the Sheraton City Centre,
the Wyndham Emerald Plaza Hotel and The Buttes (which were acquired
subsequent to September 30, 1997) and has acquired the remaining
approximate 50% interest in the Omni Inner Harbor Hotel and leased such
hotels to Patriot Operating Company;
(ii) Patriot Operating Company acquired the members' interests in PAH RSI
Lessee;
(iii) Patriot Operating Company completed the GAH Acquisition;
(iv) the CHCI Merger was consummated on terms set forth in the CHCI
Merger Agreement; and
(v) Patriot REIT completed the Buena Vista Acquisition and leased such
hotel to Patriot Operating Company.
Such pro forma information is based in part upon Wyndham's Consolidated
Balance Sheet as of September 30, 1997 and Patriot REIT's and Patriot
Operating Company's Combined Balance Sheet as of September 30, 1997 and should
be read in conjunction with the financial statements filed with Wyndham's and
the Patriot Companies' respective Quarterly Reports on Form 10-Q for the nine
months ended September 30, 1997. In management's opinion, all material
adjustments necessary to reflect the effect of these transactions have been
made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of the Wyndham Transactions at their
estimated fair market values and the elimination of Wyndham's historical
shareholders' equity. The fair market values of the assets and liabilities of
Wyndham have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management does not
anticipate that the preliminary allocation of purchase costs based upon the
estimated fair market values of the assets and liabilities of Wyndham will
materially change; however, the allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocations reflected
in the following unaudited Pro Forma Condensed Combined Balance Sheet may
differ from the amounts ultimately determined. The following unaudited Pro
Forma Condensed Combined Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming such transactions had
been completed as of September 30, 1997, nor does it purport to represent the
future financial position of Patriot REIT and Wyndham International as
adjusted for the Wyndham Transactions.
F-41
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
REIT AND
PATRIOT
OPERATING
COMPANY CROW ASSETS
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
---------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $1,910,864 $320,357 $290,391 $165,494 (D) $2,687,106
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 74,053 -- -- -- 74,053
Notes and other
receivables from
affiliates............. -- -- 24,800 -- 24,800
Notes receivable........ 15,913 -- 1,931 -- 17,844
Investment in
unconsolidated
subsidiaries........... 12,061 -- 4,092 -- 16,153
Cash and cash
equivalents............ 26,167 -- 14,819 -- 40,986
Restricted cash......... 43,418 -- 936 -- 44,354
Accounts receivable,
net.................... 42,435 -- 15,682 -- 58,117
Goodwill................ 128,108 -- 20,857 311,788 (E) 460,753
Deferred expenses, net.. 19,413 -- 8,019 18 (F) 27,450
Deferred acquisition
costs.................. 16,220 -- -- -- 16,220
Management contract
costs.................. 45,364 -- 11,419 53,463 (G) 110,246
Trade name and franchise
costs.................. 7,500 -- -- 85,550 (H) 93,050
Prepaid expenses and
other assets........... 14,761 -- 41,006 -- 55,767
Deferred income taxes... 700 -- 16,347 (15,551)(I) 1,496
---------- -------- -------- -------- ----------
Total assets........... $2,356,977 $320,357 $450,299 $600,762 $3,728,395
========== ======== ======== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $1,015,868 $320,357 $228,986 $133,638 (J) $1,698,849
Accounts payable and
accrued expenses....... 60,223 -- 45,756 -- 105,979
Dividends and
distributions payable.. 21,727 -- -- -- 21,727
Sales taxes payable..... 2,968 -- -- -- 2,968
Deferred income tax
liability.............. 4,846 -- 20,970 50,609 (I) 76,425
Deposits................ 4,060 -- 1,996 -- 6,056
Deferred gain........... -- -- 11,511 (11,511)(I) --
Due to unconsolidated
subsidiaries........... 5,904 -- -- -- 5,904
Minority interests in
the Patriot
Partnerships........... 227,624 -- -- -- 227,624
Minority interest in
consolidated
subsidiaries........... 29,284 -- 2,828 -- 32,112
Shareholders' equity:
Preferred stock........ 44 -- -- 49 (K) 93
Common stock........... 1,417 -- 216 216 (K) 1,849
Paid-in capital........ 1,098,483 -- 133,137 466,902 (L) 1,698,522
Unearned stock
compensation, net..... (15,075) -- -- (15,075)
Notes receivable from
stockholders.......... -- -- (17,138)(M) -- (17,138)
Receivable from
affiliates............ -- -- (1,229)(N) -- (1,229)
Unrealized gain on
securities available
for sale.............. -- -- 790 (790)(L) --
Unrealized foreign
exchange loss......... -- -- (192) 192 (L) --
Retained earnings...... (100,396) -- 22,668 (38,543)(L) (116,271)
---------- -------- -------- -------- ----------
Total shareholders'
equity................ 984,473 -- 138,252 428,026 1,550,751
---------- -------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $2,356,977 $320,357 $450,299 $600,762 $3,728,395
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
F-42
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL, ADJUSTED FOR THE WYNDHAM TRANSACTIONS
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Represents the Pro Forma Condensed Combined Balance Sheet of Patriot REIT
and Patriot Operating Company as of September 30, 1997, which reflects the
Cal Jockey Merger and the transactions related thereto.
(B) Represents adjustments to Patriot REIT's and Wyndham International's pro
forma financial position assuming consummation of the Crow Assets
Acquisition had occurred at September 30, 1997.
(C) Represents Wyndham's pro forma financial position as of September 30,
1997.
(D) Represents adjustment for the purchase method of accounting whereby the
investments in hotel properties owned by Wyndham are adjusted to record
the assets at their estimated fair market values.
(E) Represents the purchase consideration in excess of fair market value of
the net assets of Wyndham.
(F) Represents the additional loan fees to be incurred in conjunction with the
financing for the Wyndham Transactions, net of Wyndham's historical
deferred loan fees.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by Wyndham (including the management contracts
acquired in the ClubHouse acquisition) are adjusted to their estimated
fair market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 45 hotels. The contracts
have an average remaining life of approximately 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents the estimated fair market value of the Wyndham and ClubHouse
tradenames and other franchise related assets.
(I) Pursuant to the Wyndham Merger, deferred income taxes, the deferred income
tax liability and the deferred gain which resulted from the sale and
lease-back of the hotel properties leased by GHALP, Inc., an affiliate of
Wyndham, have been adjusted to reflect the effects of the Wyndham Merger.
(J) Represents financing of $6,737 of additional loan fees related to the
financing of the Wyndham Transactions, mortgage prepayment penalties of
approximately $15,875, acquisition-related costs of approximately $11,026
incurred in connection with the Wyndham Transactions, and $100,000 of cash
paid for shares of Wyndham Common Stock.
(K) Represents adjustments to record the exchange of Wyndham Common Stock for
Paired Shares and shares of Patriot REIT Series A Preferred Stock.
Pursuant to the Wyndham Merger Agreement and the Stock Purchase Agreement,
Wyndham stockholders elected to receive for each share of Wyndham Common
Stock held by them either (i) cash for shares, up to a maximum of $100,000
of total funds available or (ii) 1.372 shares of Patriot REIT Common Stock
and 1.372 shares of Wyndham International Common Stock. In addition,
pursuant to the Stock Purchase Agreement, CF Securities received 1.372
shares of Patriot REIT Series A Preferred Stock for each share of Wyndham
Common Stock held by CF Securities that was not exchanged for Paired
Shares or cash. As of September 30, 1997, 21,618 shares of Wyndham Common
Stock were outstanding. The pro forma balances reflect approximately 2,336
shares of Wyndham Common Stock that were purchased for cash (based on
total funds available of $100,000 and Cash Consideration of $42.80 per
share of Wyndham Common Stock). The remaining 19,282 shares of Wyndham
Common Stock were exchanged for approximately 21,594 Paired Shares,
resulting in an adjustment to increase common stock, and approximately
4,861 shares of Patriot REIT Series A Preferred Stock, resulting in an
adjustment to increase preferred stock.
(L) Represents adjustments to shareholders' equity to eliminate Wyndham's pro
forma equity accounts totaling $156,619 and record equity based on the
number of Paired Shares and shares of Patriot REIT Series A Preferred
Stock issued in the Wyndham Merger. The pro forma balances reflect that
Wyndham stockholders elected to receive cash for their shares of Wyndham
Common Stock up to the maximum funds available of $100,000. As a result,
approximately 2,336 shares of Wyndham Common Stock were purchased for cash
(based on total funds available of $100,000 and Cash Consideration of
$42.80 per share of Wyndham Common Stock). The total purchase
consideration for the Wyndham Merger is approximately $688,617 (based upon
19,282 shares of Wyndham Common Stock exchanged for approximately 21,594
Paired Shares and 4,861 shares of Patriot REIT Series A Preferred Stock
(which are convertible on a 1-for-1 basis into Paired Shares) and an
estimated market price per Paired Share of $22.25 (which is based upon the
closing price on April 11, 1997, the business day prior to the date of the
execution of the Wyndham Merger Agreement, of Old Patriot REIT's Common
Stock) and $100,000 of cash consideration).
In connection with the Wyndham Merger, options to purchase approximately
1,017 shares of Wyndham Common Stock which were issued by Wyndham to
certain officers and employees of Wyndham were converted to options to
purchase 1,395 Paired Shares. Such options to purchase Paired Shares vested
immediately upon consummation of the Wyndham Merger and are exercisable in
full. The stated exercise prices were adjusted to reflect the Exchange
Ratio. The excess of the estimated value of a Paired Share on the date the
Wyndham Merger is consummated (based upon the closing price on April 11,
1997, the business day prior to the date of execution of the Wyndham Merger
Agreement, of Old Patriot REIT's Common Stock on the NYSE of $22.25 and the
Exchange Ratio) over the stated exercise price of the options (as adjusted
for the Exchange Ratio) is reflected as additional purchase consideration
for the Wyndham Merger.
(M) Represents shareholder notes purchased by Wyndham in conjunction with its
initial public offering. In connection with the Wyndham Merger, Patriot
REIT acquired these notes at their historical cost, which approximates
their estimated fair value.
(N) Represents deferred management fees owed by an affiliate of Wyndham that
are deferred until certain operating criteria, as defined per the
management and loan agreement, are met. Such deferred management fees were
acquired by Patriot REIT at their stated historical cost, which
approximates their estimated fair value, as a result of the Wyndham
Merger.
F-43
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT CROW ASSETS WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $246,371 $34,235 $ 31,845 $ -- $312,451
Racecourse facility,
hotel and land lease
revenue............... 5,945 -- 9,404 2,365 (D) 17,714
Interest and other
income................ 2,297 -- 500 -- 2,797
-------- ------- -------- -------- --------
Total revenue.......... 254,613 34,235 41,749 2,365 332,962
-------- ------- -------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,693 1,325 9,806 -- 16,824
General and
administrative........ 6,797 100 (E) 200 (E) -- 7,097
Interest expense....... 81,332 23,492 (F) 18,342 (F) 19,082 (F) 142,248
Real estate and
personal property
taxes and casualty
insurance............. 26,050 3,783 8,271 -- 38,104
Depreciation and
amortization.......... 72,273 12,033 (G) 19,019 (G) -- 103,325
-------- ------- -------- -------- --------
Total expenses......... 192,145 40,733 55,638 19,082 307,598
-------- ------- -------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 62,468 (6,498) (13,889) (16,717) 25,364
Equity in earnings
(losses) of
unconsolidated
subsidiaries........... 7,559 -- 363 (5,051)(H) 2,871
-------- ------- -------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 70,027 (6,498) (13,526) (21,768) 28,235
Income tax provision... (170) -- -- (175)(I) (345)
-------- ------- -------- -------- --------
Income (loss) before
minority interests..... 69,857 (6,498) (13,526) (21,943) 27,890
Minority interest in
the Patriot REIT
Partnership........... (9,499) 695 1,447 4,639 (J) (2,718)
Minority interest in
consolidated
subsidiaries.......... (2,491) -- -- -- (2,491)
-------- ------- -------- -------- --------
Net income (loss)
applicable to common
shareholders .......... $ 57,867 $(5,803) $(12,079) $(17,304) $ 22,681
======== ======= ======== ======== ========
Net income per common
share(K)............... $ 0.77 $ 0.22
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
year ended December 31, 1996 assuming the following transactions had
occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leased that portion of the
land upon which the Racecourse is situated to Patriot REIT and Patriot
REIT subleased this land and the related improvements to Patriot Operating
Company; (iii) Patriot REIT leased certain land to Borders, Inc.; (iv)
Patriot REIT acquired the Recent Acquisitions (excluding the Park Shore
Hotel), the Buena Vista Palace Hotel and the CHC Hotels; (v) the mortgage
notes to affiliates of CHC Lease Partners have been funded; (vi) Patriot
REIT replaced the Old Line of Credit with the Revolving Credit Facility
and the Term Loan; (vii) Patriot REIT acquired the Participating Note;
(viii) the Offering of 10,580 Paired Shares was completed; and (ix)
Patriot Operating Company acquired eight leases from CHC Lease Partners
and re-leased such hotels to Patriot Operating Company. In addition, the
pro forma results of operations assume the 24 hotels acquired during 1996
and the private placement and public offering of equity securities
completed by Old Patriot REIT during 1996 had occurred as of January 1,
1996. See page F-19.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Crow Assets Acquisition (10 hotels) had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Assets Acquisition reflects the results of operations for nine hotels for
the year ended December 31, 1996 (excluding the La Guardia Airport Hotel
which was closed for renovation during 1996).
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Wyndham Merger had been consummated at the beginning of the period
presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by Patriot REIT from third parties and then sub-leased to Wyndham
International.
F-44
<PAGE>
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot REIT.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, which will be used to purchase the hotel properties. For the
Wyndham Merger, the adjustment represents interest expense on current debt
obligations and interest expense related to certain capital lease
obligations which were assumed in connection with the Wyndham Merger.
Patriot REIT has refinanced substantially all of Wyndham's long-term debt
with borrowings under the Revolving Credit Facility. Patriot REIT paid
approximately $15,875 in mortgage prepayment penalties. This amount will
be reported as an extraordinary item in Patriot REIT's results of
operations and has been reflected as an adjustment to retained earnings
for pro forma presentation purposes. In addition, the Revolving Credit
Facility and Term Loan generally have more favorable interest rates than
the debt repaid. The deferred loan costs are being amortized using the
straight-line method over the terms of the loans. Interest expense
incurred on the Revolving Credit Facility and Term Loan borrowings assumes
an average interest rate of 7.333% (representing LIBOR plus 1.85%). An
increase of 0.25% in the interest rate on all variable rate debt would
increase pro forma interest expense to $148,117, decrease net income
applicable to common shareholders to $17,440 and decrease net income per
common share to $0.17, based on 102,552 weighted average number of common
shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E . These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in losses of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which are
controlled by Wyndham International.
(I) Represents provision for Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 10.7%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.1%.
(K) Pro forma earnings per share is computed based on 102,552 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of preferred stock into Paired
Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.24 per common share. The impact of Statement 128 on
the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
F-45
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT CROW ASSETS WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $199,974 $30,857 $26,438 $ -- $257,269
Racecourse facility,
hotel and land lease
revenue .............. 3,504 -- 14,482 1,773 (D) 19,759
Interest and other
income................ 4,043 -- -- -- 4,043
-------- ------- ------- -------- --------
Total revenue.......... 207,521 30,857 40,920 1,773 281,071
-------- ------- ------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,535 -- 14,482 -- 20,017
General and
administrative........ 6,937 75 (E) 150 (E) -- 7,162
Interest expense....... 61,747 17,907 (F) 11,788 (F) 16,587 (F) 108,029
Real estate and
personal property
taxes and casualty
insurance............. 20,641 3,018 6,236 -- 29,895
Depreciation and
amortization.......... 54,728 9,025 (G) 14,264 (G) -- 78,017
-------- ------- ------- -------- --------
Total expenses......... 149,588 30,025 46,920 16,587 243,120
-------- ------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 57,933 832 (6,000) (14,814) 37,951
Equity in earnings of
unconsolidated
subsidiaries.......... 4,488 -- 120 1,415 (H) 6,023
-------- ------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 62,421 832 (5,880) (13,399) 43,974
Income tax provision... (125) -- -- (131)(I) (256)
-------- ------- ------- -------- --------
Income (loss) before
minority interests..... 62,296 832 (5,880) (13,530) 43,718
Minority interest in
the Patriot REIT
Partnership........... (8,432) (89) 629 3,481 (J) (4,411)
Minority interest in
consolidated
subsidiaries.......... (2,493) -- -- -- (2,493)
-------- ------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ 51,371 $ 743 $(5,251) $(10,049) $ 36,814
======== ======= ======= ======== ========
Net income per common
share(K)............... $ 0.68 $ 0.36
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
nine months ended September 30, 1997 assuming the following transactions
had occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leases that portion of the
land upon which the Racecourse is situated to Patriot REIT and Patriot
REIT subleased this land and the related improvements to Patriot Operating
Company; (iii) Patriot REIT leased certain land to Borders, Inc.; (iv)
Patriot REIT acquired the Recent Acquisitions (excluding the Park Shore
Hotel), the Buena Vista Palace Hotel and the CHC Hotels; (v) the mortgage
notes to affiliates of CHC Lease Partners have been funded; (vi) Patriot
REIT replaced the Old Line of Credit with the Revolving Credit Facility
and the Term Loan; (vii) the Offering of 10,580 Paired Shares was
completed; and (viii) Patriot REIT acquired eight leases from CHC Lease
Partners and re-leased such hotels to Patriot Operating Company. See page
F-22.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Crow Assets Acquisition (10 hotels) had occurred at the beginning of
the period presented. The pro forma results of operations for the Crow
Assets Acquisition reflects the results of operations for ten hotels for
the nine months ended September 30, 1997.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Wyndham Merger had been consummated at the beginning of the period
presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by Patriot REIT from third parties and then sub-leased to Wyndham
International.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot REIT.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, which will be used to purchase the hotel properties. For the
Wyndham Merger, the adjustment represents interest expense on current debt
obligations and interest expense related to certain capital lease
obligations which were assumed in
F-46
<PAGE>
connection with the Wyndham Merger. Patriot REIT refinanced Wyndham's long-
term debt with borrowings under the Revolving Credit Facility. Patriot REIT
paid approximately $15,875 in mortgage prepayment penalties. This amount
will be reported as an extraordinary item in Patriot REIT's results of
operations following the completion of the Wyndham Transactions and has
been reflected as an adjustment to retained earnings for pro forma
presentation purposes. In addition, the Revolving Credit Facility and Term
Loan generally have more favorable interest rates than the debt repaid. The
deferred loan costs are being amortized using the straight-line method over
the terms of the loans. Interest expense incurred on the Revolving Credit
Facility and Term Loan borrowings assumes an average interest rate of
7.453% (representing LIBOR plus 1.85%). An increase of 0.25% in the
interest rate on all variable rate debt would increase pro forma interest
expense to 112,427, decrease net income applicable to common shareholders
to $32,887 and decrease net income per common share to $0.32, based on
103,126 weighted average number of common shares and common share
equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements
and 5 to 7 years for F, F & E. These estimated useful lives are based on
management's knowledge of the properties and the hotel industry in general.
(H) Represents equity in income of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which are
controlled by Wyndham International.
(I) Represents provision for Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 10.7%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.1%.
(K) Pro forma earnings per share is computed based on 103,126 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of preferred stock into Paired
Shares.
In February 1997, the Financial Accounting Standards Board issue Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.40 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
F-47
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW ASSETS WYNDHAM
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
--------- ------------ ------------ ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $398,339 $ 64,362 $128,248 $16,228 $ -- $ 607,177
Other hotel revenue.... 267,124 44,303 40,920 10,310 -- 362,657
Racecourse facility
revenue............... 51,946 -- -- -- -- 51,946
Management fee, service
fee and reimbursement
income................ 13,522 -- 41,978 -- (6,879)(E) 48,621
Interest and other
income................ 7,234 -- 2,250 -- -- 9,484
-------- -------- -------- ------- -------- ----------
Total revenue.......... 738,165 108,665 213,396 26,538 (6,879) 1,079,885
-------- -------- -------- ------- -------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 280,407 44,914 71,913 9,949 -- 407,183
Racecourse facility
operations............ 46,351 -- -- -- -- 46,351
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 11,143 -- 32,666 -- -- 43,809
General and
administrative........ 79,244 10,495 18,276 3,305 101 (F) 111,421
Ground lease and hotel
lease expense......... 5,340 -- -- -- 11,769 (G) 17,109
Repair and
maintenance........... 33,742 4,884 6,066 1,144 -- 45,836
Utilities.............. 30,644 4,351 4,585 1,055 -- 40,635
Marketing.............. 57,714 8,375 9,226 1,738 -- 77,053
Management fees........ 12,131 5,349 -- 926 (6,879)(E) 11,527
Depreciation and
amortization.......... 10,348 -- 13,016 (H) -- 6,067 (H) 29,431
Participating lease
payments(I)........... 204,622 34,235 31,845 9,019 -- 279,721
Interest expense....... 1,393 -- -- -- -- 1,393
Real estate and
personal property
taxes and insurance... 398 -- 449 -- -- 847
-------- -------- -------- ------- -------- ----------
Total expenses......... 773,477 112,603 188,042 27,136 11,058 1,112,316
-------- -------- -------- ------- -------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (35,312) (3,938) 25,354 (598) (17,937) (32,431)
Income tax (provision)
benefit............... (760) -- (4,177)(J) -- 10,219 (J) 5,282
-------- -------- -------- ------- -------- ----------
Income (loss) before
minority interests..... (36,072) (3,938) 21,177 (598) (7,718) (27,149)
Minority interest in
the Patriot Operating
Company Partnership... 5,339 449 (K) (2,414)(K) 68 (K) (923) 2,519
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- 5,051 (L) 5,051
-------- -------- -------- ------- -------- ----------
Net income (loss)
applicable to common
shareholders........... $(30,733) $ (3,489) $ 18,763 $ (530) $ (3,590) $ (19,579)
======== ======== ======== ======= ======== ==========
Net loss per common
share(M)............... $ (0.43) $ (0.21)
======== ==========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot Operating
Company for the year ended December 31, 1996 assuming the following
transactions had occurred at the beginning of the period presented: (i)
the Cal Jockey Merger and the transactions related thereto; (ii) the Paine
Webber Land Sale was consummated, the PaineWebber affiliate leased that
portion of the land upon which the Racecourse is situated to Patriot REIT
and Patriot REIT subleased this land and the related improvements to
Patriot Operating Company; (iii) Patriot REIT leased certain land to
Borders, Inc.; (iv) Patriot Operating Company completed the Grand Heritage
Acquisition and
F-48
<PAGE>
acquired PAH RSI Lessee; (v) Patriot REIT acquired the Recent Acquisitions
(except for the Park Shore Hotel), the Buena Vista Palace Hotel, and the
CHC Hotels and leased 24 of such hotels to Patriot Operating Company; (vi)
the mortgage notes to affiliates of CHC Lease Partners have been funded;
(vii) Patriot REIT replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan; (viii) the Offering of 10,580 Paired
Shares was completed; (ix) the GAH Acquisition was completed; and (x) the
CHCI Merger was completed. See page F-25.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Crow Assets Acquisition (10 hotels) had occurred at the
beginning of the period presented. One of the hotels was closed during
1996 due to renovation. As a result, the pro forma results of operations
for the Crow Assets Acquisition reflects the results of operations for
nine hotels for the year ended December 31, 1996.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Wyndham Merger and the Related Transactions had been
consummated as of January 1, 1996. The pro forma adjustments are based on
the historical results of operations of Wyndham as of December 31, 1996
adjusted for certain transactions, including the acquisition of ClubHouse,
all hotels and management contracts acquired during 1996 and Wyndham's
initial public offering and related transactions, as if such transactions
had occurred as of January 1, 1996.
(D) Represents adjustments to Wyndham International's results of operations
assuming the two hotels which were leased by Crow Hotel Lessee, Inc. had
been leased by Wyndham International as of January 1, 1996.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc., the hotels acquired in the Crow
Assets Acquisition and the Wyndham Emerald Plaza Hotel, all of which are
assumed to be leased by Wyndham International and managed by a New Non-
Controlled Subsidiary.
(F) Represents incremental general and administrative expenses expected to be
incurred by Wyndham International of $200 and the elimination of certain
other expenses of $99.
(G) Represents pro forma lease expense related to the sub-lease agreement with
Patriot REIT for those hotel properties leased by Patriot REIT from third
party owners.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from Wyndham International to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 11.4%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.8%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot REIT.
(M) Pro forma earnings per share is computed based on 92,429 weighted average
common shares outstanding for the period. The number of shares used for
the calculation does not include adjustments to reflect the impact of the
conversion of shares of preferred stock into Paired Shares or other common
share equivalents outstanding because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.21 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-49
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW ASSETS WYNDHAM
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
--------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $329,968 $58,044 $108,868 $12,659 $ -- $509,539
Other hotel revenue.... 210,223 35,548 35,502 7,649 -- 288,922
Racecourse facility
revenue............... 33,399 -- -- -- -- 33,399
Management fee, service
fee and reimbursement
income................ 14,701 -- 35,785 -- (5,452)(E) 45,034
Interest and other
income................ 6,374 -- 2,133 -- -- 8,507
-------- ------- -------- ------- -------- --------
Total revenue.......... 594,665 93,592 182,288 20,308 (5,452) 885,401
-------- ------- -------- ------- -------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 219,210 37,199 49,712 7,707 -- 313,828
Racecourse facility
operations............ 30,114 -- -- -- -- 30,114
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 12,568 -- 27,763 -- -- 40,331
General and
administrative........ 60,041 9,324 15,639 2,382 200 (F) 87,586
Ground lease and hotel
lease expense......... 4,349 -- -- -- 16,255 (G) 20,604
Repair and
maintenance........... 27,672 4,005 5,366 911 -- 37,954
Utilities.............. 23,216 3,745 4,918 837 -- 32,716
Marketing.............. 46,538 6,743 9,294 1,324 -- 63,899
Management fees........ 11,951 4,279 -- 658 (5,452)(E) 11,436
Depreciation and
amortization.......... 5,449 -- 10,739 (H) -- 4,521 (H) 20,709
Participating lease
payments(I)........... 165,601 30,857 26,438 7,006 -- 229,902
Interest expense....... 936 -- -- -- -- 936
Real estate and
personal property
taxes and casualty
insurance ............ 290 -- -- -- -- 290
-------- ------- -------- ------- -------- --------
Total expenses......... 607,935 96,152 149,869 20,825 15,524 890,305
-------- ------- -------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. (13,270) (2,560) 32,419 (517) (20,976) (4,904)
Income tax (provision)
benefit............... -- -- (9,240)(J) -- 5,586 (J) (3,654)
-------- ------- -------- ------- -------- --------
Income (loss) before
minority interests..... (13,270) (2,560) 23,179 (517) (15,390) (8,558)
Minority interest in
the Patriot Operating
Company Partnership... 1,964 292 (K) (2,642)(K) 59 (K) 1,464 (K) 1,137
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (1,415)(L) (1,415)
-------- ------- -------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $(11,306) $(2,268) $ 20,537 $ (458) $(15,341) $ (8,836)
======== ======= ======== ======= ======== ========
Net loss per common
share(M)............... $ (0.16) $ (0.10)
======== ========
</TABLE>
See notes on following page.
F-50
<PAGE>
WYNDHAM INTERNATIONAL, ADJUSTED FOR THE WYNDHAM TRANSACTIONS
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
(A) Represents the pro forma results of operations of Patriot Operating
Company for the nine months ended September 30, 1997 assuming the
following transactions had occurred at the beginning of the period
presented: (i) the Cal Jockey Merger and the transactions related thereto
(ii) the PaineWebber Land Sale was consummated, the PaineWebber affiliate
leased that portion of the land upon which the Racecourse is situated to
Patriot REIT and Patriot REIT subleased this land and the related
improvements to Patriot Operating Company; (iii) Patriot REIT leased
certain land to Borders, Inc.; (iv) Patriot Operating Company completed
the Grand Heritage Acquisition and acquired PAH RSI Lessee; (v) Patriot
REIT acquired the Recent Acquisitions (except for the Park Shore Hotel),
the Buena Vista Palace Hotel and the CHC Hotels and leased 24 of such
hotels to Patriot Operating Company; (vi) the mortgage notes to affiliates
of CHC Lease Partners have been funded; (vii) Patriot REIT replaced the
Old Line of Credit with the Revolving Credit Facility and the Term Loan;
(viii) the Offering of 10,580 Paired Shares was completed; (ix) the GAH
Acquisition was completed; and (x) the CHCI Merger was completed. See page
F-28.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Crow Assets Acquisition (10 hotels) had occurred as of
January 1, 1996. The pro forma results of operations for the Crow Assets
Acquisition reflects the results of operations for ten hotels for the nine
months ended September 30, 1997.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Wyndham Merger had been consummated at the beginning of the
period presented. The pro forma adjustments are based on the historical
results of operations of Wyndham as of September 30, 1997 adjusted for
certain transactions, including the acquisition of ClubHouse and all
hotels and management contracts acquired during the first nine months of
1997, as if such transactions had occurred as of January 1, 1996.
(D) Represents adjustments to Wyndham International's results of operations
assuming the two hotels which were leased by Crow Hotel Lessee, Inc. had
been leased by Wyndham International as of January 1, 1996.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc., the hotels acquired in the Crow
Assets Acquisition and the Wyndham Emerald Plaza Hotel, all of which are
assumed to be leased by Wyndham International and managed by a New Non-
Controlled Subsidiary.
(F) Represents incremental general and administrative expenses expected to be
incurred by Wyndham International of $200.
(G) Represents pro forma lease expense related to the sub-lease agreement with
Patriot REIT for those hotel properties leased by Patriot REIT from third
party owners.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from Wyndham International to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 11.4%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.8%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot REIT.
(M) Pro forma earnings per share is computed based on 92,429 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation does not include adjustments to
reflect the impact of the conversion of shares of preferred stock into
Paired Shares or other common share equivalents outstanding because they
are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of $0.10 per common share. The
impact of Statement 128 on the calculation of diluted earnings per share is
not expected to differ significantly from the earnings per share amounts
reported.
F-51
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot REIT leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through Non-
Controlled Subsidiaries, to Lessees or to Patriot Operating Company. The
Combined Lessees subsequent to (i) the Wyndham Transactions, (ii) the Cal
Jockey Merger and the transactions related thereto, (iii) the Grand Heritage
Acquisition (which included the acquisition of Grand Heritage Leasing, L.L.C.
which leased three hotels from Patriot REIT), (iv) the acquisition of PAH RSI
Lessee (which included the acquisition of eight Patriot REIT hotel leases);
and (v) the GAH Acquisition and the CHCI Merger (which included the
acquisition of 25 Patriot REIT hotel leases from CHC Lease Partners) consist
of NorthCoast Lessee which leases 11 hotels (excluding the Park Shore Hotel),
Doubletree Lessee which leases four hotels, and Metro Lease Partners which
leases one hotel. Patriot REIT also leased two hotels to Crow Hotel Lessee,
Inc. (the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel).
Subsequent to the completion of the Wyndham Transactions, Patriot REIT
terminated its leases with Crow Hotel Lessee, Inc. and re-leased such hotels
to Wyndham International. The Participating Leases provide for staggered terms
of one to twelve years and the payment of the greater of base or participating
rent, plus certain additional charges, as applicable.
The following Combined Lessees' unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 are presented as if the 16 hotels that Patriot
REIT leases to the Combined Lessees pursuant to Participating Leases
(excluding the Park Shore Hotel) had been leased as of January 1, 1996. The 25
hotels leased to CHC Lease Partners, the eight hotels leased to PAH RSI
Lessee, the three hotels leased to Grand Heritage Leasing, L.L.C. and the two
hotels leased to Crow Hotel Lessee, Inc. are assumed to have been leased to
Wyndham International and, therefore, have been eliminated from the Pro Forma
Condensed Combined Statements of Operations for the Combined Lessees. The pro
forma information is based in part upon the Statements of Operations of
NorthCoast Lessee filed with Old Patriot REIT's Annual Report on Form 10-K for
the year ended December 31, 1996 and the Statements of Operations of
NorthCoast Lessee filed with Patriot REIT's and Patriot Operating Company's
Joint Quarterly Report on Form 10-Q for the nine months ended September 30,
1997, and the Pro Forma Condensed Combined Statement of Operations of the
Combined Lessees located elsewhere in this Joint Current Report. In
management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of January 1, 1996, nor do they purport to represent the results of
operations for future periods. Further, the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
F-52
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Room................................................ $ 72,182 $59,441
Food and beverage................................... 28,499 22,355
Telephone and other................................. 5,906 4,852
-------- -------
Total revenue..................................... 106,587 86,648
-------- -------
Expenses:
Departmental costs and expenses..................... 44,615 34,690
General and administrative.......................... 9,389 7,138
Ground lease expense................................ 2,496 985
Repair and maintenance.............................. 5,526 4,161
Utilities........................................... 4,380 3,201
Marketing........................................... 7,431 6,171
Participating lease payments(A)..................... 32,730 27,367
-------- -------
Total expenses.................................... 106,567 83,713
-------- -------
Income before lessee income (expense)................ 20 2,935
-------- -------
Dividend and interest income(B)...................... 142 1,087
Management fees(C)................................... (2,553) (2,444)
Lessee general and administrative(D)................. (478) (478)
-------- -------
(2,889) (1,835)
-------- -------
Net income (loss).................................... $ (2,869) $ 1,100
======== =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. Pro
forma amounts exclude additional dividend income earned on OP Units held
by certain Lessees, and pro forma interest income earned on invested cash
balances.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-53
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On September 30, 1997, Patriot REIT, Patriot Operating Company and WHG
Resorts & Casinos Inc. ("WHG") entered into an Agreement and Plan of Merger
(the "WHG Merger Agreement") providing for the merger of a newly-formed
subsidiary of Wyndham International with and into WHG, with WHG being the
surviving corporation (the "WHG Merger"). As a result of the WHG Merger,
Wyndham International will acquire the Condado Plaza Hotel & Casino, a 50%
interest in the El San Juan Hotel & Casino and a 23.3% interest in the El
Conquistador Resort & Country Club (the "El Conquistador"), all of which are
located in Puerto Rico, as well as a 62% interest in Williams Hospitality
Group, Inc., the management company for the three hotels and the Las Casitas
Village at El Conquistador.
Under the terms of the WHG Merger Agreement, each share of WHG common stock,
par value $0.01 per share ("WHG Common Stock") generally will be converted
into the right to receive 0.784 Paired Shares (the "WHG Exchange Ratio");
provided, however, that in the event that (i) the average closing price of a
Paired Share over the ten trading days immediately preceding the third
business day prior to the date on which the WHG stockholders' meeting to
approve the WHG Merger is convened (the "Patriot/WHG Average Closing Price")
is greater than $31.25 and the effective time of the WHG Merger is before
February 1998, the WHG Exchange Ratio will be adjusted such that the product
(the "WHG Exchange Ratio Product") equals $24.50, (ii) the Patriot/WHG Average
Closing Price is greater than $31.75 and the effective time of the WHG Merger
is in February 1998, the WHG Exchange Ratio will be adjusted such that the WHG
Exchange Ratio Product equals $24.89, (iii) the Patriot/WHG Average Closing
Price is greater than $32.25 and the effective time of the WHG Merger is after
February 1998, the WHG Exchange Ratio will be adjusted such that the WHG
Exchange Ratio Product equals $25.28, (iv) the Patriot/WHG Average Closing
Price is less than or equal to $25.50, but greater than or equal to $19.50,
the WHG Exchange Ratio will be adjusted such that the WHG Exchange Ratio
Product equals $20.00, or (v) the Patriot/WHG Average Closing Price is less
than $19.50, the WHG Exchange Ratio will equal 1.026, provided, however, that
in such circumstances WHG has the right, waivable by it, to terminate the WHG
Merger Agreement.
In addition, each issued and outstanding share of WHG Series B Convertible
Preferred Stock will be converted into the right to receive that number of
Paired Shares that the holder of such shares of WHG Series B Convertible
Preferred Stock would have the right to receive assuming conversion of such
shares, together with any accrued and unpaid dividends thereon, into shares of
WHG Common Stock immediately prior to the effective time of the WHG Merger.
As a result of the WHG Merger, Wyndham International will pay approximately
$7,036 to buy out options to purchase WHG Common Stock, will assume certain
severance obligations of approximately $3,010 and will incur approximately
$2,825 in other fees and expenses. Management anticipates these costs will be
paid from available cash.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotel and related improvements and other
assets and liabilities owned by WHG are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of WHG has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of WHG will materially change; however,
the allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transaction. Therefore, the allocation reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
F-54
<PAGE>
The Patriot Companies are currently in negotiations to acquire additional
interests (i) in the partnership that owns the El San Juan Hotel & Casino,
(ii) Williams Hospitality Group, Inc., and (iii) WKA El Con Associates (a
partner in the partnership that owns the El Conquistador) and to acquire all
the equity interests in the partnership that owns the Laguna Wing of the
Condado Plaza Hotel & Casino. In addition, the Patriot Companies are currently
in negotiations with Kumagai Caribbean, Inc. to acquire its 50% interest in
the partnership that owns the El Conquistador. The aggregate purchase price
for these interests would be approximately $80,000, payable partly in cash and
partly in Paired Shares. No assurance can be given that any of these
transactions will be consummated and the following unaudited Pro Forma
Financial Statements do not reflect adjustments for these transactions.
The following unaudited Pro Forma Condensed Combined Statement of Operations
as adjusted for the WHG Merger for the year ended December 31, 1996 and the
nine months ended September 30, 1997 are derived from (i) the Patriot REIT and
Patriot Operating Company Pro Forma Condensed Combined Statements of
Operations as adjusted for the Wyndham Transactions for the year ended
December 31, 1996 and the nine months ended September 30, 1997 and (ii) the
Consolidated Statements of Operations of WHG for the year ended June 30, 1997
and the three months ended September 30, 1997. As a result of the WHG Merger,
WHG will become a wholly owned subsidiary of Wyndham International.
Consequently the WHG Merger has minimal impact on the pro forma operating
results of Patriot REIT. As a result, separate unaudited Pro Forma Condensed
Statements of Operations for Patriot REIT, adjusted for the WHG Merger have
not been presented.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the WHG
Merger would have been assuming such transactions had been completed as of
January 1, 1996, nor do they purport to represent the results of operations
for future periods. Further, the unaudited Pro Forma Condensed Combined
Statement of Operations for the interim period ended September 30, 1997 is not
necessarily indicative of the results of operations for the full year.
F-55
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
PATRIOT REIT INTERNATIONAL PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $312,451 $ -- $(279,721)(C) $ 32,730
Hotel revenue........... -- 1,024,730 -- 1,024,730
Racecourse facility
revenue, hotel and land
lease revenue.......... 17,714 51,946 (17,380)(D) 52,280
Management fee, service
fee and reimbursement
income................. -- 61,617 -- 61,617
Interest and other
income................. 2,797 11,568 (3,138)(E) 11,227
-------- ---------- --------- ----------
Total revenue........... 332,962 1,149,861 (300,239) 1,182,584
-------- ---------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 441,737 -- 441,737
Racecourse facility
operations............. -- 46,351 (5,611)(D) 40,740
Direct operating costs
of management company,
service department, and
reimbursement
expenses............... -- 47,564 -- 47,564
General and
administrative......... 7,097 117,654 (34)(E) 124,717
Ground lease and hotel
lease expense.......... 16,824 17,109 (11,769)(D) 22,164
Repair and maintenance.. -- 45,836 -- 45,836
Utilities............... -- 40,635 -- 40,635
Interest expense........ 142,248 4,866 (3,104)(E) 144,010
Real estate and personal
property taxes and
casualty insurance..... 38,104 847 -- 38,951
Marketing............... -- 80,009 -- 80,009
Management fees......... -- 11,527 -- 11,527
Depreciation and
amortization........... 103,325 41,452 -- 144,777
Participating lease
payments............... -- 279,721 (279,721)(C) --
-------- ---------- --------- ----------
Total expenses.......... 307,598 1,175,308 (300,239) 1,182,667
-------- ---------- --------- ----------
Income (loss) before
equity in earnings
(losses) of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 25,364 (25,447) -- (83)
Equity in earnings of
unconsolidated
subsidiaries........... 2,871 (3,436) 5,051 (F) 4,486
-------- ---------- --------- ----------
Income (loss) before
income tax provision and
minority interests...... 28,235 (28,883) 5,051 4,403
Income tax (provision)
benefit................ (345) 2,397 -- 2,052
-------- ---------- --------- ----------
Income (loss) before
minority interests...... 27,890 (26,486) 5,051 6,455
Minority interests in
the Patriot
Partnerships........... (2,591) 2,740 -- 149
Minority interest in
consolidated
subsidiaries .......... (2,491) 1,347 (5,051)(F) (6,195)
-------- ---------- --------- ----------
Net income (loss)
applicable to common
shareholders............ $ 22,808 $ (22,399) $ -- $ 409
======== ========== ========= ==========
Net income (loss) per
common Paired Share(G).. $ 0.21 $ (0.23) $ 0.00
======== ========== ==========
</TABLE>
- --------
(A) Patriot REIT Pro Forma balances are derived from the pro forma results of
operations of Patriot REIT for the year ended December 31, 1996 as
adjusted for the Wyndham Transactions. See page F-44. Minority interest in
the Patriot REIT Partnership has been decreased by $127 to reflect the
decrease in the estimated minority interest percentage subsequent to the
WHG Merger to approximately 10.2%. The estimated minority interest
percentage prior to the WHG Merger is approximately 10.7%.
(B) Wyndham International Pro Forma balances are derived from the pro forma
results of operations of Patriot Operating Company for the year ended
December 31, 1996 appearing on page F-63.
(C) Represents elimination of participating lease revenue and expense related
to the 97 hotel properties leased by Patriot REIT to Wyndham
International.
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(E) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets were acquired by Patriot Operating
F-56
<PAGE>
Company, the elimination of $1,934 of interest income and expense related to
the Subscription Notes issued to Patriot Operating Company in connection
with the subscription for shares of Patriot Operating Company Common Stock
and Patriot Operating Company Partnership OP Units issued in connection with
the Cal Jockey Merger and the elimination of $34 of other intercompany
income and expense items.
(F) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(G) The Patriot REIT and combined pro forma earnings per share is computed
based on 107,556 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of shares of preferred stock into Paired Shares, including the
conversion of WHG Series B Convertible Preferred Stock into Paired Shares
in connection with the WHG Merger. The Wyndham International pro forma
earnings per share is computed based on 97,433 weighted average common
Paired Shares outstanding for the period. Shares of preferred stock and
other common Paired Share equivalents outstanding were not considered in
the computation of Wyndham International's pro forma earnings per share
because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share for the year ended
December 31, 1996 would be less than $0.01 per common Paired Share. The
impact of Statement 128 on the calculation of diluted earnings per share is
not expected to differ significantly from the earnings per share amounts
reported.
F-57
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
PATRIOT REIT INTERNATIONAL PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $257,269 $ -- $(229,902)(C) $ 27,367
Hotel revenue............ -- 841,323 -- 841,323
Racecourse facility
revenue, hotel and land
lease revenue........... 19,759 33,399 (19,501)(D) 33,657
Management fee, service
fee and reimbursement
income.................. -- 56,323 -- 56,323
Interest and other
income.................. 4,043 10,524 (2,306)(E) 12,261
-------- -------- --------- --------
Total revenue............ 281,071 941,569 (251,709) 970,931
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 339,023 -- 339,023
Racecourse facility
operations.............. -- 30,114 (3,246)(D) 26,868
Direct operating costs of
management company,
service department, and
reimbursement expenses.. -- 43,427 -- 43,427
General and
administrative.......... 7,162 93,238 (24)(E) 100,376
Ground lease and hotel
lease expense........... 20,017 20,604 (16,255)(D) 24,366
Repair and maintenance... -- 37,954 -- 37,954
Utilities................ -- 32,716 -- 32,716
Interest expense......... 108,029 3,291 (2,282)(E) 109,038
Real estate and personal
property taxes and
casualty insurance...... 29,895 290 -- 30,185
Marketing................ -- 66,138 -- 66,138
Management fees.......... -- 11,436 -- 11,436
Depreciation and
amortization............ 78,017 29,976 -- 107,993
Participating lease
payments................ -- 229,902 (229,902)(C) --
-------- -------- --------- --------
Total expenses........... 243,120 938,109 (251,709) 929,520
-------- -------- --------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 37,951 3,460 -- 41,411
Equity in earnings of
unconsolidated
subsidiaries............ 6,023 417 (1,415)(F) 5,025
-------- -------- --------- --------
Income before income tax
provision and minority
interests................ 43,974 3,877 (1,415) 46,436
Income tax provision..... (256) (3,654) -- (3,910)
-------- -------- --------- --------
Income before minority
interests................ 43,718 223 (1,415) 42,526
Minority interests in the
Patriot Partnerships.... (4,205) 487 -- (3,718)
Minority interest in
consolidated
subsidiaries............ (2,493) (4,688) 1,415 (F) (5,766)
-------- -------- --------- --------
Net income (loss)
applicable to common
shareholders............. $ 37,020 $ (3,978) $ -- $ 33,042
======== ======== ========= ========
Net income (loss) per
common Paired Share(G)... $ 0.34 $ (0.04) $ 0.31
======== ======== ========
</TABLE>
- --------
(A) Patriot REIT Pro Forma balances are derived from the pro forma results of
operations of Patriot REIT for the nine months ended September 30, 1997 as
adjusted for the Wyndham Transactions. See page F-46. Minority interest in
the Patriot REIT Partnership has been decreased by $206 to reflect the
decrease in the estimated minority interest percentage subsequent to the
WHG Merger to approximately 10.2%. The estimated minority interest
percentage prior to the WHG Merger is approximately 10.7%.
(B) Wyndham International Pro Forma balances are derived from the pro forma
results of operations of Patriot Operating Company for the nine months
ended September 30, 1997 appearing on page F-65.
(C) Represents elimination of participating lease revenue and expense related
to the 97 hotel properties leased by Patriot REIT to Wyndham
International.
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(E) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
were acquired by Patriot Operating Company, the elimination
F-58
<PAGE>
of $1,450 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription for
shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and expense
items.
(F) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(G) The Patriot REIT and combined pro forma earnings per share is computed
based on 108,187 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of shares of preferred stock into Paired Shares, including the
conversion of WHG Series B Convertible Preferred Stock into Paired Shares
in connection with the WHG Merger. The Wyndham International pro forma
earnings per share is computed based on 97,490 weighted average common
Paired Shares outstanding for the period. Shares of preferred stock and
other common Paired Share equivalents outstanding were not considered in
the computation of Wyndham International's pro forma earnings per share
because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share for the nine months
ended September 30, 1997 would be $0.34 per common Paired Share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-59
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the WHG Merger had occurred as of September 30, 1997. The Pro
Forma Condensed Combined Balance Sheet is also derived from the Patriot REIT
and Patriot Operating Company Pro Forma Condensed Combined Balance Sheet as
adjusted for the Wyndham Transactions as of September 30, 1997 included
elsewhere in this Joint Current Report.
Such pro forma information is based in part upon WHG's Consolidated Balance
Sheet as of September 30, 1997 and Wyndham's Consolidated Balance Sheet as of
September 30, 1997 and should be read in conjunction with the financial
statements filed with WHG's and Wyndham's respective Quarterly Reports on Form
10-Q for the quarter ended September 30, 1997 and Patriot REIT's and Patriot
Operating Company's Combined Balance Sheet as of September 30, 1997, filed
with the Patriot Companies' Joint Quarterly Report on Form 10-Q for the nine
months ended September 30, 1997. In management's opinion, all material
adjustments necessary to reflect the effect of these transactions have been
made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of WHG at their estimated fair market
values and the elimination of WHG's historical shareholders' equity. The fair
market values of the assets and liabilities of WHG have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of WHG will materially change; however, the allocations of
purchase costs are subject to final determination based upon estimates and
other evaluations of fair market value as of the close of the transaction.
Therefore, the allocations reflected in the following unaudited Pro Forma
Condensed Combined Balance Sheet may differ from the amounts ultimately
determined. The following unaudited Pro Forma Condensed Combined Balance Sheet
is not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of September 30, 1997,
nor does it purport to represent the future financial position of Patriot REIT
and Wyndham International as adjusted for the WHG Merger.
F-60
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT REIT
AND WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements............ $2,687,106 $ 49,050 $ 31,641 (C) $2,767,797
Mortgage notes and other
receivables from
unconsolidated
subsidiaries............ 74,053 1,731 40,308 (D) 116,092
Notes and other
receivables from
affiliates.............. 24,800 -- -- 24,800
Notes receivable......... 17,844 -- -- 17,844
Investment in
unconsolidated
subsidiaries............ 16,153 29,791 (21,399)(E) 24,545
Cash and cash
equivalents............. 40,986 18,941 -- 59,927
Restricted cash.......... 44,354 -- -- 44,354
Accounts receivable,
net..................... 58,117 3,454 -- 61,571
Goodwill................. 460,753 8,613 20,499 (F) 489,865
Deferred expenses, net... 27,450 -- -- 27,450
Deferred acquisition
costs................... 16,220 -- -- 16,220
Management contract
costs................... 110,246 -- 43,567 (G) 153,813
Trade name and franchise
costs................... 93,050 -- -- 93,050
Prepaid expenses and
other assets............ 55,767 6,772 -- 62,539
Deferred income taxes.... 1,496 -- -- 1,496
---------- -------- -------- ----------
Total assets............ $3,728,395 $118,352 $114,616 $3,961,363
========== ======== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes................... $1,698,849 $ 22,363 $ -- $1,721,212
Accounts payable and
accrued expenses........ 105,979 16,236 12,871 135,086
Dividends and
distributions payable... 21,727 -- -- 21,727
Sales tax payable........ 2,968 -- -- 2,968
Deferred income tax
liability............... 76,425 2,192 -- 78,617
Deposits................. 6,056 -- -- 6,056
Due to unconsolidated
subsidiaries............ 5,904 -- -- 5,904
Minority interests in the
Patriot Partnerships.... 227,624 -- -- 227,624
Minority interest in
consolidated
subsidiaries............ 32,112 20,410 -- 52,522
Shareholders' equity:
Preferred stock......... 93 3 (3)(H) 93
Common stock............ 1,849 61 39 (H) 1,949
Paid-in capital......... 1,698,522 17,293 141,503 (I) 1,857,318
Unearned stock
compensation, net...... (15,075) -- (15,075)
Notes receivable from
stockholders........... (17,138) -- -- (17,138)
Receivable from
affiliates............. (1,229) -- -- (1,229)
Retained earnings....... (116,271) 39,794 (39,794)(I) (116,271)
---------- -------- -------- ----------
Total shareholders'
equity................. 1,550,751 57,151 101,745 1,709,647
---------- -------- -------- ----------
Total liabilities and
shareholders' equity... $3,728,395 $118,352 $114,616 $3,961,363
========== ======== ======== ==========
</TABLE>
See notes on following page.
F-61
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL, ADJUSTED FOR THE WHG MERGER
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
(A) Reflects the Pro Forma Condensed Combined Balance Sheet of Patriot REIT
and Patriot Operating Company as of September 30, 1997, which reflects (i)
the Recent Transactions, including the Cal Jockey Merger; (ii) the
acquisition of the CHC Hotels, the GAH Acquisition and the CHCI Merger;
and (iii) the Wyndham Transactions. See page F-42.
(B) Represents the Consolidated Balance Sheet of WHG as of September 30, 1997.
(C) Represents adjustment for the purchase method of accounting whereby the
investment in the hotel property owned by WHG is adjusted to record the
assets at their estimated fair market values.
(D) Represents the reclassification of receivables from/advances to WHG
unconsolidated subsidiaries, stated at their historical cost which
approximates their fair value.
(E) Represents the following adjustments:
<TABLE>
<S> <C>
Adjustment to state investments in WHG unconsolidated
subsidiaries at estimated fair market value................... $ 18,909
Reclassify receivables from/advances to WHG unconsolidated
subsidiaries.................................................. (40,308)
--------
$(21,399)
========
(F) Represents purchase consideration in excess of fair market value of the
net assets of WHG.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by WHG are adjusted to their estimated fair
market values. WHG, through certain of its subsidiaries, holds management
contracts for the three resort hotels that it holds ownership interests
in. The contracts have remaining lives of 6 to 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents adjustments to record the exchange of WHG Common Stock for
Paired Shares and the conversion of the WHG Series B Convertible Preferred
Stock outstanding into its Paired Share equivalent. Pursuant to the WHG
Merger Agreement, WHG stockholders will receive 0.784 Paired Shares for
each share of WHG Common Stock held by them at the time of the WHG Merger,
subject to certain adjustments. At September 30, 1997, 6,050 shares of WHG
Common Stock were outstanding and were assumed to be exchanged for
approximately 4,743 Paired Shares (with a par value equal to $0.02 per
Paired Share) resulting in an adjustment to increase Common Stock.
At September 30, 1997, 300 shares of WHG Series B Convertible Preferred
Stock were outstanding. The preferred stock has a stated value of $10.00 per
share (plus adjustment for accrued, unpaid dividends) and is convertible
into WHG Common Stock based on a value of $9.00 per share for the WHG Common
Stock. The outstanding shares of WHG Series B Convertible Preferred Stock
were assumed to be converted into approximately 261 Paired Shares (which
represents the number of Paired Shares the holder of such preferred stock
would have the right to receive assuming conversion of such shares into WHG
Common Stock).
(I) Represents the following adjustments to shareholders' equity:
Purchase consideration for shares.............................. $158,899
Adjustment to preferred stock assumed to be exchanged for
Paired Shares................................................. (3)
Adjustment to Common Stock for Paired Shares issued............ (39)
Book value of WHG common stock................................. (61)
Book value of WHG paid-in capital.............................. (17,293)
--------
Adjustment to paid-in capital................................. 141,503
Elimination of WHG historical retained earnings................ (39,794)
Adjustment to preferred stock.................................. (3)
Adjustment to common stock..................................... 39
--------
Adjustment to shareholders' equity............................ $101,745
========
</TABLE>
F-62
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Room revenue............ $ 607,177 $25,131 $ -- $ 632,308
Other hotel revenue..... 362,657 29,765 -- 392,422
Racecourse facility
revenue................ 51,946 -- -- 51,946
Management fee, service
fee and reimbursement
income................. 48,621 12,996 -- 61,617
Interest and other
income................. 9,484 2,084 -- 11,568
---------- ------- ------- ----------
Total revenue........... 1,079,885 69,976 -- 1,149,861
---------- ------- ------- ----------
Expenses:
Departmental cost--
hotel, club and spa
operations............. 407,183 34,554 -- 441,737
Racecourse facility
operations............. 46,351 -- -- 46,351
Direct operating costs
of management company,
service department, and
reimbursement
expenses............... 43,809 3,755 -- 47,564
General and
administrative......... 111,421 6,233 -- 117,654
Ground lease and hotel
lease expense ......... 17,109 -- -- 17,109
Repair and maintenance.. 45,836 -- -- 45,836
Utilities............... 40,635 -- -- 40,635
Marketing............... 77,053 2,956 -- 80,009
Management fees......... 11,527 -- -- 11,527
Depreciation and
amortization........... 29,431 5,549 6,472 (C) 41,452
Participating lease
payments............... 279,721 -- -- 279,721
Interest expense........ 1,393 3,473 -- 4,866
Real estate and personal
property taxes and
insurance.............. 847 -- -- 847
---------- ------- ------- ----------
Total expenses.......... 1,112,316 56,520 6,472 1,175,308
---------- ------- ------- ----------
Income (loss) before
equity earnings of
unconsolidated
subsidiaries............ (32,431) 13,456 (6,472) (25,447)
Equity in earnings of
unconsolidated
subsidiaries........... -- (2,896) (540)(D) (3,436)
---------- ------- ------- ----------
Income (loss) before
income tax provision and
minority interests...... (32,431) 10,560 (7,012) (28,883)
Income tax (provision)
benefit................ 5,282 (2,152) (733)(E) 2,397
---------- ------- ------- ----------
Income (loss) before
minority interests...... (27,149) 8,408 (7,745) (26,486)
Minority interest in the
Patriot Operating
Company Partnership.... 2,519 -- 221 (F) 2,740
Minority interest in
consolidated
subsidiaries........... 5,051 (3,704) -- 1,347
---------- ------- ------- ----------
Net income (loss)
applicable to common
shareholders............ $ (19,579) $ 4,704 $(7,524) $ (22,399)
========== ======= ======= ==========
Net loss per common
share(G)................ $ (0.21) $ (0.23)
========== ==========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Wyndham International
for the year ended December 31, 1996 which reflects adjustments for (i) the
Recent Transactions, including the Cal Jockey Merger and the related
transactions; (ii) the acquisition of the CHC Hotels, the GAH Acquisition
the CHCI Merger and the Buena Vista Acquisition; and (iii) the Wyndham
Transactions. See page F-48.
(B) Represents the historical consolidated results of operations of WHG for
the twelve months ended December 31, 1996 (excluding the adjustment to
reflect dividends on preferred stock of Condado Plaza Hotel & Casino).
(C) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $904, amortization of
goodwill of $1,025 and amortization of management contracts of $4,543.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
F-63
<PAGE>
(D) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(E) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the WHG Merger.
(F) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the WHG Merger of approximately
10.9%. The estimated minority interest percentage prior to the WHG Merger
is approximately 11.4%.
(G) Pro forma earnings per share subsequent to the WHG Merger is computed
based on 97,433 weighted average common shares outstanding for the period.
The number of shares used for the calculation does not include adjustments
to reflect the impact of the conversion of shares of preferred stock into
Paired Shares or other common share equivalents outstanding because they
are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.23 per Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-64
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Room revenue............. $509,539 $19,627 $ -- $529,166
Other hotel revenue...... 288,922 23,235 -- 312,157
Racecourse facility
revenue................. 33,399 -- -- 33,399
Management fee, service
fee and reimbursement
income.................. 45,034 11,289 -- 56,323
Interest and other
income.................. 8,507 2,017 -- 10,524
-------- ------- ------- --------
Total revenue............ 885,401 56,168 -- 941,569
-------- ------- ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations.............. 313,828 25,195 -- 339,023
Racecourse facility
operations.............. 30,114 -- -- 30,114
Direct operating costs of
management company,
service department, and
reimbursement expenses.. 40,331 3,096 -- 43,427
General and
administrative.......... 87,586 6,652 (1,000)(C) 93,238
Ground lease and hotel
lease expense........... 20,604 -- -- 20,604
Repair and maintenance... 37,954 -- -- 37,954
Utilities................ 32,716 -- -- 32,716
Marketing................ 63,899 2,239 -- 66,138
Management fees.......... 11,436 -- -- 11,436
Depreciation and
amortization............ 20,709 4,412 4,855 (D) 29,976
Participating lease
payments................ 229,902 -- -- 229,902
Interest expense......... 936 2,355 -- 3,291
Real estate and personal
property taxes and
casualty insurance ..... 290 -- -- 290
-------- ------- ------- --------
Total expenses........... 890,305 43,949 3,855 938,109
-------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries............. (4,904) 12,219 (3,855) 3,460
Equity in earnings of
unconsolidated
subsidiaries............ -- 822 (405)(E) 417
-------- ------- ------- --------
Income (loss) before
income tax provision and
minority interests....... (4,904) 13,041 (4,260) 3,877
Income tax (provision)
benefit................. (3,654) (3,336) 3,336 (F) (3,654)
-------- ------- ------- --------
Income (loss) before
minority interests....... (8,558) 9,705 (924) 223
Minority interest in the
Patriot Operating
Company Partnership..... 1,137 -- (650)(G) 487
Minority interest in
consolidated
subsidiaries............ (1,415) (3,273) -- (4,688)
-------- ------- ------- --------
Net income (loss)
applicable to common
shareholders............. $ (8,836) $ 6,432 $(1,574) $ (3,978)
======== ======= ======= ========
Net loss per common
share(H)................. $ (0.10) $ (0.04)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Wyndham International
for the nine months ended September 30, 1997 which reflects adjustments
for (i) the Recent Transactions, including the Cal Jockey Merger and the
related transactions; (ii) the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger and the Buena Vista Acquisition; and (iii)
the Wyndham Transactions. See page F-50.
(B) Represents the historical consolidated results of operations of WHG for
the nine months ended September 30, 1997 (excluding the adjustment to
reflect dividends on preferred stock of Condado Plaza Hotel & Casino).
(C) Represents adjustment to eliminate non-recurring WHG Merger related costs.
(D) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby by the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $678, amortization of
goodwill of $769 and amortization of management contracts of $3,408.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
F-65
<PAGE>
(E) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(F) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the WHG Merger.
(G) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the WHG Merger of approximately
10.9%. The estimated minority interest percentage prior to the WHG Merger
is approximately 11.4%.
(H) Pro forma earnings per share subsequent to the WHG Merger is computed
based on 97,490 weighted average common shares outstanding for the period.
The number of shares used for the calculation does not include adjustments
to reflect the impact of the conversion of shares of preferred stock into
Paired Shares or other common share equivalents outstanding because they
are antidilutive.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be unchanged. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
F-66
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On December 2, 1997, Patriot REIT and Patriot Operating Company entered into
an Agreement and Plan of Merger (the "Patriot/IHC Merger Agreement") with
Interstate Hotels Company ("IHC"), pursuant to which IHC will merge with and
into Patriot REIT with Patriot REIT being the surviving corporation (the
"Patriot/IHC Merger"). As a result of the Patriot/IHC Merger, Patriot REIT
will acquire all of the assets and liabilities of IHC, including IHC's
portfolio of 222 owned, leased or managed hotels located in the United States,
Canada, the Caribbean and Russia. Of IHC's portfolio, 40 hotels aggregating
approximately 11,580 rooms are owned or controlled by IHC, 90 hotels
aggregating approximately 10,354 rooms are leased and 92 hotels aggregating
approximately 23,183 rooms are managed or subject to service agreements. IHC
operates its hotels under a variety of brand names, including Marriott(R),
Embassy Suites(R), Hilton(TM), Holiday Inn(R), Radisson(TM), Westin(TM),
Sheraton(TM), Doubletree(TM), Residence Inn(TM), Hampton Inn(R), Comfort
Inn(TM), Homewood Suites(TM) and Colony(R). As a result of the Patriot/IHC
Merger, Patriot REIT will assume or refinance all of IHC's existing
indebtedness, which totaled approximately $776,000 as of September 30, 1997,
will pay approximately $24,300 to buy out options to purchase shares of common
stock, par value $0.01 per share, of IHC ("IHC Common Stock") and assume
certain severance obligations of approximately $30,000.
Upon consummation of the Patriot/IHC Merger, and subject to proration as
described below, IHC stockholders may elect to convert their shares of IHC
Common Stock into the right to receive either (i) cash equal to $37.50 per
share of IHC Common Stock, (the "Patriot/IHC Cash Consideration") or (ii)
Paired Shares having a value of $37.50 pursuant to an exchange ratio (the
"Patriot/IHC Exchange Ratio") based on the average closing price of the Paired
Shares preceding the meeting of stockholders of IHC relating to the
Patriot/IHC Merger (the "Patriot/IHC Average Closing Price"). The Patriot/IHC
Merger Agreement provides that, except under certain circumstances involving
the payment of cash to IHC stockholders who exercise dissenters' appraisal
rights in connection with the Patriot/IHC Merger, approximately 40% of the
total issued and outstanding shares of IHC Common Stock (the "IHC Outstanding
Shares") will be converted into the right to receive the Patriot/IHC Cash
Consideration and the remaining approximately 60% of the IHC Outstanding
Shares will be converted into the right to receive Paired Shares at the
Patriot/IHC Exchange Ratio. Accordingly, the aggregate Patriot/IHC Cash
Consideration (the "Aggregate Patriot/IHC Cash Consideration") to be received
by holders of IHC Common Stock who elect to receive Patriot/IHC Cash
Consideration generally will be an amount equal to 40% of the IHC Outstanding
Shares multiplied by $37.50, or an aggregate of approximately $531,300 based
on the number of shares of IHC Common Stock outstanding as of December 1,
1997. The aggregate number of Paired Shares to be received by holders of IHC
Common Stock who elect to receive Paired Shares in the Patriot/IHC Merger (the
"Aggregate Paired Share Consideration") generally will equal 60% of the IHC
Outstanding Shares multiplied by the Patriot/IHC Exchange Ratio. Upon
consummation of the Patriot/IHC Merger, holders of outstanding options to
acquire IHC Common Stock will receive cash in an amount equal to the spread
between the exercise price of such options and $37.50, except that certain
senior executives of IHC may elect to have their options assumed by Patriot
REIT.
The Patriot/IHC Merger Agreement provides that, in the event that the
holders of IHC Outstanding Shares elect to receive Patriot/IHC Cash
Consideration with respect to more than 14,168,500 shares of IHC Common Stock
(approximately 40% of the IHC Outstanding Shares), such holders will receive
the Aggregate Patriot/IHC Cash Consideration on a pro rata basis based on the
respective numbers of shares of IHC Common Stock with respect to which each
such holder has elected to receive Patriot/IHC Cash Consideration. Under such
circumstances, such holders' remaining shares of IHC Common Stock that are not
converted into the right to receive Patriot/IHC Cash Consideration will be
converted into the right to receive Paired Shares at the Patriot/IHC Exchange
Ratio. In the event that the aggregate number of shares of IHC Common Stock
with respect to which the holders thereof have elected to receive Paired
Shares at the Patriot/IHC Exchange Ratio is
F-67
<PAGE>
greater than 60% of the IHC Outstanding Shares, such holders will receive the
Aggregate Paired Share Consideration on a pro rata basis based on the
respective numbers of shares of IHC Common Stock with respect to which each
such holder has elected to receive Paired Shares. Under such circumstances,
such holders' remaining shares of IHC Common Stock that are not converted into
the right to receive Paired Shares will be converted into the right to receive
Patriot/IHC Cash Consideration.
Under the terms of the Patriot/IHC Merger Agreement and subject to proration
as described above, each issued and outstanding share of IHC Common Stock with
respect to which the holder thereof has made an election to receive Paired
Shares in the Patriot/IHC Merger generally will be converted into the right to
receive a number of Paired Shares equal to $37.50 divided by the Patriot/IHC
Average Closing Price. However, the Patriot/IHC Exchange Ratio is subject to
adjustment if the Patriot/IHC Average Closing Price is less than $27.97 or
greater than $34.186. If the Patriot/IHC Average Closing Price is less than
$27.97 but greater than or equal to $26.416, the Patriot/IHC Exchange Ratio
will be equal to 1.341. If the Patriot/IHC Average Closing Price is greater
than $34.186 but less than or equal to $37.294 ($38.848, if the Patriot/IHC
Merger is consummated after March 30, 1998), the Patriot/IHC Exchange Ratio
will be equal to 1.097. If the Patriot/IHC Average Closing Price is greater
than $37.294 ($38.848, if the Patriot/IHC Merger is consummated after March
30, 1998), the Patriot/IHC Exchange Ratio will be equal to $40.912 ($42.616,
if the Patriot/IHC Merger is consummated after March 30, 1998) divided by the
Patriot/IHC Average Closing Price. In the event that the Patriot/IHC Average
Closing Price is less than $26.416, the Patriot/IHC Exchange Ratio will be
equal to 1.341, but IHC will have the right to terminate the Patriot/IHC
Merger Agreement unless Patriot REIT decides to increase the Patriot/IHC
Exchange Ratio to an amount equal to $35.424 divided by the Patriot/IHC
Average Closing Price. In the event Patriot REIT so increases the Exchange
Ratio, any prior exercise by IHC of its right to terminate the Patriot/IHC
Merger Agreement will be rescinded and have no effect.
Following the Patriot/IHC Merger, Patriot REIT, directly or through its
subsidiaries, will own the 40 IHC hotels and will lease such hotels to Wyndham
International. The 90 hotel leases acquired by Patriot REIT subsidiaries (of
which 88 were leased by IHC as of September 30, 1997) will be sub-leased to
Wyndham International. IHC's remaining 92 management and franchise contracts,
the IHC hotel management company and other hotel management-related assets
will be transferred to corporate subsidiaries of Patriot REIT (collectively,
the "Patriot/IHC Non-Controlled Subsidiaries"). Patriot REIT will own a 99%
non-voting interest and Wyndham International will own the 1% controlling
voting interest in each of the Patriot/IHC Non-Controlled Subsidiaries.
Therefore, the operating results of the Patriot/IHC Non-Controlled
Subsidiaries will be combined with those of Wyndham International for
financial reporting purposes. Patriot REIT will account for its investment in
the Patriot/IHC Non-Controlled Subsidiaries using the equity method of
accounting.
The Patriot Companies intend to enter into arrangements to place $200,000 of
Paired Shares concurrent with the closing of the Patriot/IHC Merger, the
proceeds from which will be used to satisfy certain cash requirements
resulting from the Patriot/IHC Merger. Consummation of these arrangements is
subject to various conditions and no assurances can be given that the Patriot
Companies will be successful in their efforts to place $200,000 of Paired
Shares concurrently with the closing of the Patriot/IHC Merger.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by IHC are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of IHC has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of IHC will materially change; however,
the allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transaction. Therefore, the allocation reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
The Patriot/IHC Merger is subject to various conditions, including approval
of the Patriot/IHC Merger by the stockholders of Patriot REIT, Patriot
Operating Company and IHC. In the event that the Patriot/IHC Merger
F-68
<PAGE>
Agreement is terminated under certain circumstances, including in order to
allow IHC to pursue a superior proposal (as defined in the Patriot/IHC Merger
Agreement), IHC will be required to pay Patriot REIT a break-up fee of
$50,000. Likewise, if the Patriot/IHC Merger Agreement is terminated by IHC as
a result of Patriot REIT's failure to recommend approval of the Patriot/IHC
Merger to its stockholders, Patriot REIT will be required to pay a $50,000
break-up fee to IHC. The Buena Vista Acquisition is subject to various
conditions, including completion of the Patriot Companies' due diligence
procedures.
The following unaudited Pro Forma Condensed Combined Statements of
Operations, as adjusted for the Patriot/IHC Merger for the year ended December
31, 1996 and the nine months ended September 30, 1997, are derived from (i)
the Patriot REIT and Wyndham International Pro Forma Condensed Combined
Statements of Operations as adjusted for the WHG Merger for the year ended
December 31, 1996 and the nine months ended September 30, 1997; (ii) the Pro
Forma Statements of Income of IHC for the year ended December 31, 1996 and the
nine months ended September 30, 1997, and (iii) the Consolidated Statements of
Operations of IHC. The following unaudited Pro Forma Condensed Combined
Statements of Operations assume the Patriot/IHC Merger had occurred on January
1, 1996.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the
Patriot/IHC Merger would have been assuming such transaction had been
completed as of January 1, 1996, nor do they purport to represent the results
of operations for future periods. Further, the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
F-69
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT WYNDHAM
REIT INTERNATIONAL PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................... $463,833 $ -- $(431,103)(A) $ 32,730
Hotel revenue.............. -- 1,716,894 -- 1,716,894
Racecourse facility
revenue, hotel and land
lease revenue............. 100,868 51,946 (100,534)(B) 52,280
Management fee, service fee
and reimbursement income.. -- 102,375 -- 102,375
Interest and other income.. 2,797 13,224 (3,138)(C) 12,883
-------- ---------- --------- ----------
Total revenue.............. 567,498 1,884,439 (534,775) 1,917,162
-------- ---------- --------- ----------
Expenses:
Departmental costs--hotel
operations................ -- 695,139 -- 695,139
Racecourse facility
operations................ -- 46,351 (5,611)(B) 40,740
Direct operating costs of
management company,
service department, and
reimbursement expenses.... -- 66,458 -- 66,458
General and
administrative............ 7,097 187,723 (34)(C) 194,786
Ground lease and hotel
lease expense............. 99,570 100,263 (94,923)(B) 104,910
Repair and maintenance..... -- 77,076 -- 77,076
Utilities.................. -- 69,814 -- 69,814
Interest expense........... 241,950 4,866 (3,104)(C) 243,712
Real estate and personal
property taxes and
casualty insurance........ 57,868 3,104 -- 60,972
Marketing.................. -- 138,875 -- 138,875
Management fees............ -- 16,181 -- 16,181
Depreciation and
amortization.............. 187,735 63,461 -- 251,196
Participating lease
payments.................. -- 431,103 (431,103)(A) --
-------- ---------- --------- ----------
Total expenses............. 594,220 1,900,414 (534,775) 1,959,859
-------- ---------- --------- ----------
Loss before equity in
earnings of unconsolidated
subsidiaries, income tax
provision and minority
interests.................. (26,722) (15,975) -- (42,697)
Equity in earnings of
unconsolidated
subsidiaries.............. 2,090 (3,436) 5,832 (D) 4,486
-------- ---------- --------- ----------
Loss before income tax
provision and minority
interests.................. (24,632) (19,411) 5,832 (38,211)
Income tax provision....... (1,045) (3,298) -- (4,343)
-------- ---------- --------- ----------
Income (loss) before
minority interests......... (25,677) (22,709) 5,832 (42,554)
Minority interests in the
Patriot Partnerships...... 6 1,741 -- 1,747
Minority interest in
consolidated subsidiaries
.......................... (5,244) 2,128 (5,832)(D) (8,948)
-------- ---------- --------- ----------
Net loss applicable to
common shareholders........ $(30,915) $ (18,840) $ -- $ (49,755)
======== ========== ========= ==========
Net loss per common Paired
Share(E)................... $ (0.23) $ (0.14) $ (0.38)
======== ========== ==========
</TABLE>
- --------
(A) Represents the elimination of participating lease revenue and expense
related to those hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents the elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets were acquired by Patriot Operating Company, the elimination of
$1,934 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger and the elimination of $34 of other intercompany income and expense
items.
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries and the Patriot/IHC Non-Controlled Subsidiaries.
F-70
<PAGE>
(E) Pro forma earnings per share is computed based on 132,346 weighted average
common Paired Shares outstanding for the period. The number of shares used
for the calculation does not include adjustments to reflect the impact of
the conversion of preferred stock into Paired Shares or other common
Paired Share equivalents because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share and dilutive
combined earnings per share for the year ended December 31, 1996 are not
expected to differ significantly from the earnings per share amounts
reported.
F-71
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT WYNDHAM
REIT INTERNATIONAL PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $384,243 $ -- $(356,876)(A) $ 27,367
Hotel revenue.......... -- 1,394,074 -- 1,394,074
Racecourse facility
revenue, hotel and
land lease revenue.... 92,336 33,399 (92,078)(B) 33,657
Management fee, service
fee and reimbursement
income................ -- 87,200 -- 87,200
Interest and other
income................ 4,043 11,738 (2,306)(C) 13,475
-------- ---------- --------- ----------
Total revenue.......... 480,622 1,526,411 (451,260) 1,555,773
-------- ---------- --------- ----------
Expenses:
Departmental costs--
hotel operations...... -- 535,589 -- 535,589
Racecourse facility
operations............ -- 30,114 (3,246)(B) 26,868
Direct operating costs
of management company,
service department,
and reimbursement
expenses.............. -- 59,138 -- 59,138
General and
administrative........ 7,162 147,786 (24)(C) 154,924
Ground lease and hotel
lease expense......... 90,828 93,181 (88,832)(B) 95,177
Repair and
maintenance........... -- 61,444 -- 61,444
Utilities.............. -- 54,612 -- 54,612
Interest expense....... 179,596 3,291 (2,282)(C) 180,605
Real estate and
personal property
taxes and casualty
insurance............. 44,384 2,027 -- 46,411
Marketing.............. -- 110,692 -- 110,692
Management fees........ -- 15,489 -- 15,489
Depreciation and
amortization.......... 141,324 46,483 -- 187,807
Participating lease
payments.............. -- 356,876 (356,876)(A) --
-------- ---------- --------- ----------
Total expenses......... 463,294 1,516,722 (451,260) 1,528,756
-------- ---------- --------- ----------
Income before equity in
earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 17,328 9,689 -- 27,017
Equity in earnings of
unconsolidated
subsidiaries.......... 4,646 417 (38)(D) 5,025
-------- ---------- --------- ----------
Income before income tax
provision and minority
interests.............. 21,974 10,106 (38) 32,042
Income tax provision... (781) (7,626) -- (8,407)
-------- ---------- --------- ----------
Income before minority
interests.............. 21,193 2,480 (38) 23,635
Minority interests in
the Patriot
Partnerships.......... (2,345) 70 -- (2,275)
Minority interest in
consolidated
subsidiaries.......... (4,529) (3,311) 38 (D) (7,802)
-------- ---------- --------- ----------
Net income (loss)
applicable to common
shareholders........... $ 14,319 $ (761) $ -- $ 13,558 (E)
======== ========== ========= ==========
Net income per common
Paired Share........... $ 0.10 $ (0.00) $ 0.09 (E)
======== ========== ==========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to those hotel properties leased by Patriot REIT to Wyndham International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
were acquired by Patriot Operating Company, the elimination of $1,450 of
interest income and expense related to the Subscription Notes issued to
Patriot Operating Company in connection with the subscription for shares
of Patriot Operating Company Common Stock and Patriot Operating Company
Partnership OP Units issued in connection with the Cal Jockey Merger, and
the elimination of $24 of other intercompany income and expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries and the Patriot/IHC Non-Controlled Subsidiaries.
F-72
<PAGE>
(E) The Patriot REIT and combined pro forma earnings per share is computed
based on 143,100 weighted average common Paired Shares and common Paired
Share equivalents outstanding for the period. The number of shares used
for the calculation includes adjustments to reflect the impact of the
conversion of preferred stock into Paired Shares. The Wyndham
International pro forma earnings per share is based on 132,403 weighted
average common Paired Shares outstanding for the period. Shares of
preferred stock and other common Paired Share equivalents outstanding were
not considered in the computation of Wyndham International's pro forma
earnings per share because they are antidilutive
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic combined earnings per share for the year ended
December 31, 1996 would be $0.10 per Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
F-73
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Patriot/IHC Merger had occurred as of September 30, 1997.
The Pro Forma Condensed Combined Balance Sheet is derived from the Patriot
REIT and Wyndham International Pro Forma Condensed Combined Balance Sheet as
of September 30, 1997 included elsewhere herein.
Such pro forma information is based in part upon the Consolidated Balance
Sheets of IHC and Wyndham as of September 30, 1997 and Patriot REIT's and
Patriot Operating Company's Combined Balance Sheet as of September 30, 1997
filed with the Patriot Companies' Joint Quarterly Report on Form 10-Q for the
nine months ended September 30, 1997 and such information should also be read
in conjunction with the financial statements filed in IHC's, Wyndham's, and
WHG's respective Quarterly Reports on Form 10-Q for the period ended September
30, 1997. In management's opinion, all material adjustments necessary to
reflect the effect of these transactions have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of IHC at their estimated fair market
values and the elimination of IHC's historical shareholders' equity. The fair
market values of the assets and liabilities of IHC have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of IHC will materially change; however, the allocations of
purchase costs are subject to final determination based upon estimates and
other evaluations of fair market value as of the close of the transaction.
Therefore, the allocations reflected in the following unaudited Pro Forma
Condensed Combined Balance Sheet may differ from the amounts ultimately
determined. The following unaudited Pro Forma Condensed Combined Balance Sheet
is not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of September 30, 1997,
nor does it purport to represent the future financial position of Patriot REIT
and Wyndham International as adjusted for the Patriot/IHC Merger.
F-74
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT REIT
AND WYNDHAM
INTERNATIONAL PATRIOT/IHC
PRO FORMA IHC MERGER PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS(C) TOTAL
------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $2,767,797 $1,140,291 $760,208 (D) $4,668,296
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 116,092 -- -- 116,092
Notes and other
receivables from
affiliates............. 24,800 -- -- 24,800
Notes receivable........ 17,844 5,184 (5,184)(E) 17,844
Investment in
unconsolidated
subsidiaries........... 24,545 24,518 -- 49,063
Cash and cash
equivalents............ 59,927 31,924 -- 91,851
Restricted cash......... 44,354 7,745 -- 52,099
Accounts receivable,
net.................... 61,571 48,653 -- 110,224
Goodwill................ 489,865 21,501 123,911 (F) 635,277
Deferred expenses, net.. 27,450 13,979 8,512 (G) 49,941
Deferred acquisition
costs.................. 16,220 -- -- 16,220
Management contract and
leasehold costs........ 153,813 28,344 101,987 (H) 284,144
Trade name and franchise
costs.................. 93,050 -- -- 93,050
Prepaid expenses and
other assets........... 62,539 25,831 -- 88,370
Deferred income taxes... 1,496 2,283 -- 3,779
---------- ---------- -------- ----------
Total assets........... $3,961,363 $1,350,253 $989,434 $6,301,050
========== ========== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $1,721,212 $ 775,504 $434,124 (I) $2,930,840
Accounts payable and
accrued expenses....... 135,086 98,613 -- 233,699
Dividends and
distributions payable.. 21,727 -- -- 21,727
Sales taxes payable..... 2,968 -- -- 2,968
Deferred income tax
liability.............. 78,617 13,878 13,460 (J) 105,955
Deposits................ 6,056 -- -- 6,056
Deferred gain........... -- -- -- --
Due to unconsolidated
subsidiaries........... 5,904 -- -- 5,904
Minority interests in
the Patriot
Partnerships........... 227,624 -- -- 227,624
Minority interest in
consolidated
subsidiaries........... 52,522 17,141 -- 69,663
Shareholders' equity:
Preferred stock........ 93 -- -- 93
Common stock........... 1,949 354 344 (K) 2,647
Paid-in capital........ 1,857,318 411,644 574,625 (L) 2,843,587
Unearned stock
compensation, net..... (15,075) (813) 813 (L) (15,075)
Notes receivable from
stockholders.......... (17,138) -- -- (17,138)
Receivable from
affiliates............ (1,229) -- -- (1,229)
Retained earnings...... (116,271) 33,932 (33,932)(L) (116,271)
---------- ---------- -------- ----------
Total shareholders'
equity................ 1,709,647 445,117 541,850 (L) 2,696,614
---------- ---------- -------- ----------
Total liabilities and
shareholders' equity.. $3,961,363 $1,350,253 $989,434 $6,301,050
========== ========== ======== ==========
</TABLE>
See notes on following page.
F-75
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL, ADJUSTED FOR THE PATRIOT/IHC MERGER
NOTES TO PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(A) Represents the pro forma combined balance sheet of Patriot REIT and
Patriot Operating Company as of September 30, 1997 as adjusted for the
Wyndham Transactions and WHG Merger. See page F-61.
(B) Represents the historical balance sheet of IHC as of September 30, 1997.
(C) Represents adjustments to Patriot REIT and Wyndham International's
Combined balance sheet as adjusted for the Patriot/IHC Merger.
(D) Represents adjustments for the purchase method of accounting whereby the
investments in hotel properties owned by IHC are adjusted to record the
assets at their estimated fair market values.
(E) Represents adjustment to eliminate notes receivable from officers which
are to be extinguished prior to the Patriot/IHC Merger.
(F) Represents the purchase consideration in excess of the fair market value
of the net assets of IHC.
(G) Represents an increase in deferred loan costs expected to be incurred in
connection with an increase in the Revolving Credit Facility to finance
the cash portion of the purchase price and Patriot/IHC Merger related
costs.
(H) Represents adjustments for the purchase method of accounting whereby the
third-party management contracts and leaseholds held by IHC are adjusted
to their estimated fair market value. The management contracts have an
average remaining life of approximately 5 years. The leaseholds have an
average remaining life of 14 years.
(I) Represents additional borrowings assumed to be incurred in connection with
the Patriot/IHC Merger as follows:
<TABLE>
<S> <C>
Cash required to finance the acquisition of 40% of the IHC
Outstanding Shares at $37.50 per share....................... $ 531,312
Less: Net proceeds from concurrent public offering (see Note
L)........................................................... (190,000)
---------
Cash required to finance stock purchase....................... 341,312
Estimated transaction costs................................... 30,000
Buyout of IHC options......................................... 24,300
Estimated severance costs..................................... 30,000
Additional loan costs......................................... 8,512
---------
Total cash requirements...................................... $ 434,124
=========
</TABLE>
In addition, immediately following the Patriot/IHC Merger, the shareholders
of IHC and Patriot REIT will receive a special dividend in order to
distribute the current and accumulated earnings and profits of IHC and
Patriot REIT through the date of the Patriot/IHC Merger.
(J) Represents adjustments to eliminate $11,800 of the deferred tax liability
of IHC which is associated with timing differences related to depreciation
of real property which will be owned by Patriot REIT following the
Patriot/IHC Merger offset by an increase in the deferred tax liability of
$25,260 related to purchased management contracts.
(K) Represents adjustments to record the exchange of IHC Common Stock for
Paired Shares. Pursuant to the Patriot/IHC Merger Agreement, IHC
Stockholders may elect to receive for each share of IHC Common Stock held
by them, either (i) cash for shares equal to $37.50 per share; or (ii)
Paired Shares, for which the exchange ratio is determined by dividing
$37.50 by the average closing price for a Paired Share as reported on the
NYSE over the 20 consecutive trading day period ending on the trading day
immediately preceding the fifth trading day prior to the date on which the
shareholder meeting is held (subject to certain adjustments). The
Patriot/IHC Merger Agreement also provides for purchase of 40% of the IHC
Outstanding Shares for cash, with the remainder in Paired Shares. At
September 30, 1997, there were 35,421 shares of IHC Common Stock
outstanding. Assuming 40% of the IHC Outstanding Shares are tendered for
cash, the remaining 21,253 shares will be exchanged for 27,909 Paired
Shares (based upon the average closing price of the Paired Shares for the
trading 20 days ended January 2, 1998 of $28.556). In addition, the
Patriot Companies intend to enter into arrangements to place $200,000 of
Paired Shares concurrent with the Patriot/IHC Merger. Assuming the Paired
Shares were offered at the average closing price of the Paired Shares for
the trading 20 days ended January 2, 1998 of $28.556, an additional 7,004
Paired Shares will be outstanding following the Patriot/IHC Merger. The
increase in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares exchanged in Patriot/IHC Merger.................... 27,909
Paired Shares offered in concurrent offering..................... 7,004
======
Increase in Paired Shares........................................ 34,913
Par value of each Paired Share................................... $ 0.02
------
Increase in common stock......................................... $ 698
Less: IHC historical common stock................................ (354)
------
Adjustment to common stock...................................... $ 344
======
</TABLE>
F-76
<PAGE>
(L) Represents adjustments to shareholders' equity to eliminate IHC's
historical equity accounts and record equity based upon the number of
Paired Shares issued in the Patriot/IHC Merger and the concurrent public
offering of Paired Shares as follows:
<TABLE>
<S> <C>
Purchase consideration for IHC Outstanding Shares (35,421
shares of IHC Common Stock at $37.50 per share)............. $1,328,279
Less: IHC Common Stock to be purchased for cash.............. (531,312)
----------
Purchase consideration for shares............................ 796,967
Net proceeds from concurrent offering........................ 190,000
Book value of IHC paid-in capital............................ (411,644)
Adjustment to common stock................................... (698)
----------
Adjustment to Paid-in Capital............................... $ 574,625
----------
Elimination of IHC historical retained earnings.............. (33,932)
Adjustment to unearned stock compensation.................... 813
Adjustment to common stock................................... 344
----------
Adjustment to shareholders' equity.......................... $ 541,850
==========
</TABLE>
F-77
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT PATRIOT/IHC
PRO FORMA MERGER PRO FORMA
TOTAL(A) ADJUSTMENTS(B) TOTAL
------------- ---------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue:
Participating lease
revenue............... $ 312,451 $ 151,382 (C) $ 463,833
Racecourse facility,
hotel and land lease
revenue............... 17,714 83,154 (D) 100,868
Interest and other
income................ 2,797 -- 2,797
------------- ------------- -------------
Total revenue.......... 332,962 234,536 567,498
------------- ------------- -------------
Expenses:
Ground lease and hotel
lease expense......... 16,824 82,746 (E) 99,570
General and
administrative........ 7,097 -- 7,097
Interest expense....... 142,248 99,702 (F) 241,950
Real estate and
personal property
taxes and casualty
insurance............. 38,104 19,764 (G) 57,868
Depreciation and
amortization.......... 103,325 84,410 (H) 187,735
------------- ------------- -------------
Total expenses......... 307,598 286,622 594,220
------------- ------------- -------------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 25,364 (52,086) (26,722)
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 2,871 (781)(I) 2,090
------------- ------------- -------------
Income (loss) before
income tax provision
and minority
interests.............. 28,235 (52,867) (24,632)
Income tax provision... (345) (700)(J) (1,045)
------------- ------------- -------------
Income (loss) before
minority interests..... 27,890 (53,567) (25,677)
Minority interest in
the Patriot REIT
Partnership........... (2,591) 2,597 (K) 6
Minority interest in
consolidated
subsidiaries.......... (2,491) (2,753)(L) (5,244)
------------- ------------- -------------
Net income (loss)
applicable to common
shareholders .......... $ 22,808 $ (53,723) $ (30,915)(M)
============= ============= =============
Net income (loss) per
common share........... $ 0.21 $ (0.23)(M)
============= =============
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
year ended December 31, 1996 as adjusted for the Wyndham Transactions and
WHG Merger. See page F-56.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Patriot/IHC Merger had occurred as of January 1, 1996.
(C) Represents pro forma lease payments from Wyndham International to Patriot
REIT for the 40 hotels Patriot REIT will own subsequent to the Patriot/IHC
Merger, based upon the historical revenue for the hotels for the period
presented.
(D) Represents pro forma hotel lease payments from Wyndham International to
Patriot REIT for the 88 hotels leased by IHC at September 30, 1997 that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger, based upon the historical revenue of the hotels for
the period presented.
(E) Represents ground lease expense of $1,602 related to certain of the hotels
acquired by Patriot REIT in the Patriot/IHC Merger and hotel lease expense
of $81,144 related to the 88 hotels leased from third-party owners that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger.
(F) For the Patriot/IHC Merger, the adjustment represents interest expense of
$59,086 on approximately $775,504 of IHC debt assumed in connection with
the transaction, interest expense of $32,486 incurred on borrowings which
will be used to finance a portion of the Patriot/IHC Merger, and
amortization of deferred loan costs of $6,191. Amount also represents an
adjustment of $1,939 to reflect an increase in the interest rate charged
on borrowings under the Revolving Credit Facility and Term Loan (to LIBOR
plus 2%) based on Patriot REIT's estimated leverage ratio following the
Patriot/IHC Merger.
The deferred loan costs incurred on the new borrowings are being amortized
over the term of the loan. Interest expense on the Revolving Credit Facility
and Term Loan assumes an average interest rate of 7.483% (LIBOR plus 2%). An
increase of 0.25% in the interest rate on variable rate debt would increase
pro forma interest expense to $246,782, increase net loss applicable to
common shareholders to $36,337 and increase net loss per common share to
$0.27, based on 132,346 weighted average common shares and common share
equivalents outstanding.
(G) Represents real estate and personal property taxes and casualty insurance
related to the 40 IHC owned hotels which will be paid by Patriot REIT
following the Patriot/IHC Merger.
F-78
<PAGE>
(H) Represents adjustment to increase depreciation of the real estate and
amortization of the cost of leaseholds acquired in the Patriot/IHC Merger.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. These estimates are based upon management's
knowledge of the properties and the hotel industry in general. Leasehold
costs are amortized on a straight-line basis over the remaining term of
the lease.
(I) Represents Patriot REIT's share of the earnings of the Patriot/IHC Non-
Controlled Subsidiaries which will own the management contracts and hotel
management business and will be controlled by Wyndham International
following the Patriot/IHC Merger.
(J) Represents provision for Patriot REIT's estimated state tax liability.
(K) Represents adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger of
approximately 10.2%. The estimated minority interest percentage prior to
the Patriot/IHC Merger is also approximately 10.2%.
(L) Represents the minority interest in income of consolidated entities which
will be acquired by Patriot REIT in connection with the Patriot/IHC
Merger.
(M) Pro forma earnings per share is computed based on 132,346 weighted average
common shares outstanding for the period. The number of shares used for
the calculation does not include adjustments to reflect the impact of the
conversion of preferred stock into Paired Shares of common stock or other
common share equivalents outstanding because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.23 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-79
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT PATRIOT/IHC
PRO FORMA MERGER PRO FORMA
TOTAL(A) ADJUSTMENTS(B) TOTAL
------------- ---------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue:
Participating lease
revenue............... $ 257,269 $ 126,974 (C) $ 384,243
Racecourse facility,
hotel and land lease
revenue .............. 19,759 72,577 (D) 92,336
Interest and other
income................ 4,043 -- 4,043
------------- ------------- -------------
Total revenue.......... 281,071 199,551 480,622
------------- ------------- -------------
Expenses:
Ground lease and hotel
lease expense......... 20,017 70,811 (E) 90,828
General and
administrative........ 7,162 -- 7,162
Interest expense....... 108,029 71,567 (F) 179,596
Real estate and
personal property
taxes and casualty
insurance............. 29,895 14,489 (G) 44,384
Depreciation and
amortization.......... 78,017 63,307 (H) 141,324
------------- ------------- -------------
Total expenses......... 243,120 220,174 463,294
------------- ------------- -------------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 37,951 (20,623) 17,328
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 6,023 (1,377)(I) 4,646
------------- ------------- -------------
Income (loss) before
income tax provision
and minority
interests.............. 43,974 (22,000) 21,974
Income tax provision... (256) (525)(J) (781)
------------- ------------- -------------
Income (loss) before
minority interests..... 43,718 (22,525) 21,193
Minority interest in
the Patriot REIT
Partnership........... (4,205) 1,860 (K) (2,345)
Minority interest in
consolidated
subsidiaries.......... (2,493) (2,036)(L) (4,529)
------------- ------------- -------------
Net income (loss)
applicable to common
shareholders........... $ 37,020 $ (22,701) $ 14,319 (M)
============= ============= =============
Net income per common
share.................. $ 0.34 $ 0.10 (M)
============= =============
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
nine months ended September 30, 1997 as adjusted for the Wyndham
Transactions and WHG Merger. See page F-58.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Patriot/IHC Merger had occurred as of January 1, 1996.
(C) Represents pro forma lease payments from Wyndham International to Patriot
REIT for the 40 hotels Patriot REIT will own subsequent to the Patriot/IHC
Merger, based upon the historical revenue for the hotels for the period
presented.
(D) Represents pro forma hotel lease payments from Wyndham International to
Patriot REIT for the 88 hotels leased by IHC at September 30, 1997 that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger, based upon the historical revenue of the hotels for
the period presented.
(E) Represents ground lease expense of $1,138 related to certain of the hotels
acquired by Patriot REIT in the Patriot/IHC Merger and hotel lease expense
of $69,673 related to the 88 hotels leased from third-party owners that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger.
(F) For the Patriot/IHC Merger, the adjustment represents interest expense of
$40,657 on approximately $775,504 of IHC debt assumed in connection with
the transaction, interest expense of $24,754 incurred on borrowings which
will be used to finance a portion of the Patriot/ IHC Merger, and
amortization of deferred loan costs of $4,666. Amount also represents an
adjustment of $1,490 to reflect an increase in the interest rate charged
on borrowings under the Revolving Credit Facility and Term Loan (to LIBOR
plus 2%) based on Patriot REIT's estimated leverage ratio following the
Patriot/IHC Merger.
The deferred loan costs incurred on the new borrowings are being amortized
over the term of the loan. Interest expense on the Revolving Credit Facility
and Term Loan assumes an average interest rate of 7.603% (LIBOR plus 2%). An
increase of 0.25% in the interest rate on variable rate debt would increase
pro forma interest expense to $183,294, decrease net income applicable to
common shareholders to $10,156 and decrease net income per common share to
$0.07, based on 143,100 weighted average common shares and common share
equivalents outstanding.
(G) Represents real estate and personal property taxes and casualty insurance
related to the 40 IHC owned hotels which will be paid by Patriot REIT
following the Patriot/IHC Merger.
F-80
<PAGE>
(H) Represents adjustment to increase depreciation of the real estate and
amortization of the cost of leaseholds acquired in the Patriot/IHC Merger.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. These estimates are based upon management's
knowledge of the properties and the hotel industry in general. Leasehold
costs are amortized on a straight-line basis over the remaining term of
the lease.
(I) Represents Patriot REIT's share of the earnings of the Patriot/IHC Non-
Controlled Subsidiaries which will own the management contracts and hotel
management business and will be controlled by Wyndham International
following the Patriot/IHC Merger.
(J) Represents provision for Patriot REIT's estimated state tax liability.
(K) Represents adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger of
approximately 10.2%. The estimated minority interest percentage prior to
the Patriot/IHC Merger is also approximately 10.2%.
(L) Represents the minority interest in income of consolidated entities which
will be acquired by Patriot REIT in connection with the Patriot/IHC
Merger.
(M) Pro forma earnings per share is computed based on 143,100 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of preferred stock into Paired Shares of
common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would also be $0.11 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-81
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
WYNDHAM -----------------------------
INTERNATIONAL PATRIOT/IHC
PRO FORMA IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) ADJUSTMENTS(C) TOTAL
------------- ------------ -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 632,308 $490,330 $ -- $1,122,638
Other hotel revenue.... 392,422 201,834 -- 594,256
Racecourse facility
revenue............... 51,946 -- -- 51,946
Management fee, service
fee and reimbursement
income................ 61,617 40,758 -- 102,375
Interest and other
income................ 11,568 1,656 -- 13,224
---------- -------- -------- ----------
Total revenue.......... 1,149,861 734,578 -- 1,884,439
---------- -------- -------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 441,737 253,402 -- 695,139
Racecourse facility
operations............ 46,351 -- -- 46,351
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 47,564 18,894 -- 66,458
General and
administrative........ 117,654 70,069 -- 187,723
Ground lease and hotel
lease expense ........ 17,109 1,602 81,552 (D) 100,263
Repair and
maintenance........... 45,836 31,240 -- 77,076
Utilities.............. 40,635 29,179 -- 69,814
Marketing.............. 80,009 64,394 (5,528)(E) 138,875
Management fees........ 11,527 661 3,993 (F) 16,181
Depreciation and
amortization.......... 41,452 48,024 (26,015)(G) 63,461
Participating lease
payments.............. 279,721 81,144 (H) 70,238 (H) 431,103
Interest expense....... 4,866 59,086 (59,086)(I) 4,866
Real estate and
personal property
taxes and insurance... 847 22,021 (19,764)(I) 3,104
---------- -------- -------- ----------
Total expenses......... 1,175,308 679,716 45,390 1,900,414
---------- -------- -------- ----------
Income (loss) before
equity earnings of
unconsolidated
subsidiaries income tax
provision, and minority
interests.............. (25,447) 54,862 (45,390) (15,975)
Equity in earnings of
unconsolidated
subsidiaries.......... (3,436) -- -- (3,436)
---------- -------- -------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (28,883) 54,862 (45,390) (19,411)
Income tax (provision)
benefit............... 2,397 (19,801) 14,106 (J) (3,298)
---------- -------- -------- ----------
Income (loss) before
minority interests..... (26,486) 35,061 (31,284) (22,709)
Minority interest in
the Patriot Operating
Company Partnership... 2,740 -- (999)(K) 1,741
Minority interest in
consolidated
subsidiaries.......... 1,347 (2,753) 3,534 (L) 2,128
---------- -------- -------- ----------
Net income (loss)
applicable to common
shareholders........... $ (22,399) $ 32,308 $(28,749) $ (18,840)(M)
========== ======== ======== ==========
Net loss per common
share.................. $ (0.23) $ (0.14)(M)
========== ==========
</TABLE>
See notes on following page.
F-82
<PAGE>
WYNDHAM INTERNATIONAL, ADJUSTED FOR THE PATRIOT/IHC MERGER
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(A) Represents the pro forma results of operations of Patriot Operating
Company for the year ended December 31, 1996 as adjusted for the Wyndham
Transactions and WHG Merger. See page F-63.
(B) Represents the pro forma results of operations of IHC for the year ended
December 31, 1996 prior to the Patriot/IHC Merger.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Patriot/IHC Merger had occurred as of January 1, 1996.
(D) Represents the following adjustments to pro forma ground lease and hotel
lease expense:
<TABLE>
<S> <C>
Eliminate ground lease expense which will be paid by Patriot
REIT subsequent to the Patriot/IHC Merger..................... $ (1,602)
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note I).................... 81,144
Incremental hotel lease expense related to the sub-lease of the
88 hotels by Patriot REIT to Wyndham International............ 2,010
--------
$ 81,552
========
(E) Represents the historical costs of IHC franchise fee payments related to
franchise agreements for ten Marriott International, Inc. hotels which are
assumed to be terminated concurrently with the Patriot/IHC Merger.
(F) Represents additional management fees to be incurred by IHC pursuant to
new management agreements with Marriott International, Inc., which are
assumed to be executed concurrently with the Patriot/IHC Merger.
(G) Represents an adjustment of $45,887 to allocate the IHC pro forma
depreciation and amortization related to real estate to Patriot REIT,
partially offset by an increase of $19,872 in amortization expense related
to amortization of goodwill and management contracts. The goodwill related
to the management business is amortized on a straight-line basis over an
estimated useful life of 20 years. Management contracts are amortized on a
straight-line basis over their estimated remaining lives of 5 years.
(H) The participating lease payment amount of $81,144 reflected in the IHC Pro
Forma Statement of Operations represents hotel lease payments made to
third parties in connection with the 88 leaseholds held by IHC as of
September 30, 1997. Following the Patriot/IHC Merger, Patriot REIT will
sublease these hotel leaseholds to Wyndham International. The pro forma
adjustment of $70,238 is composed of the following adjustments:
Pro forma participating lease payments related to the 40 owned
hotels leased by Patriot REIT to Wyndham International
subsequent to the Patriot/IHC Merger.......................... $151,382
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note E).................... (81,144)
--------
$ 70,238
========
</TABLE>
(I) Represents adjustments to the IHC pro forma results of operations to
eliminate interest expense and real estate and personal property taxes and
casualty insurance to be paid by Patriot REIT subsequent to the
Patriot/IHC Merger.
(J) Represents an adjustment to the IHC pro forma tax expense to reflect the
tax provision based upon Wyndham International's pro forma taxable income
following the Patriot/IHC Merger.
(K) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger to
8.46%.
(L) Represents an adjustment of $2,753 to eliminate the IHC pro forma minority
interest in certain consolidated subsidiaries which will be owned by
Patriot REIT following the Patriot/IHC Merger, and an adjustment of $781
to reflect Patriot REIT's allocation of losses from the Patriot/IHC Non-
Controlled subsidiaries.
(M) Pro forma earnings per share subsequent to the Patriot/IHC Merger is
computed based on 132,346 weighted average common shares outstanding for
the period. The number of shares used for the calculation does not include
adjustments to reflect the impact of the conversion of preferred stock
into Paired Shares or other common Paired Share equivalents outstanding
because they are antidilutive.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.14. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
F-83
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
WYNDHAM -----------------------------
INTERNATIONAL PATRIOT/IHC
PRO FORMA IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) ADJUSTMENTS(C) TOTAL
------------- ------------ -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Room revenue........... $529,166 $400,419 $ -- $ 929,585
Other hotel revenue.... 312,157 152,332 -- 464,489
Racecourse facility
revenue............... 33,399 -- -- 33,399
Management fee, service
fee and reimbursement
income................ 56,323 30,877 -- 87,200
Interest and other
income................ 10,524 1,214 -- 11,738
-------- -------- -------- ----------
Total revenue.......... 941,569 584,842 -- 1,526,411
-------- -------- -------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 339,023 196,566 -- 535,589
Racecourse facility
operations............ 30,114 -- -- 30,114
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 43,427 15,711 -- 59,138
General and
administrative........ 93,238 54,548 -- 147,786
Ground lease and hotel
lease expense ........ 20,604 1,138 71,439 (D) 93,181
Repair and
maintenance........... 37,954 23,490 -- 61,444
Utilities.............. 32,716 21,896 -- 54,612
Marketing.............. 66,138 48,962 (4,408)(E) 110,692
Management fees........ 11,436 765 3,288 (F) 15,489
Depreciation and
amortization.......... 29,976 34,179 (17,672)(G) 46,483
Participating lease
payments.............. 229,902 69,673 (H) 57,301 (H) 356,876
Interest expense....... 3,291 40,657 (40,657)(I) 3,291
Real estate and
personal property
taxes and insurance... 290 16,226 (14,489)(I) 2,027
-------- -------- -------- ----------
Total expenses......... 938,109 523,811 54,802 1,516,722
-------- -------- -------- ----------
Income (loss) before
equity earnings of
unconsolidated
subsidiaries income tax
provision, and minority
interests.............. 3,460 61,031 (54,802) 9,689
Equity in earnings of
unconsolidated
subsidiaries.......... 417 -- -- 417
-------- -------- -------- ----------
Income (loss) before
income tax provision
and minority
interests.............. 3,877 61,031 (54,802) 10,106
Income tax (provision)
benefit............... (3,654) (22,418)(J) 18,446 (J) (7,626)
-------- -------- -------- ----------
Income (loss) before
minority interests..... 223 38,613 (36,356) 2,480
Minority interest in
the Patriot Operating
Company Partnership... 487 -- (417)(K) 70
Minority interest in
consolidated
subsidiaries.......... (4,688) (2,036) 3,413 (L) (3,311)
-------- -------- -------- ----------
Net income (loss)
applicable to common
shareholders........... $ (3,978) $ 36,577 $(33,360) $ (761)(M)
======== ======== ======== ==========
Net loss per common
share.................. $ (0.04) $ (0.00)(M)
======== ==========
</TABLE>
See notes on following page.
F-84
<PAGE>
WYNDHAM INTERNATIONAL, ADJUSTED FOR THE PATRIOT/IHC MERGER
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(A) Represents the pro forma results of operations of Patriot Operating
Company for the nine months ended September 30, 1997 as adjusted for the
Wyndham Transactions and WHG Merger. See page F-65.
(B) Represents the pro forma results of operations of IHC for the nine months
ended September 30, 1997 prior to the Patriot/IHC Merger.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Patriot/IHC Merger had occurred as of January 1, 1996.
(D) Represents the following adjustments to pro forma ground lease and hotel
lease expense:
<TABLE>
<S> <C>
Eliminate ground lease expense which will be paid by Patriot
REIT subsequent to the Patriot/IHC merger..................... $ (1,138)
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note I).................... 69,673
Incremental hotel lease expense related to the sub-lease of the
88 hotels by Patriot REIT to Wyndham International............ 2,904
--------
$ 71,439
========
(E) Represents the historical costs of IHC franchise fee payments related to
franchise agreements for ten Marriott International, Inc. hotels which are
assumed to be terminated concurrently with the Patriot/IHC Merger.
(F) Represents additional management fees to be incurred by IHC pursuant to
new management agreements with Marriott International, Inc., which are
assumed to be executed concurrently with the Patriot/IHC Merger.
(G) Represents an adjustment of $32,943 to allocate the IHC pro forma
depreciation and amortization related to real estate to Patriot REIT,
partially offset by an increase of $15,271 in amortization expense related
to amortization of goodwill and management contracts. The goodwill related
to the management business is amortized on a straight-line basis over an
estimated useful life of 20 years. Management contracts are amortized on a
straight-line basis over their estimated remaining lives of 5 years.
(H) The participating lease payment amount of $69,673 reflected in the IHC Pro
Forma Statement of Operations represents hotel lease payments made to
third parties in connection with the 88 leaseholds held by IHC as of
September 30, 1997. Following the Patriot/IHC Merger, Patriot REIT will
sublease these hotel leaseholds to Wyndham International. The pro forma
adjustment of $57,301 is composed of the following adjustments:
Pro forma participating lease payments related to the 40 owned
hotels leased by Patriot REIT to Wyndham International
subsequent to the Patriot/IHC Merger.......................... $126,974
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note E).................... (69,673)
--------
$ 57,301
========
</TABLE>
(I) Represents adjustments to the IHC pro forma results of operations to
eliminate interest expense and real estate and personal property taxes and
casualty insurance to be paid by Patriot REIT subsequent to the
Patriot/IHC Merger.
(J) Represents an adjustment to the IHC pro forma tax expense to reflect the
tax provision based upon Wyndham International's pro forma taxable income
following the Patriot/IHC Merger.
(K) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger to 8.46%
(L) Represents an adjustment of $2,036 to eliminate the IHC pro forma minority
interest in certain consolidated subsidiaries which will be owned by
Patriot REIT following the Patriot/IHC Merger, and an adjustment of $1,377
to reflect Patriot REIT's allocation of earnings from the Patriot/IHC Non-
Controlled subsidiaries.
(M) Pro forma earnings per share subsequent to the Patriot/IHC Merger is
computed based on 132,403 weighted average common shares outstanding for
the period. The number of shares used for the calculations does not
include adjustments to reflect the impact of the conversion of preferred
stock into Paired Shares or other common share equivalents outstanding
because they are antidilutive.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of less than $0.01. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
F-85
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Patriot American Hospitality, Inc.:
We have audited the accompanying balance sheet of the Sheraton City Centre as of
December 31, 1996 and the related statements of operations, changes in partners'
deficit and cash flows for the year then ended. These financial statements are
the responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of the Sheraton City Centre as of
December 31, 1996 and its operations, changes in partners' capital and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P
Dallas, Texas
December 12, 1997
F-86
<PAGE>
SHERATON CITY CENTRE
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
Investments in hotel property, at cost:
Land $ 2,982,776 $ 2,982,776
Buildings and improvements 24,228,434 24,228,434
Furniture and equipment 4,724,678 4,630,104
Less accumulated depreciation (14,023,117) (13,162,103)
------------ -------------
Net investment in hotel properties 17,912,771 18,679,211
Cash and cash equivalents 994,523 1,035,595
Accounts receivable, net 515,574 327,672
Inventories 348,038 341,623
Deferred expenses, net 13,267 31,035
Prepaid expenses and other assets 160,855 106,131
------------ -------------
Total assets $19,945,028 $ 20,521,267
============ =============
LIABILITIES AND PARTNERS' DEFICIT
Debt and capital lease obligations (Note 3) $37,069,669 $ 37,079,136
Accounts payable and accrued expenses 776,055 1,124,757
------------ -------------
Total liabilities 37,845,724 38,203,893
------------ -------------
Commitments and contingencies (Note 4)
Partners' deficit (49,836,663) (49,618,593)
Due to Met Life (Note 5) 31,935,967 31,935,967
------------ -------------
Total partners' deficit (17,900,696) (17,682,626)
------------ -------------
Total liabilities and partners' deficit $19,945,028 $ 20,521,267
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE>
SHERATON CITY CENTRE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30, September 30,
1996 1996 1997
------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues:
Rooms $ 9,567,995 $ 7,313,842 $ 8,123,090
Food and beverage 2,396,641 1,759,366 1,841,986
Telephone and other 736,219 512,711 485,775
------------- ------------- -------------
Total revenues 12,700,855 9,585,919 10,450,851
------------- ------------- -------------
Expenses:
Departmental costs and expenses 3,016,029 2,284,911 2,487,403
Food and beverage 2,219,603 1,635,562 1,745,826
General and administrative 1,624,217 1,233,294 1,309,149
Management fees 195,962 146,826 152,898
Franchise costs 542,053 421,867 468,442
Advertising and promotion 677,548 518,474 579,939
Repairs and maintenance 561,179 431,918 459,275
Utilities 529,800 421,313 423,907
Real estate and personal property taxes and
taxes and insurance 473,688 368,264 393,642
Equipment rental 54,562 41,345 38,168
Interest 2,399,740 1,833,377 1,731,490
Depreciation and amortization 1,203,448 892,764 878,782
------------- ------------- -------------
Total expenses 13,497,829 10,229,915 10,668,921
------------- ------------- -------------
Net loss $ (796,974) $ (643,996) $ (218,070)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
SHERATON CITY CENTRE
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Partners' Due to
Deficit Met Life Total
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ (48,821,619) $ 31,935,967 $ (16,885,652)
Net loss (796,974) (796,974)
-------------- -------------- --------------
Balance at December 31, 1996 (49,618,593) 31,935,967 (17,682,626)
Net loss (unaudited) (218,070) (218,070)
-------------- -------------- --------------
Balance at September 30, 1997 (unaudited) $ (49,836,663) $ 31,935,967 $ (17,900,696)
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
SHERATON CITY CENTRE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
-------------------------------------
December 31, September 30, September 30,
1996 1996 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (796,974) $ (643,996) $ (218,070)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,203,448 892,764 878,782
Changes to operating assets and liabilities:
Accounts receivable (26,377) (147,641) (187,902)
Inventories 9,637 11,504 (6,415)
Prepaid expenses and other assets (2,242) (129,777) (54,724)
Accounts payable and accrued expenses 165,791 424,295 (348,702)
------------------ ---------------- ----------------
Net cash provided by operating activities 553,283 407,149 62,969
------------------ ---------------- ----------------
Cash flows from investing activities:
Acquisition and improvements in hotel properties (421,149) (354,795) (94,574)
------------------ ---------------- ----------------
Net cash used in investing activities (421,149) (354,795) (94,574)
------------------ ---------------- ----------------
Cash flows from financing activities:
Repayments of debt (16,606) (16,606) -
Repayments of capital lease obligations (81,521) (56,026) (9,467)
------------------ ---------------- ----------------
Net cash used in financing activities (98,127) (72,632) (9,467)
------------------ ---------------- ----------------
Net decrease in cash and cash equivalents 34,007 (20,278) (41,072)
Cash and cash equivalents at beginning of periods 1,001,588 1,001,588 1,035,595
------------------ ---------------- ----------------
Cash and cash equivalents at end of periods $ 1,035,595 $ 981,310 $ 994,523
================== ================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,345,114 $ 1,370,467 $ 1,707,019
================== ================ ================
Capital lease obligation assumed for acquisition of equipment $ 64,374 $ - $ -
================== ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
SHERATON CITY CENTRE
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
--------------------------------------
The accompanying financial statements include the financial statements of
the 353(room Sheraton City Centre (the "Hotel") owned by a joint venture.
Eighty percent of the general partner interest in the venture was owned by
Metropolitan Life Insurance Company ("Met Life") and twenty percent of the
general partner interest was owned by FCC (the "Minority Partner"). The
92.5% general partner interest in the Hotel was purchased by Patriot
American Hospitality, L.P. ("Patriot") for an purchase price of
approximately $36.8 million on November 25, 1997 and included only the
investment in hotel property and did not extend to any other assets or
liabilities. The Minority Partner will continue to own the remaining 7.5%
limited partner interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
UNAUDITED INTERIM FINANCIAL INFORMATION
---------------------------------------
The accompanying balance sheet as of September 30, 1997 and the statements
of operations, changes in partners' capital and cash flows for the nine
months ended September 30, 1997 and 1996 are unaudited. In the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial position,
operations, changes in partners' capital and cash flows for these interim
periods have been included. The results for the interim periods are not
necessarily indicative of the results for a full year.
INVESTMENT IN HOTEL PROPERTY
----------------------------
The hotel property is stated at cost. Depreciation is computed using the
straight line method based upon the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings 39
Building improvements 7-39
Furniture and equipment 3-10
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals or betterments are capitalized. Upon sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed
from the accounts, and the gain or loss is included in operations.
F-91
<PAGE>
SHERATON CITY CENTRE
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The owners of the Hotel review the carrying value of the property to
determine if circumstances exist indicating an impairment in the carrying
value of the investment in hotel property or that depreciation periods
should be modified. If facts or circumstances support the possibility of
impairment , the owners of the Hotel will prepare a projection of the
undiscounted future cash flows, without interest charges, of the specific
hotel property and determine if the investment in hotel property is
recoverable based on the undiscounted future cash flows. The owners of the
Hotel do not believe that there are any factors or circumstances indicating
impairment of its investment in hotel property.
CASH AND CASH EQUIVALENTS
-------------------------
All highly liquid instruments with maturities of three months or less when
purchased are considered to be cash equivalents.
The Hotel regularly maintains cash and cash equivalents in accounts with
various financial institutions in excess of amounts insured by the Federal
Deposit Insurance Corporation ("FDIC"). As of December 31, 1996, the Hotel
maintained approximately $1,300,000 of such deposits in excess of FDIC
coverage.
INVENTORIES
-----------
Inventories consist of food, beverages and supplies and are stated at cost,
which approximates market, with cost determined using the first-in, first-
out method.
DEFERRED EXPENSES
-----------------
Deferred expenses primarily consist of deferred loan costs. Amortization is
computed using the straight-line method over the lives of the related loan
of three years.
Accumulated amortization is $26,535 at December 31, 1996.
REVENUE RECOGNITION
-------------------
Revenue is recognized when earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the
portion of accounts receivable which is estimated to be uncollectible. Such
losses have been within management's expectations.
F-92
<PAGE>
SHERATON CITY CENTRE
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INCOME TAXES
------------
The Hotel is owned by a joint venture and its losses are reported on the
tax returns of the individual investors in the joint venture. Accordingly,
no provision for income taxes has been included in the accompanying
financial statements. The joint venturers' tax returns and the amount of
allowable income or loss are subject to examination by federal and state
taxing authorities. If such examinations result in changes to income or
loss, the tax liability of the partners could be changed accordingly.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
-----------------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these investments. The carrying amounts of
variable rate debt and capital lease obligations approximate their fair
values which are estimated based on discounted cash flows at rates
currently available to the Hotel for debt with similar terms and remaining
maturities.
SEASONALITY
-----------
The hotel industry is seasonal in nature. Generally, revenue at the Hotel
is greater in the second and third quarters of a calendar year.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
3. DEBT AND CAPITAL LEASE OBLIGATIONS:
----------------------------------
At December 31, 1996, debt consists of the following:
<TABLE>
<S> <C>
Revolving credit facility $ 37,000,000
Capital lease obligation 79,136
----------------
$ 37,079,136
================
</TABLE>
F-93
<PAGE>
SHERATON CITY CENTRE
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The revolving credit facility is collateralized by an unrecorded first
mortgage on the Hotel and bears interest at a variable rate. At the option
of the Hotel, the facility bears interest at (a) the greater of the prime
rate or the Federal Funds Effective Rate plus .50%, or (b) the sum of the
Euro-Rate plus the applicable margin, as defined in the credit agreement.
Interest payments and a facility fee are paid quarterly. The facility
matures in June 1998 but may be extended for two additional one year
periods, at the Hotel's request if approved by the lender.
As discussed above, the facility is collateralized by an unrecorded first
mortgage on the Hotel. In addition, the facility is collateralized by an
unconditional obligation of Met Life to purchase the notes in the event of
default or maturity. Unless default occurs, the mortgage may not be
recorded. The notes are without personal recourse to the partners. In
addition to non-financial covenants, the facility agreement contains
financial covenants requiring Met Life to maintain specified minimum
financial ratios, adjusted capital and surplus and claims-paying ratings.
The capital lease obligations are comprised of four fixed rate notes which
are collateralized by certain hotel equipment with a net book value of
$101,388. The interest rates vary from 7.5% to 9.0% and these notes mature
at various dates through 2000.
The future minimum lease payments required pursuant to these obligations at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 22,155
1998 26,585
1999 26,585
2000 17,724
-------------
Total payments 93,049
Less portion representing interest 13,913
-------------
$ 79,136
=============
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Franchise costs represent the annual expense for franchise royalties,
reservation and advertising services under the terms of the Hotel's
franchise agreement with ITT Sheraton ("ITT") expiring in June 1998. Fees
are computed based upon 5.8% of gross room revenue plus additional monthly
per room and per reservation amounts. The Hotel will continue to be
operated under the existing franchise agreement with ITT.
F-94
<PAGE>
SHERATON CITY CENTRE
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The Hotel is subject to environmental regulations related to the ownership
of real estate (hotels). The cost of complying with the environmental
regulations was not material to the Hotel's statements of operations for
the year ended December 31, 1996. The Hotel is not aware of any
environmental condition which is likely to have a material adverse effect
on the Hotel's financial statements.
5. RELATED PARTY TRANSACTIONS:
--------------------------
The Hotel is obligated to Met Life under a nonrecourse loan. The balance of
this loan at December 31, 1996 was $31,935,967. The loan bears interest at
11% and matures in 1998. The principal and interest are to be repaid
from the net cash flow of the Hotel as defined in the agreement. In 1987,
Met Life agreed to waive payment of interest accrued under the terms of the
note until sufficient cash flow was generated by the Hotel's operations. No
interest was paid from that date to the date of the sale of the Hotel as
discussed in Note 1. Subsequent to the sale of the Hotel, these amounts
were not repaid but forgiven by Met Life. Accordingly, the amounts due to
Met Life have been presented in the partners' capital section of the
balance sheet.
The Hotel is managed by an affiliate of the minority partner under a
management agreement. This agreement, which expires in 1999, provides for
management fees of $12,212 monthly and annual increases of five percent.
The Hotel has also entered into agreements with other affiliates of the
minority partner for the management of the venture, the food and beverage
operations and parking facilities for monthly fees of $4,167, $2,000 and
55% of gross parking income, respectively. These agreements expire in 1999.
6. EMPLOYEE BENEFITS:
-----------------
Through an affiliated company, the Hotel provides for an employee benefit
plan pursuant to Section 401(k) of the Internal Revenue Code. Employees
completing 1,000 hours of service are eligible to participate after
completing one year of service and may make salary deferred contributions
up to certain limits. The Hotel may make discretionary contributions to
match employee contributions. The Hotel made no contributions to the plan
during the year ended December 31, 1996.
F-95
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Patriot American Hospitality, Inc.:
We have audited the accompanying statement of direct revenues and direct
operating expenses of The Wyndham Emerald Plaza (the "Hotel") as defined in Note
1 for the year ended December 31, 1996. This statement is the responsibility of
management. Our responsibility is to express an opinion on this statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of direct revenues and direct operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
direct revenues and direct operating expenses. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement of direct revenues
and direct operating expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying statement of direct revenues and direct operating expenses has
been prepared for the purpose of substantially complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the Joint
Current Report on Form 8-K of Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company as described in Note 1 and is not
intended to be a complete presentation of the Hotel's revenues and expenses.
In our opinion, the statement of direct revenues and direct operating expenses
referred to above presents fairly, in all material respects, the direct revenues
and direct operating expenses as described in Note 1 of the Wyndham Emerald
Plaza for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Dallas, Texas
December 12, 1997
F-96
<PAGE>
WYNDHAM EMERALD PLAZA
STATEMENTS OF DIRECT REVENUES
AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
----------------------------------
1996 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
Direct revenues from hotel operations:
Rooms $ 12,233,288 $ 9,402,286 $ 10,677,175
Food and beverage 4,714,111 3,500,588 3,632,013
Telephone and other 1,032,319 766,117 764,303
------------- -------------- --------------
Total direct revenues 17,979,718 13,668,991 15,073,491
------------- -------------- --------------
Direct operating expenses:
Departmental costs and expenses 3,427,153 2,564,193 2,833,551
Food and beverage 4,025,264 2,924,780 3,065,503
General and administrative 1,650,540 1,267,202 1,238,101
Management fees 604,263 461,426 515,098
Advertising and promotion 1,575,110 1,186,536 1,226,832
Repairs and maintenance 966,138 719,393 744,328
Utilities 749,387 596,917 648,896
Rental expense, real estate and personal
property taxes, and insurance 584,110 436,035 551,273
------------- -------------- --------------
Total direct operating expenses 13,581,965 10,156,482 10,823,582
------------- -------------- --------------
Direct revenues in excess of direct
operating expenses $ 4,397,753 $ 3,512,509 $ 4,249,909
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements
of direct revenues and direct operating expenses.
F-97
<PAGE>
WYNDHAM EMERALD PLAZA
NOTES TO STATEMENTS OF DIRECT REVENUES
AND DIRECT OPERATING EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION:
--------------------------------------
ORGANIZATION
------------
The accompanying statements of direct revenues and direct operating
expenses include the direct revenues and direct operating expenses of the
436 Room Wyndham Emerald Plaza (the "Hotel") owned by 400 West Broadway
L.L.C. (the "Owner"). The Hotel was purchased by Patriot American
Hospitality, L.P. ("Patriot") for an adjusted purchase price of
$73,030,000 on December 31, 1997.
BASIS OF PRESENTATION
---------------------
The accompanying statements of direct revenues and direct operating
expenses (the "Statements") have been prepared to substantially comply with
the rules and regulations of the Securities and Exchange Commission for
business combinations accounted for as a purchase. The accompanying
statements include revenue and expenses directly related to the operations
of the Hotel as reflected in the records of the management company. The
accompanying statements, rather than full audited financial statements, are
presented for the Hotel because the Hotel was acquired from an unaffiliated
third party in a negotiated transaction and records that supported
historical costs of the investment in Hotel property, indebtedness and
equity of the Hotel were unavailable. Because it was not practicable to
obtain full audited financial statements for the Hotel, the presentation
does not include all revenue and expenses, as they relate to the Hotel,
such as (1) interest or other income earned on investments (2)
depreciation expense and gains and losses on sales related to long-lived
and short-lived assets (including the Hotel and related improvements), (3)
amortization expense related to organizational costs or other deferred
expenses, (4) interest expense incurred on indebtedness of the Hotel and
amortization of deferred loan costs, and (5) certain related general and
administrative expenses. Therefore, the combined statements are not
representative of the actual operations of the Hotel for the periods
presented. Included in Note 5 is certain unaudited financial information
related to the depreciation expense discussed above.
F-98
<PAGE>
WYNDHAM EMERALD PLAZA
NOTES TO STATEMENTS OF DIRECT REVENUES
AND DIRECT OPERATING EXPENSES, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
UNAUDITED INTERIM FINANCIAL INFORMATION
---------------------------------------
The accompanying statements of direct revenues and direct operating
expenses for the nine months ended September 30, 1997 and 1996 are
unaudited. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation
of the combined statements of direct revenue and direct operating expenses
for these interim periods have been included. The results for the interim
periods are not necessarily indicative of the results for a full year.
CAPITALIZATION POLICY
---------------------
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
REVENUE RECOGNITION
-------------------
Revenue is recognized when earned. Ongoing credit evaluations are
performed and an allowance for potential credit losses is provided against
the portion of accounts receivable which is estimated to be uncollectible.
Such losses have been within management's expectations.
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
F-99
<PAGE>
WYNDHAM EMERALD PLAZA
NOTES TO STATEMENTS OF DIRECT REVENUES
AND DIRECT OPERATING EXPENSES, CONTINUED
3. RELATED PARTY TRANSACTIONS:
--------------------------
MANAGEMENT AGREEMENTS
---------------------
The Hotels are managed by Wyndham Hotel Corporation ("Wyndham") under a
management agreement which expires in 2005. This agreement provides for
management fees and trade name fees of two percent of total revenues and
room revenue, respectively. This agreement also provides for incentive
management fees based on twenty percent of the amount by which net operating
income, as defined in the agreement, exceeds $4,400,000. There were no
incentive fees paid for the year ended December 31, 1996.
MARKETING ASSESSMENTS
---------------------
In exchange for use of its central marketing and reservation system, Wyndham
assesses the Hotel fees equal to 1.5 percent of gross room revenue.
Marketing and reservation assessments of approximately $183,500 are included
in advertising and promotion expense for the year ended December 31, 1996.
COMMON AREA CHARGES
-------------------
The Hotel pays for services provided by a related party for repairs and
maintenance, utilities and building engineering. The Hotel paid
approximately $994,000 for these services for the year ended December 31,
1996. In addition, the Hotel receives payments for services provided to a
related party for similar services. The Hotel received payments of
approximately $656,000 for these services for the year ended December 31,
1996.
4. EMPLOYEE BENEFIT PLAN:
---------------------
The Hotel maintains a defined benefit savings plan for all eligible
employees. Hotel contributions are based on the participating employees'
contributions reduced by any forfeitures in the plan. Vesting begins after
one year with 100% vesting after five years. The Hotel's contribution was
$14,264 for the year ended December 31, 1996.
F-100
<PAGE>
WYNDHAM EMERALD PLAZA
NOTES TO STATEMENTS OF DIRECT REVENUES
AND DIRECT OPERATING EXPENSES, Continued
5. UNAUDITED FINANCIAL INFORMATION:
-------------------------------
The following supplemental financial information has been provided by the
Hotel's management company on an unaudited basis for certain of those
expenses which have been omitted from the accompanying Statements.
Supporting information was not provided by the owner.
Additions to furniture, fixtures and equipment ("FF&E") for the Hotel
totaled approximately $644,000 for the year ended December 31, 1996.
Depreciation expense related to FF&E is computed using the straight-line
method based on estimated useful lives ranging from five to seven years.
Estimated depreciation expense related to FF&E was approximately $43,000 for
the year ended December 31, 1996.
Patriot's estimated allocation of the purchase price will be $5,550,900 to
land, $60,439,100 to building and improvements, and $4,890,000 to FF&E.
Expected lives for building and improvements, and FF&E are thirty-five
years and five to seven years, respectively.
F-101
