<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended September 30, 1994
------------------------------
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from _________ to _________
<TABLE>
<CAPTION>
Commission File Number: 1-6828 Commission File Number: 1-7959
<S> <C>
HOTEL INVESTORS HOTEL INVESTORS
TRUST CORPORATION
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
Maryland Maryland
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-0901263 52-1193298
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560
Los Angeles, California 90064 Los Angeles, California 90064
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(310) 575-3900 (310) 575-3900
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No.
------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
12,132,948 Shares of Beneficial Interest, $1.00 par value, of Hotel
Investors Trust paired with 12,132,948 Shares of Common Stock, par value $.10
per share, of Hotel Investors Corporation outstanding as of November 14, 1994.
================================================================================
<PAGE> 2
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q which mandate adherence to
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of management of
the Trust and the Corporation, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
financial statements presented herein have been prepared in accordance with the
accounting policies described in the registrants' Joint Annual Report on Form
10-K, as amended, for the year ended December 31, 1993, (the "1993 Form 10-K"),
and should be read in conjunction therewith.
The accompanying financial statements have been prepared assuming
Hotel Investors Trust (the "Trust") and Hotel Investors Corporation (the
"Corporation") will continue as going concerns. The Trust was in default at
December 31, 1992 on its obligations to repay indebtedness under the Trust's
line of credit and certain note agreements. Effective January 28, 1993, the
Trust entered into a Credit Agreement (the "Credit Agreement") with its lenders
to restructure such indebtedness. The Credit Agreement, among other things,
requires the Trust to comply with specific financial covenants and operating
restrictions and to make substantial interim principal and other payments. The
Trust's ability to comply with the requirements of the Credit Agreement, for
which the inability to comply therewith would result in a default under the
Credit Agreement, cannot presently be determined. Because of the substantial
operating losses and cash flow deficiencies experienced by the Corporation,
which also has a deficiency in net assets, the ultimate recovery of all amounts
due to the Trust from the Corporation is highly uncertain. These conditions
raise substantial doubt about the ability of the Trust and the Corporation to
continue as going concerns. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Reorganization
As previously disclosed on the registrants' Joint Form 8-K dated June
13, 1994 and Joint Form 10-Q, as amended, for the quarterly period end June 30,
1994, the Trust and the Corporation have agreed, subject to shareholder and
stockholder approval, with Starwood Capital Group, L.P., a private investment
firm, to create an "UPREIT" structure. In connection with the "UPREIT"
structure it is contemplated that two limited partnerships would be formed (the
"Reorganization"). The Trust would be the general partner and contribute to
SLT Realty Limited Partnership all of its assets subject to its liabilities.
The Corporation and its subsidiaries would be the general partners and
contribute to SLC Operating Limited Partnership all of their assets
-2-
<PAGE> 3
subject to their liabilities (except that the contribution of certain assets
and liabilities relating to gaming in Nevada will be subject to approval of
Nevada Gaming authorities). Starwood Capital Group, L.P., and its affiliates
would be the limited partners in the two partnerships and would contribute cash
and a portfolio of hotel equity and mortgage interests, subject to certain
existing debt.
Starwood's limited partnership interests would be exchangeable into
71.7% of the paired shares of the Trust and the Corporation, on a fully
converted basis (but subject to limitations to preserve the REIT status of the
Trust and its paired share structure with the Corporation). Starwood has the
right to exchange up to $12,000,000 of the Trust's outstanding senior debt that
Starwood may acquire on or before six months from approval of the
Reorganization, after which the Starwood ownership would be 75.2%.
In connection with the Reorganization, Starwood agreed, at the Trust's
option, to purchase the Trust's Albany, Georgia property for approximately $6
million. The Trust exercised the option on the Albany property in August 1994,
accounting for the transaction as a financing and no gain or loss was
recognized. The cash proceeds received by the Trust upon exercise of the
option were used to make certain payments on its outstanding senior secured
debt and retire a portion of the warrants issued to its senior lenders in
connection with the restructuring of the senior secured debt in January 1993.
Starwood previously purchased or has the right to acquire in excess of $74
million of the Trust's outstanding senior secured debt.
In connection with the Reorganization, it is anticipated that
approximately $63 million of indebtedness to the Trust from the Corporation
will be forgiven.
Income Taxes
During the second quarter of 1994 the Trust discovered that there are
issues concerning its having met all of the requirements for maintenance of
REIT status for prior years. On July 27, 1994, the Trust applied to the IRS
for, and has subsequently received, permission to terminate its election to be
taxed as a REIT retroactive to 1991 and to re-elect REIT status for 1995.
Because the Trust had net losses and did not pay any dividends for 1991, 1992
and 1993 and expects to incur a net loss for tax purposes and not pay any
dividends for 1994, the Trust will not owe any federal income tax and the
holders of Paired Shares will not be adversely affected for these years. In
addition, the granting of the Trust's request will not affect the paired status
of the Trust's and the Corporation's shares.
Other
See Item 1, Part II, for information regarding legal proceedings, and
the settlement of certain shareholder litigation.
- 3 -
<PAGE> 4
Hotel Investors Trust and Hotel Investors Corporation:
Combined Balance Sheets - As of September 30, 1994 and
December 31, 1993
Combined Statements of Operations - For the three months
ended September 30, 1994 and 1993
Combined Statements of Operations - For the nine months
ended September 30, 1994 and 1993
Combined Statements of Cash Flows - For the nine months
ended September 30, 1994 and 1993
Hotel Investors Trust:
Balance Sheets - As of September 30, 1994 and December 31, 1993
Statements of Operations - For the three months
ended September 30, 1994 and 1993
Statements of Operations - For the nine months
ended September 30, 1994 and 1993
Statements of Cash Flows - For the nine months
ended September 30, 1994 and 1993
Hotel Investors Corporation:
Balance Sheets - As of September 30, 1994 and December 31, 1993
Statements of Operations - For the three months
ended September 30, 1994 and 1993
Statements of Operations - For the nine months
ended September 30, 1994 and 1993
Statements of Cash Flows - For the nine months
ended September 30, 1994 and 1993
- 4 -
<PAGE> 5
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net . . . . . . . . . . . $ 4,000,000 $ 16,631,000
Hotel assets - net 151,855,000 150,618,000
------------ ------------
155,855,000 167,249,000
Mortgage notes receivable, net . . . . . . . . . . . . 12,071,000 11,642,000
Investment in joint venture hotel properties . . . . . 296,000 281,000
------------ ------------
Total real estate investments . . . . . . . . . 168,222,000 179,172,000
Cash and cash equivalents . . . . . . . . . . . . . . 6,665,000 5,652,000
Accounts receivable . . . . . . . . . . . . . . . . . 5,229,000 4,360,000
Notes receivable, net . . . . . . . . . . . . . . . . 1,649,000 1,717,000
Inventories, prepaid expenses and other assets . . . . 4,379,000 4,451,000
------------ ------------
$186,144,000 $195,352,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit . . $115,005,000 $128,802,000
Mortgage and other notes payable . . . . . . . . . . . 46,879,000 42,084,000
Accounts payable and other liabilities . . . . . . . . 13,040,000 11,140,000
------------ ------------
174,924,000 182,026,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares . . . . . . . . . . . . . . . . . 12,133,000 12,133,000
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares . . . . . . . . . . . 1,213,000 1,213,000
Additional paid-in capital . . . . . . . . . . . . . . 210,497,000 210,497,000
Share purchase notes . . . . . . . . . . . . . . . . . (280,000) (291,000)
Accumulated deficit . . . . . . . . . . . . . . . . . (212,343,000) (210,226,000)
------------ ------------
11,220,000 13,326,000
------------ ------------
$186,144,000 $195,352,000
============ ============
</TABLE>
- 5 -
<PAGE> 6
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------------
1994 1993
------------ -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . $21,964,000 $23,089,000
Gaming . . . . . . . . . . . . . . . . . . . . . . . . . 6,781,000 6,773,000
Interest from mortgage and other notes . . . . . . . . . 514,000 368,000
Management fees and other . . . . . . . . . . . . . . . 87,000 53,000
Rents from leased hotel properties . . . . . . . . . . . 242,000 219,000
Gain on sale of hotel assets . . . . . . . . . . . . . . 78,000 28,000
----------- -----------
29,666,000 30,530,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . . . . . . 14,971,000 17,264,000
Gaming operations . . . . . . . . . . . . . . . . . . . 6,237,000 6,070,000
Interest . . . . . . . . . . . . . . . . . . . . . . . . 4,570,000 3,819,000
Depreciation and amortization . . . . . . . . . . . . . 2,061,000 2,318,000
Administrative and operating . . . . . . . . . . . . . . 1,135,000 1,160,000
Shareholder litigation expense . . . . . . . . . . . . . 2,648,000
Provision for losses . . . . . . . . . . . . . . . . . . 759,000 1,167,000
----------- -----------
32,381,000 31,798,000
----------- -----------
NET INCOME (LOSS) $(2,715,000) $(1,268,000)
=========== ===========
NET INCOME (LOSS) PER PAIRED SHARE $(0.22) $(0.10)
====== ======
Weighted average number of paired shares 12,132,948 12,132,948
========== ==========
</TABLE>
- 6 -
<PAGE> 7
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1994 1993
----------- ------------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,858,000 $66,170,000
Gaming . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,094,000 20,256,000
Interest from mortgage and other notes . . . . . . . . . . . . 1,276,000 1,060,000
Management fees and other . . . . . . . . . . . . . . . . . . 395,000 459,000
Rents from leased hotel properties . . . . . . . . . . . . . . 705,000 680,000
Gain on sale of hotel assets . . . . . . . . . . . . . . . . . 670,000 136,000
----------- -----------
87,998,000 88,761,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . . . . . . . . . 46,095,000 51,083,000
Gaming operations . . . . . . . . . . . . . . . . . . . . . . 18,396,000 17,678,000
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,028,000 11,360,000
Depreciation and amortization . . . . . . . . . . . . . . . . 6,074,000 6,731,000
Administrative and operating . . . . . . . . . . . . . . . . . 3,115,000 3,490,000
Shareholder litigation expense . . . . . . . . . . . . . . . . 2,648,000
Provision for losses . . . . . . . . . . . . . . . . . . . . . 759,000 1,167,000
----------- -----------
90,115,000 91,509,000
----------- -----------
NET INCOME (LOSS) $(2,117,000) $(2,748,000)
=========== ===========
NET INCOME (LOSS) PER PAIRED SHARE $(0.17) $(0.23)
====== ======
Weighted average number of paired shares 12,132,948 12,132,948
========== ==========
</TABLE>
- 7 -
<PAGE> 8
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $(2,117,000) $(2,748,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 6,074,000 6,731,000
Deferred interest . . . . . . . . . . . . . . . . . . . . 2,221,000 2,763,000
(Gain) loss on sales of hotel assets . . . . . . . . . . (670,000) (136,000)
Provision for losses . . . . . . . . . . . . . . . . . . 759,000 1,167,000
Changes in operating assets and liabilities:
Accounts receivable, inventories, prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . . . . (797,000) (152,000)
Accounts payable and other liabilities. . . . . . . . . . 1,900,000 (3,596,000)
----------- -----------
Net cash provided by
operating activities . . . . . . . . . . . . . . . 7,370,000 4,029,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets . . . . . . . . . . . . . . . . . (2,062,000) (4,222,000)
Net proceeds from sales of assets . . . . . . . . . . . . . 4,528,000 3,891,000
Increase in mortgage notes receivable . . . . . . . . . . . (1,985,000)
Principal received on notes receivable . . . . . . . . . . 2,389,000 250,000
Other intangible assets . . . . . . . . . . . . . . . . . . (9,000)
Acquisition of minority interest . . . . . . . . . . . . . (1,575,000)
----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . . . . 4,855,000 (3,650,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable . . . . . . . . . . . . . . . . . . . (1,205,000) (673,000)
Principal payments on secured notes payable and
revolving line of credit . . . . . . . . . . . . . . . . (20,518,000) (5,004,000)
Borrowings under mortgage and other notes . . . . . . . . . 6,000,000 1,213,000
Increase in secured notes payable and
revolving line of credit . . . . . . . . . . . . . . . . 4,500,000
Distributions to minority shareholders . . . . . . . . . . (21,000)
Principal received on share purchase notes . . . . . . . . 11,000 5,000
----------- -----------
Net cash provided by
financing activities . . . . . . . . . . . . . . . (11,212,000) (4,480,000)
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 1,013,000 (4,101,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 5,652,000 10,517,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 6,665,000 $ 6,416,000
=========== ===========
</TABLE>
- 8 -
<PAGE> 9
HOTEL INVESTORS TRUST
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
-------------- -------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net . . . . . . . . . . . . . . . $ 3,449,000 $ 15,699,000
Hotel assets - net . . . . . . . . . . . . . . . . . . . . . . 116,902,000 114,219,000
------------- -------------
120,351,000 129,918,000
Mortgage notes receivable, net . . . . . . . . . . . . . . . . 12,071,000 11,642,000
Investment in joint venture hotel properties . . . . . . . . . 284,000 276,000
------------- -------------
Total real estate investments . . . . . . . . . . . . . . 132,706,000 141,836,000
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 360,000 918,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 755,000 1,011,000
Notes receivable - Corporation . . . . . . . . . . . . . . . . 86,518,000 87,486,000
Notes receivable, net . . . . . . . . . . . . . . . . . . . . . 1,012,000 1,025,000
Prepaid expenses and other assets . . . . . . . . . . . . . . . 961,000 569,000
------------- -------------
$ 222,312,000 $ 232,845,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit . . . . . . $ 115,005,000 $ 128,802,000
Mortgage and other notes payable . . . . . . . . . . . . . . . 32,945,000 27,724,000
Accounts payable and other liabilities . . . . . . . . . . . . 4,325,000 4,114,000
------------- -------------
152,275,000 160,640,000
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares . . . . . . . . . . . . . . . . . . . . . 12,133,000 12,133,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 204,640,000 204,640,000
Share purchase notes . . . . . . . . . . . . . . . . . . . . . (280,000) (291,000)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (146,456,000) (144,277,000)
------------- -------------
70,037,000 72,205,000
------------- -------------
$ 222,312,000 $ 232,845,000
============= =============
</TABLE>
- 9 -
<PAGE> 10
HOTEL INVESTORS TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Rents from Corporation . . . . . . . . . . . . . . . . . . . . $ 4,441,000 $ 4,276,000
Interest from Corporation . . . . . . . . . . . . . . . . . . 439,000 390,000
Interest from mortgage and other notes . . . . . . . . . . . . 505,000 335,000
Rents from other leased hotel properties . . . . . . . . . . . 242,000 219,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,000
Gain (loss) on sale of hotel assets . . . . . . . . . . . . . 63,000 (22,000)
----------- -----------
5,737,000 5,198,000
EXPENSES
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,238,000 3,503,000
Depreciation and amortization . . . . . . . . . . . . . . . . 1,269,000 1,426,000
Administrative and operating . . . . . . . . . . . . . . . . . 460,000 514,000
Shareholder litigation expense . . . . . . . . . . . . . . . . 1,324,000
Provision for losses . . . . . . . . . . . . . . . . . . . . . 759,000 1,167,000
----------- -----------
8,050,000 6,610,000
----------- -----------
NET INCOME (LOSS) $(2,313,000) $(1,412,000)
=========== ===========
NET INCOME (LOSS) PER SHARE $(0.19) $(0.12)
====== ======
</TABLE>
- 10 -
<PAGE> 11
HOTEL INVESTORS TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Rents from Corporation . . . . . . . . . . . . . . . . . . . . $12,897,000 $12,624,000
Interest from Corporation . . . . . . . . . . . . . . . . . . 1,280,000 1,134,000
Interest from mortgage and other notes . . . . . . . . . . . . 1,243,000 948,000
Rents from other leased hotel properties . . . . . . . . . . . 705,000 680,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,000 252,000
Gain on sale of hotel assets . . . . . . . . . . . . . . . . . 642,000 119,000
----------- -----------
16,933,000 15,757,000
----------- -----------
EXPENSES
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,013,000 10,431,000
Depreciation and amortization . . . . . . . . . . . . . . . . 3,834,000 4,280,000
Administrative and operating . . . . . . . . . . . . . . . . . 1,182,000 1,458,000
Shareholder litigation expense . . . . . . . . . . . . . . . . 1,324,000
Provision for losses . . . . . . . . . . . . . . . . . . . . . 759,000 1,167,000
----------- -----------
19,112,000 17,336,000
----------- -----------
NET INCOME (LOSS) $(2,179,000) $(1,579,000)
=========== ===========
NET INCOME (LOSS) PER SHARE $(0.18) $(0.13)
====== ======
</TABLE>
- 11 -
<PAGE> 12
HOTEL INVESTORS TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1994 1993
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (2,179,000) $(1,579,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 3,834,000 4,280,000
Deferred interest . . . . . . . . . . . . . . . . . . . . . 2,221,000 1,952,000
Deferred interest income - Corporation . . . . . . . . . . (1,280,000) (1,118,000)
(Gain) loss on sales of hotel assets . . . . . . . . . . . (642,000) (119,000)
Provision for losses . . . . . . . . . . . . . . . . . . . 759,000 1,167,000
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and other assets . . (136,000) 715,000
Accounts payable and other liabilities . . . . . . . . . . 211,000 (3,166,000)
------------ -----------
Net cash provided by operating activities . . . . . . . 2,788,000 2,132,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets . . . . . . . . . . . . . . . . . . (1,387,000) (757,000)
Net proceeds from sales of assets . . . . . . . . . . . . . . 4,245,000 3,286,000
Increase in mortgage notes receivable . . . . . . . . . . . . (1,985,000)
Principal received on mortgage and other notes receivable . . 2,334,000 207,000
Other intangible assets . . . . . . . . . . . . . . . . . . . (9,000)
Net changes in notes receivable - Corporation . . . . . . . . 2,248,000 1,955,000
Acquisition of minority interest . . . . . . . . . . . . . . (1,575,000)
------------ -----------
Net cash provided by (used in) investing activities . . 7,440,000 1,122,000
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable . . . (779,000) (620,000)
Principal payments on secured notes payable and
revolving line of credit . . . . . . . . . . . . . . . . . (20,518,000) (5,004,000)
Borrowings under mortgage and other notes . . . . . . . . . . 6,000,000
Payments to minority shareholders . . . . . . . . . . . . . . (18,000)
Increase in secured notes payable and
revolving line of credit . . . . . . . . . . . . . . . . . 4,500,000
Principal received on share purchase notes 11,000
------------ -----------
Net cash provided by (used in) financing activities . . (10,786,000) (5,642,000)
------------ -----------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . (558,000) (2,388,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 918,000 2,615,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 360,000 $ 227,000
============ ===========
</TABLE>
- 12 -
<PAGE> 13
HOTEL INVESTORS CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net............................. $ 551,000 $ 932,000
Hotel assets - net............................................ 34,953,000 36,399,000
------------- ------------
35,504,000 37,331,000
Investment in joint venture hotel properties.................. 12,000 5,000
------------- ------------
Total real estate investments........................... 35,516,000 37,336,000
Cash and cash equivalents..................................... 6,305,000 4,734,000
Accounts receivable........................................... 4,474,000 3,349,000
Notes receivable.............................................. 637,000 692,000
Inventories, prepaid expenses and other assets................ 3,418,000 3,882,000
------------- ------------
$ 50,350,000 $ 49,993,000
============= ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
Mortgage and other notes payable.............................. $ 13,934,000 $ 14,360,000
Notes payable - Trust......................................... 86,518,000 87,486,000
Accounts payable and other liabilities........................ 8,715,000 7,026,000
------------- ------------
109,167,000 108,872,000
------------- ------------
Commitments and contingencies
SHAREHOLDERS' DEFICIT
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares.............................. 1,213,000 1,213,000
Additional paid-in capital.................................... 5,857,000 5,857,000
Accumulated deficit........................................... (65,887,000) (65,949,000)
------------- ------------
(58,817,000) (58,879,000)
------------- ------------
$ 50,350,000 $ 49,993,000
============ ============
</TABLE>
- 13 -
<PAGE> 14
HOTEL INVESTORS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel...................................................... $21,964,000 $23,089,000
Gaming..................................................... 6,781,000 6,773,000
Interest from notes receivable............................. 9,000 33,000
Management fees and other income........................... 40,000 53,000
Gain on sales of hotel assets.............................. 15,000 50,000
----------- -----------
28,809,000 29,998,000
----------- -----------
EXPENSES
Hotel operations........................................... 14,971,000 17,264,000
Gaming operations.......................................... 6,237,000 6,070,000
Rent - Trust............................................... 4,441,000 4,276,000
Interest - Trust........................................... 439,000 390,000
Interest - other........................................... 332,000 316,000
Depreciation and amortization.............................. 792,000 892,000
Administrative and operating............................... 675,000 646,000
Shareholder litigation expense............................. 1,324,000
----------- -----------
29,211,000 29,854,000
----------- -----------
NET INCOME (LOSS) $ (402,000) $ 144,000
=========== ===========
NET INCOME (LOSS) PER SHARE $ (0.03) $ 0.01
=========== ===========
</TABLE>
- 14 -
<PAGE> 15
HOTEL INVESTORS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel ................................. $63,858,000 $66,170,000
Gaming ................................ 21,094,000 20,256,000
Interest from notes receivable ........ 33,000 112,000
Management fees and other income ...... 229,000 207,000
Gain on sales of hotel assets ......... 28,000 17,000
----------- -----------
85,242,000 86,762,000
----------- -----------
EXPENSES
Hotel operations ...................... 46,095,000 51,083,000
Gaming operations...................... 18,396,000 17,678,000
Rent - Trust .......................... 12,897,000 12,624,000
Interest - Trust ...................... 1,280,000 1,134,000
Interest - other ...................... 1,015,000 929,000
Depreciation and amortization.......... 2,240,000 2,451,000
Administrative and operating........... 1,933,000 2,032,000
Shareholder litigation expense......... 1,324,000
----------- -----------
85,180,000 87,931,000
----------- -----------
NET INCOME (LOSS) $ 62,000 $(1,169,000)
=========== ===========
NET INCOME (LOSS) PER SHARE $0.00 $(0.10)
=========== ===========
</TABLE>
- 15 -
<PAGE> 16
HOTEL INVESTORS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 62,000 $(1,169,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 2,240,000 2,451,000
Deferred interest . . . . . . . . . . . . . . . . . . . . 811,000
Deferred interest expense - Trust . . . . . . . . . . . . 1,280,000 1,118,000
(Gain) loss on sales of hotel assets . . . . . . . . . . (28,000) (17,000)
Changes in operating assets and liabilities:
Accounts receivable inventories, prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . . . . (661,000) (867,000)
Accounts payable and other liabilities . . . . . . . . . 1,689,000 (430,000)
----------- -----------
Net cash provided by (used in) operating activities . 4,582,000 1,897,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets . . . . . . . . . . . . . . . . . (675,000) (3,465,000)
Net proceeds from sales of hotel assets . . . . . . . . . . 283,000 605,000
Principal received on notes receivable . . . . . . . . . . 55,000 43,000
----------- -----------
Net cash used in investing activities . . . . . . . . (337,000) (2,817,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable - Trust . . . . . . . . . . . . (2,248,000) (1,955,000)
Principal payments on mortgage and other notes payable . . (426,000) (53,000)
Borrowings under mortgage and other notes . . . . . . . . . 1,213,000
Payments to minority shareholders . . . . . . . . . . . . . (3,000)
Principal received on share notes . . . . . . . . . . . . . 5,000
----------- -----------
Net cash provided by financing activities . . . . . . (2,674,000) (793,000)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . 1,571,000 (1,713,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . 4,734,000 7,902,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . $ 6,305,000 $ 6,189,000
=========== ===========
</TABLE>
- 16 -
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis included in the 1993
Form 10-K, as amended, (the "1993 Form 10-K MD&A") for the year ended December
31, 1993. The sections of the "Recent Developments" portion of Items 1 and 2
of Part I of the 1993 Form 10-K captioned "Debt Restructuring", "Acquisition of
Assets of U.S. Equity", "Milwaukee Marriott Hotel", "Northview Corporation",
"Certain Property Sales and Related Transactions", "Mortgage Notes Payable
Maturing in 1994" and the discussions of seasonality, competition, and certain
environmental matters included in those Items under the heading "Other
Information," are specifically incorporated by reference herein.
As discussed in Items 1 and 2 of the 1993 Form 10-K under the caption
"Recent Developments - Debt Restructuring", on January 28, 1993 the Trust
entered into the Credit Agreement which restructured its previously unsecured
notes payable to two banks and three insurance companies as a Secured Term Loan
and a secured Revolving Line of Credit. Although the Trust is not in default
under the Credit Agreement through the date of this Joint Form 10-Q, the
Trust's ability to comply in the future with the requirements (primarily the
principal repayments required - see below) of the Credit Agreement cannot
presently be determined. Further, because of the substantial operating losses
and cash flow deficiencies experienced by the Corporation, which also has a
deficiency in net assets, the ultimate recovery of all amounts due to the Trust
from the Corporation is highly uncertain. These conditions raise substantial
doubts about the Companies' ability to continue as going concerns.
As required under the terms of the Credit Agreement, cumulative
payments totaling $13,000,000, including a $3,000,000 optional payment made in
order to retire a portion of the warrants issued to the senior lenders, had
been made by August 31, 1994. If the Trust continues to comply with the terms
of the Credit Agreement, minimum cumulative principal payments for principal
owed as of September 30, 1994, inclusive of the $13,000,000 previously paid,
will be as follows:
<TABLE>
<CAPTION>
Cumulative
Date Principal Payments
---- ------------------
<S> <C>
August 31, 1995 $ 19,000,000
August 31, 1996 $ 27,000,000
August 31, 1997 $ 52,000,000
April 30, 1998 $115,005,000
</TABLE>
In order to comply with the principal payment requirements of the
Credit Agreement, the Trust and the Corporation must sell properties. As of
September 30, 1994 properties having net book values of $3,449,000 and $551,000
for the Trust and the Corporation, respectively, had been identified for sale.
In determining which properties were identified for sale, the Companies
considered for each property current and anticipated economic performance,
local market trends,
- 17 -
<PAGE> 18
physical condition and capital requirements. In addition, properties with
continuing negative or declining cash flows and having the least potential for
improvement were identified for future sale. For information regarding the
terms of the property sales for which offers had been accepted at December 31,
1993 see "Recent Developments - Certain Property Sales" included in Items 1 and
2 of the 1993 Joint Form 10-K. During August 1993, the Trust and the
Corporation accepted offers for the sale of the Holiday Inn in Jacksonville,
Florida and the Ramada Inn in Fayetteville, North Carolina. If the sale of the
Jacksonville property is completed, Hotel Investors will receive a cash down
payment of $900,000, which will be reduced by closing costs, and a mortgage
note in the amount of $2,300,000 which will be secured by the hotel. If the
sale of the Fayetteville property is completed, Hotel Investors will receive a
cash down payment of $200,000, which will be reduced by closing costs and a
mortgage note in the amount of $800,000 secured by the hotel. As of the date
of this Joint Form 10-Q, the Trust and the Corporation have no other
commitments to sell properties.
Any sales of hotel properties will impact revenues and expenses of the
Trust and the Corporation. Because the Credit Agreement requires the net
proceeds from hotel sales to be applied to the repayment of debt, sales of
hotels will result in decreased interest expense for the Trust. In addition,
the income of the Trust will be decreased because the Trust will no longer
receive rental income from the Corporation in respect of a sold property, which
may be offset by payments to the Trust on any notes receivable generated from a
sale. Sales of hotel properties will also decrease the depreciation and
amortization expenses of the Trust. The aggregate impact on revenues and
expenses will depend on the terms and timing of the sales of the properties to
be sold.
The Credit Agreement requires the Trust and the Corporation to
maintain on a combined basis, a specified minimum adjusted net worth and a
specified minimum ratio of cash to cash interest plus capital expenditures, as
defined. At September 30, 1994, the Companies were in compliance with these
covenants. The Credit Agreement contains covenants that restrict, among other
things, the Trust's ability to acquire or dispose of assets, to make
investments and to incur additional indebtedness, and that prohibit the payment
of distributions to shareholders. In addition to establishing certain
operating restrictions and reporting requirements, the Credit Agreement
establishes daily operating cash thresholds, as defined. If these thresholds
are exceeded by the Trust and the Corporation, the excess amounts must be
applied to reduce the borrowings then outstanding under the Revolving Line of
Credit, but amounts so applied are available for future borrowings.
Further, the Trust may be required to continue to restructure the
indebtedness of the Corporation to the Trust on an annual or long-term basis to
allow the continued survival of the Corporation.
See Part I, Item 1 under the headings "Reorganization" and "Liquidity
and Capital Resources" for information regarding the Reorganization of the
Trust and the Corporation.
- 18 -
<PAGE> 19
Results of Operations for the Nine and Three Months Ended September 30, 1994
and 1993
Trust:
Rents from Corporation increased $273,000 and $165,000 for the nine
and three months ended September 30, 1994, respectively, as compared to the
corresponding periods of 1993. The increase in rental income during the nine
months ended September 30, 1994 is due to increased hotel revenues for the
hotels leased by the Corporation from the Trust (which resulted in higher
percentage rents) offset by a decrease in rental income of $549,000 resulting
from the sales of hotels in Tucker, Georgia (September 1993), St. Louis,
Missouri (December 1993), Austin, Texas (May 1994), New Port Richey, Florida
(August 1994) and Brunswick, Georgia (August 1994). The increase in rental
income for the three months ended September 30, 1994 is due to increased hotel
revenues for the hotels leased by the Corporation from the Trust (which
resulted in higher percentage rents) offset by a decrease in such rents of
$248,000 resulting from the sale of the hotels indicated above.
Interest from Corporation increased by $146,000 for the nine months
ended September 30, 1994 and $49,000 for the three months ended September 30,
1994, respectively, as compared to the corresponding periods of 1993. The
increase in interest income is a result of the higher amounts outstanding under
the Milwaukee notes, which increased from $13,667,000 at December 31, 1992 to
$15,185,000 at December 31, 1993 as a result of additional loans for the making
of certain capital improvements. (For information pertaining to such notes,
see the 1993 Form 10-K under the caption "Milwaukee Marriott Hotel".)
Interest from Notes Receivable increased by $295,000 for the nine
months ended September 30, 1994 and $170,000 for the three months ended
September 30, 1994, respectively, as a result of the higher balances
outstanding from the additional notes received in connection with the sales of
properties discussed above and the receipt of the final payment which was due
from Northview (see Part I - Items 1 and 2 of the 1993 Form 10-K under the
caption "Recent Developments - Northview Corporation"), the interest on such
note having been previously deferred.
When it is the opinion of management that the fair value of a hotel
that has been identified for sale is less than the net book value of the hotel,
a reserve for losses is established. Fair value is determined based upon the
discounted cash flow of the properties at rates (11.0% to 14.5%) deemed
reasonable for the type of property as well as prevailing market conditions,
appraisals and, if appropriate, current estimated net proceeds of sales. In
determining whether to accept an offer for the sale of a property, management
considers the offer in comparison to the value of the property, the terms of
the offer, including whether the offer is all cash or includes seller
financing, and the anticipated availability of cash in order to meet the next
principal payment required under the Credit Agreement. During the three months
ended September 30, 1994 a provision for investment losses (a non-cash charge
to operations) totaling $759,000 was recorded. The provision included $439,000
which was recorded as a result of the acceptance of offers to sell the
Jacksonville and Fayetteville properties, which had previously been identified
for sale at amounts lower than the then current net book values. The provision
also included $320,000 which was
- 19 -
<PAGE> 20
established based upon an analysis of the net realizable value of the
underlying property collateralizing the Trust's mortgage note receivable on the
Ramada Inn in Merrimack, New Hampshire, which was sold in 1992. A foreclosure
auction of the property is currently scheduled for December 16, 1994.
Gain (loss) on sales of hotel assets for the nine and three months
ended September 30, 1994, respectively, reflects a gain of $689,000 for the May
1994 all cash sale of the hotel property located in Austin, Texas offset by a
discount of $55,000 resulting from the early payoff of the mortgage note
receivable relating to the Spartanburg, South Carolina property which was sold
in 1992 and a gain of $8,000 resulting from the sale of the Brunswick, Georgia
and New Port Richey, Florida properties in August 1994. The Brunswick and New
Port Richey properties were sold for $4,300,000, consisting of net cash
proceeds of $1,067,000 and a $3,070,000 promissory note secured by the
properties. Gain (loss) on sales of hotel assets for the nine and three months
ended September 30, 1993 included a $41,000 loss (including $22,000 of
additional sales costs which were paid in September 1993) on the January 1993
sale of the hotel property located in Smyrna, Georgia and a $160,000 gain on
the September 1993 sale of the hotel property located in Tucker, Georgia.
Interest expense increased by $1,582,000 for the nine months ended
September 30, 1994 as compared to the corresponding period of 1993. Interest
expense increased by $735,000 for the three months ended September 30, 1994 as
compared to the corresponding period of 1993. The increases are due to an
increase in the interest rate payable on borrowings outstanding under the Term
Loan and the Line of Credit.
Depreciation and amortization expense decreased by $446,000 and
$157,000 during the nine and three months ended September 30, 1994,
respectively, as compared to the corresponding period of 1993, principally due
to the above mentioned property sales and to provisions for investment losses
recorded in the third and fourth quarters of 1993, which reduced depreciable
book values.
Administrative and operating expenses decreased by $276,000 and
$54,000 during the nine and three months ended September 30, 1994,
respectively, as compared to the corresponding periods in 1993. The decreases
are a result of lower professional fees and insurance expense.
See Part II, Item 1, Legal Proceedings, of this Form 10-Q for a description of
an agreement between Leonard M. Ross and his affiliates ("Ross") and Starwood
with respect to certain claims of Ross purchased by Starwood and an agreement
by Starwood in the future to purchase the paired shares of the Trust and
Corporation owned by Ross at a price of $5.625 per Paired Share. Starwood may
also elect to purchase such Paired Shares at the same time and on the same
terms. During the third quarter of 1994, the Trust and the Corporation
recorded a charge to shareholder litigation expense of $1,324,000 and
$1,324,000, respectively, the estimated fair market value of the agreement, as
determined by an investment banker using an option pricing model.
- 20 -
<PAGE> 21
Corporation:
Hotel revenues decreased by $2,312,000 and $1,125,000 for the nine and
three months ended September 30, 1994, respectively, as compared to the
corresponding period of 1993. The hotel sales discussed above resulted in
decreased revenue of $3,400,000 and $1,412,000 for the nine and three months
ended September 30, 1994, respectively, as compared to the corresponding
periods of 1993. In March 1994, the franchise agreement and management
agreement with Marriott Corporation for the Dallas property were terminated.
The property is now being managed for the Corporation by Sage Hospitality, and
is being operated as the Dallas Park Central Hotel. Revenues at the Dallas
property decreased by $2,105,000 and $967,000 for the nine and three months
ended September 30, 1994. The decreases from property sales and the Dallas
property were offset by increased revenues of $3,193,000 and $1,255,000 for the
nine and three months ended September 30, 1994, respectively, at the properties
which continue to be leased from the Trust by the Corporation including
increases of $1,026,000 and $284,000 for the nine months and the three months
ended September 30, 1994, respectively, at the Milwaukee Marriott, which was
renovated during 1993. The following table summarizes average occupancy and
average room rates for properties which continue to be operated by the
Corporation under lease from the Trust as of September 30, 1994:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
Including Dallas Park Central: 1994 1993 1994 1993
------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Occupancy Rate 68.36% 65.77% 72.26% 71.10%
Average Room Rate $58.19 $58.89 $59.04 $59.16
Excluding Dallas Park Central:
------------------------------
Occupancy Rate 71.44% 66.10% 77.70% 72.31%
Average Room Rate $58.07 $58.38 $59.11 $59.00
</TABLE>
Management of the Corporation believes that the increases in the average
occupancy rate resulted primarily from more favorable economic conditions which
have created increased business and pleasure travel throughout the United
States and improved operational systems.
Gaming revenues for the first nine months of 1994 as compared to the
corresponding period of 1993 increased by $838,000 to $21,094,000. Gaming
revenues for the three months ended September 30, 1994 totaled $6,781,000 as
compared to $6,773,000 in the corresponding period of 1993. Management
believes that the higher revenues during the first nine months of 1994 as
compared to the first nine months of 1993 at the two gaming facilities are a
result of increased travel to the Las Vegas area, and in particular, increased
customer traffic due to the proximity of the King 8 Hotel and Casino to several
large hotel/casinos completed during 1993. Gaming revenues for the three
months ended September 30, 1994 did not increase from the same period of 1993
as a result of lower win percentages than those experienced in the prior year.
Hotel expenses for the first nine months of 1994 were $46,095,000, or
72.2% of hotel revenues as compared to $51,083,000, or 77.2% of hotel revenues
for the first nine months of
- 21 -
<PAGE> 22
1993. Hotel expenses were $14,971,000, or 68.2% of hotel revenues as compared
to $17,264,000, or 74.8% of hotel revenues for the three months ended September
30, 1994 and 1993, respectively. The decreases in hotel expenses as a
percentage of hotel revenue are primarily due to the lower cost of operating
the Dallas property (see discussion of hotel revenues above) where operating
expenses have historically been higher than at other hotel properties, the
improved operating margin resulting from the renovation of the Milwaukee
Marriott discussed above and the effect of the sale of the properties having
higher operating costs as a percentage of revenues than properties that
continue to be operated by the Corporation.
Gaming expenses were $18,396,000, or 87.2% of gaming revenues as
compared to $17,678,000, or 87.3% for the nine months ended September 30, 1994
and 1993, respectively. Gaming expenses were $6,237,000, or 92.0% of gaming
revenues as compared to $6,070,000, or 89.6%, for the three months ended
September 30, 1994 and 1993, respectively. Management believes that the
increased amount of gaming expenses as a percentage of gaming revenues for the
three months ended September 30, 1994 as compared to the corresponding period
of 1993, are primarily a result of higher employee benefit costs.
Depreciation expense decreased by $211,000 and $100,000 for the nine
months and the three months ended September 30, 1994, respectively, as compared
to the corresponding periods of 1993. The decreases are a result of the sale
of hotels (see "Trust" immediately above) partially offset by an increase as a
result of the $4,300,000 renovation of the Milwaukee Marriott Hotel completed
in December 1993.
Administrative and operating expenses decreased by $99,000 and
increased by $29,000 for the nine and three months ended September 30, 1994,
respectively, as compared to the corresponding periods of 1993. The decrease
for the nine months ended September 30, 1994 is primarily a result of a
reduction in the level of corporate staff.
For information with respect to shareholder litigation expense see
"Trust" above and Part II - Item 1 - Legal Proceedings of this Form 10-Q.
For information with respect to rent and interest to the Trust during
the nine and three months ended September 30, 1994 and 1993, see "Trust"
immediately above.
- 22 -
<PAGE> 23
Liquidity and Capital Resources
The Trust - The primary sources of liquidity for the Trust are
cash generated from operations (i.e., its rents) and net proceeds from the sale
of hotels. The primary demands on the Trust's capital resources are debt
service payments, the funding of capital improvements to the Trust's properties
and the making of additional loans and advances to the Corporation.
As of December 31, 1992, an aggregate of $87,490,000 was owed
by the Corporation to the Trust as accrued but unpaid rent, interest and other
indebtedness (including the Milwaukee notes) of $12,667,000. As of January 1,
1993, a total of $448,000 of then accrued and unpaid rents and interest were
added to the debt. During 1993 and 1994, no interest accrued or will accrue on
the Corporation's debt to the Trust; beginning January 1, 1995, the outstanding
principal balance of the Corporation's debt to the Trust will bear interest at
an annual rate equal to the prime rate of one of the Banks from time to time
plus 2%. However, there can be no assurance that the Corporation's debt to the
Trust will not need to be further restructured in the future.
The 1993 restructuring of the Intercompany Leases (see "The
Trust - Investments - Equity Investments" included in Items 1 and 2 of the 1993
Joint Form 10-K), the two-year interest moratorium on the Corporation's debt to
the Trust and sales of the Trust's hotels which were managed by the
Corporation, are expected to lower the rents and interest received by the Trust
from the Corporation in 1994. The Trust's revenues were $20,342,000 in 1993 as
compared to $26,784,000 in 1992, and if the Reorganization is not consummated
are expected to be lower in the future due to anticipated property sales. The
Trust will seek to generate from its operations sufficient cash flow to pay the
interest due on the Secured Term Loan, Revolving Line of Credit and the Trust's
other mortgage debt, as well as to fund required capital improvements; however,
debt principal payments are expected to be made primarily from the proceeds of
hotel sales and (in the case of mortgage debt other than the Restructured Debt)
from debt refinancings. (For information with respect to such mortgage debt,
see Note 7 of Notes to Financial Statements included in Item 8 of the 1993
Joint Form 10-K.) Aggregate principal payments due during the next twelve
months on the Restructured Debt and outstanding mortgage notes payable of the
Trust amount to $12,530,000 as of September 30, 1994, including two mortgage
notes which will mature. Management of the Trust is currently negotiating the
refinance or extension of the mortgage notes due in the next twelve months.
The Trust elected to exercise the put option for the $6,000,000 sale of the
Albany property to Starwood (see Part I, Item 1 under the heading
Reorganization). Management believes that there will be sufficient cash
available from operations and from the currently pending sale of properties to
fund its operations and obligations during the next twelve months. (See
"Recent Developments - Pending Sales" included in Items 1 and 2 of the 1993
Joint Form 10-K.) There can be no assurance, however, that either the Trust's
operations or the Trust's sale of hotels will produce sufficient cash to make
the required payments of principal and interest or that the mortgage loans
other than the Restructured Debt can be refinanced. (See "Recent Developments
- - - - - - - - Debt Restructuring" included in Items 1 and 2 of the 1993 Joint Form 10-K.)
- 23 -
<PAGE> 24
The Corporation - The primary source of liquidity for the
Corporation is cash generated from operations - i.e., from sales of rooms, food
and beverages at the hotels and hotel/casinos the Corporation leases from the
Trust and gaming revenues at the two Nevada properties, net of management fees
with respect to the nine hotels managed by independent management companies.
The primary demands on the Corporation's capital resources are the payment of
rents and interest due to the Trust and the Corporation's general and
administrative expenses. The two-year interest moratorium on the Corporation's
debt to the Trust and the reduction in rentals due to the Trust are expected to
improve the Corporation's 1994 cash flows and income, although sales of the
Trust's hotels managed by the Corporation are expected to reduce the
Corporation's revenues. The Corporation may continue to incur cash flow
deficiencies, and the Corporation expects to continue to request that the Trust
loan the Corporation the funds required to meet those deficiencies. The debt
of the Corporation due to the Trust is payable on demand. The Corporation
currently has no other means of obtaining the funds to cover its cash flow
deficiencies or to repay the principal amount of the Corporation's debt to the
Trust.
As described in Items 1 and 2 of the 1993 Form 10-K under the
caption "Recent Developments - Debt Restructuring", the Credit Agreement
requires that the Trust and the Corporation apply on a daily basis any cash in
excess of certain specified thresholds to borrowings outstanding under the
Revolving Line of Credit. Amounts so paid are available for future borrowings
to pay interest on the Restructured Debt, to make principal payments on the
Term Loan and to pay other expenses incurred in connection with Hotel
Investors' operations. As of September 30, 1994, $6,992,000 was available to
the Trust under the Revolving Line of Credit. However, should the Trust or the
Corporation fail to comply with its obligations under the Credit Agreement and
related documents, the Trust's lenders will have the power to substantially
restrict the Trust's and the Corporation's access to and ability to utilize
its cash.
The Trust intends to make improvements to the Trust's
properties during 1994 that are necessary to maintain the properties in good
condition or that are required by franchisors or applicable health and safety
and other laws. Management of the Trust believes that the necessary funds are
available, and the cost of such improvements will be approximately $3,720,000
during 1994. As discussed in Items 1 and 2 of the 1993 Form 10-K, capital
improvements are subject to the approval of the Trust's lenders.
For information with respect to potential hazardous waste
contamination and the presence of asbestos at certain of the Trust's hotels and
the possible impact thereof on the Trust's and the Corporation's financial
position, see "Other Information - Certain Environmental Matters" included in
Items 1 and 2 of the 1993 Form 10-K.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On July 20, 1994, the United States District Court for the Southern
District of California entered a Final Judgment of Dismissal With Prejudice
("Final Judgment") of the two purported
- 24 -
<PAGE> 25
class actions filed in that Court entitled Naomi Horowitz v. Hotel Investors
Trust et al and Joyce Uttan I.R.A. et al v. Hotel Investors Trust et al ("Final
Judgment"). For additional information with respect to these actions and the
related derivative action filed in the Superior Court of the State of
California for San Diego County captioned Richard Carno and Sonem Partners Ltd.
v. Ronald A. Young et al., see information included in Item 3 of the 1993 Form
10-K under the caption "Naomi Horowitz v. Hotel Investors Trust et al; Joyce
Uttan I.R.A. et al v. Hotel Investors Trust et al," which information is
incorporated herein by reference. The Uttan, Horowitz, and Carno cases are
collectively referred to herein as the "Shareholder Actions."
Pursuant to the Final Judgment, the District Court, among other
things, approved the settlement set forth in stipulations of settlement
("Stipulation") entered into among the plaintiffs and defendants in the
Shareholder Actions, as well as the insurance company that issued Hotel
Investors' directors and officers policy applicable to the period to which
Shareholder Actions relate.
Under the Final Judgment, all claims that were or might have been made
in the Shareholder Actions are deemed released as of the Effective Date (as
defined in the Stipulation), and a $3,250,000 cash settlement fund is to be
established which, after the deduction of fees and costs to plaintiffs'
counsel, will be distributed to qualified members of the certified plaintiff
classes according to an allocation formula that includes a calculation based on
certain shares that have opted out of the settlement. Of the settlement fund,
$2,500,000 will be paid by the insurance company, $400,000 will be paid by
Hotel Investors, and $350,000 will be paid by Messrs. John Rothman and Ronald
Young. Upon completion of the claims administration process, any funds
remaining, up to a limit of $325,000, shall be returned to the parties who
contributed to the settlement fund on a pro rata basis. The parties
contributing to the settlement fund have previously established a separate
$45,000 fund to be used for purposes of notifying the classes and otherwise
administering the settlement. Legal fees and other costs incurred by the
defendants in the Shareholder Actions prior to October 12, 1993, will be paid
by Hotel Investors; subsequent defense costs will be paid by the insurance
company. An aggregate of approximately 1,199,000 shares opted out of the
settlement.
On July 25, 1994, the Superior Court entered an Order Determining Good
Faith, pursuant to which the Court determined that the settlement of the Carno
case, as reflected in the Stipulation, was made in good faith, and that all
claims that were made or might have been made in that action were released and
discharged.
The Stipulation also requires that the Trust's Board of Trustees and
the Corporation's Board of Directors establish a joint transaction committee of
independent Trustees and Directors to make recommendations to those Boards with
respect to any transaction proposed in the future by management and having a
fair market value of $20 million or more.
In connection with the settlement of the Shareholder Actions, Messrs.
Young and Rothman and certain of their affiliated partnerships have terminated
the management agreements that existed between those partnerships and the
Corporation's subsidiary, Western Host, Inc. (the "Management Contracts"), and
Western Host has agreed to forbear from disputing such action
- 25 -
<PAGE> 26
and has withdrawn as a general partner of two additional affiliated
partnerships. In satisfaction of any damages that Hotel Investors may incur as
a result of the termination of the Management Contracts, Messrs. Rothman and
Young have provided to Hotel Investors an irrevocable letter of credit having a
one-year term in the amount of $800,000 and have a one-year term.
Upon final Court approval of the settlement of the Shareholder
Actions, the proceeds from the letter of credit would be paid to Hotel
Investors, and the parties to the Management Contracts, Messrs. Rothman and
Young and Hotel Investors, will release all of their respective claims related
to the termination of the Management Contracts.
Mr. Leonard Ross and his affiliates (collectively "Ross"), who hold
approximately 9.8% of the outstanding paired shares of the Trust and
Corporation, opted out of the above settlement of the Shareholder Actions.
Ross threatened to bring a separate action against the Trust and the
Corporation which would include the same alleged causes of action as in the
Shareholder Actions as well as other alleged causes of action. Ross has
assigned to Starwood all of his claims against the Trust and Corporation.
Starwood has agreed to purchase all of Ross's paired shares at Ross's election
during a 60-day period beginning in December 1995, at a price of $5.625 per
paired share. Starwood may also elect to purchase Ross's paired shares at the
same time and on the same terms. Starwood, as the assignee of Ross's claims
against the Trust and the Corporation, has agreed that the maximum amount
Starwood may recover under such claims will not exceed $1.8 million; and the
Trust and the Corporation have agreed to toll the statute of limitations
respecting such claims until January 31, 1996. The Trust and Corporation have
also agreed that under certain circumstances they may be obligated severally to
indemnify Starwood with respect to Starwood's obligations to Ross, up to a
maximum of $1.8 million, upon receipt of a full release from Starwood of all of
the claims assigned by Ross.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this Form 10-Q:
- 26 -
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
99.1 Pages 11 (beginning at "Recent Developments") through 20
(concluding at "Regulation and Licensing") of the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K") (incorporated by
reference to the 1993 Form 10-K (SEC File Nos. 1-6828/1-7959)).
</TABLE>
(b) Reports on Form 8-K
None.
- 27 -
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION
Registrant Registrant
/s/ MICHAEL W. MOONEY /s/ KEVIN E. MALLORY
- - - - - - - ------------------------------ ------------------------------------
Michael W. Mooney Kevin E. Mallory
Vice President and Chief Executive Vice President (Principal
Financial Officer Executive Officer)
Hotel Investors Trust Hotel Investors Corporation
Hotel Investors Corporation has no
chief financial officer or principal
accounting officer.
Date: November 14, 1994
- 28 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
HOTEL INVESTORS TRUST
FINANCIAL DATA SCHEDULE FOR COMMERCIAL AND INDUSTRIAL COMPANIES *
* THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, STATEMENT OF OPERATIONS AND THE STATEMENT OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000048595
<NAME> HOTEL INVESTORS TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 360
<SECURITIES> 0
<RECEIVABLES> 12,826
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 120,351
<DEPRECIATION> 0
<TOTAL-ASSETS> 222,312
<CURRENT-LIABILITIES> 4,325
<BONDS> 147,950
<COMMON> 12,133
0
0
<OTHER-SE> 57,904
<TOTAL-LIABILITY-AND-EQUITY> 222,312
<SALES> 12,897
<TOTAL-REVENUES> 16,933
<CGS> 0
<TOTAL-COSTS> 3,834
<OTHER-EXPENSES> 1,182
<LOSS-PROVISION> 2,083
<INTEREST-EXPENSE> 12,013
<INCOME-PRETAX> (2,179)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,179)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,179)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
HOTEL INVESTORS CORPORATION
FINANCIAL DATA SCHEDULE FOR COMMERCIAL AND INDUSTRIAL COMPANIES *
* THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND THE STATEMENTS OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000316206
<NAME> HOTEL INVESTORS CORP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 6,305
<SECURITIES> 0
<RECEIVABLES> 4,474
<ALLOWANCES> 0
<INVENTORY> 3,418
<CURRENT-ASSETS> 0
<PP&E> 35,504
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,350
<CURRENT-LIABILITIES> 8,715
<BONDS> 100,452
<COMMON> 1,213
0
0
<OTHER-SE> (60,030)
<TOTAL-LIABILITY-AND-EQUITY> 50,350
<SALES> 84,952
<TOTAL-REVENUES> 85,242
<CGS> 64,491
<TOTAL-COSTS> 77,388
<OTHER-EXPENSES> 4,173
<LOSS-PROVISION> 1,324
<INTEREST-EXPENSE> 2,295
<INCOME-PRETAX> 62
<INCOME-TAX> 0
<INCOME-CONTINUING> 62
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0
</TABLE>
