<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to _________
<TABLE>
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 charter) (Exact name of registrant as specified in its 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>
<PAGE> 2
<TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
Shares of Beneficial Interest, $1.00 par value,
of Hotel Investors Trust ("Trust Shares")
paired with New York Stock Exchange
Shares of Common Stock, $0.10 par value,
of Hotel Investors Corporation ("Corporation Shares")
1986 Warrants to purchase Trust Shares American Stock Exchange
paired with
1986 Warrants to purchase Corporation Shares
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of March 25, 1994, the aggregate market value of the Registrants' voting
stock held by non-affiliates(1) was $18,627,000.
As of March 25, 1994, the Registrants had outstanding 12,132,948 Trust
Shares and 12,132,948 Corporation Shares.
________________________________
(1) For purposes of this Joint Annual Report only, includes all voting shares
other than those held by the Registrants' Trustees or Directors and executive
officers or by persons known to either Registrant to hold of record or
beneficially 5% or more of such Registrant's voting shares.
================================================================================
The undersigned Registrants hereby amend the following items, the
financial statements, exhibits or other portions of their Annual Report of
Form 10-K for the fiscal year ended December 31, 1993 as set forth in the
pages attached hereto:
<PAGE> 3
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
The Trust was organized in 1969 as a Maryland real estate
investment trust, and has invested in fee, ground leasehold and mortgage loan
interests in hotel properties located throughout the United States.
In order for the Trust to maintain its favorable tax status as a
"real estate investment trust" ("REIT") as defined in the Internal Revenue Code
of 1986 (as amended, and together with applicable regulations, the "Code"), the
Trust may not operate its hotels directly or participate in the net profits of
its hotels. Therefore, the Trust leases its hotels to third-party operators
for specified rentals. In 1980, the Trust formed the Corporation as a Maryland
corporation, distributed the shares of Common Stock, par value $0.10 per share,
of the Corporation (the "Corporation Shares") to the shareholders of the Trust,
and adopted a policy of leasing the Trust's hotels to the Corporation.
Concurrently with the distribution of the Corporation Shares, the
Trust entered into an agreement with the Corporation pursuant to which the
shares of Beneficial Interest, par value $1.00 per share, of the Trust (the
"Trust Shares") and the Corporation Shares are "paired" on a one-for-one basis
and may only be held or transferred in units consisting of one Trust Share and
one Corporation Share (a "Paired Share"). Since 1984, the Code has prohibited
the "pairing" of a REIT's stock with the stock of an operating company;
however, the Trust has maintained its REIT status under a grandfathering rule.
Under the paired structure, because the Trust and the Corporation are owned by
the same persons and because all but three of the properties owned by the Trust
are leased to the Corporation, holders of Paired Shares participate in both the
ownership and operational aspects of the hotel business.
Debt Restructuring; Acquisition of Assets of U.S. Equity.
Pursuant to a Credit Agreement dated as of January 28, 1993, as amended (the
"Credit Agreement"), the Trust has restructured the approximately $128,223,000
principal amount of previously unsecured indebtedness owed to two banks and
three insurance companies as a term loan and revolving credit facility secured
by substantially all of the assets of Hotel Investors. See "Recent
Developments - Debt Restructuring" below.1
As required by the Credit Agreement, on March 29, 1993, the Trust
acquired the five hotels and all of the other assets previously held by United
States Equity & Mortgage Trust ("U.S. Equity"), a business trust that had been
95%-owned by the Trust. See "Recent Developments - Debt Restructuring -
Acquisition of Assets of U.S. Equity" below.
__________________________________
1 Whenever reference is made in one Item of this Joint Annual Report
to information included in another Item hereof, that information is
incorporated by reference into the first Item.
1
<PAGE> 4
In order to obtain the funds to make the annual principal
payments required by the Credit Agreement, the Trust is seeking to sell hotel
properties, a majority of which are anticipated to be in the eastern and
southeastern United States. The Credit Agreement requires that net cash
proceeds from the sale of hotel assets be applied to prepay the restructured
debt under the Credit Agreement. See "Recent Developments - Debt
Restructuring. Hotel Investors intends to sell specific properties if and when
the terms, timing and use of proceeds of such sale are favorable to Hotel
Investors. See "Recent Developments - Certain Property Sales and Related
Transactions - Pending Sales."
Provision for Investment Losses
During the year ended December 31, 1993, the Trust provided for
investment losses of $2,369,000 with respect to certain of its hotels. See
Note 3 of Notes to Financial Statements included in Item 8 of this Joint Annual
Report.
THE TRUST
The Trust owns fee interests (or long-term leaseholds) in 26
hotels and two hotel/casinos, holds nine third-party promissory notes secured
by mortgages on ten additional hotels, and holds two promissory notes issued to
the Trust by a partnership affiliated with the Corporation in connection with
the Milwaukee Marriott Hotel; see "Recent Developments - Milwaukee Marriott
Hotel" below.
Investments
The Board of Trustees and the executive officers of the Trust are
responsible for managing the Trust's investments. The Trust does not intend to
engage the services of an investment advisor.
The Trust's Amended and Restated Declaration of Trust (the "Trust
Declaration") currently prohibits the Trust from (i) making any investment in
real property in an amount that exceeds 40% of the sum of the Trust's net worth
and subordinated indebtedness, (ii) making any investment in unimproved
non-income producing real property in an amount that exceeds 10% of the Trust's
assets, and (iii) borrowing an amount that exceeds 300% of the Trust's net
assets. As of December 31, 1993, the sum of the Trust's net worth and
subordinated indebtedness was $72,205,000, and the Trust's borrowings were 217%
of the Trust's net assets. The Trust Declaration provides that the Trustees of
the Trust (the "Trustees") generally may amend the investment policies set
forth in the Trust Declaration at any time without the consent of the Trust's
shareholders.
Equity Investments
As of December 31, 1993, the Trust had equity investments in 28
hotel properties (including two hotel/casinos) containing a total of
approximately 4,711 guest rooms. As of that date, the Trust owned fee
interests in 21 hotels and two hotel/casinos, and held five hotels pursuant to
long-term ground leases. The Trust also has a 5% equity interest in, and is
the general partner of, a limited partnership that owns the Omaha Marriott
Hotel
2
<PAGE> 5
which contains approximately 303 guestrooms. Of the hotels in which the Trust
has an equity interest, 20 operate under one of the following nationally
recognized names: Holiday Inn, Days Inn, Best Western, Ramada Inn, Vagabond
Inn, Marriott, Embassy Suites, Radisson Inn, Residence Inn and Sheraton Inn.
As of December 31, 1993, 23 of the Trust's hotels and its two
hotel/casinos were leased to the Corporation or its wholly owned subsidiaries
and three hotels were leased to Northview Corporation. See "Recent
Developments - Northview Corporation" below.
Each of the leases between the Trust and the Corporation (the
"Intercompany Leases") provides for the lessee's payment of annual minimum rent
in a specified amount plus additional rent based on a percentage of the gross
revenues of the leased property. The Intercompany Leases are "triple-net" -
i.e., the lessee is generally responsible for paying all operating expenses of
the hotel property, including maintenance and repair costs, insurance premiums
and real estate and personal property taxes, and for making all rental and
other payments required pursuant to any underlying ground lease. As lessee,
the Corporation retains all of the profits, net of rents and other expenses,
and bears all risk of losses, generated by the hotel property's operations.
Each of the Intercompany Leases requires that the lessee provide
to the Trust for its approval an annual financial plan that includes proposed
capital improvements. The Trust is obligated to make only those capital
improvements that it agrees are appropriate.
Prior to December 31, 1992, the Intercompany Leases generally
permitted the lessee to terminate a particular lease in the event that the
lessee's net income from the leased property was less than a specified
percentage of the property's net operating profits. In March 1991, the
Corporation notified the Trust that the Corporation and its subsidiaries
intended to terminate 11 of the Intercompany Leases pursuant to these
provisions. Effective December 31, 1992 and in connection with the entering
into of the Credit Agreement, 18 of the Intercompany Leases were amended to
reflect developments occurring with respect to the leased properties since the
date the leases were entered into, to extend the terms of the leases until at
least December 31, 1999 and in many cases to reduce the minimum and percentage
rents payable to the Trust. The Intercompany Leases applicable to the five
hotels previously held by U.S. Equity were similarly revised in March 1993 in
connection with the Trust's acquisition of those properties, but the rents
payable pursuant to those leases were not adjusted. For information with
respect to the rents payable to the Trust under the Intercompany Leases and the
ground rents payable by the Corporation on the Trust's behalf, see Note 6 of
Notes to Financial Statements included in Item 8 of this Joint Annual Report.
For a discussion of the anticipated effects of the lease revisions on the
results of operations and financial condition of the Trust and the Corporation,
see "Liquidity and Capital Resources" included in Item 7 of this Joint Annual
Report.
The following table sets forth the 1993 and 1992 average
occupancy and room rates at, and certain other information concerning the
hotels owned by the Trust as of December 31, 1993:
3
<PAGE> 6
<TABLE>
<CAPTION>
Year Constructed/ Years Ended December 31,
Property Year Acquired (1) Property Description -----------------------------------------------------
- - - -------- ----------------- -------------------- 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ----
Average Occupancy Average Room Revenue per
Rate Rate Available Room
----------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Embassy Suites 1981/1983 227 suites, restaurant, 72% 68% $74.04 $70.62 $53.30 $48.02
Phoenix, Arizona lounge and meeting facilities
Plaza Hotel 1971/1983 149 guest rooms, restaurant, 74% 64% $45.05 $47.22 $33.33 $30.22
Tucson, Arizona(2) lounge and meeting facilities
CALIFORNIA
Vagabond Inn 1974/1974 102 guest rooms and restaurant 44% 52% $38.14 $37.06 $16.78 $19.27
Rosemead, California(3)
Vagabond Inn 1975/1975 108 guest rooms and restaurant 60% 67% $52.18 $51.48 $31.31 $34.49
Sacramento, California(3)
Vagabond Inn 1973/1973 101 guest rooms and restaurant 61 69% $43.70 $42.15 $26.66 $29.08
Woodland Hills, California(3)
FLORIDA
Radisson Hotel 1974/1986 195 guest rooms, restaurant, 62 55% $56.63 $57.07 $35.11 $31.39
Gainesville, Florida(4) lounge and meeting facilities
Holiday Inn and Conference 1959/1985 272 guest rooms, restaurant, 59 54% $42.73 $44.84 $25.21 $24.21
Center-East lounge and conference and
Jacksonville, Florida(4) convention facilities
Sheraton Inn 1973/1986 161 guest rooms, restaurant, 47 46% $38.20 $42.12 $17.95 $19.38
New Port Richey, Florida(5) lounge and meeting facilities
4
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Year Constructed/ Years Ended December 31,
Property Year Acquired (1) Property Description ------------------------------------------------------
- - - -------- ----------------- -------------------- 1993 1992 1993 1992 1993 1992
Average Occupancy Average Room Revenue per
Rate Rate Available Room
----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GEORGIA
Holiday Inn 1989/1989 151 guest rooms, restaurant, 74% 74% $56.96 $54.99 $42.15 $40.69
Albany, Georgia(5) lounge and meeting facilities
Holiday Inn 1972/1986 126 guest rooms, restaurant, 60% 69% $39.51 $38.52 $23.71 $26.58
Brunswick, Georgia(5) meeting facilities
Best Western Riverfront Inn 1971/1986 142 guest rooms, restaurant, 55% 55% $46.21 $43.40 $25.42 $23.87
meeting facilities
MICHIGAN
Bay Valley Hotel & Resort 1973/1984 151 guest rooms, restaurant, 52% 54% $66.39 $65.32 $34.52 $35.27
Bay City, Michigan lounge and meeting facilities
18-hole golf course and tennis
club
NEBRASKA
Omaha Marriott Hotel 1982/1982 303 guest rooms, restaurant, 76% 71% $82.56 $82.57 $62.75 $58.62
Omaha, Nabraska(6) lounge and meeting facilities
NEVADA
Bourbon Street 1975/1988 150 guest rooms, restaurant, 92% 86% $30.65 $30.24 $28.20 $26.01
Las Vegas, Nevada lounge and casino
King 8 Hotel and Gambling Hall 1974/1988 300 guest rooms, restaurant, 83% 75% $27.71 $25.23 $23.00 $18.92
Las Vegas, Nevada lounge and meeting facilities
NEW MEXICO
Best Western Airport Inn 1980/1984 120 guest rooms and leased 80% 76% $52.38 $50.90 $41.90 $38.68
Albuquerque, New Mexico(7) restaurant adjacent to property
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
Year Constructed/ Years Ended December 31,
Property Year Acquired (1) Property Description -------------------------------------------------
-------- ----------------- --------------------
1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ----
Average Occupancy Average Room Revenue per
Rate Rate Available Room
----------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Best Western Mesilla Valley Inn 1974/1982 166 guest rooms, restaurant, 71% 58% $41.67 $40.40 $29.59 $23.43
Las Cruces, New Mexico lounge and meeting facilities
NORTH CAROLINA
Ramada Inn 1973/1986 138 guest rooms, restaurant, 46% 48% $30.56 $31.51 $14.06 $15.12
Fayetteville, North Carolina (5) lounge and meeting facilities
OHIO
Best Western North 1974/1992 180 guest rooms, restaurant, 66% 72% $42.12 $41.61 $27.80 $29.96
Columbus, Ohio (5) lounge and meeting facilities
and sports club
OREGON
Portland Inn 1962/1984 173 guest rooms, restaurant, 63% 60% $57.50 $60.31 $36.23 $36.19
Portland, Oregon (8) lounge and meeting facilities
Riverside Inn 1964/1984 137 guest rooms, restaurant, 79% 79% $63.76 $62.16 $50.37 $49.11
Portland, Oregon (8) lounge and meeting facilities
TEXAS
Best Western South 1973/1988 180 guest rooms, restaurant, 62% 55% $41.79 $38.45 $25.91 $21.15
Austin, Texas lounge and meeting facilities
Marriott Park Central Hotel 1972/1972 445 guest rooms, restaurant, 63% 59% $62.52 $62.29 $39.39 $36.75
Dallas, Texas (9) lounge and meeting facilities
Best Western Airport Inn 1974/1985 175 guest rooms and leased 70% 74% $35.56 $34.67 $24.89 $25.66
El Paso, Texas restaurant adjacent to propert
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ----
Year Constructed/ Property Average Occupancy Average Room Revenue per
Property Year Acquired(1) Description Rate Rate Available Room
-------- ---------------- ----------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VIRGINIA
The Residence Inn 1984/1984 96 suites with full 78% 84% $102.87 $97.51 $80.24 $81.91
Tysons Corner, Virginia kitchens and fireplaces
WASHINGTON
Days Inn Town Center 1957/1984 90 guest rooms, restaurant 75% 71% $60.71 $60.81 $45.53 $43.18
Seattle, Washington (8, 10) and lounge
Meany Tower Hotel 1932/1984 155 guest rooms, restaurant, 62% 59% $76.29 $81.04 $47.30 $47.81
Seattle, Washington (8) lounge and meeting facilities,
including ballroom
Sixth Avenue Inn 1959/1984 166 guest rooms, restaurant, 62% 57% $72.20 $72.85 $44.76 $41.52
Seattle, Washington (8, 11) lounge and meeting facilities
Tyee Motor Inn 1961/1987 155 guest rooms, restaurant, 62% 67% $56.28 $54.78 $34.89 $36.70
Tumwater, Washington lounge and meeting facilities
</TABLE>
7
<PAGE> 10
(1) "Year constructed" represents the calendar year in which construction
of the property was completed; "Year acquired" represents the calendar
year in which the Trust (or a predecessor) made its initial investment
in the property.
(2) Property is held by the Trust subject to ground leases expiring in
(assuming that renewal options are exercised) 2019.
(3) Property is leased to Northview Corporation. See "Recent Developments
- Northview Corporation" below.
(4) Property is managed by Landcom Hospitality Management, Inc. See "The
Corporation" below.
(5) Property is managed by Davidson Management Company. See "The
Corporation" below.
(6) The Trust is the general partner of, and owns a 5% equity interest in,
the limited partnership which owns the property.
(7) Property is held by the Trust subject to a ground lease expiring in
2029.
(8) Property was acquired by the Trust from U.S. Equity in March 1993. See
"Recent Developments - Acquisition of Assets of U.S. Equity" below.
(9) Property is held by the Trust subject to a ground lease expiring in
September 2020 and is managed by Marriott Corporation. The Marriott
management agreement and the Marriott franchise agreement expire in
March 1994. Upon expiration of the agreements, the property will be
managed by Sage Mountain View, Inc. and will be operated as an
independent hotel (the Park Central Hotel).
(10) Property is subject to a ground lease expiring in October 2007, but
that is terminable by the ground lessor after September 1, 1999 upon
six months' notice under certain circumstances.
(11) Property is subject to a ground lease expiring in September 2008, but
that is terminable by the ground lessor after September 1, 1999 upon
six months' notice under certain circumstances.
For information with respect to the six mortgage notes payable
that as of December 31, 1993 were secured by seven of the Trust's hotels, see
Note 7 of the Notes to Financial Statements included in Item 8 of this Joint
Annual Report.
Mortgage and Other Loans
The Trust holds nine promissory notes executed by third-party
purchasers of its hotels, all of which notes are secured by mortgages
(including deeds of trust) on ten hotels. Eight of the notes ($11,405,000 in
aggregate principal amount at December 31, 1993) are secured by first
mortgages; one note ($238,000 in principal amount as of December 31, 1993) is
secured by a second mortgage. The notes have fixed interest rates that
currently range from 8.75% to 12.0% per annum, and two of the notes also
provide for contingent interest based on a percentage of the gross revenues of
the property securing such notes. The maturity dates of the notes range from
1994 to 2017.
8
<PAGE> 11
For additional information with respect to certain of the
third-party promissory notes and the two promissory notes issued to the Trust
by a partnership affiliated with the Corporation in connection with the
Milwaukee Marriott Hotel, see "Recent Developments - Milwaukee Marriott Hotel"
included below under the caption "Recent Developments" and Notes 4 and 5 of
Notes to Financial Statements included in Item 8 of this Joint Annual Report.
In December 1987, in connection with the Corporation's
acquisition of the leasehold interest in the Trust's two Atlanta, Georgia area
hotels from an affiliated partnership, John F. Rothman, former president and
chief executive officer of the Trust and a general partner of the partnership,
assumed certain obligations of the partnership, which obligations are evidenced
by an unsecured promissory note to the Trust in the principal amount of
$800,000. Interest on the outstanding principal amount of this note accrues at
an annual rate of 10% and is payable annually; the entire principal amount of
the note is due in December 1999.
THE CORPORATION
The Corporation (directly and through its wholly owned
subsidiaries) leases hotel properties from the Trust and owns a 5% equity
interest in Omaha Operators, Inc. ("Omaha Operators"), which leases the Omaha
Marriott Hotel from a limited partnership of which the Trust is the general
partner. For information with respect to these properties and the terms of the
leases between the Trust and the Corporation, see "The Trust - Investments -
Equity Interests" above. The Corporation also is the sole general partner of
Moorland Hotel Limited Partnership, the limited partnership that owns the
Milwaukee Marriott Hotel, and manages that hotel pursuant to a long-term
management agreement. See "Recent Developments - Milwaukee Marriott Hotel" and
Note 5 of Notes to the Financial Statements.
As of December 31, 1993, 16 of the 25 hotel properties leased
by the Trust to the Corporation were operated directly by the Corporation, one
(the Dallas Park Central) was managed by Marriott Corporation ("Marriott"), and
the remaining 8 were managed by two independent hotel management companies -
Davidson Management Company ("Davidson"), and Landcom Hospitality Management,
Inc. ("Landcom").
Each management agreement provides that the management company
has the exclusive right to direct the operations of the hotel subject to that
agreement. The management company is responsible for maintaining and making
all necessary repairs to the managed hotel, hiring, training and supervising
all hotel employees, and performing all hotel bookkeeping and other
administrative duties.
Each management company is required to submit to the
Corporation for its approval an annual budget that includes proposed capital
expenditures, and the management company will make only those capital
expenditures that are approved by the Corporation. The management agreement
with Marriott also requires that Marriott maintain a cash reserve for the
replacement of furniture, fixtures and equipment and the making of other
capital improvements to the Dallas Marriott Park Central. The Trust is
required to make available
9
<PAGE> 12
to each management company sufficient working capital to permit that company to
operate the managed property.
For their services in managing Hotel Investors' hotels, each
management company receives a management fee that equals a specified percentage
(generally 2% - 2-1/2%) of the gross revenues of the managed hotel, plus
additional incentive fees based upon the hotel's operating profits. The
management agreements with Davidson and Landcom expire in December 1995, but
each of these agreements may be canceled by the Corporation prior to expiration
if, among other things, the managed hotel is sold or fails to make a specified
operating profit. The management agreement and franchise agreement with
Marriott expire in March 1994. See "Recent Developments - Marriott Park
Central" below.
During the year ended December 31, 1992, the Corporation
through its subsidiary Western Host, Inc. ("Western Host") managed eight hotels
owned by partnerships of which Ronald A. Young, the former President and Chief
Executive Officer of the Corporation and a former Trustee of the Trust and
Director of the Corporation, is a general partner or in which Mr. Young and his
affiliates otherwise have a substantial equity interest. As of January 1,
1993, Western Host's management obligations with respect to seven of these
hotels were being performed on a month-to-month basis by Westland Hotel
Corporation, a hotel management company owned by Mr. Young and of which he is
an executive officer. See "Management Obligations of Western Host" included in
Item 13 hereof.
Financial information with respect to the two segments of the
hospitality industry (hotels and gaming) in which the Corporation operates is
included in Note 11 of the Notes to Financial Statements included in Item 8 of
this Joint Annual Report.
RECENT DEVELOPMENTS
Debt Restructuring
Pursuant to a Credit Agreement dated as of January 28, 1993,
as amended (the Credit Agreement"), the Trust as of that date restructured the
$128,223,00 principal amount of indebtedness then owed by the Trust to two
banks (the "Banks") and three insurance companies (the "Insurance Companies"
and together with the Banks, the "Lenders") as a $115,723,000 term loan (the
"Term Loan") from the Lenders and a $12,500,000 revolving line of credit with
one of the Banks (the "Revolving Line of Credit", and together with the Term
Loan, the "Restructured Debt").
The debt restructuring provided for in the Credit Agreement is
taking place in phases:
First Closing. Concurrently with the execution and delivery
of the Credit Agreement (the "First Closing"), the maturity date of the
Restructured Debt was extended until March 29, 1993, and to secure repayment of
that debt, the Lenders were granted or assigned direct and indirect security
interests in and liens on substantially all
10
<PAGE> 13
of Hotel Investors' hotel and other assets, including substantially all of
Hotel Investors' cash (but not including the five hotels then owned by U.S.
Equity, at that time the Trust's 95%-owned subsidiary). In connection with the
First Closing, Hotel Investors released all of its claims against the Lenders,
and the Lenders released all of their claims against Hotel Investors arising
out of the debt restructuring process; in addition, the Trust and the
Corporation entered into a warrant agreement (the "Warrant Agreement"), that
originally provided for the issuance to the Lenders at the Third Closing (as
defined below) of 10-year warrants (the "Warrants") to purchase from the Trust
and the Corporation (or, if the merger of the Trust and the Corporation
described below had occurred, the surviving company) that number of shares
equal to 9.9% (or if the Merger has occurred, 15%) of the then outstanding
Paired Shares (or if the Merger had occurred, shares of the surviving company)
at an exercise price of $.62-1/2 per share.
Second Closing. On March 29, 1993, the Trust acquired all of
the assets formerly held by U.S. Equity. See "Acquisition of Assets of U.S.
Equity" below. Immediately following that acquisition, the maturity date of
the Restructured Debt was extended until September 15, 1993, and the Lenders
were granted liens on and security interests in the five hotels and related
assets formerly owned by U.S. Equity.
Extension Agreements; Interim Closing. Pursuant to a series
of six extension agreements, the maturity date of the Restructured Debt was
extended from September 15, 1993 to February 28, 1994.
At an interim closing held on February 28, 1994 (the
"Interim Closing"), the maturity date of the Restructured Debt was extended to
June 2, 1994 and the Credit Agreement was amended to, among other things,
eliminate the Trust's ability to issue the "deferred interest notes" described
below, to allow the Trust to apply all net proceeds from asset sales and
insurance or condemnation proceeds received by the Trust in 1994 in excess of
the $5 million which may be applied to amounts outstanding under the Revolving
Line of Credit as described below to the next principal payment or payments due
on the Restructured Debt, and to require the Trust to pay in cash certain costs
incurred by the Lenders in connection with the Restructured Debt. In addition,
the Lenders were collaterally assigned security interests in and liens on
substantially all of the Intercompany Leases and the monies received by the
Corporation in connection with the operation of those hotels, and the Warrant
Agreement was amended to provide for the immediate issuance to the Lenders of
Warrants for an aggregate of 1,333,143 Paired Shares at the exercise price
originally provided for in the Warrant Agreement.
Assuming that the Trust pays to the Lenders all
amounts owed under the Credit Agreement and that the Restructured Debt has not
otherwise been accelerated, the Warrants are subject to cancellation as
follows:
(1) If on or before August 31, 1994 the Trust's
cumulative principal payments under the Term Loan equal or exceed
$13,000,000, one-third of the Warrants will be canceled;
11
<PAGE> 14
(2) If as of August 31, 1996 the Trust's cumulative
principal payments under the Term Loan equal or exceed
$40,000,000, an additional one-third of the Warrants will be
canceled; and
(3) If on or before April 30, 1998, all amounts outstanding
under the Credit Agreement have been repaid and a fee of
$1,300,000 is paid to the Lenders, the remaining one-third of
the Warrants will be canceled.
Third Closing. The third closing under the Credit Agreement
(the "Third Closing") is currently scheduled to be held on or prior to June 2,
1994. At the Third Closing, the final maturity date of the Restructured Debt
is to be extended until April 30, 1998. The Third Closing continues to be
conditioned upon, among other things, the Trust and the Corporation seeking the
approval of their respective shareholders and stockholders to merge.
A $1,000,000 principal payment was made on the Term Loan on
August 31, 1993. If the Third Closing occurs, minimum cumulative principal
payments under the Term Loan will be due as follows:
<TABLE>
<CAPTION>
Date Cumulative Principal Payments
---- -----------------------------
<S> <C>
August 31, 1994 $ 10,000,000
August 31, 1995 $ 19,000,000
August 31, 1996 $ 27,000,000
August 31, 1997 $ 52,000,000
April 30, 1998 $128,802,000
</TABLE>
On the date that the Term Loan matures, all then outstanding borrowings under
the Revolving Line of Credit, as well as all interest deferred and expenses
capitalized in connection with the Restructured Debt as described below, must
be paid in full.
The Trust has the option to prepay all or part of the
Restructured Debt without penalty at any time, and Hotel Investors' net cash
proceeds from the sale of hotel assets, payments made on the Trust's mortgage
notes receivable and proceeds of any equity or debt offering or mortgage
refinancing must be so applied. Up to the first $5,000,000 of proceeds from
the sale of hotels may be applied to pay amounts outstanding under the
Revolving Line of Credit ($3,347,000 had been so applied at December 31, 1993);
any other such proceeds and all other amounts required to be used for
prepayment, must be applied to prepay the Term Loan. Except as described above
with respect to net cash proceeds received in 1994, to the extent that the
cumulative net cash proceeds applied against the Term Loan in any payment
period exceed the next principal payment due by more than $5,000,000, the
amount in excess of $5,000,000 must be applied one-half to the next principal
payment or payments then due under the Term Loan and one-half to the principal
payment due on April 30, 1998.
From January 28, 1993 to November 23, 1993, the outstanding
principal balance of the Restructured Debt accrued interest at an annual rate
equal to the prime rate of
12
<PAGE> 15
one of the Banks from time to time plus 2%. On November 24, 1993, the annual
rate at which interest accrues increased to prime plus 3% and interest will
continue to accrue at this rate until such time, if any, as the Merger takes
place. The Trust has the option to pay interest on the Restructured Debt at
the rate of 7.5% per annum through August 31, 1994, 8.0% per annum from
September 1, 1994 through August 31, 1995, 8.5% per annum from September 1,
1995 through August 31, 1997, and 9.0% per annum from September 1, 1997 through
April 30, 1998, with the difference between the interest accrued and the
interest paid being added to the principal amount of the Term Loan.
The Credit Agreement originally provided that if cash
projected to be available to Hotel Investors fell below certain specified
thresholds, the Trust could issue to the Lenders "deferred interest" notes to
defer for up to one year the payment of a maximum of $2,000,000 of interest
accrued on the Restructured Debt in order to pay costs and expenses incurred
prior to or in connection with the Third Closing. During February and March of
1993, an aggregate of $1,623,000 was so deferred. In connection with the
Interim Closing, in December 1993 the deferred interest was paid in full.
The Credit Agreement establishes daily operating cash
thresholds, as defined, for Hotel Investors. If these thresholds are exceeded,
the excess cash must be applied to reduce the borrowings then outstanding under
the Revolving Line of Credit. Amounts so applied are available for future
borrowings in order to pay principal and interest on the Term Loan, to fund
capital expenditures and to pay other expenses incurred by Hotel Investors in
owning and operating its assets.
The Credit Agreement requires that the Trust maintain a
specified minimum adjusted net worth and that Hotel Investors maintain a
specified minimum ratio of cash to cash interest plus capital expenditures, in
each case as defined pursuant to the Credit Agreement. In addition, the Credit
Agreement contains covenants that, among other things, restrict Hotel
Investors' ability to acquire or dispose of assets, make additional investments
or incur additional indebtedness, enter into new management agreements or
otherwise change the Companies' methods of operations. Distributions to
shareholders are prohibited, and the Lenders must approve the Trust's annual
capital improvements budget.
Costs and expenses incurred by the Lenders during the term of
the Credit Agreement in connection with the Restructured Debt are payable by
the Trust. To the extent that these costs and expenses exceed $250,000 in any
year, the Trust may elect to add the excess amount to the principal amount of
the Term Loan. At the First Closing, the Trust paid $700,000 of the costs
incurred by the Lenders in negotiating the debt restructuring and an additional
$3,554,000 of such costs were added to the principal of the Term Loan. In
connection with the transactions consummated at the Interim Closing, the Trust
paid to the Lenders in cash the $250,000 payable for 1994 and agreed to
reimburse the Lenders in cash on June 1, 1994 for an additional $250,000 of
costs incurred by the Lenders in connection with the Restructured Debt.
The Trust and the Corporation are currently exploring various
alternatives to consummating the Third Closing, including possible transactions
with others which may include a refinancing of the Restructured Debt. There
can be no assurance that Hotel
13
<PAGE> 16
Investors will enter any such transactions or as to the structure or terms
thereof. If no such alternatives are feasible, Hotel Investors intends to
consummate the Third Closing.
Acquisition of Assets of U.S. Equity
On March 29, 1993, the Trust acquired the five hotels and all
of the other assets previously owned by U.S. Equity. Because the laws of the
state of Washington (the jurisdiction of U.S. Equity's organization) did not
provide for the merger of a business trust with another entity, U.S. Equity
formed USE Merger Company, a Maryland corporation ("USE"), transferred all of
U.S. Equity's assets and liabilities to USE, and then terminated; immediately
following such termination, USE merged into the Trust, with the Trust as the
surviving company. As a result of the merger, the former holders of U.S.
Equity's Common Shares of Beneficial Interest became entitled to receive from
the Trust cash in an amount equal to $28.20 per share. The amount paid to the
former minority shareholders of U.S. Equity (an aggregate of $1,575,000) was
agreed to by U.S. Equity and the Trust based upon the results of an independent
appraisal of U.S. Equity's fee or leasehold interests in its five hotels.
Milwaukee Marriott Hotel
Since July 1991, the Milwaukee Marriott Hotel has been owned
by Moorland Hotel Limited Partners, a limited partnership ("MHLP") of which the
Corporation is the sole general partner and in which the Corporation has a 51%
equity interest. The sole limited partner of MHLP is Milwaukee Brookfield
Limited Partners ("Brookfield"), the partnership which purchased the hotel from
the Trust in December 1985 but which subsequently filed a petition in
bankruptcy and transferred the hotel to MHLP in satisfaction of certain claims
made against Brookfield by, among others, the Trust and the Corporation. For
information pertaining to the Milwaukee Marriott restructuring and renovation
and the two promissory notes issued by MHLP to the Trust, see Note 5 of Notes
to Financial Statements included in Item 8 of this Joint Annual Report.
Northview Corporation
The Trust owns fee interests in the Vagabond Inns in
Sacramento, Rosemead and Woodland Hills, California, and holds promissory notes
secured by first deeds of trust on the Vagabond Inns in Reno, Nevada and
Modesto, California. The Modesto note is also secured by a collateral
assignment of a promissory note secured by a mortgage on a hotel located in
Stockton, California which was previously leased and operated by Northview
Corporation ("Northview") as a Vagabond Inn (see below). With the exception of
the Stockton property, all of these hotels are leased by the Trust to
Northview, formerly known as Vagabond Motor Hotels.
In March 1990, Northview filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. At the date the filing was made, the
Trust was owed annual percentage rents in respect of the three Vagabond Inns
for the year ended December 31, 1989 and the 1990 period prior to the
bankruptcy filing of $583,000 and $94,000, respectively. In addition,
Northview had failed to pay certain property taxes due on the
14
<PAGE> 17
hotels and to maintain and make certain refurbishments to the properties as
required by the leases.
Northview's plan of reorganization was approved by the court
in February 1993. In connection with the reorganization and in settlement of
the Trust's claims against Northview, Northview assumed the leases of the three
hotels owned by the Trust and delivered to the Trust three promissory notes in
an aggregate original principal amount approximately equal to the rents owed
for the period prior to the bankruptcy filing plus $100,000 to reimburse the
Trust for legal fees and expenses incurred by the Trust in connection with the
bankruptcy. The principal amounts of the Northview notes bear interest at 8%
per annum; principal and accrued interest are payable in eight equal quarterly
installments which began on March 1, 1993. Northview also agreed to make the
required refurbishments and renovations to the three hotels during 1993 and
1994.
Pursuant to its plan of reorganization, Northview rejected its
lease of the Stockton Vagabond Inn. In November 1993, that hotel was sold by
its owner to a third party and the promissory note formerly secured by the
Stockton and Modesto hotels (the "SJP Note") was restructured. As a result of
that debt restructuring, the SJP Note ($1,816,000 in principal amount at
December 31, 1993) is secured by a first priority lien on and security interest
in the real and personal property assets of the Modesto Vagabond Inn and by a
collateral assignment of the promissory note ($650,000 in principal amount at
December 31, 1993) executed by the purchaser of the Stockton property, which
note is secured in turn by a first-priority deed of trust and security
agreement on that hotel. Fixed interest on the restructured SJP Note accrues
at an annual rate of 10% and is payable monthly; additional interest and
payments of principal are due in amounts equal to 5% and 20%, respectively, of
the percentage rents paid by Northview to the owner of the Modesto property.
The then remaining principal balance of the SJP Note is due in full in June
1996, subject to the maker's right to extend the term of this note for an
additional 10 years. The Trust also is entitled to receive from the owner of
the Modesto property an amount equal to one-half of all rents that were owed by
Northview with respect to the Modesto Vagabond Inn for the period from March
1990 through December 1992, at such time, if any, as those rents are paid by
Northview.
The principal balance of the note secured by a deed of trust
on the Reno Vagabond Inn ($1,448,000 in principal amount at December 31, 1993)
bears interest at a fixed rate of 12% per annum, which interest is payable
monthly; additional interest and payments of principal are due in an aggregate
amount equal to approximately 50% of the percentage rents paid by Northview to
the owner of that property. The then remaining principal balance of the Reno
Note is due in full in June 1994. In connection with the confirmation of
Northview's plan of reorganization, the owner of the Reno Vagabond Inn agreed
to pay to the Trust, over a two-year period, the accrued interest and principal
payments owed to the Trust with respect to the rents that prior to the filing
of Northview's bankruptcy petition, Northview failed to pay with respect to the
Reno property, as those rents are received by the Reno property owner.
15
<PAGE> 18
Certain Property Sales and Related Transactions
Completed Sales:
Best Western Hotel-Smyrna, Georgia. In January 1993, Hotel
Investors sold the Best Western Hotel in Smyrna, Georgia for $1,600,000 in
cash.
Vantage Hotel-Tucker, Georgia. In June 1993 Hotel Investors
sold the Vantage Hotel in Tucker, Georgia for $2,485,000. Of that amount,
$500,000 was paid in cash, and the balance was paid by delivery to the Trust of
a $1,985,000 promissory note, secured by a first mortgage on the hotel. The
principal balance of the note bears interest at an annual rate of 9%; principal
and interest are payable in equal monthly installments based upon a 25-year
amortization schedule, with all unpaid principal and unpaid interest due in
1998.
Western Host-Santa Maria, California. In July 1993, Hotel
Investors sold the Western Host property in Santa Maria, California for
$140,000 in cash.
Ramada Inn-St. Louis, Missouri. In December 1993, Hotel
Investors sold the Ramada Inn located in St. Louis, Missouri for $2,500,000 in
cash.
Pending Sales:
Hotel Investors has accepted an all cash offer for the
Marriott Hotel located in Dallas, Texas. If the sale is completed, Hotel
Investors will receive $8,750,000, less closing costs. At December 31, 1993,
the Trust owed $5,447,000 on a mortgage note which is secured by the Dallas
property. If the transaction is completed, the mortgage note will be paid in
full by the Trust from the sale proceeds.
Hotel Investors has accepted an all cash offer for three
hotels, the Holiday Inn located in Brunswick, Georgia, the Sheraton Inn,
located in New Port Richey, Florida, and the Ramada Inn located in
Fayetteville, North Carolina. If the transaction is completed, Hotel Investors
will receive $5,300,000, less closing costs.
Hotel Investors has accepted an all cash offer for the
Residence Inn located in Tyson's Corner, Virginia. If the sale is completed,
Hotel Investors will receive $11,000,000, less closing costs. At December 31,
1993, the Trust owed $6,417,000 on a mortgage note which is secured by the
Tyson's Corner property. If the transaction is completed, the mortgage note
(including a prepayment penalty) will be paid in full by the Trust from the
sale proceeds.
In connection with future highway expansion, the Best Western
South located in Austin, Texas has been condemned by the State of Texas. The
condemnation is expected to occur in April 1994. If the condemnation is
completed, Hotel Investors will receive $3,600,000 in cash.
There can be no assurance that Hotel Investors will consummate
any of the transactions described above.
16
<PAGE> 19
Mortgage Notes Payable Maturing During 1994
Three of the mortgage notes payable secured by four of the
hotels owned by the Trust mature during 1994. Management of the Trust is
currently negotiating the refinance or extension of the notes. The amount
outstanding under the notes was $15,683,000 at December 31, 1993. The net book
value of the properties securing the three notes was $33,303,000 at December
31, 1993. There can be no assurance that any or all of such notes payable will
be so refinanced or extended.
Marriott Park Central Hotel
At December 31, 1993, the Marriott Park Central Hotel was
managed by Marriott Corporation. In March 1994, the Marriott's management
agreement and the Marriott franchise agreement will expire. Upon expiration of
the agreements, the property will be managed by Sage Mountain View, Inc. and
will be operated as an independent hotel (the Park Central Hotel).
OTHER INFORMATION
Seasonality; Competition
The revenues and profits of the Trust and the Corporation are
typically greatest in the second and third quarters, and lowest in the fourth
quarter, of each calendar year.
The Trust and the Corporation believe that Hotel Investors'
properties (other than the two hotel/casinos) are generally more dependent on
business travelers than on tourists, vacationers and other discretionary
travelers. Hotel Investors' hotels compete for customers with other hotels on
the basis of price, the quality of the accommodations and service provided, and
location. Competitors include companies formed for the purpose of acquiring
and/or operating particular hotels, as well as established companies that have
greater financial and managerial resources than those of the Trust or the
Corporation, or that are affiliated with national or regional chains that are
more widely known, that own or operate properties at more locations and that
provide greater marketing support.
In several areas in which Hotel Investors' properties are
located, hotel occupancy rates (and therefore the revenues and profits of the
Trust and the Corporation) have been adversely affected by a substantial
increase in the supply of hotel rooms. In addition, the reduction in travel
associated with the nationwide recession had an adverse effect on the revenues
and profits of a number of Hotel Investors' hotels. Shortages in gasoline or
changes in travel habits resulting from substantial increases in gasoline
prices, as well as changes in travel patterns caused by the relocation or
construction of highways, also may affect demand for hotel rooms, and therefore
may result in a decrease in revenues and profits of the hotels owned and
operated by Hotel Investors.
The operation of hotel/casinos in the Las Vegas area is a
highly competitive business. The number of hotel rooms and gaming casinos in
the Las Vegas area has been
17
<PAGE> 20
increased substantially during 1993. Competition for gaming customers also
comes from the Laughlin area of Nevada. Managements of the Trust and the
Corporation believe that because most customers of Hotel Investors' Las Vegas
properties come primarily from Southern California, Nevada and Arizona, the
legalization of gaming in Atlantic City, New Jersey has not had a material
impact on the gaming operations of the two hotel/casinos. However,
legalization of casino gaming in the western or southwestern areas of the
United States, and the general proliferation of gaming throughout the United
States on riverboats and Indian reservations and at offtrack betting
facilities, could have a material adverse effect on the operations of these
properties.
Competition among hotel/casinos in Las Vegas involves not only
the quality of casino, room, restaurant and convention facilities, but also
room and food and beverage prices. The extent and quality of complimentary
services offered to attract gaming players, the personal attention offered to
guests and casino customers, and slot machine pay-out rates are also important
competitive factors. The level of gaming activity at Hotel Investors' two
hotel/casinos varies significantly from time to time, principally as a result
of general economic conditions and marketing efforts by, and occupancy rates
at, the large hotel/casinos on the Las Vegas Strip and other similar facilities
in the general Las Vegas area. As the odds vary among various games and
between games and slot machines, gaming revenues also vary depending on the
relative amount of play each game and slot machine receives.
Certain Environmental Matters
In connection with the Trust's debt restructuring negotiations
described above, the Trust obtained in the latter part of 1991 preliminary or
"Phase I" environmental site assessments with respect to the Trust's hotel
properties and the Milwaukee Marriott Hotel.
The potential for environmental impairment was assessed as
moderate to high only at the Embassy Suites Hotel in Phoenix, Arizona.
According to the assessment of that property, petroleum hydrocarbons are
present in the land beneath this hotel; however, the Trust could not determine
without further investigation the extent of the potential contamination or
whether this contamination resulted from the underground storage tanks placed
on the property by the property's former owner or from similar tanks located on
land adjacent to the property, which tanks are known to have suffered leakage.
A magnetic survey conducted on the property did not detect the continuing
existence of the underground storage tanks on Hotel Investors' property, and
the environmental consultant did not recommend that any further action be
taken. Phoenix municipal authorities have indicated an awareness of possible
ground water contamination in the area, but to date have taken no action.
A tank leak test conducted at the Bourbon Street Hotel in
early 1992 revealed no evidence of leakage. A release of petroleum from an
underground storage tank at the Bay Valley Hotel and Resort was reported to the
appropriate state agency in 1992. After the tank and surrounding soils were
removed, additional soils and groundwater testing was performed, which revealed
environmental contamination in a localized area. The Trust plans to test the
site in the near future to determine whether it qualifies as a "low priority
site" under the relevant state law. If the site qualifies for that status, the
Trust anticipates conducting
18
<PAGE> 21
quarterly groundwater sampling for one year, and then determining whether any
remedial work will be necessary. If the site does not qualify for low priority
status, the Trust may be required to undertake remediation more quickly. Any
further investigation and remediation costs that are incurred may be reimbursed
to the Trust by a Michigan environmental fund, although there is some question
as to whether the fund will have sufficient resources to pay all claims made
against it. If the Trust does not receive reimbursement for its future
investigation and remediation costs, the Trust will bear those costs.
Neither the Trust nor the Corporation has been identified by
the U.S. Environmental Protection Agency or any similar state agency as a
responsible or potentially responsible party for, nor has either been the
subject of any governmental proceeding with respect to, any hazardous waste
contamination. If the Trust or the Corporation were to be identified as a
responsible party, Hotel Investors in most circumstances would be strictly
liable, jointly and severally with other responsible parties, for environmental
investigation and clean-up costs incurred by the government and, to a more
limited extent by private persons.
Based upon the environmental reports described above, Hotel
Investors believes that a substantial number of its hotel properties
incorporate potentially asbestos-containing materials. Under applicable
current Federal, state and local laws, asbestos need not be removed from or
encapsulated in a hotel unless and until the hotel is renovated or remodeled.
As of the filing of this Joint Annual Report, the removal of asbestos from
portions of the Milwaukee Marriott Hotel required in connection with the
renovation of that property (see "Milwaukee Marriott Hotel" above") has been
completed.
Based upon the above-described environmental reports and
testing and facts known to the managements of the Trust and the Corporation as
of the filing of this Joint Annual Report, future remediation costs are not
expected to have a material adverse effect on the Trust's and the Corporation's
results of operations or financial position and compliance with environmental
laws has not had and is not expected to have a material effect on the capital
expenditures, earnings or competitive position of the Trust or the Corporation.
Regulation and Licensing
The ownership and operation of Hotel Investors' casino gaming
facilities in Nevada are subject to extensive licensing and regulatory control
of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State
Gaming Control Board (the "Nevada Board") and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board," and together with the Nevada
Commission and the Nevada Board, the "Nevada Gaming Authorities").
The gaming laws, regulations and supervisory procedures of
Nevada seek to (i) prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity; (ii)
establish and maintain responsible accounting practices and procedures; (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
making periodic
19
<PAGE> 22
reports to the Nevada Gaming Authorities; (iv) prevent cheating and fraudulent
practices; and (v) provide a source of state and local revenues through
taxation and licensing fees. Changes in these laws, regulations and procedures
could have an adverse effect on the Corporation's gaming operations.
The Corporation is registered with the Nevada Commission as a
publicly traded corporation and has been found suitable as a holding company by
the Nevada Gaming Authorities to own all of the outstanding capital stock of
Hotel Investors Corporation of Nevada, Inc. ("HICN"). HICN which operates two
hotel/casinos, the King 8 Hotel, Gambling Hall & Truck Plaza (the "King 8") and
the Bourbon Street Hotel & Casino ("Bourbon Street") must be licensed by the
Nevada Gaming Authorities. The Corporation and HICN have obtained from the
Nevada Gaming Authorities the various registrations, approvals, permits and
licenses required in order to engage in gaming activities in Nevada. The Trust
was likewise found suitable by the Nevada Gaming Authorities to be the landlord
of the King 8 and Bourbon Street. No person may become a stockholder of, or
receive any percentage of profits from, HICN without first obtaining licenses
and approvals from the Nevada Gaming Authorities. Prior approval of the Nevada
Commission is required for the sale, assignment, transfer, pledge or other
disposition of any security issued by HICN.
The licenses and approvals held by HICN are not transferable
and must be renewed periodically upon the payment of appropriate taxes and
license fees. The licensing authorities have broad discretion with regard to
the renewal of the licenses. The issuing agency may at any time revoke,
suspend, condition, limit or restrict a license or approval to own stock in a
corporate licensee for any cause deemed reasonable by the issuing agency.
Substantial fines for each violation of gaming laws or regulations may be
levied against HICN, the Corporation and the individuals involved. A violation
under any one of the licenses held by HICN may be deemed a violation of one or
more other licenses or approvals held by HICN. If HICN's licenses are revoked
or suspended or are not renewed, the Nevada Commission may petition a Nevada
district court to appoint a supervisor to operate the affected property until
it is sold. When sold, the net proceeds would be paid to the Trust; however,
the Trust could, under certain circumstances, receive only the reasonable
rental value of any property earnings under the supervisor's management with
any excess in earnings over the reasonable rental value of the property being
forfeited to Nevada. Suspension or revocation of the license of HICN,
disapproval of the Corporation to own the stock of HICN or court appointment of
a supervisor over operations of the King 8 or Bourbon Street would have a
material adverse effect upon the Trust and the Corporation.
Directors, officers and certain key employees of HICN must
file license applications with the Nevada Gaming Authorities. An application
for licensing may be denied for any cause deemed reasonable by the issuing
agency. Changes in corporate management or executive positions must be
reported to the Nevada Gaming Authorities. In addition to its authority to
deny an application for a license, the Nevada Commission has jurisdiction to
disapprove a change in a management or executive position with a regulated
corporation. If the Nevada Gaming Authorities were to find a director, officer
or key employee unsuitable for relicensing or unsuitable to continue having a
relationship with HICN or the Corporation, the Corporation and HICN would have
to sever all relationships with that person. The Corporation and HICN would
have similar obligations with regard to
20
<PAGE> 23
any person who refused to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada. Each gaming employee must obtain, and periodically renew, a
work permit, which may be revoked upon the occurrence of certain specified
events.
HICN periodically must submit detailed financial and operating
reports to the Nevada Commission, which are subject to routine audit by the
Nevada Board. Substantially all loans, leases, sales of securities and similar
financing transactions entered into by HICN must be reported to or approved by
the Nevada Commission. The fiscal stability of HICN must be adequate to
satisfy gaming financial obligations such as state and local government taxes
and fees, and the payment of winning wagers to patrons. Failure to satisfy
these gaming financial obligations is grounds for the Nevada Gaming Authorities
to limit, condition, restrict, suspend or revoke the gaming licenses and
approvals of HICN and the registration and approvals of the Corporation, or to
impose administrative fines against HICN or the Corporation.
As a registered publicly traded holding company found suitable
as the sole stockholder of HICN, the Corporation is required periodically to
submit detailed financial and operating reports to the Nevada Commission and to
furnish any other information that the Nevada Commission or Nevada Board may
require. The Corporation's directors, officers and key employees who are
actively and directly engaged in the administration or supervision of gaming
are subject to licensing and findings of suitability by the Nevada Commission.
Certain of the Corporation's officers and directors have been licensed by the
Nevada Commission. The finding of suitability is comparable to licensing, and
both require submission of detailed personal background and personal financial
information followed by a thorough investigation, and payment by the applicant
of all investigative costs and charges. Any individual who is found to have a
material relationship to or material involvement with the Corporation also may
be required to be found suitable or be licensed and may be investigated. Key
employees, controlling persons or others who exercise significant influence
upon the management or affairs of the Corporation, or are actively engaged in
the administration or supervision of gaming activities, may be deemed to have
this type of a relationship or involvement.
Any beneficial holder of the Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder
of the Corporation's voting securities determined if the Nevada Commission has
reason to believe that such ownership would otherwise be inconsistent with the
declared policies of the state of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
Any person who acquires more than 5% of any class of voting
securities of the Corporation must report the acquisition to the Nevada
Commission. Beneficial owners of more than 10% of any class of the
Corporation's voting securities must apply to be found suitable by the Nevada
Commission within thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing, and any beneficial owner of the
Corporation's voting securities (whether or not such person is a controlling
stockholder) may
21
<PAGE> 24
be required to be found suitable if the Nevada Commission has reason to believe
that such ownership would be inconsistent with the declared policy of the state
of Nevada that licensed gaming be conducted honestly and competitively and that
the gaming industry be free from criminal and corruptive elements.
An "institutional investor" (as defined by the Regulations of
the Nevada Commission) holding at least 10%, and in certain circumstances up to
15%, of the voting securities of the Corporation may apply for and hold a
waiver of the mandatory suitability determination requirement prescribed by the
Nevada Gaming Control Act. To qualify as an "institutional investor," a person
or entity must satisfy one of several alternative criteria under the federal
Securities Exchange Act of 1934, the Investment Company Act of 1940, or state
and federal pension and retirement laws, as well as acquire and hold the voting
securities for investment purposes in the ordinary course of business and not
for the purpose of effecting any change of control in or the management or
policies of the registered holding company or its gaming affiliates.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters
voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent.
A change in investment intent of an institutional investor
must be reported to the Chairman of the Nevada Board within two business days
of such change of intent. The Chairman of the Nevada Board may require an
institutional investor to apply for a finding of suitability upon receipt of
notice of change in investment intent, or at any time deemed necessary to
protect the public interest. An aggrieved institutional investor may apply for
Nevada Commission review of the decision of the Chairman of the Nevada Board
ordering the filing of a suitability determination application. The
Corporation or HICN must promptly report to the Nevada Commission any
information that materially affects the institutional investor's eligibility to
hold a waiver.
If the stockholder who must be found suitable is a
corporation, partnership or trust, that stockholder must submit detailed
business and financial information including a list of beneficial owners. In
addition, the Clark County Liquor and Gaming Licensing Board has taken the
position that it has the authority to approve all persons owning or controlling
more than two percent of the stock of a gaming licensee or of any corporation
controlling a gaming licensee. The applicant is required to pay all costs of
investigation.
Any stockholder found unsuitable by the Nevada Commission who
directly or indirectly holds any beneficial or ownership interest in the
Corporation's Common Stock beyond whatever period of time may be prescribed by
the Nevada Commission may be guilty of a criminal offense. Any person who
fails or refuses to apply for a finding of suitability or a license within 30
days after being ordered to do so by the Nevada Commission or Chairman of the
Nevada Board may be found unsuitable. The same restrictions that apply to a
securityholder who is found unsuitable may be held to apply to a beneficial
owner of the Corporation's securities if the record owner, after request, fails
to identify the beneficial owner. The Corporation is subject to disciplinary
action if, after receiving notice that a
22
<PAGE> 25
person is unsuitable to be a stockholder or to have any other relations with
the Corporation or its gaming subsidiaries, the Corporation (i) pays the
unsuitable person any dividend or interest upon any voting securities of the
Corporation or makes any other unpermitted payment or distribution of any kind
whatsoever; (ii) recognizes the exercise, directly or indirectly, of any voting
rights in the Corporation's securities by the unsuitable person; (iii) pays the
unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain limited and specific circumstances; or (iv) fails
to pursue all lawful efforts to require the unsuitable person to divest himself
of his voting securities, including, if necessary, the immediate purchase by
the Corporation of the voting securities for cash at fair market value. In
addition, Nevada law requires that any holder or owner of a voting security who
is found unsuitable by the Gaming Commission immediately offer those securities
to the Corporation for purchase, which securities would be purchased by the
Corporation for cash at fair market value within 10 days from the date the
securities are offered.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a corporation registered under the Nevada Gaming
Control Act to file applications, be investigated and be found suitable to own
the debt security of a registered corporation. If the Nevada Commission
determines that a person is unsuitable to own such debt security, then pursuant
to the Regulations of the Nevada Commission, the registered corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission it (i) pays to the unsuitable person any dividend,
interest or other distribution whatsoever; (ii) recognizes any voting right of
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Corporation is required to maintain a current and
comprehensive stock ledger in the state of Nevada, which ledger may be examined
by the Nevada Gaming Authorities at all reasonable times, but without notice.
If any securities are held in trust, by an agent or by a nominee, the owner of
record of those securities may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make this
disclosure may be grounds for finding the owner of record unsuitable. The
Corporation must render maximum assistance to the Nevada Gaming Authorities in
determining the identity of the beneficial owner.
The Nevada Commission has the power at any time to require
that the Corporation's stock certificates bear a legend to the general effect
that the securities of the Corporation are subject to Nevada Gaming Control Act
and the regulations of the Nevada Commission. However, to date, the Nevada
Commission has not imposed such a requirement on the Corporation. The Clark
County Board also claims jurisdiction to approve or disapprove holders of the
Corporation's securities. The Nevada Gaming Authorities, through the power to
regulate licensees and otherwise by Nevada law, have the power to impose
additional restrictions on the holders of the Corporation's securities at any
time.
The Regulations of the Nevada Commission provide that changes
in the control of the Corporation or HICN through a merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior
23
<PAGE> 26
approval of the Nevada Commission. Entities seeking to acquire control of the
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of the Corporation. The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Nevada Legislature has declared that some corporate
acquisitions opposed by management, repurchases of securities and corporate
defense tactics affecting corporate gaming licensees in Nevada, and publicly
traded corporations affiliated with those licensees may be injurious to stable
and productive corporate gaming operations. The Nevada Commission has
established a regulatory scheme to ameliorate the potential adverse effects of
these business practices upon Nevada's gaming industry and to advance Nevada's
policy to (i) assure the financial stability of corporate gaming operators and
their affiliates; (ii) preserve the beneficial aspects of conducting business
in the corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals may be required from the Nevada
Commission before the Corporation may make exceptional repurchases of
securities above current market price (commonly referred to as "greenmail"),
and before a corporate acquisition opposed by management can be consummated.
Nevada's gaming regulations also require prior approval of the Nevada
Commission in the event of a Corporation plan of recapitalization proposed by
the board of directors in opposition to a tender offer made directly to
shareholders for the purpose of acquiring control of the Corporation.
Nevada law prohibits the Corporation from making a public
offering of its securities without the approval of the Nevada Commission if any
part of the proceeds of the offering is to be used to finance the construction,
acquisition or operation of gaming facilities in Nevada, or to retire or extend
obligations incurred of one or more such purposes. Approval of the public
offering will not constitute a finding by the Nevada Commission as to the
accuracy, adequacy or investment merit of the securities offered to the public.
Any representation to the contrary is unlawful.
License fees and taxes, computed in various ways depending on
the type of gaming involved, are payable to the State of Nevada and to the
County of Clark where HICN's gaming operations are conducted. Depending upon
the particular fee or tax involved, these assessments are payable either
monthly, quarterly, or annually and are based upon either (i) a percentage of
the gross gaming revenues received by the casino operations; (ii) the number of
slot machines or other gaming devices operated by the casino; or (iii) the
number of table games operated by the casino. A casino entertainment tax is
also paid by the licensees where entertainment is furnished in connection with
the selling of food or refreshments.
The sale of alcoholic beverages by HICN is subject to
licensing, control and regulation by the Clark County Board. Such liquor
licenses are revocable and are not transferable. The Clark County Board has
full power to limit, condition, suspend or revoke any liquor license, and any
disciplinary action of this nature or license revocation would have a material
adverse effect on HICN's gaming operations.
24
<PAGE> 27
Employees
As of March 1, 1994, the Trust had four full-time employees,
and the Corporation had approximately 2,047 full-time employees.
PART II
ITEM 6. SELECTED FINANCIAL DATA.
The following data sets forth certain financial information
for the Trust, the Corporation, and the Trust and the Corporation on a combined
basis. This information is based on and should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this Joint
Annual Report.
25
<PAGE> 28
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
December 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Operating Data
--------------
<S> <C> <C> <C> <C> <C>
Revenue:
Trust $ 20,342 $ 26,784 $ 29,550 $ 32,866 $ 31,389
Corporation 114,828 116,172 110,361 112,555 110,587
Combined (1) 117,155 117,656 113,436 117,024 115,619
Net Income (Loss):
Trust (2) (3,889) (9,818) (10,952) (13,362) (48,083)
Corporation (2) (3,143) (9,925) (11,132) (14,224) (12,256)
Combined (7,032) (19,743) (22,084) (27,586) (60,339)
Net Income (Loss) Per Share:
Trust $(0.32) $ (0.81) $ (0.90) $ (1.10) $ (3.96)
Corporation (0.26) (0.82) (0.92) (1.17) (1.01)
------ ------ ------ ------ ------
Combined $(0.58) $ (1.63) $ (1.82) $ (2.27) $ (4.97)
====== ========= ======== ========= =========
Balance Sheet Data
------------------
Total Assets:
Trust $232,845 $ 245,540 $246,498 $ 266,487 $ 274,316
Corporation 49,993 53,611 55,807 31,946 34,580
Combined (1) 195,352 210,945 221,917 240,998 263,414
Total Debt:
Trust 156,526 157,541 158,295 165,730 151,611
Corporation 101,846 100,246 66,873 44,960 39,260
Combined (1) 170,886 170,297 171,271 166,591 152,781
Shareholders' Equity (Deficit):
Trust 72,205 76,371 86,188 97,087 117,727
Corporation (58,879) (55,752) (45,828) (34,696) (20,487)
Combined 13,326 20,351 40,083 62,104 96,671
Shares outstanding at end of period 12,133 12,133 12,133 12,133 12,132
Cash Flow and Dividend Data
---------------------------
Net cash provided by (used in) operating
activities:
Trust 2,790 2,773 (8,812) 8,921 7,270
Corporation 1,698 1,917 2,654 (2,659) 2,856
Combined 4,488 4,690 (6,158) 6,262 10,126
Dividends to shareholders
- Trust (3) $ 0 $ 0 $ 0 $ 7,644 $ 12,132
Dividends per share
- Trust (3) $ 0 $ 0 $ 0 $ 0.63 $ 1.00
</TABLE>
26
<PAGE> 29
(1) Trust and Corporation amounts do not add to Combined amounts due to
accounting elimination entries.
(2) For the Trust, includes gains (losses) on sales of ($53,000),
($791,000), $390,000, and $156,000 for the years ended December 31,
1993, 1992, 1991 and 1989, respectively, and provisions for investment
losses of $2,369,000, $3,419,000, $8,867,000, $15,100,000 and
$51,208,000 in the years ended December 31, 1993, 1992, 1991, 1990 and
1989, respectively. For the Corporation, includes gains on sales of
$74,000, $4,000 and $1,208,000 for the years ended December 31, 1993,
1992, and 1991, respectively, and provisions for investment losses of
$713,000, $3,047,000 and $4,593,000 in the years ended December 31,
1991, 1990 and 1989, respectively.
(3) Presented only for the Trust, as the Corporation did not pay dividends
for the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As discussed in Items 1 and 2 of this Joint Annual Report 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 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 Annual
Report, the Trust's ability to comply in the future with the requirements 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.
The Trust and Corporation must continue to sell properties to meet the
principal payment requirements of the Credit Agreement. As of the date of this
Joint Annual Report, the Trust and the Corporation have no commitments to sell
properties other than those described under "Recent Developments - Certain
Property Sales and Related Transactions". 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.
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 as 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 properties to be sold, the terms of the sales and the timing of
the sales.
27
<PAGE> 30
Results of Operations for the Years Ended December 31, 1993 and 1992
The Trust. Rents from Corporation totaled $16,481,000 and
$21,177,000 for the years ended December 31, 1993 and 1992, respectively.
Approximately $1,106,000 of the decrease in rents resulted from the sale of
hotels in Irving, Texas (March 1992), Merrimack, New Hampshire (July 1992),
Spartanburg, South Carolina (September 1992), Smyrna, Georgia (January 1993),
Tucker, Georgia (June 1993), and St. Louis, Missouri (December 1993). The
remaining decrease was primarily due to the restructuring of eighteen of the
leases with the Corporation effective January 1, 1993, which reduced the fixed
and percentage rents payable by the Corporation. For additional information
regarding the lease restructuring, see "Liquidity and Capital Resources" below.
Interest from the Corporation decreased to $1,534,000 from
$4,123,000 for the years ended December 31, 1993 and 1992, respectively. The
decrease in interest income is a result of the January 1, 1993 restructuring of
intercompany borrowings and advances made to the Corporation, with the
exception of the Milwaukee notes, into non-interest bearing demand notes for
calendar years 1993 and 1994, with interest at prime plus 2% payable monthly
thereafter.
For additional information with respect to Rents and Interest
from the Corporation in future periods, see "Liquidity and Capital Resources"
below.
Interest from mortgage and other notes receivable increased by
$187,000 for the year ended December 31, 1993 as compared to 1992. The
increase resulted from the additional interest income related to the mortgage
notes delivered to the Trust in connection with the sales of the hotel
properties located in Irving, Texas, Merrimack, New Hampshire, Spartanburg,
South Carolina, and Tucker, Georgia, having original principal balances of
$1,650,000, $1,440,000, $775,000, and $1,985,000, respectively.
Losses on sales of hotel assets for the year ended December
31, 1993 totaling ($53,000) reflect the sales of hotels in Smyrna and Tucker,
Georgia and the St. Louis, Missouri property. For additional information
regarding sales of hotels see "Recent Developments - Certain Property Sales and
Related Transactions" included in Item 1 and 2 of this Joint Annual Report and
Notes 2 and 13 to the Financial Statements.
As described above, effective January 28, 1993, the Trust
restructured its debt. See "Liquidity and Capital Resources" below.
Management concluded that this debt restructuring (the "Debt Restructuring")
represented a "troubled debt restructuring" as defined under generally accepted
accounting principles, and accordingly, upon execution of the definitive
agreement, accrued all known current or future identifiable debt restructuring
costs as of December 31, 1992. No additional loan restructuring costs were
incurred during the year ended December 31, 1993.
Interest expense totaled $14,020,000 and $12,959,000 for the
years ended December 31, 1993 and 1992, respectively, an increase of
$1,061,000. The increase was
28
<PAGE> 31
primarily due to an increase in the average interest rate and an increase in
the borrowings outstanding under the Term Loan and Revolving Line of Credit.
The sales of the properties discussed above and an increase in
the provision for investment losses are the primary reasons for the decline in
depreciation and amortization expense of $1,164,000 between 1993 and 1992.
Administrative and operating expenses totalled $2,212,000 and
$2,538,000 for the years ended December 31, 1993 and 1992, respectively, a
decrease of $326,000. The decrease was primarily the result of lower legal and
professional fees unrelated to the debt restructuring. Administrative and
operating expenses included an accrual of $219,000 at December 31, 1993 in
connection with the settlement of the Shareholder Actions (see "Legal
Proceedings" included in Item 3 of this Joint Annual Report).
During 1993 a provision for investment losses totalling
$2,369,000 was recorded primarily as a result of the acceptance of offers to
sell hotels at amounts lower than the then current net book values.
No distributions were made by the Trust for the years ended
December 31, 1993 and 1992. For information with respect to restrictions on
distributions imposed by the Credit Agreement see "Distributions - The Trust"
included in Item 5 of this Joint Annual Report.
The Trust's net loss and net loss per share totalled
$3,889,000, or $0.32 per share, and $9,818,000, or $0.81 per share, for the
years ended December 31, 1993 and 1992, respectively.
The Corporation. Hotel revenues totalled $86,903,000 and
$88,812,000 for the years ended December 31, 1993 and 1992, respectively,
representing a decrease of $1,909,000. The hotel sales described under the
caption "The Trust" above resulted in decreased revenue of $2,373,000, which
was partially offset by increased revenues of $835,000 resulting from increased
average occupancy and average room rates for properties which continue to be
operated by the Corporation and leased from the Trust.
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:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------------------------
1993 1992
------ ------
<S> <C> <C>
Occupancy Rate 63% 59%
Average Room Rate $56.59 $53.18
</TABLE>
Management of the Corporation believes that the improved
national economic trends experienced during 1993 resulted in increased business
and pleasure travel and related increases in average occupancy rates and
average room rates.
29
<PAGE> 32
Gaming revenues totalled $27,505,000 and $26,150,000 for the
years ended December 31, 1993 and 1992, respectively. Management believes the
increased revenue of $1,355,000 at the two gaming facilities is a result of
increased customer travel to the Las Vegas area, and in particular, increased
customer traffic due to the close proximity of the King 8 Hotel and Casino to
several large hotel/casinos completed during 1993.
Management fees and other income decreased by $737,000 to
$222,000 for the year ended December 31, 1993 as compared to 1992. The
decreases were primarily a result of the subcontracting of the management
obligations of Western Host with respect to seven hotels not owned by the
Trust, to Westland Hotel Corporation. For additional information pertaining to
the subcontracts, see Note 10 of the Notes to Financial Statements and Item 13
of this Joint Annual Report.
Gain on sales of hotel assets totalled $74,000 and $4,000 for
the years ended December 31, 1993 and 1992, respectively, reflecting the
property sales described above.
Hotel expenses totalled $68,132,000 and $68,620,000, or 78%
and 77% of hotel revenues, for the years ended December 31, 1993 and 1992,
respectively. The increase in hotel expenses as a percentage of hotel revenues
is principally attributable to the payment of management fees to third party
operators under the 11 management contracts entered into in December 1992 and
increased revenues and expenses at the Dallas Marriott Park Central where
operating expenses are typically higher as a percentage of revenues than at
other hotel properties operated by or for the Corporation.
Gaming expenses totalled $24,055,000 and $23,699,000, or 87%
and 91% of gaming revenues, for the years ended December 31, 1993 and 1992,
respectively. Increased gaming revenues, coupled with improved casino win
percentages, resulted in the decreases in gaming expenses as a percentage of
gaming revenues.
For information with respect to rent and interest to the Trust
during the years ended December 31, 1993 and 1992, see "The Trust - Results of
Operations for the Years Ended December 31, 1993 and 1992" above and "Liquidity
and Capital Resources" below.
Administrative and operating expenses decreased by $827,000,
or 22%, for the year ended December 31, 1993 as compared to 1992. The decrease
is primarily the result of a reduction in the level of corporate staff.
Administrative and operating expenses include an accrual of $219,000 at
December 31, 1993 in connection with the settlement of the Shareholder Actions
(see "Legal Proceedings" included in Item 3 of this Joint Annual Report).
The Corporation's net loss totalled $3,143,000, or $0.26 per
share, in 1993, as compared to $9,925,000, or $0.82 per share, for 1992.
Results of Operations for the Years Ended December 31, 1992 and 1991
The Trust. Rents from Corporation totaled $21,177,000 and
$22,093,000 for the years ended December 31, 1992 and 1991, respectively. The
decrease resulted primarily
30
<PAGE> 33
from the sale of hotels in Indian Wells, California (May 1991), Brunswick,
Georgia (July 1991), Albany, Georgia (September 1991), Irving, Texas (March
1992), Merrimack, New Hampshire (July 1992) and Spartanburg, South Carolina
(September 1992) and the termination of the ground and building lease for the
St. Charles, Missouri property in August 1991. The reductions in rental income
resulting from property sales were partially offset by additional rental income
from the Columbus, Ohio property following the Trust's reacquisition of that
hotel in January 1992.
Interest from the Corporation decreased from $4,382,000 in
1991 to $4,123,000 in 1992. In July 1991, a limited partnership of which the
Corporation is the general partner acquired the Milwaukee Marriott and assumed
the maker's obligations under an $11,000,000 promissory note held by the Trust.
The increase in interest income from the Corporation that resulted from this
debt being classified as intercompany debt was more than offset, however, by
decreases in the interest rate charged by the Trust to the Corporation (which
rate is tied to the prime rate of one of the Banks.)
For information with respect to anticipated reductions in
rents and interest income from the Corporation in future periods, see
"Liquidity and Capital Resources" below.
Interest from mortgage and other notes receivable decreased by
$339,000 in the year ended December 31, 1992 as compared to 1991. The decrease
resulted primarily from the cancellation of the mortgage note receivable for
the Best Western North, Columbus, Ohio and the partial prepayment of the note
receivable on the Ramada Inn in Jefferson City, Missouri in January 1992 and
the July 1991 reclassification of the Milwaukee Marriott mortgage note
receivable as a note due from the Corporation. These decreases were partially
offset by additional interest income related to notes receivable delivered to
the Trust in connection with the hotel sales described above.
The reduction in other income of $82,000 for the year ended
December 31, 1992 as compared to 1991 was primarily the result of a one-time
recognition of income in 1991 resulting from the expiration of a third-party
option to acquire the King 8 and the Trust's retention of the deposit paid in
connection with that option.
Losses on sales of hotel assets for the year ended December
31, 1992 ($791,000) reflect the sale of hotels in Spartanburg, South Carolina,
Merrimack, New Hampshire, and Irving, Texas and the recognition of a $91,000
discount in connection with the early payoff of the mortgage note receivable
relating to the Brunswick, Georgia property. Gain on sales of hotel assets for
the year ended December 31, 1991 of $390,000 reflects the sale of three
properties and the termination of the ground and building lease for the St.
Charles, Missouri property described above.
Interest expense decreased between 1991 and 1992 by
$2,900,000. The decrease was due to a reduction in the interest rate
applicable to borrowings from the Lenders and the application of proceeds from
property sales to reduce those borrowings.
During the years ended December 31, 1992 and 1991, provisions
for investment losses totaling $3,419,000 and $8,867,000, respectively, were
made, which
31
<PAGE> 34
amounts represent the difference between the net book value of the Trust's
properties and their estimated net realizable values.
Depreciation and amortization decreased by $2,236,000 between
1991 and 1992, primarily as a result of the above- mentioned property sales and
the provisions for investment losses recorded during 1992 and 1991.
Administrative and operating expenses decreased by $411,000 in
1992 as compared to 1991 principally as a result of the termination of certain
Trust employees in April 1991.
Loan restructuring costs for the year ended December 31, 1992
totaled $10,892,000, as compared to $3,797,000 for 1991. Of the 1992 costs,
$8,713,000 was accrued in December 31, 1992 for future costs that were known
and identifiable in connection with the debt restructuring. Upon execution and
delivery of the Credit Agreement, $700,000 was paid to the Lenders in cash, and
$4,032,000 was added to the balance of the Term Loan, pursuant to provisions of
the Credit Agreement requiring that the Lenders' debt restructuring costs be so
paid or reimbursed by the Trust.
No distributions were made by the Trust for the years ended
December 31, 1992 and 1991. For information with respect to restrictions on
distributions imposed by the Credit Agreement see "Distributions - The Trust"
included in Item 5 of this Joint Annual Report.
The Trust's net loss totaled $9,818,000, or $0.81 per share,
for 1992 as compared to $10,952,000, or $0.90 per share, for 1991.
The Corporation. Hotel revenues increased between 1991 and
1992 by $3,656,000. An increase resulting from the inclusion of revenues from
the Milwaukee Marriott beginning in July 1991 and the Best Western North in
Columbus, Ohio beginning in January 1992 which totaled $9,238,000 was offset by
the reduction in revenues that resulted from property sales which amounted to
$5,533,000.
The following table summarizes average occupancy and room
rates for properties leased by the Corporation from the Trust:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1992 1991
------ ------
<S> <C> <C>
Average Occupancy Rate 59% 57%
Average Room Rate $53.18 $51.17
</TABLE>
Management of the Corporation believes that the increases in
the average occupancy rate resulted primarily from increased business and
pleasure travel throughout the United States, and that the increase in the
average room rate principally reflects the addition of the Milwaukee Marriott
(which hotel has a higher room rate than the Corporation's remaining mix of
properties).
32
<PAGE> 35
Gaming revenues increased between 1991 and 1992 by $3,541,000,
primarily as a result of increased travel to the Las Vegas area and the
proximity of the King 8 to several large hotel/casinos which were under
development or had been recently completed.
Management fees and other income decreased by $108,000 for the
year ended December 31, 1992 as compared to 1991, due primarily to reduced
management fees (which fees are based on revenues) earned at the seven hotels
(excluding the Milwaukee Marriott which is combined in consolidation) managed
by the Corporation for entities other than the Trust.
Gain on sales of assets for the years ended December 31, 1992
and 1991 ($4,000 and $1,208,000, respectively) reflect the property sales
described above.
Expenses of hotel operations increased to $68,620,000, or
77.3% of hotel revenues, in 1992, as compared to $65,963,000, or 77.5% of hotel
revenues in 1991.
Expenses of gaming operations totaled $23,699,000, or 90.6% of
gaming revenues, as compared to $21,948,000, or 97.1% of gaming revenue, for
the years ended December 31, 1992 and 1991, respectively. Management believes
that increased gaming revenue, coupled with improved casino win percentages,
has resulted in decreased gaming expenses as a percentage of gaming revenue.
For information with respect to rent and interest paid by the
Corporation to the Trust during the years ended December 31, 1992 and 1991, see
"The Trust - Results of Operations for the Years Ended December 31, 1992 and
1991".
Interest - other increased by $650,000, and depreciation and
amortization increased by $744,000, for 1992 as compared to 1991, due to the
July 1991 restructuring of the ownership of the Milwaukee Marriott.
Administrative and operating expenses increased to $3,827,000
in 1992 from $3,137,000 in 1991. The increase was due primarily to the payment
or accrual of severance compensation for certain of the Corporation's employees
as a result of the relocation of certain operations of the Corporation to Los
Angeles and reductions in personnel due to the contracting out to third- party
management companies of the operations of hotel properties previously operated
by the Corporation.
No provision for investment loss was established in 1992, as
compared to a provision for losses of $713,000 in 1991; the latter amount
representing the difference between the net book value of the Corporation's
properties and their then estimated net realizable values.
The Corporation's net loss totaled $9,925,000, or $0.82 per
share, in 1992, as compared to $11,132,000, or $0.92 per share, for 1991.
33
<PAGE> 36
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 won't need to be further restructured in future years.
The 1993 restructuring of the Intercompany Leases (see "The
Trust - Investments - Equity Investments" included in Items 1 and 2 of this
Joint Annual Report), 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 due to anticipated property sales are
expected to be lower in 1994 than in 1993. 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 this Joint Annual Report.) 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. (See "Recent Developments - Debt Restructuring"
included in Items 1 and 2 of this Joint Annual Report.)
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 9 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. Although the two-year interest moratorium on the Corporation's debt
to the Trust and the reduction in future rentals due to the Trust are expected
to improve the Corporation's 1994 cash flows and income, sales of the Trust's
hotels managed by the Corporation have reduced, and are expected to continue to
reduce, the Corporation's revenues. The Corporation may continue to incur cash
flow deficiencies and the Corporation
34
<PAGE> 37
expects to continue to request that the Trust loan the Corporation the funds
required to meet those deficiencies. 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 hereof 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
December 31, 1993, $3,075,000 was available to the Trust under the Revolving
Line of Credit. However, should Hotel Investors fail to comply with its
obligations under the Credit Agreement and related documents, the Lenders will
have the power to substantially restrict Hotel Investors' access to and ability
to utilize its cash.
The Trust intends to make during 1994, improvements to the
Trust's properties that are necessary to maintain the properties in good
condition or that are required by franchisors or applicable health and safety
and other laws. The 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 this Joint Annual
Report, Hotel Investors' capital improvements are subject to the approval of
the Senior 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 this Joint Annual Report.
35
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed.
Financial Statements and Financial Statement Schedules
The financial statements and financial statements schedules
and financial statement schedules listed in the Index to Financial Statements
following the signature pages hereof are filed as part of this Joint Annual
Report.
Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- - - ----------- ----------------------
<S> <C>
3.1 Amended and Restated Declaration of Trust of Hotel Investors Trust (the "Trust") dated June 6, 1988, as amended
(incorporated by reference to Exhibit 3.1 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993 (the "March 1993 Form 10-Q")).2
3.2 Articles of Incorporation of the Corporation (the "Corporation"), as amended (incorporated by reference to Exhibit
3.2 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarter ended June 1988).
3.3 Trustees' Regulations of the Trust, as amended (incorporated by reference to Exhibit 3.3 to the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1989 (the "1989 Form 10-K")).
3.4 By-laws of the Corporation, as amended (incorporated by reference to Exhibit 3.4 to the 1989 Form 10-K).
</TABLE>
_________________________
(1) The Securities and Exchange Commission file numbers of all filings made
pursuant to the Securities Act of 1934, as amended, and referenced herein
are: 1-6828 (Hotel Investors Trust) and 1-7959 (HotelInvestors Corporation).
36
<PAGE> 39
<TABLE>
<S> <C>
4.1 Pairing Agreement dated June 25, 1986, between the Trust and the Corporation (incorporated by reference to Exhibit
4.2 to the Trust's and the Corporation's Registration Statement on Form S-4 (the "S-4 Registration Statement")
filed with the Securities and Exchange Commission (the "SEC") on August 1, 1986 (Registration No. 33-7694)).
4.2 Form of Warrant Agreement dated as of September 16, 1986, between the Trust and City National Bank ("CNB")
(incorporated by reference to Exhibit 4.3 to the S-4 Registration Statement).
4.3 Form of Warrant Agreement dated as of September 16, 1986, between the Corporation and CNB (incorporated by
reference to Exhibit 4.3A to the S-4 Registration Statement).
4.4 Form of Warrant Agreement dated as of January 28, 1993, among the Trust and the Corporation, on the one hand, and
John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, Connecticut Mutual Life
Insurance Company, The First National Bank of Boston and Wells Fargo Bank, N.A. (collectively the "Lenders"), on
the other hand (Exhibit N to the Credit Agreement listed as Exhibit 10.23 below) (incorporated by reference to
Exhibit 10.33 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31,
1992 (the "1992 Form 10-K")).
4.5 First Amendment to Warrant Agreement dated as of February 28, 1994, among the Trust, the Corporation and the
Lenders.
10.1 Incentive and Non-Qualified Share Option Plan (1986) of the Trust (incorporated by reference to Exhibit 10.8 to the
Trust and the Corporation's Joint Annual Report on Form 10-K for the year ended August 31, 1986 (the "1986 Form
10-K")).(3)
10.2 Corporation Stock Non-Qualified Stock Option Plan (1986) of the Trust (incorporated by reference to Exhibit 10.9 to
the 1986 Form 10-K).2
10.3 Stock Option Plan (1986) of the Corporation (incorporated by reference to Exhibit 10.10 to the 1986 Form 10-K).2
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- - - ----------- ----------------------
<S> <C>
10.4 Trust Shares Option Plan (1986) of the Corporation
(incorporated by reference to Exhibit 10.11 to the 1986 Form
10- K).2
</TABLE>
__________________________________
(2) Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
37
<PAGE> 40
<TABLE>
<S> <C>
10.5 Form of Share Purchase and Pledge Agreement and related Promissory Note entered into pursuant to the Share Purchase
Plan (1987) of the Trust, together with forms of Amendments Nos. 1 and 2 thereto (incorporated by reference to
Exhibit 10.10 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31,
1990 (the "1990 Form 10-K")).2
10.6 Form(s) of Amendment No. 3 to Share Purchase and Pledge Agreement(s) and related Promissory Note(s) entered into
pursuant to the Share Purchase Plan (1987) of the Trust (incorporated by reference to Exhibit 10.11 to the Trust's
and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-
K")).2
10.7 Form of Share Purchase and Pledge Agreement and related Promissory Note entered into pursuant to the Share Purchase
Plan (1987) of the Corporation, together with forms of Amendments Nos. 1 and 2 thereto (incorporated by reference
to Exhibit 10.11 to the 1990 Form 10-K.)2
10.8 Form of Amendment No. 3 to Share Purchase and Pledge Agreement(s) and related Promissory Note(s) entered into
pursuant to the Share Purchase Plan (1987) of the Corporation (incorporated by reference to Exhibit 10.13 to the
1991 Form 10-K).2
10.9 Amendment No. 1 to Share Purchase Agreement and Note dated as of March 25, 1992, between the Corporation and Bruce
M. Ford (incorporated by reference to the Exhibit 10.5 to the 1991 Form 10-K).2
10.10 Form of Indemnification Agreement dated as of February 3, 1992, between the Trust and each of Messrs. Ronald A.
Young, John D. Morrissey, Graeme W. Henderson, Sherwin L. Samuels and Jeffrey C. Lapin (incorporated by reference
to Exhibit 10.29 to the 1991 Form 10-K).2
10.11 Form of Indemnification Agreement dated as of February 3, 1992, between the Corporation and each of Messrs. Ronald
A. Young, Graeme W. Henderson, Bruce M. Ford, Earle M. Jones and William H. Ling (incorporated by reference to
Exhibit 10.30 to the 1991 Form 10-K).2
10.12 Executive Employment Agreement dated as of July 19, 1992, between the Trust and Jeffrey C. Lapin (incorporated by
reference to Exhibit 10.4 to the Trust's and the Corporation's Joint Current Report on Form 8-K dated September 25,
1992 (the "September 1992 Form 8-K")).2
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- - - ----------- ----------------------
<S> <C>
10.13 First Amendment to Executive Employment Agreement dated as of March 18, 1993, between the Trust and Jeffrey C.
Lapin.2
10.14 Amendment No. 2 to Executive Employment Agreement dated as of December 15, 1993, between the Trust and Jeffrey C.
Lapin.2
</TABLE>
38
<PAGE> 41
10.15 Executive Employment Agreement dated as of July 19, 1992, between
the Trust and Michael W. Mooney (incorporated by reference to
Exhibit 10.4 to the September 1992 Form 8-K).2
10.16 First Amendment to executive Employment Agreement dated as of
March 18, 1993, between the Trust and Michael W. Mooney.2
10.17 Amendment No. 2 to Executive Employment Agreement dated as of
December 15, 1993, between the Trust and Michael W. Mooney.2
10.18 Executive Employment Agreement dated as of July 19, 1992, between
the Corporation and Kevin E. Mallory (incorporated by reference to
Exhibit 10.5 to the September 1992 Form 8-K).2
10.19 First Amendment to executive Employment Agreement dated as of
March 18, 1993, between the Trust and Kevin E. Mallory.2
10.20 Amendment No. 2 to Executive Employment Agreement dated as of
December 15, 1993, between the Trust and Kevin E. Mallory.2
10.21 Termination Agreement dated as of December 29, 1992, among the
Trust, the Corporation and Ronald A. Young (incorporated by
reference to Exhibit 10.18 to the 1992 Form 10-K).2
10.22 Form of Amended and Restated Lease Agreement entered into as of
January 1, 1993, between the Trust as Lessor and the Corporation
(or a subsidiary) as Lessee (incorporated by reference to Exhibit
10.19 to the 1992 Form 10-K).
10.23 Credit Agreement dated as of January 28, 1993 ("Credit
Agreement"), among the Trust, on the one hand, and the Lenders and
Wells Fargo Bank, N.A. as Collateral Agent (the "Collateral
Agent") for the Lenders, on the other hand (incorporated by
reference to Exhibit 10.20 to the 1992 Form 10-K).
10.24 First Amendment to Credit Agreement dated as of February 28, 1994,
among the Trust, the Lenders and the Collateral Agent.
Exhibit No. Description of Exhibit
10.25 Letter Agreement dated February 5, 1993, among the Trust, the
Lenders and the Collateral Agent (incorporated by reference to
Exhibit 10.21 to the 1992 Form 10-K).
10.26 Letter agreement dated as of March 29, 1993, among the Trust, the
Lenders and the Collateral Agent (incorporated by reference to
Exhibit 10.1 to the March 1993 Form 10-Q).
39
<PAGE> 42
10.27 Form of Standard Provisions For Incorporation Into Various
Security Agreements Relating to the Restructuring of the
Obligations of Hotel Investors Trust dated as of January 28, 1993
(Exhibit H-1 to the Credit Agreement) (incorporated by reference
to Exhibit 10.22 to the 1992 Form 10-K).
10.28 Form of Security Agreement dated as of January 28, 1993, between
the Trust and the Collateral Agent (Exhibit H-2.1 to the Credit
Agreement) (incorporated by reference to Exhibit 10.23 to the 1992
Form 10-K).
10.29 First Amendment to Security Agreement dated as of February 28,
1994, between the Trust and the Collateral Agent.
10.30 Form of Security Agreement dated as of January 28, 1993, between
the Corporation and the Trust (Exhibit H-2.2 to the Credit
Agreement) (incorporated by reference to Exhibit 10.24 to the 1992
Form 10-K).
10.31 Form of Security Agreement (Intercompany Note) dated as of January
28, 1993, between a subsidiary of the Corporation and the
Corporation (Exhibit H-2.3 to the Credit Agreement) (incorporated
by reference to Exhibit 10.25 to the 1992 Form 10-K).
10.32 Form of Security Agreement (Subsidiary Guaranty) dated as of
January 28, 1993, between a subsidiary of the Corporation and the
Trust (Exhibit H-2.4 to the Credit Agreement) (incorporated by
reference to Exhibit 10.26 to the 1992 Form 10-K).
10.33 Form of Security Agreement (Intercompany Note) dated as of January
28, 1993, between a subsidiary of the Corporation and the Trust
(Exhibit H-2.5 to the Credit Agreement) (incorporated by reference
to Exhibit 10.27 to the 1992 Form 10-K).
10.34 Form of Collateral Assignment of Mortgage Notes dated as of
January 28, 1993, by the Trust in favor of the Collateral Agent
(Exhibit H-9 to the Credit Agreement) (incorporated by reference
to Exhibit 10.28 to the 1992 Form 10-K).
Exhibit No. Description of Exhibit
10.35 Form of Deed of Trust, Security Agreement and Fixture Filing dated
as of January 28, 1993, by the Trust in favor of Commonwealth Land
Title Company ("Commonwealth") for the benefit of the Collateral
Agent (Exhibit H-10.1 to the Credit Agreement) (incorporated by
reference to Exhibit 10.29 to the 1992 Form 10-K).
10.36 Form of Leasehold Deed of Trust Addendum to Deed of Trust Security
Agreement and Fixture Filing dated as of January 28, 1993, by the
Trust in favor of Commonwealth for the benefit of the Collateral
Agent (Exhibit H-
40
<PAGE> 43
11.1 to the Credit Agreement) (incorporated by reference to
Exhibit 10.30 to the 1992 Form 10-K).
10.37 Form of Absolute Assignment of Leases dated as of January 28,
1993, by the Trust in favor of the Collateral Agent (Exhibit H-16
to the Credit Agreement) (incorporated by reference to Exhibit
10.31 to the 1992 Form 10-K).
10.38 Form of Confirmation of Position Agreement dated as of January 28,
1993, among the Trust, the Corporation and, inter alia, the
Lenders (Exhibit M to the Credit Agreement) (incorporated by
reference to Exhibit 10.32 to the 1992 Form 10-K).
10.39 Form of Deposit Pledge Agreement between the Corporation and the
Trust (incorporated by reference to Exhibit 10.2 to the March 1992
Form 10-Q).
10.40 Form of Waiver and Release Agreement dated as of January 28, 1993,
among the Trust and the Lenders (Exhibit S to the Credit
Agreement) (incorporated by reference to Exhibit 10.34 to the 1992
Form 10-K).
10.41 Extension Agreement dated as of September 15, 1993, among the
Trust, the Lenders and the Collateral Agent (incorporated by
reference to Exhibit 10.1 to the Trust's and the Corporation's
Joint Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 (the "September 1993 Form 10-Q")).
10.42 Second Extension Agreement dated as of October 29, 1993, among the
Trust, the Lenders and the Collateral Agent (incorporated by
reference to Exhibit 10.2 to the September 1993 Form 10-Q).
10.43 Third Extension Agreement dated as of November 17, 1993, among the
Trust, the Lenders and the Collateral Agent.
10.44 Fourth Extension Agreement dated as of December 2, 1993, among the
Trust, the Lenders and the Collateral Agent.
Exhibit No. Description of Exhibit
10.45 Fifth Extension Agreement dated as of December 16, 1993, among the
Trust, the Lenders and the Collateral Agent.
10.46 Sixth Extension Agreement dated as of January 13, 1994, among the
Trust, the Lenders and the Collateral Agent.
10.47 Form of Mortgage, Security Agreement and Fixture Filing for
Intercompany Lease dated as of February 28, 1994, made by the
Corporation (or a subsidiary of the Corporation) in favor of the
Trust.
41
<PAGE> 44
10.48 Form of Absolute Assignment of Hotel Rents dated as of February
28, 1994, made by the Corporation (or a subsidiary of the
Corporation) in favor of the Trust.
21. Subsidiaries of the Corporation.
Hotel Investors of Arizona, Inc.
Hotel Investors of Nebraska, Inc.
Hotel Investors of Michigan, Inc.
Hotel Investors of Missouri, Inc.
Hotel Investors Corporation of Nevada
Hotel Investors of Virginia, Inc.
Columbus Operators, Inc.
Lyntex Properties, Inc.
Western Host, Inc.
23. Consent of Independent Auditors.
(b) Reports on Form 8-K.
None.
42
<PAGE> 45
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION
(Registrant) (Registrant)
By: /s/ MICHAEL W. MOONEY By: /s/ KEVIN E. MALLORY
------------------------ ------------------------------
Michael W. Mooney Kevin E. Mallory
Chief Financial Officer Executive Vice President
(Principal Executive Officer)
Dated: September 28, 1994
<PAGE> 46
HOTEL INVESTORS TRUST
HOTEL INVESTORS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
AS OF DECEMBER 31, 1993 AND 1992
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1993
<TABLE>
<S> <C> <C>
INDEPENDENT AUDITORS' REPORT ........................................................ F-1
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION:
Combined Balance Sheets .................................................... F-4
Combined Statements of Operations .......................................... F-5
Combined Statements of Cash Flows .......................................... F-6
Combined Statements of Shareholders' Equity ................................ F-7
HOTEL INVESTORS TRUST:
Balance Sheets ............................................................. F-8
Statements of Operations ................................................... F-9
Statements of Cash Flows ................................................... F-10
Statements of Shareholders' Equity ......................................... F-11
HOTEL INVESTORS CORPORATION:
Balance Sheets ............................................................. F-12
Statements of Operations ................................................... F-13
Statements of Cash Flows ................................................... F-14
Statements of Shareholders' Deficit ........................................ F-15
NOTES TO FINANCIAL STATEMENTS ....................................................... F-16
SCHEDULES:
Schedule IV - Indebtedness of and to Related Parties ....................... F-39
Schedule IX - Short-term Borrowings ........................................ F-41
Schedule X - Supplementary Statements of Operations Information ........... F-42
Schedule XI - Real Estate and Accumulated Depreciation ..................... F-43
Schedule XII- Mortgage Loans on Real Estate ................................ F-47
</TABLE>
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Boards of Trustees and Directors and Shareholders of
Hotel Investors Trust and Hotel Investors Corporation:
We have audited the accompanying separate and combined financial statements of
Hotel Investors Trust (a Maryland real estate investment trust) (the "Trust")
and Hotel Investors Corporation (a Maryland corporation) and its subsidiaries
(the "Corporation"), collectively the "Companies", as of December 31, 1993 and
1992, and for each of the three years in the period ended December 31, 1993,
listed in the foregoing index to financial statements and financial statement
schedules. Our audits also included the financial statement schedules listed
in the foregoing index to financial statements and financial statement
schedules. These financial statements and financial statement schedules are
the responsibility of the Companies' managements. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, such separate and combined financial statements present fairly,
in all material respects, the financial position of the Companies and the
financial position of the Trust and the Corporation as of December 31, 1993 and
1992, and their respective results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
The accompanying financial statements and financial statement schedules have
been prepared assuming the Companies will continue as going concerns. As
discussed in Note 2 to the financial statements, the Trust was in default at
December 31, 1992 on its obligations to repay indebtedness under the Trust Line
of Credit Agreement and Senior Notes Agreements. As discussed in Note 6 to the
financial statements, because of the substantial operating losses and cash flow
deficiencies experienced by the Corporation, which also had a deficiency in net
assets, the Corporation has been unable to repay amounts due to the Trust.
These conditions raise substantial doubt about the Trust's and the
Corporation's ability to continue as going concerns.
F-1
<PAGE> 48
Managements' plans concerning these matters are described in Notes 2 and 6 to
the financial statements. The financial statements and financial statement
schedules do not include any adjustments that might result from the outcome of
these uncertainties.
Los Angeles, California
March 25, 1994, except for Note 13,
as to which the date is September 28, 1994
F-2
<PAGE> 49
THIS PAGE INTENTIONALLY
LEFT BLANK
F-3
<PAGE> 50
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets -- net............................................. $ 167,249,000 $ 177,462,000
Mortgage notes receivable -- net................................ 11,642,000 10,010,000
Investment in joint venture hotel properties.................... 281,000 281,000
------------- -------------
Total real estate investments......................... 179,172,000 187,753,000
Cash and cash equivalents....................................... 5,652,000 10,517,000
Accounts receivable............................................. 4,360,000 4,464,000
Notes receivable -- net......................................... 1,717,000 1,772,000
Inventories, prepaid expenses and other assets.................. 4,451,000 6,439,000
------------- -------------
$ 195,352,000 $ 210,945,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit.............. $ 128,802,000 $ 128,223,000
Mortgage and other notes payable................................ 42,084,000 42,074,000
Accounts payable and other liabilities.......................... 11,140,000 20,297,000
------------- -------------
182,026,000 190,594,000
------------- -------------
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; authroized 30,000,000
shares; outstanding 12,132,948 shares......................... 1,213,000 1,213,000
Additional paid-in capital...................................... 210,497,000 210,673,000
Share purchase notes............................................ (291,000) (474,000)
Accumulated deficit............................................. (210,226,000) (203,194,000)
------------- -------------
13,326,000 20,351,000
------------- -------------
$ 195,352,000 $ 210,945,000
============= =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 51
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Hotel............................................ $ 86,903,000 $ 88,812,000 $ 85,156,000
Gaming........................................... 27,505,000 26,150,000 22,609,000
Interest from mortgage and other notes........... 1,412,000 1,348,000 1,761,000
Management fees and other notes.................. 475,000 1,186,000 1,376,000
Rents from leased hotel properties and income
from joint ventures............................ 839,000 947,000 936,000
Gain (loss) on sales of hotel assets............. 21,000 (787,000) 1,598,000
------------ ------------ ------------
117,155,000 117,656,000 113,436,000
------------ ------------ ------------
EXPENSES
Hotel operations................................. 68,132,000 68,620,000 65,963,000
Gaming operations................................ 24,055,000 23,699,000 21,948,000
Interest......................................... 15,187,000 14,208,000 16,458,000
Depreciation and amortization.................... 9,232,000 10,196,000 11,688,000
Administrative and operating..................... 5,212,000 6,365,000 6,086,000
Loan restructuring costs......................... 10,892,000 3,797,000
Provision for losses............................. 2,369,000 3,419,000 9,580,000
------------ ------------ ------------
124,187,000 137,399,000 135,520,000
------------ ------------ ------------
NET LOSS $ (7,032,000) $(19,743,000) $(22,084,000)
============ ============ ============
NET LOSS PER PAIRED SHARE $(0.58) $(1.63) $(1.82)
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 52
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $(7,032,000) $(19,743,000) $(22,084,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 9,232,000 10,196,000 11,688,000
Capitalized loan costs and deferred interest.... 6,275,000
(Gain) loss on sales of hotel assets............ (21,000) 787,000 (1,598,000)
Provision for investment losses................. 2,369,000 3,419,000 9,580,000
Changes in assets and liabilities:
Accounts receivable, inventories and prepaid
expenses..................................... 2,118,000 14,000 (1,131,000)
Accounts payable and other liabilities.......... (8,453,000) 10,017,000 (2,613,000)
----------- ------------ ------------
Net cash provided by (used in) operating
activities............................ 4,488,000 4,690,000 (6,158,000)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets......................... (6,577,000) (2,990,000) (4,551,000)
Net proceeds from sales of assets................. 6,130,000 488,000 15,200,000
Increase in notes receivable...................... (1,985,000)
Principal received on notes receivable............ 409,000 1,006,000 1,110,000
Other intangible assets........................... (47,000) (18,000) 244,000
Acquisition of minority interest/hotels........... (1,575,000) 156,000
----------- ------------ ------------
Net cash provided by (used in) investing
activities............................ (3,645,000) (1,514,000) 12,159,000
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes
payable......................................... (1,666,000) (1,146,000) (1,088,000)
Borrowings under mortgage and other notes......... 1,676,000 761,000
Principal payments on secured notes payable and
revolving line of credit........................ (5,695,000) (6,727,000)
Payments to minority shareholders................. (28,000) (111,000) (125,000)
Principal received on share purchase notes........ 5,000 2,000 40,000
----------- ------------ ------------
Net cash provided by (used in) financing
activities............................ (5,708,000) (1,255,000) (7,139,000)
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (4,865,000) 1,921,000 (1,138,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 10,517,000 8,596,000 9,734,000
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 5,652,000 $ 10,517,000 $ 8,596,000
=========== ============ ============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 53
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TRUST SHARES
OF CORPORATION ADDITIONAL SHARE TOTAL
BENEFICIAL COMMON PAID-IN PURCHASE ACCUMULATED SHAREHOLDERS'
INTEREST STOCK CAPITAL NOTES DEFICIT EQUITY
------------ ----------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1,
1991.............. $12,133,000 $1,213,000 $210,673,000 $(548,000) $(161,367,000) $ 62,104,000
Principal payments
and reductions
of share
purchase
notes.......... 63,000 63,000
Net loss.......... (22,084,000) (22,084,000)
------------ ----------- ------------ --------- ------------- ------------
Balance December 31,
1991.............. 12,133,000 1,213,000 210,673,000 (485,000) (183,451,000) 40,083,000
Principal payments
and reductions
of share
purchase
notes.......... 11,000 11,000
Net loss.......... (19,743,000) (19,743,000)
------------ ----------- ------------ --------- ------------- ------------
Balance December 31,
1992.............. 12,133,000 1,213,000 210,673,000 (474,000) (203,194,000) 20,351,000
Principal payments
and reductions
of share
purchase
notes.......... (176,000) 183,000 7,000
Net loss.......... (7,032,000) (7,032,000)
------------ ----------- ------------ --------- ------------- ------------
Balance December 31,
1993.............. 12,133,000 1,213,000 210,497,000 (291,000) (210,226,000) 13,326,000
=========== ========== ============ ========= ============= ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 54
HOTEL INVESTORS TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets -- net............................................. $ 129,918,000 $ 141,018,000
Mortgage notes receivable -- net................................ 11,642,000 10,010,000
Investment in joint venture hotel properties.................... 276,000 276,000
------------- -------------
Total real estate investments......................... 141,836,000 151,304,000
Cash and cash equivalents....................................... 918,000 2,615,000
Accounts receivable............................................. 1,011,000 1,492,000
Rent and interest receivable -- Corporation..................... 448,000
Notes receivable -- Corporation................................. 87,486,000 87,490,000
Notes receivable -- net......................................... 1,025,000 1,025,000
Prepaid expenses and other assets............................... 569,000 1,166,000
------------- -------------
$ 232,845,000 $ 245,540,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit.............. $ 128,802,000 $ 128,223,000
Mortgage and other notes payable................................ 27,724,000 29,318,000
Accounts payable and other liabilities.......................... 4,114,000 11,628,000
------------- -------------
160,640,000 169,169,000
------------- -------------
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...................................... 204,640,000 204,816,000
Share purchase notes............................................ (291,000) (190,000)
Accumulated deficit............................................. (144,277,000) (140,388,000)
------------- -------------
72,205,000 76,371,000
------------- -------------
$ 232,845,000 $ 245,540,000
============= =============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 55
HOTEL INVESTORS TRUST
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
REVENUE
Rents from Corporation............................. $16,481,000 $21,177,000 $ 22,093,000
Interest from Corporation.......................... 1,534,000 4,123,000 4,382,000
Interest form mortgage and other notes............. 1,288,000 1,101,000 1,440,000
Rents from other leased hotel properties and income
from joint ventures.............................. 839,000 947,000 936,000
Other income....................................... 253,000 227,000 309,000
Gain (loss) on sales of hotel assets............... (53,000) (791,000) 390,000
----------- ----------- ------------
20,342,000 26,784,000 29,550,000
----------- ----------- ------------
EXPENSES
Interest........................................... 14,020,000 12,959,000 15,859,000
Depreciation and amortization...................... 5,630,000 6,794,000 9,030,000
Administrative and operating....................... 2,212,000 2,538,000 2,949,000
Loan restructuring costs........................... 10,892,000 3,797,000
Provision for losses............................... 2,369,000 3,419,000 8,867,000
----------- ----------- ------------
24,231,000 36,602,000 40,502,000
----------- ----------- ------------
NET LOSS $(3,889,000) $(9,818,000) $(10,952,000)
=========== =========== ============
NET LOSS PER SHARE $(0.32) $(0.81) $(0.90)
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 56
HOTEL INVESTORS TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................... $(3,889,000) $(9,818,000) $(10,952,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................... 5,630,000 6,794,000 9,030,000
Capitalized loan costs and deferred interest..... 6,275,000
(Gain)/Loss on sales of hotel assets............. 53,000 791,000 (390,000)
Provision for losses............................. 2,369,000 3,419,000 8,867,000
Changes in operating assets and liabilities:
Rent and interest receivable -- Corporation...... (1,865,000) (8,238,000) (13,165,000)
Accounts receivable and prepaid expense.......... 1,037,000 115,000 (659,000)
Accounts payable and other liabilities........... (6,820,000) 9,710,000 (1,543,000)
----------- ----------- ------------
Net cash provided by (used in) operating
activities............................. 2,790,000 2,773,000 (8,812,000)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets.......................... (1,372,000) (1,700,000) (3,217,000)
Net proceeds from sales of assets.................. 5,360,000 189,000 13,596,000
Increase in mortgage notes receivable.............. (1,985,000)
Principal received on mortgage and other notes
receivable....................................... 353,000 957,000 1,064,000
Other intangible assets............................ (18,000) 244,000
Net changes in notes receivable -- Corporation..... 2,039,000 411,000 1,202,000
----------- ----------- ------------
Acquisition of minority interest................... (1,575,000)
----------- ----------- ------------
Net cash provided by (used in) investing
activities............................. 2,820,000 (161,000) 12,889,000
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes
payable.......................................... (1,594,000) (754,000) (708,000)
Principal payments on secured notes payable and
revolving line of credit......................... (5,695,000) (6,727,000)
Payments to minority shareholders.................. (18,000) (97,000) (112,000)
Principal received on share purchase notes......... 1,000 40,000
----------- ----------- ------------
Net cash provided by (used in) financing
activities............................. (7,307,000) (850,000) (7,507,000)
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (1,697,000) 1,762,000 (3,430,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 2,615,000 853,000 4,283,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ 918,000 $ 2,615,000 $ 853,000
=========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 57
HOTEL INVESTORS TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL SHARE TOTAL
BENEFICIAL PAID-IN PURCHASE ACCUMULATED SHAREHOLDERS'
INTEREST CAPITAL NOTES DEFICIT EQUITY
----------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1991.......... $12,133,000 $204,816,000 $(244,000) $(119,618,000) $ 97,087,000
Principal payments and
reductions of share purchase
notes....................... 53,000 53,000
Net loss....................... (10,952,000) (10,952,000)
----------- ------------ --------- ------------- -------------
Balance January 31, 1991......... 12,133,000 204,816,000 (191,000) (130,570,000) 86,188,000
Principal payments and
reductions of share purchase
notes....................... 1,000 1,000
Net loss....................... (9,818,000) (9,818,000
----------- ------------ --------- ------------- -------------
Balance December 31, 1992........ 12,133,000 204,816,000 (190,000) (140,388,000) 76,371,000
Principal payments, reductions
and transfer of share
purchase notes from the
Corporation -- net.......... (176,000) (101,000) (277,000)
Net loss....................... (3,889,000) (3,889,000)
----------- ------------ --------- ------------- -------------
Balance December 31, 1993........ $12,133,000 $204,640,000 $(291,000) $(144,277,000) $ 72,205,000
=========== ============ ========= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 58
HOTEL INVESTORS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets -- net........................................... $ 37,331,000 $ 36,444,000
Investment in joint venture hotel properties.................... 5,000 5,000
------------ ------------
Total real estate investments......................... 37,336,000 36,449,000
Cash and cash equivalents....................................... 4,734,000 7,902,000
Accounts receivable............................................. 3,349,000 2,972,000
Notes receivable................................................ 692,000 1,015,000
Inventories, prepaid expenses and other assets.................. 3,882,000 5,273,000
------------ ------------
$ 49,993,000 $ 53,611,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable................................ $ 14,360,000 $ 12,756,000
Notes payable -- Trust.......................................... 87,486,000 87,490,000
Rent and interest payable -- Trust.............................. 448,000
Accounts payable and other liabilities.......................... 7,026,000 8,669,000
------------ ------------
108,872,000 109,363,000
------------ ------------
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
Share purchase notes............................................ (16,000)
Accumulated deficit............................................. (65,949,000) (62,806,000)
------------ ------------
(58,879,000) (55,752,000)
------------ ------------
$ 49,993,000 $ 53,611,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE> 59
HOTEL INVESTORS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Hotel............................................ $ 86,903,000 $ 88,812,000 $ 85,156,000
Gaming........................................... 27,505,000 26,150,000 22,609,000
Interest from notes receivable................... 124,000 247,000 321,000
Management fees and other income................. 222,000 959,000 1,067,000
Gain (loss) on sales of hotel assets............. 74,000 4,000 1,208,000
------------ ------------ ------------
114,828,000 116,172,000 110,361,000
------------ ------------ ------------
EXPENSES
Hotel operations................................. 68,132,000 68,620,000 65,963,000
Gaming operations................................ 24,055,000 23,699,000 21,948,000
Rent -- Trust.................................... 16,481,000 21,177,000 22,093,000
Interest -- Trust................................ 1,534,000 4,123,000 4,382,000
Interest -- other................................ 1,167,000 1,249,000 599,000
Depreciation and amortization.................... 3,602,000 3,402,000 2,658,000
Administrative and operating..................... 3,000,000 3,827,000 3,137,000
Provision for losses............................. 713,000
------------ ------------ ------------
117,971,000 126,097,000 121,493,000
------------ ------------ ------------
NET LOSS $ (3,143,000) $ (9,925,000) $(11,132,000)
============ ============ ============
NET LOSS PER SHARE $(0.26) $(0.82) $(0.92)
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE> 60
HOTELS INVESTORS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................... $(3,143,000) $(9,925,000) $(11,132,000)
Adjustments to reconcile net loss to net cash provided
by
(used in) operating activities:
Depreciation and amortization........................ 3,602,000 3,402,000 2,658,000
Gain on sales of hotel assets........................ (74,000) (4,000) (1,208,000)
Provision for losses................................. 713,000
Changes in operating assets and liabilities:
Accounts receivable, inventories and prepaid
expenses.......................................... 1,081,000 (101,000) (472,000)
Rent and interest payable -- Trust................... 1,865,000 8,238,000 13,165,000
----------- ----------- ------------
Accounts payable and other liabilities............... (1,633,000) 307,000 (1,070,000)
----------- ----------- ------------
Net cash provided by (used in) operating
activities...................................... 1,698,000 1,917,000 2,654,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets.............................. (5,205,000) (1,290,000) (1,334,000)
Net proceeds from sales of hotel assets................ 770,000 299,000 1,604,000
Increase in other assets............................... (47,000)
Principal received on notes receivable................. 56,000 49,000 46,000
Other intangible assets................................
Acquisition of hotels -- net of cash................... 156,000
----------- ----------- ------------
Net cash provided by (used in) investing
activities........................................ (4,426,000) (942,000) 472,000
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable -- Trust................... (2,039,000) (411,000) (1,202,000)
----------- ----------- ------------
Principal payments on mortgage and other notes
payable.............................................. (72,000) (392,000) (380,000)
Borrowings under mortgage and other notes.............. 1,676,000 761,000
Payments to minority shareholders...................... (10,000) (14,000) (13,000)
Principal received on share purchase notes............. 5,000 1,000
----------- ----------- ------------
Net cash provided by (used in) financing
activities........................................ (440,000) (816,000) (834,000)
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (3,168,000) 159,000 2,292,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR.............................................. 7,902,000 7,743,000 5,451,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR.............................................. $ 4,734,000 $ 7,902,000 $ 7,743,000
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 61
HOTEL INVESTORS CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL SHARE TOTAL
COMMON PAID-IN PURCHASE ACCUMULATED SHAREHOLDERS'
STOCK CAPITAL NOTES DEFICIT DEFICIT
----------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1991....... $1,213,000 $5,857,000 $(17,000) $(41,749,000) $(34,696,000)
Net loss.................... (11,132,000) (11,132,000)
---------- ---------- -------- ------------ ------------
Balance December 31, 1991..... 1,213,000 5,857,000 (17,000) (52,881,000) (45,828,000)
Principal payments and
reductions of share
purchase notes........... 1,000 1,000
Net loss.................... (9,925,000) (9,925,000)
---------- ---------- ------- ------------ ------------
Balance December 31, 1992..... 1,213,000 5,857,000 (16,000) (62,806,000) (55,752,000)
Principal payments,
reductions and transfer
of share purchase notes
to the Trust............. 16,000 16,000
Net loss.................... (3,143,000) (3,143,000)
---------- ---------- ------- ------------ ------------
Balance December 31, 1993..... $1,213,000 $5,857,000 $(65,949,000) $(58,879,000)
========== ========== ======= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 62
HOTEL INVESTORS TRUST
AND HOTEL INVESTORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies.
General
The accompanying financial statements include the accounts of Hotel
Investors Trust (the "Trust") and Hotel Investors Corporation and its
subsidiaries (the "Corporation"). The Trust was formed as a real estate
investment trust under the Internal Revenue Code ("REIT") in 1969. In 1980,
the Trust formed the Corporation and made a distribution to the Trust's
shareholders of one share of common stock of the Corporation for each share of
beneficial interest of the Trust. The shares of the Trust and the shares of
the Corporation are paired on a one-for-one basis, and can only be transferred
in units ("Paired Shares") consisting of the same number of shares of the Trust
and of the Corporation.
The combined financial statements include the accounts of the Trust
and the Corporation (the "Companies"). All material intercompany balances and
transactions have been eliminated in the combined and separate consolidated
financial statements.
The Companies own and operate hotels located throughout the United
States and two hotel/casinos in Las Vegas. The hotels range in size from 90 to
445 rooms and offer services to both business and transient travelers.
Basis of presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As discussed in
Note 2 the Trust was in default at December 31, 1992 on its obligations to
repay indebtedness under the Trust Line of Credit Agreement and Senior Notes
Agreements. Effective January 28, 1993, the Trust entered into a Credit
Agreement with its lenders to restructure such indebtedness. The agreement,
among other things, required the Trust to acquire all of the assets of the
Trust's subsidiary and to comply with specific financial covenants, operating
restrictions and reporting requirements. 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. As discussed in Note 6 to the financial statements,
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
Companies' ability to continue as going concerns.
Management's plans regarding the ability to continue as a going
concern as are discussed in Notes 2 and 6 (see also Note 13 for Subsequent
Events). Management believes that these plans will permit the Companies to
generate sufficient cash flow to support their operations through December 31,
1994.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Companies be
unable to continue as going concerns. The Companies' continuation as going
concerns is dependent upon their ability to comply with the requirements of the
Credit Agreement and to generate sufficient cash flow to meet their obligations
on a timely basis.
F-16
<PAGE> 63
Hotel assets
Hotel assets are stated at cost and are depreciated using
straight-line and declining-balance methods over estimated useful lives of five
to forty years for buildings and improvements and three to twelve years for
furniture, fixtures and equipment. Amounts allocated to leasehold interests
are amortized using the straight-line method over lease terms of ten to forty
years.
In connection with the debt restructuring (See Note 2), the Companies
intend to sell hotels at sale prices which the managements of the Companies
believe reflect the fair value of the hotels. When it is the opinion of
management that the fair value of a hotel which 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 discounted cash flow of the properties at
rates deemed reasonable for the type of property and prevailing market
conditions, appraisals and, if appropriate, current estimated net sales
proceeds. A gain or loss is recorded to the extent the amounts ultimately
received differ from the adjusted book values of the hotel assets. Gains on
sales of hotel assets are recognized at the time the hotel assets are sold,
provided there is reasonable assurance of the collectability of the sales
price, and any future activities to be performed by the Companies relating to
the hotel assets sold are insignificant. Losses on sales of hotel assets are
recognized at the time the hotel assets are sold.
A summary of hotel assets at December 31, 1993 and 1992 is as follows
(in thousands):
<TABLE>
<CAPTION>
Trust Corporation
----- -----------
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Land and leasehold
interests in land........... $ 47,204 $ 46,218 $ 15,378 $ 15,378
Buildings and
improvements............... 148,460 166,537 22,545 19,220
Furniture, fixtures and
equipment................... 28,506 30,685 16,867 17,150
Accumulated depreciation
and amortization............ (51,487) (49,483) (14,828) (12,673)
Reserve for (42,765) (52,939) (2,631) (2,631)
-------- -------- -------- --------
losses............
Hotel assets - net...... $129,918 $141,018 $ 37,331 $ 36,444
======== ======== ======== ========
</TABLE>
Mortgage notes receivable
When events become known that indicate that the collectibility of a
specific loan is uncertain, interest income is no longer accrued and an
allowance for loss is established based upon an analysis of the net realizable
value of the underlying property collateralizing the loan.
Statements of cash flows
Cash and cash equivalents are defined as cash on hand and in banks
plus all short-term investments with a maturity, at the date of purchase, of
three months or less.
Interest paid in cash by the Trust in the years ended December 31,
1993, 1992, and 1991 was $13,205,000, $12,992,000 and $17,653,000,
respectively.
Interest paid in cash by the Corporation in the years ended December
31, 1993, 1992, and 1991 was
F-17
<PAGE> 64
$140,000, $1,536,000 and $1,295,000, respectively.
In July, 1991, the Corporation, as a general partner of a limited
partnership, became the majority owner of the Milwaukee Marriott Hotel (See
Note 5). In conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired $23,872,000
Cash paid for partnership interest (51,000)
-----------
Liabilities assumed $23,821,000
===========
In December 1993, the Corporation transferred $278,000 of Share Purchase loans
and reduced Notes Payable - Trust.
Inventories
Inventories are stated at the lower of cost or market with cost
determined on a first-in, first-out basis.
Gaming revenue
Gaming revenue relates to the two hotel/casinos and includes the net
wins from gaming activities, as well as room, food, beverage and other
revenues, net of promotional allowances.
Income taxes
The Trust and the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective
January 1, 1993. This Statement supersedes SFAS No. 96, "Accounting for Income
Taxes", which the Trust and the Corporation did not adopt and also supersedes
Accounting Principles Board Opinion No. 11 which the Trust and the Corporation
had previously applied. The effects of adopting SFAS No. 109 and related
disclosures are described below. The adoption of SFAS No. 109 did not have a
material effect on the financial statements of the Trust or the Corporation.
Trust:
No provision for federal income taxes has been made for the Trust
since, in the opinion of management, the Trust qualifies as a REIT under
sections 856 through 860 of the Internal Revenue Code (see Note 13).
Temporary differences in significant assets and liabilities for
financial and tax reporting purposes, include valuation allowances, loan
restructuring costs and depreciation. The tax basis of the Trust's hotel
assets as of December 31, 1993 was $145,943,000. As of December 31, 1993, the
Trust had a net operating loss carryforward for federal income tax purposes of
approximately $26,650,000 which expires in various years beginning in 2006.
Corporation:
Components of accumulated deferred income taxes as of December 31, 1993 are as
follows:
Deferred tax assets:
Operating loss carryforwards $ 19,740,000
Losses from investments in partnerships 1,659,000
Property, equipment and other 1,224,000
Tax credit carryforwards 162,000
------------
22,785,000
Valuation allowance (22,785,000)
------------
Net deferred tax $ 0
============
F-18
<PAGE> 65
A valuation allowance is recorded if based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
As of December 31, 1993, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $56,400,000
which expire in various years beginning in 1997. The Corporation also has tax
credit carryforwards of approximately $162,000 as of December 31, 1993, which
expire in various years beginning in 1996.
Loan restructuring costs
Management of the Trust has concluded that the debt restructuring
discussed in Note 2 represented a "troubled debt restructuring" as defined
under generally accepted accounting principles, and accordingly, all
restructuring costs have been expensed as incurred. The Trust expensed loan
restructuring costs of $10,892,000 and $3,797,000 in the years ended December
31, 1992 and 1991, respectively. As a result of the execution of the
definitive agreement for debt restructuring in January, 1993, the Trust accrued
as of December 31, 1992, $8,713,000 for known future identifiable costs
connected with the restructuring. In February and March 1993, upon execution
of the definitive debt restructuring agreement, $700,000 was paid by the Trust
to the Institutional Lenders and $4,032,000 was added to the loan balance under
the terms of the Credit Agreement for restructuring costs due the Institutional
Lenders for legal and other experts, which was accrued as of December 31, 1992.
In addition, previously accrued restructuring costs of $2,662,000 were paid
during the year ended December 31, 1993.
Net loss per share
Net loss per share is based on the weighted average number of common
and common equivalent shares outstanding during the year which is on a Paired
Share basis for purposes of the combined financial statements. Outstanding
options and warrants are included as common equivalent shares using the
treasury stock method when the effect is dilutive. The weighted average number
of shares and Paired Shares used in determining net loss per share and per
Paired Share was 12,132,948 for the years ended December 31, 1993, 1992 and
1991.
Fair value of financial instruments
The following disclosure of estimated fair value was determined by
available market information and appropriate valuation methodologies. However,
considerable judgement is necessary to interpret market data and develop the
related estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized upon
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and cash equivalents, accounts receivable and accounts payable
and other liabilities are carried at amounts which reasonably approximate their
fair value.
The carrying value of fixed rate mortgage notes receivable approximate
their fair value as their interest rates approximate rates available for
similar transactions at December 31, 1993.
The carrying value of the secured notes payable and revolving line of
credit approximate fair value as the related interest rates are variable.
Fixed rate notes payable with carrying values of $27,724,000 and
$14,360,000 for the Trust and Corporation at December 31, 1993 have a fair
value of $28,507,000 and $13,110,000 as estimated based on debt with similar
terms and maturities.
F-19
<PAGE> 66
Reclassifications
Certain reclassifications have been made to the 1992 and 1991
financial statements to conform with the 1993 financial statement presentation.
2. Senior Notes Payable and Revolving Line of Credit and Debt
Restructuring.
As of March 31, 1991, the Trust was in default under the Trust Line of
Credit and the Senior Note Agreements due to the Trust's failure to comply with
certain financial covenants and to collect certain rents from the Corporation.
As a result of such defaults, upon the April 30, 1991 expiration of the
revolving line of credit provided by the Trust Line of Credit, the five-year
secured term loan originally contemplated by the Trust Line of Credit was not
made available to the Trust, and the entire amount of borrowings then
outstanding under the Trust Line of Credit were deemed due and payable. On May
6, 1991, the Insurance Companies notified the Trust that as a result of the
above-described defaults, all amounts due under the Senior Notes also were
immediately due and payable. In response to the foregoing events, the Trust
announced that it did not have sufficient funds to repay the approximately
$135,000,000 then outstanding under the Trust Line of Credit and the Senior
Notes and that as of April 30, 1991, the Trust was suspending the payment of
interest on such borrowings and certain related fees pending an agreement with
the Institutional Lenders for a debt restructuring.
Debt Restructuring - Effective January 28, 1993, the Trust executed a
definitive credit agreement (as subsequently amended, the "Credit Agreement")
that restructured the Trust's then outstanding borrowings from two banks (the
"Banks") and three insurance companies (together with the Banks, the
"Institutional Lenders") as a $12,500,000 revolving line of credit with one of
the Banks (the "Revolving Line of Credit") and a $115,723,000 term loan (the
"Term Loan", and together with the Revolving Line of Credit, the "Restructured
Debt").
The terms of the Credit Agreement require that the debt restructuring
take place in several phases. At the first closing (the "First Closing"),
effective January 28, 1993, the maturity date of the Restructured Debt was
extended until March 29, 1993, and the Institutional Lenders were granted or
assigned for security direct and indirect liens on and security interests in
substantially all of the assets of the Trust and the Corporation (other than
the assets held by United States Equity & Mortgage Trust, the Trust's 95%-owned
subsidiary ("U.S. Equity")). In addition, the Institutional Lenders, on the
one hand, and the Trust and the Corporation, on the other, released all of
their claims against the other parties arising during the debt restructuring
process.
At the First Closing, the Trust and the Corporation entered into a
warrant agreement (as amended, the "Warrant Agreement") that originally
provided that the Trust and the Corporation (or, if the merger of the Trust and
the Corporation described below (the "Merger") occurs, the surviving company)
would issue to the Senior Lenders at the Third Closing (as defined below)
10-year warrants (the "Warrants") to purchase that number of shares equal to
9.9% (or if the Merger has occurred; 15%) of the Paired Shares then outstanding
at an exercise price of $.625 cents per share, which price was subject to
adjustment under certain circumstances.
The second closing under the Credit Agreement (the "Second Closing")
was held on March 29, 1993 at which time the Trust acquired all of the assets
of U.S. Equity for $1,575,000 eliminating the minority interest of $676,000 and
increasing hotel assets by $899,000. At the Second Closing, the maturity date
of the Restructured Debt was extended until September 15, 1993, and the
Institutional Lenders were granted liens on and security interests in the five
hotels and substantially all of the other assets formerly owned by U.S. Equity
and acquired by the Trust.
Pursuant to a series of six extension agreements, the maturity date of
the Restructured Debt was extended from September 15, 1993 to February 28,
1994.
At an interim closing held on February 28, 1994 (the "Interim
Closing"), the Credit Agreement was amended to, among other things, eliminate
the Trust's ability to issue the deferred interest notes described below, to
allow the Trust to apply all of the net proceeds from asset sales and of
insurance or condemnation proceeds received by the Trust in 1994 in excess of
$5 million, as described below, to the next principal payment or payments due
on the Restructured Debt, and to
F-20
<PAGE> 67
require the Trust to pay in cash certain costs incurred by the Lenders in
connection with the Restructured Debt. In addition, the Lenders were
collaterally assigned security interests in and liens on substantially all of
the Intercompany Leases and the monies received by the Corporation in
connection with the operation of those hotels, and the maturity date of the
Restructured Debt was extended until June 2, 1994. At the Interim Closing, the
Warrant Agreement was amended to provide for the immediate issuance to the
Lenders of Warrants for an aggregate of 1,333,143 Paired Shares at the exercise
price originally provided for in the Warrant Agreement.
Assuming that the Trust does not fail to pay any monies owed to the
Institutional Lenders under the Credit Agreement and the Restructured Debt has
not otherwise been accelerated, the Warrants are subject to cancellation as
follows: (1) if on or before August 31, 1994, the Trust's cumulative principal
payments under the Term Loan equal or exceed $13,000,000, one-third of the
warrants will be canceled; (2) if as of August 31, 1996, the Trust's cumulative
principal payments under the Term Loan equal or exceed $40,000,000, an
additional one-third of the Warrants will be canceled; and (3) if on or before
April 30, 1998, all amounts outstanding under the Credit Agreement have been
repaid and the Trust pays a fee of $1,300,000 to the Institutional Lenders, the
remaining one-third of the Warrants will be canceled.
The third closing under the Credit Agreement (the "Third Closing") is
currently scheduled to be held on or prior to June 2, 1994. At the Third
Closing, the final maturity date of the Restructured Debt will be extended
until April 30, 1998.
The Credit Agreement requires in connection with the Third Closing
that the Trust and the Corporation seek the approval of their respective
shareholders to merge. If the Merger is accomplished, the surviving entity
will not qualify under Federal income tax laws as a REIT.
A $1,000,000 principal payment was made on the Term Loan on August 31,
1993. If the Third Closing occurs, minimum cumulative principal payments under
the Credit Agreement for principal owed as of December 31, 1993 will be due as
follows:
DATE Cumulative Principal Payments
---- -----------------------------
August 31, 1994 $ 10,000,000
August 31, 1995 19,000,000
August 31, 1996 27,000,000
August 31, 1997 52,000,000
April 30, 1998 128,802,000
On April 30, 1998, all amounts then outstanding under the Credit Agreement are
due, including the remaining principal amount of the Term Loan and the then
outstanding borrowings under the Revolving Line of Credit, as well as any
deferred interest and capitalized expenses as described below.
The Trust has the option to prepay all or part of the Credit Agreement
indebtedness without penalty at any time. Net cash proceeds from the sale of
hotel assets are required to be applied to prepay the Restructured Debt. Up to
the first $5,000,000 of such proceeds may be applied to pay amounts outstanding
under the Revolving Line of Credit ($9,425,000 was outstanding at December 31,
1993) any other proceeds must be applied to prepay the Term Loan. Except as
otherwise described above with respect to 1994, to the extent that the
cumulative net cash proceeds applied against the Term Loan in any payment
period exceed the next principal payment due by more that $5,000,000, the
amount in excess of $5,000,000 must be applied one-half to the next principal
payment(s) then due under the Term Loan in direct order of maturity and
one-half to the principal payment due on April 30, 1998.
Interest on the principal amounts outstanding under the Credit
Agreement notes was originally at a stated rate of prime plus 2%. However,
because the Merger had not occurred on or prior to the 300th day after the
First Closing, the stated interest rate was increased to prime plus 3% from
November 24, 1993 until the Merger takes place. If the Merger
F-21
<PAGE> 68
takes place, principal amounts outstanding under the Credit Agreement notes
will bear interest at the original stated rate of prime plus 2%. The Trust has
the option to pay interest at a lesser rate, if applicable, of 7.5% per annum
through August 31, 1994, 8.0% per annum from September 1, 1994 through August
31, 1997, and 9.0% per annum from September 1, 1997 through April 30, 1998,
with the difference between the interest accrued and the interest paid being
added monthly to the principal amount of the Restructured Debt.
The Credit Agreement originally provided that the Trust under certain
circumstances could defer for up to one year, the payment of up to $2,000,000
of interest payable on the Restructured Debt with respect to the period ending
on the date of the Third Closing by issuing deferred interest notes to the
Institutional Lenders. During February and March of 1993, an aggregate of
$1,623,000 in interest was so deferred. In connection with the Interim
Closing, the deferred interest notes were paid and further deferrals are no
longer available.
The Credit Agreement requires the Companies to maintain a specified
minimum adjusted net worth and a specified minimum ratio of cash to cash
interest plus capital expenditures, as defined. At December 31, 1993 the Trust
was in compliance with these covenants. In addition, 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 imposing 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.
The Trust is required by the Credit Agreement to pay costs incurred by
the Institutional Lenders in connection with the debt restructuring during the
term of the Credit Agreement. To the extent that annual costs exceed $250,000,
the Trust may elect to add the excess to the principal balance of the Term
Loan. In connection with the Interim Closing, the Trust paid in cash the
$250,000 which would have otherwise been payable in respect of 1994 and agreed
to pay in cash an additional $250,000 of such costs in June 1994.
In order to meet the payment terms of the Credit Agreement, the Trust
and the Corporation are seeking to sell hotel assets. In the event that the
Trust or the Corporation cannot meet the requirements of the Credit Agreement
and any of the Institutional Lenders elect to exercise certain remedies, the
Trust and the Corporation may be required to file for reorganization under the
Federal Bankruptcy Statute.
3. Hotel Sales and Reserve for Losses.
In 1991 the Trust and Corporation recorded provisions for investment
losses of $7,876,000 and $713,000, respectively. The 1991 provisions primarily
resulted from the continuing deterioration of the market for small to medium
size hotel/casino properties in Las Vegas, overbuilding in the hotel market,
difficulty in obtaining third party financing and the impact of the economic
recession.
During the year ended December 31, 1991, the Companies sold their
interests in three hotel assets, the Ramada Inn in Indian Wells, California,
the Days Inn in Brunswick, Georgia, and the Days Inn in Albany, Georgia, and
terminated a ground and building lease for the Ramada Inn in St. Charles,
Missouri. The Indian Wells property was sold for $14,800,000 in cash. The
Brunswick property was sold for $1,200,000 consisting of $227,000 in net cash
proceeds and a $900,000 promissory note secured by the hotel. The Albany
property was sold for $1,200,000, consisting of $86,000 in net cash proceeds
and a $1,050,000 promissory note secured by the hotel. The Albany promissory
note bears interest at 10% per annum payable monthly with unpaid principal and
interest due in 1996; the Brunswick note had identical terms but was paid in
full in 1992.
During 1991, as a result of the three property sales, the Trust and
Corporation recognized net gains of approximately $390,000 and $1,208,000,
respectively.
F-22
<PAGE> 69
During the year ended December 31, 1992, the Companies sold their
interests in three hotel assets, the Days Inn Texas Stadium, Irving, Texas, the
Best Western Merrimack Inn, Merrimack, New Hampshire and the Days Inn,
Spartanburg, South Carolina. The Irving property was sold in March 1992 for
$1,950,000 consisting of $172,000 in net cash proceeds and a $1,650,000
promissory note secured by the hotel. The Merrimack property was sold for
$1,800,000 consisting of $259,000 in net cash proceeds and a $1,440,000
promissory note secured by the hotel. The Spartanburg property was sold for
$875,000 consisting of $57,000 in net cash proceeds and a $775,000 promissory
note secured by the hotel. The Irving note bears interest at 9% per annum with
accrued interest and principal due monthly based on a 30-year amortization
schedule, with all unpaid principal and interest due in March, 1997. The
Merrimack note bears interest at 9% per annum with accrued interest and
principal due monthly based on a 30-year amortization schedule, with all unpaid
principal and interest due in July, 1997. The Spartanburg note bears interest
at 9% per annum with interest and principal due monthly based on a 30-year
amortization schedule, with all unpaid principal and interest due in September,
1998.
During 1992, the Trust recognized a loss of $791,000 and the
Corporation a gain of $4,000 on sales of hotel assets, including a $91,000
discount recorded by the Trust resulting from the early payoff in 1992 of the
mortgage note receivable relating to the Brunswick, Georgia property sold in
1991. In 1992, the Trust recorded a provision for investment losses of
$3,196,000 which reflected the deterioration of hotel values located in the
Southeast, and the acceptance of offers for the sale of hotels at amounts lower
than net book value.
During the year ended December 31, 1993, the Companies sold their
interests in four hotel assets, the Best Western located in Smyrna, Georgia,
the Vantage Hotel located in Tucker, Georgia, the Best Western Motor Hotel in
Santa Maria, California, and the Ramada Inn-Westport in St. Louis, Missouri.
The Smyrna property was sold for an all cash price of $1,600,000. The Tucker
property was sold for $2,485,000 consisting of approximately $500,000 in cash
and a $1,985,000 promissory note secured by the hotel. The Tucker note bears
interest at 9% per annum with accrued interest and principal due monthly based
upon a 25-year amortization schedule, with all unpaid principal and interest
due in June 1998. The Santa Maria property was sold for an all cash price of
$140,000. The St. Louis property was sold for an all cash price of $2,500,000.
For the year ended December 31, 1993, the Trust recognized a loss of
$53,000 and the Corporation a gain of $74,000 on sales of hotel assets. In
1993, the Trust recorded a provision for investment losses of $2,369,000
primarily as a result of the acceptance of offers for the sale of hotels at
amounts lower than net book value.
4. Mortgage Notes Receivable.
Jefferson City Ramada Inn
In August 1987, the Trust sold the Ramada Inn in Jefferson City,
Missouri, to JCR, Inc. ("JCR"). In connection with such sale, JCR executed and
delivered to the Trust a promissory note (the "JCR Note") in the original
principal amount of $4,500,000, secured by a first mortgage on the property.
The outstanding principal balance of the JCR Note was due September 1992, and
bore interest at 11% per annum.
After JCR failed to make the principal and interest payments due on
the JCR Note in January and February 1991, the Trust sent to JCR a notice of
default and accelerated the indebtedness evidenced by the JCR Note. In
December 1991, the Trust and JCR agreed to a restructuring pursuant to which
the Jefferson City Ramada Inn was sold by JCR to Jefftel, Inc., a Missouri
corporation ("Jefftel") and an associate of JCR; the Trust received from
Jefftel a cash payment in the amount of $1,000,000; and Jefftel assumed JCR's
indebtedness to the Trust in respect of the hotel. Although repayment of such
debt continues to be secured by the hotel, the outstanding principal amount of
such indebtedness was reduced to $1,800,000, with the $1,654,000 difference
being charged against the reserve for investment losses. The JCR note bears
interest at an annual rate of 11% with principal and interest payable monthly
based on a 30-year amortization schedule, with unpaid principal and interest
due in December, 1996.
F-23
<PAGE> 70
Columbus Best Western North
In January 1992, in settlement of various disputes between the Trust,
the Corporation as the general partner of Columbus Hotel Limited Partnership
and its limited partners, and in lieu of foreclosure by the Trust on a
$6,127,000 mortgage ownership of the Columbus Best Western North was
transferred to the Trust. The fair value of the hotel assets received by the
Trust upon cancellation of its note approximated the net carrying value of the
mortgage note receivable at December 31, 1991.
Other
At December 31, 1993, in addition to the MHLP notes discussed in Note
5, the Trust held nine promissory notes secured by mortgages including the JCR
note described above. Eight notes ($11,405,000 in aggregate principal amount
at December 31, 1993), representing nine hotels, are secured by first
mortgages, and one note ($238,000 in aggregate principal amount at December 31,
1993), is secured by a second mortgage. At December 31, 1991, the Trust held a
$223,000 note secured by a second mortgage on a shopping center which was
foreclosed upon by the first mortgage holder during the year ended December 31,
1992, resulting in the cancellation of the Trust's second mortgage and the
recording of a provision for investment losses. The notes have fixed interest
rates ranging from 8.75% to 12% per annum, and two of the notes (representing
three properties) provide for contingent interest based on a percentage of
gross revenues of the properties securing such notes. The maturity dates of
the notes range from 1994 to 2017. Aggregate principal payments under the
mortgage notes receivable due within one year of December 31, 1993 are
$1,655,000. As of December 31, 1993 and 1992, the reserve for investment
losses for the mortgage notes receivable amounted to $140,000.
5. Milwaukee Marriott Hotel.
In December 1985, the Trust sold its interest in the Milwaukee
Marriott Hotel to Milwaukee Brookfield Limited Partnership ("Brookfield"). In
connection with the sale, the Trust received a second mortgage note (the
"Second Mortgage") from Brookfield in the original principal amount of
$13,200,000 with interest payable at 12.37% per annum through December 1990,
and interest thereafter payable at 10.5% per annum, plus additional interest
equal to 3% of gross revenues of the Milwaukee Marriott, as defined. The
Second Mortgage was due and payable in full in December 1995. At the time the
Second Mortgage was received, it was discounted to reflect an effective yield
of 13% per annum; as a result, the original carrying amount of the Second
Mortgage was $11,991,000.
In July 1991, ownership and operation of the Milwaukee Marriott was
reorganized and ownership of the hotel was transferred from Brookfield to
Moorland Hotel Limited Partnership, ("MHLP"), a limited partnership in which
the Corporation has a 51% interest and is the sole general partner and
Brookfield is the sole limited partner. In connection with the reorganization,
the outstanding principal amount of the second mortgage note to the Trust was
reduced to $11,000,000, with the $991,000 difference on the Trust's books being
charged to the provision for investment losses. The second mortgage note had a
principal amount of $11,000,000, and was due in full in 1996. Interest on such
principal accrued at an annual rate of 10.5% and was payable monthly, but only
from the cash flow of the hotel remaining after payment of amounts due to the
holder of the first mortgage on the hotel, the Corporation's management fee and
all other expenses of the property. Interest deferred was added to the
previous month's principal balance of the promissory note. The operations of
MHLP are consolidated into the Corporation's financial statements from the date
of reorganization and, accordingly, the Trust has recorded the note receivable
from MHLP as a note receivable from the Corporation.
The Corporation and MHLP entered into an agreement for the Corporation
to manage the property. In addition, MHLP entered into an assignment and
forbearance agreement with Marriott Corporation ("Marriott"), the franchisor.
This agreement, among other things, required MHLP to renovate the hotel to
Marriott standards. The renovation was substantially complete at December 31,
1993.
During 1992, MHLP, Aetna Life Insurance Company ("Aetna"), the holder
of the first mortgage on the Milwaukee Marriott (the "Aetna Note"), Marriott,
the Trust, the Corporation, and Brookfield and various partners of Brookfield
reached
F-24
<PAGE> 71
agreements arranging financing for the renovation of the Milwaukee Marriott and
restructuring of debt for MHLP.
Effective December 1, 1992, Aetna agreed to defer for the period
December 1, 1992 through November 30, 1993, the monthly principal and interest
payments on its first mortgage note, which accrues interest at 11.25% per
annum, with the deferred interest added to principal monthly. Beginning
December 1, 1993, the loan amortizes in equal monthly installments over a
period of 17 years at 10% interest per annum until January 1, 1996, at which
time all unpaid interest and principal are due, including appreciation interest
("Appreciation Interest") . Appreciation Interest is defined as 50% of the
aggregate principal reduction in the Aetna mortgage from December 1, 1993 until
the loan is due in full as provided in the agreement. The amount of the Aetna
Note outstanding totalled $10,017,000 at December 31, 1993.
Marriott agreed to loan MHLP $750,000 secured by a second deed of
trust on the hotel for the purchase of equipment from a Marriott subsidiary.
The second mortgage note bears interest at 9% per annum, payable monthly
beginning May 31, 1993 through April 30, 1994, at which time fixed monthly
payments of principal and interest of approximately $49,000 become due until
December 31, 1994, at which time all unpaid interest and principal are due.
The Trust agreed to loan MHLP $1,000,000 to be used to complete the
renovation of the Milwaukee Marriott. The loan is secured by a third deed of
trust on the hotel and bears interest at 10.5% per annum, payable monthly.
Under certain circumstances, as defined in the agreement, interest is deferred
and added to the principal of the note monthly. The third mortgage note
outstanding totalled $1,102,000 as of December 31, 1993. The Trust may declare
due and payable the principal balance and any unpaid accrued interest thereon
at any time after January 1, 1994 through the maturity date of the note of
January 1, 1996.
The second mortgage note held by the Trust of $11,000,000 was modified
as of December 31, 1992 by adding deferred and previously unpaid interest of
$1,667,000 to principal due under the note and converting the note to a fourth
mortgage note. Further, interest at 10.5% per annum for the year ended
December 31, 1993, was deferred monthly and added to principal due under the
loan. The fourth mortgage note outstanding totalled $14,084,000 as of December
31, 1993. Thereafter, interest is payable monthly unless deferred under the
provisions of the loan agreement until January 1, 1996 at which time all
remaining unpaid interest and principal are due.
The Corporation agreed to defer and convert to a note up to $250,000
of management fees due under its management agreement with MHLP for a period of
up to twelve months commencing with base management fees due after January 1,
1993. The deferred fees bear interest at 9% per annum, which were added to the
principal balance of the note through December 1, 1993. Thereafter, the note
is due in twelve equal monthly installments of principal and interest
commencing on January 1, 1994 at 12% interest per annum. All unpaid interest
and principal is due December 1, 1994.
The $600,000 original loan made by GSI Acquisition Company, L.P., a
limited partner of Brookfield, ("GSI"), was modified as of December 31, 1992,
by converting deferred and previously unpaid interest of approximately $86,000
to principal. For the year ending December 31, 1993 interest at 10% per annum
was deferred monthly and added to the principal balance, which balance totals
$762,000 at December 31, 1993. Thereafter, interest is payable monthly unless
deferred under the provisions of the agreement until January 1, 1996 at which
time all remaining unpaid interest and principal are due.
6. Real Estate Investments and Intercompany Transactions.
At December 31, 1993, the Trust owned equity interests in twenty-nine
hotels, including two hotel/casinos. Of that number, twenty-three properties
were owned in fee, five were held pursuant to long-term leases and one was
owned through a 5% general partnership interest in a joint venture that owns
the Omaha Marriott Hotel.
Twenty-five of the Trust's hotels (including the two hotel/casinos)
are leased to the Corporation or its subsidiaries. Three hotels have been
leased to and are operated by Northview Corporation, formerly Vagabond Inns,
Inc. The Omaha Marriott Hotel has been leased to an affiliate of the
Corporation, and is managed by Marriott pursuant to a long-term management
agreement. As of December 31, 1993, eight of the hotels leased by the
Corporation from the Trust are being
F-25
<PAGE> 72
managed by third-party operators. The third-party management agreements are
generally for three-year terms expiring in 1995, subject to certain
cancellation provisions. Base management fees range from 2% to 2-1/2% of gross
revenues with incentive management fees based upon hotel profitability.
The leases are generally long-term and generally provide for annual
base, or minimum rents, plus contingent, or percentage rents based on the gross
revenues of the properties. The leases are "triple-net" in that the lessee is
generally responsible for paying all operating expenses of the properties,
including maintenance, insurance and real property taxes. The lessee is also
generally responsible for any payments required pursuant to underlying ground
leases. Most leases provide for cancellation by the Trust in the event that
the Trust does not earn a specified rent, or by the lessee (including the
Corporation) in the event the lessee does not earn a specified net operating
profit.
As of December 31, 1993, the Corporation was indebted to the Trust for
an aggregate of $87,486,000 (including the $14,084,000 and $1,102,000, MHLP
mortgage notes - see Note 5). The debt to the Trust bore interest at various
rates ranging from 6.5% to 12% at December 31, 1992. Effective January 1,
1993, the Trust and Corporation modified the leases between the Trust and the
Corporation to, among other things, adjust the rents payable by the
Corporation, and restructured the Corporation's existing borrowings from the
Trust to include all outstanding borrowings plus accrued but unpaid rent of
$448,000 and interest as of December 31, 1992. The borrowings, which are due
on demand, were non-interest bearing for the year ending December 31, 1993,
with interest at prime plus 2% interest payable monthly, thereafter. Effective
January 1, 1994, the interest moratorium was extended until December 31, 1994,
with interest at prime plus 2% interest payable monthly, thereafter. Future
advances by the Trust to the Corporation, if required, will be included in
demand note(s) under the same terms and conditions. Because the Corporation
has experienced substantial operating losses and cash flow deficiencies, and
has a deficiency in net assets, the Corporation has been unable to pay all
amounts due to the Trust.
In accordance with the Debt Restructuring, the Trust and the
Corporation are required to merge, subject to shareholder approval (See Note
2). In the event such a merger takes place, amounts receivable by the Trust
would be offset by amounts payable from the Corporation.
Rents accrued by the Trust from leased hotel properties are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Corporation:
Minimum $14,184 $18,136 $19,287
Contingent 2,297 3,041 2,806
------- ------- -------
16,481 21,177 22,093
------- ------- -------
Other:
Minimum 437 437 437
Contingent 402 510 499
------- ------- -------
839 947 936
------- ------- -------
Total $17,320 $22,124 $23,029
======= ======= =======
</TABLE>
F-26
<PAGE> 73
Minimum future rents at December 31, 1993 due under non-cancelable
operating leases for the years ending December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Thereafter
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Corporation ....... $14,615 $14,217 $11,577 $11,577 $11,577 $38,962
Other ............. 437 437 437 437 426 283
------- ------- ------- ------- ------- -------
Total ........... $15,052 $14,654 $12,014 $12,014 $12,003 $39,245
======= ======= ======= ======= ======= =======
</TABLE>
The Corporation is committed under its leases with the Trust to pay the
rents payable with respect to seven ground leases which expire in 1994 through
2029, including renewal options. The leases generally provide for a minimum
rent plus a percentage of gross revenues of the properties in excess of the
minimum rent. Future minimum lease payments under the leases are $319,000 per
year through 1998, and $7,270,000 thereafter. The Trust is the primary obligor
under the leases; however, the Corporation as lessee/operator of the hotels
makes payments under these leases directly to the lessors. Rent expense
incurred by the Corporation as a lessee/operator under these leases was
$854,000, $787,000, and $846,000 in the years ended December 31, 1993, 1992 and
1991, respectively.
In addition, the Trust is committed under an office lease. Future
minimum lease payments under the office lease are $85,000 in 1994 and 1995.
7. Mortgage and Other Notes Payable.
At December 31, 1993, the Trust had outstanding six mortgage notes
payable which are secured by seven of the Trust's hotels, with a net book value
at December 31, 1993 of $49,875,000. At December 31, 1993 and 1992, the Trust
had the following outstanding debt obligations:
<TABLE>
<CAPTION>
December 31, December 31,
1993 1992
------------ ------------
<S> <C> <C>
Mortgage Notes:
11.75% first mortgage note, due in 2015, callable
by lender in 1995, 2000, 2005, or 2010 $ 6,417,000 $ 6,477,000
12.875% first mortgage note, due in 1994 9,478,000 9,568,000
8.50% first and second mortgage notes, due in
1997 and 1998 891,000
12.625% first mortgage note, due in 1994 4,195,000 4,301,000
9.25% first mortgage note, due in 1994 2,010,000 2,151,000
10.25% first mortgage note, due in 2001 5,447,000 5,716,000
9.0% first mortgage note, due in 1997 177,000 214,000
----------- -----------
Total mortgage notes payable $27,724,000 $29,318,000
=========== ===========
</TABLE>
Aggregate principal payments due for the years ending December 31 are
$16,088,000 in 1994, $6,723,000 in 1995, $412,000 in 1996, $456,000 in 1997,
$449,000 in 1998, and $3,596,000 thereafter.
F-27
<PAGE> 74
At December 31, 1993 and 1992, the Corporation had the following
outstanding debt obligations:
<TABLE>
<CAPTION>
December 31, December 31,
1993 1992
------------ ------------
<S> <C> <C>
Secured by Milwaukee Marriott Hotel:
10.0% first mortgage note, due 1996 $10,017,000 $ 9,050,000
9.0% second mortgage note, due 1994 754,000
10.5% fifth mortgage note, interest
only, due 1996 762,000 686,000
12.0% sixth mortgage note, interest
only (to the extent of available
cash flow), due 1996 2,000,000 2,000,000
9-10% notes payable, due 1995-1996 297,000 418,000
----------- -----------
13,830,000 12,154,000
Other:
9.75% first mortgage note, due 1997 438,000 467,000
Obligations under capital leases 92,000 135,000
----------- -----------
Total mortgage and other notes payable $14,360,000 $12,756,000
=========== ===========
</TABLE>
At December 31, 1993, the Corporation's outstanding mortgage notes are
secured by the Milwaukee Marriott Hotel which had a net book value of
$23,786,000.
Minimum lease and principal payments on the Corporation's indebtedness
for the years ending December 31 are due as follows:
<TABLE>
<CAPTION>
Minimum Future Principal Payments
Year Lease Payments Due Under Notes
---- -------------- ------------------
<S> <C> <C>
1994 $49,000 $ 1,153,000
1995 32,000 431,000
1996 18,000 12,357,000
1997 327,000
1998
------- -----------
Total 99,000 $14,268,000
------- ===========
Amount representing interest 7,000
-------
Present value of future minimum
lease payments $92,000
=======
</TABLE>
At December 31, 1993 and 1992 the Corporation had $1,222,000 and
$1,321,000, respectively, in assets (less $828,000, and $780,000, respectively,
in accumulated amortization) recorded under capital leases. Such amounts are
included in furniture, fixtures and equipment.
8. Shareholders' Equity.
Warrants to purchase paired shares
At December 31, 1993, there were outstanding 1,659,974 warrants to
purchase Paired Shares at an exercise price of $16.95 per Paired Share through
September 1996. Additional warrants were issued to the Institutional Lenders
under the terms of the Credit Agreement (See Note 2).
F-28
<PAGE> 75
Share option plans
The Trust and the Corporation each have Incentive and Non-Qualified
Share Option Plans which provide for the purchase of up to an aggregate of
700,000 Paired Shares by Trustees, Directors, officers and employees pursuant
to option grants. During the year December 31, 1993, the Trust and the
Corporation granted options to purchase 45,000 Paired Shares at an exercise
price of $2.625 per Paired Share. During the year ended December 31, 1992, the
Trust and Corporation granted options to purchase 100,000 Paired Shares at an
exercise price of $.75 per Paired Share. No options were granted during the
year ended December 31, 1991. Such options, which are granted at fair market
value on the date of grant, vest over three years. No options have been
exercised as of December 31, 1993.
At December 31, 1993, outstanding options granted under all plans of
the Trust and Corporation (including options granted to officers and directors
of a company previously acquired by the Trust) aggregated 212,000 Paired
Shares. At December 31, 1993, options for 165,667 Paired Shares are fully
vested with exercise prices ranging from $.75 to $22.68 per Paired Share.
Share purchase plans
Prior to December 1989, the Trust and the Corporation each had a Share
Purchase Plan, whereby an aggregate of 200,000 Paired Shares were available to
be purchased by Trustees, Directors, officers and employees at their fair
market value on the date of sale with monies borrowed from the Trust or
Corporation.
In December 1989, the Trust's Board of Trustees and the Corporation's
Board of Directors voted to terminate the Share Purchase Plans for purposes of
prospective eligibility, and to irrevocably waive the right of the Trust and
the Corporation to accelerate the payment of a note executed by a participating
Trustee or Director upon termination of such participant's relationship with
the Companies.
In January 1991, the Companies entered into agreements with certain
Trustees and Directors who had agreements outstanding pursuant to the Share
Purchase Plans to which each such Board member agreed to stand for re-election
as a Trustee or Director at the next annual shareholders' meeting if requested
to do so by their respective Boards', or if the Boards' did not so request, to
act, for a period of up to two years and at mutually agreed upon times and
places, as an advisor to the Trust or the Corporation on matters within such
Board member's experience and expertise, and the Trust or the Corporation
agreed that any outstanding promissory note executed by such Board member in
partial payment for Paired Shares purchased under the Share Purchase Plans
would be amended to cause such promissory note to be without recourse to the
maker.
In March 1992, certain of the aforementioned notes were restructured to
bear an annual interest rate of 8% as of February 2, 1992, with such notes to
be payable interest only from February 2, 1992 until February 15, 1995, at
which time the principal and interest accrued will become payable in equal
monthly installments over a ten-year period.
The share purchase agreement between Mr. Young and the Corporation was
terminated in connection with his December 31, 1992 resignation as an officer
of the Corporation, and the 10,000 Paired Shares acquired by Mr. Young pursuant
to that agreement were assigned by him to the Corporation. Mr. Young's share
purchase note in the amount of $112, 500, was written off at December 31, 1993.
The share purchase notes of other former officers, directors and employees
aggregating $63,917 were also written off at December 31, 1993.
Preferred shares
The Corporation has 10,000,000 authorized preferred shares, $1.00 par
value, none of which are issued or outstanding.
F-29
<PAGE> 76
9. Commitments and Contingencies.
Litigation
In late 1991 and early 1992 three complaints were filed against the
Companies and certain other related persons. As amended, two of the complaints
allege that the Companies, a Director and officer of the Corporation and a
former officer/Trustee of the Trust violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and Federal and California securities laws
and acted fraudulently in connection with the Companies public disclosures with
respect to the Trust's purchase of its two hotel/casinos and the Ramada Inn in
Indian Wells, California. Both of these complaints are seeking class action
certification. The third complaint was filed purportedly on behalf of the
Companies and alleges that certain former and present Trustees and Directors
breached their fiduciary duties in connection with the purchase of the Indian
Wells Hotel and the two hotel/casinos. The ultimate outcome of the litigation
cannot presently be determined. As of December 31, 1993, the Companies have
provided for a $500,000 provision for loss of which $426,000 in 1992 and
$74,000 in 1991 have been included in administrative and operating expenses for
legal expenses already paid or expected to be paid, which is equal to the
Companies deductible under their directors and officers liability insurance
policies.
In March 1994, plaintiffs and defendants in the litigation have agreed
in principle that subject to conditional certification for settlement purposes
of the classes described in two of the complaints and to certain other court
approvals, the third complaint will be dismissed with prejudice and all claims
that were made or could have been made in the litigation will be released, upon
the establishment of a $3,205,000 cash settlement fund to be distributed to
members of the certified classes. Of the settlement fund amount, $2,500,000
will be paid by the insurance company that issued Hotel Investors' directors'
and officers' policy applicable to the periods to which the litigation relates,
$400,000 will be paid by the Trust and the Corporation, and $350,000 will be
paid by Messrs. Rothman and Young. Legal fees and other costs incurred by the
defendants in the litigation prior to October 12, 1993 would be paid by the
Trust and the Corporation; subsequent defense costs would be paid by the
above-mentioned insurance company.
The agreement in principle also contemplates that Messrs. Rothman and
Young will provide to the Corporation an irrevocable letter of credit in the
amount of $800,000 and that the Corporation will accept the termination of
various management agreements and arrangements between Western Host and certain
partnerships of which Messrs. Rothman and Young are general partners (See Note
10) if the litigation is completed.
A settlement agreement implementing the terms of the agreement in
principle is being prepared and is anticipated to be signed in April 1994.
However, there can be no assurance that the settlement agreement will be
consummated or that the settlement will be ultimately approved by the court.
At December 31, 1993, the Companies have provided an additional $438,000 for
expenses expected to be incurred as a result of the settlement agreement.
Environmental matters
In connection with the Debt Restructuring (see Note 2), the Trust
obtained in the latter part of 1991 preliminary or "Phase I" environmental site
assessments with respect to the Trust's hotel properties and the Milwaukee
Marriott Hotel.
The potential for environmental impairment was assessed as moderate to
high only at the Embassy Suites Hotel in Phoenix, Arizona. According to the
assessment of that property, petroleum hydrocarbons are present in the land
beneath this hotel; however, the Trust could not determine without further
investigation the extent of the potential contamination or whether this
contamination resulted from the underground storage tanks placed on the
property by the property's former owner or from similar tanks located on land
adjacent to the property, which tanks are known to have suffered leakage. A
magnetic survey conducted on the property did not detect the continuing
existence of the underground storage tanks on Hotel Investors' property, and
the environmental consultant did not recommend that any further action be
taken. Phoenix municipal authorities have indicated an awareness of possible
ground water contamination in the area, but to date have taken no action.
F-30
<PAGE> 77
A tank leak test conducted at the Bourbon Street Hotel in early 1992
revealed no evidence of leakage. A release of petroleum from an underground
storage tank at the Bay Valley Hotel and Resort was reported to the appropriate
state agency in 1992. After the tank and surrounding soils were removed,
additional soils and groundwater testing was performed, which revealed
environmental contamination in a localized area. The Trust plans to test the
site in the near future to determine whether it qualifies as a "low priority
site" under the relevant state law. If the site qualifies for that status, the
Trust anticipates conducting quarterly groundwater sampling for one year, and
then determining whether any remedial work will be necessary. If the site does
not qualify for low priority status, the Trust may be required to undertake
remediation more quickly. Any further investigation and remediation costs that
are incurred may be reimbursed to Hotel Investors by a Michigan environmental
fund, although there is some question as to whether the fund will have
sufficient resources to pay all claims made against it. If the Trust does not
receive reimbursement for its future investigation and remediation costs, the
Trust will bear those costs.
Neither the Trust nor the Corporation has been identified by the U.S.
Environmental Protection Agency or any similar state agency as a responsible or
potentially responsible party for, nor has Hotel Investors been the subject of
any governmental proceeding with respect to, any hazardous waste contamination.
If Hotel Investors were to be identified as a responsible party, Hotel
Investors in most circumstances would be strictly liable, jointly and severally
with other responsible parties, for environmental investigation and clean-up
costs incurred by the government and, to a more limited extent by private
persons. Managements of the Trust and the Corporation expect that the cost of
any required remediation would be the responsibility of the Trust.
Based upon environmental reports, Hotel Investors believes that a
substantial number of its hotel properties incorporate potentially
asbestos-containing materials. Under applicable current Federal, state and
local laws, asbestos need not be removed from or encapsulated in a hotel unless
and until the hotel is renovated or remodeled. The removal of asbestos from
portions of the Milwaukee Marriott Hotel required in connection with the
renovation of that property has been completed.
Based upon the above-described environmental testing and facts known to
management of the Trust and the Corporation, future remediation costs, if any,
are not expected to have a material adverse effect on the Trust's and the
Corporation's results of operations or financial position and compliance with
environmental laws has not had and is not expected to have a material effect on
the capital expenditures, earnings or competitive position of the Trust and the
Corporation, and compliance with environmental laws has not had and is not
expected to have a material effect on the capital expenditures, earnings or
competitive position of the Trust and the Corporation.
Performance bonds and restricted cash
The Corporation is required to post performance bonds or cash
collateral as security for certain obligations. At December 31, 1993, the
Corporation had posted performance bonds totaling approximately $485,000 to
cover such obligations; however, no amounts had been drawn against such bonds.
At December 31, 1993, inventories, prepaid expenses and other assets
include $145,000 and $2,006,000 for the Trust and the Corporation,
respectively, which were restricted as to use. At December 31, 1992,
inventories, prepaid expenses and other assets include $125,000 and $2,615,000
for the Trust and the Corporation, respectively, which were restricted as to
use. Other than the performance bonds, the restricted cash of the Corporation
primarily is the cash of MHLP (see Note 5).
Vagabond Inns
The Trust owns three Vagabond Inns that are leased to and operated by
Northview Corporation d/b/a Calmark Hospitality Systems ("Calmark"). In March
1990, Calmark and its related entities filed for reorganization under Chapter
11 of the Bankruptcy Code. As of December 31, 1993, the Trust was owed
approximately $458,000 in annual rents for periods prior to the bankruptcy
filing, which amounts will be paid in eight quarterly installments at 8%
interest per annum which
F-31
<PAGE> 78
began on March 1, 1993, under Calmark's plan of reorganization approved by the
Federal Bankruptcy Court. In addition, the Trust via the quarterly
installments, will be reimbursed for $100,000 in legal costs incurred in
connection with the bankruptcy reorganization, which will be recognized as
collected. The Trust has continued to receive all base and percentage rents
from Calmark earned subsequent to the date of the bankruptcy filing.
10. Related Party Transactions.
The Corporation, through its subsidiary Western Host, Inc. ("Western
Host") manages seven properties owned by partnerships of which Ronald A. Young,
former President and Chief Executive Officer and current Director of the
Corporation, is a general partner (the "Western Host Partnerships"). The
Corporation accrued management fees and administrative services fees pursuant
to such management agreements of approximately $863,000, and $937,000, during
the years ended December 31, 1992 and 1991, respectively.
Termination agreement and management subcontracts - Effective December 29,
1992, Mr. Young and the Corporation entered into a termination agreement
whereby Mr. Young tendered his resignation as President and Chief Executive
Officer. Under the terms of the agreement, Mr. Young received payment of
accrued vacation pay in the amount of $54,000 and assigned to the Corporation
the ownership of the 10,000 Paired Shares which secured the non-recourse
promissory note in the amount of $121,000, including interest, which was issued
in connection with the 1987 Share Purchase Plan (See Note 8). In addition,
Western Host agreed to subcontract its duties under the management contracts
for six of the Western Host Partnerships to Westland Hotel Corporation, a hotel
management company formed by Mr. Young. Under the terms of each subcontract,
which is cancelable upon 30 days notice, Westland Hotel Corporation is required
to remit to Western Host, Inc. all management fees collected from the Western
Host Partnerships in excess of 3% of revenues, as defined.
For the year ended December 31, 1993 management fees and other
compensation payable by the Western Host Partnerships after payment of the
submanagement fee totaled $308,000. At March 25, 1994 $242,000 of such fees
remained unpaid and was not accrued at December 31, 1993.
As of December 31, 1993 the Western Host Partnerships and/or Westland
owed Western Host and/or the Corporation $100,000 representing amounts advanced
for the expenses of the managed Western Host hotels which remains unpaid at
March 25, 1994 and is included in inventories, prepaid expenses and other
assets at December 31, 1993.
At December 31, 1993, the Trust has an $800,000 unsecured note
receivable from John Rothman, the former President and Chief Executive Officer
of the Trust. The principal amount of the note receivable is due in 1999 and
bears interest due annually at 10%.
The Companies incurred legal fees from law firms in which a Trustee and
officer of the Trust was or currently is a partner during the years ended
December 31, 1993, 1992 and 1991 totalling $235,000, $955,000, and $901,000,
respectively.
11. Industry Segment Information.
The Corporation operates in two segments of the hospitality industry,
hotel and gaming. The hotel segment consists of room, food and beverage and
other revenues recognized in connection with the operation of hotels owned by
the Corporation or under lease from the Trust, and income from management
contracts. The gaming segment consists of net win from casino operations, as
well as room, food and beverage and other revenues recognized in connection
with the operation of the two hotel/casinos under lease from the Trust.
F-32
<PAGE> 79
The following information summarizes revenue and operating results by
industry segment:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1993 1992 1991
---------------- ----------------- -------------------
<S> <C> <C> <C>
HOTEL:
Revenue:
Room ......................... $58,917,000 $60,068,000 $58,167,000
Food and beverage ............ 23,337,000 23,975,000 22,786,000
Other ........................ 4,649,000 4,769,000 4,203,000
----------- ----------- -----------
Hotel revenue ................ 86,903,000 88,812,000 85,156,000
Management fees .............. 90,000 952,000 1,041,000
----------- ----------- -----------
Total revenue .................. 86,993,000 89,764,000 86,197,000
----------- ----------- -----------
Expenses:
Room ........................... 22,340,000 21,917,000 14,570,000
Food and beverage .............. 15,116,000 15,256,000 16,792,000
Other (including undistributed
operating expenses and
fixed charges) ............... 30,676,000 31,447,000 34,601,000
Rent to Trust ................ 14,081,000 17,612,000 18,528,000
Depreciation and amortization. 3,060,000 3,086,000 2,193,000
Allocated Corporate overhead.. 950,000 1,600,000 1,288,000
Provision for loss............ 713,000
----------- ----------- -----------
Total expenses ............... 86,223,000 90,918,000 88,685,000
----------- ----------- -----------
Operating income (loss)......... $ 770,000 $(1,154,000) $(2,488,000)
=========== =========== ===========
GAMING:
Revenue:
Casino ....................... 14,861,000 $14,461,000 $12,836,000
Room ......................... 4,305,000 3,709,000 2,941,000
Food and beverage ............ 5,226,000 5,396,000 4,954,000
Other ........................ 5,370,000 4,930,000 3,706,000
Less promotional allowances .. (2,257,000) (2,346,000) (1,828,000)
----------- ----------- -----------
Gaming revenue ............... 27,505,000 26,150,000 22,609,000
----------- ----------- -----------
Expenses:
Casino ....................... 6,019,000 5,852,000 5,906,000
Room ......................... 2,042,000 1,894,000 1,687,000
Food and beverage ............ 4,564,000 4,888,000 5,019,000
Other (including undistributed
operating expenses and fixed
charges)...................... 11,430,000 11,065,000 9,336,000
----------- ----------- -----------
Expenses of gaming operations. 24,055,000 23,699,000 21,948,000
Rent to Trust ................ 2,400,000 3,565,000 3,565,000
Depreciation and amortization. 477,000 262,000 331,000
----------- ----------- -----------
Total expenses ............... 26,932,000 27,526,000 25,844,000
----------- ----------- -----------
Operating income (loss)......... $ 573,000 $(1,376,000) $(3,235,000)
=========== =========== ===========
</TABLE>
F-33
<PAGE> 80
A reconciliation of the combined segment operating income (loss) to the
combined net loss of the Trust and the Corporation is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1993 1992 1991
------------------- ------------------ --------------
<S> <C> <C> <C>
Combined operating income
(loss)......................... $ 1,343,000 $(2,530,000) $ (5,723,000)
Interest and other income........ 330,000 250,000 1,555,000
Interest expense................. (2,701,000) (5,372,000) (4,981,000)
Corporate expenses............... (2,115,000) (2,281,000) (1,983,000)
----------- ----------- -----------
Net income (loss).............. $(3,143,000) $(9,925,000) $(11,132,000)
=========== =========== ============
</TABLE>
Additional financial data by industry segment for the Corporation is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1993 1992 1991
-------- -------- --------
IDENTIFIABLE ASSETS:
<S> <C> <C> <C>
Hotel..................... $41,712,000 $43,620,000 $44,792,000
Gaming.................... 3,743,000 4,059,000 3,884,000
Corporate and other....... 4,538,000 5,932,000 7,131,000
----------- ----------- -----------
Total..................... $49,993,000 $53,611,000 $55,807,000
=========== =========== ===========
CAPITAL EXPENDITURES:
Hotel..................... $ 4,859,000 $ 1,160,000 $ 1,167,000
Gaming.................... 220,000 123,000 138,000
Corporate and other....... 126,000 7,000 29,000
----------- ----------- -----------
Total..................... $ 5,205,000 $ 1,290,000 $ 1,334,000
=========== =========== ===========
DEPRECIATION AND
AMORTIZATION:
Hotel..................... $ 3,060,000 $ 3,086,000 $ 2,193,000
Gaming.................... 477,000 262,000 331,000
Corporate and other....... 65,000 54,000 134,000
----------- ----------- -----------
Total..................... $ 3,602,000 $ 3,402,000 $ 2,658,000
=========== =========== ===========
</TABLE>
The Trust is an owner/lessor of real property and does not "operate" in
different segments, and is therefore not subject to disclosure by segment. The
Trust's net investment (initial cost less accumulated depreciation and
provision for loss) in the two Las Vegas hotel/casinos was $22,798,000, and
$22,929,000 December 31, 1993 and 1992, respectively.
F-34
<PAGE> 81
12. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
COMBINED TRUST
---------------------------------------------- -------------------------------------------
1993 1992 1991 1993 1992 1991
----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter
Revenue.................... $27,831,000 $ 27,974,000 $ 26,222,000 $ 5,082,000 $ 6,795,000 $ 7,347,000
Net income (loss).......... (1,366,000) (2,380,000) (3,289,000) (208,000) 393,000 (10,000)
Net income (loss) per
share.................... (0.11) (0.20) (0.27) (0.02) 0.03 0.00
Cash distributions per
share.................... -- -- -- -- -- --
Second Quarter
Revenue.................... $30,310,000 $ 30,071,000 $ 29,563,000 $ 5,477,000 $ 6,837,000 $ 7,963,000
Net income (loss).......... (204,000) (352,000) (1,937,000) 41,000 1,188,000 (974,000)
Net income (loss) per
share.................... (0.02) (0.03) (0.16) 0.00 0.10 (0.08)
Cash distributions per
share.................... -- -- -- -- -- --
Third Quarter
Revenue.................... $30,530,000 $ 30,598,000 $ 28,870,000 $ 5,198,000 $ 6,582,000 $ 7,221,000
Net income (loss).......... $(1,268,000) $ (3,112,000) $ (3,868,000) $(1,412,000) $(1,957,000) $(1,479,000)
Net income (loss) per
share.................... (0.10) (0.26) (0.32) (0.12) (0.16) (0.12)
Cash distributions per
share.................... -- -- -- -- -- --
Fourth Quarter
Revenue.................... $28,484,000 $ 29,013,000 $ 28,781,000 $ 4,585,000 $ 6,570,000 $ 7,019,000
Net Loss................... $(4,194,000)(1) $(13,899,000)(2) $(12,990,000) $(2,310,000)(1) $(9,442,000)(2) $(8,489,000)
Net Loss per share......... (0.35) (1.14) (1.07) (0.19) (0.78) (0.70)
Cash distributions per
share.................... -- -- -- -- -- --
<CAPTION>
CORPORATION
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C<C> <C> <C>
First Quarter
Revenue.................... $27,253,000 $27,541,000 $25,736,000
Net income (loss).......... (1,158,000) (2,773,000) (3,279,000)
Net income (loss) per
share.................... (0.10) (0.23) (0.27)
Cash distributions per
share.................... -- -- --
Second Quarter
Revenue.................... $29,420,000 $29,721,000 $27,016,000
Net income (loss).......... (245,000) (1,540,000) (963,000)
Net income (loss) per
share.................... (0.02) (0.13) (0.08)
Cash distributions per
share.................... -- -- --
Third Quarter
Revenue.................... $29,998,000 $30,397,000 $28,373,000
Net income (loss).......... $ 144,000 $(1,155,000) $(2,389,000)
Net income (loss) per
share.................... 0.01 (0.10) (0.20)
Cash distributions per
share.................... -- -- --
Fourth Quarter
Revenue.................... $28,156,000 $28,513,000 $29,236,000
Net Loss................... $(1,884,000)(1) $(4,457,000) $(4,501,000)
Net Loss per share......... (0.16) (0.36) (0.32)
Cash distributions per
share.................... -- -- --
</TABLE>
- - - ---------------
(1) During the quarter ended December 31, 1993, the Trust recorded a provision
for investment losses of $1,202,000 and the Trust and the Corporation each
recorded a provision of $219,000 for expenses expected to be incurred upon
settlement of shareholder litigation (see Note 9).
(2) At December 31, 1992, the Trust recorded a provision of $8,713,000 for known
future identifiable costs connected with the Restructuring.
F-35
<PAGE> 82
13. Subsequent Events.
Reorganization
On June 13, 1994, the Trust and the Corporation, subject to shareholder
and stockholder approval, agreed with Starwood Capital, 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 subject to their liabilities. 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
paired shares of the Trust and the Corporation, such that on a fully converted
basis, Starwood would own between 67% and 75% of the outstanding paired shares
of the Trust and Corporation (but subject to limitations to preserve the REIT
status of the Trust and its paired share structure with the Corporation).
Starwood also agreed, at the Trust's option, to purchase the Trust's
Albany, Georgia property for approximately $6 million; and the Trust would use
the proceeds 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 (see certain
Asset Sales below).
In connection with the Reorganization, $48,500,000 of the debt between
the Trust and the Corporation will be canceled.
Income Taxes
The Trust recently discovered that there were 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 does not effect the pairing status of the Trust
and the Corporation shares.
Litigation
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 class actions filed in that Court. For
additional information with respect to these actions and the related derivative
action (the "Shareholder Actions"), filed in the Superior Court of the State of
California for San Diego County see Note 9.
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 Judgement, 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 $3,205,000 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
F-36
<PAGE> 83
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.
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 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 in the amount of
$800,000 which has a one-year term.
Upon final Court approval of the Shareholder Actions, 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.
Certain Assets Sales
In May 1994, the Best Western-South located in Austin, Texas which was
subject to public condemnation for the purpose of highway construction, was
sold to an agency of the State of Texas for an all cash price, resulting in a
gain of $619,000 and $15,000 for the Trust and the Corporation, respectively.
In August 1994, the Sheraton Inn located in New Port Richey, Florida
and the Holiday Inn located in Brunswick, Georgia 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, resulting in a gain of $70,000 and $16,000 for the
Trust and the Corporation, respectively.
In connection with the Reorganization, the Holiday Inn located in
Albany, Georgia was sold to Starwood for an all cash purchase price of
$6,000,000. No gain or loss was recorded as a result of the sale.
The Trust does not anticipate nor does it plan for additional asset
sales in the immediate future. The Trust's ability to sell hotels is
restricted under the terms of the agreement with Starwood.
Mortgage Notes Maturing During 1994
Three of the mortgage notes payable secured by four of the hotels owned
by the Trust matured during 1994. The mortgage note, which matured in April
1994, for which the principal amount outstanding was $4,195,000 at December 31,
1993, was extended to January 1995 and management of the Trust is currently
negotiating the refinance or extension of the note. The mortgage note which
matured in June 1994, for which the principal amount outstanding was $9,478,000
at December 31, 1993, was extended to June 30, 1997. The third mortgage note,
which matured during August 1994, for which the principal amount outstanding
was $2,010,000 at December 31, 1993, was extended to December 31, 1994 and
management of the Trust is currently negotiating the refinance or extension of
the note.
Dallas Park Central Hotel
The management contract and franchise agreement with Marriott
Corporation with respect to the Dallas property
F-37
<PAGE> 84
expired in March 1994. Since March 1994, the hotel has been managed by Sage
Mountain View, Inc. and is being operated as an independent hotel (the Dallas
Park Central Hotel).
Mortgage Note Receivable in Default
The borrower under the Trust's mortgage note receivable secured by the
Ramada Inn, Merrimack, New Hampshire with an outstanding principal balance of
$1,427,000 at December 31, 1993 is currently in default. Management of the
Trust is pursuing all remedies including foreclosure. A foreclosure auction of
the property is currently scheduled for November 17, 1994.
Secured Notes Payable and Revolving Line of Credit
The Trust made the principal payment required under the terms of the
Credit Agreement on August 31, 1994 as well as the optional amount which
canceled 444,381 of the warrants previously issued to the Senior Lenders. The
maturity date of the Restructured Debt has been extended to May 31, 1995.
F-38
<PAGE> 85
SCHEDULE IV
INDEBTEDNESS OF AND TO RELATED PARTIES (NOT CURRENT)
HOTEL INVESTORS TRUST:
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT --------------------------- BALANCE AT
BEGINNING OF AMOUNTS AMOUNTS END OF
DESCRIPTION PERIOD ADDITIONS COLLECTED WRITTEN OFF PERIOD
- - - --------------------------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INDEBTEDNESS OF RELATED PARTIES:
DECEMBER 31, 1991:
Loans to Hotel Investors
Corporation(1)(3).............. $44,099,000 $11,000,000 $(1,202,000) $53,897,000
John F. Rothman(2)............... 800,000 800,000
------------ ----------- ----------- ----------- -----------
$44,899,000 $11,000,000 $(1,202,000) $54,697,000
=========== =========== =========== =========== ===========
DECEMBER 31, 1992:
Loans to Hotel Investors
Corporation(1)(4).............. $53,897,000 $34,004,000 $ (411,000) $87,490,000
------------ ----------- ----------- ----------- -----------
John F. Rothman(2)............... 800,000 800,000
------------ ----------- ----------- ----------- -----------
$54,697,000 $34,004,000 $ (411,000) $88,290,000
=========== =========== =========== =========== ===========
DECEMBER 31, 1993:
Loans to Hotel Investors
Corporation(1)................. $87,490,000 $ 2,519,000 $(2,523,000) $87,486,000
John F. Rothman(2)............... 800,000 800,000
------------ ----------- ----------- ----------- -----------
$88,290,000 $ 2,519,000 $(2,523,000) $88,286,000
=========== =========== =========== =========== ===========
</TABLE>
- - - ---------------
(1) The Notes from the Corporation earn interest at various rates ranging from
the bank's prime rate to 12% per annum. Effective January 1, 1993 the terms
of these notes were amended, see Note 6 of Notes to Financial Statements.
(2) On December 31, 1987, in connection with its acquisition of the Atlanta
partnership a working capital loan of $890,000 was assumed by John F.
Rothman, General Partner of Western Host Atlanta Partners and President and
Chief Executive Officer of the Trust. The note from Mr. Rothman earns
interest at 10% per annum.
(3) In September 1991, in connection with the acquisition of the Milwaukee
Marriott Hotel, Hotel Investors Corporation became the 51% General Partner
in the new Partnership and assumed $11,000,000 of the mortgage debt due to
the Trust. For Financial Statement purposes, the results of the Milwaukee
Marriott are consolidated and intercompany transactions are eliminated. See
Note 5 of Notes to Financial Statements.
(4) In December 1992, in connection with the Debt Restructuring the Trust and
Corporation restructured the existing borrowings from Trust to include all
outstanding borrowings plus accrued but unpaid rent and interest as of
December 31, 1992. See Note 6 of Notes to Financial Statements.
F-39
<PAGE> 86
SCHEDULE IV (CONTINUED)
INDEBTEDNESS OF AND TO RELATED PARTIES (NOT CURRENT)
HOTEL INVESTORS CORPORATION:
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT -------------------------- BALANCE AT
BEGINNING OF AMOUNTS AMOUNTS END OF
DESCRIPTION PERIOD ADDITIONS COLLECTED WRITTEN OFF PERIOD
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INDEBTEDNESS TO RELATED PARTIES:
DECEMBER 31, 1991:
Loans from Hotel Investors
Trust(1)(2)........................ $44,099,000 $11,000,000 $(1,202,000) $53,897,000
=========== =========== =========== ========== ===========
DECEMBER 31, 1992:
Loans from Hotel Investors
Trust(1)(3)........................ $53,897,000 $34,004,000 $ (411,000) $87,490,000
=========== =========== =========== ========== ===========
DECEMBER 31, 1993:
Loans from Hotel Investors
Trust(1)........................... $87,490,000 $ 2,519,000 $(2,523,000) $87,486,000
=========== =========== =========== ========== ===========
</TABLE>
- - - ---------------
(1) The Notes from the Corporation earn interest at various rates ranging from
the bank's prime rate to 12% per annum. Effective January 1, 1993 the terms
of these notes were amended, see Note 6 of Notes to Financial Statements.
(2) In September 1991, in connection with the acquisition of the Milwaukee
Marriott Hotel, Hotel Investors Corporation became the 51% General Partner
in the new Partnership and assumed $11,000,000 of the mortgage debt due to
the Trust. For Financial Statement purposes, the results of the Milwaukee
Marriott are consolidated and intercompany transactions are eliminated.
(3) In December 1992, in connection with the Debt Restructuring the Trust and
Corporation restructured the existing borrowings from Trust to include all
outstanding borrowings plus accrued but unpaid rent and interest as of
December 31, 1992. See Note 6 of Notes to Financial Statements.
F-40
<PAGE> 87
SCHEDULE IX
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE AVERAGE
WEIGHTED MAXIMUM AMOUNT INTEREST
BALANCE AT AVERAGE AMOUNT OUTSTANDING RATE
CATEGORY OF AGGREGATE END OF INTEREST OUTSTANDING DURING DURING
SHORT-TERM BORROWINGS PERIOD RATE DURING PERIOD THE PERIOD(2) THE PERIOD(3)
--------------------- ------------ -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
HOTEL INVESTORS TRUST
DECEMBER 31, 1991:
Notes payable to banks(1)................. $ 71,318,000 9.00% $ 71,545,000 $ 68,166,000 8.91%
Senior Notes Payable...................... $ 56,905,000 9.21% $ 60,000,000 $ 58,095,000 9.95%
DECEMBER 31, 1992:
Notes payable to banks(1)................. $ 71,318,000 7.00% $ 71,318,000 $ 71,318,000 7.29%
Senior Notes Payable...................... $ 56,905,000 7.00% $ 56,905,000 $ 56,905,000 7.29%
DECEMBER 31, 1993:
Secured notes payable and revolving line
of credit............................... $128,802,208 7.00% $133,877,994 $130,785,234 7.94%
</TABLE>
- - - ---------------
(1) Represents borrowings under the Trust's line of credit. See Note 2 of Notes
to the financial statements.
(2) Computed using the weighted average of the outstanding balances at the end
of each month. For the Corporation, the average amount outstanding for the
period is computed using the period the line of credit was available to the
Corporation.
(3) Computed using the weighted average of the month-end balance and interest
rate for each month in which a balance as outstanding.
F-41
<PAGE> 88
SCHEDULE X
SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
----------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------
ITEM 1993 1992 1991
---- ---------- ---------- ----------
<S> <C> <C> <C>
HOTEL INVESTORS TRUST:
Amortization:
Amortization of Debt Issue Costs..................... $ 39,000 $ 39,000 $ 188,000
Amortization of Franchise Costs...................... 2,000 2,000 145,000
HOTEL INVESTORS CORPORATION:
Maintenance and Repairs................................ $5,837,000 $5,893,000 $5,677,000
Amortization:
Franchise Costs...................................... 30,000 29,000 155,000
Real and Personal Property Taxes....................... 3,587,000 3,915,000 4,110,000
Advertising Costs...................................... 438,000 695,000 659,000
</TABLE>
F-42
<PAGE> 89
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
HOTEL INVESTORS TRUST
<TABLE>
<CAPTION>
COSTS GROSS AMOUNT
SUBSEQUENT TO AT WHICH CARRIED
INITIAL COST TO COMPANY ACQUISITION AT CLOSE OF PERIOD
-------------------------- -------------- ----------------------------
BUILDING AND BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
----------- ------------ ----------- ------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites -- Phoenix, AZ....... $ 9,478,177 $ 2,889,000 $ 11,658,000 $ 539,000 $ 2,889,000 $ 12,197,000
Plaza Hotel -- Tucson, AZ........... (2) 898,000 3,809,000 24,000 898,000 3,833,000
Vagabond Inn -- Rosemead, CA........ 700,000 2,100,000 700,000 2,100,000
Vagabond Inn -- Sacramento, CA...... 700,000 3,200,000 700,000 3,200,000
Vagabond Inn -- Woodland Hills,
CA................................ 1,200,000 3,200,000 1,200,000 3,200,000
Hilton Inn -- Gainesville, FL....... 1,002,000 3,759,000 1,534,000 1,002,000 5,293,000
Holiday Inn and Conference Center --
Jacksonville, FL.................. 2,000,000 11,345,000 680,000 2,000,000 12,025,000
Sheraton Inn -- New Port Richey,
FL................................ 1,003,000 5,445,000 169,000 1,003,000 5,614,000
Holiday Inn -- Albany, GA........... 796,000 4,980,000 123,000 796,000 5,103,000
Holiday Inn -- Brunswick, GA........ 397,000 2,954,000 122,000 397,000 3,076,000
Best Western Riverfront Inn --
Savannah, GA...................... 431,000 3,745,000 187,000 431,000 3,932,000
Bay Valley Hotel -- Bay City, MI.... 4,195,174 2,500,000 5,472,000 1,159,000 2,501,000 6,631,000
Bourbon Street Hotel and Casino --
Las Vegas, NV..................... 8,435,000 8,668,000 5,446,000 8,435,000 14,114,000
King 8 Hotel and Casino --
Las Vegas, NV..................... 177,885 5,396,000 13,579,000 1,938,000 5,396,000 15,517,000
Best Western Airport Inn --
Albuquerque, NM................... (3) 285,000 4,880,000 285,000 4,880,000
Best Western Mesilla Valley Inn --
Las Cruces, NM.................... 1,150,000 3,295,000 28,000 860,000 3,323,000
Ramada Inn -- Fayetteville, NC...... 520,000 2,330,000 531,000 520,000 2,861,000
Columbus Best Western --
Columbus, OH...................... 854,000 2,300,000 854,000 2,300,000
Portland Inn -- Portland, OR........ 2,009,636 1,900,000 3,768,000 213,000 2,019,811 3,981,000
Riverside Inn -- Portland, OR....... 1,300,000 3,375,000 222,000 1,419,811 3,597,000
Best Western South -- Austin, TX.... 2,100,000 2,776,000 342,000 2,100,000 3,118,000
Marriott Park Central -- Dallas,
TX................................ 5,446,534 (3) 3,814,000 8,018,000 578,000 3,815,000 8,596,000
Best Western Airport Inn -- El Paso,
TX................................ 1,400,000 3,409,000 74,000 1,400,000 3,483,000
Residence Inn -- Tysons Corner,
VA................................ 6,416,696 1,418,000 4,119,000 274,000 1,418,000 4,393,000
Days Inn Town Center -- Seattle,
WA................................ (3) 250,000 1,483,000 17,000 250,000 1,500,000
Neany Tower Hotel -- Seattle, WA.... 1,700,000 6,270,000 207,000 1,819,811 6,477,000
Sixth Avenue Inn -- Seattle, WA..... (3) 1,150,000 1,570,000 25,000 1,150,000 1,595,000
Tyee Motor Inn -- Tumwater, WA...... 1,008,000 1,562,000 959,000 945,000 2,521,000
----------- ----------- ------------ ----------- ----------- ------------
$27,724,102 $47,196,000 $133,069,000 $15,391,000 $47,204,433 $148,460,000
----------- ----------- ------------ ----------- -----------
Land................................ 47,204,433
Furniture and Equipment............. 28,505,567
------------
Total hotels and land under lease... $224,170,000 (5)
<CAPTION>
ACCUMULATED
DEPRECIATION/(4) YEAR OF
DESCRIPTION AMORTIZATION CONSTRUCTION
- - - ------------------------------------ ---------------- ------------
<S> <C> <C>
HOTEL ASSETS:
Embassy Suites -- Phoenix, AZ....... $3,341,000 1981
Plaza Hotel -- Tucson, AZ........... 1,005,000 1971
Vagabond Inn -- Rosemead, CA........ 437,000 1974
Vagabond Inn -- Sacramento, CA...... 666,000 1975
Vagabond Inn -- Woodland Hills,
CA................................ 666,000 1973
Hilton Inn -- Gainesville, FL....... 1,006,000 1974
Holiday Inn and Conference Center --
Jacksonville, FL.................. 11,290,000 1959/1975
Sheraton Inn -- New Port Richey,
FL................................ 4,414,000 1973
Holiday Inn -- Albany, GA........... 665,000 1989
Holiday Inn -- Brunswick, GA........ 1,936,000 1972
Best Western Riverfront Inn --
Savannah, GA...................... 1,827,000 1971
Bay Valley Hotel -- Bay City, MI.... 1,808,000 1973
Bourbon Street Hotel and Casino --
Las Vegas, NV..................... 13,786,000 1964/1975
King 8 Hotel and Casino --
Las Vegas, NV..................... 7,969,000 1974/1979
Best Western Airport Inn --
Albuquerque, NM................... 1,066,000 1980
Best Western Mesilla Valley Inn --
Las Cruces, NM.................... 728,000 1974
Ramada Inn -- Fayetteville, NC...... 2,410,000 1973
Columbus Best Western --
Columbus, OH...................... 131,000
Portland Inn -- Portland, OR........ 785,000 1962
Riverside Inn -- Portland, OR....... 703,000 1964
Best Western South -- Austin, TX.... 2,288,000 1973
Marriott Park Central -- Dallas,
TX................................ 4,172,000 1972
Best Western Airport Inn -- El Paso,
TX................................ 715,000 1974
Residence Inn -- Tysons Corner,
VA................................ 1,214,000 1984
Days Inn Town Center -- Seattle,
WA................................ 1,063,000 1957
Neany Tower Hotel -- Seattle, WA.... 1,302,000 1932
Sixth Avenue Inn -- Seattle, WA..... 1,580,000 1959
Tyee Motor Inn -- Tumwater, WA...... 456,000 1961
-----------
69,429,000
Land................................
Furniture and Equipment............. 24,823,000
-----------
Total hotels and land under lease... $94,252,000
===========
</TABLE>
- - - ---------------
(1) As of December 31, 1993, real estate and furniture and equipment have a cost
of $147,231,000 for federal income tax purposes.
(2) Land cost includes costs allocated to leasehold interest in land of $548,000
at the Tucson property.
(3) Land cost represents costs allocated to leasehold interest in land.
(4) Includes reserve for losses as discussed in Notes 1 and 3 of Notes to the
Financial Statements.
(5) Substantially all properties are encumbered by the Secured Note Payable and
Revolving Line of Credit.
F-43
<PAGE> 90
SCHEDULE XI (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
A reconciliation of the Trust's investment in real estate, furniture and
fixtures and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE AND FIXTURES:
Balance at beginning of period................... $246,356,000 $258,902,000 $278,335,000
Additions during period:
Acquisitions................................... 0 0 0
Improvements................................... 1,372,000 9,384,000 3,217,000
U. S. Equity Step-up Basis....................... 899,000
Reclass of construction in progress.............. 0 (113,000)
Deductions during period:
Sales of properties............................ (24,457,000) (21,817,000) (22,650,000)
------------ ------------ ------------
Balance at end of Period......................... 224,170,000 246,356,000 258,902,000
------------ ------------ ------------
LAND UNDER LEASE:
Balance at beginning of period................... 0 0 0
Sales during period..............................
------------ ------------ ------------
Balance at end of period......................... 0 0 0
------------ ------------ ------------
$224,170,000 $246,356,000 $258,902,000
============ ============ ============
ACCUMULATED DEPRECIATION:
Balance at beginning of period................... $105,338,000 $108,134,000 $ 99,080,000
Additions -- depreciation expense................ 5,630,000 6,753,000 8,696,000
Deductions -- sales of properties................ (19,085,000) (12,746,000) (7,518,000)
Provision for investment losses(4)............... 2,369,000 3,197,000 7,876,000
Allocation of reserve for losses.................
------------ ------------ ------------
Balance at end of period......................... $ 94,252,000 $105,338,000 $108,134,000
============ ============ ============
</TABLE>
F-44
<PAGE> 91
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
HOTEL INVESTORS CORPORATION
<TABLE>
<CAPTION>
COSTS
SUBSEQUENT GROSS AMOUNT AT WHICH
TO CARRIED AT CLOSE OF PERIOD
INITIAL COST TO COMPANY ACQUISITION --------------------------
-------------------------- ------------ (1) (1) ACCUMULATED
(3) LAND AND BUILDING AND BUILDING AND LAND AND BUILDING AND DEPRECIATION/
DESCRIPTION ENCUMBRANCES LEASEHOLDS IMPROVEMENTS IMPROVEMENTS LEASEHOLDS IMPROVEMENTS AMORTIZATION(2)
----------- ------------ ---------- ------------ ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites --
Phoenix, AZ............. $ 45,000 $ 45,000 $ 5,000
Plaza Hotel -- Tucson,
AZ...................... $ 595,000 0 $ 978,000 0 149,000
Hilton Inn -- Gainesville,
FL...................... 39,000 39,000 8,000
Holiday Inn and Conference
Center -- Jacksonville,
FL...................... 1,587,000 126,000 1,587,000 126,000 1,601,000
Sheraton Inn -- New Port
Richey, FL.............. 24,000 24,000 2,000
Holiday Inn -- Albany,
GA...................... 64,000 64,000 4,000
Holiday Inn --
Brunswick, GA........... 62,000 62,000 4,000
Bay Valley Hotel --
Bay City, MI............ 179,000 179,000 19,000
Best Western North
Columbus, OH............ 37,000 37,000 2,000
Best Western Airport
Inn -- Albuquerque,
NM...................... 325,000 0 372,000 0 68,000
Best Western Mecalla
Valley Inn -- Las
Cruces, NM.............. 0 252,000 0 17,000
Ramada Inn --
Fayettville, NC......... 15,000 15,000 1,000
Portland Inn -- Portland,
OR...................... 2,185,000 78,000 2,185,000 78,000 426,000
Riverside Inn -- Portland,
OR...................... 2,123,000 $ 87,000 25,000 2,123,000 112,000 427,000
Best Western South --
Austin, TX.............. 35,000 35,000 4,000
Best Western Airport
Inn -- El Paso, TX...... 18,000 18,000 3,000
Residence Inn -- Tysons
Corner, VA.............. 33,000 33,000 4,000
Days Inn Town Center --
Seattle, WA............. 429,000 4,000 204,000 429,000 208,000 206,000
Meany Tower Hotel --
Seattle, WA............. 3,437,000 302,000 66,000 3,437,000 368,000 731,000
Sixth Avenue Inn --
Seattle, WA............. 1,515,000 24,000 118,000 1,515,000 142,000 641,000
Best Western Inn --
Savannah, GA............ 39,000 39,000 1,000
Mariott Hotel --
Milwaukee, WI........... 13,381,000 2,500,000 17,422,000 3,499,000 2,500,000 20,921,000 953,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
$13,381,000 $14,696,000 $17,839,000 $4,706,000 $15,378,000 22,545,000 5,276,000
----------- ----------- ----------- ---------- -----------
Land...................... 15,378,000
Furniture and Equipment... 16,867,000 12,183,000
----------- -----------
Total hotels and land..... $54,790,000 $17,459,000
=========== ===========
<CAPTION>
YEAR OF DATE
DESCRIPTION CONSTRUCTION ACQUIRED LIFE
----------- ------------ -------- ----
<S> <C> <C> <C>
HOTEL ASSETS:
Embassy Suites --
Phoenix, AZ............. 1981 12/13/83 35
Plaza Hotel -- Tucson,
AZ...................... 1971 9/16/86 35
Hilton Inn -- Gainesville,
FL...................... 1974 11/24/86 35
Holiday Inn and Conference
Center -- Jacksonville,
FL...................... 1959/1975 9/16/86 35
Sheraton Inn -- New Port
Richey, FL.............. 1973 12/11/86 35
Holiday Inn -- Albany,
GA...................... 1989 6/09/89 35
Holiday Inn --
Brunswick, GA........... 1972 12/11/86 35
Bay Valley Hotel --
Bay City, MI............ 1973 5/10/84 35
Best Western North
Columbus, OH............
Best Western Airport
Inn -- Albuquerque,
NM...................... 1980 9/16/86 35
Best Western Mecalla
Valley Inn -- Las
Cruces, NM.............. 1974 9/16/86 35
Ramada Inn --
Fayettville, NC......... 1973 12/11/86 35
Portland Inn -- Portland,
OR...................... 1962 9/16/86 35
Riverside Inn -- Portland,
OR...................... 1964 9/16/86 35
Best Western South --
Austin, TX.............. 1973 9/16/86 35
Best Western Airport
Inn -- El Paso, TX...... 1974 9/16/86 35
Residence Inn -- Tysons
Corner, VA.............. 1984 7/01/84 35
Days Inn Town Center --
Seattle, WA............. 1957 9/16/86 13
Meany Tower Hotel --
Seattle, WA............. 1932 9/16/86 35
Sixth Avenue Inn --
Seattle, WA............. 1959 9/16/86 13
Best Western Inn --
Savannah, GA............ 1961 2/17/87 35
Mariott Hotel --
Milwaukee, WI...........
Land......................
Furniture and Equipment...
Total hotels and land.....
</TABLE>
- - - ---------------
(1) As of December 31, 1993, real estate and furniture and equipment have a cost
of $36,254,000 for federal income tax purposes.
(2) Includes reserve for loans discussed in Notes 1 and 3 of Notes to Financial
Statements.
(3) Amount excludes $14,064,000 second trust deed note payable to the Trust. And
$1,102,000 third trust deed note payable. See Note 6 of Notes to Financial
Statements.
F-45
<PAGE> 92
SCHEDULE XI (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
A reconciliation of the Corporation's Investment in real estate, furniture
and fixtures and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
REAL ESTATE AND FURNITURE AND FIXTURES:
Balance at beginning of year........................ $51,972,000 $51,199,000 $27,571,000
Additions:
Improvements...................................... 5,205,000 1,290,000 1,334,000
Acquisitions...................................... 22,585,000
Deductions: Reclass................................. 388,000
Sales of Properties............................... (2,775,000) (517,000) (291,000)
Balance at end of year.............................. 54,790,000 51,972,000 51,199,000
ACCUMULATED DEPRECIATION:
Balance at beginning of year........................ $15,413,000 $12,377,000 $ 9,779,000
Additions --
Depreciation expense.............................. 3,602,000 3,373,000 2,503,000
Deductions --
Sales of properties............................... (1,842,000) (337,000) (114,000)
Provision for investment losses(2).................. 0 713,000
Reclass........................................... 286,000 0 (504,000)
----------- ----------- -----------
Balance at end of year.............................. $17,459,000 $15,413,000 $12,377,000
</TABLE>
F-46
<PAGE> 93
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1993
<TABLE>
<CAPTION>
INTEREST FINAL PERIODIC
DESCRIPTION RATE MATURITY PAYMENT
----------- -------- -------- -------
<S> <C> <C> <C>
HOTEL INVESTORS TRUST
First Mortgages:
Vagabond Inns -- Stockton and Modesto, CA........................ 10.00% 1996 (2)
Vagabond Inns -- Reno, NV........................................ 12.00% 1994 (2)
Ramada Inn -- Jefferson City, MO................................. 11.00% 1996 (3)
Days Inn -- Albany, GA........................................... 10.00% 1996 $12,554(5)
Best Western -- Merrimack, NH.................................... 9.00% 1997 $11,587(6)
Days Inn -- Spartanburg, SC...................................... 9.00% 1998 $ 5,954(7)
Days Inn -- Irving, TX........................................... 9.00% 1997 $13,276(8)
Vantage Hotel -- Tucker, GA...................................... 9.00% 1998 $ 9,000(9)
Second Mortgages:
Viscount Hotel -- Dallas, TX..................................... 8.75% 2017 $ 1,982(4)
Allowance for loan losses.......................................
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
FACE CARRYING OF LOANS SUBJECT
AMOUNT OF AMOUNT OF TO DELINQUENT
DESCRIPTION PRIOR LIENS MORTGAGES MORTGAGES(1) PRINCIPAL OR INTEREST
----------- ----------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C>
HOTEL INVESTORS TRUST
First Mortgages:
Vagabond Inns -- Stockton and
Modesto, CA....................... no $ 1,995,000 $ 1,816,000
Vagabond Inns -- Reno, NV............ no 1,600,000 1,448,000
Ramada Inn -- Jefferson City, MO..... no 4,500,000 1,764,000
Days Inn -- Albany, GA............... no 1,050,000 827,000
Best Western -- Merrimack, NH........ no 1,440,000 1,426,000
Days Inn -- Spartanburg, S.C......... no 775,000 736,000
Days Inn -- Irving, TX............... no 1,650,000 1,531,000
Vantage Hotel -- Tucker, GA.......... no 1,985,000 1,976,000
Second Mortgages:
Viscount Hotel -- Dallas, TX......... yes 264,000 238,000
Allowance for loan losses........... (140,000)
--
----------- -----------
$15,259,000 $11,642,000 $0
=========== =========== ==
</TABLE>
---------------
(1) As of December 31, 1993, the aggregate cost (before allowance for loan
losses) for federal income tax purposes is not significantly different from
that used for book purposes.
(2) The notes provide for monthly payments of interest plus additional annual
payments based on a percentage of the hotels' sales, a portion of which is
applied to principal.
(3) Principal and interest due monthly based on a 30 year amortization schedule
with unpaid principal of $1,750,000 due in December 1996.
(4) Plus contingent interest of 4% of room sales of the hotel.
(5) Principal and interest due monthly based on a 10 year amortization schedule
with additional principal of $50,000 due in November 1993 and all unpaid
principal of $591,000 due in November 1996.
(6) Principal and interest due monthly based on a 30 year amortization schedule
with unpaid principal of $1,382,000 due in July 1997.
(7) Principal and interest due monthly based on a 30 year amortization schedule
with additional principal of $35,000 due in September 1993 and all unpaid
principal of $704,000 due in September 1998.
(8) Principal and interest due monthly based on a 30 year amortization schedule
with additional principal of $90,000 due in March 1993 and all unpaid
principal of $1,485,000 due in March 1997.
(9) Principal and interest due monthly based on a 25 year amortization schedule
with unpaid principal of $1,857,000 due in June 1998.
F-47
<PAGE> 94
SCHEDULE XII (CONTINUED)
RECONCILIATION OF MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year....................... $10,010,000 $10,669,000 $ 21,749,000
Additions -- ...................................... 1,985,000
New mortgage loans............................... 3,865,000 1,950,000
Reclassification --
Reclassification of indebtedness of and to
related parties(1)............................ (11,000,000)
Deductions --
Principal repayments............................. (353,000) (957,000) (1,039,000)
Amortization of discount......................... 0 0
Allowance for loan loss.......................... (223,000) (991,000)
Discount for pre-payment(3)...................... (90,000)
Cancellation of Note(2)......................... (3,254,000)
----------- ----------- ------------
Balance at end of year............................. $11,642,000 $10,010,000 $ 10,669,000
=========== =========== ============
</TABLE>
- - - ---------------
(1) In September 1991, in connection with the acquisition of the Milwaukee
Marriott Hotel, Hotel Investors Corporation became the 51% General Partner
in the new Partnership and assumed the mortgage debt. For Financial
statement purposes, the results of the Milwaukee Marriott are consolidated
with intercompany transactions eliminated. See Note 4 of Notes to Financial
Statements.
(2) In January 1992, in lieu of foreclosure, the Trust cancelled its note and
released its mortgage on the Columbus Best Western North.
(3) The Trust discounted the Note on the Brunswick, Georgia property as
consideration for the early pay-off of the note.
(Concluded)
F-48
