<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the quarterly period ended June 30, 1994
--------------------------
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _________ to _________
<TABLE>
<S> <C>
Commission File Number: 1-6828 Commission File Number: 1-7959
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)
(318) 575-3900 (310) 575-3900
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No _____.
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
12,132,948 Shares of Beneficial Interest, $1.00 par value, of Hotel
Investors Trust paired with 12,132,948 Shares of Common Stock, par value $.10
per share, of Hotel Investors Corporation outstanding as of August 12, 1994.
================================================================================
<PAGE> 2
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q which mandate adherence to
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of management of
the Trust and the Corporation, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
financial statements presented herein have been prepared in accordance with the
accounting policies described in the registrants' Joint Annual Report on Form
10-K for the year ended December 31, 1993, (the "1993 Form 10-K"), and should
be read in conjunction therewith.
The accompanying financial statements have been prepared assuming
Hotel Investors Trust (the "Trust") and Hotel Investors Corporation (the
"Corporation") will continue as going concerns. The Trust was in default at
December 31, 1992 on its obligations to repay indebtedness under the Trust's
line of credit and certain note agreements. Effective January 28, 1993, the
Trust entered into a Credit Agreement with its lenders to restructure such
indebtedness. The Credit Agreement, among other things, requires the Trust to
comply with specific financial covenants and operating restrictions and to make
substantial interim principal and other payments. The Trust's ability to
comply with the requirements of the Credit Agreement, for which the inability
to comply therewith would result in a default under the Credit Agreement,
cannot presently be determined. Because of the substantial operating losses
and cash flow deficiencies experienced by the Corporation, which also has a
deficiency in net assets, the ultimate recovery of all amounts due to the Trust
from the Corporation is highly uncertain. These conditions raise substantial
doubt about the ability of the Trust and the Corporation to continue as going
concerns. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Reorganization
As previously disclosed on the registrants' Joint Form 8-K dated June
13, 1994, the Trust and the Corporation, subject to shareholder and stockholder
approval, have agreed with Starwood Capital Group, L.P., a private investment
firm, to create an "UPREIT" structure. In connection with the "UPREIT"
structure it is contemplated that two limited partnerships would be formed (the
"Reorganization"). The Trust would be the general partner and contribute to
SLT Realty Limited Partnership all of its assets subject to its liabilities.
The Corporation and its subsidiaries would be the general partners and
contribute to SLC Operating Limited Partnership all of their assets subject to
their liabilities. Starwood Capital Group, L.P., and its affiliates
- 2 -
<PAGE> 3
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 has also agreed, at the Trust's option, to purchase the
Trust's Albany, Georgia property for approximately $6 million and to loan to
the Trust up to an additional $5 million as a a short-term first mortgage loan
or defer certain amortization of senior secured Trust debt held by Starwood
pending completion of the transaction; 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. Starwood previously
purchased or has under contract to purchase in excess of $75 million of the
Trust's outstanding senior secured debt.
Income Taxes
The Trust recently discovered that there are issues concerning its
having met all of the requirements for maintenance of REIT status for prior
years. On July 27, 1994, the Trust applied to the IRS for permission to
terminate its election to be taxed as a REIT retroactively 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, if the IRS grants the Trust's
request, the Trust will not owe any federal income tax and the Holders of
Paired Shares will not be adversely affected for these years. In addition, the
granting of the Trust's request will not effect the pairing status of the Trust
and the Corporation shares.
Net Income (Loss) Per Paired Share
Net income (loss) per paired share has been computed using the
weighted average number of common and common equivalent Paired Shares
outstanding which includes the dilutive effect of stock options and warrants
outstanding for the six months and three months ended June 30, 1994.
Other
See Item 1, Part II, for information regarding legal proceedings and
preliminary settlement of shareholder litigation.
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<PAGE> 4
Hotel Investors Trust and Hotel Investors Corporation:
Combined Balance Sheets - As of June 30, 1994 and
December 31, 1993
Combined Statements of Operations - For the three months
ended June 30, 1994 and 1993
Combined Statements of Operations - For the six months
ended June 30, 1994 and 1993
Combined Statements of Cash Flows - For the six months
ended June 30, 1994 and 1993
Hotel Investors Trust:
Balance Sheets - As of June 30, 1994 and December 31, 1993
Statements of Operations - For the three months
ended June 30, 1994 and 1993
Statements of Operations - For the six months
ended June 30, 1994 and 1993
Statements of Cash Flows - For the six months
ended June 30, 1994 and 1993
Hotel Investors Corporation:
Balance Sheets - As of June 30, 1994 and December 31, 1993
Statements of Operations - For the three months
ended June 30, 1994 and 1993
Statements of Operations - For the six months
ended June 30, 1994 and 1993
Statements of Cash Flows - For the six months
ended June 30, 1994 and 1993
- 4 -
<PAGE> 5
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets, net....................................... $161,284,000 $167,249,000
Mortgage notes receivable, net ......................... 10,791,000 11,642,000
Investment in joint venture hotel properties............ 304,000 281,000
------------ ------------
Total real estate investments .................... 172,379,000 179,172,000
Cash and cash equivalents .............................. 8,155,000 5,652,000
Accounts receivable .................................... 5,698,000 4,360,000
Notes receivable, net .................................. 1,667,000 1,717,000
Inventories, prepaid expenses and other assets ......... 4,445,000 4,451,000
------------ ------------
$192,344,000 $195,352,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit .... $127,397,000 $128,802,000
Mortgage and other notes payable ...................... 41,277,000 42,084,000
Accounts payable and other liabilities ................ 9,735,000 11,140,000
------------ ------------
178,409,000 182,026,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares .................................. 12,133,000 12,133,000
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares ...................... 1,213,000 1,213,000
Additional paid-in capital ............................ 210,497,000 210,497,000
Share purchase notes .................................. (280,000) (291,000)
Accumulated deficit ................................... (209,628,000) (210,226,000)
------------ ------------
13,935,000 13,326,000
------------ ------------
$192,344,000 $195,352,000
============ ============
</TABLE>
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<PAGE> 6
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel ................................................. $21,308,000 $22,618,000
Gaming ................................................ 7,125,000 6,804,000
Interest from mortgage and other notes ................ 407,000 355,000
Management fees and other ............................. 249,000 151,000
Rents from leased hotel properties .................... 313,000 263,000
Gain on sale of hotel assets........................... 592,000 119,000
----------- -----------
29,994,000 30,310,000
----------- -----------
EXPENSES
Hotel operations ...................................... 15,556,000 17,454,000
Gaming operations ..................................... 6,166,000 5,873,000
Interest .............................................. 4,333,000 3,897,000
Depreciation and amortization ......................... 1,947,000 2,197,000
Administrative and operating .......................... 1,059,000 1,093,000
----------- -----------
29,061,000 30,514,000
----------- -----------
NET INCOME (LOSS) $ 933,000 $ (204,000)
=========== ===========
NET INCOME (LOSS) PER PAIRED SHARE $0.07 $(0.02)
=========== ===========
Weighted average number of paired shares 13,143,666 12,132,948
=========== ===========
</TABLE>
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<PAGE> 7
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel ................................................. $41,894,000 $43,081,000
Gaming ................................................ 14,313,000 13,483,000
Interest from mortgage and other notes ................ 762,000 692,000
Management fees and other ............................. 308,000 406,000
Rents from leased hotel properties .................... 463,000 461,000
Gain on sale of hotel assets........................... 592,000 108,000
----------- -----------
58,332,000 58,231,000
----------- -----------
EXPENSES
Hotel operations ...................................... 31,124,000 33,819,000
Gaming operations ..................................... 12,159,000 11,608,000
Interest .............................................. 8,458,000 7,541,000
Depreciation and amortization ......................... 4,013,000 4,413,000
Administrative and operating .......................... 1,980,000 2,330,000
----------- -----------
57,734,000 59,711,000
----------- -----------
NET INCOME (LOSS) $ 598,000 $(1,480,000)
=========== ===========
NET INCOME (LOSS) PER PAIRED SHARE $0.05 $(0.12)
=========== ===========
Weighted average number of paired shares 13,162,440 12,132,948
=========== ===========
</TABLE>
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<PAGE> 8
HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ...................................... $ 598,000 $(1,480,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 4,013,000 4,413,000
Capitalized loan costs and deferred interest ......... 1,339,000 5,821,000
(Gain) loss on sales of hotel assets ................. (592,000) (108,000)
Changes in operating assets and liabilities:
Accounts receivable, inventories, prepaid expenses and
other assets........................................ (1,332,000) (2,131,000)
Accounts payable and other liabilities ............... (1,405,000) (6,737,000)
----------- -----------
Net cash provided by
operating activities ........................... 2,621,000 (222,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets .............................. (1,098,000) (3,055,000)
Net proceeds from sales of assets ...................... 3,674,000 3,912,000
Increase in mortgage notes receivable................... (1,985,000)
Principal received on notes receivable ................. 846,000 164,000
Other intangible assets................................. (8,000)
Acquisition of minority interest ....................... (1,575,000)
----------- -----------
Net cash provided by (used in)
investing activities .......................... 3,422,000 (2,547,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable .................................. (807,000) (444,000)
Principal payments on secured notes payable and
revolving line of credit ............................. (6,044,000) (2,537,000)
Borrowings under mortgage and other notes .............. 746,000
Increase in secured notes payable and
revolving line of credit ............................. 3,300,000
Distributions to minority shareholders ................. (21,000)
Principal received on share purchase notes ............. 11,000 5,000
----------- -----------
Net cash provided by
financing activities .......................... (3,540,000) (2,251,000)
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................ 2,503,000 (5,020,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD .............................. 5,652,000 10,517,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .................................... $ 8,155,000 $ 5,497,000
=========== ===========
</TABLE>
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<PAGE> 9
HOTEL INVESTORS TRUST
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets, net ...................................... $ 125,065,000 $ 129,918,000
Mortgage notes receivable, net ......................... 10,791,000 11,642,000
Investment in joint venture hotel properties ........... 293,000 276,000
------------- -------------
Total real estate investments .................... 136,149,000 141,836,000
Cash and cash equivalents .............................. 1,468,000 918,000
Accounts receivable .................................... 702,000 1,011,000
Notes receivable - Corporation ......................... 89,535,000 87,486,000
Notes receivable, net .................................. 1,016,000 1,025,000
Prepaid expenses and other assets ...................... 709,000 569,000
------------- -------------
$ 229,579,000 $ 232,845,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit ..... $ 127,397,000 $ 128,802,000
Mortgage and other notes payable ....................... 27,144,000 27,724,000
Accounts payable and other liabilities ................. 2,688,000 4,114,000
------------- -------------
157,229,000 160,640,000
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$1.00 par value; authorized
30,000,000 shares; outstanding
12,132,948 shares ................................... 12,133,000 12,133,000
Additional paid-in capital ............................. 204,640,000 204,640,000
Share purchase notes ................................... (280,000) (291,000)
Accumulated deficit .................................... (144,143,000) (144,277,000)
------------- -------------
72,350,000 72,205,000
------------- -------------
$ 229,579,000 $ 232,845,000
============= =============
</TABLE>
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<PAGE> 10
HOTEL INVESTORS TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUE
Rents from Corporation ..................................... $4,143,000 $4,189,000
Interest from Corporation .................................. 426,000 399,000
Interest from mortgage and other notes ..................... 399,000 320,000
Rents from other leased hotel properties ................... 313,000 263,000
Other ...................................................... 93,000 146,000
Gain on sale of hotel assets................................ 579,000 160,000
---------- ----------
5,953,000 5,477,000
---------- ----------
EXPENSES
Interest.................................................... 3,996,000 3,573,000
Depreciation and amortization .............................. 1,313,000 1,435,000
Administrative and operating ............................... 356,000 428,000
---------- ----------
5,665,000 5,436,000
---------- ----------
NET INCOME (LOSS) $ 288,000 $ 41,000
========== ==========
NET INCOME (LOSS) PER SHARE $0.02 $0.00
========== ==========
</TABLE>
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<PAGE> 11
HOTEL INVESTORS TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Rents from Corporation .................................... $ 8,456,000 $ 8,348,000
Interest from Corporation ................................. 841,000 744,000
Interest from mortgage and other notes .................... 738,000 613,000
Rents from other leased hotel properties .................. 463,000 461,000
Other ..................................................... 119,000 252,000
Gain on sale of hotel assets............................... 579,000 141,000
----------- -----------
11,196,000 10,559,000
----------- -----------
EXPENSES
Interest .................................................. 7,775,000 6,928,000
Depreciation and amortization ............................. 2,565,000 2,854,000
Administrative and operating .............................. 722,000 944,000
----------- -----------
11,062,000 10,726,000
----------- -----------
NET INCOME (LOSS) $ 134,000 $ (167,000)
=========== ===========
NET INCOME (LOSS) PER SHARE $0.01 $(0.01)
=========== ===========
</TABLE>
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<PAGE> 12
HOTEL INVESTORS TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1994 1993
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ..................................... $ 134,000 $ (167,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 2,565,000 2,854,000
Capitalized loan costs and deferred interest ........ 1,339,000 5,821,000
(Gain) loss on sales of hotel assets ................ (579,000) (141,000)
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and
other assets ...................................... 169,000 599,000
Accounts payable and other liabilities............... (1,426,000) (7,171,000)
---------- ----------
Net cash provided by
operating activities .......................... 2,202,000 1,795,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets .............................. (763,000) (161,000)
Net proceeds from sales of assets ..................... 3,668,000 3,307,000
Increase in mortgage notes receivable.................. (1,985,000)
Principal received on mortgage
and other notes receivable .......................... 805,000 142,000
Other intangible assets................................ (8,000)
Net changes in notes receivable - Corporation .......... (2,049,000) (308,000)
Acquisition of minority interest ...................... (1,575,000)
---------- ----------
Net cash provided by (used in)
investing activities .......................... 1,661,000 (588,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and
other notes payable ................................. (580,000) (408,000)
Principal payments on secured notes payable and
revolving line of credit ............................ (6,044,000) (2,537,000)
Payments to minority shareholders ..................... (18,000)
Increase in secured notes payable and
revolving line of credit ............................ 3,300,000
Principal received on share purchase notes ............ 11,000
---------- ----------
Net cash provided by (used in)
financing activities .......................... (3,313,000) (2,963,000)
---------- ----------
DECREASE IN CASH
AND CASH EQUIVALENTS ................................ 550,000 (1,756,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD .............................. 918,000 2,615,000
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .................................... $1,468,000 $ 859,000
========== ==========
</TABLE>
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<PAGE> 13
HOTEL INVESTORS CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION> June 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Hotel assets, net ..................................... $ 36,219,000 $ 37,331,000
Investment in joint venture hotel properties .......... 11,000 5,000
------------ ------------
Total real estate investments ................... 36,230,000 37,336,000
Cash and cash equivalents ............................. 6,687,000 4,734,000
Accounts receivable ................................... 4,996,000 3,349,000
Notes receivable ...................................... 651,000 692,000
Inventories, prepaid expenses and other assets ........ 3,736,000 3,882,000
------------ ------------
$ 52,300,000 $ 49,993,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
Mortgage and other notes payable ...................... $ 14,133,000 $ 14,360,000
Notes payable - Trust ................................. 89,535,000 87,486,000
Accounts payable and other liabilities ................ 7,047,000 7,026,000
------------ ------------
110,715,000 108,872,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' DEFICIT
Corporation common stock, $0.10 par
value; authorized 30,000,000 shares;
outstanding 12,132,948 shares ...................... 1,213,000 1,213,000
Additional paid-in capital ............................ 5,857,000 5,857,000
Accumulated deficit ................................... (65,485,000) (65,949,000)
------------ ------------
(58,415,000) (58,879,000)
------------ ------------
$ 52,300,000 $ 49,993,000
============ ============
</TABLE>
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<PAGE> 14
HOTEL INVESTORS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel ................................................. $21,308,000 $22,618,000
Gaming ................................................ 7,125,000 6,804,000
Interest from notes receivable ........................ 8,000 35,000
Management fees and other income ...................... 156,000 5,000
Gain (loss) on sales of hotel assets................... 13,000 (41,000)
----------- -----------
28,610,000 29,421,000
----------- -----------
EXPENSES
Hotel operations ...................................... 15,556,000 17,454,000
Gaming operations ..................................... 6,166,000 5,873,000
Rent - Trust .......................................... 4,143,000 4,189,000
Interest - Trust ...................................... 426,000 399,000
Interest - other ...................................... 337,000 324,000
Depreciation and amortization ......................... 634,000 762,000
Administrative and operating .......................... 703,000 665,000
----------- -----------
27,965,000 29,666,000
----------- -----------
NET INCOME (LOSS) $ 645,000 $ (245,000)
=========== ===========
NET INCOME (LOSS) PER SHARE $0.05 $(0.02)
=========== ===========
</TABLE>
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<PAGE> 15
HOTEL INVESTORS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUE
Hotel ................................................. $41,894,000 $43,081,000
Gaming ................................................ 14,313,000 13,483,000
Interest from notes receivable ........................ 24,000 79,000
Management fees and other income ...................... 189,000 154,000
Gain (loss) on sales of hotel assets................... 13,000 (33,000)
----------- -----------
56,433,000 56,764,000
----------- -----------
EXPENSES
Hotel operations ...................................... 31,124,000 33,819,000
Gaming operations ..................................... 12,159,000 11,608,000
Rent - Trust .......................................... 8,456,000 8,348,000
Interest - Trust ...................................... 841,000 744,000
Interest - other ...................................... 683,000 613,000
Depreciation and amortization ......................... 1,448,000 1,559,000
Administrative and operating .......................... 1,258,000 1,386,000
----------- -----------
55,969,000 58,077,000
=========== ===========
NET INCOME (LOSS) $ 464,000 $(1,313,000)
=========== ===========
NET INCOME (LOSS) PER SHARE $0.04 $(0.11)
=========== ===========
</TABLE>
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<PAGE> 16
HOTEL INVESTORS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ..................................... $ 464,000 $(1,313,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 1,448,000 1,559,000
Gain (loss) on sales of hotel assets ................ (13,000) 33,000
Changes in operating assets and liabilities:
Accounts receivable inventories, prepaid expenses and
other assets ...................................... (1,501,000) (2,730,000)
Accounts payable and other liabilities............... 21,000 434,000
----------- -----------
Net cash provided by (used in)
operating activities .......................... 419,000 (2,017,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................. (335,000) (2,894,000)
Net proceeds from sales of hotel assets ............... 6,000 605,000
Principal received on notes receivable ................ 41,000 22,000
----------- -----------
Net cash used in
investing activities .......................... (288,000) (2,267,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable - Trust ................... 2,049,000 308,000
Principal payments on mortgage and
other notes payable ................................. (227,000) (36,000)
Borrowings under mortgage and other notes ............. 746,000
Payments to minority shareholders ..................... (3,000)
Principal received on share notes...................... 5,000
----------- -----------
Net cash provided by
financing activities .......................... 1,822,000 1,020,000
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................ 1,953,000 (3,264,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD .............................. 4,734,000 7,902,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .................................... $ 6,687,000 $ 4,638,000
=========== ===========
</TABLE>
- 16 -
<PAGE> 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis included in the 1993
Form 10-K (the "1993 Form 10-K MD&A") for the year ended December 31, 1993.
The sections of the "Recent Developments" portion of Items 1 and 2 of Part I of
the 1993 Form 10-K captioned "Debt Restructuring", "Acquisition of Assets of
U.S. Equity", "Milwaukee Marriott Hotel", "Northview Corporation", "Certain
Property Sales and Related Transactions", "Mortgage Notes Payable Maturing in
1994" and the discussions of seasonality, competition, and certain
environmental matters included in those Items under the heading "Other
Information," are specifically incorporated by reference herein.
As discussed in Items 1 and 2 of the 1993 Form 10-K under the caption
"Recent Developments - Debt Restructuring", on January 28, 1993 the Trust
entered into the Credit Agreement which restructured its previously unsecured
notes payable to two banks and three insurance companies as a secured term loan
(the "Term Loan") and a secured revolving line of credit (the "Line of Credit")
(together the "Restructured Debt"). Although the Trust is not in default under
the Credit Agreement through the date of this Form 10-Q, 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 Trust's and the Corporation's 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. Further, the Trust may
be required to further restructure the indebtedness of the Corporation to the
Trust on an annual or long-term basis if the Corporation is to continue to
operate.
Sales of hotel properties have impacted and will continue to 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 after a
property has been sold, which may be offset by interest income on any notes
receivable generated from a sale. Sales of hotel properties will also decrease
the depreciation and amortization expense 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.
See Part I, Item 1 under the heading "Reorganization" and "Liquidity
and Capital Resources" below for information regarding the Reorganization of
the Trust and the Corporation.
- 17 -
<PAGE> 18
Results of Operations for the Six and Three Months Ended June 30, 1994 and 1993
Trust:
Rents from Corporation increased $108,000 and decreased by $46,000 for
the six and three months ended June 30, 1994, respectively, as compared to the
corresponding periods of 1993. The increase in rental income during the six
months ended June 30, 1994 is due to increased hotel revenues for the hotels
leased by the Corporation from the Trust (which resulted in higher percentage
rents) offset by a decrease in such rents of $274,000 resulting from the sale
of hotels in Tucker, Georgia (June 1993) and St. Louis, Missouri (December
1993). The decrease in rental income for the three months ended June 30, 1994
is due to a decrease of $120,000 resulting from the hotel sales partially
offset by increased rents for the hotels which continue to be leased by the
Corporation from the Trust.
Interest from Corporation increased by $97,000 for the six months
ended June 30, 1994 and $27,000 for the three months ended June 30, 1994,
respectively, as compared to the corresponding periods of 1993. The increase
in interest income is a result of the higher amounts outstanding under the
Milwaukee notes, which increased from $13,667,000 at December 31, 1992 to
$15,185,000 at December 31, 1993 as a result of the making of certain capital
improvements. (For information pertaining to such notes, see the 1993 Form
10-K under the caption "Milwaukee Marriott Hotel".)
Gain (loss) on sales of hotel assets for the six and three months
ended June 30, 1994, respectively, reflects a gain of $634,000 for the May 1994
all cash sale of the hotel property located in Austin, Texas offset by a
discount of $55,000 resulting from the early payoff of the mortgage note
receivable relating to the Spartanburg, South Carolina property which was sold
in 1992. Gain (loss) on sales of hotel assets for the six and three months
ended June 30, 1993 included the January 1993 sale of the hotel property
located in Smyrna, Georgia which resulted in a $19,000 loss and the June 1993
sale of the hotel property located in Tucker, Georgia which resulted in a
$160,000 gain.
Interest expense increased by $847,000 for the six months ended June
30, 1994 as compared to the corresponding period of 1993. Interest expense
increased by $423,000 for the three months ended June 30, 1994 as compared to
the corresponding period of 1993. The increases are due to an increase in the
interest rate payable on borrowings outstanding under the Term Loan and the
Line of Credit.
Depreciation and amortization expense decreased by $289,000 and
$122,000 during the six and three months ended June 30, 1994, respectively, as
compared to the corresponding period of 1993, principally due to the above
mentioned property sales and to provisions for investment losses recorded in
the third and fourth quarters of 1993, which reduced depreciable book values.
- 18 -
<PAGE> 19
Administrative and operating expenses decreased by $222,000 and
$72,000 during the six and three months ended June 30, 1994, respectively, as
compared to the corresponding period in 1993. The decreases are a result of
lower professional fees and insurance expense.
Corporation:
Hotel revenues decreased by $1,187,000 and $1,310,000 for the six and
three months ended June 30, 1994, respectively, as compared to the
corresponding period of 1993. The hotel sales discussed above resulted in
decreased revenue of $1,752,000 and $1,003,000 for the six and three months
ended June 30, 1994, respectively, as compared to the corresponding period of
1993. In March 1994 the franchise agreement and management agreement with
Marriott Corporation for the Dallas property were terminated. The property is
now being managed for the Corporation by Sage Hospitality and is being operated
as an independent hotel and has been renamed the Dallas Park Central Hotel.
Revenues at the Dallas property decreased by $1,139,000 and $1,121,000 for the
six and three months ended June 30, 1994. The decreases from property sales
and the Dallas property were offset by increased revenues of $1,704,000 and
$814,000 for the six and three months ended June 30, 1994, respectively, at the
properties which continue to be leased from the Trust by the Corporation
including increases of $742,000 and $431,000 for the six months and the three
months ended June 30, 1994, respectively, at the Milwaukee Marriott, which was
renovated during 1993. The following table summarizes average occupancy and
average room rates for properties which continue to be operated by the
Corporation under lease from the Trust as of June 30, 1994:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
<S> <C> <C> <C> <C>
Including Dallas Park Central: 1994 1993 1994 1993
------------------------------ ------ ------ ------ ------
Occupancy Rate 66.0% 62.9% 67.6% 65.3%
Average Room Rate $56.54 $57.55 $56.11 $58.01
Excluding Dallas Park Central:
------------------------------
Occupancy Rate 67.6% 62.7% 70.8% 65.3%
Average Room Rate $56.27 $56.75 $56.08 $57.15
</TABLE>
Management of the Corporation believes that the increases in the average
occupancy rate resulted primarily from more favorable economic conditions which
have created increased business and pleasure travel throughout the United
States.
Gaming revenues for the first six months of 1994 as compared to the
corresponding period of 1993 increased by $830,000 or 6.2% to $14,313,000.
Gaming revenues for the three months ended June 30, 1994 increased by $321,000
or 4.7% to $7,125,000 as compared to the corresponding period of 1993.
Management believes that the higher revenues at the two gaming facilities are a
result of increased travel to the Las Vegas area, and in particular, increased
- 19 -
<PAGE> 20
customer traffic due to the proximity of the King 8 Hotel and Casino to several
large hotel/casinos completed during 1993.
Hotel expenses for the first six months of 1994 were $31,124,000 or
74.3% of hotel revenues as compared to $33,819,000 or 78.5% of hotel revenues
for the first six months of 1993. Hotel expenses were $15,556,000 or 73.0% of
hotel revenues as compared to $17,454,000 or 77.2% of hotel revenues for the
three months ended June 30, 1994 and 1993, respectively. The decreases in
hotel expenses as a percentage of hotel revenue are primarily due to the lower
cost of operating the Dallas property (see discussion of hotel revenues above)
where operating expenses have historically been higher than at other hotel
properties and the additional operating margin resulting from the renovation of
the Milwaukee Marriott discussed above.
Gaming expenses were $12,159,000 or 85.0% of gaming revenues as
compared to $11,608,000 or 86.1% for the six months ended June 30, 1994 and
1993, respectively. Gaming expenses were $6,166,000 or 86.5% of gaming
revenues as compared to $5,873,000 or 86.3% for the three months ended June 30,
1994 and 1993, respectively. Management believes that increased gaming
revenues, coupled with improved casino win percentages, have resulted in the
decrease in gaming expenses as a percentage of gaming revenues for the six
months ended June 30, 1994.
Administrative and operating expenses decreased by $128,000 and
increased by $38,000 for the six and three months ended June 30, 1994,
respectively, as compared to the corresponding periods of 1993. The decrease
for the six months ended June 30, 1994 is primarily a result of a reduction in
the level of corporate staff.
Depreciation expense decreased by $111,000 and $128,000 for the six
months and the three months ended June 30, 1994, respectively, as compared to
the corresponding periods of 1993. The decreases are a result of the sale of
hotels (see "Trust" immediately above) partially offset by an increase as a
result of the $4,300,000 renovation of the Milwaukee Marriott Hotel completed
in December 1993.
For information with respect to rent and interest to the Trust during
the six and three months ended June 30, 1994 and 1993, see "Trust" immediately
above.
- 20 -
<PAGE> 21
Liquidity and Capital Resources
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 and other
indebtedness. As of January 1, 1993, a total of $448,000 of then accrued and
unpaid rents and interest were added to the intercompany 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 Trust's banks from time to time plus 2%. However,
there can be no assurance that the Corporation will be able to meet its debt
obligations to the Trust in future years.
The 1993 restructuring of the leases between the Trust and the
Corporation, the two-year interest moratorium on the Corporation's debt to the
Trust, and the sales of the Trust's hotels which were made in 1993 and that are
anticipated to be made in 1994 are expected to lower the rents and interest
received by the Trust from the Corporation in 1994. The Trust will seek to
generate from its operations sufficient cash flow to pay the interest due on
the Term Loan, the 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 the 1993 Form 10-K
under the caption "Mortgage Notes Payable Maturing in 1994".) 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 the 1993 Form 10-K.)
As of the date of this Form 10-Q, the Trust has made payments
totaling $3,964,000 against the $9.0 million mandatory principal payment which
is due under the Term Loan on August 31, 1994. The Trust has exercised the put
option for the $6,000,000 sale of the Albany property to Starwood (see Part I,
Item 1 under the heading Reorganization). Starwood is obligated, subject to
certain conditions, to purchase the property prior to the due date of the
mandatory principal payment. In addition, $1,428,000 would be available upon
receipt of the payoff of a mortgage note receivable which matures prior to
August 31, 1994. There can be no assurance that the sale transaction or the
mortgage note payoff will occur or that the Trust will have sufficient funds
available to make the payment of the $5,036,000 remaining due for the
mandatory principal payment under the Term Loan on August 31, 1994.
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
- 21 -
<PAGE> 22
management fees with respect to the nine hotels managed by independent
management companies. The primary demands on the Corporation's capital
resources are the payment of rents and interest due to the Trust and the
Corporation's general and administrative expenses. The two-year interest
moratorium on the Corporation's debt to the Trust and the reduction in future
rentals due to the Trust are expected to improve the Corporation's 1994 cash
flows and income, although sales of the Trust's hotels managed by the
Corporation are expected to reduce the Corporation's revenues. The Corporation
may continue to incur cash flow deficiencies and the Corporation expects to
continue to request that the Trust loan the Corporation the funds required to
meet those deficiencies. The Corporation currently has no other means of
obtaining the funds to cover its cash flow deficiencies or to repay the
principal amount of the Corporation's debt to the Trust.
As described in Items 1 and 2 of the 1993 Form 10-K under the
caption "Recent Developments - Debt Restructuring", the Credit Agreement
requires that the Trust and the Corporation apply on a daily basis any cash in
excess of certain specified thresholds to borrowings outstanding under the
Revolving Line of Credit. Amounts so paid are available for future borrowings
to pay interest on the Restructured Debt, to make principal payments on the
Term Loan and to pay other expenses incurred in connection with Hotel
Investors' operations. As of June 30, 1994, $2,553,000 was available to the
Trust under the Revolving Line of Credit. However, should the Trust or the
Corporation fail to comply with its obligations under the Credit Agreement and
related documents, the Trust's lenders will have the power to substantially
restrict the Trust's and the Corporation's access to and ability to utilize
its cash.
The Trust intends to make during 1994, to the extent that the
Trust has the necessary funds available, 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
Trust expects that provided funds are available, the cost of such improvements
will be approximately $3,720,000 during 1994. As discussed in Items 1 and 2 of
the 1993 Form 10-K, Hotel Investors' capital improvements are subject to the
approval of the Trust's lenders.
For information with respect to potential hazardous waste
contamination and the presence of asbestos at certain of the Trust's hotels and
the possible impact thereof on the Trust's and the Corporation's financial
position, see "Other Information - Certain Environmental Matters" included in
Items 1 and 2 of the 1993 Form 10-K.
- 22 -
<PAGE> 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On July 20, 1994, the United States District Court for the Southern
District of California entered a Final Judgment of Dismissal With Prejudice
("Final Judgment") of the two purported class actions filed in that Court
entitled Naomi Horowitz v. Hotel Investors Trust et al and Joyce Uttan I.R.A.
et al v. Hotel Investors Trust et al ("Final Judgment"). For additional
information with respect to these actions and the related derivative action
filed in the Superior Court of the State of California for San Diego County
captioned Richard Carno and Sonem Partners Ltd. v. Ronald A. Young et al., see
information included in Item 3 of the 1993 Form 10-K under the caption "Naomi
Horowitz v. Hotel Investors Trust et al; Joyce Uttan I.R.A. et al v. Hotel
Investors Trust et al," which information is incorporated herein by reference.
The Uttan, Horowitz, and Carno cases are collectively referred to herein as the
"Shareholder Actions."
Pursuant to the Final Judgment, the District Court, among other
things, approved the settlement set forth in stipulations of settlement
("Stipulation") entered into among the plaintiffs and defendants in the
Shareholder Actions, as well as the insurance company that issued Hotel
Investors' directors and officers policy applicable to the period to which
Shareholder Actions relate.
Under the Final Judgment, all claims that were or might have been made
in the Shareholder Actions are deemed released as of the Effective Date (as
defined in the Stipulation), and a $3,205,000 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 Investors, and $350,000 will be paid by Messrs. John Rothman and Ronald
Young. Upon completion of the claims administration process, any funds
remaining, up to a limit of $325,000, shall be returned to the parties who
contributed to the settlement fund on a pro rata basis. The parties
contributing to the settlement fund have previously established a separate
$45,000 fund to be used for purposes of notifying the classes and otherwise
administering the settlement. Legal fees and other costs incurred by the
defendants in the Shareholder Actions prior to October 12, 1993, will be paid
by Hotel Investors; subsequent defense costs will be paid by the insurance
company. An aggregate of approximately 1,199,000 shares opted out of the
settlement.
On July 25, 1994, the Superior Court entered an Order Determining Good
Faith, pursuant to which the Court determined that the settlement of the Carno
case, as reflected in the Stipulation, was made in good faith, and that all
claims that were made or might have been made in that action were released and
discharged.
The Stipulation also requires that the Trust's Board of Trustees and
the Corporation's Board of Directors establish a joint transaction committee of
independent Trustees and Directors
- 23 -
<PAGE> 24
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 Shareholders 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 and have 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.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this Form 10-Q:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
99.1 Pages 11 (beginning at "Recent Developments") through 20
(concluding at "Regulation and Licensing") of the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K") (incorporated by
reference to the 1993 Form 10-K (SEC File Nos. 1-6828/1-7959)).
</TABLE>
- 24 -
<PAGE> 25
(b) Reports on Form 8-K
The Trust and the Corporation filed a Joint Form 8-K dated
June 13, 1994, to report under Item 5 of Form 8-K the
Reorganization described under "Reorganization" in Item 1 or
this Form 10-Q.
- 25 -
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION
Registrant Registrant
/s/ MICHAEL W. MOONEY /s/ KEVIN E. MALLORY
- - - ----------------------------------------------- --------------------------------------------------
Michael W. Mooney Kevin E. Mallory
Vice President and Chief Executive Vice President (Principal
Financial Officer Executive Officer)
Hotel Investors Trust Hotel Investors Corporation
Hotel Investors Corporation has no chief
financial officer or principal accounting
officer.
</TABLE>
Date: August 12, 1994
- 26 -
