<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 March 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 1-6828
STARWOOD LODGING TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-0901263
(I.R.S. employer identification no.)
11835 W. Olympic Blvd., Suite 695
Los Angeles, California 90064
(Address of principal executive
offices, including zip code)
(310) 575-3900
(Registrant's telephone number,
including area code)
Commission File Number: 1-7959
STARWOOD LODGING CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
11835 W. Olympic Blvd., Suite 675
Los Angeles, California 90064
(Address of principal executive
offices, including zip code)
(310) 575-3900
(Registrant's telephone number,
including area code)
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.
15,798,192 Shares of Beneficial Interest, par value
$0.01 per share, of Starwood Lodging Trust paired with
15,798,192 Shares of Common Stock, par value $0.01 per share,
of Starwood Lodging Corporation, outstanding as of April 12,
1996.
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<PAGE> 2
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements of Starwood Lodging Trust (the
"Trust") and Starwood Lodging Corporation (the "Corporation") are provided
pursuant to the requirements of this item.
INDEX TO FINANCIAL STATEMENTS
Starwood Lodging Trust and Starwood Lodging Corporation:
Combined Balance Sheets - As of March 31, 1996 and December 31, 1995 Combined
Statements of Operations - For the three months ended March 31, 1996 and 1995
Combined Statements of Cash Flows - For the three months ended March 31, 1996
and 1995
Starwood Lodging Trust:
Balance Sheets - As of March 31, 1996 and December 31, 1995 Statements of
Operations - For the three months
ended March 31, 1996 and 1995
Statements of Cash Flows - For the three months
ended March 31, 1996 and 1995
Starwood Lodging Corporation:
Balance Sheets - As of March 31, 1996 and December 31, 1995 Statements of
Operations - For the three months
ended March 31, 1996 and 1995
Statements of Cash Flows - For the three months
ended March 31, 1996 and 1995
Notes to Financial Statements
Starwood Lodging Trust and Starwood Lodging Corporation:
Combined Statement of Operations for the three months ended March 31, 1996 and
Combined Pro Forma Statement of Operations - for the three months ended
March 31, 1995
Notes to Unaudited Combined Pro Forma Statements of Operations for the three
months ended March 31, 1995
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<PAGE> 3
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
------------- -------------
ASSETS
<S> <C> <C>
Hotel assets held for sale - net .......................... $ 39,923,000 $ 21,063,000
Hotel assets - net ........................................ 347,379,000 315,895,000
------------- -------------
387,302,000 336,958,000
Mortgage notes receivable, net ............................ 78,801,000 79,261,000
Investments ............................................... 46,865,000 2,858,000
------------- -------------
Total real estate investments ........................ 512,968,000 419,077,000
Cash and cash equivalents ................................. 20,646,000 9,332,000
Accounts and interest receivable .......................... 12,702,000 9,595,000
Notes receivable, net ..................................... 1,776,000 1,796,000
Inventories, prepaid expenses and other assets ............ 17,004,000 20,194,000
------------- -------------
$ 565,096,000 $ 459,994,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving line of credit . $ 223,985,000 $ 119,100,000
Mortgage and other notes payable .......................... 4,779,000 4,385,000
Accounts payable and other liabilities .................... 22,388,000 19,022,000
Dividends/Distributions payable ........................... 10,245,000 9,284,000
------------- -------------
261,397,000 151,791,000
------------- -------------
Commitments and contingencies
MINORITY INTEREST ......................................... 91,569,000 92,735,000
------------- -------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at March 31, 1996
and December 31, 1995, $.01 par value; authorized
100,000,000 shares; outstanding 13,798,000 shares ...... 138,000 138,000
Corporation common stock at March 31, 1996 and December 31,
1995, $.01 par value; authorized 100,000,000 shares;
outstanding 13,798,000 shares .......................... 138,000 138,000
Additional paid-in capital ................................ 434,104,000 434,107,000
Distributions in excess of earnings ....................... (222,250,000) (218,915,000)
------------- -------------
212,130,000 215,468,000
------------- -------------
$ 565,096,000 $ 459,994,000
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
1996 1995
------------ ------------
REVENUE
<S> <C> <C>
Hotel ......................................................... $ 44,064,000 $ 22,781,000
Gaming ........................................................ 6,829,000 6,669,000
Interest from mortgage and other notes ........................ 2,525,000 2,581,000
Income from joint ventures and
rents from leased hotel properties ......................... 594,000 159,000
Other ......................................................... 873,000 61,000
Loss on sale of hotel assets .................................. (113,000)
------------ ------------
54,885,000 32,138,000
------------ ------------
EXPENSES
Hotel operations .............................................. 30,050,000 16,280,000
Gaming operations ............................................. 5,835,000 6,021,000
Interest ...................................................... 3,223,000 5,827,000
Depreciation and amortization ................................. 7,660,000 2,863,000
Administrative and operating .................................. 2,373,000 1,068,000
------------ ------------
49,141,000 32,059,000
------------ ------------
Income before extraordinary item and minority interest ........ 5,744,000 79,000
Minority interest ............................................. 1,654,000 94,000
------------ ------------
Income (loss) before extraordinary item ....................... 4,090,000 (15,000)
Extraordinary item (net of $1,084,000 minority interest) ...... 363,000
------------ ------------
NET INCOME $ 4,090,000 $ 348,000
============ ============
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary item ....................... $ 0.30 $ (0.01)
Extraordinary item ............................................ 0.18
------------ ------------
NET INCOME PER PAIRED SHARE $ 0.30 $ 0.17
============ ============
Weighted average number of paired shares 13,798,000 2,022,000
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income .............................................. $ 4,090,000 $ 348,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest ..................................... 1,654,000 94,000
Extraordinary item .................................... (363,000)
Depreciation and amortization ......................... 7,660,000 2,863,000
Accretion of discount ................................. (780,000) (753,000)
Deferred interest ..................................... 649,000
Loss on sale of hotel assets ........................... 113,000
Changes in operating assets and liabilities:
Accounts receivable, inventories, prepaid expenses and
other assets ........................................ 62,000 (5,889,000)
Accounts payable and other liabilities ................ 2,604,000 2,253,000
------------- ------------
Net cash provided by (used in) operating activities 15,290,000 (685,000)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................... (37,496,000) (432,000)
Purchase of investments ................................. (44,007,000)
Net proceeds from sale of hotel assets .................. 634,000
Increase in mortgage notes receivable ................... (20,113,000)
Principal received on mortgage and other notes receivable 941,000 1,480,000
Reorganization costs .................................... (2,786,000)
------------- ------------
Net cash used in financing activities ............. (100,041,000) (1,738,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable .. (32,578,000)
Borrowings under secured notes payable , net ............ 104,885,000 27,461,000
Borrowings under mortgage and other notes ............... 467,000 250,000
Capital contributions (adjustments) ..................... (3,000) 14,860,000
Dividends/distributions paid ............................ (9,284,000)
Purchase of warrants .................................... (514,000)
------------- ------------
Net cash provided by financing activities ......... 96,065,000 9,479,000
------------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS ................... 11,314,000 7,056,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ................................ 9,332,000 5,065,000
------------- ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ...................................... $ 20,646,000 $ 12,121,000
============= ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
STARWOOD LODGING TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
------------- -------------
ASSETS
<S> <C> <C>
Hotel assets held for sale - net ........................ $ 36,941,000 $ 20,547,000
Hotel assets - net ...................................... 237,138,000 221,063,000
------------- -------------
274,079,000 241,610,000
Mortgage notes receivable - net ......................... 78,801,000 79,261,000
Mortgage notes receivable - Corporation ................. 85,676,000 68,486,000
Investments ............................................. 46,848,000 2,841,000
------------- -------------
Total real estate investments ..................... 485,404,000 392,198,000
Cash and cash equivalents ............................... 7,337,000 710,000
Rent and interest receivable ........................... 3,605,000 1,841,000
Notes receivable - net .................................. 1,228,000 1,232,000
Notes receivable - Corporation .......................... 24,466,000 17,978,000
Prepaid expenses and other assets ....................... 8,257,000 11,778,000
------------- -------------
$ 530,297,000 $ 425,737,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving line of credit $ 223,985,000 $ 119,100,000
Mortgage and other notes payable ........................ 100,000 100,000
Accounts payable and other liabilities .................. 3,057,000 4,412,000
Dividends/Distributions payable ......................... 10,245,000 9,284,000
------------- -------------
237,387,000 132,896,000
------------- -------------
Commitments and contingencies
MINORITY INTEREST ....................................... 88,367,000 88,113,000
------------- -------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at March 31, 1996
and December 31, 1995, $.01 par value; authorized
100,000,000 shares; outstanding 13,798,000 shares .... 138,000 138,000
Additional paid-in capital .............................. 354,717,000 354,619,000
Distributions in excess of earnings ..................... (150,312,000) (150,029,000)
------------- -------------
204,543,000 204,728,000
------------- -------------
$ 530,297,000 $ 425,737,000
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 7
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
------------ ----------
<S> <C> <C>
REVENUE
Rents from Corporation ........................................ $ 11,504,000 $5,163,000
Interest from Corporation ..................................... 2,188,000 767,000
Interest from mortgage and other notes ........................ 2,504,000 2,566,000
Income from joint venture and
rents from other leased hotel properties ................... 1,356,000 159,000
Other ......................................................... 406,000 34,000
Loss on sale of hotel assets .................................. (113,000)
----------
17,958,000 8,576,000
------------ ----------
EXPENSES
Interest ...................................................... 3,168,000 5,509,000
Depreciation and amortization ................................. 3,386,000 1,691,000
Administrative and operating .................................. 1,188,000 355,000
------------ ----------
7,742,000 7,555,000
------------ ----------
Income before extraordinary item and minority interest ....... 10,216,000 1,021,000
Minority interest ............................................. 3,074,000 732,000
------------ ----------
Income before extraordinary item .............................. 7,142,000 289,000
Extraordinary item (net of $921,000 minority interest) ........ 363,000
------------ ----------
NET INCOME $ 7,142,000 $ 652,000
============ ==========
EARNINGS PER PAIRED SHARE
Income before extraordinary item .............................. $ 0.52 $ 0.14
Extraordinary item ............................................ 0.18
------------ ----------
NET INCOME PER SHARE $ 0.52 $ 0.32
============ ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 8
STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ....................................... $ 7,142,000 $ 652,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest ..................................... 3,074,000 732,000
Extraordinary item .................................... (363,000)
Depreciation and amortization ......................... 3,386,000 1,691,000
Accretion of discount ................................. (780,000) (753,000)
Deferred interest ..................................... 936,000 649,000
Deferred interest - Corporation ....................... (463,000)
Gain (loss) on sale ................................... 113,000
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and other assets 2,024,000 (3,656,000)
Accounts payable and other liabilities ................ (1,355,000) 272,000
------------- ------------
Net cash provided by (used in) operating activities 14,427,000 (1,126,000)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................... (16,324,000) (453,000)
Purchase of investments ................................. (44,007,000)
Net proceeds from sale of hotel assets .................. 634,000
Increase in mortgage notes receivable - Corporation ..... (17,000,000)
Increase in mortgage notes receivable ................... (20,113,000)
Principal received on mortgage and other notes receivable 925,000 1,466,000
Reorganization costs .................................... (1,393,000)
Net changes in notes receivable - Corporation ........... (7,614,000) (1,562,000)
------------- ------------
Net cash used in investing activities ............. (103,499,000) (1,942,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit ........................ 104,885,000 27,461,000
Principal payments on mortgage and other notes payable .. (32,413,000)
Borrowings under mortgage and other notes ............... 250,000
Purchase of warrants .................................... (514,000)
Capital contributions/adjustments ....................... 98,000 11,968,000
Dividends/distributions paid ............................ (9,284,000)
------------- ------------
Net cash provided by financing activities ......... 95,699,000 6,752,000
------------- ------------
INCREASE IN CASH AND
CASH EQUIVALENTS ...................................... 6,627,000 3,684,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ................................ 710,000 255,000
------------- ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ...................................... $ 7,337,000 $ 3,939,000
============= ============
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 9
STARWOOD LODGING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net ......................................... $ 2,982,000 $ 516,000
Hotel assets - net ....................................................... 110,241,000 94,832,000
------------- -------------
113,223,000 95,348,000
Investments .............................................................. 17,000 17,000
------------- -------------
Total real estate investments ...................................... 113,240,000 95,365,000
Cash and cash equivalents ................................................ 13,309,000 8,622,000
Accounts receivable ...................................................... 9,097,000 7,754,000
Notes receivable ......................................................... 548,000 564,000
Inventories, prepaid expenses and other assets ........................... 8,747,000 8,416,000
============= =============
$ 144,941,000 $ 120,721,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable ......................................... $ 4,679,000 $ 4,285,000
Mortgage notes payable - Trust ........................................... 85,676,000 68,486,000
Notes payable - Trust .................................................... 24,466,000 17,978,000
Accounts payable and other liabilities ................................... 19,331,000 14,610,000
------------- -------------
134,152,000 105,359,000
------------- -------------
Commitments and contingencies
MINORITY INTEREST ........................................................ 3,202,000 4,622,000
------------- -------------
SHAREHOLDERS' EQUITY
Corporation common stock at March 31, 1996 and December 31, 1995, $.01 par
value; authorized 100,000,000
shares; outstanding 13,798,000 shares ................................. 138,000 138,000
Additional paid-in capital ............................................... 79,387,000 79,488,000
Distributions in excess of earnings ...................................... (71,938,000) (68,886,000)
------------- -------------
7,587,000 10,740,000
------------- -------------
$ 144,941,000 $ 120,721,000
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 10
STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUE
Hotel ........................................................ $ 44,064,000 $ 22,781,000
Gaming ....................................................... 6,829,000 6,669,000
Loss from joint venture ...................................... (762,000) 15,000
Interest from notes receivable ............................... 21,000
Other income ................................................. 467,000 27,000
------------ ------------
50,619,000 29,492,000
------------ ------------
EXPENSES
Hotel operations ............................................. 30,050,000 16,280,000
Gaming operations ............................................ 5,835,000 6,021,000
Rent - Trust ................................................. 11,504,000 5,163,000
Interest - Trust ............................................. 2,188,000 767,000
Interest - other ............................................. 55,000 318,000
Depreciation and amortization ................................ 4,274,000 1,172,000
Administrative and operating ................................. 1,185,000 713,000
------------ ------------
55,091,000 30,434,000
------------ ------------
Loss before minority interest ................................ (4,472,000) (942,000)
Minority interest ............................................ (1,420,000) (638,000)
------------ ------------
NET LOSS $ (3,052,000) $ (304,000)
============ ============
NET LOSS PER SHARE $ (0.22) $ (0.15)
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 11
STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................ $ (3,052,000) $ (304,000)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest ................................... (1,420,000) (638,000)
Depreciation and amortization ....................... 4,274,000 1,172,000
Deferred interest - Trust ........................... (936,000) 463,000
Changes in operating assets and liabilities:
Accounts receivable inventories, prepaid expenses and
other assets ...................................... (1,962,000) (2,233,000)
Accounts payable and other liabilities .............. 3,959,000 1,981,000
------------ -----------
Net cash provided by operating activities ....... 863,000 441,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................. (21,172,000) 21,000
Principal received on notes receivable ................ 16,000 14,000
Reorganization costs .................................. (1,393,000)
------------ -----------
Net cash used in investing activities ........... (21,156,000) (1,358,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable - Trust ................... 7,614,000 1,562,000
Increase in mortgage notes payable - Trust ............ 17,000,000
Borrowings under mortgage and other notes payable ..... 467,000
Mortgage and other notes payable ...................... (165,000)
Capital contributions (adjustments) ................... (101,000) 2,892,000
------------ -----------
Net cash provided by financing activities ....... 24,980,000 4,289,000
------------ -----------
INCREASE IN CASH AND CASH EQUIVALENTS ................. 4,687,000 3,372,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD .............................. 8,622,000 4,810,000
------------ -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .................................... $ 13,309,000 $ 8,182,000
============ ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 12
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM 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 complete financial statements. In the opinion of management of
the Trust and the Corporation, all adjustments necessary for a fair
presentation, consisting only of normal recurring accruals, 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/A for the year ended December 31, 1995 and should be read in
conjunction therewith.
NOTE 2. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation, respectively. Paired share information has been adjusted to reflect
a one-for-six reverse stock split effective June 19, 1995.
NOTE 3. HOTEL ASSETS
On January 4, 1996, the Companies completed the purchase of the equity
in the Grand Hotel, a 263-room luxury hotel, located in Washington, D.C., for an
additional $13.5 million. The Company had purchased a mortgage interest in the
hotel in September 1995 for the $19.5 million.
On March 25, 1996, the Companies completed the acquisition of the
257-room Midland Hotel, located in Chicago, IL, for approximately $21 million.
NOTE 4. MORTGAGE NOTES RECEIVABLE
On February 26, 1996, the Companies acquired a debt interest for $21
million and entered into an agreement to purchase the equity interest in the
251-room Doubletree Guest Suites Hotel and the 175-room Days Inn, both located
at the Philadelphia Airport in Philadelphia, PA.
- 12 -
<PAGE> 13
NOTE 5. INVESTMENTS
On January 24, 1996, the Companies completed the acquisition of an
interest in the 960-room Boston Park Plaza Hotel Complex in Boston,
Massachusetts. The Companies formed two limited liability companies in
partnership with Donald Saunders Family L.L.C. ("Saunders"). The Trust
contributed approximately $41.6 million in exchange for a 58.2 percent interest
in each of the limited liability companies, while Saunders contributed its
existing interest in the asset for the remaining 42.8 percent interest in each
of the limited liability companies. The Companies have accounted for this
transaction under the equity method of accounting.
NOTE 6. INTEREST RATE HEDGING AGREEMENTS
On January 17, 1996, the Trust entered into two interest rate hedging
agreements known as Treasury locks, which have the effect of fixing the base
rate of interest at 5.7 percent for debt the Companies intend to issue in
October, 1996 with an aggregate notional principal amount of $100 million and a
term to maturity of seven years. The actual interest rate will be determined by
reference to this base rate.
At settlement, the Trust will pay or receive an amount which will be
capitalized and amortized over the term of the related debt of seven years. Such
amount is not anticipated to have a material effect on the Trust's liquidity or
operating results. If the Trust did not issue any such debt, such amount would
still be payable or receivable and would be treated as a loss or gain,
accordingly. Such a gain or loss could have a material effect on the Trust's
results from operations; however due to Management's current intention to issue
$100 million of debt in October of 1996, with a term to maturity of seven years,
no such gain or loss is anticipated.
NOTE 7. PRO FORMA FINANCIAL INFORMATION
As required by Regulation S-X, the following unaudited pro forma
separate and combined condensed financial information for the three months ended
March 31, 1996 and 1995 is presented as if the 1995 Offering and certain
property acquisitions, including the acquisition of the Sheraton Colony Square;
the Embassy Suites Tempe; the Omni; the Doral Inn; the Terrace Garden Inn; the
Lenox Inn; the Calverton Holiday Inn; the Grand; the Boston Park Plaza; and the
Midland Hotel had occurred at the beginning of each of the respective periods.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
-----------------------------------------------------------------------
Trust Corporation Combined
-------------------- ---------------------- -------------------
<S> <C> <C> <C>
Revenues $ 18,725,000 $ 52,801,000 $ 57,406,000
Net income (loss) $ 7,246,000 $ (3,644,000) $ 3,603,000
Net income (loss) per share $ .53 $ (.26) $ .26
</TABLE>
- 13 -
<PAGE> 14
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
-----------------------------------------------------------------------
Trust Corporation Combined
-------------------- ---------------------- -------------------
<S> <C> <C> <C>
Revenues $ 12,901,000 $ 48,642,000 $ 52,049,000
Net income (loss) $ 3,537,000 $ (596,000) $ 2,941,000
Net income (loss) per share $ .26 $ (.04) $ .21
</TABLE>
NOTE 8. SUBSEQUENT EVENTS
On April 12, 1996, the Trust and the Corporation completed a public
offering of 2,000,000 paired shares (the "1996 Offering"). Net proceeds from the
1996 Offering of approximately $63 million were used, in part, to fund the
acquisitions of the Clarion Hotel located at the San Francisco Airport (acquired
on April 24, 1996) and Doubletree Guest Suite hotels located in Irving, Texas;
Ft. Lauderdale, Florida; and Tampa, Florida (all three properties acquired on
April 26, 1996).
On April 24, 1996, the Companies completed the acquisition of the
442-room Clarion hotel, located at the San Francisco Airport, for $31.7 million.
On April 26, 1996, the Companies completed the acquisition of the
308-room Doubletree Guest Suite hotel located in Irving, Texas, the 254-room
Doubletree Guest Suite hotel located in Ft. Lauderdale Florida, and the 260-room
Doubletree Guest Suite hotel located in Tampa, Florida. The Companies acquired
the three properties for $73.5 million.
NOTE 9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March and October 1995, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of" and
No. 123 "Accounting for Stock-Based Compensation", respectively. These
statements shall be effective for financial statements for fiscal years
beginning after December 15, 1995. Management believes that adoption of Standard
No. 121 will not have a material effect on its financial position or results of
operations. Management intends to adopt the disclosure method of Standard No.
123 and, accordingly, there will be no impact on the Company's financial
position or results of operations.
- 14 -
<PAGE> 15
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
Pro Forma
1996 1995
---------------- -----------------
<S> <C> <C>
REVENUE
Hotel ............................................ $44,064,000 $30,908,000
Gaming ........................................... 6,829,000 6,669,000
Interest from mortgage and other notes ........... 2,525,000 2,586,000
Income from joint ventures and rents from
leased hotel properties......................... 594,000 159,000
Other income...................................... 873,000 61,000
Loss on sale of hotel assets ..................... (113,000)
---------------- -----------------
54,885,000 40,270,000
---------------- -----------------
EXPENSES
Hotel operations ................................. 30,050,000 21,327,000
Gaming operations ................................ 5,835,000 6,021,000
Interest ......................................... 3,223,000 269,000
Depreciation and amortization..................... 7,660,000 4,426,000
Administrative and operating ..................... 2,373,000 1,104,000
---------------- -----------------
49,141,000 33,147,000
---------------- -----------------
Income before minority interest .................. 5,744,000 7,123,000
Minority interest in Partnerships ................ 1,654,000 2,144,000
---------------- -----------------
Net income ....................................... $ 4,090,000 $4,979,000
================ =================
Net income per paired share ...................... $0.30 $0.36
================ =================
</TABLE>
See accompanying notes to the pro forma statements of operations.
- 15 -
<PAGE> 16
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED PRO FORMA
STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1995
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation (collectively, "the Companies") have unilateral
control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited
Partnership ("Operating" and, together with Realty the "Partnerships"),
respectively, and, therefore, the historical financial statements of Realty and
Operating are consolidated with those of the Trust and the Corporation. Unless
the context otherwise requires, all references herein to the "Companies" refer
to the Trust and the Corporation, and all references to the "Trust" and to the
"Corporation" include the Trust and the Corporation and those entities
respectively owned or controlled by the Trust or the Corporation, including
Realty and Operating.
Due to the impact of certain events which occurred in 1995, the historical
results of operations and earnings per share for the three months ended March
31, 1995 are not indicative of subsequent and future results of operations and
earnings per share. The Unaudited Combined Pro Forma Statements of Operations
included as part of the financial statements for the three months ended March
31, 1995 give effect, as of the beginning of the period presented, to the public
offering on July 6, 1995 (the "1995 Offering") by the Trust and the Corporation
of 11,787,500 paired shares raising net proceeds of $245.7 million, and the
acquisitions of the Sheraton Colony Square in Atlanta, Georgia, the Embassy
Suites in Tempe, Arizona, and the Omni hotel in Chapel Hill, North Carolina. The
pro forma information is based upon historical information and does not purport
to present what actual results would have been had such transactions, in fact,
occurred at the beginning of the period presented, or to project results for any
future period.
NOTE 2. NET INCOME PER PAIRED SHARE
Net income per paired share has been computed using the pro forma weighted
average number of paired shares and equivalent paired shares outstanding for
each period presented -- 13,798,192 paired shares.
- 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
Companies' Joint Annual Report on Form 10-K/A for the year ended December 31,
1995.
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
The following discussion and analysis of the historical results of
operations for the three months ended March 31,1996 and 1995 give effect to
transactions on the actual date they were consummated.
THE TRUST:
Rents from the Corporation, which are based in part on hotel revenues,
increased $6.3 million for the three months ended March 31, 1996, as compared to
the corresponding period of 1995. The increase was primarily the result of rents
earned by Realty on eight hotels acquired during the twelve months ended March
31, 1996. The investment in eight hotels (the Omni Hotel acquired in April 1995;
the Sheraton Colony Square and the Embassy Suites Tempe acquired in July 1995;
the Doral Inn acquired in September 1995, the Terrace Garden Inn, and Lenox Inn
acquired in October 1995; the Beltsville Holiday Inn acquired in November 1995
and the Grand Hotel acquired in January 1996) accounted for increased rents of
$5.7 million for the three months ended March 31, 1996. In addition, rents
earned by the Trust from continuously owned properties leased by the
Corporation increased $600,000.
Interest from the Corporation increased by $1.4 million for the three
months ended March 31, 1996, as compared to the corresponding period of 1995.
The increase in interest income was primarily a result of interest on the first
mortgage of the Milwaukee Marriott Hotel (owned by a partnership of which
Operating is the sole general partner) which was purchased by Realty in July
1995.
Interest from mortgage and other notes amounted to $2.5 million for the
three months ended March 31, 1996, as compared to $2.6 million for the
corresponding period in 1995. The decrease resulted from principal amortization.
Income from joint ventures and rents from other leased hotel
properties increased by $1.2 million for the three months ended March 31,
1996. The increase primarily resulted from the Trust's 58.2% investment in
the Boston Park Plaza.
Included in other income for the three months ended March 31, 1996 is
$314,500 recorded as a result of the Ross Litigation settlement (see Item I of
Part II).
- 17 -
<PAGE> 18
Interest expense decreased by $2.3 million for the three months ended
March 31, 1996 as compared to the corresponding period of 1995. The decrease was
due to the repayment of approximately $206.5 million of existing indebtedness in
connection with the 1995 Offering offset by borrowings under the lines of credit
used to acquire the above mentioned properties.
Depreciation and amortization expense increased by $1.7 million during
the three months ended March 31, 1996 as compared to the corresponding period of
1995, principally due to the above mentioned property acquisitions and to the
amortization of financing costs.
Administrative and operating expenses for the three months ended March
31, 1996 increased by $833,000 to $1.2 million reflecting increased payroll
costs due to the growth of the Trust and costs incurred relating to the
potential acquisition of hotels which ultimately were not acquired.
Minority interest represents the interest of Starwood Capital in the
Realty Partnership for the three months ended March 31, 1996.
THE CORPORATION:
Hotel revenues increased by $21.3 million for the three months ended
March 31, 1996 as compared to the corresponding period of 1995. The addition of
the nine acquired properties as discussed above resulted in increases in hotel
revenues of $19.4 million for the three month period ended March 31, 1996. The
remaining increase of $1.9 million for the three months ended March 31, 1996 is
attributable to other continuously owned properties.
Hotel gross margin for the first quarter of 1996 was $14.0 million, or
31.8% of hotel revenues, as compared to $6.5 million, or 28.5% of hotel
revenues, for the first quarter of 1995. The increases in gross margin were
primarily due to increases in REVPAR and the termination of third-party
management agreements.
Gaming revenues for the first quarter of 1996 as compared to the
corresponding period of 1995 increased by $160,000 or 2.4% to $6.8 million.
Gaming gross margin for the first quarter of 1996 was $994,000, or
14.6% of gaming revenues, as compared to $648,000 or 9.7% of gaming revenues,
for the first quarter of 1995.
Included in other income for the three months ended March 31, 1996 is
$314,500 recorded as a result of the Ross Litigation settlement (See Item 1 of
Part II) and $133,000 representing management fee income from the joint venture
that owns the Boston Park Plaza.
Loss from joint venture represents a loss, after rents to the Trust,
from the Corporation's 58.2% investment in the Boston Park Plaza.
- 18 -
<PAGE> 19
Administrative and operating expenses for the three months ended March
31, 1996, increased by $472,000 to $1.2 million or 2.3% of revenues, as compared
to $713,000 or 2.4% of revenues for the corresponding period of 1995. The
increase was primarily a result of increases in payroll costs commensurate with
the Companies' growth, as well as the assumption of management of hotels
previously provided by third-party operators.
Depreciation and amortization expense increased by $3.1 million for the
three months ended March 31, 1996, as compared to the corresponding period of
1995. The increase was primarily a result of the acquired hotels and
amortization of reorganization costs as discussed above.
Minority interest represents the interest of Starwood Capital in the
Operating Partnership for the three months ended March 31, 1996.
For information with respect to rent and interest to the Trust during
the three months ended March 31, 1996 and 1995, see "Trust" immediately above.
- 19 -
<PAGE> 20
COMBINED HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND COMBINED PRO FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1995
NET INCOME
Combined net income for the three months ended March 31, 1996 was $4.1
million, or $.30 per paired share, on combined revenues of $54.9 million,
compared to combined pro forma net income of $5.0 million, or $.36 per paired
share, on combined revenues of $40.3 million for the corresponding period in
1995. The decline in net income reflects the impact of a $3.2 million increase
in depreciation over the prior period.
INTERNAL GROWTH
On a same-store-sales basis, including all hotels acquired prior to
March 31, 1996, revenues per available room (REVPAR) for the three months ended
March 31, 1996 increased 9.3 percent, from $48.71 to $53.22. The increase in
REVPAR resulted from an increase in average daily rate (ADR) of 7.6 percent,
from $75.90 to $81.67 and a one percentage point increase in occupancy rates
from 64% to 65%.
The overall increase in REVPAR for the first quarter of 1996 was
largely attributable to the strong increase in REVPAR at the Companies' upscale
market hotels, which experienced an increase in REVPAR of 12.2 percent. ADR
for the Companies' upscale and midscale/economy market hotels increased
8.2 percent and 6.0 percent, respectively. Management believes that ADR
increases, particularly in the upscale segment, reflect increases in demand
which continue to outpace increases in supply.
The following tables summarize average occupancy, ADR and REVPAR on a
year-over-year basis for the Companies' owned and operated, nongaming hotels for
the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
All Nongaming Hotels: 1996 1995
- -------------------- ---- ----
<S> <C> <C>
Occupancy rate ............................. 65% 64%
ADR......................................... $81.67 $75.90
REVPAR...................................... $53.22 $48.71
REVPAR % change 9.3
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
Upscale Hotels: 1996 1995
- -------------- ---- ----
<S> <C> <C>
Occupancy rate ............................. 67% 64%
ADR......................................... $96.69 $89.34
REVPAR...................................... $64.64 $57.61
REVPAR % change 12.2
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
Midscale/Economy Hotels: 1996 1995
- ------------------------ ---- ----
<S> <C> <C>
Occupancy rate ............................. 63% 64%
ADR......................................... $58.87 $55.53
REVPAR...................................... $36.86 $35.37
REVPAR % change 4.2
</TABLE>
Management believes that the increases in REVPAR resulted primarily
from increases in demand due to more favorable economic conditions which have
created increased business and leisure travel throughout the United States,
while the supply of hotel rooms has not increased as rapidly. Revenue increases
were greatest at the recently acquired city center properties in Boston, New
York, and Washington notwithstanding adverse weather conditions and the federal
government shutdown. Hotels in Phoenix, which benefited from the Super Bowl in
January, and the Dallas Park Central hotel also realized strong REVPAR growth.
REVPAR declined at the Portland Riverside Inn as a result of the impact of
renovations expected to be completed in May, 1996.
Management believes that there are several important factors that have
contributed to the improved profitability of hotel properties, including
increased occupancy and average room rate and effective cost management. Because
a substantial portion of the hotels' operating costs and expenses are generally
fixed, the Companies derive substantial operating leverage from increases in
revenue. Consequently, primarily as a result of the stronger growth in ADR than
in occupancy, gross margins for the first quarter of 1996 rose to 32% from 31%
in the corresponding quarter in 1995.
EXTERNAL GROWTH
During the first quarter of 1996, the Companies acquired the equity of
the 263-room Grand Hotel in Washington, DC; a 58.2 percent interest in the
960-room Boston Park Plaza Hotel Complex in Boston, Massachusetts; a debt
interest in the 251-room Doubletree Guest Suites Hotel and the 175-room Days
Inn, both located at the Philadelphia Airport in Philadelphia, Pennsylvania; and
the 257-room Midland Hotel in Chicago, Illinois. In total, the Companies' growth
through acquisitions in the twelve months ending March 31, 1996, including the
hotels acquired in April 1996 (See Item I, note 8), has exceeded $356 million
including the assumption of management of ten of these hotels containing an
aggregate of 3,526 rooms.
- 21 -
<PAGE> 22
SELF MANAGEMENT
As discussed above, in the twelve months ending March 31, 1996,
Operating has assumed management of nine hotels acquired since the 1995 Offering
as well as four continuously owned properties consistent with its business
objective to capture the economic benefits otherwise retained by a third-party
operator. Of the remaining three third-party management agreements in place at
March 31, 1996, all except for the Harvey Wichita Hotel, are expected to be
terminated in 1996. Management believes that the assumption of direct control
over the operations of these hotels will allow the Companies to effectively use
their experience to improve operations and implement renovations and expansions.
RENOVATIONS AND REPOSITIONING HOTELS
The Companies have commenced an estimated $10 million major renovation
of the Dallas Park Central Hotel and conversion to a Radisson. Additionally, the
Companies have commenced an estimated $6 million renovation of the Atlanta
Sheraton Colony Square Hotel and a $2 million renovation of the Portland
Riverside Inn expected to be completed by the end of the second quarter of 1996.
In April, the Companies negotiated the franchising of the French Quarter Suites
Hotel in Lexington, Kentucky as a Doubletree Guest Suites. Management expects
the hotel to benefit from a national franchise affiliation and reservation
system.
SEASONALITY AND DIVERSIFICATION
Demand is affected by normally recurring seasonal patterns. Generally,
the Companies' portfolio of hotels as a whole has performed better in the second
and third quarters due to decreased travel in the winter months. Future
acquisitions may further affect the seasonality of the Companies' current
portfolio.
The Companies have continued to implement a business strategy of
franchise and geographic diversification.
OTHER INCOME AND ADMINISTRATIVE AND OPERATING EXPENSES
Included in other income for the three months ended March 31, 1996 is
$629,000 received in connection with the Ross settlement agreement (see Item I
of Part II).
Administrative and operating expenses for the first quarter of 1996
increased to $2.4 million representing approximately 4.3 percent of revenue,
from $1.1 million or approximately 2.7 percent of revenue in the first quarter
of 1995. The increase was primarily a result of an increase in payroll costs
due to additions to the corporate staffs commensurate with the Companies'
growth, as well as the assumption of management of hotels previously provided
by third-party
- 22 -
<PAGE> 23
operators. The increase also resulted from costs relating to the potential
acquisition of hotels which ultimately were not acquired.
- 23 -
<PAGE> 24
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided by Operating Activities. The principal source of
cash to be used to fund the Companies' operating expenses, interest expense,
recurring capital expenditures and dividend payments by the Trust will be cash
flow provided by operating activities. The Companies anticipate that their cash
flow provided by operating activities will provide the necessary funds on a
short and long term basis to meet their operating cash requirements including
all distributions to shareholders by the Trust. During the first quarter, the
Trust paid a dividend of $0.47 per share for the fourth quarter of 1995 and
declared a dividend of $0.47 per share for the quarter ending March 31, 1996.
Cash Flows from Investing and Financing Activities. Additionally, the
Companies intend to finance the acquisition of additional hotel properties,
hotel renovations and capital improvements and provide for general corporate
purposes through three loan facilities with affiliates of Lehman Brothers Inc.
and, when market conditions warrant, to issue additional equity or debt
securities.
In March 1996, Realty entered into a loan facility (the "Term Loan")
with an affiliate of Lehman Brothers Inc. The 12-month Term Loan was put in
place to fund the acquisition in March 1996, of the Midland Hotel in Chicago
and, in April 1996, the facility was increased to $94 million. The Term Loan is
secured by certain properties of the Companies on a cross-collateralized basis.
As of April 30, 1996, Realty had borrowed $74 million under the Term Loan, which
accrues interest at a rate equal to the one, two or three month LIBOR, at the
Companies' option, plus (a) 1.75% for the first $20 million and (b) 1.95% for
the balance of the Term Loan. The Term Loan may be retired from the proceeds of
public or private issuances of equity or debt securities by the Companies.
On April 12, 1996, the Companies completed the 1996 Offering of
2,000,000 paired shares at a net price to the Companies of $31.50 per paired
share. The net proceeds of approximately $63 million were used, in part, to fund
the acquisition of the Clarion Hotel at the San Francisco Airport and the
Doubletree Guest Suite hotels located in Irving, Texas; Ft. Lauderdale, Florida
and Tampa, Florida.
As previously discussed, the Companies have commenced an approximately
$10 million major renovation of the Dallas Park Central Hotel and conversion to
a Radisson, a $6 million renovation of the Atlanta Sheraton Colony Square Hotel
and a $2 million renovation of the Portland Riverside Inn. Major and minor
renovations of other hotels are also being contemplated. Sources of capital for
major building renovations and expansions are expected to be: (i) excess funds
from operations, (ii) additional debt financing, and (iii) additional equity
raised in the public and private markets. As of the date of the filing of this
report, since January 1, 1995, the Companies have invested over $356 million in
hotel assets ($97.5 million including recurring capital expenditures for the
three month period ended March 31, 1996). As part of
- 24 -
<PAGE> 25
their investment strategy, the Companies plan to acquire additional hotels.
Future acquisitions are expected to be funded through further draws under the
Acquisition Facility and the Term Loan or other borrowings and the issuance of
additional equity or debt securities. The Companies intend to incur additional
indebtedness in a manner consistent with their policy of maintaining a Ratio of
Debt-to-Total Market Capitalization of not more than 50%. Management of each of
the Trust and of the Corporation believes that it will have access to capital
resources sufficient to satisfy the cash requirements of each of the Trust and
the Corporation and to expand and develop their business in accordance with
their strategy for future growth.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is one measure
of financial performance of an equity REIT such as the Trust. Combined FFO (as
defined by the National Association of Real Estate Investment Trusts)(1) for the
three months ended March 31, 1996 grew by 12.0 percent to $13.1 million,
compared to combined historical FFO of $3.1 million and pro forma FFO of $11.7
million for the corresponding period in 1995. The following table shows the
calculation of historical and pro forma combined FFO for the indicated periods:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------------------------------
Pro Forma Historical
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
(in thousands)
Income before extraordinary item and minority
interest ............................................ $ 5,744 $ 7,123 $ 79
Real estate related depreciation and amortization, net
of amortization of financing costs .................. 7,381 4,426 2,863
Loss on sales of hotel assets ......................... 113 113
------------------- ------------------ -------------------
FFO $13,125 $11,662 $3,055
=================== ================== ===================
</TABLE>
FFO includes $226,000 and $293,000 of interest income recognized in excess of
the actual cash received on mortgage notes receivable (as a result of the notes
having been purchased at a discount) for the three months ended March 31, 1996
and 1995, respectively.
(1) With respect to the presentation of FFO, management elected early
adoption of the "new definition" as recommended in the March 1995
NAREIT White Paper on FFO beginning January 1, 1995. Management and
industry analysts generally consider funds from operations to be one
measure of the financial performance of an equity REIT that provides a
relevant basis for comparison among REITs and it is presented to assist
investors in analyzing the performance of the Company. FFO is defined
as income before minority interest (computed in accordance with
generally accepted accounting principles), excluding gains (losses)
from debt restructuring and sales of property, and real estate related
depreciation and amortization (excluding amortization of financing
costs). FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs. FFO should
not be considered an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flows from
operating activities as a measure of liquidity.
- 25 -
<PAGE> 26
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the year ended December 31, 1995, the Trust and the
Corporation reached settlement agreements with respect to two purported class
action complaints and one complaint which was purportedly brought on behalf of
the Trust and the Corporation (collectively, the "Shareholder Actions"). The
Shareholder Actions were brought in 1991 and 1992 in each case in connection
with the Trust's purchase of its two hotel/casinos and the Ramada Inn in Indian
Wells, California.
The two purported class actions were filed in the United
States District Court for the Southern District of California in August 1991 and
February 1992 against the Trust, the Corporation and certain current and former
officers, Directors and Trustees. The complaint alleged fraud, violations of
federal and California securities laws, the federal Racketeer Influenced and
Corrupt Organizations Act and ERISA. The actions sought compensatory damages,
rescission and/or treble and exemplary damages plus interest, costs and
attorneys' fees and statutory damages under ERISA. The third action was filed in
the Superior Court for the State of California for San Diego County in March
1992 against certain current and former officers, Directors and Trustees and
alleged breach of fiduciary duty, gross negligence and corporate waste. The
action sought compensatory damages, certain remuneration and costs.
The plaintiffs and defendants in the Shareholder Actions entered into
stipulations of settlement providing for the release of all claims that were or
might have been made in the Shareholder Actions and provided for a $3,250,000
cash settlement fund which, after payment of fees and expenses of plaintiffs'
counsel, will be distributed to the certified plaintiff classes. The Trust and
the Corporation have paid $400,000 (which amount was accrued in 1993) into the
settlement fund, with the balance of the settlement being paid by the insurance
company that issued the directors and officers policy applicable to the period
to which the Shareholder Actions relate and by two former officers and Trustees
of the Trust. The Trust and the Corporation have also agreed to pay the legal
fees and other costs incurred prior to October 12, 1993 by the defendants in the
Shareholder Actions. Holders of approximately 200,000 Paired Shares (the "Ross
Shares") opted out of the settlement.
The stipulation 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.
Subsequent to the settlement of the Shareholder Actions, Leonard M.
Ross and his affiliates ("Ross"), who held 198,398 Paired Shares (as adjusted
for the one for six reverse split
- 26 -
<PAGE> 27
in June 1995) (the "Ross Shares") and opted out of the settlement, threatened
litigation against the Trust and the Corporation.
In October 1994, Starwood Capital entered into an agreement with Ross
to settle the threatened litigation in which Starwood Capital agreed, in
exchange for an assignment of Ross' claims against the Trust and the
Corporation, to purchase the Ross Shares, at Ross' election, in a 60-day period
beginning on the earlier of the first anniversary of the closing of the
Reorganization or December 15, 1995 at a price of $33.75 subject to certain
adjustments. Starwood Capital also had the right to elect to purchase such
paired shares at the same time and on the same terms.
The Trust and the Corporation accrued a liability as of December 31,
1994 of $2,648,000 reflecting a reasonable estimate of the cost of settling the
Ross claims.
In connection with the Reorganization, which took place in 1995, the
Trust and Corporation severally agreed that under certain circumstances they
would indemnify Starwood Capital with respect to Starwood Capital's obligations
to Ross, up to a maximum of $1.8 million, upon receipt of a full release from
Starwood Capital of all of the claims assigned by Ross. At December 31, 1995,
the Companies had accrued $1.8 million in respect of this potential liability.
The $848,000 reduction in this liability was recorded as an adjustment to
contributed capital during 1995.
Ross elected to sell his paired shares, and in January 1996 those
paired shares were sold to a third party through Merrill Lynch. The paired
shares were sold at a price of $29.625 per paired share; the Trust and the
Corporation paid $1,375,743 in the aggregate pursuant to their indemnity
obligations, and Starwood Capital released the Trust and the Corporation from
all claims assigned to it by Ross. Additionally, the Trust and the Corporation
are entitled to insurance proceeds totaling $205,000 and, as a result,
recognized $629,000 of income in the first quarter of 1996.
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
- 27 -
<PAGE> 28
None.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On January 4, 1996, the Trust and Corporation filed a Joint
Current Report on the Form 8-K to report the purchase of the
Grand Hotel in Washington, DC (as amended by Form 8-K/A filed
on March 19, 1996).
On February 5, 1996, the Trust and Corporation filed a Joint
Current Report on the Form 8-K to report the purchase of the
Boston Park Plaza in Boston, MA (as amended by Form 8-K/A
filed on February 12, 1996)
- 28 -
<PAGE> 29
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.
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
Registrant Registrant
/s/ RONALD C. BROWN /s/ ALAN M. SCHNAID
- ------------------------------------------ ------------------------------
Ronald C. Brown Alan M. Schnaid
Vice President and Chief Financial Officer Corporate Controller
(Principal Financial Officer) (Principal Accounting Officer)
Date: May 9, 1996
- 29 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
<CIK> 0000316206
<NAME> STARWOOD LODGING CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 13,309,000
<SECURITIES> 0
<RECEIVABLES> 9,645,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,747,000
<PP&E> 113,223,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 144,941,000
<CURRENT-LIABILITIES> 19,331,000
<BONDS> 0
0
0
<COMMON> 138,000
<OTHER-SE> 7,449,000
<TOTAL-LIABILITY-AND-EQUITY> 144,941,000
<SALES> 50,893,000
<TOTAL-REVENUES> 50,619,000
<CGS> 0
<TOTAL-COSTS> 35,885,000
<OTHER-EXPENSES> 16,963,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,243,000
<INCOME-PRETAX> (3,052,000)
<INCOME-TAX> (3,052,000)
<INCOME-CONTINUING> (3,052,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,052,000)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
<CIK> 0000048595
<NAME> STARWOOD LODGING TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 7,337,000
<SECURITIES> 0
<RECEIVABLES> 193,776,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,257,000
<PP&E> 274,079,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 530,297,000
<CURRENT-LIABILITIES> 13,302,000
<BONDS> 0
0
0
<COMMON> 138,000
<OTHER-SE> 204,405,000
<TOTAL-LIABILITY-AND-EQUITY> 530,297,000
<SALES> 0
<TOTAL-REVENUES> 17,958,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,574,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,168,000
<INCOME-PRETAX> 7,142,000
<INCOME-TAX> 7,142,000
<INCOME-CONTINUING> 7,142,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,142,000
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0
</TABLE>
