<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AS AMENDED)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended September 30, 1995
------------------------------
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
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Maryland Maryland
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-0901263 52-1193298
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560
Los Angeles, California 90064 Los Angeles, California 90064
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(310) 575-3900 (310) 575-3900
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
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.
13,809,658 Shares of Beneficial Interest, par value $0.01 per share, of
Starwood Lodging Trust paired with 13,809,658 Shares of Common Stock, par value
$0.01 per share, of Starwood Lodging Corporation, outstanding as of November
14, 1995.
================================================================================
<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:
Unaudited Combined Pro Forma Statements of Operations - for the three months
and nine months ended September 30, 1995 and 1994
Notes to Unaudited Combined Pro Forma Statements of Operations
Starwood Lodging Trust and Starwood Lodging Corporation:
Combined Balance Sheets - As of September 30, 1995 and December 31, 1994
Combined Statements of Operations - For the three and nine months
ended September 30, 1995 and 1994
Combined Statements of Cash Flows - For the nine months
ended September 30, 1995 and 1994
Starwood Lodging Trust:
Balance Sheets - As of September 30, 1995 and December 31, 1994
Statements of Operations - For the three and nine months
ended September 30, 1995 and 1994
Statements of Cash Flows - For the nine months
ended September 30, 1995 and 1994
Starwood Lodging Corporation:
Balance Sheets - As of September 30, 1995 and December 31, 1994
Statements of Operations - For the three and nine months
ended September 30, 1995 and 1994
Statements of Cash Flows - For the nine months
ended September 30, 1995 and 1994
Notes to Financial Statements
- 2 -
<PAGE> 3
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . $33,227,000 $30,139,000
Gaming . . . . . . . . . . . . . . . . . . . . 6,559,000 6,781,000
Interest from mortgage and other notes . . . . 2,868,000 2,884,000
Rents from leased hotel properties
and income from joint ventures . . . . . . . 221,000 242,000
Other income . . . . . . . . . . . . . . . . . 377,000 87,000
Gain (loss) on sales of hotel assets . . . . . (12,000) 78,000
----------- -----------
43,240,000 40,211,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . 22,406,000 20,868,000
Gaming operations . . . . . . . . . . . . . . 6,018,000 6,237,000
Interest . . . . . . . . . . . . . . . . . . . 460,000 447,000
Depreciation and amortization . . . . . . . . . 4,557,000 4,378,000
Administrative and operating . . . . . . . . . 1,387,000 1,135,000
----------- -----------
34,828,000 33,065,000
----------- -----------
Income before minority interest . . . . . . . 8,412,000 7,146,000
Minority interest in Partnerships . . . . . . 2,531,000 2,039,000
----------- -----------
Net income . . . . . . . . . . . . . . . . . . $5,881,000 $5,107,000
=========== ===========
Net income per paired share . . . . . . . . . $0.43 $0.37
=========== ===========
</TABLE>
See accompanying notes to the pro forma statements of operations.
- 3 -
<PAGE> 4
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . $96,805,000 $87,947,000
Gaming . . . . . . . . . . . . . . . . . . . . 20,375,000 21,094,000
Interest from mortgage and other notes . . . . 8,004,000 7,696,000
Rents from leased hotel properties
and income from joint ventures . . . . . . . 608,000 705,000
Other income . . . . . . . . . . . . . . . . . 1,334,000 395,000
Gain (loss) on sales of hotel assets . . . . . (125,000) 670,000
----------- -----------
127,001,000 118,507,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . 65,702,000 61,829,000
Gaming operations . . . . . . . . . . . . . . 18,351,000 18,396,000
Interest . . . . . . . . . . . . . . . . . . . 999,000 986,000
Depreciation and amortization . . . . . . . . . 13,647,000 13,377,000
Administrative and operating . . . . . . . . . 3,847,000 3,208,000
----------- -----------
102,546,000 97,796,000
----------- -----------
Income before minority interest . . . . . . . 24,455,000 20,711,000
Minority interest in Partnerships . . . . . . 7,358,000 6,232,000
----------- -----------
Net income . . . . . . . . . . . . . . . . . . $17,097,000 $14,479,000
=========== ===========
Net income per paired share . . . . . . . . . $1.24 $1.05
=========== ===========
</TABLE>
See accompanying notes to the pro forma statements of operations.
- 4 -
<PAGE> 5
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED PRO FORMA
STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 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.
On July 6, 1995, the Trust and the Corporation completed a public offering (the
"Offering") of 11,787,500 paired shares. Net proceeds from the Offering of
approximately $252.1 million together with proceeds from a financing facility
and cash on hand were used as follows: approximately $206.5 million was used
to repay existing indebtedness, including $10 million which was used by Realty
to purchase the first trust deed on Operating's Milwaukee hotel, and
approximately $53.8 million was used for the acquisition of the 462-room
Sheraton Colony Square in Atlanta, Georgia and the 224-room Embassy Suites in
Tempe, Arizona.
Due to the impact of the Offering and the acquisitions of properties acquired
in connection with the Offering, the historical results of operations and
earnings per share are not indicative of 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 and nine
months ended September 30, 1995 and 1994 give effect to the reorganization with
Starwood Capital Group, L.P. and its affiliates (collectively, "Starwood
Capital") effective January 1, 1995 (the "Reorganization"), the Offering, and
the acquisitions of the Sheraton Colony Square in Atlanta, Georgia, the Embassy
Suites in Tempe, Arizona, and the Omni Europa in Chapel Hill, North Carolina as
of the beginning of the period presented. Pro forma results include the
results of the Doral Inn in New York, New York, from the date of acquisition
(September 20, 1995) and exclude the results from properties sold in 1994.
Additional pro forma information reflecting the inclusion of the Doral Inn from
the beginning of each respective period is included in Note 5 to the historical
financial statements. 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 each period
presented or to project results for any future period.
Listed below are the effects each contributed and acquired hotel had on the
combined pro forma statement of operations:
<TABLE>
<CAPTION>
Acquired Properties For the Three Months Ended 9/30/95
- ------------------- ----------------------------------------------------------------------
Omni Sheraton Embassy
Chapel Hill Colony Square Suites - Tempe Total
----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Hotel revenues.................................. $ - $ 625,000 $ 236,000 $ 861,000
Hotel expenses.................................. - 594,000 343,000 937,000
Depreciation.................................... - 374,000 186,000 560,000
-------- --------- --------- ---------
Income (Loss) before minority interest.......... $ - $(343,000) $(293,000) $(636,000)
======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Contributed Properties For the Three Months Ended 9/30/94
- ---------------------- ------------------------------------------------------------------------------
Capitol Hill French Quarter Doubletree Harvey
Suites Suites Rancho Bernardo Wichita Total
------------ -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Hotel Revenues............................... $827,000 $891,000 $1,114,000 $ 945,000 $3,777,000
Hotel expenses............................... 661,000 604,000 820,000 1,109,000 3,194,000
Depreciation................................. 139,000 215,000 121,000 149,000 624,000
-------- -------- ---------- ---------- ----------
Income (loss) before minority interest....... $ 27,000 $ 72,000 $ 173,000 $ (313,000) $ (41,000)
======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Omni Sheraton Embassy
Acquired Properties Chapel Hill Colony Square Suites-Tempe Total
- ------------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Hotel Revenues............................... $871,000 $3,861,000 $1,210,000 $5,942,000
Hotel expenses............................... 679,000 2,923,000 960,000 4,562,000
Depreciation................................. 221,000 1,120,000 558,000 1,899,000
-------- ---------- ---------- ----------
Income (loss) before minority interest....... $(29,000) $ (182,000) $ (308,000) $ (519,000)
======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended 9/30/95
--------------------------------------------------------------
Omni Sheraton Embassy
Acquired Properties Chapel Hill Colony Square Suites-Tempe Total
- ------------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Hotel Revenues............................... $1,265,000 $9,557,000 $4,032,000 $14,854,000
Hotel expenses............................... 887,000 7,127,000 2,271,000 10,285,000
Depreciation................................. 163,000 2,073,000 1,229,000 3,465,000
---------- ---------- ---------- -----------
Income (loss) before minority interest....... $ 215,000 $ 357,000 $ 532,000 $ 1,104,000
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Contributed Properties For the Nine Months Ended 9/30/94
- ---------------------- -----------------------------------------------------------------------------
Capitol Hill French Quarter Doubletree Harvey
Suites Suites Rancho Bernardo Wichita Total
------------ -------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Hotel Revenues............................... $2,663,000 $3,487,000 $2,959,000 $2,737,000 $11,846,000
Hotel expenses............................... 1,739,000 2,324,000 2,184,000 2,918,000 9,165,000
Depreciation................................. 417,000 644,000 361,000 450,000 1,872,000
---------- ---------- ---------- ---------- -----------
Income (loss) before minority interest....... $ 507,000 $ 519,000 $ 414,000 $ (631,000) $ 809,000
========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Omni Sheraton Embassy
Acquired Properties Chapel Hill Colony Square Suites - Tempe Total
- ------------------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Hotel revenues.................................. $2,155,000 $12,076,000 $4,526,000 $18,757,000
Hotel expenses.................................. 1,421,000 9,154,000 2,756,000 13,331,000
Depreciation.................................... 663,000 2,858,000 1,504,000 5,025,000
---------- ----------- ---------- -----------
Income (Loss) before minority interest.......... $ 71,000 $ 64,000 $ 266,000 $ 401,000
========== =========== ========== ===========
</TABLE>
- 5 -
<PAGE> 6
NOTE 2. NET INCOME
Net income per paired share has been computed using the pro forma weighted
average number of paired shares and equivalent paired shares outstanding for
the period presented -- 13,809,658 paired shares.
- 6 -
<PAGE> 7
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net . . . . . . . . . . . . $8,328,000 $8,585,000
Hotel assets - net . . . . . . . . . . . . . . . . . . . 281,231,000 142,600,000
------------ ------------
289,559,000 151,185,000
Mortgage notes receivable, net . . . . . . . . . . . . . 78,454,000 14,049,000
Investments . . . . . . . . . . . . . . . . . . . . . . 620,000 262,000
------------ ------------
Total real estate investments . . . . . . . . . . 368,633,000 165,496,000
Cash and cash equivalents . . . . . . . . . . . . . . . 18,135,000 5,065,000
Accounts and interest receivable . . . . . . . . . . . . 6,911,000 4,040,000
Notes receivable, net . . . . . . . . . . . . . . . . . 1,816,000 1,627,000
Inventories, prepaid expenses and other assets . . . . . 11,660,000 7,727,000
------------ ------------
$407,155,000 $183,955,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit . . . $64,600,000 $113,896,000
Mortgage and other notes payable . . . . . . . . . . . . 4,370,000 46,586,000
Accounts payable and other liabilities . . . . . . . . . 17,325,000 14,765,000
------------ ------------
86,295,000 175,247,000
------------ ------------
Commitments and contingencies
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . 96,544,000
------------ ------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
13,810,000 shares . . . . . . . . . . . . . . . . . . 138,000 12,133,000
Corporation common stock, $0.01 par
value; authorized 100,000,000 shares;
outstanding 13,810,000 shares . . . . . . . . . . . . 138,000 1,213,000
Additional paid-in capital . . . . . . . . . . . . . . . 434,134,000 210,251,000
Accumulated deficit . . . . . . . . . . . . . . . . . . (210,094,000) (214,889,000)
------------ ------------
224,316,000 8,708,000
------------ ------------
$407,155,000 $183,955,000
============ ============
</TABLE>
See accompanying notes to financial statements.
- 7 -
<PAGE> 8
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . $32,366,000 $21,964,000
Gaming . . . . . . . . . . . . . . . . . . . . . . . . . 6,559,000 6,781,000
Interest from mortgage and other notes . . . . . . . . . 2,868,000 514,000
Rents from leased hotel properties . . . . . . . . . . . 221,000 242,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 377,000 87,000
Gain (loss) on sale . . . . . . . . . . . . . . . . . . (12,000) 78,000
----------- -----------
42,379,000 29,666,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . . . . . . 21,875,000 14,971,000
Gaming operations . . . . . . . . . . . . . . . . . . . 6,018,000 6,237,000
Interest . . . . . . . . . . . . . . . . . . . . . . . . 461,000 4,570,000
Depreciation and amortization . . . . . . . . . . . . . 3,997,000 2,061,000
Administrative and operating . . . . . . . . . . . . . . 1,386,000 1,135,000
Shareholder litigation expense . . . . . . . . . . . . . 2,648,000
Provision for losses . . . . . . . . . . . . . . . . . . 759,000
----------- -----------
33,737,000 32,381,000
----------- -----------
Income (loss) before extraordinary item and minority 8,642,000 (2,715,000)
interest . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . 2,655,000
----------- -----------
Income (loss) before extraordinary item . . . . . . . . 5,987,000 (2,715,000)
Extraordinary item (net of $1,084,000 minority interest). (2,518,000)
----------- -----------
NET INCOME (LOSS) $3,469,000 $(2,715,000)
=========== ===========
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary item . . . . . . . . $0.43 $(1.34)
Extraordinary item . . . . . . . . . . . . . . . . . . . (0.18)
----------- -----------
NET INCOME (LOSS) PER PAIRED SHARE $0.25 $(1.34)
----------- -----------
Weighted average number of paired shares 13,810,000 2,022,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 8 -
<PAGE> 9
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . $81,951,000 $63,858,000
Gaming . . . . . . . . . . . . . . . . . . . . . . . . . 20,375,000 21,094,000
Interest from mortgage and other notes . . . . . . . . . 8,004,000 1,276,000
Rents from leased hotel properties . . . . . . . . . . . 608,000 705,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,334,000 395,000
Gain (loss) on sale . . . . . . . . . . . . . . . . . . (125,000) 670,000
----------- -----------
112,147,000 87,998,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . . . . . . 56,232,000 46,095,000
Gaming operations . . . . . . . . . . . . . . . . . . . 18,351,000 18,396,000
Interest . . . . . . . . . . . . . . . . . . . . . . . . 11,198,000 13,028,000
Depreciation and amortization . . . . . . . . . . . . . 10,182,000 6,074,000
Administrative and operating . . . . . . . . . . . . . . 3,836,000 3,115,000
Shareholder litigation expense . . . . . . . . . . . . . 2,648,000
Provision for losses . . . . . . . . . . . . . . . . . . 759,000
----------- -----------
99,799,000 90,115,000
----------- -----------
Income (loss) before extraordinary items and minority 12,348,000 (2,117,000)
interest
Minority interest . . . . . . . . . . . . . . . . . . . 5,398,000
----------- -----------
Income (loss) before extraordinary items . . . . . . . . 6,950,000 (2,117,000)
Extraordinary items (net of $163,000 minority interest) (2,155,000)
----------- -----------
NET INCOME (LOSS) $ 4,795,000 $(2,117,000)
=========== ===========
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary items . . . . . . . . $ 1.17 $(1.05)
Extraordinary items . . . . . . . . . . . . . . . . . . (0.36)
----------- -----------
NET INCOME PER PAIRED SHARE $0.81 $(1.05)
=========== ===========
Weighted average number of paired shares 5,951,000 2,022,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 9 -
<PAGE> 10
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . $4,795,000 $(2,117,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Minority interest . . . . . . . . . . . . . . . . . . 5,398,000
Extraordinary items . . . . . . . . . . . . . . . . . 2,155,000
Depreciation and amortization . . . . . . . . . . . . 10,182,000 6,074,000
Accretion of discount . . . . . . . . . . . . . . . . (2,286,000)
Deferred interest . . . . . . . . . . . . . . . . . . . 649,000 2,221,000
Gain (loss) on sale . . . . . . . . . . . . . . . . . 125,000 (670,000)
Provision for losses . . . . . . . . . . . . . . . . . 759,000
Changes in operating assets and liabilities:
Accounts receivable, inventories, prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . . . (9,374,000) (797,000)
Accounts payable and other liabilities . . . . . . . . 5,681,000 1,900,000
------------ ------------
Net cash provided by operating activities . . . . 17,325,000 7,370,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets . . . . . . . . . . . . . . . (113,075,000) (2,062,000)
Net proceeds from sales of assets . . . . . . . . . . . 4,528,000
Increase in mortgage notes receivable . . . . . . . . . (19,515,000)
Principal received on notes receivable . . . . . . . . . 6,332,000 2,389,000
Reorganization costs . . . . . . . . . . . . . . . . . . (2,786,000)
------------ ------------
Net cash provided by (used in) investing activities (129,044,000) 4,855,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable . (106,130,000) (1,205,000)
Payments on secured notes payable , net . . . . . . . . (38,299,000) (20,518,000)
Borrowings under mortgage and other notes . . . . . . . 9,977,000 6,000,000
Increase in secured notes payable and revolving line of 4,500,000
credit . . . . . . . . . . . . . . . . . . . . . . . . .
Limited partner capital contributions . . . . . . . . . 14,860,000
Purchase of warrants . . . . . . . . . . . . . . . . . . (1,300,000)
Proceeds from offering . . . . . . . . . . . . . . . . . 245,681,000
Principal received on share purchase notes . . . . . . . 11,000
------------ ------------
Net cash provided by (used in) financing activities 124,789,000 (11,212,000)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . 13,070,000 1,013,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 5,065,000 5,652,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $18,135,000 $6,665,000
============ ============
</TABLE>
See accompanying notes to financial statements.
- 10 -
<PAGE> 11
STARWOOD LODGING TRUST
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net . . . . . . . . . . . . $8,094,000 $8,281,000
Hotel assets - net . . . . . . . . . . . . . . . . . . . 192,076,000 108,428,000
------------ ------------
200,170,000 116,709,000
Mortgage notes receivable, net . . . . . . . . . . . . . 78,454,000 14,049,000
Investments . . . . . . . . . . . . . . . . . . . . . . 603,000 240,000
------------ ------------
Total real estate investments . . . . . . . . . . 279,227,000 130,998,000
Cash and cash equivalents . . . . . . . . . . . . . . . 7,450,000 255,000
Rent and interest receivable . . . . . . . . . . . . . 853,000 698,000
Notes receivable - Corporation . . . . . . . . . . . . . 77,589,000 26,916,000
Notes receivable, net . . . . . . . . . . . . . . . . . 1,236,000 1,004,000
Prepaid expenses and other assets . . . . . . . . . . . 3,757,000 2,374,000
------------ ------------
$370,112,000 $162,245,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit . . . $64,600,000 $113,896,000
Mortgage and other notes payable . . . . . . . . . . . . 100,000 32,838,000
Accounts payable and other liabilities . . . . . . . . . 2,499,000 5,061,000
------------ ------------
67,199,000 151,795,000
------------ ------------
Commitments and contingencies
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . 91,144,000
------------ ------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
13,810,000 shares . . . . . . . . . . . . . . . . . . 138,000 12,133,000
Additional paid-in capital . . . . . . . . . . . . . . . 354,682,000 146,059,000
Accumulated deficit . . . . . . . . . . . . . . . . . . (143,051,000) (147,742,000)
------------ ------------
211,769,000 10,450,000
$370,112,000 $162,245,000
============ ============
</TABLE>
See accompanying notes to financial statements.
- 11 -
<PAGE> 12
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUE
Rents from Corporation . . . . . . . . . . . . . . . . . . $7,319,000 $4,441,000
Interest from Corporation . . . . . . . . . . . . . . . . 1,060,000 439,000
Interest from mortgage and other notes . . . . . . . . . . 2,802,000 505,000
Rents from other leased hotel properties . . . . . . . . . 221,000 242,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 361,000 47,000
Gain (loss) on sale . . . . . . . . . . . . . . . . . . . (12,000)
---------- -----------
11,751,000 5,737,000
---------- -----------
EXPENSES
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 426,000 4,238,000
Depreciation and amortization . . . . . . . . . . . . . . 2,342,000 1,269,000
Administrative and operating . . . . . . . . . . . . . . . 405,000 460,000
Shareholder litigation expense . . . . . . . . . . . . . . 1,324,000
Provision for losses . . . . . . . . . . . . . . . . . . . 759,000
---------- -----------
3,173,000 8,050,000
---------- -----------
Income (loss) before extraordinary item and minority
interest . . . . . . . . . . . . . . . . . . . . . . . . . 8,578,000 (2,313,000)
Minority interest . . . . . . . . . . . . . . . . . . . . 2,581,000
---------- -----------
Income (loss) before extraordinary item . . . . . . . . . 5,997,000 (2,313,000)
Extraordinary item (net of $1,084,000 minority interest). . (2,518,000)
---------- -----------
NET INCOME (LOSS) $3,479,000 $(2,313,000)
========== ===========
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary item . . . . . . . . . $0.43 $(1.14)
Extraordinary item . . . . . . . . . . . . . . . . . . . . (0.18)
---------- -----------
NET INCOME (LOSS) PER SHARE $0.25 $(1.14)
========== ===========
</TABLE>
See accompanying notes to financial statements.
- 12 -
<PAGE> 13
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Rents from Corporation . . . . . . . . . . . . . . . . . $18,287,000 $12,897,000
Interest from Corporation . . . . . . . . . . . . . . . 2,629,000 1,280,000
Interest from mortgage and other notes . . . . . . . . . 7,915,000 1,243,000
Rents from other leased hotel properties . . . . . . . . 608,000 705,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 461,000 166,000
Gain (loss) on sale . . . . . . . . . . . . . . . . . . (125,000) 642,000
----------- -----------
29,775,000 16,933,000
----------- -----------
EXPENSES
Interest . . . . . . . . . . . . . . . . . . . . . . . . 10,534,000 12,013,000
Depreciation and amortization . . . . . . . . . . . . . 6,260,000 3,834,000
Administrative and operating . . . . . . . . . . . . . . 1,178,000 1,182,000
Shareholder litigation expense . . . . . . . . . . . . . 1,324,000
Provision for losses . . . . . . . . . . . . . . . . . . 759,000
----------- -----------
17,972,000 19,112,000
----------- -----------
Income (loss) before extraordinary items and minority
interest . . . . . . . . . . . . . . . . . . . . . . . . 11,803,000 (2,179,000)
Minority interest . . . . . . . . . . . . . . . . . . . . 4,957,000
----------- -----------
Income (loss) before extraordinary items . . . . . . . . 6,846,000 (2,179,000)
Extraordinary items (net of $163,000 minority interest) (2,155,000)
----------- -----------
NET INCOME (LOSS) $4,691,000 $(2,179,000)
=========== ===========
EARNINGS PER PAIRED SHARE
Income (loss) before extraordinary items . . . . . . . . $1.15 $(1.08)
Extraordinary items . . . . . . . . . . . . . . . . . . (0.36)
----------- -----------
NET INCOME (LOSS) PER SHARE $0.79 $(1.08)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 13 -
<PAGE> 14
STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . $4,691,000 $(2,179,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest . . . . . . . . . . . . . . . . . . 4,957,000
Extraordinary items . . . . . . . . . . . . . . . . . 2,155,000
Depreciation and amortization . . . . . . . . . . . . 6,260,000 3,834,000
Accretion of discount . . . . . . . . . . . . . . . . (2,286,000)
Deferred interest . . . . . . . . . . . . . . . . . . 649,000 2,221,000
Deferred interest - Corporation . . . . . . . . . . . (1,111,000) (1,280,000)
Gain (loss) on sale . . . . . . . . . . . . . . . . . 125,000 (642,000)
Provision for losses . . . . . . . . . . . . . . . . . 759,000
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and other assets (4,460,000) (136,000)
Accounts payable and other liabilities . . . . . . . . 190,000 211,000
-------------- -------------
Net cash provided by operating activities . . . . 11,170,000 2,788,000
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets . . . . . . . . . . . . . . . (59,014,000) (1,387,000)
Net proceeds from sales of assets . . . . . . . . . . . 4,245,000
Increase in mortgage notes receivable . . . . . . . . . (17,729,000)
Principal received on mortgage and other notes receivable 4,503,000 2,334,000
Reorganization costs . . . . . . . . . . . . . . . . . . (1,393,000)
Net changes in notes receivable - Corporation . . . . . (49,562,000) 2,248,000
-------------- -------------
Net cash provided by (used in) investing activities (123,195,000) 7,440,000
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable . (96,589,000) (779,000)
Payments on secured notes payable, net . . . . . . . . . (38,299,000) (20,518,000)
Proceeds from offering . . . . . . . . . . . . . . . . . 233,398,000
Borrowings under mortgage and other notes . . . . . . . 9,977,000 6,000,000
Purchase of warrants . . . . . . . . . . . . . . . . . . (1,235,000)
Increase in secured notes payable and
revolving line of credit . . . . . . . . . . . . . . . 4,500,000
Limited partner capital contributions . . . . . . . . . 11,968,000
Principal received on share purchase notes . . . . . . 11,000
-------------- -------------
Net cash provided by (used in) financing activities 119,220,000 (10,786,000)
-------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . 7,195,000 (558,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 255,000 918,000
-------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $7,450,000 $360,000
============== =============
</TABLE>
See accompanying notes to financial statements.
- 14 -
<PAGE> 15
STARWOOD LODGING CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net . . . . . . . . . . . $234,000 $304,000
Hotel assets - net . . . . . . . . . . . . . . . . . . . 89,155,000 34,172,000
-------------- -------------
89,389,000 34,476,000
Investments . . . . . . . . . . . . . . . . . . . . . . 17,000 22,000
-------------- -------------
Total real estate investments . . . . . . . . . . 89,406,000 34,498,000
Cash and cash equivalents . . . . . . . . . . . . . . . 10,685,000 4,810,000
Accounts receivable . . . . . . . . . . . . . . . . . . 6,058,000 3,342,000
Notes receivable . . . . . . . . . . . . . . . . . . . . 580,000 623,000
Inventories, prepaid expenses and other assets . . . . . 7,903,000 5,353,000
-------------- -------------
$114,632,000 $48,626,000
============== =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES
Mortgage and other notes payable . . . . . . . . . . . . $4,270,000 $13,748,000
Notes payable - Trust . . . . . . . . . . . . . . . . . 77,589,000 26,916,000
Accounts payable and other liabilities . . . . . . . . . 14,826,000 9,704,000
-------------- -------------
96,685,000 50,368,000
-------------- -------------
Commitments and contingencies
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . 5,400,000
-------------- -------------
SHAREHOLDERS' DEFICIT
Corporation common stock, $0.01 par
value; authorized 100,000,000 shares;
outstanding 13,810,000 shares . . . . . . . . . . . . 138,000 1,213,000
Additional paid-in capital . . . . . . . . . . . . . . . 79,452,000 64,192,000
Accumulated deficit . . . . . . . . . . . . . . . . . . (67,043,000) (67,147,000)
-------------- -------------
12,547,000 (1,742,000)
-------------- -------------
$114,632,000 $48,626,000
============== =============
</TABLE>
See accompanying notes to financial statements.
- 15 -
<PAGE> 16
STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . $32,366,000 $21,964,000
Gaming . . . . . . . . . . . . . . . . . . . . . . . . . 6,559,000 6,781,000
Interest from notes receivable . . . . . . . . . . . . . 66,000 9,000
Other income . . . . . . . . . . . . . . . . . . . . . . 16,000 40,000
Gain on sales of hotel assets . . . . . . . . . . . . . 15,000
----------- -----------
39,007,000 28,809,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . . . . . . 21,875,000 14,971,000
Gaming operations . . . . . . . . . . . . . . . . . . . 6,018,000 6,237,000
Rent - Trust . . . . . . . . . . . . . . . . . . . . . . 7,319,000 4,441,000
Interest - Trust . . . . . . . . . . . . . . . . . . . . 1,060,000 439,000
Interest - other . . . . . . . . . . . . . . . . . . . . 35,000 332,000
Depreciation and amortization . . . . . . . . . . . . . 1,655,000 792,000
Administrative and operating . . . . . . . . . . . . . . 981,000 675,000
Shareholder litigation expense . . . . . . . . . . . . . 1,324,000
----------- -----------
38,943,000 29,211,000
----------- -----------
Income (loss) before minority interest . . . . . . . . . 64,000 (402,000)
Minority interest . . . . . . . . . . . . . . . . . . . (74,000)
----------- -----------
NET LOSS $(10,000) $(402,000)
=========== ===========
NET LOSS PER SHARE $(0.00) $(0.20)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 16 -
<PAGE> 17
STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . $81,951,000 $63,858,000
Gaming . . . . . . . . . . . . . . . . . . . . . . . . . 20,375,000 21,094,000
Interest from notes receivable . . . . . . . . . . . . . 89,000 33,000
Other income . . . . . . . . . . . . . . . . . . . . . . 873,000 229,000
Gain on sales of hotel assets . . . . . . . . . . . . . 28,000
----------- -----------
103,288,000 85,242,000
----------- -----------
EXPENSES
Hotel operations . . . . . . . . . . . . . . . . . . . . 56,232,000 46,095,000
Gaming operations . . . . . . . . . . . . . . . . . . . 18,351,000 18,396,000
Rent - Trust . . . . . . . . . . . . . . . . . . . . . . 18,287,000 12,897,000
Interest - Trust . . . . . . . . . . . . . . . . . . . . 2,629,000 1,280,000
Interest - other . . . . . . . . . . . . . . . . . . . . 664,000 1,015,000
Depreciation and amortization . . . . . . . . . . . . . 3,922,000 2,240,000
Administrative and operating . . . . . . . . . . . . . . 2,658,000 1,933,000
Shareholder litigation expense . . . . . . . . . . . . . 1,324,000
----------- -----------
102,743,000 85,180,000
----------- -----------
Income before minority interest . . . . . . . . . . . . 545,000 62,000
Minority interest . . . . . . . . . . . . . . . . . . . 441,000
----------- -----------
NET INCOME $104,000 $62,000
=========== ===========
NET INCOME PER SHARE $0.02 $0.00
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 17 -
<PAGE> 18
STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . $104,000 $62,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest . . . . . . . . . . . . . . . . . . 441,000
Depreciation and amortization . . . . . . . . . . . . 3,922,000 2,240,000
Deferred interest - Trust . . . . . . . . . . . . . . 1,111,000 1,280,000
Gain (loss) on sales of hotel assets . . . . . . . . . (28,000)
Changes in operating assets and liabilities:
Accounts receivable inventories, prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . . . (4,914,000) (661,000)
Accounts payable and other liabilities . . . . . . . . 5,491,000 1,689,000
---------- ----------
Net cash provided by operating activities . . . . 6,155,000 4,582,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets . . . . . . . . . . . . . . . (54,061,000) (675,000)
Net proceeds from sales of hotel assets . . . . . . . . 283,000
Principal received on notes receivable . . . . . . . . . 43,000 55,000
Reorganization costs . . . . . . . . . . . . . . . . . . (1,393,000)
----------- ----------
Net cash used in investing activities . . . . . . (55,411,000) (337,000)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in notes payable - Trust . . . . . . . . . . 49,562,000 (2,248,000)
Principal payments on mortgage and other notes payable . (9,541,000) (426,000)
Proceeds from offering . . . . . . . . . . . . . . . . . 12,283,000
Limited partner capital contributions . . . . . . . . . 2,892,000
Purchase of warrants . . . . . . . . . . . . . . . . . . (65,800)
----------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . . 55,131,000 (2,674,000)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . 5,875,000 1,571,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 4,810,000 4,734,000
----------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $10,685,000 $6,305,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
- 18 -
<PAGE> 19
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 for the year ended December 31, 1994 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
A summary of hotel assets at September 30, 1995 and December 31, 1994
is as follows (in thousands):
<TABLE>
<CAPTION>
Trust Corporation
-------------------------------- --------------------------------
September 30, December 31, September 30, December 31,
1995 1994 1995 1994
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Land and leasehold interests in land $ 51,896 $ 41,184 $13,797 $13,796
Building and improvements . . . . 198,901 122,300 56,801 22,315
Furniture, fixtures and equipment 27,089 25,124 40,159 15,630
Accumulated depreciation and
amortization . . . . . . . . . . (54,516) (48,699) (20,980) (16,877)
Reserve for losses . . . . . . . . (23,200) (23,200) (388) (388)
-------- -------- ------- -------
Hotel assets - net . . . . . . $200,170 $116,709 $89,389 $34,476
======== ======== ======= =======
</TABLE>
- 19 -
<PAGE> 20
NOTE 4. EXTRAORDINARY ITEMS
Under the terms of a Credit Agreement dated January 28, 1993 (the
"Prior Credit Agreement") the Trust restructured its debt existing at such
time. Management concluded that this debt restructuring represented a
"troubled debt restructuring" as defined under generally accepted accounting
principles, and accordingly, upon execution of the Prior Credit Agreement,
accrued all known current or future identifiable debt restructuring costs as of
December 31, 1992. Upon execution of an Amended and Restated Credit Agreement
dated March 24, 1995 (the "New Credit Agreement"), the Realty Partnership
recognized extraordinary income of $1,284,000 relating to the extinguishment of
the debt under the terms of the Prior Credit Agreement, representing the
remaining amount of the accrual at March 24, 1995. Additionally, in
July 1995 subsequent to the Offering, Realty repaid existing indebtedness
borrowed under the New Credit Agreement and recorded an extraordinary charge to
net income of $3,602,000 relating to the extinguishment of such debt.
NOTE 5. PRO FORMA FINANCIAL INFORMATION
As required by Regulation S-X, the following unaudited pro forma
separate and combined condensed financial information for the three and nine
months ended September 30, 1995 and 1994 is presented as if the Reorganization,
the Offering and certain property acquisitions, including the acquisition of
the Doral Inn in New York, New York, had occurred at the beginning of each of
the respective periods.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1995
---------------------------------------------------
Trust Corporation Combined
------------ ----------- --------------
<S> <C> <C> <C>
Revenues $12,900,000 $44,568,000 $47,940,000
Net income (loss) $6,171,000 $(655,000) $5,516,000
Net income (loss) per share $0.45 $(0.05) $0.40
</TABLE>
<TABLE>
<CAPTION>
Nine months Ended September 30, 1995
------------------------------------------------------
Trust Corporation Combined
------------ -------------- --------------
<S> <C> <C> <C>
Revenues $37,753,000 $131,454,000 $140,313,000
Net income (loss) $18,059,000 $(2,984,000) $15,075,000
Net income (loss) per share $1.31 $(0.22) $1.09
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1994
--------------------------------------------------
Trust Corporation Combined
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $12,200,000 $41,926,000 $45,153,000
Net income (loss) $6,359,000 $(1,834,000) $4,525,000
Net income (loss) per share $0.46 $(0.13) $0.33
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
<CAPTION>
Nine months Ended September 30, 1994
--------------------------------------------------
Trust Corporation Combined
----------- ------------- --------------
<S> <C> <C> <C>
Revenues $35,274,000 $123,185,000 $132,361,000
Net income (loss) $17,203,000 $(4,404,000) $12,799,000
Net income (loss) per share $1.25 $(0.32) $0.93
</TABLE>
NOTE 6. ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of".
This statement shall be effective for financial statements for fiscal years
beginning after December 15, 1995. Management believes that adoption of this
standard will not have a material effect on its financial position or results
of operations.
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 Reports on Form 10-K for the year ended December 31,
1994 and the Companies' Joint Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995 and June 30, 1995.
Due to the impact of the Reorganization of the Companies and other
transactions during 1995, management believes that the following discussion of
the pro forma results of operations is more meaningful to the users of the
financial statements for an understanding of the comparative operating results
than the historical information which follows the discussion of the pro forma
results of operations.
COMBINED PRO FORMA RESULTS OF OPERATIONS
PRO FORMA NET INCOME
On a pro forma basis, combined net income for the third quarter of 1995
grew by 15.7 percent to $5.9 million, or $.43 per paired share, on combined
revenues of $43.2 million, compared to combined net income of $5.1 million, or
$.37 per paired share, on combined revenues of $40.2 million for the
corresponding period in 1994. On a year-over-year-basis, while occupancy rates
remained relatively constant, average daily rate (ADR) for the Companies' owned
and operated nongaming hotels for the third quarter (including the Doral Inn
for the last ten days of the third quarter in each year), increased 7.1
percent, from $66.23 to $70.90, and revenue per available room (REVPAR) for
such hotels increased 6.5 percent, from $50.07 to $53.32. On a pro forma basis,
for the first nine months of 1995, combined net income rose by 17.9 percent to
17.1 million on combined revenues of $127.0 million compared to combined net
income of $14.5 million on combined revenues of $118.5 million for the
comparable period in 1994. On a year-over-year basis, for the nine months
ended September 30, 1995 ADR increased 6.8 percent, from $66.91 to $71.43 and
REVPAR increased 7.8 percent, from $48.84 to $52.64 while occupancy rates
increased slightly.
- 21 -
<PAGE> 22
INTERNAL GROWTH
The overall 7.5 percent increase in revenues for the third quarter of
1995 was fueled by increases in ADR for the Companies' upscale, midscale and
economy market hotels of 9.4 percent, 2.3 percent (5.9 percent excluding the
Dallas, Texas property which lost the benefit of a Marriott franchise in 1994)
and 11.4 percent, respectively. Likewise, ADR increases for the Companies'
upscale, midscale and economy hotels for the nine months ended September 30,
1995 were 9.2, 1.9 (4.3 excluding Dallas) and 9.3 percent, respectively.
Management believes that ADR increases, particularly in the upscale segment,
reflect increases in demand which continue to outpace increases in supply. The
increase in the economy segment (consisting of two hotels) primarily reflects
management's decision to reposition and flag the formerly independent Portland,
Oregon property in October of 1994.
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 and nine months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
All Nongaming Hotels: 1995 1994 1995 1994
- -------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Occupancy rate . . . . . . . . . . . . . . 75.2% 75.6% 73.7% 73.0%
ADR . . . . . . . . . . . . . . . . . . . . $70.90 $66.23 $71.43 $66.91
REVPAR . . . . . . . . . . . . . . . . . . $53.32 $50.07 $52.64 $48.84
REVPAR % change 6.5% 7.8%
</TABLE>
- 22 -
<PAGE> 23
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
Upscale Hotels: 1995 1994 1995 1994
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Occupancy rate . . . . . . . . . . . . . . 77.6% 78.1% 77.7% 76.4%
ADR . . . . . . . . . . . . . . . . . . . . $80.99 $74.05 $83.12 $76.14
REVPAR . . . . . . . . . . . . . . . . . . $62.85 $57.83 $64.58 $58.17
REVPAR % change 8.7% 11.0%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
Midscale Hotels (excluding Dallas
- ---------------------------------
Park Central): 1995 1994 1995 1994
- --------------- ---- ---- ---- ----
Occupancy rate . . . . . . . . . . . . . . 78.6% 80.2% 75.3% 73.7%
ADR . . . . . . . . . . . . . . . . . . . . $58.96 $55.66 $56.56 $54.24
REVPAR . . . . . . . . . . . . . . . . . . $46.34 $44.64 $42.59 $39.97
REVPAR % change 3.8% 6.6%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
Economy Hotels: 1995 1994 1995 1994
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Occupancy rate . . . . . . . . . . . . . . 93.4% 90.1% 82.0% 74.9%
ADR . . . . . . . . . . . . . . . . . . . . $66.99 $60.12 $61.40 $56.17
REVPAR . . . . . . . . . . . . . . . . . . $62.57 $54.17 $50.35 $42.07
REVPAR % change 15.5% 19.7%
</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 properties located in the Northwest as well as the
Harvey Hotel in Wichita, Kansas (under renovation in 1994) and the Omni Europa
Hotel in Chapel Hill, North Carolina.
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 third quarter of 1995
rose to 32.6% from 29.8% in the corresponding quarter in 1994 and rose to 32.1%
for the nine months ended September 30, 1995 from 29.7% in the corresponding
period in 1994. Additionally, the improvements in gross margins were also due
to (i) the termination of the third-party management agreements for hotels in
Albany, Georgia (February 1995); Lexington, Kentucky (March 1995); Chapel Hill,
North Carolina (April 1995); Dallas, Texas (July 1995); and San Diego,
California (September 1995) and (ii) the increased operating margins following
the renovations of the Harvey Wichita Hotel (October 1994) and the Milwaukee
Marriott (January 1994).
- 23 -
<PAGE> 24
In March 1994 the franchise and management agreements with Marriott
Corporation for the Dallas property were terminated. The property is now being
managed by the Corporation as an independent hotel and has been renamed the
Dallas Park Central Hotel. The Companies have commenced an approximately $9.0
million major renovation and conversion of the Park Central Hotel to a Radisson
to be completed in the second quarter of 1996. Revenues at the Dallas property
decreased by $20,000 and $1.3 million for the three and nine months ended
September 30, 1995 compared to the corresponding periods in 1994.
EXTERNAL GROWTH
During the third quarter of 1995, the Companies acquired the 462-room
Sheraton Colony Square Hotel in Atlanta, Georgia; the 224-room Embassy Suites
in Tempe, Arizona; the 652-room Doral Inn in New York, New York; and a $19.5
million mortgage interest in the 263-room Grand Hotel in Washington, D.C.. In
October 1995, the Companies acquired two additional hotels in Atlanta, Georgia:
the 364-room, full-service Terrace Garden Inn for $27.9 million and the
180-room, limited-service Lenox Inn for $9.0 million. In total, the Companies'
growth through acquisitions since the Offering has exceeded $150 million
including the assumption of management of five of these hotels containing an
aggregate of 1,882 rooms. Management believes that the results of operations
from these acquisitions will have a positive effect on FFO.
SELF MANAGEMENT
As discussed above, Operating has assumed management of five hotels
acquired since the Offering as well as five continuously owned properties
consistent with its business objective to capture the economic benefits
otherwise retained by a third-party operator. Of the remaining five
third-party management agreements currently in place, all, except for the Harvey
Wichita Hotel, are expected to be terminated by the end of the first quarter of
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, implement renovations and expansions and
align hotel chain affiliations to further increase FFO.
RENOVATIONS AND REPOSITIONING HOTELS
As previously discussed, the Companies have commenced an estimated
$10.0 million major renovation and conversion of the Dallas property to a
Radisson. Additionally, the Companies have commenced an estimated $6.0 million
renovation of the Atlanta Sheraton Colony Square Hotel which is expected to be
completed in the second quarter of 1996 and a $2.0 million renovation of the
Portland Riverside Inn expected to be completed by the end of the first quarter
of 1996. The Companies are currently negotiating the flagging of the French
Quarter Suites Hotel in Lexington, Kentucky which is expected to benefit from a
national franchise affiliation and reservation system. Management believes
that the effect of these renovations and repositionings will have a positive
impact on FFO.
- 24 -
<PAGE> 25
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 (with the third quarter performing slightly
stronger than the second) due to decreased travel in the winter months.
Because of the impact of the hotel acquisitions since the Offering, as
reflected in the combined pro forma financial statements, the hotel portfolio
performed slightly better in the second quarter than the third quarter for both
1994 and 1995. 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. During the third quarter of 1995,
hotels were acquired with the Sheraton, Embassy Suites and Doral franchises,
and locations included New York, Georgia and Arizona. The following tables
summarize certain information for the Companies' owned and operated, nongaming
hotels with respect to franchise affiliations and to the distribution of hotels
throughout the United States.
FRANCHISE AFFILIATIONS
<TABLE>
<CAPTION>
Pro Forma
Nine Months Ended
Number of September 30, 1995 Percentage of
Franchise Systems Rooms Gross Revenues Gross Revenues
- ----------------- --------- ------------------ --------------
<S> <C> <C> <C> <C>
Sheraton 462 $12,616 13.0%
Embassy Suites 451 10,432 10.8%
Best Western 786 9,593 9.9%
Marriott 393 9,407 9.7%
Days Inn 263 4,924 5.1%
Harvey 259 4,262 4.4%
Omni 168 3,945 4.1%
Doubletree 209 3,303 3.4%
West Coast 155 3,272 3.4%
Radisson 195 3,168 3.3%
Residence Inn 96 2,483 2.6%
Holiday Inn 151 2,295 2.4%
Doral 652 672 0.7%
----- ------ -----
Subtotal 4,240 70,372 72.7%
Independent hotels 1,510 26,433 27.3%
----- ------ -----
Total 5,750 $96,805 100.0%
===== ====== =====
</TABLE>
- 25 -
<PAGE> 26
GEOGRAPHIC DIVERSIFICATION
<TABLE>
<CAPTION>
Nine Months Ended
September 30,1995 Percentage
No. of No. of Pro Forma of Gross
State Hotels Rooms Gross Revenues Revenues
- -------------- ------ ------ ----------------- ----------
<S> <C> <C> <C> <C> <C>
Georgia 3 755 $16,212 16.7%
Arizona 3 600 12,838 13.3%
Washington 4 566 11,846 12.2%
Wisconsin 1 393 9,407 9.7%
Oregon 2 310 5,913 6.1%
Texas 2 620 5,140 5.3%
New Mexico 2 289 4,330 4.5%
Kansas 1 259 4,262 4.4%
North Carolina 1 168 3,945 4.1%
Michigan 1 151 4,017 4.1%
Kentucky 1 155 3,899 4.0%
California 1 209 3,303 3.4%
Florida 1 195 3,168 3.3%
Washington, DC 1 152 2,985 3.1%
Virginia 1 96 2,483 2.6%
Ohio 1 180 2,385 2.5%
New York 1 652 672 0.7%
-- ----- ------ -----
TOTALS: 27 5,750 $96,805 100.0%
== ===== ====== =====
</TABLE>
OTHER INCOME AND ADMINISTRATIVE AND OPERATING EXPENSES
Included in other income for the nine months ended September 30, 1995
is $800,000 received for the termination of management contracts in connection
with the settlement of certain shareholder actions against former officers of
the Companies. (See Item 1 of Part II.)
Administrative and operating expenses for the third quarter of 1995
increased to $1,387,000 representing 3.2 percent of revenue, from $1,135,000
representing 2.8 percent of revenue in the third quarter of 1994. For the nine
months ended September 30, 1995, administrative and operating expenses increased
to $3,847,000, representing 3.0 percent of revenues, as compared to $3,208,000,
representing 2.7 percent of revenues, in the corresponding period of 1994. The
increases were primarily a result of increases 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 operators.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of".
This statement shall be effective for financial statements for fiscal years
beginning after December 15, 1995. Management believes that adoption of this
standard will not have a material effect on its financial position or results
of operations.
- 26 -
<PAGE> 27
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 cash requirements including all
distributions to shareholders by the Trust. The Trust commenced paying
dividends in the fourth quarter of 1995 by declaring a dividend of $0.47 per
share for the quarter ending September 30, 1995.
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 two loan facilities with affiliates of Lehman Brothers, Inc.
and, when market conditions warrant, to issue additional equity or debt
securities. In October 1995, Realty modified its agreement with Lehman
Commercial Paper Inc., to increase its 18-month financing facility to $71
million from $45 million, which facility is secured by certain mortgage loans
owned by Realty (the "Financing"). Interest accrues at a rate equal to the
one-month LIBOR plus 1.5% for the first 12 months, and the one-month LIBOR plus
1.75% thereafter. As of September 30, 1995, Realty had borrowed $44.6 million
under the Financing. Additionally, the Companies have entered into an
agreement with affiliates of Lehman Brothers, Inc. to provide a 3-year, $135
million secured revolving credit (the "Acquisition Facility"). Amounts drawn
under the Acquisition Facility accrue interest at a rate equal to the one, two
or three month LIBOR at the
- 27 -
<PAGE> 28
Companies' option plus 1.625%. The Acquisition Facility is secured by certain
properties of the Companies and may be secured by other properties acquired by
the Companies, all on a cross-collateralized basis. As of September 30, 1995,
Realty had borrowed $20 million under the Acquisition Facility. Subsequent to
September 30, 1995, the Companies borrowed an additional $38.9 million under
the Acquisition Facility to purchase the Lenox Inn and Terrace Garden Inn.
The Acquisition Facility may be retired in whole or in part from the
proceeds of public or private issuances of equity or debt securities by the
Companies and may be refinanced in whole or in part with fixed-rate financing.
The final closing of the Acquisition Facility is subject to a variety of
conditions, including the completion of certain due diligence matters and the
syndication of $60 million of the facility amount.
As previously discussed, the Companies have commenced an approximately
$9.0 million major renovation and conversion of the Dallas Park Central Hotel
to a Radisson, a $5.0 million renovation of the Atlanta Sheraton Colony Square
Hotel and a $2.0 million renovation of the Portland Riverside Inn. Major and
minor renovations of other hotels are also being contemplated. Management
believes the renovations should result in increases in REVPAR and
profitability. 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. From the date of the Reorganization to the date of the filing
of this report, the Companies have acquired over $164 million in hotel assets
($113 million including recurring capital expenditures for the nine month
period ended September 30, 1995). As part of their investment strategy, the
Companies plan to acquire additional hotels. Future acquisitions are expected
to be funded through use of the Acquisition Facility 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 belives 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.
Pro Forma Funds From Operations. Management believes that FFO is one
measure of financial performance of an equity REIT such as the Trust. On a pro
forma basis, combined FFO (as defined by the National Association of Real
Estate Investment Trusts(1)) for the third quarter of 1995 grew by 14.0 percent
to $13.0 million compared to combined FFO of $11.4 million for the
corresponding period in 1994. On a pro forma basis, for the first nine months
of 1995, combined FFO rose by 13.2 percent to $37.8 million compared to
combined FFO of $33.4 million on combined revenues of $118.5 million for the
comparable period in 1994. The following table shows the calculation of pro
forma combined FFO for the indicated periods:
(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 Funds from Operations 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. Funds from
operations 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). Funds from operations 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. Funds from operations 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Income (loss) before minority interest and
extraordinary item . . . . . . . . . . . . . . . $8,412 $ 7,146 $24,455 $20,711
Real estate related depreciation and
amortization, net of amortization
of financing costs . . . . . . . . . . . . . . . 4,557 4,378 13,233 13,377
Gain (loss) on sales of hotel assets . . . . . . . 12 (78) 125 (670)
------- ------- ------- -------
Funds from Operations . . . . . . . . . . . . . . . $12,981 $11,446 $37,813 $33,418
======= ======= ======= =======
</TABLE>
FFO includes $430,000 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 third quarter of 1995 and 1994 and
$975,000 of such income for the nine months ended September 30, 1995 and 1994.
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 1995 AND 1994
The following discussion and analysis of the historical results of
operations for the three and nine months ended September 30, 1995 give effect
to transactions on the actual date they were consummated: in the case of the
Reorganization, as of January 1, 1995; in the case of the Offering, July 6,
1995 and in the case of acquisitions of hotel properties as of the date each
was purchased.
Combined Funds From Operations. Management believes that FFO is one
measure of financial performance of an equity REIT such as the Trust.
Combined FFO for the third quarter of 1995 grew by 373 percent to $12.7
million compared to combined FFO of $2.7 million, for the corresponding period
in 1994. For the first nine months of 1995, combined FFO rose by 232 percent
to $22.2 million compared to combined FFO of $6.7 million on combined revenues
of $112.1 million for the comparable period in 1994. The following table
shows the calculation of pro forma combined FFO for the indicated periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Income (loss) before minority interest and
extraordinary item . . . . . . . . . . . . . . . $8,642 $(2,715) $12,348 $(2,117)
Shareholder litigation expenses . . . . . . . . . . - 2,648 - 2,648
Provision for loss . . . . . . . . . . . . . . . . - 759 - 759
Real estate related depreciation and
amortization, net of amortization
of financing costs . . . . . . . . . . . . . . . 3,997 2,061 9,768 6,074
Gain (loss) on sales of hotel assets . . . . . . . 12 (78) 125 (670)
------- ------- ------- -------
Funds from Operations . . . . . . . . . . . . . . . $12,651 $ 2,675 $22,241 $ 6,694
======= ======= ======= =======
</TABLE>
- 28 -
<PAGE> 29
THE TRUST:
Rents from the Corporation, which are based in part on hotel revenues,
increased $2.9 million and $5.4 million for the three and nine months ended
September 30, 1995, respectively, as compared to the corresponding periods of
1994. The increases were primarily the result of rents earned by Realty on
four hotels contributed by Starwood Capital to Realty and Operating in January
1995 and on four additional hotels acquired during the nine months ended
September 30, 1995. The four contributed hotels (the Doubletree Hotel located
in Rancho Bernardo, California; the Capitol Hill Suites located in Washington,
D.C.; the Harvey Wichita located in Wichita, Kansas; and the French Quarter
Suites located in Lexington, Kentucky) and the four acquired hotels (the Omni
Hotel in Chapel Hill, North Carolina acquired in April 1995 and the three
hotels acquired in the third quarter as previously discussed) accounted for
increased rents of $2.8 million and $5.3 million, respectively, for the three
and nine months ended September 30, 1995. In addition, rents earned by the
Trust from continuously owned properties leased by the Corporation increased
$177,000 and $660,000, respectively. These increases were offset by a decrease
in rents of $71,000 and $523,000, respectively, resulting from the sale of
hotels in Austin, Texas (May 1994), Brunswick, Georgia and New Port Richey,
Florida (August 1994), and Fayetteville, North Carolina and Jacksonville,
Florida (November 1994).
Interest from the Corporation increased by $621,000 and $1,349,000 for
the three and nine months ended September 30, 1995, respectively, as compared
to the corresponding periods of 1994. 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 and interest on unsecured notes from
the Corporation having an average balance of $11.1 million and bearing interest
at prime plus two percent for the nine month period ended September 30, 1995.
A moratorium on the payment of interest on such unsecured notes was in effect
throughout 1994.
Interest from mortgage and other notes amounted to $2,602,000 and
$7,915,000 for the three and nine months ended September 30, 1995,
respectively, as compared to $505,000 and $1,243,000, respectively, for the
corresponding periods in 1994. The increases primarily resulted from the
contribution of notes receivable by Starwood Capital to Realty in the
Reorganization.
Interest expense decreased by $3.8 million and $1.5 million for the
three and nine months ended September 30, 1995, respectively, as compared to
the corresponding periods of 1994. The decreases were due to the repayment of
approximately $206.5 million of existing indebtedness in connection with the
Offering and to mortgage notes retired in the first quarter of 1995, which were
secured by the Phoenix, Arizona and Bay City, Michigan properties offset by
additional notes payable assumed by Realty in the Reorganization.
Depreciation and amortization expense increased by $1.1 million and
$2.4 million during the three and nine months ended September 30, 1995,
respectively, as compared to the
- 29 -
<PAGE> 30
corresponding periods of 1994, principally due to the above mentioned property
contributions and acquisitions and to the amortization of reorganization and
financing costs offset by the above mentioned property sales.
Minority interest represents the interest of Starwood Capital in
Realty for the three and nine months ended September 30, 1995.
THE CORPORATION:
Hotel revenues increased by $10.4 million and $18.1 million for the
three and nine months ended September 30, 1995, respectively, as compared to
the corresponding periods of 1994. The addition of the four contributed
properties and the four acquired properties as discussed above resulted in
increases in hotel revenues of $11.1 million and $22.4 million, respectively,
for three and nine month periods ended September 30, 1995. The Milwaukee,
Wisconsin property, for which a $4.5 million renovation was completed in the
first quarter of 1994, accounted for increases of $190,000 and $940,000,
respectively, for the same periods. These increases were offset by the hotel
sales discussed above resulting in decreased revenues of $1.5 million and $6.5
million, respectively, as well as $20,000 and $1.3 million, respectively,
resulting from the termination of the Marriott franchise agreement at the
Dallas, Texas property as discussed below. The remaining increases of $600,000
and $2.6 million for the three and nine months ended September 30, 1995,
respectively, are attributable to other continuously owned properties.
Hotel gross margin for the third quarter of 1995 was $10.5 million, or
32.4% of hotel revenues, as compared to $7.0 million, or 31.8% of hotel
revenues, for the third quarter of 1994. Hotel gross margin for the nine
months ended September 30, 1995 was $25.8 million, or 31.4% of hotel revenues,
as compared to $17.8 million, or 27.8% of hotel revenues for the corresponding
period of 1994. The increases in gross margin were primarily due to increases
in REVPAR, the termination of the third-party management agreements, and the
additional operating margin following the renovations previously discussed.
Gaming revenues for the third quarter of 1995 as compared to the
corresponding period of 1994 decreased by $222,000 or 3.3% to $6.5 million.
Gaming revenues for the nine months ended September 30, 1995 decreased $719,000
or 3.4% compared to the corresponding period of 1994. Management believes that
the lower revenues at the two gaming facilities are a result of decreased
travel to the Las Vegas area and of public road construction activity (which
was completed in 1995) adjacent to the Bourbon Street Hotel and Casino which
reduced vehicular and pedestrian traffic.
Gaming gross margin for the third quarter of 1995 was $541,000, or
8.2% of gaming revenues, as compared to $544,000, or 8.0% of gaming revenues,
for the third quarter of 1994. Gaming gross margin for the nine months ended
September 30, 1995 was $2.0 million, or 9.9% of gaming revenues, as compared to
$2.7 million, or 12.8% of gaming revenues, for the corresponding period of
1994. Management believes that lower win percentages as well as
- 30 -
<PAGE> 31
decreased travel to the Las Vegas area resulted in the decrease in gross margin
for the nine months ended September 30, 1995. Management believes that
operating performance from its gaming assets in the following year will be
comparable to that of the last twelve months.
Included in other income for the nine months ended September 30, 1995
is $800,000 received by the Corporation for the termination of management
contracts in connection with the settlement of certain shareholder actions
against former officers of the Companies. (See Item 1 of Part II.)
Administrative and operating expenses increased by $306,000 and
$725,000 respectively, for the three and nine months ended September 30, 1995,
as compared to the corresponding periods of 1994. The increases were 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 $863,000 and $1.7
million, respectively, for the three and nine months ended September 30, 1995,
as compared to the corresponding periods of 1994. The increases were primarily
a result of the contributed and 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 and nine months ended September 30, 1995.
For information with respect to rent and interest to the Trust during
the three and nine months ended September 30, 1995 and 1994, see "Trust"
immediately above.
- 31 -
<PAGE> 32
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the year ended December 31, 1994, 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 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 previously accrued) 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 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.
In connection with the settlement of the Shareholder Actions, Messrs.
Ronald Young and John Rothman and certain of their affiliated partnerships
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 not to dispute such action and has
withdrawn as a general partner of two additional affiliated partnerships. In
satisfaction of any
- 32 -
<PAGE> 33
damages that the Trust and the Corporation may incur as a result of the
termination of the Management Contracts, Messrs. Rothman and Young provided to
the Trust and the Corporation an irrevocable letter of credit having a one-year
term in the amount of $800,000. In the second quarter of 1995, the proceeds of
the letter of credit were distributed to the Operating Partnership. Upon
receipt of the proceeds from the letter of credit, the parties to the
Management Contracts, Messrs. Rothman and Young and the Trust and the
Corporation released all of their respective claims related to the termination
of the Management Contracts.
Ross Agreement. In November 1994, Starwood Capital entered into an
agreement (the "Ross Agreement") with Leonard Ross and his affiliates
("Ross"). Ross held approximately 9.8% of the outstanding Paired Shares prior
to the Reorganization and had opted out of the settlement by the Companies of
the Shareholder Actions. In addition to preserving his rights to institute an
action against the Companies with respect to the matters covered by such
settlement, Ross had threatened to assert other alleged causes of action
against the Companies.
The Ross Agreement was entered into in settlement of the threatened
litigation by Ross and provides for an assignment to Starwood Capital of Ross'
claims. Starwood Capital also received a proxy to vote Ross' Paired Shares and
Starwood Capital has agreed to purchase those Paired Shares, at Ross' election,
in a 60-day period beginning on December 15, 1995, at a price of $33.75 per
Paired Share (plus 10 percent per annum from December 31, 1994 to the date of
exercise less distributions paid on the shares). Starwood Capital may also
elect to purchase such Paired Shares at the same time and on the same terms.
In December 1994, Ross sold 33,167 of the Paired Shares, which remain subject
to the Ross Agreement. Ross has agreed not to purchase or sell any Paired
Shares during the period specified for the purchase of his Paired Shares and
not to acquire more than 4.9% thereafter.
The Companies agreed to indemnify and hold harmless Starwood Capital
(and its subsidiaries, affiliates and successors) against liabilities, losses
or damages and reasonable out-of-pocket expenses incurred (i) in connection
with any action, suit or proceeding brought by a holder of Paired Shares
against Starwood Capital relating to the Reorganization or (ii) under or in
respect of the Ross Agreement (other than, in each case, to the extent such
liabilities, losses, damages or expenses arose from a breach by Starwood
Capital of any agreement entered into in connection with the Reorganization, or
the Ross Agreement or a breach of any fiduciary duty by Starwood Capital);
provided that the aggregate indemnification obligation of the Companies under
the provisions described in clause (ii) is limited to $1,800,000.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
- 33 -
<PAGE> 34
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
(b) Reports on Form 8-K
On October 9, 1995, the Trust and Corporation filed a Joint Current
Report on Form 8-K to report the purchase of the Doral Inn in New
York, New York.
On October 31, 1995, the Trust and Corporation filed a Joint Current
Report on Form 8-K to report a change in certifying accountants.
- 34 -
<PAGE> 35
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/ KENNETH J. BIEHL
- ------------------------------------------ ------------------------------
Ronald C. Brown Kenneth J. Biehl
Vice President and Chief Financial Officer Vice President and Controller
(Principal Financial Officer) (Principal Accounting Officer)
Date: November 14, 1995
- 35 -
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