<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 31, 1995
<TABLE>
<S> <C>
Commission File Number: 1-6828 Commission File Number: 1-7959
STARWOOD LODGING STARWOOD LODGING
TRUST CORPORATION
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Maryland Maryland
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-0901263 52-1193298
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
11835 West Olympic Blvd., Suite 695 11835 West Olympic Blvd., Suite 675
Los Angeles, California 90064 Los Angeles, California 90064
(310) 575-3900 (310) 575-3900
(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)
Hotel Investors Trust Hotel Investors Corporation
11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560
Los Angeles, California 90064 Los Angeles, California 90064
(Former name or former address, (Former name or former address,
if changed since last report) if changed since last report)
</TABLE>
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The undersigned Registrants hereby amend the following items, the
financial statements, Pro Forma Financial Information and Exhibits of their
Form 8-K dated January 31, 1995 as set forth in the pages attached hereto:
<PAGE> 2
Item 7 of the Joint Current Report on Form 8-K dated January 31, 1995
filed by Starwood Lodging Trust and Starwood Lodging Corporation is hereby
amended to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired. See Index to
Financial Statements (page F-1).
(b) Pro Forma Financial Information. See Index to Financial
Statements (page F-1).
(c) Exhibits.
2A. Formation Agreement dated as of November 11, 1994
among the Trust, the Corporation, the Starwood
Partners and Starwood (incorporated herein by
reference to Exhibit 2 to the Registrants' Current
Report on Form 8-K dated November 16, 1994).
2B. Exchange Rights Agreement dated as of January 1, 1995
among the Trust, the Corporation, the Realty
Partnership, the Operating Partnership and the
Starwood Partners.
2C. Registration Rights Agreement dated as of January 1,
1995 among the Trust, the Corporation and Starwood.
2D. Limited Partnership Agreement for the Realty
Partnership dated as of December 15, 1994 among the
Trust and the Starwood Partners.
2E. Limited Partnership Agreement for the Operating
Partnership dated as of December 15, 1994 among the
Corporation and the Starwood Partners.
3A. Amended and Restated Declaration of Trust.
3B. Articles of Amendment and Restatement of Articles of
Incorporation of the Corporation.
<PAGE> 3
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, thereto duly authorized.
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
By: /s/ RONALD C. BROWN By: /s/ KEVIN E. MALLORY
----------------------------- ------------------------------
Ronald C. Brown Kevin E. Mallory
Vice President and Chief Executive Vice President
Financial Officer
(Principal Financial Officer)
Date: March 12, 1996
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION -
PRO FORMA (UNAUDITED)
<TABLE>
<S> <C>
Pro Forma Separate and Combined Balance Sheets as of December 31, 1994 . . . . . . . . . F-3
Pro Forma Separate and Combined Statements of Operations for the year
ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
SLT REALTY L.P. AND SLC OPERATING L.P. - PRO FORMA (UNAUDITED)
Separate and Combined Balance Sheets as of December 31, 1994 . . . . . . . . . . . . . F-9
Separate and Combined Statements of Operations for the year ended December 31, 1994 . . F-13
STARWOOD WICHITA INVESTORS, L.P.
Reports of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-17
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
Statements of Changes in Partners' Capital . . . . . . . . . . . . . . . . . . . . . . F-19
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
THE FRENCH QUARTER SQUARE
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Balance Sheet as of December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Statement of Changes in Partners' Capital . . . . . . . . . . . . . . . . . . . . . . . F-28
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Schedule of Operating Revenue and Certain Expenses . . . . . . . . . . . . . . . . . . F-34
Notes to Schedules of Operating Revenue and Certain Expenses . . . . . . . . . . . . . F-35
CAPITOL HILL SUITES
Reports of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-39
Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40
Statements of Changes in Stockholders Equity . . . . . . . . . . . . . . . . . . . . . F-41
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45
Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-46
Statements of Operations and Owners' Equity . . . . . . . . . . . . . . . . . . . . . . F-47
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-48
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50
</TABLE>
F-1
<PAGE> 5
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA SEPARATE AND COMBINED BALANCE SHEETS
DECEMBER 31, 1994
(UNAUDITED)
The following unaudited Pro Forma Separate and Combined Balance Sheets
are presented as if the Reorganization in which the Trust and Corporation
contributed substantially all of their assets (subject to all of their
liabilities) in exchange for 28.3% general partnership interests in SLT Realty
Limited Partnership (the "Realty Partnership") and SLC Operating Limited
Partnership (the "Operating Partnership"), (together, the "Partnerships"), and
the Starwood Partners contributed cash and other assets, subject to certain
liabilities, in exchange for 71.7% limited partnership interests in the
Partnerships had occurred on December 31, 1994.
The unaudited Pro Forma Combined Balance Sheets should be read in
conjunction with the Separate and Combined Historical Financial Statements of
Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In
management's opinion, all adjustments necessary to reflect the effects of the
Reorganization have been made.
The unaudited Pro Forma Combined Balance Sheets are not necessarily
indicative of what the actual financial position of the Companies would have
been at December 31, 1994, nor does it purport to represent the future
financial position of the Companies.
F-2
<PAGE> 6
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED SEPARATE AND COMBINED PRO FORMA BALANCE SHEETS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
STARWOOD STARWOOD STARWOOD
LODGING PRO FORMA LODGING LODGING
TRUST ADJUSTMENTS TRUST CORPORATION
------------ ------------- ------------- ------------
(A) (B) (C) (D)
<S> <C> <C> <C> <C>
ASSETS
Investment in Partnership .......................... $ $ 10,450,000 $ 10,450,000 $
------------ ------------- ------------- ------------
Hotel assets held for sale, net .................... 8,281,000 (8,281,000) 304,000
Hotel assets, net .................................. 108,428,000 (108,428,000) 34,172,000
------------ ------------- ------------- ------------
116,709,000 (116,709,000) 34,476,000
Mortgage notes receivable, net ..................... 14,049,000 (14,049,000)
Investment in joint venture hotel properties ....... 240,000 (240,000) 22,000
------------ ------------- ------------- ------------
Total real estate investments ................ 130,998,000 (120,548,000) 10,450,000 34,498,000
Cash and cash equivalents .......................... 255,000 (255,000) 4,810,000
Accounts receivable ................................ 698,000 (698,000) 845,000 3,342,000
845,000 (F)
Notes receivable - Corporation ..................... 26,916,000 (26,916,000)
Notes receivable, net .............................. 1,004,000 (1,004,000) 623,000
Prepaid expenses and other assets .................. 2,374,000 (2,374,000) 5,353,000
------------ ------------- ------------- ------------
$162,245,000 $(150,950,000) $ 11,295,000 $ 48,626,000
============ ============= ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Secured notes payable & revolving line of credit ... $113,896,000 $(113,896,000) $ $
Mortgage and other notes payable ................... 32,838,000 (32,838,000) 13,748,000
Notes payable - Trust .............................. 26,916,000
Accounts payable and other liabilities ............. 5,061,000 (5,061,000) 845,000 9,704,000
845,000 (F)
------------ ------------- ------------- ------------
151,795,000 (150,950,000) 845,000 50,368,000
------------ ------------- ------------- -----------
Commitment and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Trust shares of beneficial interest, (pro forma)
$0.01 par value; authorized 100,000,000 shares;
outstanding 12,132,948 shares ................... 12,133,000 (12,012,000)(G) 121,000
Corporation common stock, (pro forma)
$0.01 par value; authorized 100,000,000 shares;
outstanding 12,132,948 shares ................... 1,213,000
Additional paid-in capital ......................... 146,059,000 12,012,000 (G) 158,071,000 64,192,000
Accumulated deficit ................................ (147,742,000) (147,742,000) (67,147,000)
------------ ------------- ------------- ------------
10,450,000 10,450,000 (1,742,000)
------------ ------------- ------------- ------------
$162,245,000 $(150,950,000) $ 11,295,000 $ 48,626,000
============ ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA
STARWOOD STARWOOD STARWOOD
PRO FORMA LODGING LODGING LODGING
ADJUSTMENTS CORPORATION COMBINED COMBINED
------------ ------------ ------------- -------------
(E) (C)
<S> <C> <C> <C> <C>
ASSETS
Investment in Partnership .......................... $ (1,742,000) $ (1,742,000) $ $ 8,708,000
------------ ------------ ------------- -------------
Hotel assets held for sale, net .................... (304,000) 8,585,000
Hotel assets, net .................................. (34,172,000) 142,600,000
------------ ------------ ------------- -------------
(34,476,000) 151,185,000
Mortgage notes receivable, net ..................... 14,049,000
Investment in joint venture hotel properties ....... (22,000) 262,000
------------ ------------ ------------- -------------
Total real estate investments ................ (36,240,000) (1,742,000) 165,496,000 8,708,000
Cash and cash equivalents .......................... (4,810,000) 5,065,000
Accounts receivable ................................ (3,342,000) 845,000 4,040,000 1,690,000
845,000 (F)
Notes receivable - Corporation .....................
Notes receivable, net .............................. (623,000) 1,627,000
Prepaid expenses and other assets .................. (5,353,000) 7,727,000
------------ ------------ ------------- -------------
$(49,523,000) $ (897,000) $ 183,955,000 $ 10,398,000
============ ============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Secured notes payable & revolving line of credit ... $ $ $ 113,896,000 $
Mortgage and other notes payable ................... (13,748,000) 46,586,000
Notes payable - Trust .............................. (26,916,000)
Accounts payable and other liabilities ............. (9,704,000) 845,000 14,765,000 1,690,000
845,000 (F)
------------ ------------ ------------- -------------
(49,523,000) 845,000 175,247,000 1,690,000
------------ ------------ ------------- -------------
Commitment and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Trust shares of beneficial interest, (pro forma)
$0.01 par value; authorized 100,000,000 shares;
outstanding 12,132,948 shares ................... 12,133,000 121,000
Corporation common stock, (pro forma)
$0.01 par value; authorized 100,000,000 shares;
outstanding 12,132,948 shares ................... (1,092,000)(G) 121,000 1,213,000 121,000
Additional paid-in capital ......................... 1,092,000 (G) 65,284,000 210,251,000 223,355,000
Accumulated deficit ................................ (67,147,000) (214,889,000) (214,889,000)
------------ ------------ ------------- -------------
(1,742,000) 8,708,000 8,708,000
------------ ------------ ------------- -------------
$(49,523,000) $ (897,000) $ 183,955,000 $ 10,398,000
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the pro forma combined
balance sheets.
F-3
<PAGE> 7
___________________
(A) Reflects the historical balance sheet of the Trust as of December 31,
1994.
(B) Reflects the contribution, at historical cost, of the assets and
liabilities of the Trust to the Realty Partnership.
(C) The Trust and the Corporation are the general partner and managing
general partner of the Realty Partnership and the
Operating Partnership, respectively. As a condition of the
Reorganization, the Starwood Partners nominated a majority of the
respective Board members of the Trust and the Corporation. Neither
the Trust nor the Corporation is considered to have unilateral control
of the Realty Partnership or the Operating Partnership for accounting
purposes. Therefore, the Trust and the Corporation will account for
their respective investments in the Realty Partnership and the
Operating Partnership under the equity method of accounting in
accordance with generally accepted accounting principles.
(D) Reflects the historical balance sheet of the Corporation as of
December 31, 1994.
(E) Reflects the contribution, at historical cost, of the assets and
liabilities of the Corporation to the Operating Partnership.
(F) Represents the recognition of a liability and a receivable related to
the settlement of shareholder litigation. Subsequent to the
settlement of certain shareholder actions, Leonard M. Ross and his
affiliates ("Ross"), who hold 1,190,400 Paired Shares and had opted
out of the settlement, had threatened litigation against the Trust and
the Corporation.
In October 1994, Starwood Capital Group, L.P. ("Starwood Capital")
entered into an agreement with Ross to settle the threatened
litigation in which Starwood Capital agreed to purchase Ross' paired
shares, at Ross' election, in a 60-day period beginning December 15,
1995 at a price of $5.625. Starwood Capital also has the right to
elect to purchase such Paired Shares at the same time and on the same
terms. The Trust and Corporation have also agreed that under certain
circumstances they may be obligated severally to 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.
The estimated fair value of the put/call provisions of the Ross
settlement agreement at the time of the agreement was approximately
$2,648,000 and was charged against the earnings of the Trust and
Corporation in 1994. In addition, a liability was established for the
present value of the expected indemnification for $845,000 for both
the Trust and the Corporation. The Realty Partnership and the
Operating Partnership will reimburse the Trust and the Corporation,
respectively, for all amounts paid in respect of such indemnification
obligation. Therefore, the Trust's and the Corporation's pro forma
balance sheets each reflect a related liability and receivable of
$845,000. To the extent that the amount of the ultimate
indemnification, if any, is less than $1,800,000, the difference will
be reflected in the income of the respective Partnerships.
(G) Reflects the revision of par value of authorized shares.
F-4
<PAGE> 8
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA SEPARATE AND COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
The following unaudited Pro Forma Separate and Combined Statements of
Operations are presented as if the Reorganization in which the Trust and
Corporation contributed substantially all of their assets (subject to all of
their liabilities) in exchange for 28.3% general partnership interests in the
Partnerships and the Starwood Partners contributed cash and other assets,
subject to certain liabilities, in exchange for 71.7% limited partnership
interests in the Partnerships had occurred on January 1, 1994.
The unaudited Pro Forma Combined Statements of Operations should be
read in conjunction with the Combined Historical Financial Statements of
Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In
management's opinion, all adjustments necessary to reflect the effects of the
Reorganization have been made.
The unaudited Pro Forma Statements of Operations are not necessarily
indicative of what actual results of operations of the Companies would have
been assuming the Reorganization had occurred on January 1, 1994, nor do they
purport to represent the Companies' results of operations for future periods.
F-5
<PAGE> 9
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED SEPARATE AND COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO
FORMA
STARWOOD STARWOOD STARWOOD
LODGING PRO FORMA LODGING LODGING
TRUST ADJUSTMENTS TRUST CORPORATION
----------- ------------ -------- ------------
(A) (B) (C)
<S> <C> <C> <C> <C>
REVENUE
Income (loss) from investment in Partnerships ..... $ $ 838,000 $838,000 $
Hotel ............................................. 82,668,000
Gaming ............................................ 27,981,000
Rents from Corporation ............................ 16,906,000 (16,906,000)
Interest from Corporation ......................... 1,730,000 (1,730,000)
Interest from mortgage and other notes ............ 1,512,000 (1,512,000) 42,000
Rents from other leased hotel properties .......... 927,000 (927,000)
Management fees and other income .................. 164,000 (164,000) 247,000
Gain (loss) on sales of hotel assets .............. 432,000 (432,000) 24,000
----------- ------------ -------- ------------
21,671,000 (20,833,000) 838,000 110,962,000
----------- ------------ -------- ------------
EXPENSES
Hotel operations................................... 60,829,000
Gaming operations.................................. 24,454,000
Rent - Trust....................................... 16,906,000
Interest - Trust................................... 1,730,000
Interest - other................................... 16,265,000 (16,265,000) 1,341,000
Depreciation and amortization...................... 5,205,000 (5,205,000) 2,956,000
Administrative and operating....................... 1,583,000 (1,583,000) 2,620,000
Shareholder litigation............................. 1,324,000 (1,324,000) 1,324,000
Provision for losses............................... 759,000 (759,000)
----------- ------------ -------- ------------
25,136,000 (25,136,000) 112,160,000
----------- ------------ -------- ------------
NET INCOME (LOSS) $(3,465,000) $ 4,303,000 $838,000 $ (1,198,000)
=========== ============ ======== ============
NET INCOME (LOSS) PER SHARE (E) $(0.28) $0.07 $(0.10)
=========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA
STARWOOD STARWOOD STARWOOD
PRO FORMA LODGING LODGING LODGING
ADJUSTMENTS CORPORATION COMBINED COMBINED
------------- ----------- --------------- ---------
(D)
<S> <C> <C> <C> <C>
REVENUE
Income (loss) from investment in Partnerships ..... $ (742,000) $(742,000) $ $192,000
Hotel ............................................. (82,668,000) 82,668,000
Gaming ............................................ (27,981,000) 27,981,000
Rents from Corporation ............................
Interest from Corporation .........................
Interest from mortgage and other notes ............ (42,000) 1,554,000
Rents from other leased hotel properties .......... 927,000
Management fees and other income .................. (247,000) 411,000
Gain (loss) on sales of hotel assets .............. (24,000) 456,000
------------- --------- ------------ --------
(111,704,000) (742,000) 113,997,000 192,000
------------- --------- ------------ --------
EXPENSES
Hotel operations................................... (60,829,000) 60,829,000
Gaming operations.................................. (24,454,000) 24,454,000
Rent - Trust....................................... (16,906,000)
Interest - Trust................................... (1,730,000)
Interest - other................................... (1,341,000) 17,606,000
Depreciation and amortization...................... (2,956,000) 8,161,000
Administrative and operating....................... (2,620,000) 4,203,000
Shareholder litigation............................. (1,324,000) 2,648,000
Provision for losses............................... 759,000
------------- --------- ------------ --------
(112,160,000) 118,660,000
------------- --------- ------------ --------
NET INCOME (LOSS) $ 456,000 $(742,000) $ (4,663,000) $192,000
============= ========= ============ ========
NET INCOME (LOSS) PER SHARE (E) $(0.06) $(0.38) $0.01
========= ============ ========
</TABLE>
The accompanying notes are an integral part of the pro forma separate and
combined statements of operations.
F-6
<PAGE> 10
___________________
(A) Reflects the historical statements of operations of the Trust for the
year ended December 31, 1994.
(B) Reflects the elimination of the revenues and expenses of the Trust
recorded in the Realty Partnership and the recognition of the related
investment income.
(C) Reflects the historical statements of operations of the Corporation
for the year ended December 31, 1994.
(D) Reflects the elimination of the revenues and expenses of the
Corporation recorded in the Operating Partnership and the recognition
of the related investment loss.
(E) Net income (loss) per share has been computed using the weighted
average number of common and common equivalent shares outstanding
which, for periods with net income, includes the dilutive effect of
stock options and warrants outstanding.
F-7
<PAGE> 11
SLT REALTY L.P. AND SLC OPERATING L. P.
PRO FORMA SEPARATE AND COMBINED BALANCE SHEETS
DECEMBER 31, 1994
(UNAUDITED)
The following unaudited Pro Forma Separate and Combined Balance Sheets
are presented as if the Reorganization in which the Trust and the Corporation
contributed substantially all of their assets (subject to substantially all of
their liabilities) in exchange for 28.3% general partnership interests in the
Partnerships and the Starwood Partners contributed cash and other assets,
subject to certain liabilities, in exchange for 71.7% limited partnership
interests in the Partnerships had occurred on December 31, 1994.
The unaudited Pro Forma Combined Balance Sheets should be read in
conjunction with the Separate and Combined Historical Financial Statements of
Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In
management's opinion, all adjustments necessary to reflect the effects of the
Reorganization have been made.
The audited Pro Forma Combined Balance Sheets are not necessarily
indicative of what the actual financial position of the Partnerships would have
been at December 31, 1994, nor does it purport to represent the future
financial position of the Partnerships.
F-8
<PAGE> 12
SLT REALTY LP AND SLC OPERATING LP
UNAUDITED SEPARATE AND COMBINED PRO FORMA BALANCE SHEETS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
STARWOOD PRO FORMA STARWOOD
LODGING STARWOOD PRO FORMA SLT REALTY LODGING
TRUST PARTNERS ADJUSTMENTS PARTNERSHIP CORPORATION
------------ ----------- ------------- ------------ -----------
(A) (B) (C) (D)
<S> <C> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net ............... $ 8,281,000 $ $ $ 8,281,000 $ 304,000
Hotel assets, net ............................. 108,428,000 30,371,000 138,799,000 34,172,000
------------- ----------- ------------- ------------ ------------
116,709,000 30,371,000 147,080,000 34,476,000
Mortgage notes receivable, net ................ 14,049,000 48,860,000 62,909,000
Investment in joint venture hotel properties .. 240,000 240,000 22,000
------------- ----------- ------------- ------------ ------------
Total real estate investments ............. 130,998,000 79,231,000 210,229,000 34,498,000
11,446,000
Cash and cash equivalents ..................... 255,000 12,568,000 (1,377,000)(E) 11,446,000 4,810,000
Accounts receivable ........................... 698,000 698,000 3,342,000
Notes receivable - Corporation ................ 26,916,000 26,916,000
Notes receivable, net ......................... 1,004,000 1,004,000 623,000
Prepaid expenses and other assets ............. 2,374,000 1,377,000 (E) 3,751,000 5,353,000
------------- ----------- ------------- ------------ ------------
$ 162,245,000 $91,799,000 $254,044,000 $ 48,626,000
============= =========== ============= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Secured notes payable & revolving line of
credit (I) .................................. $ 113,896,000 $ $ $113,896,000 $
Mortgage and other notes payable .............. 32,838,000 58,885,000 (6,000,000)(F) 85,723,000 13,748,000
Notes payable - Trust ......................... 26,916,000
Accounts payable and other liabilities ........ 5,061,000 (480,000)(G) 4,581,000 9,704,000
------------- ----------- ------------- ------------ -----------
151,795,000 58,885,000 (6,480,000) 204,200,000 50,368,000
------------- ----------- ------------- ------------ -----------
Commitments and contingencies
PARTNERS' CAPITAL ............................. 32,914,000 10,450,000 (H) 49,844,000
6,000,000 (F)
480,000 (G)
----------- ------------- ------------
32,914,000 16,930,000 49,844,000
----------- ------------- ------------
SHAREHOLDERS' EQUITY (DEFICIT)
Trust shares of beneficial interest, (pro
forma) $.01 par value; authorized
100,000,000 shares; outstanding
12,132,948 shares ......................... 12,133,000 (12,133,000)(H)
Corporation common stock, (pro forma)
$0.01 par value; authorized 100,000,000
shares; outstanding 12,132,948 shares ...... 1,213,000
Additional paid-in capital .................... 146,059,000 (146,059,000)(H) 64,192,000
Accumulated deficit ........................... (147,742,000) 147,742,000 (H) (67,147,000)
------------- ----------- ------------- ------------ ------------
10,450,000 (10,450,000) (1,742,000)
------------- ----------- ------------- ------------ ------------
$ 162,245,000 $91,799,000 $254,044,000 $ 48,626,000
============= =========== ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA STARWOOD PRO FORMA
STARWOOD PRO FORMA SLC OPERATING LODGING SLT & SLC
PARTNERS ADJUSTMENTS PARTNERSHIP ELIMINATIONS COMBINED COMBINED
---------- ------------ ------------- ------------ ------------ ------------
(D) (C)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net ..... $ $ $ 304,000 $ 8,585,000 $ 8,585,000
Hotel assets, net ................... 3,701,000 37,873,000 142,600,000 176,672,000
---------- ------------ ----------- ------------- ------------
3,701,000 38,177,000 151,185,000 185,257,000
Mortgage notes receivable, net ...... 14,049,000 62,909,000
Investment in joint venture hotel
properties ........................ 22,000 262,000 262,000
---------- ------------ ----------- ------------- ------------
Total real estate investments .. 3,701,000 38,199,000 165,496,000 248,428,000
Cash and cash equivalents ........... 2,126,000 (1,377,000)(E) 5,559,000 5,065,000 15,331,000
Accounts receivable ................. 463,000 3,805,000 4,040,000 4,503,000
Notes receivable - Corporation ...... (26,916,000)
Notes receivable, net ............... 623,000 1,627,000 1,627,000
Prepaid expenses and other assets ... 587,000 1,377,000 (E) 7,317,000 7,727,000 12,742,000
---------- ------------ ----------- ------------- ------------
$6,877,000 $55,503,000 $ 183,955,000 $282,631,000
========== ============ =========== ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Secured notes payable & revolving
line of credit (I) ................ $ $ $ $ 113,896,000 $113,896,000
Mortgage and other notes payable .... 13,748,000 46,586,000 99,471,000
Notes payable - Trust ............... 26,916,000 (26,916,000)
Accounts payable and other
liabilities ....................... 1,408,000 (480,000)(G) 10,632,000 14,765,000 15,213,000
---------- ------------ ----------- ------------- ------------
1,408,000 (480,000) 51,296,000 175,247,000 228,580,000
---------- ------------ ----------- ------------- ------------
Commitments and contingencies
PARTNERS' CAPITAL ................... 5,469,000 (1,742,000)(H) 4,207,000 54,051,000
480,000 (G)
---------- ------------ ----------- ------------
5,469,000 (1,262,000) 4,207,000 54,051,000
---------- ------------ ----------- ------------
SHAREHOLDERS' EQUITY (DEFICIT)
Trust shares of beneficial interest,
(pro forma) $.01 par value;
authorized 100,000,000 shares;
outstanding 12,132,948 shares ..... 12,133,000
Corporation common stock,
(pro forma) $0.01 par value;
authorized 100,000,000 shares;
outstanding 12,132,948 shares ..... (1,213,000)(H) 1,213,000
Additional paid-in capital .......... (64,192,000)(H) 210,251,000
Accumulated deficit ................. 67,147,000 (H) (214,889,000)
---------- ------------ ----------- ------------- ------------
1,742,000 8,708,000
---------- ------------ ----------- ------------- ------------
$6,877,000 $55,503,000 $ 183,955,000 $282,631,000
========== ============ =========== ============= ============
</TABLE>
The accompanying notes are an integral part of the pro forma separate and
combined balance sheets.
F-9
<PAGE> 13
__________________
(A) Reflects the historical balance sheet of the Trust as of December 31,
1994.
(B) Reflects the historical cost of the assets (net of certain
liabilities) contributed by the Starwood Partners. The Starwood
Partners acquired four hotel properties which were contributed, as
follows:
<TABLE>
<CAPTION>
COST YEAR NUMBER
PROPERTY LOCATION BASIS (1) ENCUMBRANCE BUILT OF ROOMS
-------- -------- --------- ----------- ----- --------
<S> <C> <C> <C> <C> <C>
Capitol Hill Suites Washington, D.C. $ 8,709,000 $ 617,000 1955 152
French Quarters
Suites (2) Lexington, KY 12,053,000 898,000 1989 155
Doubletree Hotel Rancho Bernardo, CA 8,180,000 6,800,000 1987 209
Harvey Wichita
Hotel Wichita, KS 5,130,000 2,122,000 1974 259
----------- -----------
$34,072,000 $10,437,000
=========== ===========
</TABLE>
___________________
(1) $3,701,000 of costs related to the properties was contributed
to the Operating Partnership.
(2) Includes 38,000 square feet of retail space and 12,000 square
feet of office space.
During 1994 a Starwood Partner purchased from the Trust the Albany Holiday Inn,
with a net book value of $5,200,000, for $6,000,000 in cash. The cash proceeds
from the sale were used by the Trust to make a principal paydown on the Secured
Notes Payable. In connection with the Reorganization, the Starwood Partner
contributed the property to the Realty Partnership. Because the Starwood
Partner had the right to sell the hotel back to the Trust for the purchase
price plus a 10% return on its investment, the transaction was recorded as a
financing. The pro forma balance sheets reflect the Trust as owning the Albany
Holiday Inn.
The mortgage notes receivable, acquired in 1993 at a discount, consist of the
following:
Three performing mortgage notes to affiliated borrowers collateralized by three
full service hotels (aggregating 1,230 rooms) in the Dallas, Texas area. The
mortgage notes, maturing on December 31, 2002, are cross-collateralized, are
guaranteed by certain persons and have cost bases and outstanding principal
balance at December 31, 1994 as follows:
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL
COLLATERAL BALANCE COST BASIS REFERENCE
---------- ------- ---------- ---------
<S> <C> <C> <C>
Harvey Hotel Addison . . . . . . $10,403,000 $ 7,226,000 (a)
Harvey Hotel Bristol . . . . . . 16,645,000 11,550,000 (a)
Harvey Hotel DFW . . . . . . . . 25,892,000 17,967,000 (a)
----------- -----------
52,940,000 36,743,000
OTHER MORTGAGE NOTES:
- ---------------------
Atlantic City Quality Inn . . . . 11,411,000 4,365,000 (b)
Secaucus, New Jersey Ramada . . . 12,458,000 7,752,000 (b)
----------- -----------
$76,809,000 $48,860,000
=========== ===========
</TABLE>
F-10
<PAGE> 14
(a) Represents a first mortgage note bearing interest at 8%
(which was purchased at a discount which reflects a 16.1%
effective rate) payable quarterly in arrears. The mortgage
note is non-recourse, has a 15-year amortization period and a
balloon payment at maturity.
(b) The mortgage notes bear interest at various rates (which were
purchased at a discount, which reflects a 19.1% aggregate
effective rate) and are payable monthly in arrears, except
that for the months of November 1994 through April 1995, debt
service of the Atlantic City Quality Inn shall accrue and be
payable from excess cash flow. Commencing May 1, 1995 fixed
payments of debt service shall be required to be resumed. The
mortgages are non-recourse and mature between 1996 and 2010.
Notes payable consists of the following:
(a) A $39,013,000 note issued in connection with the acquisition
of the Harvey mortgage notes receivable under the terms of a
Loan Agreement with a third party dated October 15, 1993. The
note is non-recourse and matures on January 31, 2003 and bears
interest on a monthly basis at variable rates based on the
London Interbank Offer Rate (LIBOR) Eurodollar rate plus 3%.
(b) A $2,122,000 construction loan funded in 1994 used to renovate
the Harvey Wichita Hotel. The note bears interest at 7.75%.
Principal and interest are payable monthly and the note
matures in 2000.
In addition, as part of the Reorganization, the Realty
Partnership assumed other mortgage notes payable in the
aggregate principal amount of $17,750,000, which notes were
refinanced with the proceeds of a loan pursuant to a new
credit agreement.
(C) The Trust and the Corporation are general partner and managing partner
of the Realty Partnership and the Operating Partnership, respectively,
and as such will be liable for the obligations of the Realty
Partnership and the Operating Partnership, respectively. As a
condition to the Reorganization, the Starwood Partners nominated a
majority of the respective Board members of the Trust and the
Corporation upon the Reorganization. Neither the Trust nor the
Corporation is considered to have unilateral control of the Realty
Partnership or the Operating Partnership for accounting purposes.
Therefore, the assets and liabilities of the Realty Partnership and
the Operating Partnership have been accounted for based on the
historical costs of the contributed assets and liabilities of the
Trust, the Corporation and the Starwood Partners.
(D) Reflects the historical balance sheet of Starwood Lodging Corporation
as of December 31, 1994.
(E) Reflects the payment of organization costs related to the formation of
the Partnerships.
(F) Reflects the contribution of the advance related to the Albany Holiday
Inn Hotel by the Starwood Partners.
(G) Represents an obligation related to shareholder litigation assumed by
the Starwood Partners. Subsequent to the settlement of certain
shareholder actions, Leonard M. Ross and his affiliates ("Ross"), who
hold 1,190,400 Paired Shares and had opted out of the settlement, had
threatened litigation against the Trust and the Corporation.
In October 1994, Starwood Capital Group, L.P. ("Starwood Capital")
entered into an agreement with Ross to settle the threatened
litigation in which Starwood Capital agreed to purchase Ross' paired
shares, at Ross' election, in a 60-day period beginning December 15,
1995 at a price of $5.625. Starwood Capital also has the right to
elect to purchase such Paired Shares at the same time and on the same
terms. The Trust and Corporation have also agreed that under certain
circumstances they may be obligated severally to 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.
The estimated fair value of the put/call provisions of the Ross
settlement agreement at the time of the agreement was approximately
$2,648,000 and was charged against the earnings of the Trust and
Corporation in 1994. In addition, a liability was established for the
present value of the expected indemnification for $845,000 for both
the Trust and the Corporation. The Realty Partnership and the
Operating Partnership will reimburse the Trust and the Corporation,
respectively, for all amounts paid in respect of such indemnification
obligation. Therefore, the Partnership's pro forma balance sheets
each reflect a liability of $845,000 to reimburse the Trust and the
Corporation. To the extent that the amount of the ultimate
indemnification, if any, is less than $1,800,000, the difference will
be reflected in the income of the respective Partnerships.
(H) Reflects the establishment of the Partners' capital accounts.
F-11
<PAGE> 15
SLT REALTY L.P. AND SLC OPERATING L.P.
PRO FORMA SEPARATE AND COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
The following unaudited Pro Forma Separate and Combined Statements of
Operations are presented as if the Reorganization in which the Trust and the
Corporation contributed substantially all of their assets (subject to
substantially all of their liabilities) in exchange for 28.3% general
partnership interests in the Partnerships and the Starwood Partners contributed
cash and other assets, subject to certain liabilities, in exchange for 71.7%
limited partnership interests in the Partnerships had occurred on January 1,
1994.
The unaudited Pro Forma Combined Statements of Operations should be
read in conjunction with the Combined Historical Financial Statements of
Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In
management's opinion, all adjustments necessary to reflect the effects of the
Reorganizations have been made.
The unaudited Pro Forma Statements of Operations are not necessarily
indicative of what actual results of operations of the Partnerships would have
been assuming the Reorganization had occurred on January 1, 1994, nor do they
purport to represent the Partnerships' results of operations for future
periods.
F-12
<PAGE> 16
SLT REALTY LP AND SLC OPERATING LP
UNAUDITED SEPARATE AND COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
STARWOOD PRO FORMA STARWOOD
LODGING STARWOOD PRO FORMA SLT REALTY LODGING
TRUST PARTNERS ADJUSTMENTS PARTNERSHIP CORPORATION
----------- ---------- ----------- ----------- ------------
(A) (B) (C)
<S> <C> <C> <C> <C> <C>
REVENUE
Hotel ................................... $ $ $ $ $ 82,668,000
Gaming .................................. 27,981,000
Rents from Corporation .................. 16,906,000 3,266,000 (D) 20,172,000
Interest from Corporation ............... 1,730,000 1,730,000
Interest from mortgage and other notes .. 1,512,000 8,252,000 9,764,000 42,000
Rents from other leased hotel properties 927,000 927,000
Management fees and other income ........ 164,000 164,000 247,000
Gain (loss) on sales of hotel assets .... 432,000 432,000 24,000
----------- ----------- ------------ ----------- ------------
21,671,000 8,252,000 3,266,000 33,189,000 110,962,000
----------- ----------- ------------ ----------- ------------
EXPENSES
Hotel operations ........................ 60,829,000
Gaming operations ....................... 24,454,000
Rent - Trust ............................ 16,906,000
Interest - Trust ........................ 1,730,000
Interest - other ........................ 16,265,000 4,297,000 (868,000)(E) 19,694,000 1,341,000
Depreciation and amortization ........... 5,205,000 1,049,000 610,000 (F) 6,864,000 2,956,000
Administrative and operating ............ 1,583,000 1,583,000 2,620,000
Shareholder litigation .................. 1,324,000 1,324,000 1,324,000
Provision for losses .................... 759,000 759,000
----------- ----------- ------------ ----------- ------------
25,136,000 5,346,000 (258,000) 30,224,000 112,160,000
----------- ----------- ------------ ----------- ------------
NET INCOME (LOSS) $(3,465,000) $ 2,906,000 $ 3,524,000 $ 2,965,000 $ (1,198,000)
=========== =========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA STARWOOD PRO FORMA
STARWOOD PRO FORMA SLC OPERATING LODGING SLT & SLC
PARTNERS ADJUSTMENTS PARTNERSHIP ELIMINATIONS COMBINED COMBINED
----------- ----------- ------------- ------------ ------------- ------------
(B)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Hotel ................................... $16,459,000 $ $ 99,127,000 $ 82,668,000 $ 99,127,000
Gaming .................................. 27,981,000 27,981,000 27,981,000
Rents from Corporation .................. (20,172,000)
Interest from Corporation ............... (1,730,000)
Interest from mortgage and other notes .. 42,000 1,554,000 9,806,000
Rents from other leased hotel properties 927,000 927,000
Management fees and other income ........ 247,000 411,000 411,000
Gain (loss) on sales of hotel assets .... 24,000 456,000 456,000
----------- ----------- ------------ ------------ ------------
16,459,000 127,421,000 113,997,000 138,708,000
----------- ----------- ------------ ------------ ------------
EXPENSES
Hotel operations ........................ 12,775,000 73,604,000 60,829,000 73,604,000
Gaming operations ....................... 24,454,000 24,454,000 24,454,000
Rent - Trust ............................ 3,266,000(D) 20,172,000 (20,172,000)
Interest - Trust ........................ 1,730,000 (1,730,000)
Interest - other ........................ 1,341,000 17,606,000 21,035,000
Depreciation and amortization ........... 1,233,000 610,000(F) 4,799,000 8,161,000 11,663,000
Administrative and operating ............ 2,620,000 4,203,000 4,203,000
Shareholder litigation .................. 1,324,000 2,648,000 2,648,000
Provision for losses .................... 759,000 759,000
----------- ----------- ------------ ------------ ------------
14,008,000 3,876,000 130,044,000 118,660,000 138,366,000
----------- ----------- ------------ ------------ ------------
NET INCOME (LOSS) $ 2,451,000 $(3,876,000) $ (2,623,000) $ (4,663,000) $ 342,000
=========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the pro forma separate and
combined statements of operations.
F-13
<PAGE> 17
(A) Reflects the historical statements of operations of the Trust for the
year ended December 31, 1994. Operations for properties sold are not
considered material to the pro forma presentation.
(B) Reflects the pro forma statement of operations of the assets and
liabilities contributed by the Starwood Partners for the year ended
December 31, 1994.
(C) Reflects the historical statement of operations of the Corporation for
the year ended December 31, 1994. Operations for properties sold are
not considered material to the pro forma presentation.
(D) Reflects rents on the hotel assets contributed by the Starwood
Partners leased to the Operating Partnership. The leases between the
Trust and the Corporation provide for annual base or minimum rents,
plus contingent or percentage rents based on the gross revenue of the
properties and are accounted for as operating leases.
(E) Reflects the reduction of interest expense as a result of debt
payments from cash contributed by the Starwood Partners and the
elimination of interest related to the contribution of the Albany
Holiday Inn by the Starwood Partners.
(F) Reflects the amortization of organization costs related to the
formation of the Partnerships over a five-year period.
(G) A Starwood Partner has guaranteed the cash flow from the Harvey
Wichita Hotel (which is defined for purposes of the guarantee as
cash received by the Operating Partnership from the hotel, less
management fees and capital expenditures for the hotel) in the amount
of $700,000, $800,000 and $900,000 for the three years following the
Reorganization. Related payments, if any, will be accounted for as a
reduction in the basis of the property decreasing depreciation expense
over the remaining life of the assets. No adjustments for the
guarantee have been made as any payments to be received are dependent
upon the future operations of the hotel which are not expected to be
comparable to the historical operation reflected in the pro forma
periods.
F-14
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Starwood Wichita Investors, L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partner's capital and of cash flows present fairly,
in all material respects, the financial position of Starwood Wichita Investors,
L.P. at December 31, 1994 and 1993 and the results of its operations and its
cash flows for the year ended December 31, 1994 and the period December 17,
1993 (inception) to December 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Starwood Wichita Investors, L.P.'s management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
January 27, 1995
Dallas, Texas
F-15
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Starwood Wichita Investors, L.P.
In our opinion, the accompanying statements of operations, of changes in
division equity/(deficit) and of cash flows present fairly, in all material
respects, the results of operations and cash flows for the Wichita East Hotel
for the period January 1, 1993 to December 19, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Wichita East Hotel management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
October 28, 1994
Dallas, Texas
F-16
<PAGE> 20
STARWOOD WICHITA INVESTORS, L.P.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
---------- ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 96,648 $ 28,542
Accounts receivable, net of allowance for doubtful
accounts ($3,149 at December 31, 1994 and
$812 at December 31, 1993, respectively) 201,636 38,838
Inventories 106,132 125,419
Fixed assets, net of accumulated depreciation (Note 4) 5,129,816 3,538,202
Other 130,016 71,677
---------- ----------
Total assets $5,664,248 $3,802,678
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - trade $59,941 73,999
Accounts payable - related parties 57,671 1,306
Accrued compensations 41,224 52,046
Accrued taxes other than income 104,072 68,915
Other accrued liabilities 70,485 29,246
Capital lease obligations (Note 5) 126,968 145,136
Long-term debt (Note 6) 2,121,535
---------- ----------
Total liabilities 2,581,896 370,648
---------- ----------
Partners' capital (Note 7) 3,082,352 3,432,030
---------- ----------
Total liabilities and partners' capital $5,664,248 $3,802,678
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-17
<PAGE> 21
STARWOOD WICHITA INVESTORS, L.P.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Predecessor For the period
For the period December 17, 1993 For the period
January 1, 1993 to (inception) to January 1, 1994 to
December 19, 1993 December 31, 1993 December 31, 1994
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Rooms $2,409,409 $ 23,944 $2,763,850
Food and beverage 791,811 9,002 1,017,421
Telephone 107,832 868 148,404
Other 78,569 2,185 52,694
---------- -------- ----------
3,387,621 35,999 3,982,369
Cost of sales - distributed operating
expenses:
Rooms 868,308 19,938 1,006,473
Food and beverage 859,543 18,779 1,052,438
Telephone 66,571 1,242 78,832
Other 30,720 276
---------- -------- ----------
1,562,479 (4,236) 1,844,626
---------- -------- ----------
Operating department income:
Undistributed operating expenses:
Administrative and general 594,711 10,616 510,017
Advertising and promotion 352,041 9,221 504,959
Property operation and maintenance 693,351 22,056 629,468
---------- -------- ----------
1,640,103 41,893 1,644,444
---------- -------- ----------
Fixed charges:
Depreciation 422,555 18,236 501,095
Real estate taxes and insurance 135,607 2,327 138,515
Interest 67,080
Other charges 157,876 1,278 18,170
---------- -------- ----------
(793,662) (67,970) (524,678)
Operating loss for the period
Other income 118,430
Loss on sale (21,756)
---------- -------- ----------
Net loss for the period $ (696,988) $(67,970) $ (524,678)
========== ======== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-18
<PAGE> 22
STARWOOD WICHITA INVESTORS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 17, 1993
(inception) to
December 31, 1993
------------------
<S> <C>
Partners' capital, beginning of period $ 0
Partners' contributed capital 3,500,000
Net loss for period (67,970)
----------
Partners' capital, end of period $3,432,030
==========
For the period
January 1, 1994 to
December 31, 1994
------------------
Partners' capital, beginning of period $3,432,030
Partners' contributed capital 175,000
Net loss for period (524,678)
----------
Partners' capital, end of period $3,082,352
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN DIVISION EQUITY (DEFICIT) (Predecessor)
<TABLE>
<CAPTION>
For the period
January 1, 1993 to
December 31, 1993
------------------
<S> <C>
Division equity, beginning of period $ 3,884,613
Capital withdrawal (3,287,797)
Net loss for period (696,988)
-----------
Division deficit, end of period $ (100,172)
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-19
<PAGE> 23
STARWOOD WICHITA INVESTORS, L.P.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Predecessor For the period
For the period December 17, 1993 For the period
January 1, 1993 to (inception) to January 1, 1994 to
December 19, 1993 December 31, 1993 December 31, 1994
------------------ ----------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (696,988) $ (67,970) $ (524,678)
Adjustments to reconcile net loss from
operations to net cash used in
operating activities:
Depreciation 422,555 18,236 501,095
Loss on sale of property 21,756
Change in operating assets
Accounts receivable (83,753) (38,838) (167,796)
Inventory 101,636 (125,419) 19,287
Other assets 215,103 (71,677) (104,711)
Accounts payable 175,035 75,305 138,121
Accrued liabilities (313,508) 150,207 21,133
----------- ----------- -----------
Net cash used in operating
activities: (158,164) (60,156) (117,549)
Cash flows from investing activities:
Capital expenditures (152,240) (3,411,302) (2,237,848)
Proceeds from sale of property 3,287,797
----------- ----------- -----------
Net cash provided by/(used in)
investing activities 3,135,557 (3,411,302) (2,237,848)
Cash flows from financing activities:
Division equity withdrawal (3,287,797) 3,500,000
Partners' capital contribution 175,000
Capital lease payments (11,302) 126,968
Proceeds from long-term debt 2,121,535
----------- ----------- -----------
Net cash provided by/(used in)
financing activities (3,299,099) 3,500,000 2,423,503
Net cash increase (decrease) in cash $ (321,706) $ 28,542 $ 68,106
Cash at beginning of period 379,864 28,542
----------- ----------- -----------
Cash at end of period $ 58,158 $ 28,542 $ 96,648*
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
Cash paid during the period for:
Interest $ 8,269 $ -0- $ 67,080
Income taxes -0- -0- -0-
</TABLE>
(Continued)
F-20
<PAGE> 24
SUPPLEMENTARY SCHEDULES OF NON-CASH ACTIVITIES
In addition to the capital assets purchased, the Partnership assumed certain
capital obligations entered into by the Predecessor. See Note 5 for further
discussion of the assumed capital leases.
* Cash balances include cash held in escrow related to the long-term debt.
The accompanying notes are an integral
part of these financial statements.
F-21
<PAGE> 25
STARWOOD INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Starwood Wichita Investors, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on December 17, 1993 for the purpose of acquiring
interests in real estate investments. Starwood Opportunity Fund II, L.P.
("SOF-II") is the general partner with 1% interest. SOF-II is also a
limited partner owning 89% with the remaining 10% interest owned by
Wichita Harvey Partners, Ltd. ("Harvey"). The Partnership acquired the
Wichita East Hotel from The Travelers Insurance Company on December 20,
1993. The Travelers Insurance Company (the "Predecessor"), a
Connecticut corporation, acquired the real estate property through
bankruptcy proceedings and held the hotel until they sold it to the
Partnership on December 20, 1993. Although the Partnership was formed
and had activity on December 17, 1993, the operations of the hotel are
not included in the Partnership's accounts until the hotel changed
ownership on December 20, 1993. The operations of the hotel are included
in the Predecessor financial records through December 19, 1993. The
hotel is operated under a management agreement with Harvey Hotel
Management Corporation and has 259 rooms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purpose of reporting cash flows, cash and cash equivalents include
cash in banks and cash on hand.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related
assets, generally five to 39 years. The costs of repairs and minor
renewals that do not significantly extend the life of the property and
equipment are normally expensed as incurred. The costs of major
renovation projects are capitalized and depreciated over the related
period of benefit.
INVENTORIES
Food, linen, china, liquor and other inventories are valued at the lower
of cost or market on a first-in, first-out basis.
INCOME TAXES
No provision for income taxes is necessary in the financial statements of
the Partnership because, as a partnership, it is generally not subject to
federal or state income taxes and the tax effects of its activities flow
through to the partners.
No provision for income tax is provided in the Predecessor financial
statements as the hotel is represented as a stand-alone entity with no
prior history. Therefore, the loss incurred for the period January 1,
1993 to December 19, 1993 is assumed to have no carryback period or
benefit.
3. RELATED PARTY TRANSACTIONS
The Partnership has signed a management agreement with Harvey Hotel
Management Corporation, a related party to Harvey. The Partnership will
pay Harvey Hotel Management Corporation a management fee for operating
the hotel. For the period from December 20, 1993 to December 31, 1994,
the agreement provides an incentive fee which shall be equal to 20% of
the "net operating income" (as defined in the agreement to exclude
depreciation, amortization, interest, capital expenditures, and
management fees). The incentive fee is subordinate to distributions to
owners. For years ending after December 31, 1994, the management fee
will be the lesser of $100,000 or total excess cash flows, as defined in
the management agreement, plus 25% of the excess cash flow after
deducting the amount specified above for incentive fees. For the year
ended December 31, 1994 and during the period December 20, 1993 through
December 31, 1993, no management fee was incurred. The Predecessor had
Harvey Hotel Management Corporation manage the operations of the real
estate property during the period January 1, 1993 to December 19, 1993.
Management and marketing expenses paid to Harvey Hotel Management Company
for the period were approximately $160,000.
F-22
<PAGE> 26
The management agreement also details a preference fee to be paid to
Harvey Hotel Management Corporation upon the sale or refinancing of the
hotel. The agreement states that net sale (or refinancing) proceeds will
be distributed to the owners until they have received a return of their
capital contributions, plus an internal rate of return of 15% (as
defined) on those contributions. After the return of capital, Harvey
Hotel Management Corporation will receive a preference fee equal to 20%
of the remaining proceeds.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1994
---------- ----------
<S> <C> <C>
Land $ 341,130 $ 341,130
Building and improvements 3,536,875 1,934,512
Furniture and equipment 1,627,006 1,135,660
Equipment under capital leases 144,136 145,136
---------- ----------
5,649,147 3,556,438
Less: accumulated depreciation (519,331) (18,236)
---------- ----------
$5,129,816 $3,538,202
========== ==========
</TABLE>
Depreciation expense for the year ended December 31, 1994 was $501,095
and includes depreciation on assets recorded under capital leases.
Depreciation expense for the period December 20, 1993 to December 31,
1993 was $18,236.
The land, building and furniture was purchased for approximately
$3,500,000 on December 20, 1993.
5. LEASES
The Partnership assumed certain capital equipment leases in the operation
of the real estate property which extend through 2000. At the end of the
lease term the Partnership has the option to purchase the equipment at
the fair market value of the equipment.
Capital lease obligations are summarized below for the years ending
December 31:
<TABLE>
<S> <C>
1995 $ 29,357
1996 29,357
1997 29,357
1998 29,357
1999 29,357
Thereafter 9,786
--------
Net minimum lease payments under capital leases 156,571
Less amount representing interest (29,603)
--------
Present value of net minimum lease payments under
capital leases $126,968
========
</TABLE>
F-23
<PAGE> 27
The Partnership leases various equipment under operating leases for use
in the operation of the property. Minimum rental commitments under
non-cancellable leases are as follows at December 31:
<TABLE>
<S> <C>
1995 $ 7,688
1996 4,752
1997 1,386
=======
Total minimum lease payments $13,826
=======
</TABLE>
Rent expense for the year ended December 31, 1994 was $3,915.
Rent expense for the period January 1, 1993 to December 19, 1993 was
$6,253, and totaled $280 for the remainder of the year.
The Partnership leases space to various tenants for a hotel gift shop,
hair salon, and a rooftop antenna. The minimum lease rental income under
non-cancellable leases for 1994 was approximately $8,666. The leases
expire on various dates from 1995 to 1999.
6. LONG-TERM DEBT
On April 15, 1994, the Partnership entered into a construction loan with
Bank IV Kansas for the purpose of renovating the property. The
construction loan is for $2,250,000 and carries an interest rate of 7.75%
during the construction period. The Partnership paid a commitment fee in
the amount of $15,000 to secure this financing. The loan, totaling
$2,121,535, was converted to permanent financing with an annual interest
rate of 7.75% fixed for a five-year term. A balloon payment in the
amount of $1,466,490 is due January 1, 2000.
Payments of principal and interest are due monthly and total $22,675.
Principal repayments during each of the next five years are as follows:
<TABLE>
<S> <C>
1995 $ 111,587
1996 120,549
1997 130,230
1998 140,690
1999 151,989
2000 1,466,490
----------
Total $2,121,535
==========
</TABLE>
7. PARTNERS' CAPITAL
At December 31, 1994, total partners' capital was comprised of the
following:
<TABLE>
<CAPTION>
Partners' Capital Partners'
Capital Contributions Net Loss Capital
---------- ------------- --------- ----------
<S> <C> <C> <C> <C>
SOF-II (90%) $3,088,827 $157,500 $(472,210) $2,774,117
Harvey (10%) 343,203 17,500 (52,468) 308,235
---------- -------- --------- ----------
$3,432,030 $175,000 $(524,678) $3,082,352
========== ======== ========= ==========
</TABLE>
Net loss of the Partnership is allocated to the partners, on a pro rata
basis, in accordance with the Partnership Agreement.
The Partnership Agreement states that partner contributions will be
limited to $5,340,000 for SOF-II and $600,000 for Harvey. The Agreement
requires that contributions be made on a pro rata basis, as needed for
hotel renovations or operations.
F-24
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Starwood Capital Group
In our opinion, the accompanying balance sheet and the related statement of
operations, of changes in partner's capital and of cash flows present fairly,
in all material respects, the financial position of The French Quarter Square
at December 31, 1994 and the results of its operations and its cash flows for
the period August 1, 1994 to December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of The French Quarter Square's management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements of the French Quarter Square have been
prepared assuming that the Partnership owns its properties. As discussed in
Note 7, a lawsuit has been filed which disputes this ownership. The ultimate
outcome of the litigation cannot be determined at present. No provision for
any liability that may result upon adjudication has been made in the
accompanying financial statements.
PRICE WATERHOUSE LLP
March 3, 1995
Dallas, Texas
F-25
<PAGE> 29
THE FRENCH QUARTER SQUARE
BALANCE SHEET
DECEMBER 31, 1994
- -------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents $ 214,517
Accounts receivable 104,820
Inventories 25,868
Prepaid expenses 117,398
Fixed assets, net of accumulated depreciation (Note 3) 12,053,911
Other 50,561
-----------
Total assets $12,567,075
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - trade $ 105,162
Accrued sales and use taxes 55,826
Accrued payroll 26,948
Other accrued liabilities 19,327
Deferred revenue 70,023
Notes payable 47,369
Debt allocation (Note 5) 898,000
-----------
Total liabilities 1,222,655
-----------
Contingencies and uncertainties (Note 7)
Partners' capital 11,344,420
-----------
Total liabilities and partners' capital $12,567,075
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-26
<PAGE> 30
THE FRENCH QUARTER SQUARE
STATEMENT OF OPERATIONS
FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenues:
Rooms $1,415,866
Food and beverage 422,650
Telephone and other 124,381
Rental 290,010
Expense reimbursements 49,939
----------
2,302,846
----------
Cost of sales - distributed operating expenses:
Rooms 340,427
Food and beverage 429,269
Telephone 31,191
Other 19,798
----------
820,685
----------
Operating department income: 1,482,161
----------
Undistributed operating expenses:
Administrative and general 284,568
Advertising and promotion 162,019
Property operation and maintenance 245,622
----------
692,209
----------
Fixed charges:
Depreciation 311,856
Real estate taxes and insurance 75,615
Interest 24,000
----------
411,471
----------
Net income for the period $ 378,481
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-27
<PAGE> 31
THE FRENCH QUARTER SQUARE
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Partners' capital, beginning of period $13,454,003
Distributions to partners (2,915,035)
Contributions from partners 426,971
Net income for period 378,481
-----------
Partners' capital, end of period $11,344,420
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-28
<PAGE> 32
THE FRENCH QUARTER SQUARE
STATEMENT OF CASH FLOWS
FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 378,481
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 311,856
Change in operating assets and liabilities
Accounts receivable (104,820)
Inventory (25,868)
Other assets (167,959)
Accounts payable 105,162
Accrued liabilities 102,101
Deferred revenue 70,023
----------
Net cash provided by operating activities 668,976
----------
Cash flows from financing activities:
Distributions to partners (2,915,035)
Contributions from partners 426,971
Note payable 47,369
Debt allocation 898,000
----------
Net cash used in financing activities (1,542,695)
Net decrease in cash (873,719)
Cash at beginning of period 1,088,236
----------
Cash at end of period $ 214,517
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-29
<PAGE> 33
THE FRENCH QUARTER SQUARE
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The French Quarter Square (the "Partnership") owns and operates a 155 room
hotel, a 37,500 square foot shopping center and a 12,000 square foot
office building (the "Properties") located in Lexington, Kentucky. The
shopping center and office space were completed in 1988 and the hotel was
completed in 1989.
On August 4, 1994, for an aggregate purchase price of approximately $14.8
million, Berl Holdings, L.P. ("Berl") in combination with one of its
limited partners, Starwood Opportunity Fund II, L.P. ("SOF II"), acquired
the Properties, a nearby warehouse, 7.4 acres of undeveloped land and
certain monetary interests of Kentucky Central Life Insurance Company in
the operating accounts of the real estate and other amounts due them under
a settlement agreement with the previous owners with respect to the
mortgage.
The purchase price, less the estimated value of the monetary interests
acquired, was allocated by management between the real assets acquired by
Berl and those acquired by SOF II (the warehouse and the undeveloped land)
and, thereafter, between the land, building and improvements, and
furniture, and equipment based on the relative estimated fair value of the
individual property components.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the
Properties, as included in the financial records of Berl, as if it were a
separate legal entity and these records have been prepared using generally
accepted accounting principles.
CASH AND CASH EQUIVALENTS
For purpose of reporting cash flows, cash and cash equivalents include
cash in banks and cash on hand.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets,
generally five to 39 years. The costs of repairs and minor renewals that
do not significantly extend the life of the building and improvements are
normally expensed as incurred. The costs of major renovation projects are
capitalized and depreciated over the related period of benefit.
INVENTORIES
Food, linen, china, liquor and other inventories are valued at the lower
of cost or market on a first-in, first-out basis.
REVENUE RECOGNITION
Hotel revenues are recognized when earned. Office and retail revenues are
recognized on a straight-line basis over the life of the respective
leases.
INCOME TAXES
No provision for income taxes is necessary in the financial statements of
the Partnership because, as a partnership, it is generally not subject to
federal or state income taxes and the tax effects of its activities flow
through to the partners.
F-30
<PAGE> 34
3. FIXED ASSETS
Fixed assets consist of the following at December 31, 1994:
<TABLE>
<S> <C>
Land $ 1,236,576
Building and improvements 10,060,739
Furniture and equipment 1,068,452
-----------
12,365,767
Less: accumulated depreciation (311,856)
-----------
$12,053,911
===========
</TABLE>
Depreciation expense for the period August 1, 1994 to December 31, 1994 was
$311,856.
4. LEASES
The office and retail properties are leased under operating leases with
initial non-cancellable contracts starting at thirty-six months. Some
leases provide for tenant reimbursement of certain common area maintenance
expenses, insurance and real estate taxes on a monthly basis.
A summary of the future minimum rentals to be received under
non-cancellable operating leases is as follows:
Year ending December 31:
<TABLE>
<S> <C>
1995 $ 503,443
1996 378,871
1997 305,724
1998 292,641
1999 252,370
Thereafter 1,266,913
----------
$2,999,962
==========
</TABLE>
Certain retail leases require percentage rents to be paid after sales for
individual retailers have reached a specified level.
5. JOINT BORROWING DEBT ALLOCATION
Berl, through its interest in Starwood-Huntington Partners, L.P.
("Starwood-Huntington"), a majority owned affiliated partnership, acquired
the fee title to the Doubletree Club Hotel of Rancho Bernardo, California
which was financed in part through a $6.8 million mortgage on the acquired
property. The remaining purchase price was financed through a $1.95
million borrowing by Berl secured by the French Quarter hotel property and
two other hotel properties owned by Berl. The proceeds of this borrowing
were contributed by Berl into Starwood-Huntington. The two mortgages
contain cross-default provisions which effectively cross-collateralize all
four hotel properties. The mortgage loans accrue interest at LIBOR plus
2.5%, payable monthly. Principal is due upon maturity in September, 1995.
It is contemplated that the mortgage will be repaid with proceeds from a
public offering made by Hotel Investors Trust.
A pro rata portion of the Berl loan and the related interest expense have
been reflected in these financial statements based on the relative 1994
acquisition prices of the Properties.
6. SUBSEQUENT EVENT
Effective January 1, 1995, pursuant to a Plan of Reorganization executed
on February 1, 1995, the Properties, subject to related secured mortgage
obligations, along with other real estate assets, mortgage receivables and
cash were transferred into two newly formed Operating Partnerships between
Hotel Investors Trust/Hotel Investors Corporation (a real estate
investment trust and a corporation trading publicly on a paired basis) and
certain entities controlled by Starwood Capital Group, LP (including Berl
and Starwood-Huntington) in exchange for a majority of the Operating
Partnership's interests. Concurrently with these transactions, Hotel
Investors Trust/Hotel Investors Corporation
F-31
<PAGE> 35
contributed substantially all of their net assets and operations into the
Operating Partnerships and changed their name to Starwood Lodging Trust and
Starwood Lodging Corporation, respectively.
7. CONTINGENCIES AND UNCERTAINTIES
Kentucky Central Life Insurance Company ("KCL") sold the hotel, office and
retail property to Berl. This sale was part of a pooled asset sale
conducted by the Kentucky Insurance Commissioner as rehabilitator of KCL.
At the time of the sale, the Kentucky Circuit Court had approved the sale,
and KCL had appealed such approval. These appeals were transferred to the
Kentucky Supreme Court and are pending. Neither Berl or SOF II are party
to this litigation. In the event that the Commissioner loses this appeal
and the sales are voided, Berl and SOF II have secured return of their
purchase price by escrowing the proceeds at closing and by obtaining title
insurance affirmatively covering this risk.
F-32
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
the Starwood Capital Group
We have audited the accompanying schedules of operating revenue and certain
expenses of the French Quarter Square (the "Properties") for the period January
1 to July 31, 1994 and the year ended December 31, 1993. These schedules are
the responsibility of the Properties' management. Our responsibility is to
express an opinion on these schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the schedules of operating revenue
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the schedule. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
schedule presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying schedules of operating revenue and certain expenses were
prepared on the basis described in Note 1 and is not intended to be a complete
presentation of the Properties' revenues and expenses.
In our opinion, the schedules of operating revenue and certain expenses audited
by us present fairly, in all material respects, the operating revenue and
certain expenses of the French Quarter Square, on the basis described in Note
1, for the period January 1 to July 31, 1994 and the year ended December 31,
1993, in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Dallas, Texas
March 3, 1995
F-33
<PAGE> 37
THE FRENCH QUARTER SQUARE
SCHEDULES OF OPERATING REVENUE AND CERTAIN EXPENSE
FOR THE PERIOD JANUARY 1 TO JULY 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Period
Ended January 1 to
December 31, 1993 July 31, 1994
----------------- --------------
<S> <C> <C>
Operating revenue:
Rooms $3,280,411 $1,898,664
Food and beverage 1,165,305 654,654
Telephone and other 167,231 76,034
Rental 721,356 278,223
Expense reimbursements 6,266 36,819
---------- ----------
5,340,569 2,944,394
Certain expenses (Note 1):
Cost of sales 1,827,710 1,125,362
General and administrative 500,146 316,673
Marketing 399,519 240,699
Energy costs 260,755 149,274
Management fees 271,313 147,685
Real estate taxes 186,509
Insurance and property operations 297,398 169,444
Common area maintenance 36,318 18,912
Other expenses 46,130 32,658
---------- ----------
3,825,798 2,200,707
---------- ----------
Operating revenue in excess of certain expenses $1,514,771 $ 743,687
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-34
<PAGE> 38
THE FRENCH QUARTER SQUARE
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying schedule of operating revenue and certain expenses
relates to the operations of the French Quarter Square (the Properties)
located in Lexington, Kentucky. The Properties consist of a 155 room
hotel, a 37,500 square foot shopping center and a 12,000 square foot
office building. The shopping center and office space were completed in
1988 and the hotel was completed in 1989.
BASIS OF PRESENTATION
This schedule was prepared for the partners of Starwood Capital Group (the
Partners), who acquired the Properties in an acquisition from Kentucky
Central Life Insurance Company on August 1, 1994. Kentucky Central Life
Insurance received the properties through a deed in lieu of foreclosure on
June 15, 1994. Prior to ownership by Kentucky Central Life Insurance
Company, the Properties were owned by French Quarter Square Limited
(Predecessor), a Kentucky limited partnership, who had filed for
protection under Chapter 11 Bankruptcy on September 21, 1993. The
Partners are contemplating selling these properties to Hotel Investors
Inc. for inclusion in a real estate investment trust portfolio.
Accordingly, certain expenses which may not be comparable to the expenses
expected to be incurred in the proposed future operations of the
Properties, have been excluded under the assumption that the potential
transaction described above will be consummated. Expenses excluded
consist of depreciation and valuation adjustments to the building and
improvements, interest expense on certain debt incurred by the Properties
to acquire and develop the property, and amortization of expenses not
directly related to the proposed future operations of the Hotel.
REVENUE AND EXPENSE RECOGNITION
The accompanying schedule of operating revenue and certain expenses has
been prepared on the accrual basis of accounting.
Rooms revenue for the hotel is recognized daily on a check-in basis.
Rental revenue for the office and shopping center is recognized on a
monthly basis. All other revenue is recognized when earned.
2. RELATED PARTY TRANSACTIONS
During the seven-month period ended July 31, 1994 and the year ended
December 31, 1993, the hotel incurred approximately $400,000 and $240,000,
respectively, in charges from French Quarter Properties Inc. (a related
party) for marketing and management services.
Payments totaling approximately $150,000, for management fees and leasing
commissions incurred prior to January 1, 1993, were paid to Graves/Turner
Developments on various dates between September 2, 1993 and September 21,
1993. In addition, approximately $16,000 and $271,000, respectively, in
management fees were incurred and paid to Graves/Turner Development for
management services rendered during the seven-month period ended July 31,
1994 and the year ended December 31, 1993, respectively.
3. FUTURE MINIMUM RENTALS UNDER OPERATING LEASES
The Property is leased under operating leases with initial non-cancellable
contracts starting at thirty-six months. Some leases provide for tenant
reimbursement of certain common area maintenance expenses, insurance and real
estate taxes on a monthly basis.
F-35
<PAGE> 39
A summary of the future minimum rentals to be received under non-cancellable
operating leases is as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1995 $ 503,443
1996 378,871
1997 305,724
1998 292,641
1999 252,370
Thereafter 1,266,913
----------
$2,999,962
==========
</TABLE>
Several of the retail leases require percentage rents to be paid after sales
for individual retailers have reached a specified level.
F-36
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Berl Holdings, L.P.
In our opinion, the accompanying balance sheet and the related statement of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Capitol Hill Suites at December
31, 1994, and the results of its operations and its cash flows for the period
July 14, 1994 (acquisition) to December 31, 1994 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Capitol Hill Suites' management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which requires that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Washington, DC
March 2, 1995
F-37
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Berl Holdings, L.P.
In our opinion, the accompanying balance sheet at December 31, 1993 and the
related statement of operations, changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position and
results of operations and cash flows for Capitol Hill Suites for the period
January 1, 1994 to July 13, 1994, and the year ended December 31, 1993, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Capitol Hill Suites' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which requires that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Washington, DC
March 2, 1995
F-38
<PAGE> 42
CAPITOL HILL SUITES
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993
1994 (PREDECESSOR)
---------- -------------
ASSETS
<S> <C> <C>
Cash $ 192,335 $ 91,175
Accounts receivable 64,142 130,711
Inventory, at cost 57,206 51,097
Other 29,736 20,543
Fixed assets:
Land 1,275,528 2,258,000
Building and building improvements 6,713,347 5,640,117
Furniture, fixtures and equipment 719,724 419,093
---------- ----------
8,708,599 8,317,210
Less: Accumulated depreciation 204,124 523,591
---------- ----------
8,504,475 7,793,619
---------- ----------
Total assets $8,847,894 $8,087,145
========== ==========
LIABILITIES AND DIVISION EQUITY
Accounts payable $ 139,422 $ 141,597
Accounts payroll 40,596 20,243
Other accrued expenses 54,238 20,244
Mortgage payable (Note 3) 617,000
---------- ----------
Total liabilities 851,256 182,084
---------- ----------
Division equity 7,996,638 7,905,061
---------- ----------
Total liabilities and division equity $8,847,894 $8,087,145
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-39
<PAGE> 43
CAPITOL HILL SUITES
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period Predecessor
July 14, 1994 For the period
(acquisition) to January 1, 1994 to Year ended
December 31, 1994 July 13, 1994 December 31, 1993
----------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Suites $1,412,222 $1,856,654 $3,146,322
Telephone 50,196 58,061 101,665
Other 50,618 56,455 147,330
---------- ---------- ----------
1,513,036 1,971,170 3,395,317
Departmental expenses:
Suites 416,777 519,190 875,318
Telephone 18,340 22,642 47,705
Other 16,796 20,368 48,232
---------- ---------- ----------
451,913 562,200 971,255
---------- ---------- ----------
Gross profit 1,061,123 1,408,970 2,424,062
---------- ---------- ----------
Other expenses:
General and administrative 166,206 222,244 418,513
Advertising and promotion 81,992 110,942 210,317
Utilities 57,921 66,962 133,693
Maintenance and repairs 93,454 124,995 185,766
Insurance and taxes 74,234 60,518 152,834
Depreciation and amortization 204,124 154,575 253,600
Management fees 40,888 102,562 156,874
Other 6,696 3,865
---------- ---------- ----------
725,515 846,663 1,511,597
---------- ---------- ----------
Income from hotel operations 335,608 562,307 912,465
Interest expense 16,000
---------- ---------- ----------
Other 95,238
---------- ---------- ----------
Net income $ 319,608 $ 467,069 $ 912,465
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-40
<PAGE> 44
CAPITOL HILL SUITES
STATEMENT OF CHANGES IN DIVISION EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
July 14, 1994
(acquisition) to
December 31, 1994
-----------------
<S> <C>
Contributed capital $8,515,307
Capital withdrawal (838,277)
Net income for period 319,608
----------
Division equity, ending $7,996,638
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Predecessor)
<TABLE>
<CAPTION>
For the period
January 1, 1994 to
July 13, 1994
------------------
<S> <C>
Stockholder's equity, beginning $7,905,061
Capital withdrawal (8,315,397)
Distributions to stockholder, net (194,268)
Net income for period 467,069
----------
Stockholder's equity, ending $ (137,535)
==========
</TABLE>
<TABLE>
<CAPTION>
For the period
January 1, 1993 to
December 31, 1993
------------------
<S> <C>
Stockholder's equity, beginning $7,697,976
Distributions to stockholder, net (705,380)
Net income for period 912,465
----------
Stockholder's equity, ending $7,905,061
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-41
<PAGE> 45
CAPITOL HILL SUITES
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period Predecessor
July 14, 1994 For the period
(acquisition) to January 1, 1994 to Year ended
December 31, 1994 July 13, 1994 December 31, 1993
----------------- ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 319,608 $ 467,069 $ 912,465
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 204,124 154,575 253,600
Gain on sale of fixed assets (3,821)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (14,104) 130,711 16,238
(Increase) decrease in inventory (5,745) 51,097 7,727
(Increase) decrease other (7,183) 20,543 (3,249)
Increase (decrease) in accounts
payable 139,422 (141,597) 41,351
Decrease in accrued payroll (7,131) (20,243) (27,116)
Decrease in other accrued expenses (10,279) (20,244) (63,389)
----------- ---------- ----------
Net cash provided by operating
activities 618,712 641,911 1,133,806
Cash flows from investing activities:
Capital expenditures (8,720,407) (264,557) (527,883)
Proceeds from sale of fixed assets 8,315,397 3,821
----------- ---------- ----------
Net cash (used in) provided by
investing activities (8,720,407) 8,050,840 (524,062)
Cash flows from financing activities:
Partners' capital contribution 8,515,307
Proceeds from mortgage borrowings 617,000
Capital withdrawal (838,277) (8,315,397)
Distributions to stockholder, net (194,268) (705,380)
----------- ---------- ----------
Net cash provided by/(used in)
financing activities 8,294,030 (8,509,665) (705,380)
Net increase in cash 192,335 183,086 (95,636)
Cash, beginning 91,175 186,811
----------- ---------- ----------
Cash, ending $ 192,335 $ 274,261 $ 91,175
=========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-42
<PAGE> 46
CAPITOL HILL SUITES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 - ORGANIZATION
Capitol Hill Suites (the Property), a 152 room suites hotel located in
Washington D.C., was acquired by Berl Holdings, L.P. (Berl) on July 14, 1994
from Capitol Hill Holdings, Inc. (the Predecessor) which had acquired the
Property from a subsidiary of Marine Midland Realty Credit Corporation, in
1991.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Property, as
included in the financial records of Berl and the Predecessor, as if it were a
separate legal entity and have been prepared using the accrual basis of
accounting.
CASH AND CASH EQUIVALENTS
The Property considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
FIXED ASSETS
Fixed assets are recorded at the lower of cost or net realizable value based on
fair value allocations as determined by management at the acquisition date.
Building and building improvements, furniture and fixtures and equipment are
depreciated using the straight-line method over estimated lives ranging from 5
to 30 years. The costs of repairs and minor renewals that do not significantly
extend the life of the property and equipment are normally expensed as
incurred. The costs of major renovation projects are capitalized and
depreciated over the related period of benefit.
INCOME TAXES
At December 31, 1994, the Property is owned by a partnership, as such, the
Property is not subject to federal or state income taxes; the tax effect of the
property's activities accrues to its partners. Accordingly, no provision or
benefit for income taxes is necessary in the financial statements for the
period from July 14, 1994 to December 31, 1994.
The Predecessor corporation is a participant in a joint venture under which the
venture partner is allocated substantially all of the results of operations for
tax purposes. The venture partnership is a foreign corporation which has
substantial losses for which no benefit had previously been realized.
Accordingly, no provision or benefit for federal or state income taxes is
provided for in the financial statements for the period January 1, 1994 to July
13, 1994.
NOTE 3 - MORTGAGE PAYABLE
Berl through its interest in Starwood-Huntington Partners, L.P.
("Starwood-Huntington"), a majority owned affiliated partnership, acquired the
fee title to the Doubletree Club Hotel of Rancho Bernardo, California for $8.25
million which was financed in part through a $6.8 million mortgage on the
acquired property. The remaining purchase price was financed through a $1.95
million borrowing by Berl secured by the Property and two other hotel
properties owned by Berl. The proceeds of this borrowing were contributed by
Berl into Starwood-Huntington. The two mortgages contain cross-default
provisions, which effectively cross-collateralize all four hotel properties.
The mortgage loans accrue interest at LIBOR plus 2.5%, payable monthly.
Principal is due upon maturity in September, 1995.
F-43
<PAGE> 47
A pro rata portion of the Berl loan and the related interest expense have been
reflected in these financial statements based on the relative 1994 acquisition
prices of the three properties securing the loan.
NOTE 4 - MANAGEMENT AGREEMENT
On July 14, 1994, Berl entered into a management agreement with Hospitality
Partners (Hospitality), a minority limited partner in Berl. The agreement
provides for a monthly management fee of 8.5% (10% under predecessor) of
adjusted net operating income, as defined in the agreement. The agreement also
provides for an incentive fee equal to 20% of adjusted net operating income, as
defined by the agreement, in excess of certain thresholds, which were increased
concurrent with the acquisition described in Note 1. The management and
incentive fees for the period July 14, 1994 to December 31, 1994 the period
January 1, 1994 to July 13, 1994 and the years ended December 31, 1993,
approximated $41,000, $103,000 and $157,000, respectively.
During the period July 14, 1994 through December 31, 1994 and the period
January 1, 1994 through July 13, 1994, $20,000 and $25,000, respectively was
paid to Hospitality for certain accounting services provided to the Suites.
NOTE 5 - SUBSEQUENT EVENT
Effective January 1, 1995 pursuant to a Plan of Reorganization executed on
February 1, 1995, the Property and related hotel operations, subject to related
secured mortgage obligations, along with other real estate assets, mortgage
receivables and cash were transferred into two newly formed Operating
Partnerships between Hotel Investors Trust/Hotel Investors Corporation (a real
estate investment trust and a corporation trading publicly on a paired basis)
and certain entities controlled by the Starwood Capital Group and/or its
affiliates (including Berl and Starwood-Huntington) in exchange for majority
interest of the Operating Partnerships interests. Concurrently with these
transactions, Hotel Investors Trust/Hotel Investors Corporation contributed
substantially all of their net assets and operations into the Operating
Partnerships and changed their names to Starwood Lodging Trust and Starwood
Lodging Corporation, respectively.
F-44
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
Starwood Lodging Trust
Starwood Lodging Corporation
We have audited the accompanying balance sheets of the Doubletree Club Hotel of
Rancho Bernardo (the "Hotel") as of December 31, 1994 and 1993, and the related
statements of operations and owners' equity and of cash flows for the periods
September 16, 1994 to December 31, 1994 and January 1, 1994 to September 15,
1994 and for the year ended December 31, 1993. These financial statements are
the responsibility of the Hotel's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Doubletree Club Hotel of Rancho
Bernardo at December 31, 1994 and 1993, and the results of its operations and
its cash flows for the periods September 16, 1994 to December 31, 1994 and
January 1, 1994 to September 15, 1994 and for the year ended December 31, 1993
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Hotel was acquired by
Starwood-Huntington Partners, L.P. on September 16, 1994 in a transaction
accounted for as a purchase. As a result of the acquisition, the financial
statements for the period subsequent to the acquisition are presented on a
different basis of accounting than that in the preceding periods and are
therefore not directly comparable.
Deloitte & Touche LLP
Los Angeles, California
March 24, 1995
F-45
<PAGE> 49
DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
BALANCE SHEEETS
DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- -----------
DECEMBER 31,
--------------------------
ASSETS 1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 190,217 $ 283,062
Accounts receivable, less allowance for doubtful accounts of
$12,240 in 1994 and $5,772 in 1993 91,913 65,999
Due from Operator (Note 2) 126,000
Deferred financing costs, net of accumulated amortization of $22,750 54,964
Inventories (Note 1) 11,227 10,124
Prepaid expenses 29,311 2,499
---------- ----------
Total current assets 377,632 487,684
RESTRICTED CASH (Note 2) 328,394
PROPERTY AND EQUIPMENT, Net (Notes 1 and 4) 8,180,392 8,091,886
OTHER ASSETS 529
---------- ----------
TOTAL $8,558,024 $8,908,493
========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 104,955 $ 21,445
Due to Operator (Note 2) 17,206
Accrued expenses, including pre-petition liabilities of $59,618
in 1993 166,785 221,780
Notes payable (Note 5) 6,800,000
---------- ----------
Total current liabilities 7,071,740 260,431
OWNERS' EQUITY 1,486,284 8,648,062
---------- ----------
TOTAL $8,558,024 $8,908,493
========== ==========
</TABLE>
See notes to financial statements.
F-46
<PAGE> 50
DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
STATEMENTS OF OPERATIONS AND OWNERS' EQUITY
PERIOD SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND
JANUARY 1, 1994 TO SEPTEMBER 14, 1995 AND
YEAR ENDED DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------- ---------------------------------
SEPTEMBER 16- JANUARY 1-
DECEMBER 31, SEPTEMBER 15, DECEMBER 31,
1994 1994 1993
<S> <C> <C> <C>
REVENUES
Room $ 868,926 $2,392,008 $2,914,592
Food and beverage 46,354 134,854 197,863
Telephone 50,525 146,027 173,716
Other 31,647 82,917 49,251
---------- ---------- ----------
Total revenues 997,452 2,755,806 3,335,422
---------- ---------- ----------
COST OF SALES:
Room 174,129 512,552 647,623
Food and beverage 53,379 129,125 143,377
Telephone 14,402 37,228 48,957
Other 3,585 12,693 15,249
---------- ---------- ----------
Total cost of sales 245,495 691,598 855,206
---------- ---------- ----------
751,957 2,064,208 2,480,216
---------- ---------- ----------
EXPENSES:
Operating (Note 2) 327,135 874,208 1,118,253
General and administrative 127,293 341,633 437,602
Management and royalty fees (Note 2) 49,937 138,008 166,211
Depreciation and amortization 219,302 329,037 462,348
Interest 156,378
---------- ---------- ----------
Total expenses 880,045 1,682,886 2,184,414
---------- ---------- ----------
NET (LOSS) INCOME (128,088) 381,322 295,802
OWNERS' EQUITY:
Beginning of period 1,688,780 8,648,062 9,007,939
Contributions 246,290
Distributions, net (Note 6) (320,698) (107,966) (655,679)
---------- ---------- ----------
End of period $1,486,284 $8,921,418 $8,648,062
========== ========== ==========
</TABLE>
See notes to financial statements.
F-47
<PAGE> 51
DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
STATEMENTS OF CASH FLOWS
PERIODS SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND
JANUARY 1, 1994 TO SEPTEMBER 15, 1994 AND
YEAR ENDED DECEMBER 31, 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------- ----------------------------------
SEPTEMBER 16 - JANUARY 1 -
DECEMBER 31, SEPTEMBER 15, DECEMBER 31,
1994 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (128,088) $ 381,322 $ 295,802
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 219,302 329,037 462,348
Provision for doubtful accounts 12,240 12,334 1,098
Changes in operating assets and liabilities:
Accounts receivable 29,204 (90,683) (6,548)
Due from Operator 126,000
Inventories 1,377 (2,481) (246)
Prepaid expenses and other assets (29,311) 2,502 1,296
Deferred financing costs (77,714)
Accounts payable 104,955 124,867 1,109
Due to Maruko, Inc. 32,136 44,321
Due to Operator 2,896 585
Accrued expenses 135,500 51,781 (1,384)
----------- --------- ---------
Net cash provided by operating activities 267,465 969,711 798,381
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Hotel (8,488,779)
Purchase of property and equipment (2,841) (1,900) (36,576)
Increase in restricted cash (78,365) (106,699)
----------- --------- ---------
Net cash used in investing activities (8,491,620) (80,265) (143,275)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Owner's capital contribution 1,935,070
Distributions (320,698) (275,000) (700,000)
Increase in notes payable 6,800,000
----------- --------- ---------
Net cash provided by (used in)
financing activities 8,414,372 (275,000) (700,000)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 190,217 614,446 (44,894)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 283,062 327,956
----------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 190,217 $ 897,508 $ 283,062
=========== ========= =========
(Continued)
</TABLE>
See notes to financial statements.
F-48
<PAGE> 52
DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
STATEMENTS OF CASH FLOWS
PERIODS SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND
JANUARY 1, 1994 TO SEPTEMBER 15, 1994 AND
YEAR ENDED DECEMBER 31, 1993
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Amounts due to Maruko, Inc. of $167,034 and $44,321 were credited to owners'
equity in the period ended September 15, 1994 and the year ended
December 31, 1993, respectively.
On September 16, 1994, Starwood-Huntington Partners, L.P. purchased the Hotel
for $8,488,779. In conjunction with the acquisition, assets acquired and
liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $8,520,184
Cash paid $8,488,779
Liabilities assumed $ 31,405
</TABLE>
See notes to financial statements.
(Concluded)
F-49
<PAGE> 53
DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information - The Doubletree Club Hotel of Rancho Bernardo (the
"Hotel") was owned jointly by Maruko, Inc. ("Maruko"), a Japanese
corporation, and individual Japanese investors. Compri Management
Corporation No. 8 (the "Operator") operated the Hotel under management
and franchise agreements with Maruko (see Note 2).
Maruko applied to the Tokyo District Court for protection from creditors
under the Corporation Reorganization Law on August 29, 1991 and under
Chapter 11 with the United States Bankruptcy Court on October 30, 1991.
On July 1, 1994, the Tokyo District Court approved Maruko's plan for
reorganization under the Corporation Reorganization Law in Japan, and on
February 3, 1994, the United States Bankruptcy Court approved Maruko's
application for reorganization under Chapter 11. As part of the
bankruptcy proceedings, Maruko sold the Hotel to Starwood-Huntington
Partners, L.P. on September 16, 1994.
Effective January 1, 1995 the assets and liabilities of the Hotel were
contributed by Starwood-Huntington Partners, L.P. to SLT Realty L.P.
and SLC Operating L.P., in exchange for partnership interests.
Cash and Cash Equivalents - The Hotel considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Inventories - Inventories, consisting primarily of food and beverage,
are stated at the lower of cost or market. Cost is determined on the
first-in, first-out method.
Property and Equipment - Property and equipment are stated at the lower
of cost or net realizable value. Depreciation is computed on the
straight-line and accelerated methods over the estimated useful lives of
the respective assets.
Income Taxes - No provision has been made for income taxes in the
financial statements, as any taxable income or loss of the Hotel is
included in the income tax returns of Maruko and the individual Japanese
investors for the periods ending on or before September 15, 1994, and of
Starwood-Huntington Partners, L.P. for the period September 16, 1994
through December 31, 1994.
2. MANAGEMENT AND FRANCHISE AGREEMENTS
The management fee consists of a base fee of 5% of gross revenue, as
defined, and a 10% incentive fee on the amount by which net operating
income, as defined, exceeds $1,500,000. The franchise agreement
requires a royalty fee of 3% of gross room revenues. However, this fee
is deductible from the aforementioned 5% base management fee. The
management and royalty fees amounted to $49,937 and $138,008 for the
periods September 16, 1994 to December 31, 1994 and January 1, 1994 to
September 15, 1994, respectively, and $166,211 for the year ended
December 31, 1993. No incentive fee was earned.
The franchise agreement requires the Hotel to contribute 3% of gross
room revenues to the Operator for marketing services. This fee, which
is included in operating expenses, amounted to approximately $26,000 and
$72,000 for the periods September 16, 1994 to December 31, 1994 and
January 1, 1994 to September 15, 1994, respectively, and $88,000 for the
year ended December 31, 1993.
The Operator provides centralized accounting and data processing
services to the Hotel in accordance with the management agreement. The
cost of these services amounted to $12,000 and $36,000 for the periods
F-50
<PAGE> 54
September 16, 1994 to December 31, 1994 and January 1, 1994 to
September 15, 1994 and $48,000 for the year ended December 31, 1993.
The management agreement with Maruko included a provision for the
establishment of a fund for replacement of furniture and fixtures, equal
to 3% of gross revenues. The fund is classified as restricted cash in
the accompanying balance sheets.
The $126,000 due from the Operator in 1993 was non-interest bearing and
was paid in 1994.
3. RELATED PARTIES
Maruko paid $167,034 for the period ended September 15, 1994 and $44,321
for the year ended December 31, 1993 for various expenses on behalf of
the Hotel (see Note 6).
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1993 LIVES
<S> <C> <C> <C>
Land and improvements $1,255,872 $1,510,346
Building and improvements 6,221,530 5,701,382 10 to 40 years
Furniture and equipment 899,542 2,342,324 3 to 10 years
---------- ----------
8,376,944 9,554,052
Less accumulated depreciation 196,552 1,462,166
---------- ----------
$8,180,392 $8,091,886
========== ==========
</TABLE>
5. NOTES PAYABLE
At the time of the purchase of the Hotel, Starwood-Huntington
Partners, L.P. obtained a note payable to Lexington Mortgage Company.
The note, which bears interest at LIBOR plus 2.5% (10.25% at December
31, 1994), is due in October 1995.
Interest paid in the period ended December 31, 1994 was $108,210.
6. DISTRIBUTIONS
Certain amounts payable to Maruko will not be settled by cash payments.
Accordingly, such amounts have been credited to owners' equity (see Note
3). The Hotel distributed $275,000 and $700,000 in cash to Maruko for
the period January 1, 1994 to September 15, 1994, and for the year ended
December 31, 1993, respectively.
F-51
