<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AS AMENDED)
/x/ Quarterly report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarterly period ended June 30, 1995
-------------------------------
OR
/ / Transition report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the transition period from ------------- to -------------
Commission File Number: 1-6828
STARWOOD LODGING
TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-0901263
(I.R.S. employer identification no.)
11845 W. Olympic Blvd., Suite 550
Los Angeles, California 90064
(Address of principal executive
offices, including zip code)
(310) 575-3900
(Registrant's telephone number,
including area code)
Commission File Number: 1-7959
STARWOOD LODGING
CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
11845 W. Olympic Blvd., Suite 560
Los Angeles, California 90064
(Address of principal executive
offices, including zip code)
(310) 575-3900
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrants (1) have filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrants were required to file such
reports), and (2) have been subject to such filing requirements for the
past 90 days. Yes X No .
----- -----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
13,809,658 Shares of Beneficial Interest, $0.01 par value, of
Starwood Lodging Trust paired with 13,809,658 Shares of Common Stock,
par value $0.01 per share, of Starwood Lodging Corporation outstanding
as of August 14, 1995.
================================================================================
<PAGE> 2
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements of Starwood Lodging Trust (the
"Trust") and Starwood Lodging Corporation (the "Corporation") are provided
pursuant to the requirements of this item.
INDEX TO FINANCIAL STATEMENTS
Starwood Lodging Trust and Starwood Lodging Corporation:
Unaudited Combined Pro Forma Statements of Operations - for the three months
and six months ended June 30, 1995
Notes to Unaudited Combined Pro Forma Statements of Operations
Starwood Lodging Trust and Starwood Lodging Corporation:
Combined Balance Sheets - As of June 30, 1995 and
December 31, 1994
Combined Statements of Operations - For the three and six months
ended June 30, 1995 and 1994
Combined Statements of Cash Flows - For the six months
ended June 30, 1995 and 1994
Starwood Lodging Trust:
Balance Sheets - As of June 30, 1995 and December 31, 1994 Statements of
Operations - For the three and six months
ended June 30, 1995 and 1994
Statements of Cash Flows - For the six months
ended June 30, 1995 and 1994
Starwood Lodging Corporation:
Balance Sheets - As of June 30, 1995 and December 31, 1994 Statements of
Operations - For the three and six months
ended June 30, 1995 and 1994
Statements of Cash Flows - For the six months
ended June 30, 1995 and 1994
Notes to Financial Statements
- 2 -
<PAGE> 3
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Properties Adjustments Combined
---------- ---------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel .............................. $26,804,000 $5,866,000 $ $32,670,000
Gaming ............................. 7,147,000 7,147,000
Interest from mortgage and
other notes ...................... 2,555,000 2,555,000
Rents from leased hotel properties
and income from joint ventures ... 228,000 228,000
Management fees and other income.... 896,000 896,000
----------- ---------- ----------- -----------
37,630,000 5,866,000 43,496,000
----------- ---------- ----------- -----------
EXPENSES
Hotel operations ................... 18,077,000 4,024,000 (129,000)(C) 21,972,000
Gaming operations .................. 6,312,000 6,312,000
Interest ........................... 4,910,000 (4,886,000)(D) 270,000
246,000 (D)
Depreciation and amortization....... 3,322,000 1,342,000 4,664,000
Administrative and operating ....... 1,382,000 (26,000)(C) 1,356,000
----------- ---------- ----------- -----------
34,003,000 5,366,000 (4,795,000) 34,574,000
----------- ---------- ----------- -----------
Income before minority interest .... 3,627,000 $ 500,000 $ 4,795,000 8,922,000
========== ===========
Minority interest in
Partnerships (E) ................. 2,649,000 2,685,000
----------- -----------
Net income ......................... $ 978,000 $ 6,237,000
=========== ===========
Net income per paired share (F) .... $ 0.48 $0.45
=========== ===========
</TABLE>
See accompanying notes to the pro forma statements of operations.
- 3 -
<PAGE> 4
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Historical Pro Forma
Starwood Starwood
Lodging Acquired Pro Forma Lodging
Combined Properties Adjustments Combined
---------- ---------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel .............................. $49,585,000 $13,993,000 $ $63,578,000
Gaming ............................. 13,816,000 13,816,000
Interest from mortgage and
other notes ...................... 5,136,000 5,136,000
Rents from leased hotel properties
and income from joint ventures ... 387,000 387,000
Management fees and other income.... 957,000 957,000
Gain (loss) on sales of hotel assets (113,000) (113,000)
----------- ----------- ------------ -----------
69,768,000 13,993,000 83,761,000
----------- ----------- ------------ -----------
EXPENSES
Hotel operations ................... 34,357,000 9,230,000 (291,000)(C) 43,296,000
Gaming operations .................. 12,333,000 12,333,000
Interest ........................... 10,737,000 (10,690,000)(D) 539,000
492,000 (D)
Depreciation and amortization....... 6,185,000 2,905,000 9,090,000
Administrative and operating ....... 2,450,000 10,000 (C) 2,460,000
----------- ----------- ------------ -----------
66,062,000 12,135,000 (10,479,000) 67,718,000
----------- ----------- ------------ -----------
Income before minority interest .... 3,706,000 $ 1,858,000 $10,479,000 16,043,000
=========== ============
Minority interest in
Partnerships (E) ................. 2,743,000 4,827,000
----------- -----------
Net income ......................... $ 963,000 $11,216,000
=========== ===========
Net income per paired share (F) .... $ 0.48 $ 0.81
=========== ===========
</TABLE>
See accompanying notes to the pro forma statements of operations.
- 4 -
<PAGE> 5
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED PRO FORMA
STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995
(A) On July 6, 1995, the Trust and the Corporation (collectively, the
"Companies") completed a public offering (the "Offering") of 11,787,500
paired shares. Net proceeds from the Offering of approximately $252.1
million together with proceeds from a new financing facility (the
"Financing") and cash on hand were used as follows: approximately
$206.5 million was used to repay existing indebtedness, including $10
million which was used by the Trust to purchase the first trust deed on
the Corporation's Milwaukee hotel, and approximately $53.8 million was
used for the acquisition of the 462-room Sheraton Colony Square in
Atlanta, Georgia and the 224-room Embassy Suites in Tempe, Arizona.
Due to the impact of the Offering and the acquisitions of properties
acquired in connection with the Offering, the historical results of
operations and earnings per share are not indicative of future results
of operations and earnings per share. The Unaudited Combined Pro Forma
Statements of Operations included as part of the financial statements
for the three months and six months ended June 30, 1995 are presented
as if the Offering and related transactions had occurred at January 1,
1995. In management's opinion, all adjustments necessary to reflect the
effects of the Offering and certain property acquisitions have been
made. The pro forma information is based upon historical information
and does not purport to present what actual results would have been had
such transactions, in fact, occurred at January 1, 1995, or to project
results for any future period.
The Trust and the Corporation have unilateral control of SLT Realty
Limited Partnership (the "Realty Partnership") and SLC Operating
Limited Partnership (the "Operating Partnership" and, together with the
Realty Partnership the "Partnerships"), respectively, and therefore,
the historical financial statements of each of the Partnerships are
consolidated with those of the Trust and the Corporation. Unless the
context otherwise requires, all references herein to the "Companies"
refer to the Trust and the Corporation, and all references to the
"Trust" and to the "Corporation" include the Trust and the Corporation
and those entities respectively owned or controlled by the Trust or the
Corporation, including the Realty Partnership and the Operating
Partnership.
(B) Reflects the pro forma statements of operations (reflecting the
Companies' cost bases) of the Atlanta, Georgia and Tempe, Arizona
properties acquired by the Companies subsequent to the Offering and of
the Chapel Hill, North Carolina property for the period prior to its
acquisition in April of 1995.
- 5 -
<PAGE> 6
(C) The Companies intend that the Corporation will lease from the Trust and
operate all of the Companies' hotels and terminate all existing
third-party management contracts for properties owned or acquired at
the earliest practicable date. Accordingly, certain costs directly
attributable to third-party management contracts for the Chapel Hill,
North Carolina and Atlanta, Georgia properties have been eliminated.
Such cost savings are reflected in the pro forma statements of
operations as if such contracts had been canceled as of the beginning
of the periods presented. The management contracts for the Albany,
Georgia; Lexington, Kentucky and Dallas, Texas properties were
terminated in January, February and June of 1995, respectively. Actual
cost reductions directly attributable to these third-party management
contracts are reflected in historical amounts.
Pro forma administrative and operating expenses reflect (i) increases
in operating expenses resulting principally from the opening of a
corporate office in Atlanta and (ii) a decrease in operating expenses
resulting principally from a decrease in directors' and officers'
liability insurance premiums.
(D) Reflects the elimination of historical interest expense related to the
debt retired with the net proceeds of the Offering and the addition of
interest expense at LIBOR plus 1.5% on the pro forma debt amount to be
outstanding after the Offering of $13.0 million.
(E) Reflects the 30.1% minority interest in the income of the Partnerships
after the Offering.
(F) Net income per paired share has been computed using the weighted
average number of paired shares and equivalent paired shares
outstanding for the period presented (historical - 2,022,158 paired
shares which reflects the six for one reverse split effective June 19,
1995; pro forma - 13,809,658 paired shares). Assuming all limited
partnership units held by affiliates of Starwood Capital, L.P.
(collectively, "Starwood Capital") have been exchanged for paired
shares, the pro forma amount outstanding at June 30, 1995 would be
19,753,236 paired shares.
- 6 -
<PAGE> 7
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Hotel assets held for sale, net .................. $ 8,411,000 $ 8,585,000
Hotel assets, net ................................ 184,437,000 142,600,000
------------- -------------
192,848,000 151,185,000
Mortgage notes receivable, net ................... 62,422,000 14,049,000
Investment in joint venture hotel properties ..... 274,000 262,000
------------- -------------
Total real estate investments .............. 255,544,000 165,496,000
Cash and cash equivalents ........................ 10,303,000 5,065,000
Accounts receivable .............................. 6,805,000 4,040,000
Notes receivable, net ............................ 1,587,000 1,627,000
Inventories, prepaid expenses and other assets ... 16,168,000 7,727,000
------------- -------------
$ 290,407,000 $ 183,955,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit $ 130,055,000 $ 113,896,000
Mortgage and other notes payable ................. 76,821,000 46,586,000
Accounts payable and other liabilities ........... 13,393,000 14,765,000
------------- -------------
220,269,000 175,247,000
------------- -------------
Commitments and contingencies
MINORITY INTEREST ................................ 52,333,000
-------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
2,022,158 shares .............................. 20,000 12,133,000
Corporation common stock,
$0.01 par value; authorized 100,000,000 shares;
outstanding 2,022,158 shares .................. 20,000 1,213,000
Additional paid-in capital ....................... 231,328,000 210,251,000
Accumulated deficit .............................. (213,563,000) (214,889,000)
------------- -------------
17,805,000 8,708,000
------------- -------------
$ 290,407,000 $ 183,955,000
============= =============
</TABLE>
See accompanying notes to financial statements.
- 7 -
<PAGE> 8
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel ........................................................ $26,804,000 $21,308,000
Gaming ....................................................... 7,147,000 7,125,000
Interest from mortgage and other notes ....................... 2,555,000 407,000
Rents from leased hotel properties
and income from joint ventures ............................. 228,000 313,000
Management fees and other .................................... 896,000 249,000
Gain (loss) on sales of hotel assets ......................... 592,000
----------- -----------
37,630,000 29,994,000
----------- -----------
EXPENSES
Hotel operations ............................................. 18,077,000 15,556,000
Gaming operations ............................................ 6,312,000 6,166,000
Interest ..................................................... 4,910,000 4,333,000
Depreciation and amortization ................................ 3,322,000 1,947,000
Administrative and operating ................................. 1,382,000 1,059,000
----------- -----------
34,003,000 29,061,000
----------- -----------
Income before minority interest .............................. 3,627,000 933,000
Minority interest ............................................ 2,649,000
----------- -----------
NET INCOME $ 978,000 $ 933,000
=========== ===========
NET INCOME PER PAIRED SHARE $ 0.48 $ 0.42
=========== ===========
Weighted average number of paired shares 2,022,158 2,190,611
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 8 -
<PAGE> 9
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
REVENUE
Hotel ........................................................ $ 49,585,000 $ 41,894,000
Gaming ....................................................... 13,816,000 14,313,000
Interest from mortgage and other notes ....................... 5,136,000 762,000
Rents from leased hotel properties
and income from joint ventures ............................. 387,000 463,000
Management fees and other .................................... 957,000 308,000
Gain (loss) on sales of hotel assets ......................... (113,000) 592,000
------------ ------------
69,768,000 58,332,000
------------ ------------
EXPENSES
Hotel operations ............................................. 34,357,000 31,124,000
Gaming operations ............................................ 12,333,000 12,159,000
Interest ..................................................... 10,737,000 8,458,000
Depreciation and amortization ................................ 6,185,000 4,013,000
Administrative and operating ................................. 2,450,000 1,980,000
------------ ------------
66,062,000 57,734,000
------------ ------------
Income before extraordinary item and minority interest ....... 3,706,000 598,000
Minority interest before extraordinary item .................. 2,743,000
------------ ------------
963,000 598,000
Extraordinary item (net of $921,000 minority interest) ....... 363,000
------------ ------------
NET INCOME $ 1,326,000 $ 598,000
============ ============
EARNINGS PER PAIRED SHARE
Income before extraordinary item $ 0.48 $ 0.27
Extraordinary item 0.18
------------ ------------
NET INCOME PER PAIRED SHARE $ 0.66 $ 0.27
============ ============
Weighted average number of paired shares 2,022,158 2,193,740
============ ============
</TABLE>
See accompanying notes to financial statements.
- 9 -
<PAGE> 10
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................. $ 1,326,000 $ 598,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest ..................................... 3,664,000
Extraordinary item .................................... (1,284,000)
Depreciation and amortization ......................... 6,185,000 4,013,000
Accretion of discount ................................. (1,518,000)
Deferred interest ..................................... 649,000 1,339,000
(Gain) loss on sales of hotel assets .................. 113,000 (592,000)
Changes in assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets ................... (9,773,000) (1,332,000)
Accounts payable and other liabilities ................ 1,747,000 (1,405,000)
------------ ------------
Net cash provided by operating activities ......... 1,109,000 2,621,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................... (12,421,000) (1,098,000)
Net proceeds from sales of assets ....................... 3,674,000
Principal received on notes receivable .................. 2,322,000 846,000
Reorganization costs .................................... (2,786,000)
------------ ------------
Net cash provided by (used in) investing activities (12,885,000) 3,422,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable .. (33,679,000) (807,000)
Increase (decrease) in secured notes
payable and revolving line of credit .................. 27,156,000 (6,044,000)
Limited partner capital contributions ................... 14,860,000
Borrowings under mortgage and other notes ............... 9,977,000 3,300,000
Purchase of warrants .................................... (1,300,000)
Principal received on share purchase notes .............. 11,000
------------ ------------
Net cash provided by (used in) financing activities 17,014,000 (3,540,000)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS ................... 5,238,000 2,503,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ................................ 5,065,000 5,652,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ...................................... $ 10,303,000 $ 8,155,000
============ ============
</TABLE>
See accompanying notes to financial statements.
- 10 -
<PAGE> 11
STARWOOD LODGING TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Hotel assets held for sale, net .................. $ 8,159,000 $ 8,281,000
Hotel assets, net ................................ 147,337,000 108,428,000
------------- -------------
155,496,000 116,709,000
Mortgage notes receivable, net ................... 62,422,000 14,049,000
Investment in joint venture hotel properties ..... 257,000 240,000
------------- -------------
Total real estate investments .............. 218,175,000 130,998,000
Cash and cash equivalents ........................ 2,443,000 255,000
Accounts receivable .............................. 1,778,000 698,000
Notes receivable - Corporation ................... 29,528,000 26,916,000
Notes receivable, net ............................ 992,000 1,004,000
Inventories, prepaid expenses and other assets ... 9,281,000 2,374,000
------------- -------------
$ 262,197,000 $ 162,245,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Secured notes payable and revolving line of credit $ 130,055,000 $ 113,896,000
Mortgage and other notes payable ................. 63,514,000 32,838,000
Accounts payable and other liabilities ........... 4,090,000 5,061,000
------------- -------------
197,659,000 151,795,000
------------- -------------
Commitments and contingencies
MINORITY INTEREST 48,155,000
-------------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$0.01 par value; authorized
100,000,000 shares; outstanding
2,022,158 shares .............................. 20,000 12,133,000
Additional paid-in capital ....................... 162,893,000 146,059,000
Accumulated deficit .............................. (146,530,000) (147,742,000)
------------- -------------
16,383,000 10,450,000
------------- -------------
$ 262,197,000 $ 162,245,000
============= =============
</TABLE>
See accompanying notes to financial statements.
- 11 -
<PAGE> 12
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUE
Rents from Corporation ....................................... $5,805,000 $4,143,000
Interest from Corporation .................................... 802,000 426,000
Interest from mortgage and other notes ....................... 2,547,000 399,000
Rents from other leased hotel properties
and income from joint ventures ............................. 228,000 313,000
Management fees and other .................................... 66,000 93,000
Gain (loss) on sales of hotel assets ......................... 579,000
---------- ----------
9,448,000 5,953,000
---------- ----------
EXPENSES
Interest ..................................................... 4,599,000 3,996,000
Depreciation and amortization ................................ 2,227,000 1,313,000
Administrative and operating ................................. 418,000 356,000
---------- ----------
7,244,000 5,665,000
---------- ----------
Income before minority interest .............................. 2,204,000 288,000
Minority interest ............................................ 1,644,000
---------- ----------
NET INCOME $ 560,000 $ 288,000
========== ==========
NET INCOME PER PAIRED SHARE $ 0.28 $ 0.13
========== ==========
Weighted average number of paired shares 2,022,158 2,190,611
========== ==========
</TABLE>
See accompanying notes to financial statements.
- 12 -
<PAGE> 13
STARWOOD LODGING TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
REVENUE
Rents from Corporation ....................................... $ 10,968,000 $ 8,456,000
Interest from Corporation .................................... 1,569,000 841,000
Interest from mortgage and other notes ....................... 5,113,000 738,000
Rents from other leased hotel properties
and income from joint ventures ............................. 387,000 463,000
Management fees and other .................................... 100,000 119,000
Gain (loss) on sales of hotel assets ......................... (113,000) 579,000
------------ ------------
18,024,000 11,196,000
------------ ------------
EXPENSES
Interest ..................................................... 10,108,000 7,775,000
Depreciation and amortization ................................ 3,918,000 2,565,000
Administrative and operating ................................. 773,000 722,000
------------ ------------
14,799,000 11,062,000
------------ ------------
Income before extraordinary item and minority interest ....... 3,225,000 134,000
Minority interest before extraordinary item .................. 2,376,000
------------ ------------
849,000 134,000
Extraordinary item (net of $921,000 minority interest) ....... 363,000
------------ ------------
NET INCOME $ 1,212,000 $ 134,000
------------ ------------
EARNINGS PER SHARE
Income before extraordinary item $ 0.42 $ 0.06
Extraordinary item 0.18
============ ============
NET INCOME PER PAIRED SHARE $ 0.60 $ 0.06
============ ============
Weighted average number of paired shares 2,022,158 2,193,740
============ ============
</TABLE>
See accompanying notes to financial statements.
- 13 -
<PAGE> 14
STARWOOD LODGING TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................. $ 1,212,000 $ 134,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest ..................................... 3,297,000
Extraordinary item .................................... (1,284,000)
Depreciation and amortization ......................... 3,918,000 2,565,000
Accretion of discount ................................. (1,518,000)
Deferred interest ..................................... 649,000 1,339,000
Deferred interest - Corporation ....................... (939,000)
Gain (loss) on sales of hotel assets .................. 113,000 (579,000)
Changes in assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets ................... (7,125,000) 169,000
Accounts payable and other liabilities ................ 1,781,000 (1,426,000)
------------ ------------
Net cash provided by operating activities ......... 104,000 2,202,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................... (11,835,000) (763,000)
Net proceeds from sales of assets ....................... 3,668,000
Principal received on notes receivable .................. 2,294,000 805,000
Reorganization costs .................................... (1,393,000)
Net changes in notes receivable - Corporation ........... (1,673,000) (2,049,000)
------------ ------------
Net cash provided by (used in) investing activities (12,607,000) 1,661,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable .. (33,175,000) (580,000)
Increase (decrease) in secured notes
payable and revolving line of credit .................. 27,156,000 (6,044,000)
Limited partner capital contributions ................... 11,968,000
Borrowings under mortgage and other notes ............... 9,977,000 3,300,000
Purchase of warrants .................................... (1,235,000)
Principal received on share purchase notes .............. 11,000
------------ ------------
Net cash provided by (used in) financing activities 14,691,000 (3,313,000)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS ................... 2,188,000 550,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ................................ 255,000 918,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ...................................... $ 2,443,000 $ 1,468,000
============ ============
</TABLE>
See accompanying notes to financial statements.
- 14 -
<PAGE> 15
STARWOOD LODGING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Hotel assets held for sale, net .................. $ 252,000 $ 304,000
Hotel assets, net ................................ 37,100,000 34,172,000
------------ ------------
37,352,000 34,476,000
Investment in joint venture hotel properties ..... 17,000 22,000
------------ ------------
Total real estate investments .............. 37,369,000 34,498,000
Cash and cash equivalents ........................ 7,860,000 4,810,000
Accounts receivable .............................. 5,027,000 3,342,000
Notes receivable, net ............................ 595,000 623,000
Inventories, prepaid expenses and other assets ... 6,887,000 5,353,000
------------ ------------
$ 57,738,000 $ 48,626,000
============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
LIABILITIES
Mortgage and other notes payable ................. $ 13,307,000 $ 13,748,000
Notes payable - Trust ............................ 29,528,000 26,916,000
Accounts payable and other liabilities ........... 9,303,000 9,704,000
------------ ------------
52,138,000 50,368,000
------------ ------------
Commitments and contingencies
MINORITY INTEREST ................................ 4,178,000
------------
SHAREHOLDERS' EQUITY (DEFICIT)
Corporation common stock,
$0.01 par value; authorized 100,000,000 shares;
outstanding 2,022,158 shares .................. 20,000 1,213,000
Additional paid-in capital ....................... 68,435,000 64,192,000
Accumulated deficit .............................. (67,033,000) (67,147,000)
------------ ------------
1,422,000 (1,742,000)
------------ ------------
$ 57,738,000 $ 48,626,000
============ ============
</TABLE>
See accompanying notes to financial statements.
- 15 -
<PAGE> 16
STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel ........................................................ $26,804,000 $21,308,000
Gaming ....................................................... 7,147,000 7,125,000
Interest from mortgage and other notes ....................... 8,000 8,000
Management fees and other .................................... 830,000 156,000
Gain on sales of hotel assets ................................ 13,000
----------- -----------
34,789,000 28,610,000
----------- -----------
EXPENSES
Hotel operations ............................................. 18,077,000 15,556,000
Gaming operations ............................................ 6,312,000 6,166,000
Rent - Trust ................................................. 5,805,000 4,143,000
Interest - Trust ............................................. 802,000 426,000
Interest - other ............................................. 311,000 337,000
Depreciation and amortization ................................ 1,095,000 634,000
Administrative and operating ................................. 964,000 703,000
----------- -----------
33,366,000 27,965,000
----------- -----------
Income before minority interest .............................. 1,423,000 645,000
Minority interest ............................................ 1,005,000
----------- -----------
NET INCOME $ 418,000 $ 645,000
=========== ===========
NET INCOME PER PAIRED SHARE $ 0.21 $ 0.29
=========== ===========
Weighted average number of paired shares 2,022,158 2,190,611
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 16 -
<PAGE> 17
STARWOOD LODGING CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Hotel ........................................................ $49,585,000 $41,894,000
Gaming ....................................................... 13,816,000 14,313,000
Interest from mortgage and other notes ....................... 23,000 24,000
Management fees and other .................................... 857,000 189,000
Gain on sales of hotel assets ................................ 13,000
----------- -----------
64,281,000 56,433,000
----------- -----------
EXPENSES
Hotel operations ............................................. 34,357,000 31,124,000
Gaming operations ............................................ 12,333,000 12,159,000
Rent - Trust ................................................. 10,968,000 8,456,000
Interest - Trust ............................................. 1,569,000 841,000
Interest - other ............................................. 629,000 683,000
Depreciation and amortization ................................ 2,267,000 1,448,000
Administrative and operating ................................. 1,677,000 1,258,000
----------- -----------
63,800,000 55,969,000
----------- -----------
Income before minority interest .............................. 481,000 464,000
Minority interest ............................................ 367,000
----------- -----------
NET INCOME $ 114,000 $ 464,000
=========== ===========
NET INCOME PER PAIRED SHARE $ 0.06 $ 0.21
=========== ===========
Weighted average number of paired shares 2,022,158 2,193,740
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 17 -
<PAGE> 18
STARWOOD LODGING CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................... $ 114,000 $ 464,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest .................................. 367,000
Depreciation and amortization ...................... 2,267,000 1,448,000
Deferred interest - Trust .......................... 939,000
Gain on sales of hotel assets ...................... (13,000)
Changes in assets and liabilities:
Accounts receivable, inventories,
prepaid expenses and other assets ................ (2,648,000) (1,501,000)
Accounts payable and other liabilities ............. (34,000) 21,000
----------- -----------
Net cash provided by operating activities ...... 1,005,000 419,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to hotel assets ............................ (586,000) (335,000)
Net proceeds from sales of assets .................... 6,000
Principal received on notes receivable ............... 28,000 41,000
Reorganization costs ................................. (1,393,000)
----------- -----------
Net cash used in investing activities .......... (1,951,000) (288,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes payable (504,000) (227,000)
Limited partner capital contributions ................ 2,892,000
Purchase of warrants ................................. (65,000)
Net changes in notes payable - Trust ................. 1,673,000 2,049,000
----------- -----------
Net cash provided by financing activities ...... 3,996,000 1,822,000
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS ................ 3,050,000 1,953,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ............................. 4,810,000 4,734,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ................................... $ 7,860,000 $ 6,687,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 18 -
<PAGE> 19
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q which mandate adherence to
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management of
the Trust and the Corporation, all adjustments necessary for a fair
presentation, consisting of only normal recurring accruals, have been included.
The financial statements presented herein have been prepared in accordance with
the accounting policies described in the Registrants' Joint Annual Report on
Form 10-K for the year ended December 31, 1994 and should be read in conjunction
therewith.
NOTE 2. BASIS OF PRESENTATION
The Trust and the Corporation each have unilateral control of one of
the Partnerships and therefore, the historical financial statements of the
Partnerships are consolidated with those of the Trust and the Corporation.
Paired share information has been adjusted to reflect a one-for-six reverse
stock split effective June 19, 1995.
NOTE 3. EQUITY OFFERING
On July 6, 1995, the Trust and the Corporation completed the Offering
of 11,787,500 paired shares. Net proceeds from the Offering of approximately
$252.1 million together with proceeds from the Financing and cash on hand were
used as follows: approximately $206.5 million was used to repay existing
indebtedness, including $10 million which was used by the Trust to purchase the
first trust deed on the Corporation's Milwaukee hotel, and approximately $53.8
million was used for the acquisition of the 462-room Sheraton Colony Square in
Atlanta, Georgia and the 224-room Embassy Suites in Tempe, Arizona.
NOTE 4. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma separate and combined condensed
financial information for the three and six months ended June 30, 1995 and 1994
is presented as if the previously disclosed reorganization with Starwood Capital
which was effective January 1, 1995 (the "Reorganization"), the Offering and
certain property acquisitions had occurred on January 1 of each of the
respective periods.
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
Three Months Ended June 30, 1995
-----------------------------------------------
Trust Corporation Combined
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 12,330,000 $ 40,655,000 $ 43,496,000
Net income (loss) $ 6,235,000 $ (21,000) $ 6,237,000
Net income (loss) per share $ 0.45 $ (0.00) $ 0.45
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1995
-----------------------------------------------
Trust Corporation Combined
------------ ----------- ------------
<S> <C> <C> <C>
Revenues $ 22,821,000 $ 78,274,000 $ 83,761,000
Net income (loss) $ 11,479,000 $ (264,000) $ 11,216,000
Net income (loss) per share $ 0.83 $ (0.02) $ 0.81
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1994
----------------------------------------------
Trust Corporation Combined
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $10,740,000 $38,705,000 $42,041,000
Net income $ 5,353,000 $ 252,000 $ 5,605,000
Net income per share $ 0.39 $ 0.02 $ 0.41
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1994
-----------------------------------------------
Trust Corporation Combined
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 21,042,000 $ 77,317,000 $ 83,266,000
Net income (loss) $ 10,436,000 $ (701,000) $ 9,735,000
Net income (loss) per share $ 0.76 $ (0.05) $ 0.71
</TABLE>
NOTE 5. EXTRAORDINARY ITEM
Effective January 28, 1993, the Trust restructured its debt under the
terms of a Credit Agreement dated January 28, 1993 (the "Prior Credit
Agreement"). Management concluded that this debt restructuring represented a
"troubled debt restructuring" as defined under generally accepted accounting
principles, and accordingly, upon execution of the Prior Credit Agreement,
accrued all known current or future identifiable debt restructuring costs as of
December 31, 1992. In the first quarter of 1995, upon execution of an Amended
and Restated Credit Agreement (the "New Credit Agreement"), the Realty
Partnership recognized extraordinary income of $1,284,000 relating to the
extinguishment of the debt under the terms of the Prior Credit Agreement,
representing the remaining amount of the accrual recorded at March 24, 1995.
- 20 -
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis included in the
Companies' Joint Annual Reports on Form 10-K for the year ended December 31,
1994 and the Companies' Joint Annual Report on Form 10-Q for the quarter ended
March 31, 1995.
COMBINED PRO FORMA RESULTS OF OPERATIONS
On a pro forma basis (which reflects pro forma adjustments for the
168-room Omni Hotel located in Chapel Hill, North Carolina prior to its
acquisition in April 1995; for the 224-room all suite Embassy Suites located in
Tempe, Arizona and the 462-room Sheraton Colony Square located in Atlanta,
Georgia both acquired in July 1995; and, for the Offering) combined pro forma
net income of the Companies for the six and three months ended June 30, 1995 was
$11.2 million and $6.2 million, respectively, as compared to pro forma net
income of $9.7 million and $5.6 million for the corresponding periods in 1994.
During the six months ended June 30, 1995, pro forma hotel revenues, as
compared with pro forma amounts for the corresponding period in 1994, increased
by $800,000, or 1.3%, to $63.6 million, and hotel expenses decreased by $2.3
million, or 5.0%, to $43.3 million. During the quarter ended June 30, 1995, pro
forma hotel revenues increased by $1.3 million, or 4.1%, to $32.7 million, and
hotel expenses remained consistent at $22.0 million compared with the prior
quarter.
Included in the six and three months ended June 30, 1994 are hotel
revenues of $5.0 million and $2.5 million, respectively, and hotel expenses of
$4.6 million and $2.3 million, respectively, from properties sold during 1994.
Excluding the prior year results from these properties, pro forma hotel
revenues, as compared with pro forma amounts for the corresponding six months
in 1994, increased by $5.8 million, or 10.0%, to $63.6 million, and hotel
expenses increased by $2.3 million, or 5.6%, to $43.3 million. During the
quarter ended June 30, 1995, excluding the prior year results from sold
properties, pro forma hotel revenues increased by $3.8 million, or 13.1%,
to $32.7 million, and hotel expenses increased by $2.3 million, or 11.7%
compared with the corresponding quarter.
The following table summarizes average occupancy, average room rates
and revenue per available room (REVPAR) on a pro forma basis, excluding sold
properties and non-gaming properties for the six and three months ended June 30,
1995.
- 21 -
<PAGE> 22
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Occupancy rate ............................. 70.2% 68.4% 72.9% 70.7%
Average room rate .......................... $69.64 $66.04 $69.13 $64.75
Revenue per available room ................. $48.91 $45.20 $50.42 $45.80
REVPAR % change 8.2% 10.1%
</TABLE>
Hotel expenses as a percentage of hotel revenues decreased from 72.6% to
68.1% and 70.1% to 67.3%, respectively, for the six and three months ended June
30, 1995. Net operating income from hotel operations for the six and three
months ended June 30, 1995 increased 18.0%, from $17.2 million to $20.3 million,
and 13.8%, from $9.4 million to $10.7 million, respectively, in the same
periods.
Excluding the results of properties sold in 1994, hotel expenses as a
percentage of hotel revenues decreased from 70.9% to 68.1% and from 68.2% to
67.3%, respectively, for the six and three months ended June 30, 1995. Net
operating income from hotel operations for the six and three months ended June
30, 1995 increased 20.8%, from $16.8 million to $20.3 million, and 16.3%, from
$9.2 million to $10.7 million, respectively, in the same periods.
- 22 -
<PAGE> 23
HISTORICAL RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED
JUNE 30, 1995 AND 1994
Trust:
Rents from the Corporation, which are based in part on hotel revenues,
increased $2.5 million and $1.7 million for the six and three months ended June
30, 1995, respectively, as compared to the corresponding periods of 1994. The
increases are primarily the result of rents earned by the Realty Partnership on
four hotels contributed by Starwood Capital to the Realty and Operating
Partnerships in January 1995 and the Omni Hotel located in Chapel Hill, North
Carolina, acquired by the Partnerships in April 1995. The four contributed
hotels (the Doubletree Hotel located in Rancho Bernardo, California; the Capitol
Hill Suites located in Washington, D.C.; the Harvey Wichita located in Wichita,
Kansas; and the French Quarter Suites located in Lexington, Kentucky) and the
Omni Hotel accounted for increased rents of $2.5 million and $1.5 million,
respectively, for the six and three months ended June 30, 1995. In addition,
rents earned by the Trust from continuously owned properties leased by the
Corporation increased $483,000 and $368,000, respectively. These increases were
offset by a decrease in rents of $453,000 and $200,000, respectively, resulting
from the sale of hotels in Austin, Texas (May 1994), Brunswick, Georgia and New
Port Richey, Florida (August 1994), and Fayetteville, North Carolina and
Jacksonville, Florida (November 1994).
Interest from the Corporation increased by $728,000 and $376,000 for
the six and three months ended June 30, 1995, respectively, as compared to the
corresponding periods of 1994. The increase in interest income is primarily a
result of interest on unsecured notes from the Corporation having an average
balance of $11.5 million and bearing interest at prime plus two percent for the
six month period ended June 30, 1995. A moratorium on the payment of interest on
such unsecured notes was in effect throughout 1994.
Interest from mortgage and other notes amounted to $5,113,000 and
$2,547,000, respectively, for the six and three months ended June 30, 1995, as
compared to $738,000 and $399,000, respectively, for the corresponding periods
in 1994. The increases primarily resulted from the contribution of notes
receivable by Starwood Capital to the Realty Partnership in the Reorganization
effective January 1, 1995.
Interest expense increased by $2.3 million and $603,000 for the six and
three months ended June 30, 1995 as compared to the corresponding period of
1994. The increases are due to additional notes payable assumed by the Realty
Partnership in the Reorganization offset by mortgage notes retired in the first
quarter of 1995, which were secured by the Phoenix, Arizona and Bay City,
Michigan properties.
Depreciation and amortization expense increased by $1.4 million and
$914,000 during the six and three months ended June 30, 1995, respectively, as
compared to the corresponding periods of 1994, principally due to the above
mentioned property contributions and to the amortization of reorganization and
financing costs offset by the above mentioned property sales.
- 23 -
<PAGE> 24
Administrative and operating expenses increased during the six and
three months ended June 30, 1995 compared to the corresponding period in 1994
primarily due to an increase in payroll costs.
Minority interest represents the interest of Starwood Capital in the
Realty Partnership for the six and three months ended June 30, 1995.
Corporation:
Hotel revenues increased by $7.7 million and $5.5 million for the six
and three months ended June 30, 1995, respectively, as compared to the
corresponding periods of 1994. The addition of the four contributed properties
and the Omni Hotel as discussed above resulted in increases in hotel revenues of
$10.7 million and $6.3 million, respectively, for the six and three month
periods ended June 30, 1995. The Milwaukee, Wisconsin property, for which a $4.5
million renovation was completed in the first quarter of 1994, accounted for
increases of $749,000 and $360,000, respectively, for the same periods. These
increases were offset by the hotel sales discussed above resulting in decreased
revenues of $5.0 million and $2.4 million, respectively; as well as $1.3 million
and $30,000, respectively, resulting from the termination of the Marriott
franchise agreement at the Dallas, Texas property as discussed below. The
remaining increases of $2.6 million and $1.2 million for the six and three
months ended June 30, 1995, respectively, are attributable to continuously owned
properties.
The following table summarizes average occupancy and average room rates
for non-gaming properties which continue to be operated by the Corporation under
lease from the Trust as of June 30, 1995:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------- ---------------------
Continuously Owned Including Dallas: 1995 1994 1995 1994
- ----------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Occupancy rate 68.8% 67.5% 72.5% 69.3%
Average room rate $ 61.86 $ 59.59 $ 62.00 $ 59.01
Revenue per available room $ 42.57 $ 40.21 $ 44.94 $ 40.92
REVPAR % change 5.9% 9.8%
Continuously Owned Excluding Dallas:
- -----------------------------------
Occupancy rate 73.8% 69.8% 77.2% 73.8%
Average room rate $ 62.14 $ 59.51 $ 62.36 $ 59.07
Revenue per available room $ 45.92 $ 41.53 $ 48.12 $ 43.60
REVPAR % change 10.6% 10.4%
All Hotels Including Hotels Contributed
- ---------------------------------------
by Starwood Capital:
- ---------------------
Occupancy rate 68.9% 65.7% 72.5% 68.1%
Average room rate $ 64.89 $ 58.94 $ 65.65 $ 59.03
Revenue per available room $ 44.69 $ 38.72 $ 47.61 $ 40.17
REVPAR % change 15.4% 18.5%
</TABLE>
- 24 -
<PAGE> 25
Management believes that the above increases in REVPAR for continuously
owned hotels resulted primarily from increases in demand due to more favorable
economic conditions which have created increased business and leisure travel
throughout the United States while supply of hotel rooms has not increased as
rapidly.
Management believes that there are several important factors that
contribute to the improved profitability of hotel properties, including
increased average occupancy, average room rate and effective cost management.
Hotel expenses for the first six months of 1995 were $34,357,000, or 69.3% of
hotel revenues, as compared to $31,124,000, or 74.3% of hotel revenues, for the
first six months of 1994. Hotel expenses were $18,077,000, or 67.4% of hotel
revenues, as compared to $15,556,000, or 73.0% of hotel revenues, for the three
months ended June 30, 1995 and 1994, respectively. The improvements (decreases)
in hotel expenses as a percentage of hotel revenue are primarily due to (i) the
termination of the third-party management agreements of the Albany, Georgia;
Lexington, Kentucky and Dallas, Texas properties, (ii) the additional operating
margin following the renovation of the Milwaukee Marriott, and (iii) because a
substantial portion of the hotels' operating costs and expenses are generally
fixed, the Corporation derived substantial operating leverage from increases in
revenue.
In March 1994 the franchise agreement and management agreement with
Marriott Corporation for the Dallas property were terminated. The property is
now being managed by the Corporation, is being operated as an independent hotel
and has been renamed the Dallas Park Central Hotel. The Companies plan to
commence an approximately $7.0 million major renovation and conversion of the
Park Central Hotel to a Radisson to be completed in the second quarter of 1996.
Revenues at the Dallas property decreased by $1.3 million and $30,000 for the
six and three months ended June 30, 1995 compared to the corresponding periods
in 1994.
Gaming revenues for the first six months of 1995 as compared to the
corresponding period of 1994 decreased by $497,000 or 3.5% to $13,816,000.
Gaming revenues for the three months ended June 30, 1995 were comparable to the
corresponding period of 1994. Management believes that the lower revenues at the
two gaming facilities in the first quarter are a result of decreased travel to
the Las Vegas area.
Gaming expenses were $12,333,000 or 89.3% of gaming revenues as
compared to $12,159,000 or 85.0% for the six months ended June 30, 1995 and
1994, respectively. Gaming expenses were $6,312,000 or 88.3% of gaming revenues
as compared to $6,166,000, or 86.5%, for the three months ended June 30, 1995
and 1994, respectively. Management believes that lower win percentages have
resulted in the increase in gaming expenses as a percentage of gaming revenues
for the six and three months ended June 30, 1995.
- 25 -
<PAGE> 26
Included in management fees and other income for the quarter ended June
30, 1995 is $800,000 received by the Corporation for the termination of
management contracts in connection with the settlement of certain shareholder
actions against former officers of the Companies. (See Item 1 of Part II.)
Administrative and operating expenses increased by $419,000 and
$261,000, respectively, for the six and three months ended June 30, 1995,
respectively, as compared to the corresponding periods of 1994. The increase for
the six and three months ended June 30, 1995 is primarily a result of an
increase in payroll costs.
Depreciation and amortization expense increased by $819,000 and
$461,000, respectively, for the six months and the three months ended June 30,
1995, respectively, as compared to the corresponding periods of 1994. The
increases are primarily a result of the hotels contributed by Starwood Capital
discussed above and amortization of reorganization costs.
Minority interest represents the interest of Starwood Capital in the
Operating Partnership for the six and three months ended June 30, 1995.
For information with respect to rent and interest to the Trust during
the six and three months ended June 30, 1995 and 1994, see "Trust" immediately
above.
- 26 -
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
On a pro forma basis as of June 30, 1995, after giving effect to the
Offering and the application of the net proceeds of the Offering, the Companies'
indebtedness will consist primarily of $13.0 million outstanding pursuant to the
Financing discussed below. The Companies' combined ratio of debt-to-total market
capitalization would be approximately 2.7% on a pro forma basis.
The Realty Partnership has entered into an agreement with Lehman
Commercial Paper Inc., to provide a $45 million, 18-month financing facility
secured by certain mortgage loans owned by the Realty Partnership (the
"Financing"). Interest accrues at 1.5% over the one-month LIBOR for the first 12
months, and 1.75% over the one-month LIBOR thereafter. Subsequent to June 30,
1995, the Realty Partnership borrowed $10 million under the financing.
As part of their investment strategy, the Companies plan to acquire
additional hotels. The Companies acquired the 168-room Omni Hotel located in
Chapel Hill, North Carolina in April 1995, and acquired the 224-room Embassy
Suites in Tempe, Arizona, and the 462-room Sheraton Colony Square in Atlanta,
Georgia subsequent to June 30, 1995. Future acquisitions are expected to be
funded through use of an acquisition facility or other borrowings and the
issuance of additional Paired Shares or additional Partnership Units to raise
additional equity capital.
As previously discussed, the Companies intend to commence an
approximately $7.0 million major renovation of the Dallas Park Central Hotel and
conversion to a Radisson. Additionally, the Companies have planned an
approximately $1.5 million renovation scheduled to begin in November 1995 on the
Portland Riverside Inn. Major and minor renovations of other hotels are also
being contemplated. Management believes the renovations should result in
significant increases in REVPAR and profitability.
The Companies are negotiating a 3-year, $160 million secured revolving
credit (the "Acquisition Facility") under which the Companies, through the
Partnerships, may borrow to finance the acquisition of additional hotel
properties, hotel renovations, capital improvements and for general corporate
purposes. Interest on amounts drawn under the Acquisition Facility are expected
to be at 1.625% over the one, two or three month LIBOR. The Acquisition Facility
will be secured by certain properties of the Companies and may be secured by
other properties acquired by the Companies, all on a cross-collateralized basis.
The Acquisition Facility may be retired in whole or in part from the
proceeds of public or private issuances of equity or debt securities by the
Companies and may be refinanced in whole or in part with fixed-rate financing.
The closing of the Acquisition Facility is subject to a variety of conditions,
including the negotiation of definitive documents and the syndication of $60
million of the facility amount.
The source of capital to be used to fund the Companies' operating
expenses, interest expense, recurring capital expenses and dividend payments by
the Trust will be cash flow
- 27 -
<PAGE> 28
provided by operating activities. The Companies anticipate that their cash flow
provided by operating activities will provide the necessary funds on a short and
long term basis for their operating expenses, interest expense on outstanding
indebtedness, recurring capital expenditures (estimated at $4.6 million for the
twelve months ended June 30, 1995 based on five percent of pro forma room
revenues of $91.7 million) and all distributions to shareholders by the Trust.
The Trust intends to pay regular quarterly dividends commencing in the fourth
quarter of 1995 for the quarter ending September 30, 1995. Sources of capital
for major building renovations and expansions are expected to be: (i) excess
funds from operations; (ii) additional debt financing, and (iii) additional
equity raised in the public and private markets. The Companies intend to incur
additional indebtedness in a manner consistent with their policy of maintaining
a Ratio of Debt-to-Total Market Capitalization of not more than 50%. Management
of each of the Trust and of the Corporation believes that it will have access to
capital resources sufficient to satisfy the cash requirements of each of the
Trust and the Corporation and to expand and develop their business in accordance
with their strategy for future growth.
PRO FORMA FUNDS FROM OPERATIONS (FFO)
Management believes that FFO (as defined by the National Association of
Real Estate Investment Trusts(1)) is one measure of the financial performance
of an equity REIT such as the Trust. For the six and three months ended June 30,
1995, FFO for the Trust and the Corporation combined, on a pro forma basis,
increased to $24.8 million from $22.3 million for the corresponding period in
1995; and, for the quarter ended June 30, 1995 to $13.2 million from $11.9
million for the corresponding period in 1994. The following table shows the
calculation of pro forma funds from operations for the Trust and the
Corporation combined for the indicated periods:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Income before minority interest and
extraordinary item ................................ $16,043 $13,925 $ 8,922 $ 8,018
Real estate depreciation and amortization, net of
amortization of financing costs ................... 8,676 8,999 4,250 4,440
Loss on sales of hotel assets ....................... 113 (592) (592)
------- ------- ------- -------
FUNDS FROM OPERATIONS $24,832 $22,332 $13,172 $11,866
======= ======= ======= =======
</TABLE>
FFO from properties sold during 1994 was $360,000 and $127,000 for the six and
three month periods ended June 30, 1994. Pro forma FFO, excluding properties
sold in 1994, for the six and three months ended June 30, 1995, increased
13.0% from $22.0 million to $24.8 million and 12.2% from $11.9 million to
$13.2 million, respectively, in the corresponding periods.
- -------------------
(1) With respect to the presentation of FFO, management elected early adoption
of the "new definition" as recommended in the March 1995 NAREIT White
Paper on Funds from Operations beginning January 1, 1995. Management and
industry analysts generally consider funds from operations to be one
measure of the financial performance of any equity REIT that provides a
relevant basis for comparison among REITs and it is presented to assist
investors in analyzing the performance of the Company. Funds from
operations is defined as income before minority interest (computed in
accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring and sales of property, provision for
losses, and real estate related depreciation and amortization (excluding
amortization of financing costs). Funds from operations does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs. Funds from operations
should not be considered an alternative to net income as an indication of
the Company's financial performance or as an alternative to cash flows
from operating activities as a measure of liquidity.
- 28 -
<PAGE> 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings
During the year ended December 31, 1994, the Trust and the
Corporation reached settlement agreements with respect to two purported class
action complaints and one complaint which was purportedly brought on behalf of
the Trust and the Corporation (collectively, the "Shareholder Actions"). The
Shareholder Actions were brought in 1991 and 1992 in each case in connection
with the Trust's purchase of its two hotel/casinos and the Ramada Inn in Indian
Wells, California.
The two purported class actions were filed in the United
States District Court for the Southern District of California in August 1991 and
February 1992 against the Trust, the Corporation and certain current and former
officers, Directors and Trustees. The complaint alleged fraud, violations of
federal and California securities laws, the federal Racketeer Influenced and
Corrupt Organizations Act and ERISA. The actions sought compensatory damages,
rescission and/or treble and exemplary damages plus interest, costs and
attorneys' fees and statutory damages under ERISA. The third action was filed in
the Superior Court for the State of California for San Diego County in March
1992 against current and former officers, Directors and Trustees and alleged
breach of fiduciary duty, gross negligence and corporate waste. The action
sought compensatory damages, certain remuneration and costs.
The plaintiffs and defendants in the Shareholder Actions
entered into stipulations of settlement providing for the release of all claims
that were or might have been made in the Shareholder Actions and provided for a
$3,250,000 cash settlement fund which, after payment of fees and expenses of
plaintiffs' counsel, will be distributed to the certified plaintiff classes. The
Trust and the Corporation will pay $400,000 into the settlement fund, with the
balance of the settlement being paid by the insurance company that issued the
directors and officers policy applicable to the period to which the Shareholder
Actions relate and by two former officers and Trustees of the Trust. The Trust
and the Corporation have also agreed to pay the legal fees and other costs
incurred prior to October 12, 1993 by the defendants in the Shareholder Actions.
Holders of approximately 200,000 Paired Shares opted out of the settlement.
The stipulation requires that the Trust's Board of Trustees and the
Corporation's Board of Directors establish a joint transaction committee of
independent Trustees and Directors to make recommendations to those Boards with
respect to any transaction proposed in the future by management and having a
fair market value of $20 million or more.
In connection with the settlement of the Shareholder Actions, Messrs.
Ronald Young and John Rothman and certain of their affiliated partnerships
terminated the management agreements that existed between those partnerships and
the Corporation's subsidiary, Western Host, Inc. (the "Management Contracts"),
and Western Host has agreed not to dispute such action and has withdrawn as a
general partner of two additional affiliated partnerships. In satisfaction of
any damages that the Trust and the Corporation may incur as a result of the
termination of the
- 29 -
<PAGE> 30
Management Contracts, Messrs. Rothman and Young provided to the Trust and the
Corporation an irrevocable letter of credit having a one-year term in the amount
of $800,000. In the second quarter of 1995, the proceeds of the letter of credit
were distributed to the Operating Partnership. Upon receipt of the proceeds from
the letter of credit, the parties to the Management Contracts, Messrs. Rothman
and Young and the Trust and the Corporation released all of their respective
claims related to the termination of the Management Contracts.
Ross Agreement. In November 1994, Starwood Capital entered
into an agreement (the "Ross Agreement") with Leonard Ross and his affiliates
("Ross"). Ross held approximately 9.8% of the outstanding Paired Shares and had
opted out of the settlement by the Companies of the Shareholder Actions. In
addition to preserving his rights to institute an action against the Companies
with respect to the matters covered by such settlement, Ross had threatened to
assert other alleged causes of action against the Companies.
The Ross Agreement was entered into in settlement of the
threatened litigation by Ross and provides for an assignment to Starwood Capital
of Ross' claims. Starwood Capital also received a proxy to vote Ross' Paired
Shares and Starwood Capital has agreed to purchase those Paired Shares, at Ross'
election, in a 60-day period beginning on December 15, 1995, at a price of
$33.75 per Paired Share. Starwood Capital may also elect to purchase such Paired
Shares at the same time and on the same terms. In December 1994, Ross sold
33,167, of the Paired Shares, which remain subject to such purchase agreement.
Ross has agreed not to purchase or sell any Paired Shares during the period
specified for the purchase of his Paired Shares and not more than 4.9%
thereafter.
The Companies agreed to indemnify and hold harmless Starwood
Capital (and its subsidiaries, affiliates and successors) against liabilities,
losses or damages and reasonable out-of-pocket expenses incurred (i) in
connection with any action, suit or proceeding brought by a holder of Paired
Shares against Starwood Capital relating to the Reorganization or (ii) under or
in respect of the Ross Agreement (other than, in each case, to the extent such
liabilities, losses, damages or expenses arose from a breach by Starwood Capital
of any agreement entered into in connection with the Reorganization, or the Ross
Agreement or a breach of any fiduciary duty by Starwood Capital); provided that
the aggregate indemnification obligation of the Companies under the provisions
described in clause (ii) is limited to $1,800,000.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
- 30 -
<PAGE> 31
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On July 6, 1995, the Trust and the Corporation completed the
Offering of 11,787,500 paired shares. Net proceeds from the Offering of
approximately $252.1 million together with proceeds from the Financing and cash
on hand were used as follows: approximately $206.5 million was used to repay
existing indebtedness, including $10 million which was used by the Trust to
purchase the first trust deed on the Corporation's Milwaukee hotel, and
approximately $53.8 million was used for the acquisition of the 462-room
Sheraton Colony Square in Atlanta, Georgia and the 224-room Embassy Suites in
Tempe, Arizona.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None.
- 31 -
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
Registrant Registrant
/s/ JEFFREY C. LAPIN /s/ KENNETH J. BIEHL
- -------------------------------------- -------------------------------
Jeffrey C. Lapin Kenneth J. Biehl
President and Chief Operating Officer Vice President and Controller
(Principal Accounting Officer)
Date: August 14, 1995
- 32 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<CIK> 0000048595
<NAME> STARWOOD LODGING TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,443,000
<SECURITIES> 0
<RECEIVABLES> 92,942,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,281,000
<PP&E> 155,496,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 262,197,000
<CURRENT-LIABILITIES> 4,090,000
<BONDS> 0
<COMMON> 20,000
0
0
<OTHER-SE> 16,363,000
<TOTAL-LIABILITY-AND-EQUITY> 262,197,000
<SALES> 0
<TOTAL-REVENUES> 18,024,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,691,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,108,000
<INCOME-PRETAX> 849,000
<INCOME-TAX> 849,000
<INCOME-CONTINUING> 849,000
<DISCONTINUED> 0
<EXTRAORDINARY> 363
<CHANGES> 0
<NET-INCOME> 1,212,000
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<CIK> 0000316206
<NAME> STARWOOD LODGING CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 7,860,000
<SECURITIES> 0
<RECEIVABLES> 5,622,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,887,000
<PP&E> 37,352,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,738,000
<CURRENT-LIABILITIES> 9,303,000
<BONDS> 0
<COMMON> 20,000
0
0
<OTHER-SE> 1,402,000
<TOTAL-LIABILITY-AND-EQUITY> 57,738,000
<SALES> 63,401,000
<TOTAL-REVENUES> 64,281,000
<CGS> 0
<TOTAL-COSTS> 46,690,000
<OTHER-EXPENSES> 14,912,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,198,000
<INCOME-PRETAX> 114,000
<INCOME-TAX> 114,000
<INCOME-CONTINUING> 114,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,000
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>
