<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 12, 1997
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.)
2231 EAST CAMELBACK ROAD., SUITE 410
PHOENIX, ARIZONA 85016
(Address of principal executive
offices, including zip code)
(602) 852-3900
(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.)
2231 EAST CAMELBACK ROAD, SUITE 400
PHOENIX, ARIZONA 85016
(Address of principal executive
offices, including zip code)
(602) 852-3900
(Registrant's telephone number, including area code)
================================================================================
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Pro Forma Financial Information. See Index to Financial Statements
(page F-1).
<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 hereunto duly authorized.
<TABLE>
<CAPTION>
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
<S> <C>
By: /s/ RONALD C. BROWN By: /s/ ALAN M. SCHNAID
- -------------------------------------------- --------------------------------------------
Ronald C. Brown Alan M. Schnaid
Senior Vice President and Vice President and Corporate Controller
Chief Financial Officer Principal Accounting Officer
</TABLE>
Date: November 12, 1997
<PAGE> 4
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
INDEX TO PRO FORMA (UNAUDITED) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION --
PRO FORMA FINANCIAL STATEMENTS AS ADJUSTED FOR THE ITT AND
WESTIN TRANSACTIONS................................................................ F-3
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Balance Sheet as of September 30, 1997...................... F-4
Starwood Lodging Trust Unaudited Consolidated Pro Forma Balance Sheet as of September
30, 1997........................................................................... F-5
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Balance Sheet as of
September 30, 1997................................................................. F-6
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Balance Sheets as of September 30, 1997............................................ F-7
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statements of Income for the nine months ended September 30,
1997............................................................................... F-10
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statements of Income for the
nine months ended September 30, 1997............................................... F-11
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statements of Income
for the nine months ended September 30, 1997....................................... F-12
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statements of Income for the year ended December 31, 1996... F-13
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statements of Income for the
year ended December 31, 1996....................................................... F-14
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statements of Income
for the year ended December 31, 1996............................................... F-15
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Statements of Operations for the nine months ended September 30, 1997 and the year
ended December 31, 1996............................................................ F-16
ITT CORPORATION PRO FORMA FINANCIAL STATEMENTS
Unaudited Consolidated Pro Forma Balance Sheet as of September 30, 1997.............. F-18
Unaudited Consolidated Pro Forma Statement of Income for the nine months ended
September 30, 1997................................................................. F-19
Unaudited Consolidated Pro Forma Statement of Income for the year ended December 31,
1996............................................................................... F-20
Notes to Unaudited Pro Forma Consolidated Financial Statements....................... F-21
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION --
PRO FORMA FINANCIAL STATEMENTS AS ADJUSTED FOR THE WESTIN TRANSACTION.............. F-22
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Balance Sheet as of September 30, 1997...................... F-23
Starwood Lodging Trust Unaudited Consolidated Pro Forma Balance Sheet as of September
30, 1997........................................................................... F-24
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Balance Sheet as of
September 30, 1997................................................................. F-25
</TABLE>
F-1
<PAGE> 5
<TABLE>
<S> <C>
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Balance Sheets as of September 30, 1997............................................ F-26
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statement of Operations for the nine months ended September
30, 1997........................................................................... F-28
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statement of Operations for
the nine months ended September 30, 1997........................................... F-29
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statement of Operations
for the nine months ended September 30, 1997....................................... F-30
Starwood Lodging Trust and Starwood Lodging Corporation Unaudited Combined
Consolidated Pro Forma Statement of Operations for the year ended December 31,
1996............................................................................... F-31
Starwood Lodging Trust Unaudited Consolidated Pro Forma Statement of Operations for
the year ended December 31, 1996................................................... F-32
Starwood Lodging Corporation Unaudited Consolidated Pro Forma Statement of Operations
for the year ended December 31, 1996............................................... F-33
Notes to the Unaudited Combined Consolidated and Separate Consolidated Pro Forma
Statements of Operations for the nine months ended September 30, 1997 and the year
ended December 31, 1996............................................................ F-35
</TABLE>
F-2
<PAGE> 6
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(UNAUDITED)
The following unaudited pro forma combined consolidated and separate
consolidated balance sheets are presented as if (i) the merger of Chess
Acquisition Corp. ("Merger Sub"), a subsidiary of Starwood Lodging Corporation
(the "Corporation"), with and into ITT Corporation ("ITT") (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of October 19, 1997 (the
"Merger Agreement"), among ITT, the Corporation, Merger Sub and Starwood Lodging
Trust (the "Trust" and, together with the Corporation, the "Company" or
"Starwood Lodging"), as Starwood Lodging has proposed to amend the Merger
Agreement, and assuming that ITT shareholders elect to receive 30% of the
aggregate consideration in cash, and (ii) the acquisition by Starwood Lodging
and certain of its affiliates of Westin Hotels & Resorts Worldwide, Inc.
("Westin Worldwide"), W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp.
("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver Corp.
("Denver") and W&S Atlanta Corp. ("Atlanta" and, together with Westin Worldwide,
Lauderdale, Seattle, St. John and Denver, "Westin") pursuant to the Transaction
Agreement dated as of September 8, 1997 (the "Transaction Agreement"), among the
Trust, SLT Realty Limited Partnership ("Realty"), the Corporation, SLC Operating
Limited Partnership ("Operating" and, together with Realty, the "Partnerships"),
WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation,
Juergen Bartels, Westin Worldwide, Lauderdale, Seattle, St. John, Denver,
Atlanta and W&S Hotel L.L.C., had occurred as of September 30, 1997.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets should be read in conjunction with the separate consolidated and
combined consolidated historical financial statements of the Trust and the Notes
thereto included in the Starwood Lodging Joint Annual Report on Form 10-K for
the year ended December 31, 1996, the unaudited separate and combined financial
statements and related notes of Starwood Lodging included in its Joint Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997, and the historical financial statements of Westin and the
Notes thereto included in the Starwood Lodging Joint Current Report on Form 8-K
dated September 9, 1997, each of which are incorporated by reference in this
Joint Current Report on Form 8-K. In management's opinion, all pro forma
adjustments necessary to reflect the effects of the acquisition of ITT and
Westin have been made.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets are not necessarily indicative of what the actual financial
position of the Company would have been as of September 30, 1997, nor do they
purport to represent the future financial position of the Company.
F-3
<PAGE> 7
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STARWOOD
PRO FORMA STARWOOD PRO FORMA LODGING
ITT LODGING ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Total current assets................... $ 1,302 $ 278 $ $ 1,580
Plant, property and equipment, net..... 4,667 3,198 7,865
Investments............................ 328 78 406
Goodwill and other intangibles, net.... 1,529 857 2,588(C) 4,974
Other assets........................... 1,256 194 1,450
------ ------ ------- ------
$ 9,082 $ 4,605 $ 2,588 $16,275
====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and current maturities of
long-term debt....................... $ 232 $ 195 $ $ 427
Other current liabilities.............. 1,240 108 1,348
Long-term debt......................... 3,362 1,950 3,362(D) 8,674
Deferred income taxes and other
liabilities.......................... 651 180 831
------ ------ ------- ------
5,485 2,433 3,362 11,280
------ ------ ------- ------
Minority interest...................... 228 332 16(E) 576
Class B Exchangeable preferred pro
forma shares, at redemption value.... 204 204
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest.... 1 1 2
Class A Exchangeable preferred pro
forma shares.........................
Corporation common stock............... 2,916 1 (2,915)(G) 2
Additional paid-in capital............. 1,938 2,401(E),(G),(H) 4,339
Cumulative translation adjustment...... (128) (128)
Retained earnings...................... 581 (304) (277)(H)
------ ------ ------- ------
3,369 1,636 (790) 4,215
------ ------ ------- ------
$ 9,082 $ 4,605 $ 2,588 $16,275
====== ====== ======= ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated
and Separate Consolidated Pro Forma Balance Sheet.
F-4
<PAGE> 8
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA TRUST
ITT TRUST ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Total current assets....................... $ $ 52 $ $ 52
Plant, property and equipment, net......... 2,785 2,785
Investments................................ 72 72
Mortgage and other notes receivable from
Corporation.............................. 536 2,013(F) 2,549
Goodwill and other intangibles, net........ 654 654
Other assets............................... 165 165
------ ------ ------ ------
$ $ 4,264 $ 2,013 $ 6,277
====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and current maturities of
long-term debt........................... $ $ 194 $ $ 194
Other current liabilities.................. 47 47
Long-term debt............................. 1,950 1,950
------ ------ ------
2,191 2,191
------ ------ ------
Minority interest.......................... 315 (15)(E) 300
Class B Exchangeable preferred pro forma
shares, at redemption value.............. 204 204
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest........ 1 1 2
Class A Exchangeable preferred pro forma
shares................................... -- --
Additional paid-in capital................. 1,773 2,027(E),(F) 3,800
Retained earnings.......................... (220) (220)
------ ------ ------ ------
1,554 2,028 3,582
------ ------ ------ ------
$ $ 4,264 $ 2,013 $ 6,277
====== ====== ====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-5
<PAGE> 9
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA CORPORATION
ITT CORPORATION ADJUSTMENTS AND ITT
--------- ----------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Total current assets............................ $ 1,302 $ 226 $ $ 1,528
Plant, property and equipment, net.............. 4,667 413 5,080
Investments..................................... 328 6 334
Goodwill and other intangibles, net............. 1,529 203 2,588(C) 4,320
Other assets.................................... 1,256 29 1,285
------ ---- ------ -------
$ 9,082 $ 877 $ 2,588 $12,547
====== ==== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and current maturities of
long-term debt................................ $ 232 $ 1 $ $ 233
Other current liabilities....................... 1,240 61 1,301
Mortgage and other notes payable to Trust....... 536 2,013(F) 2,549
Long-term debt.................................. 3,362 3,362(D) 6,724
Deferred income taxes and other liabilities..... 651 180 831
------ ---- ------ -------
5,485 778 5,375 11,638
------ ---- ------ -------
Minority interest............................... 228 17 31(E) 276
SHAREHOLDERS' EQUITY
Corporation common stock........................ 2,916 1 (2,915)(G) 2
Additional paid-in capital...................... 165 374(E),(F),(G),(H) 539
Cumulative translation adjustment............... (128) (128)
Retained earnings............................... 581 (84) (277)(H) 220
------ ---- ------ -------
3,369 82 (2,818) 633
------ ---- ------ -------
$ 9,082 $ 877 $ 2,588 $12,547
====== ==== ====== =======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-6
<PAGE> 10
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND SEPARATE
CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation, respectively. Unless the context otherwise requires, all references
to the "Trust" and the "Corporation" include the Trust and the Corporation and
those entities respectively owned or controlled by the Trust or the Corporation,
including Realty and Operating, respectively.
NOTE 2. ITT ACQUISITION
On October 19, 1997, ITT agreed to the Merger with Merger Sub, a subsidiary
of the Corporation. The terms of the Merger are set forth in the Merger
Agreement. Pursuant to the Merger Agreement, each share of ITT's common stock,
no par value ("ITT Common Stock"), together with the associated preferred share
purchase right of ITT, will be converted into the right to receive shares of
common stock, par value $0.01 per share, of the Corporation ("Corporation
Shares") and shares of beneficial interest, par value $0.01 per share, of the
Trust ("Trust Shares" and, when paired with the Corporation Shares, "Paired
Shares") aggregating $67.00 per share in value, subject to certain collar
provisions, and $15.00 in cash. As a result of the Merger, ITT will be wholly
owned by the Corporation and the Trust.
On November 7, 1997, Starwood Lodging announced that it had proposed to
amend the Merger Agreement to increase the consideration to be paid in the
Merger to $85 per share of ITT Common Stock, with ITT shareholders able to elect
to receive up to 30% (but not less than 18%) of the aggregate consideration
(calculated at $85 per share) in cash, with the remainder to be paid in Paired
Shares (subject to such collar provisions). In addition, such consideration
would be increased (in cash) by 7% per annum to the extent the Merger occurs
after February 1, 1998.
Accounting Treatment
Starwood Lodging will account for the Merger as a purchase in accordance
with Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. Although the Trust and the Corporation are issuing paired
shares to ITT stockholders and will be the surviving reporting companies
following the Merger, the Trust and the Corporation are considered the acquired
companies for accounting purposes because the ITT stockholders will represent
the majority shareholders of Starwood Lodging. The fair market value of the pro
forma paired shares and Partnership units held by the Starwood Lodging
shareholders and the Partnerships' unit holders, respectively (using the closing
stock price of $57.75 on October 27, 1997), is used as the valuation basis for
the combination. The assets and liabilities of Starwood Lodging are revalued to
their respective fair market values at the combination date. The pro forma
financial statements of Starwood Lodging reflect the combined operations from
the date of the combination. Certain reclassifications have been made to the pro
forma Starwood Lodging balance sheets to conform to the presentation of the ITT
balance sheet.
NOTE 3. PRO FORMA ADJUSTMENTS
(A) Represents ITT's pro forma balance sheet as of September 30, 1997
reflecting the sale of shares of Alcatel Alsthom owned by ITT, the sale of
ITT's 39.8% ownership interest in Madison Square Garden, certain
restructuring charges taken by ITT and costs associated with an unsolicited
tender offer by Hilton Hotel Corporation for shares of ITT (see page F-18
through F-21).
(B) Represents Starwood Lodging's pro forma combined consolidated and
separate consolidated balance sheets as of September 30, 1997, as adjusted
for the acquisition of Westin (see pages F-22 through F-27).
(C) Represents the purchase consideration in excess of the fair market
value of the combined net assets of Starwood Lodging. The amount
attributable to goodwill will be analyzed following the
F-7
<PAGE> 11
consummation of the Merger to determine whether any amounts should be
specifically allocated to properties or other assets.
(D) Represents the additional debt to be incurred to finance (i) the
$25.50 per share cash portion of the purchase price of the shares to be
acquired from ITT stockholders and (ii) the cash necessary to retire
approximately 8.7 million ITT stock options.
(E) Represents the adjustment to minority interest to reflect the
approximate 6.6% pro forma minority interest of the Partnership units plus
the minority interests of certain joint ventures.
(F) Represents the consideration paid to the Trust by the Corporation
for the Trust's interest in ITT, net of a special dividend by the Trust
(and contribution to the Corporation by holders of paired shares
immediately prior to the Merger) of a portion of such consideration in the
expected amount of $1.5 billion.
(G) Represents a reclassification of ITT's common stock to additional
paid-in capital to conform to Starwood Lodging's par value of $0.01 per
share.
(H) Represents the elimination of the combined consolidated retained
earnings resulting from the payment of the $25.50 per share cash portion of
the consideration paid to ITT stockholders in connection with the Merger.
F-8
<PAGE> 12
STARWOOD LODGING TRUST
AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The following unaudited combined consolidated and separate consolidated pro
forma statements of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996 give effect as of January 1, 1996 to the
pending acquisitions of ITT (pursuant to the Merger Agreement as proposed to be
amended by Starwood Lodging and assuming that ITT shareholders elect to receive
30% of the aggregate consideration in cash) and Westin. 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, 1996, or to project results for any future period. Historical Trust
and Corporation results are for the nine months ended September 30, 1997 and the
year ended December 31, 1996. The historical ITT results and Westin results are
for the nine months ended September 30, 1997 and the year ended December 31,
1996.
Historical Trust and Corporation results include the results of the
properties acquired in 1996 (the Westin in Washington, D.C. -- acquired on
January 4, a 58.2% interest in the Park Plaza in Boston,
Massachusetts -- acquired on January 24, the Doubletree Guest Suites DFW Airport
in Irving, Texas, the Doubletree Guest Suites in Ft. Lauderdale, Florida and the
Westin Hotel in Tampa, Florida -- all three acquired on April 26, the Midland
Hotel in Chicago, Illinois -- acquired on March 22, the Clarion Hotel -- San
Francisco Airport in Milbrae, California -- acquired on April 25, the Westin at
the Philadelphia International Airport in Philadelphia, Pennsylvania -- acquired
on June 3, the Days Inn in Philadelphia, Pennsylvania -- acquired on July 1, a
portfolio of 8 hotels owned by an institution consisting of the Ritz Carlton in
Kansas City, Missouri, the Ritz Carlton in Philadelphia, Pennsylvania, the
Westin Hotel in Waltham, Massachusetts, the Westin LAX in Los Angeles,
California, the Westin Horton Plaza in San Diego, California, the Westin Hotel
Concourse in Atlanta, Georgia, the Doubletree Grand at Mall of America in
Bloomington, Minnesota and the Wyndham Hotel in Ft. Lauderdale, Florida -- all
acquired on August 12, a portfolio of 9 hotels owned by Hotels of Distinction
Ventures, Inc. consisting of the Hotel Park Tucson in Tucson, Arizona, the
Embassy Suites in Palm Desert, California, the Marque in Atlanta, Georgia, the
Arlington Park Hilton in Arlington Heights, Illinois, the Sheraton Needham in
Needham, Massachusetts, the Sheraton Minneapolis Metrodome in Minneapolis,
Minnesota, the Embassy Suites in St. Louis, Missouri, the Radisson Marque in
Winston-Salem, North Carolina (this property was sold in April, 1997) and the
Allentown Hilton in Allentown, Pennsylvania -- all acquired on August 16 except
the Sheraton Minneapolis Metrodome which closed on September 5, the Marriott
Forrestal Village in Princeton, New Jersey -- acquired on August 29, the Doral
Court and Doral Tuscany both in New York, New York -- acquired on September 19,
and a 93.5% interest in the Westwood Marquis Hotel & Gardens in Westwood,
California -- acquired on December 31) and the properties acquired in 1997 (the
Deerfield Beach Hilton in Deerfield Beach, Florida -- acquired on January 8, the
Radisson Denver South in Denver, Colorado -- acquired on January 17, the Embassy
Suites Hotel in Atlanta, Georgia, the BWI Airport Marriott in Baltimore,
Maryland, the Charleston Hilton North in Charleston, South Carolina, the Crowne
Plaza Edison in Edison, New Jersey, the Courtyard by Marriott Crystal City in
Arlington, Virginia, the Novi Hilton in Novi, Michigan, the Omni Waterside Hotel
in Norfolk, Virginia, the Park Ridge Hotel in King of Prussia, Pennsylvania, the
Sheraton Hotel in Long Beach, California, and the Sonoma County Hilton in Santa
Rosa, California -- all acquired on February 14, the Days Inn Lake Shore Drive
in Chicago, Illinois -- acquired February 21, the Hermitage Suites Hotel in
Nashville, Tennessee -- acquired on March 11, the Hotel De La Poste in New
Orleans, Louisiana -- acquired on March 12, the San Diego Marriott Suites in San
Diego, California -- acquired on April 3, the Tremont Hotel in Chicago,
Illinois -- acquired on April 4, the Raphael Hotel in Chicago,
Illinois -- acquired May 7, the Stamford Sheraton in Stamford,
Connecticut -- acquired on June 9, the Radisson Plaza Hotel in Southfield,
Michigan -- acquired on July 10, the Westin Regina Resort in Los Cabos, Mexico,
the Westin Regina Resort in Cancun, Mexico, and the Westin Regina Resort in
Puerto Vallarta, Mexico -- acquired on August 21, a portfolio of 15 hotels,
owned by Flatley Co./Tara Hotels, located in the Northeastern United
States -- acquired on September 11, the Crowne Plaza in New Orleans,
Louisiana -- acquired on September 16, and One Washington Circle in Washington,
D.C. -- acquired on September 30) from their respective dates of acquisition.
F-9
<PAGE> 13
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STARWOOD
PRO FORMA STARWOOD PRO FORMA LODGING
ITT LODGING ADJUSTMENTS AND ITT
-------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 4,897 $ 911 $ $ 5,808
Costs and expenses:
Salaries, benefits and other operating.......... 3,567 556 4,123
Selling, general and administrative............. 600 59 659
Restructuring charge............................
Depreciation and amortization................... 220 170 49(C) 439
------ ---- ----- ------
4,387 785 49 5,221
------ ---- ----- ------
510 126 (49) 587
Interest expense, net............................. (126) (80) (189)(D) (395)
Miscellaneous income (expense), net............... 12 12
Provision for income taxes........................ (166) (12) 121(F) (57)
Minority interest................................. (23) (8) (2)(G) (33)
------ ---- ----- ------
Net income........................................ $ 207 $ 26 $(119) $ 114
====== ==== ===== ======
Earnings per share................................ $ 1.75 $ 0.60
====== ======
Weighted average number of paired shares.......... 118 191
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-10
<PAGE> 14
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA TRUST
ITT TRUST ADJUSTMENTS AND ITT
-------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Revenues....................................... $ $ 245 $ 128(E) $ 373
Costs and expenses:
Selling, general and administrative.......... 7 7
Depreciation and amortization................ 143 143
---- ---- ---- -----
150 150
---- ---- ---- -----
95 128 223
Interest expense, net.......................... (80) (80)
Minority interest.............................. (3) (6)(G) (9)
---- ---- ---- -----
Net income..................................... $ $ 12 $ 122 $ 134
==== ==== ==== =====
Earnings per share............................. $ $0.70
==== =====
Weighted average number of shares of beneficial
interest..................................... 191
==== =====
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-11
<PAGE> 15
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA CORPORATION
ITT CORPORATION ADJUSTMENTS AND ITT
--------- ----------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Revenues................................... $ 4,897 $ 893 $ $ 5,790
Costs and expenses:
Salaries, benefits and other operating... 3,567 752 4,319
Selling, general and administrative...... 600 52 652
Depreciation and amortization............ 220 27 49(C) 296
------ ---- ----- ------
4,387 831 49 5,267
------ ---- ----- ------
510 62 (49) 523
Interest expense, net...................... (126) (31) (317)(D)(E) (474)
Miscellaneous income (expense), net........ 12 12
Provision for income taxes................. (166) (12) 121(F) (57)
Minority interest.......................... (23) (5) 4(G) (24)
------ ---- ----- ------
Net income (loss).......................... $ 207 $ 14 $(241) $ (20)
====== ==== ===== ======
Earnings (loss) per share.................. $ 1.75 $ (0.10)
====== ======
Weighted average number of shares of common
stock.................................... 118 191
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-12
<PAGE> 16
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STARWOOD
PRO FORMA STARWOOD PRO FORMA LODGING
ITT LODGING ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 6,597 $ 776 $ $ 7,373
Costs and expenses:
Salaries, benefits and other operating.......... 4,755 475 5,230
Selling, general and administrative............. 838 68 906
Depreciation and amortization................... 276 143 65(C) 484
------ ---- ----- ------
5,869 686 65 6,620
------ ---- ----- ------
728 90 (65) 753
Interest expense, net............................. (138) (76) (252)(D) (466)
Provision for income taxes........................ (249) (10) 161(F) (98)
Minority interest................................. (40) (2) (7)(G) (49)
------ ---- ----- ------
Net income........................................ $ 301 $ 2 $(163) $ 140
====== ==== ===== ======
Earnings per share................................ $ 2.55 $ 0.80
====== ======
Weighted average number of paired shares.......... 118 174
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-13
<PAGE> 17
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA TRUST
ITT TRUST ADJUSTMENTS AND ITT
--------- --------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Revenues....................................... $ $ 185 $ 171(E) $ 356
Costs and expenses:
Selling, general and administrative.......... 4 4
Depreciation and amortization................ 116 116
---- ---- ---- ----
120 120
---- ---- ---- ----
65 171 236
Interest expense, net.......................... (75) (75)
Minority interest.............................. (9)(G) (9)
---- ---- ---- ----
Net income..................................... $ $ (10) $ 162 $ 152
==== ==== ==== ====
Earnings per share............................. $ $0.87
==== ====
Weighted average number of shares of beneficial
interest..................................... 174
==== ====
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-14
<PAGE> 18
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA CORPORATION
ITT CORPORATION ADJUSTMENTS AND ITT
------------- --------------------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C>
Revenues.......................... $ 6,597 $ 754 $ $ 7,351
Costs and expenses:
Salaries, benefits and other
operating.................... 4,755 601 5,356
Selling, general and
administrative............... 838 64 902
Depreciation and amortization... 276 27 65(C) 368
------ ---- ---- ------
5,869 692 65 6,626
------ ---- ---- ------
728 62 (65) 725
Interest expense, net............. (138) (38) (423)(D)(E) (599)
Provision for income taxes........ (249) (10) 161(F) (98)
Minority interest................. (40) (2) 2(G) (40)
------ ---- ---- ------
Net income (loss)................. $ 301 $ 12 $(325) $ (12)
====== ==== ==== ======
Earnings (loss) per share......... $ 2.55 $ (0.07)
====== ======
Weighted average number of shares
of common stock................. 118 174
====== ======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-15
<PAGE> 19
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation, respectively. Unless the context otherwise requires, all references
to the "Trust" and the "Corporation" include the Trust and the Corporation and
those entities respectively owned or controlled by the Trust or the Corporation,
including Realty and Operating.
NOTE 2. ITT ACQUISITION
On October 19, 1997, ITT agreed to the Merger with Merger Sub, a subsidiary
of the Corporation. The terms of the Merger are set forth in the Merger
Agreement. Pursuant to the Merger Agreement, each share of ITT Common Stock,
together with the associated preferred share purchase right of ITT, will be
converted into the right to receive Paired Shares aggregating $67.00 per share
in value, subject to certain collar provisions, and $15.00 in cash. As a result
of the Merger, ITT will be wholly owned by the Corporation and the Trust.
On November 7, 1997, Starwood Lodging announced that it had proposed to
amend the Merger Agreement to increase the consideration to be paid in the
Merger to $85 per share of ITT Common Stock, with ITT shareholders able to elect
to receive up to 30% (but not less than 18%) of the aggregate consideration
(calculated at $85 per share) in cash, with the remainder to be paid in Paired
Shares (subject to such collar provisions). In addition, such consideration
would be increased (in cash) by 7% per annum to the extent the Merger occurs
after February 1, 1998.
Accounting Treatment
Starwood Lodging will account for the Merger as a purchase in accordance
with Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. Although the Trust and the Corporation are issuing paired
shares to ITT stockholders and will be the surviving reporting companies
following the Merger, the Trust and the Corporation are considered the acquired
companies for accounting purposes because the ITT stockholders will represent
the majority shareholders of Starwood Lodging. The fair market value of the pro
forma paired shares and Partnership units held by the Starwood Lodging
shareholders and the Partnerships' unit holders, respectively (using the closing
stock price of $57.75 on October 27, 1997), is used as the valuation basis for
the combination. The assets and liabilities of Starwood Lodging are revalued to
their respective fair market values at the combination date. The pro forma
financial statements of the Starwood Lodging reflect the combined operations
from date of combination. Certain reclassifications have been made to Starwood
Lodging's pro forma statements of operations to conform to the presentation of
the ITT statements of income.
NOTE 3. PRO FORMA ADJUSTMENTS
(A) Represents ITT's pro forma statements of income for the nine months
ended September 30, 1997 and the year ended December 31, 1996 reflecting the
sale of shares of Alcatel Alsthom owned by ITT, the sale of ITT's 39.8%
ownership interest in Madison Square Garden, certain restructuring charges taken
by ITT and costs associated with an unsolicited tender offer by Hilton Hotel
Corporation for shares of ITT (see pages F-18 through F-21).
(B) Represents Starwood Lodging's combined consolidated and separate
consolidated pro forma statements of operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996, as adjusted for the
pending acquisition of Westin (see pages F-28 through F-39).
(C) Represents the amortization expense related to the goodwill recorded as
a result of the purchase consideration exceeding the fair market of the combined
net assets of Starwood Lodging. (See note (C) on page F-7).
F-16
<PAGE> 20
(D) Represents interest expense, using an average interest rate of 7.5%, on
the additional debt incurred to finance (i) the $25.50 per share cash portion of
the purchase price of the shares to be acquired from ITT stockholders and (ii)
the cash necessary to retire approximately 8.7 million ITT stock options.
(E) Represents interest expense, using an average interest rate of 8.5%, on
notes receivable, issued by the Corporation to the Trust, as consideration for
the Trust's interest in ITT.
(F) Represents the tax effect of the additional interest expense described
in notes (D) and (E) above.
(G) Represents the adjustment to the minority interest to reflect the
weighted average pro forma minority interest of the Partnership units and the
minority interests of certain joint ventures.
F-17
<PAGE> 21
ITT CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
SALE
OF
HISTORICAL WBIS+ PRO FORMA
---------- ----- ---------
(A)
<S> <C> <C> <C>
Total current assets.......................................... $1,302 $ $ 1,302
Plant, property and equipment................................. 4,667 4,667
Investments................................................... 433 (105) 328
Goodwill, net................................................. 1,529 1,529
Other assets.................................................. 1,256 1,256
------ ----- ------
$9,187 $(105) $ 9,082
====== ===== ======
Notes payable and current maturities of long-term debt........ $ 232 $ $ 232
Other current liabilities..................................... 1,240 1,240
Long-term debt................................................ 3,467 (105) 3,362
Deferred income taxes and other liabilities................... 651 651
Minority interest............................................. 228 228
Common stock.................................................. 2,916 2,916
Cumulative translation adjustment............................. (128) (128)
Retained earnings............................................. 581 581
------ ----- ------
$9,187 $(105) $ 9,082
====== ===== ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
F-18
<PAGE> 22
ITT CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SALE OF SALE OF SALE OF OTHER UNUSUAL
HISTORICAL ALCATEL MSG WBIS+ ITEMS PRO FORMA
---------- ------- ------- ------- ------------- ---------
(A) (A) (A)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $4,897 $ $ $ $ $ 4,897
Costs and expenses:
Salaries, benefits and other
operating.......................... 3,567 3,567
Selling, general and administrative... 600 600
Restructuring charge.................. 58 (58)(B)
Depreciation and amortization......... 220 220
------ ----- ----- --- ---- ------
4,445 (58) 4,387
------ ----- ----- --- ---- ------
452 58 510
Interest expense, net................... (161) 13 17 5 (126)
Gain on sale of Alcatel Alsthom
shares................................ 183 (183)
Gain on sale of investment in Madison
Square Garden......................... 200 (200)
Miscellaneous income (expense), net..... (35) (4) 5 46(B) 12
Provision for income taxes.............. (276) 72 75 (37)(C) (166)
Minority equity......................... (23) (23)
------ ----- ----- --- ---- ------
Net income.............................. $ 340 $ (98) $ (112) $10 $ 67 $ 207
====== ===== ===== === ==== ======
Earnings per share...................... $ 2.88 $ 1.75
====== ======
Weighted average number of shares....... 118 118
====== ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
F-19
<PAGE> 23
ITT CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SALE
SALE OF SALE OF OF OTHER UNUSUAL
HISTORICAL ALCATEL MSG WBIS+ ITEMS PRO FORMA
---------- -------- ------- ----- ------------- ---------
(A) (A) (A)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $6,597 $ $ $ $ 6,597
Costs and expenses:
Salaries, benefits and other
operating................ 4,755 4,755
Selling, general and
administrative........... 838 838
Depreciation and
amortization............. 276 276
------ ---- ---- --- ------ ------
5,869 5,869
------ ---- ---- --- ------ ------
728 728
Interest expense, net......... (230) 50 38 4 (138)
Miscellaneous income
(expense), net.............. 1 (7) 6
Provision for income taxes.... (210) (22) (13) (4) (249)
Minority equity............... (40) (40)
------ ---- ---- --- ------ ------
Net Income.................... $ 249 $ 28 $ 18 $ 6 $ 301
====== ==== ==== === ====== ======
Earnings per share............ $ 2.11 $ 2.55
====== ======
Weighted average number of
shares...................... 118 118
====== ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Consolidated Financial
Statements.
F-20
<PAGE> 24
ITT CORPORATION
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
The unaudited pro forma consolidated financial statements may not be
indicative of the results that would have occurred if the transactions discussed
above had actually occurred on the dates indicated or which may be obtained in
the future. The unaudited pro forma consolidated financial statements should be
read in conjunction with the historical consolidated financial statements and
accompanying notes to such financial statements of ITT, which are incorporated
by reference herein to ITT's Annual Report on Form 10-K for the Year Ended
December 31, 1996 and ITT's Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1997 for which Starwood Lodging accepts no responsibility. Set
forth below is a discussion of the adjustments that are given effect in the
unaudited pro forma consolidated financial statements.
BALANCE SHEET
The accompanying unaudited consolidated pro forma balance sheet assumes
that the following adjustments occurred as of September 30, 1997.
(A) Pro forma effect is given to the sale of ITT's interest in WBIS+ at
its book value of $105 million. On May 12, 1997, ITT and Dow Jones &
Company, Inc. reached a definitive agreement to sell WBIS+, Channel 31
in New York City, to Paxson Communications Corporation ("Paxson") for
a purchase price of $257.5 million.
STATEMENTS OF INCOME
The accompanying unaudited consolidated pro forma statements of income
assume the following adjustments:
(A) Pro forma effect is given to the asset dispositions indicated in the
unaudited consolidated pro forma statements of income as if such
transactions had occurred at the beginning of the respective periods
presented.
(B) A $58 million pre-tax charge in connection with the restructuring of
the ITT's World Headquarters operations and a $46 million pre-tax
charge for costs associated with an unsolicited tender offer by Hilton
Hotels Corporation for shares of ITT's common stock are included in
"Other Unusual Items" for the nine months ended September 30, 1997.
(C) Represents the tax effects of the pro forma adjustments noted in notes
(A) and (B).
F-21
<PAGE> 25
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(UNAUDITED)
The following unaudited pro forma combined consolidated and separate
consolidated balance sheets are presented as if the acquisition of Westin had
occurred as of September 30, 1997.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets should be read in conjunction with the separate consolidated and
combined consolidated historical financial statements of the Trust and the
Corporation and the notes thereto included in Starwood Lodging's Joint Annual
Report on Form 10-K for the year ended December 31, 1996, the unaudited separate
and combined financial statements and related notes of Starwood Lodging included
in its Joint Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997, and the historical financial
statements of Westin and the Notes thereto included in the Starwood Lodging
Joint Current Report on Form 8-K dated September 9, 1997, each of which are
incorporated by reference in this Joint Current Report on Form 8-K. In
management's opinion, all pro forma adjustments necessary to reflect the effects
of the acquisition of Westin have been made.
The unaudited pro forma combined consolidated and separate consolidated
balance sheets are not necessarily indicative of what the actual financial
position of Starwood Lodging would have been as of September 30, 1997, nor do
they purport to represent the future financial position of Starwood Lodging.
F-22
<PAGE> 26
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
STARWOOD PRO FORMA
LODGING WESTIN PRO FORMA STARWOOD LODGING
COMBINED ACQUISITION ADJUSTMENTS COMBINED
--------- ----------- ----------- ----------------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net....................... $ 32,215 $ $ $ 32,215
Hotel assets, net..................................... 2,323,657 874,618 3,198,275
---------- ---------- -------- ----------
2,355,872 874,618 3,230,490
Mortgage notes receivable, net........................ 79,465 79,465
Investments........................................... 1,691 75,850 77,541
---------- ---------- -------- ----------
Total real estate investments..................... 2,437,028 950,468 3,387,496
Cash and cash equivalents............................. 28,527 178,000 28,527
(178,000)
Accounts, interest and rent receivable................ 71,709 71,709
Notes receivable, net................................. 2,701 14,076 16,777
Inventories, prepaid expenses and other assets........ 55,633 865,056 180,000(E) 1,100,689
---------- ---------- -------- ----------
$2,595,598 $ 1,829,600 $ 180,000 $4,605,198
========== ========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of
credit.............................................. $1,217,861 $ 1,030,093 $(500,000)(C) $1,925,954
178,000
Mortgage and other notes payable...................... 218,558 218,558
Accounts payable and other liabilities................ 79,768 180,000(E) 259,768
Distributions payable................................. 28,447 28,447
---------- ---------- -------- ----------
1,544,634 1,208,093 (320,000) 2,432,727
---------- ---------- -------- ----------
Commitments and contingencies.........................
MINORITY INTEREST..................................... 258,926 48,993 24,768(C) 332,687
Class B exchangeable preferred pro forma shares; $.01
par value; authorized 10,000,000; outstanding
5,294,783, at redemption value...................... 203,849 203,849
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,725,852, 56,425,852 pro forma...... 457 107(C) 564
$.01 par value; authorized 10,000,000 Class A
Exchangeable preferred pro forma shares;
outstanding 6,285,783............................. 63 63
Corporation common stock,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,725,852, 56,425,852 pro forma...... 457 107(C) 564
Additional paid-in capital............................ 1,094,849 368,602 475,018(C) 1,938,469
Accumulated deficit................................... (303,725) (303,725)
---------- ---------- -------- ----------
792,038 368,665 475,232 1,635,935
---------- ---------- -------- ----------
$2,595,598 $ 1,829,600 $ 180,000 $4,605,198
========== ========== ======== ==========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-23
<PAGE> 27
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL WESTIN PRO FORMA PRO FORMA
TRUST ACQUISITION ADJUSTMENTS TRUST
---------- ----------- ----------- ----------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net...................... $ 9,925 $ $ $ 9,925
Hotel assets, net.................................... 2,091,246 694,118 2,785,364
---------- ---------- ---------- ---------
2,101,171 694,118 2,795,289
Mortgage notes receivable, net....................... 79,465 79,465
Mortgage notes receivable Corporation................ 209,642 209,642
Investments.......................................... 1,451 69,850 71,301
---------- ---------- ---------- ---------
Total real estate investments...................... 2,391,729 763,968 3,155,697
Cash and cash equivalents............................ 3,169 178,000 25,000(D) 3,169
(178,000) (25,000)(D)
Rent and interest receivable......................... 13,823 13,823
Notes receivable, net................................ 2,080 14,076 16,156
Notes receivable Corporation......................... 57,712 294,184 (25,000)(D) 326,896
Prepaid expenses and other assets.................... 22,693 726,295 748,988
---------- ---------- ---------- ----------
$2,491,206 $ 1,798,523 $ (25,000) $4,264,729
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of
credit............................................. $1,217,861 $ 1,030,093 $(475,000)(C) $1,925,954
178,000 (25,000)(D)
Mortgage and other notes payable..................... 217,606 217,606
Accounts payable and other liabilities............... 19,233 19,233
Distributions payable................................ 28,348 28,348
---------- ---------- ---------- ----------
1,483,048 1,208,093 (500,000) 2,191,141
---------- ---------- ---------- ----------
Commitments and contingencies........................
MINORITY INTEREST.................................... 247,804 46,543 21,629(C) 315,976
Class B exchangeable preferred pro forma shares; $.01
par value; authorized 10,000,000; outstanding
5,294,783, at redemption value..................... 203,849 203,849
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,725,852, 56,425,852 pro forma..... 457 107(C) 564
$.01 par value; authorized 10,000,000 Class A
Exchangeable preferred pro forma shares;
outstanding 6,285,783............................ 63 63
Additional paid-in capital........................... 979,885 339,975 453,264(C) 1,773,124
Accumulated deficit.................................. (219,988) (219,988)
---------- ---------- ---------- ---------
760,354 340,038 453,371 1,553,763
---------- ---------- ---------- ----------
$2,491,206 $ 1,798,523 $ (25,000) $4,264,729
========== ========== ========== ==========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-24
<PAGE> 28
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL WESTIN PRO FORMA PRO FORMA
CORPORATION ACQUISITION ADJUSTMENTS CORPORATION
----------- ----------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Hotel assets held for sale, net............... $ 22,290 $ $ $ 22,290
Hotel assets, net............................. 232,411 180,500 412,911
-------- -------- -------- --------
254,701 180,500 435,201
Investments................................... 240 6,000 6,240
-------- -------- -------- --------
Total real estate investments............ 254,941 186,500 441,441
Cash and cash equivalents..................... 25,358 25,000(C),(D) 25,358
(25,000)(D)
Accounts and interest receivable.............. 57,886 57,886
Notes receivable, net......................... 621 621
Inventories, prepaid expenses and other
assets...................................... 32,940 138,761 180,000(E) 351,701
-------- -------- -------- --------
$ 371,746 $ 325,261 $ 180,000 $ 877,007
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable.............. $ 952 $ $ $ 952
Mortgage notes payable Trust.................. 209,642 209,642
Notes payable Trust........................... 57,712 294,184 (25,000)(D) 326,896
Accounts payable and other liabilities........ 60,535 180,000(E) 240,535
Distributions payable......................... 99 99
-------- -------- -------- --------
328,940 294,184 155,000 778,124
-------- -------- -------- --------
Commitments and contingencies.................
MINORITY INTEREST............................. 11,122 2,450 3,139(C),(D) 16,711
SHAREHOLDERS' EQUITY
Corporation common stock,
$.01 par value; authorized 100,000,000
shares; outstanding 45,725,852,
56,425,852 pro forma..................... 457 107(C),(D) 564
Additional paid-in capital.................... 114,964 28,627 21,754(C),(D) 165,345
Accumulated deficit........................... (83,737) (83,737)
-------- -------- -------- --------
31,684 28,627 21,861 82,172
-------- -------- -------- --------
$ 371,746 $ 325,261 $ 180,000 $ 877,007
======== ======== ======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Balance Sheet.
F-25
<PAGE> 29
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
NOTE 1. BASIS OF PRESENTATION
(A) The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires all references to the "Trust"
and the "Corporation" include the Trust and the Corporation and those entities
respectively owned or controlled by the Trust or the Corporation, including
Realty and Operating, respectively.
NOTE 2. WESTIN ACQUISITION
(B) On September 9, 1997, the Company announced the execution of a
definitive agreement to acquire Westin for approximately $1.83 billion (using
the closing price of $49.4375 per paired share on September 8, 1997). As part of
the acquisition, Westin Worldwide will be merged into the Trust, the stock of
Seattle, Lauderdale and Denver (which own the Westin Hotel Seattle, the Westin
Hotel Fort Lauderdale and the Westin Hotel Tabor Center, respectively) will be
contributed to Realty and the stock of Atlanta and St. John (which own the
Westin Peachtree Plaza and the Westin Resort, St. John, respectively) will be
contributed to Operating. Also as part of the acquisition, certain assets of
Westin Worldwide, including portions of its management and franchising
operations, and of Seattle, Lauderdale and Denver are expected either to be
transferred to the Corporation and Operating or transferred into subsidiaries in
which the Trust will own nonvoting preferred stock and less than 10% of the
voting stock and the Corporation will own more than 90% of the voting stock.
The pro forma adjustments allocate Westin's assets between the Trust and
the Corporation in accordance with the terms of the acquisition. As a result,
all the properties owned by Westin (other than the Westin Peachtree Plaza and
the Westin Resort, St. John) are combined with the Trust. The following is a
list of the hotels that are wholly-owned by Westin:
<TABLE>
<CAPTION>
NAME CITY STATE TOTAL ROOMS
- ---------------------------------------------- ------------- ------------------- -----------
<S> <C> <C> <C>
Hotels owned as of December 31, 1996
The Westin Hotel Seattle...................... Seattle Washington 865
The Westin San Francisco Airport.............. San Francisco California 388
The Westin Hotel Cincinnati................... Cincinnati Ohio 448
The Westin Galleria and Oaks.................. Houston Texas 891
The Westin South Coast Plaza.................. Orange County California 396
The Westin Hotel Fort Lauderdale.............. Ft. Florida 293
Lauderdale
The Cherry Creek Inn.......................... Denver Colorado 320
-----
Sub-total................................ 3,601
-----
</TABLE>
<TABLE>
<CAPTION>
NAME CITY STATE/TERRITORY TOTAL ROOMS
- ---------------------------------------------- ------------- ------------------- -----------
<S> <C> <C> <C>
Hotels acquired since January 1, 1997
The Westin Hotel Indianapolis................. Indianapolis Indiana 573
The Westin Hotel Tabor Center................. Denver Colorado 420
The Westin Peachtree Plaza.................... Atlanta Georgia 1,068
The Westin Resort............................. St. John U.S. Virgin Islands 285
-----
Sub-total................................ 2,346
-----
Total.................................... 5,947
=====
</TABLE>
F-26
<PAGE> 30
In addition, Westin has joint venture interests in the following
properties:
<TABLE>
<CAPTION>
NAME/OWNERSHIP PERCENTAGE CITY STATE/PROVINCE TOTAL ROOMS
- ---------------------------------------------- ------------- ------------------- -----------
<S> <C> <C> <C>
The Westin Hotel O'Hare (49%)................. Chicago Illinois 525
The Westin Hotel Galleria (20%)............... Dallas Texas 431
The Westin Office Building (25%).............. Seattle Washington N/A(1)
The Westin London (10%)....................... London Ontario 329
</TABLE>
- -------------------------
(1) contains approximately 350,000 square feet
The acquisition price for Westin is expected to be allocated as follows (in
thousands):
<TABLE>
<CAPTION>
TRUST CORPORATION COMBINED
---------- ----------- ----------
<S> <C> <C> <C>
Wholly owned assets.................................... $ 694,118 $ 180,500 $ 874,618
Joint venture assets................................... 69,850 6,000 75,850
Notes receivable....................................... 14,076 -- 14,076
Other assets(1)........................................ 726,295 138,761 865,056
---------- ----------- ----------
Total assets...................................... $1,504,339 $ 325,261 $1,829,600
========= ========= =========
</TABLE>
- ---------------
(1) Other assets includes the value of existing management contracts, certain
intangible assets, and an amount allocated to a wholly owned captive
insurance company.
As partial consideration for the acquisition of Westin, the Company intends
to issue 6,285,783 shares of newly created Class A Exchangeable Preferred Stock
with an aggregate value of approximately $310.8 million (using the closing stock
price of $49.4375 per paired share on September 8, 1997) and 5,294,783 shares of
newly created Class B Exchangeable Preferred Stock with an aggregate value of
approximately $261.8 million (using the closing stock price of $49.4375 per
paired share on September 8, 1997). The Company also intends to issue 991,000
limited partnership units of the Partnerships with an aggregate value of
approximately $49.0 million (using the closing stock price of $49.4375 per
paired share on September 8, 1997), exchangeable on a one for one basis for
Class B Exchangeable Preferred Stock or paired shares. The Corporation expects
to borrow approximately $294.2 million from the Trust to partially finance the
acquisition of assets allocable to the Corporation.
Finally, the Company intends to assume approximately $1.030 billion of debt
and pay cash in the amount of approximately $178.0 million to be drawn down
under the Company's revolving line of credit. The Company expects to refinance
some of Westin's debt to obtain credit terms similar to the Company's existing
credit facilities.
NOTE 3. PRO FORMA ADJUSTMENTS
(C) The Company expects to issue, in a take-down from a shelf registration
statement to be filed with the Securities and Exchange Commission in connection
with a public offering, approximately 10.7 million paired shares of the Company
at an initial offering price of $49.4375 per paired share (using the closing
price per paired share on September 8, 1997) (the "Offering"). Total combined
net proceeds from the Offering of approximately $500 million will be used
partially to fund the acquisition of Westin and to paydown existing
indebtedness. Minority interest has been adjusted to reflect the 16.9% proforma
minority interest subsequent to the Westin acquisition.
(D) Reflects proceeds from the Offering to the Corporation which will be
used to reduce intercompany indebtedness to the Trust and will be used by the
Trust to pay down existing third-party indebtedness.
(E) Reflects estimated deferred tax liability expected to be recorded as a
result of the Westin acquisition.
F-27
<PAGE> 31
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The following unaudited combined consolidated and separate consolidated pro
forma statements of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996 give effect as of January 1, 1996 to the
pending acquisition of Westin. 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, 1996, or to
project results for any future period. Historical Trust and Corporation results
are for the nine months ended September 30, 1997 and the year ended December 31,
1996. The historical Westin results are for the nine months ended September 30,
1997 and the year ended December 31, 1996.
Historical Trust and Corporation results include the results of the
properties acquired in 1996 (the Westin in Washington, D.C. -- acquired on
January 4, a 58.2% interest in the Park Plaza in Boston, Massachusetts --
acquired on January 24, the Doubletree Guest Suites DFW Airport in Irving,
Texas, the Doubletree Guest Suites in Ft. Lauderdale, Florida and the Westin
Hotel in Tampa, Florida -- all three acquired on April 26, the Midland Hotel in
Chicago, Illinois -- acquired on March 22, the Clarion Hotel -- San Francisco
Airport in Milbrae, California -- acquired on April 25, the Westin at the
Philadelphia International Airport in Philadelphia, Pennsylvania -- acquired on
June 3, the Days Inn in Philadelphia, Pennsylvania -- acquired on July 1, a
portfolio of 8 hotels owned by an institution consisting of the Ritz Carlton in
Kansas City, Missouri, the Ritz Carlton in Philadelphia, Pennsylvania, the
Westin Hotel in Waltham, Massachusetts, the Westin LAX in Los Angeles,
California, the Westin Horton Plaza in San Diego, California, the Westin Hotel
Concourse in Atlanta, Georgia, the Doubletree Grand at Mall of America in
Bloomington, Minnesota and the Wyndham Hotel in Ft. Lauderdale, Florida -- all
acquired on August 12, a portfolio of 9 hotels owned by Hotels of Distinction
Ventures, Inc. consisting of the Hotel Park Tucson in Tucson, Arizona, the
Embassy Suites in Palm Desert, California, the Marque in Atlanta, Georgia, the
Arlington Park Hilton in Arlington Heights, Illinois, the Sheraton Needham in
Needham, Massachusetts, the Sheraton Minneapolis Metrodome in Minneapolis,
Minnesota, the Embassy Suites in St. Louis, Missouri, the Radisson Marque in
Winston-Salem, North Carolina (this property was sold in April, 1997) and the
Allentown Hilton in Allentown, Pennsylvania -- all acquired on August 16 except
the Sheraton Minneapolis Metrodome which closed on September 5, the Marriott
Forrestal Village in Princeton, New Jersey -- acquired on August 29, the Doral
Court and Doral Tuscany both in New York, New York -- acquired on September 19,
and a 93.5% interest in the Westwood Marquis Hotel & Gardens in Westwood,
California -- acquired on December 31) and the properties acquired in 1997 (the
Deerfield Beach Hilton in Deerfield Beach, Florida -- acquired on January 8, the
Radisson Denver South in Denver, Colorado -- acquired on January 17, the Embassy
Suites Hotel in Atlanta, Georgia, the BWI Airport Marriott in Baltimore,
Maryland, the Charleston Hilton North in Charleston, South Carolina, the Crowne
Plaza Edison in Edison, New Jersey, the Courtyard by Marriott Crystal City in
Arlington, Virginia, the Novi Hilton in Novi, Michigan, the Omni Waterside Hotel
in Norfolk, Virginia, the Park Ridge Hotel in King of Prussia, Pennsylvania, the
Sheraton Hotel in Long Beach, California, and the Sonoma County Hilton in Santa
Rosa, California -- all acquired on February 14, the Days Inn Lake Shore Drive
in Chicago, Illinois -- acquired February 21, the Hermitage Suites Hotel in
Nashville, Tennessee -- acquired on March 11, the Hotel De La Poste in New
Orleans, Louisiana -- acquired on March 12, the San Diego Marriott Suites in San
Diego, California -- acquired on April 3, the Tremont Hotel in Chicago,
Illinois -- acquired on April 4, the Raphael Hotel in Chicago,
Illinois -- acquired May 7, the Stamford Sheraton in Stamford,
Connecticut -- acquired on June 9, the Radisson Plaza Hotel in Southfield,
Michigan -- acquired on July 10, the Westin Regina Resort in Los Cabos, Mexico,
the Westin Regina Resort in Cancun, Mexico, and the Westin Regina Resort in
Puerto Vallarta, Mexico -- acquired on August 21, a portfolio of 15 hotels,
owned by Flatley Co./Tara Hotels, located in the Northeastern United
States -- acquired on September 11, the Crowne Plaza in New Orleans,
Louisiana -- acquired on September 16, and One Washington Circle in Washington,
D.C. -- acquired on September 30) from their respective dates of acquisition.
F-28
<PAGE> 32
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
STARWOOD PRO FORMA
LODGING W & S HOTEL LLC PRO FORMA STARWOOD LODGING
COMBINED & SUBSIDIARIES ADJUSTMENTS COMBINED
---------------- --------------- ----------- ----------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms.............................. $403,235 $ 110,869 $ 24,222 $538,326
Food & beverage.................... 157,260 51,566 12,641 221,467
Other.............................. 43,119 12,916 2,683 58,718
-------- -------- ---------- --------
Total.......................... 603,614 175,351 39,546(C) 818,511
Gaming............................... 11,392 11,392
Interest from mortgage and other
notes.............................. 10,576 3,128 13,704
Rent from leased hotel properties and
income from investments............ 701 1,196 1,897
Management fees and other income..... 6,726 60,162 (1,496)(G) 65,392
Gain (loss) on sales of real estate
investments and non-recurring
items.............................. (221) 13,423 (13,423)(H) (221)
-------- -------- ---------- --------
632,788 253,260 24,627 910,675
-------- -------- ---------- --------
EXPENSES
Hotel operations:
Rooms.............................. 98,004 23,391 5,773 127,168
Food & beverage.................... 118,058 36,798 8,780 163,636
Other.............................. 200,856 68,939 13,124 282,919
-------- -------- ---------- --------
416,918 129,128 27,677(C) 573,723
(1,496)(G) (1,496)
(1,832)(I) (1,832)
-------- -------- ---------- --------
Total.......................... 416,918 129,128 24,349 570,395
Gaming............................... 12,554 12,554
Interest............................. 41,139 67,049(J) 80,438
(27,750)(K)
Depreciation and amortization........ 104,271 65,240(L) 169,511
Administrative and general........... 19,002 13,290 32,292
-------- -------- ---------- --------
593,884 142,418 128,888 865,190
-------- -------- ---------- --------
Income from operations before income
taxes and minority interest........ 38,904 110,842 (104,261) 45,485
Provision for income taxes........... 12,370(M) 12,370
-------- -------- ---------- --------
Income from operations before
minority interest.................. 38,904 $ 110,842 $(116,631) 33,115
======== ==========
Minority interest (N)................ 10,627 7,561
-------- --------
Income from operations............... $ 28,277 $ 25,554
======== ========
Income from operations per Paired
Share (O).......................... $ 0.60 $ 0.37
======== ========
Weighted average number of Paired
Shares............................. 46,830 69,111
======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-29
<PAGE> 33
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL W & S HOTEL LLC PRO FORMA PRO FORMA
TRUST & SUBSIDIARIES ADJUSTMENTS TRUST
---------------- --------------- ----------- ----------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Rents from Corporation.......... $157,571 $ $ 38,884(D) $196,455
Interest from Corporation....... 9,776 21,198(E) 30,974
Interest from mortgage and other
notes......................... 10,576 3,128 13,704
Rent from leased hotel
properties and income from
investments................... 701 1,196 1,897
Other income.................... 1,853 1,853
Gain on sale of real estate
investments and non-recurring
items......................... 283 13,423 (13,423)(H) 283
-------- ------- ------- -------
180,760 17,747 46,659 245,166
-------- ------- ------- -------
EXPENSES
Interest........................ 41,012 67,049(J) 80,311
(27,750)(K)
Depreciation and amortization... 88,204 55,059(L) 143,263
Administrative and general...... 7,031 7,031
-------- ------- ------- -------
136,247 94,358 230,605
-------- ------- ------- -------
Income from operations before
minority interest............. 44,513 $17,747 $ (47,699) 14,561
======= =======
Minority interest (N)........... 9,957 2,790
-------- -------
Income from operations.......... $ 34,556 $ 11,771
======== =======
Income from operations per share
(O)........................... $ 0.73 $ 0.17
======== =======
Weighted average number
of shares..................... 46,830 69,111
======== =======
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-30
<PAGE> 34
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL W & S HOTEL LLC PRO FORMA PRO FORMA
CORPORATION & SUBSIDIARIES ADJUSTMENTS CORPORATION
----------- --------------- ----------- -------------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms............................ $ 403,235 $ 110,869 $ 24,222 $ 538,326
Food & beverage.................. 157,260 51,566 12,641 221,467
Other............................ 43,119 12,916 2,683 58,718
-------- -------- --------- --------
Total......................... 603,614 175,351 39,546(C) 818,511
Gaming............................. 11,392 11,392
Management fees and other income... 4,873 60,162 (1,496)(G) 63,539
Loss on sales of real estate
investments...................... (504) (504)
-------- -------- --------- --------
619,375 235,513 38,050 892,938
-------- -------- --------- --------
EXPENSES
Hotel operations:
Rooms............................ 98,004 23,391 5,773 127,168
Food & beverage.................. 118,058 36,798 8,780 163,636
Other............................ 200,856 68,939 13,124 282,919
-------- -------- --------- --------
416,918 129,128 27,677(C) 573,723
(1,496)(G) (1,496)
(1,832)(I) (1,832)
-------- -------- --------- --------
Total......................... 416,918 129,128 24,349 570,395
Gaming............................. 12,554 12,554
Rent to Trust...................... 157,571 38,884(D) 196,455
Interest to Trust.................. 9,776 21,198(E) 30,974
Interest........................... 127 127
Depreciation and amortization...... 16,067 10,181(L) 26,248
Administrative and general......... 11,971 13,290 25,261
-------- -------- --------- --------
624,984 142,418 94,612 862,014
-------- -------- --------- --------
Income (loss) before income taxes
and minority interest............ (5,609) 93,095 (56,562) 30,924
Provision for income taxes......... 12,370(M) 12,370
-------- -------- --------- --------
Income before minority interest.... (5,609) $ 93,095 $ (68,932) 18,554
======== =========
Minority interest(N)............... 670 4,771
-------- --------
Net income (loss).................. $ (6,279) $ 13,783
======== ========
Net income (loss) per share(O)..... $ (0.13) $ 0.20
======== ========
Weighted average number of
shares........................... 46,830 69,111
======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-31
<PAGE> 35
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
W & S HOTEL
HISTORICAL LLC PRO FORMA
STARWOOD LODGING & PRO FORMA STARWOOD LODGING
COMBINED SUBSIDIARIES ADJUSTMENTS COMBINED
---------------- ------------- ----------- ------------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms................................... $260,175 $ 102,091 $ 65,559 $427,825
Food & beverage......................... 94,816 52,036 33,551 180,403
Other................................... 30,119 14,245 7,743 52,107
-------- -------- -------- --------
Total............................... 385,110 168,372 106,853(C) 660,335
Gaming.................................... 23,630 23,630
Interest from mortgage and other notes.... 11,262 1,712 12,974
Rent from leased hotel properties and
income from investments................. 822 5,036 (3,406)(F) 2,452
Management fees and other income.......... 3,424 69,693 (753)(G) 72,364
Gain on sales of real estate
investments............................. 4,290 4,290
-------- -------- -------- --------
428,538 244,813 102,694 776,045
-------- -------- -------- --------
EXPENSES
Hotel operations:
Rooms................................... 67,017 23,221 15,655 105,893
Food & beverage......................... 72,696 36,569 23,503 132,768
Other................................... 135,302 73,270 35,759 244,331
-------- -------- -------- --------
275,015 133,060 74,917(C) 482,992
(753)(G) (753)
(997)(I) (997)
-------- -------- -------- --------
Total............................... 275,015 133,060 73,167 481,242
Gaming.................................... 21,834 21,834
Interest.................................. 23,337 89,397(J) 75,734
(37,000)(K)
Depreciation and amortization............. 55,745 86,986(L) 142,731
Administrative and general................ 16,495 23,990 40,485
-------- -------- -------- --------
392,426 157,050 212,550 762,026
-------- -------- -------- --------
Income before income taxes and
minority interest....................... 36,112 87,763 (109,856) 14,019
Provision for income taxes................ 9,803(M) 9,803
-------- -------- -------- --------
Income before minority interest........... 36,112 $ 87,763 $ (119,659) 4,216
======== ========
Minority interest (N)..................... 10,238 2,460
-------- --------
Net income................................ $ 25,874 $ 1,756
======== ========
Net income per Paired Share (O)........... $ 0.87 $ 0.03
======== ========
Weighted average number of Paired
Shares.................................. 29,884 52,165
======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-32
<PAGE> 36
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL W & S HOTEL LLC PRO FORMA PRO FORMA
TRUST & SUBSIDIARIES ADJUSTMENTS TRUST
---------------- --------------- ----------- ---------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Rents from Corporation............. $ 87,593 $ $ 38,394(D) $ 125,987
Interest from Corporation.......... 9,084 28,264(E) 37,348
Interest from mortgage and other
notes............................ 11,262 1,712 12,974
Rent from leased hotel properties
and income from investments...... 822 5,036 (3,406)(F) 2,452
Other income....................... 2,008 2,008
Gain on sale of real estate
investments...................... 4,290 4,290
-------- ------ -------- --------
115,059 6,748 63,252 185,059
-------- ------ -------- --------
EXPENSES
Interest........................... 23,088 89,397(J) 75,485
(37,000)(K)
Depreciation and amortization...... 42,517 73,411(L) 115,928
Administrative and general......... 4,134 4,134
-------- ------ -------- --------
69,739 125,808 195,547
-------- ------ -------- --------
Income (loss) before minority
interest......................... 45,320 $ 6,748 $ (62,556) (10,488)
====== ========
Minority interest (N).............. 11,731 (498)
-------- --------
Net income (loss).................. $ 33,589 $ (9,990)
======== ========
Net income (loss) per share (O).... $ 1.12 $ (0.19)
======== ========
Weighted average number of
shares........................... 29,884 52,165
======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations
F-33
<PAGE> 37
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL W & S HOTEL LLC PRO FORMA PRO FORMA
CORPORATION & SUBSIDIARIES ADJUSTMENTS CORPORATION
----------- --------------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel operations:
Rooms........................................ $ 260,175 $ 102,091 $ 65,559 $427,825
Food & beverage.............................. 94,816 52,036 33,551 180,403
Other........................................ 30,119 14,245 7,743 52,107
-------- -------- -------- --------
Total.................................... 385,110 168,372 106,853(C) 660,335
Gaming......................................... 23,630 23,630
Management fees and other income............... 1,416 69,693 (753)(G) 70,356
-------- -------- -------- --------
410,156 238,065 106,100 754,321
-------- -------- -------- --------
EXPENSES
Hotel operations:
Rooms........................................ 67,017 23,221 15,655 105,893
Food & beverage.............................. 72,696 36,569 23,503 132,768
Other........................................ 135,302 73,270 35,759 244,331
-------- -------- -------- --------
275,015 133,060 74,917(C) 482,992
(753)(G) (753)
(997)(I) (997)
-------- -------- -------- --------
Total.................................... 275,015 133,060 73,167 481,242
Gaming......................................... 21,834 21,834
Rent to Trust.................................. 87,593 38,394(D) 125,987
Interest to Trust.............................. 9,084 28,264(E) 37,348
Interest....................................... 249 249
Depreciation and amortization.................. 13,228 13,575(L) 26,803
Administrative and general..................... 12,361 23,990 36,351
-------- -------- -------- --------
419,364 157,050 153,400 729,814
-------- -------- -------- --------
Income (loss) before income taxes and minority
interest..................................... (9,208) 81,015 (47,300) 24,507
Provision for income taxes..................... 9,803(M) 9,803
-------- -------- -------- --------
Income before minority interest................ (9,208) $ 81,015 $ (57,103) 14,704
======== ======== ========
Minority interest (N).......................... (1,493) 2,958
-------- --------
Net income (loss).............................. $ (7,715) $ 11,746
======== ========
Net income (loss) per share (O)................ $ (0.26) $ 0.22
======== ========
Weighted average number of shares.............. 29,884 52,165
======== ========
</TABLE>
See accompanying Notes to the Unaudited Combined Consolidated and
Separate Consolidated Pro Forma Statements of Operations.
F-34
<PAGE> 38
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of Realty and
Operating, respectively, and, therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires, all references herein to the
"Company" refer to the Trust and the Corporation, and all references to the
"Trust" and the "Corporation" include the Trust and the Corporation and those
entities respectively owned or controlled by the Trust or the Corporation,
including Realty and Operating.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) Reflects the Company's historical statements of operations. Results of
operations for properties sold or pending sale are not considered material to
the pro forma presentation. The historical statements of operations for the year
ended December 31, 1996 exclude the impact of extraordinary items.
(B) Reflects Westin's historical statements of operations excluding
depreciation and amortization, interest expense and provision for income taxes
which are reflected as pro forma adjustments. The following is a reconciliation
of the historical results of Westin in the pro forma statements of operations to
the unaudited statement of operations for the nine months ended September 30,
1997 and to the audited statement of operations for the year ended December 31,
1996:
<TABLE>
<S> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
Income before depreciation and amortization, interest and provision for income
taxes per pro forma combined statement of operations............................ $110,842
Depreciation and amortization..................................................... 36,402
Interest expense.................................................................. 34,536
Provision for income taxes........................................................ 16,295
------
Net income per unaudited statement of operations.................................. $ 23,609
======
FOR THE YEAR ENDED DECEMBER 31, 1996:
Income before depreciation and amortization, interest and provision for income
taxes per pro forma combined statement of operations............................ $ 87,763
Depreciation and amortization..................................................... 42,566
Interest expense.................................................................. 41,965
Provision for income taxes........................................................ 3,904
------
Net loss per audited statement of operations...................................... $ (672)
======
</TABLE>
F-35
<PAGE> 39
Listed below are the effects each wholly-owned hotel had on the combined
pro forma statements of operations for the nine months ended September 30, 1997
and the year ended December 31, 1996 (in thousands):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
HOTEL REVENUES EXPENSES OVER EXPENSES
- ----------------------------------------------------- -------- -------- -------------
<S> <C> <C> <C>
The Westin Hotel Seattle............................. $ 35,816 $ 22,320 $13,496
The Westin Hotel San Francisco Airport............... 19,058 13,039 6,019
The Westin Hotel Cincinnati.......................... 15,547 11,719 3,828
The Westin Hotel Galleria and Oaks................... 34,573 30,494 4,079
The Westin South Coast Plaza......................... 14,878 12,775 2,103
The Westin Hotel Fort Lauderdale..................... 8,377 6,862 1,515
The Cherry Creek Inn................................. 6,033 4,109 1,924
The Westin Hotel Indianapolis (acquired March 4,
1997).............................................. 16,566 10,873 5,693
The Westin Hotel Tabor Center (acquired June 24,
1997).............................................. 7,114 4,400 2,714
The Westin Peachtree Plaza (acquired June 4, 1997)... 17,389 12,537 4,852
The Westin Resort St. John (acquired May 15,
1997)(1)...........................................
-------- -------- -------
Total........................................... $175,351 $129,128 $46,223
======== ======== =======
</TABLE>
- ---------------
(1) Hotel closed for renovation due to hurricane damage.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
OVER
HOTEL REVENUES EXPENSES EXPENSES
- --------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
The Westin Hotel Seattle................................. $ 45,547 $ 32,013 $13,534
The Westin Hotel San Francisco Airport................... 21,905 16,463 5,442
The Westin Hotel Cincinnati.............................. 20,672 16,014 4,658
The Westin Hotel Galleria and Oaks....................... 43,880 39,018 4,862
The Westin South Coast Plaza............................. 18,147 15,106 3,041
The Westin Hotel Fort Lauderdale......................... 11,500 9,665 1,835
The Cherry Creek Inn..................................... 6,721 4,781 1,940
-------- -------- ---------
Total............................................... $168,372 $133,060 $35,312
======== ======== =======
</TABLE>
F-36
<PAGE> 40
Listed below are the effects each joint venture had on the combined pro
forma statements of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996 (in thousands):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
WESTIN
O'HARE GALLERIA SIXTH & VINWEST HOTEL
HOTEL HOTEL VIRGINIA LONDON ONTARIO,
VENTURE VENTURE PROPERTIES INC.(1) TOTAL
------- -------- ---------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues........................ $23,400 $ 22,403 $7,443 $4,810 $58,056
Operating expenses........................ 17,491 14,485 3,527 4,524 40,027
Depreciation and amortization............. 2,156 2,736 1,960 319 7,171
------- -------- ---------- ------- -------
Operating income.......................... 3,753 5,182 1,956 (33) 10,858
Interest expense.......................... 1,714 4,336 1,738 318 8,106
Other expense (income).................... (30) (55) 23 (62)
------- -------- ---------- ------- -------
Net income (loss)....................... 2,039 876 273 (374) 2,814
------- -------- ---------- ------- -------
Westin ownership percentage............... 49% 20% 25% 10%
------- -------- ---------- ------- -------
Westin Share.............................. $ 990 $ 175 $ 68 $ (37) $ 1,196
======= ======= ======= =========== =======
</TABLE>
- -------------------------
(1) Westin acquired an interest in this property in February, 1997.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WESTIN
ARIZONA O'HARE GALLERIA SIXTH &
BILTMORE HOTEL HOTEL VIRGINIA
PARTNERS(1) VENTURE VENTURE PROPERTIES TOTAL
----------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues.......................... $55,653 $29,395 $30,586 $8,446 $124,080
Operating expenses.......................... 39,847 22,268 20,124 4,067 86,306
Depreciation and amortization............... 5,298 2,029 3,344 2,114 12,785
----------- ------- ------- ---------- --------
Operating income............................ 10,508 5,098 7,118 2,265 24,989
Interest expense............................ 5,851 2,214 5,638 2,418 16,121
Other expense............................... 150 150
----------- ------- ------- ---------- --------
Net income (loss)......................... 4,657 2,884 1,330 (153) 8,718
----------- ------- ------- ---------- --------
Westin ownership percentage................. 50% 49% 20% 25%
----------- ------- ------- ---------- --------
2,328 1,402 266 (38) 3,958
Preferred return............................ 1,078 1,078
----------- ------- ------- ---------- --------
Westin Share................................ $ 3,406 $ 1,402 $ 266 $ (38) $ 5,036
======== ======= ======= ======= ========
</TABLE>
- -------------------------
(1) Ownership interest sold in February, 1997 (see footnotes F and H below).
(C) Since January 1, 1997 Westin has acquired four hotel properties
including the 573-room Westin Hotel Indianapolis in Indianapolis, Indiana
acquired on March 4, 1997; the 285-room Westin Resort, St. John on the U.S.
Virgin Islands acquired on May 15, 1997; the 1,068-room Westin Peachtree Plaza
in Atlanta, Georgia acquired on June 4, 1997; and the 420-room Westin Hotel
Tabor Center in Denver, Colorado acquired on June 24, 1997.
F-37
<PAGE> 41
Listed below are the pro forma adjustments necessary to show the effect on
the results of operations of the acquired hotels as if they had been acquired at
January 1, 1996:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
OVER
HOTEL REVENUES EXPENSES EXPENSES
- ---------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
The Westin Hotel Tabor Center................................... $ 11,854 $ 8,531 $ 3,323
The Westin Hotel Indianapolis................................... 3,215 2,832 383
The Westin Peachtree Plaza...................................... 24,477 16,314 8,163
The Westin Resort St. John(1)...................................
-------- -------- ---------
Total......................................................... $ 39,546 $ 27,677 $11,869
======= ======= =======
</TABLE>
- -------------------------
(1) Hotel closed for renovation due to hurricane damage.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EXCESS OF
REVENUES
OVER
HOTEL REVENUES EXPENSES EXPENSES
- ---------------------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
The Westin Hotel Tabor Center................................... $ 23,131 $ 16,456 $ 6,675
The Westin Hotel Indianapolis................................... 25,606 18,276 7,330
The Westin Peachtree Plaza...................................... 58,116 40,185 17,931
The Westin Resort St. John(1)...................................
-------- -------- ---------
Total......................................................... $106,853 $ 74,917 $31,936
======== ======= =======
</TABLE>
- -------------------------
(1) Hotel closed for renovation due to hurricane damage.
(D) The Trust intends to lease the hotels it will acquire to the
Corporation under leases that 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 interest expense on funds borrowed by the Corporation from the
Trust to acquire certain assets in the Westin transaction including the Westin
Peachtree Plaza in Atlanta, Georgia and the Westin Resort St. John on the U.S.
Virgin Islands.
(F) Reflects the elimination of joint venture income related to the sale,
during February 1997, of Westin's 50% ownership investment in the Biltmore Hotel
Partners.
(G) Reflects the elimination of franchise fees paid by the Company to
Westin on seven Westin hotels owned by the Company as of September 30, 1997
including the Westin Los Angeles Airport in Los Angeles, California; the Westin
Horton Plaza in San Diego, California; the Westin Washington in Washington, DC;
the Westin Tampa Airport in Tampa, Florida; the Westin Atlanta North in Atlanta,
Georgia; the Westin Philadelphia Airport in Philadelphia, Pennsylvania and the
Westin Waltham in Waltham, Massachusetts.
(H) Reflects the elimination of non-recurring items including gains on
disposal of investments in partnership and hotel companies, gains on curtailment
of benefit plans, a litigation settlement charge and miscellaneous income and
expense.
(I) Reflects the elimination of franchise fees incurred by the Company on
hotels the Company intends to convert to Westins. These franchise fees represent
franchise fees incurred from the date the hotel was acquired until the end of
each period presented and therefore may not represent a full period of franchise
fees expense.
F-38
<PAGE> 42
(J) Reflects the addition of interest expense at the Company's current
weighted average borrowing rate (7.4%) on the $1.030 billion of assumed debt and
the $178.0 million cash drawn down to acquire Westin.
(K) Reflects the reduction of interest expense due to the pay down of
approximately $500.0 million of debt with the net proceeds of a public offering
of approximately 10.7 million paired shares at $49.4375 per paired share (using
the closing price per paired share on September 8, 1997).
(L) Reflects depreciation and amortization expense on the Company's basis
in the assets acquired in the Westin transaction.
(M) Reflects the estimated income tax expense on the pro forma Corporation
results using an effective income tax rate of 40%.
(N) Reflects the minority interests of the partners in the income of the
Partnerships.
(O) Net income (loss) per paired share has been computed using the weighted
average number of paired shares and equivalent paired shares outstanding and
includes Class A and Class B Exchangeable Preferred Stock expected to be issued
as partial consideration for the Westin acquisition (see footnote B to the
unaudited combined consolidated and separate consolidated pro forma balance
sheets) and common stock expected to be issued pursuant to a public offering
(see footnote K above). All paired share information has been adjusted to
reflect a 3-for-2 stock split effective January 27, 1997.
F-39
