<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
<TABLE>
<S> <C>
Commission File Number: 1-6828 Commission File Number: 1-7959
STARWOOD LODGING STARWOOD LODGING
TRUST CORPORATION
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Maryland Maryland
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-0901263 52-1193298
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
2231 East Camelback Road, Suite 410 2231 East Camelback Road, Suite 400
Phoenix, AZ 85016 Phoenix, AZ 85016
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(602) 852-3900 (602) 852-3900
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
Indicate by check mark whether the Registrants (1) have filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrants were required to file such
reports), and (2) have been subject to such filing requirements for the
past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
45,557,144 Shares of Beneficial Interest, par value $0.01 per
share, of Starwood Lodging Trust paired with 45,557,144 Shares of Common
Stock, par value $0.01 per share, of Starwood Lodging Corporation,
outstanding as of July 29, 1997.
<PAGE> 2
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements of Starwood Lodging Trust and
Starwood Lodging Corporation are provided pursuant to the requirements of this
item.
INDEX TO FINANCIAL STATEMENTS
Starwood Lodging Trust and Starwood Lodging Corporation:
Combined Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996
Combined Consolidated Statements of Operations - For the three and six months
ended June 30, 1997 and 1996
Combined Consolidated Statements of Cash Flows - For the six months ended June
30, 1997 and 1996
Starwood Lodging Trust:
Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996
Consolidated Statements of Operations - For the three and six months ended
June 30, 1997 and 1996
Consolidated Statements of Cash Flows - For the six months ended June 30,
1997 and 1996
Starwood Lodging Corporation:
Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996
Consolidated Statements of Operations - For the three and six months ended
June 30, 1997 and 1996
Consolidated Statements of Cash Flows - For the six months ended June 30,
1997 and 1996
Notes to Financial Statements
2
<PAGE> 3
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net ............................... $ 21,637 $ 21,644
Hotel assets - net ............................................. 1,624,340 1,100,030
----------- -----------
1,645,977 1,121,674
Mortgage notes receivable - net ................................ 80,053 90,741
Investments .................................................... 440 948
----------- -----------
Total real estate investments ............................... 1,726,470 1,213,363
Cash and cash equivalents ...................................... 42,039 25,426
Accounts, interest and rent receivable ......................... 61,270 43,278
Notes receivable - net ......................................... 2,744 2,930
Inventories, prepaid expenses and other assets ................. 42,368 27,743
----------- -----------
$ 1,874,891 $ 1,312,740
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of credit ..... $ 568,037 $ 422,334
Mortgage and other notes payable ............................... 139,356 57,232
Accounts payable and other liabilities ......................... 64,887 57,296
Distributions payable .......................................... 22,745 19,258
----------- -----------
795,025 556,120
----------- -----------
Commitments and contingencies
MINORITY INTEREST .............................................. 262,958 163,959
----------- -----------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at June 30, 1997 and
December 31, 1996; $.01 par value; authorized 100,000,000
shares; outstanding 45,555,188 and 40,078,000 at June 30,
1997 and December 31, 1996, respectively .................... 456 401
Corporation common stock at June 30, 1997 and
December 31, 1996; $.01 par value; authorized 100,000,000
shares; outstanding 45,555,188 and 40,078,000 at June 30,
1997 and December 31, 1996, respectively .................... 456 401
Additional paid-in capital ..................................... 1,091,757 827,760
Distributions in excess of earnings ............................ (275,761) (235,901)
----------- -----------
816,908 592,661
----------- -----------
$ 1,874,891 $ 1,312,740
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
--------- --------
<S> <C> <C>
REVENUE
Rooms ............................................................ $ 142,258 $ 52,002
Food and beverage ................................................ 57,356 13,821
Other ............................................................ 15,004 6,844
--------- --------
Total hotel revenue ............................................ 214,618 72,667
Gaming ........................................................... 3,807 6,914
Interest from mortgage and other notes ........................... 3,127 2,236
Rents from leased hotel properties and income from
investments .................................................... 243 282
Management fees and other income ................................. 1,858 913
Gain (loss) on sales of real estate investments .................. (504) (347)
--------- --------
223,149 82,665
--------- --------
EXPENSES
Rooms ............................................................ 33,630 12,874
Food and beverage ................................................ 41,799 10,673
Other ............................................................ 67,323 25,032
--------- --------
Total hotel expenses ........................................... 142,752 48,579
Gaming ........................................................... 4,159 6,357
Interest ......................................................... 12,820 5,549
Depreciation and amortization .................................... 29,827 6,130
Administrative and general ....................................... 7,733 2,992
--------- --------
197,291 69,607
--------- --------
Income before minority interest .................................. 25,858 13,058
Minority interest ................................................ 7,723 4,537
--------- --------
Income before extraordinary item ................................. 18,135 8,521
Extraordinary item due to early extinguishment of debt (net of
$413,000 minority interest) .................................... -- 1,077
--------- --------
NET INCOME ............................................. $ 18,135 $ 9,598
========= ========
EARNINGS PER PAIRED SHARE
Income before extraordinary item ................................. $ 0.38 $ 0.36
Extraordinary item ............................................... -- 0.05
--------- --------
NET INCOME PER PAIRED SHARE ............................ $ 0.38 $ 0.41
========= ========
Weighted Average Number of Paired Shares ......................... 47,764 23,335
========= ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUE
Rooms.......................................................... $249,231 $ 89,128
Food and beverage.............................................. 100,894 23,648
Other.......................................................... 26,670 10,193
-------- --------
Total hotel revenue.......................................... 376,795 122,969
Gaming......................................................... 7,727 13,743
Interest from mortgage and other notes......................... 7,213 4,761
Rents from leased hotel properties and income from
investments.................................................. 441 465
Management fees and other income............................... 4,196 1,653
Gain (loss) on sales of real estate investments................ (504) (347)
-------- --------
395,868 143,244
-------- --------
EXPENSES
Rooms.......................................................... 60,619 22,027
Food and beverage.............................................. 75,481 18,512
Other.......................................................... 124,374 43,622
-------- --------
Total hotel expenses......................................... 260,474 84,161
Gaming......................................................... 8,248 12,192
Interest....................................................... 23,311 8,772
Depreciation and amortization.................................. 54,387 13,790
Administrative and general..................................... 13,548 5,365
-------- --------
359,968 124,280
-------- --------
Income before minority interest................................ 35,900 18,964
Minority interest.............................................. 9,891 6,353
-------- --------
Income before extraordinary item............................... 26,009 12,611
Extraordinary item due to early extinguishment of debt (net of
$413,000 minority interest)................................... -- 1,077
-------- --------
NET INCOME........................................... $ 26,009 $ 13,688
======== ========
EARNINGS PER PAIRED SHARE
Income before extraordinary item............................... $ 0.56 $ 0.57
Extraordinary item............................................. -- 0.05
-------- --------
NET INCOME PER PAIRED SHARE.......................... $ 0.56 $ 0.62
======== ========
Weighted Average Number of Paired Shares....................... 46,063 22,016
======== ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................. $ 26,009 $ 13,688
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Minority interest................................................ 9,891 6,353
Extraordinary items due to early extinguishment of debt.......... -- (1,077)
Depreciation and amortization.................................... 54,387 13,790
Accretion of discount............................................ (2,890) (1,560)
Warrants and paired shares issued as compensation................ 1,786 --
(Gain) loss on sales of real estate investments.................. 504 347
Changes in operating assets and liabilities:
Increase in accounts receivable, inventories, prepaid expenses
and other assets............................................... (24,555) (24,394)
Increase (decrease) in accounts payable and other liabilities.... (2,172) 11,868
--------- ---------
Net cash provided by operating activities.............. 62,960 19,015
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties.................................... (282,662) (223,469)
Improvements and additions to hotel assets......................... (63,608) --
Purchase of investments............................................ (432) (509)
Sales of investments............................................... 940 955
Net proceeds from sales of hotel assets............................ 7,261 3,684
Purchase of mortgage and other notes receivable.................... -- (20,113)
Principal received on mortgage and other notes receivable.......... 13,754 2,570
--------- ---------
Net cash used in investing activities.................. (324,747) (236,882)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under collateralized notes payable and revolving lines
of credit........................................................ 180,682 111,062
Borrowings under mortgage and other notes payable.................. 98,000 468
Payments on collateralized notes payable and revolving lines of
credit........................................................... (35,000) --
Principal payments on mortgage and other notes payable............. (26,126) (4,611)
Net proceeds from equity offerings................................. 129,667 62,363
Contributed capital and adjustments................................ (450) 77,799
Stock repurchase................................................... (25,724) --
Distributions paid................................................. (42,649) (19,529)
--------- ---------
Net cash provided by financing activities.............. 278,400 227,552
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS............................. 16,613 9,685
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF
THE PERIOD........................................................ 25,426 9,332
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD............................................................ $ 42,039 $ 19,017
========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net............................................. $ 19,851 $ 12,615
Hotel assets - net........................................................... 1,511,145 988,309
---------- ----------
1,530,996 1,000,924
Mortgage notes receivable - net.............................................. 80,053 90,741
Mortgage notes receivable - Corporation...................................... 89,930 88,077
Investments.................................................................. 440 948
---------- ----------
Total real estate investments.......................................... 1,701,419 1,180,690
Cash and cash equivalents.................................................... 4,324 3,810
Rent and interest receivable................................................. 12,805 12,617
Notes receivable - net....................................................... 1,980 2,237
Notes receivable - Corporation............................................... 50,310 17,741
Prepaid expenses and other assets............................................ 12,889 16,271
========== ==========
$1,783,727 $1,233,366
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of credit................... $ 568,037 $ 422,334
Mortgage and other notes payable............................................. 137,913 55,269
Accounts payable and other liabilities....................................... 21,760 9,200
Distributions payable........................................................ 22,646 19,258
---------- ----------
750,356 506,061
---------- ----------
Commitments and contingencies
MINORITY INTEREST............................................................ 251,977 158,005
---------- ----------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest at June 30, 1997 and
December 31, 1996; $.01 par value; authorized 100,000,000
shares; outstanding 45,555,188 and 40,078,000 at June 30,
1997 and December 31, 1996, respectively.................................. 456 401
Additional paid-in capital................................................... 977,212 729,276
Distributions in excess of earnings.......................................... (196,274) (160,377)
---------- ----------
781,394 569,300
========== ==========
$1,783,727 $1,233,366
========== ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
REVENUE
Rents from Corporation...................................... $ 54,566 $ 14,250
Interest from Corporation................................... 2,748 1,915
Interest from mortgage and other notes...................... 3,127 2,192
Rents from other leased hotel properties and income from
joint ventures........................................... 243 282
Other income................................................ 229 667
Gain (loss) on sales of real estate investments............. -- (347)
-------- --------
60,913 18,959
-------- --------
EXPENSES
Interest.................................................... 12,801 5,417
Depreciation and amortization............................... 22,567 3,830
Administrative and general.................................. 2,904 1,542
-------- --------
38,272 10,789
-------- --------
Income before minority interest............................. 22,641 8,170
Minority interest........................................... 5,797 2,570
-------- --------
NET INCOME........................................ $ 16,844 $ 5,600
======== ========
NET INCOME PER SHARE.............................. $ 0.35 $ 0.24
======== ========
Weighted Average Number of Shares........................... 47,764 23,335
======== ========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
REVENUE
Rents from Corporation..................................... $ 95,505 $ 27,770
Interest from Corporation.................................. 5,290 4,103
Interest from mortgage and other notes..................... 7,213 4,696
Rents from other leased hotel properties and income from
joint ventures.......................................... 441 465
Other income............................................... 1,551 1,073
Gain (loss) on sales of real estate investments............ -- (347)
-------- --------
110,000 37,760
-------- --------
EXPENSES
Interest................................................... 23,260 8,585
Depreciation and amortization.............................. 42,801 7,216
Administrative and general................................. 5,117 2,730
-------- --------
71,178 18,531
-------- --------
Income before minority interest............................ 38,822 19,229
Minority interest.......................................... 9,760 6,487
-------- --------
NET INCOME....................................... $ 29,062 $ 12,742
======== ========
NET INCOME PER SHARE............................. $ 0.63 $ 0.58
======== ========
Weighted Average Number of Shares.......................... 46,063 22,016
======== ========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................... $ 29,062 $ 12,742
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest.................................................. 9,760 6,487
Depreciation and amortization...................................... 42,801 7,216
Accretion of discount.............................................. (2,890) (1,560)
Deferred interest - Corporation.................................... (2,024) 1,607
Warrants and paired shares issued as compensation.................. 551 --
(Gain) loss on sales of real estate investments.................... -- 347
Changes in operating assets and liabilities:
Increase in rent and interest receivable, prepaid expenses and
other assets................................................... 1,151 (14,966)
Increase (decrease) in accounts payable and other liabilities...... 2,797 2,202
--------- ---------
Net cash provided by operating activities................ 81,208 14,075
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties...................................... (282,662) (199,473)
Improvements and additions to hotel assets........................... (54,683) --
Purchase of investments.............................................. (432) --
Sales of investments................................................. 940 955
Net proceeds from sales of hotel assets.............................. -- 3,684
Purchase of mortgage and other notes receivable...................... -- (20,113)
Principal received on mortgage and other notes receivable............ 13,564 2,555
Net change in notes receivable - Corporation......................... (32,398) (21,878)
--------- ---------
Net cash used in investing activities.................... (355,671) (234,270)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under collateralized notes payable and revolving
lines of credit.................................................... 180,682 111,062
Borrowings under mortgage and other notes payable.................... 98,000 --
Payments on collateralized notes payable and revolving lines
of credit.......................................................... (35,000) --
Principal payments on mortgage and other notes payable............... (25,606) (1,587)
Net proceeds from equity offerings................................... 123,215 59,244
Contributed capital and adjustments.................................. 512 77,900
Stock repurchase..................................................... (24,438) --
Distributions paid................................................... (42,388) (19,529)
--------- ---------
Net cash provided by financing activities................ 274,977 227,090
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS................................ 514 6,895
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD...................................................... 3,810 710
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD.............................................................. $ 4,324 $ 7,605
========= =========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Hotel assets held for sale - net.............................. $ 1,786 $ 9,029
Hotel assets - net............................................ 113,195 111,721
-------- --------
Total real estate investments........................... 114,981 120,750
Cash and cash equivalents..................................... 37,715 21,616
Accounts receivable........................................... 48,465 30,661
Notes receivable.............................................. 764 693
Inventories, prepaid expenses and other assets................ 29,479 11,472
-------- --------
$231,404 $185,192
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable.............................. $ 1,443 $ 1,963
Mortgage notes payable - Trust................................ 89,930 88,077
Notes payable - Trust......................................... 50,310 17,741
Accounts payable and other liabilities........................ 43,127 48,096
Distributions payable......................................... 99 --
-------- --------
184,909 155,877
-------- --------
Commitments and contingencies
MINORITY INTEREST............................................. 10,981 5,954
-------- --------
SHAREHOLDERS' EQUITY
Corporation common stock at June 30, 1997 and
December 31, 1996; $.01 par value; authorized 100,000,000
shares; outstanding 45,555,188 and 40,078,000 at June 30,
1997 and December 31, 1996, respectively................... 456 401
Additional paid-in capital.................................... 114,545 98,484
Accumulated deficit........................................... (79,487) (75,524)
-------- --------
35,514 23,361
-------- --------
$231,404 $185,192
======== ========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE
Rooms........................................................... $142,258 $ 52,002
Food and beverage............................................... 57,356 13,821
Other........................................................... 15,004 6,844
-------- --------
Total hotel revenue........................................... 214,618 72,667
Gaming.......................................................... 3,807 6,914
Interest from notes receivable.................................. -- 44
Management fees and other income................................ 1,629 246
Gain (loss) on sales of hotel assets............................ (504) --
-------- --------
219,550 79,871
-------- --------
EXPENSES
Rooms........................................................... 33,630 12,874
Food and beverage............................................... 41,799 10,673
Other........................................................... 67,323 25,032
-------- --------
Total hotel expenses.......................................... 142,752 48,579
Gaming.......................................................... 4,159 6,357
Rent - Trust.................................................... 54,566 14,250
Interest - Trust................................................ 2,748 1,915
Interest - other................................................ 19 132
Depreciation and amortization................................... 7,260 2,300
Administrative and general...................................... 4,829 1,450
-------- --------
216,333 74,983
-------- --------
Income before minority interest................................. 3,217 4,888
Minority interest............................................... 1,926 1,967
-------- --------
Income before extraordinary item................................ 1,291 2,921
Extraordinary item due to early extinguishment of debt (net of
$413,000 minority interest)................................... -- 1,077
-------- --------
NET INCOME............................................ $ 1,291 $ 3,998
======== ========
EARNINGS PER SHARE
Income before extraordinary item................................ $ 0.03 $ 0.12
Extraordinary item.............................................. -- 0.05
-------- --------
NET INCOME PER SHARE.................................. $ 0.03 $ 0.17
======== ========
Weighted Average Number of Shares............................... 47,764 23,335
======== ========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE
Rooms........................................................... $249,231 $ 89,128
Food and beverage............................................... 100,894 23,648
Other........................................................... 26,670 10,193
-------- --------
Total hotel revenue........................................... 376,795 122,969
Gaming.......................................................... 7,727 13,743
Interest from notes receivable.................................. -- 65
Management fees and other income................................ 2,645 580
Gain (loss) on sales of hotel assets............................ (504) --
-------- --------
386,663 137,357
-------- --------
EXPENSES
Rooms........................................................... 60,619 22,027
Food and beverage............................................... 75,481 18,512
Other........................................................... 124,374 43,622
-------- --------
Total hotel expenses.......................................... 260,474 84,161
Gaming.......................................................... 8,248 12,192
Rent - Trust.................................................... 95,505 27,770
Interest - Trust................................................ 5,290 4,103
Interest - other................................................ 51 187
Depreciation and amortization................................... 11,586 6,574
Administrative and general...................................... 8,431 2,635
-------- --------
389,585 137,622
-------- --------
Loss before minority interest................................... (2,922) (265)
Minority interest............................................... 131 (134)
-------- --------
Loss before extraordinary item.................................. (3,053) (131)
Extraordinary item due to early extinguishment of debt (net of
$413,000 minority interest)................................... -- 1,077
-------- --------
NET INCOME (LOSS)..................................... $ (3,053) $ 946
======== ========
EARNINGS (LOSS) PER SHARE
Loss before extraordinary item.................................. $ (0.07) $ (0.01)
Extraordinary item -- 0.05
-------- --------
NET INCOME (LOSS) PER SHARE........................... $ (0.07) $ 0.04
======== ========
Weighted Average Number of Shares............................... 46,063 22,016
======== ========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 14
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................................... $ (3,053) $ 946
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest ................................................ 131 (134)
Extraordinary items due to early extinguishment of debt .......... -- (1,077)
Depreciation and amortization .................................... 11,586 6,574
Deferred interest - Trust ........................................ 2,024 (1,607)
Paired shares issued as compensation ............................. 1,235 --
(Gain) loss on sale .............................................. 504 --
Changes in operating assets and liabilities:
Increase in accounts receivable, inventories, prepaid expenses
and other assets ............................................... (25,706) (9,428)
Increase (decrease) in accounts payable and other liabilities .... (4,969) 9,666
------- ------
Net cash provided by (used in) operating activities .... (18,248) 4,940
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of hotel properties .................................... -- (23,996)
Improvements and additions to hotel assets ......................... (8,925) --
Purchase of investments ............................................ -- (509)
Net proceeds from sales of hotel and gaming assets ................. 7,261 --
Principal received on notes receivable ............................. 190 15
------- ------
Net cash used in investing activities .................. (1,474) (24,490)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage and other notes payable .................. -- 468
Principal payments on mortgage and other notes payable ............. (520) (3,024)
Net proceeds from equity offerings ................................. 6,452 3,119
Contributed capital and adjustments ................................ (962) (101)
Stock repurchase ................................................... (1,286) --
Distributions paid ................................................. (261) --
Net change in notes payable - Trust ................................ 32,398 21,878
------- ------
Net cash provided by financing activities .................... 35,821 22,340
------- ------
INCREASE IN CASH AND CASH EQUIVALENTS .............................. 16,099 2,790
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD .................................................... 21,616 8,622
------- ------
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD ........................................................... $37,715 $ 11,412
======= =======
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q which mandate adherence to
Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management of
Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the
"Corporation"), all adjustments necessary for a fair presentation, consisting
only of normal recurring accruals, have been included. The financial statements
presented herein have been prepared in accordance with the accounting policies
described in the Registrants' Joint Annual Report on Form 10-K for the year
ended December 31, 1996 and should be read in conjunction therewith.
NOTE 2. BASIS OF PRESENTATION
The Trust and the Corporation (together, the "Company") have unilateral
control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited
Partnership ("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 herein to the "Company" refer to the Trust and the Corporation, and
all references to the "Trust" and to the "Corporation" include the Trust and the
Corporation and those entities respectively owned or controlled by the Trust or
the Corporation, including Realty and Operating. Information with respect to the
shares of beneficial interest of the Trust which are paired with shares of
common stock of the Corporation (the "Paired Shares"), has been adjusted to
reflect a three-for-two stock split effective January 27, 1997. The total number
of units outstanding in each of Realty and Operating was 58,394,358 at June 30,
1997.
For the three and six months ended June 30, 1996, the Company accounted
for its 58.2% investment in the joint venture that owns the Boston Park Plaza
under the equity method of accounting. Beginning with the Company's Joint Annual
Report on Form 10-K for the year ended December 31, 1996, the Company has
consolidated the results from the Boston Park Plaza and, accordingly, has
recorded a minority interest relating to the 41.8% third party minority interest
in such joint venture. In addition, the Company has restated its results for the
three and six months ended June 30, 1996 to reflect the consolidation of this
investment.
NOTE 3. 1997 ACQUISITIONS
On January 8, 1997, the Company completed the purchase of the 220-room
Deerfield Beach Hilton Hotel, located in Deerfield Beach, Florida, for
approximately $11.5 million in cash.
On January 17, 1997, the Company completed the purchase of the 263-room
Radisson Hotel Denver South, located in Denver, Colorado, for approximately
$21.75 million in cash.
15
<PAGE> 16
On February 14, 1997, the Company acquired HEI Hotels, LLC ("HEI"), a
Westport, Connecticut-based hotel operating company, which manages 19 hotels,
and ten hotel properties (the "HEI Owned Hotels") that HEI owned in a joint
venture with PRISA II, an institutional real estate investment fund managed by
Prudential Real Estate Investors. Realty and Operating issued to PRISA II and
the owners of HEI, limited partnership interests in Realty and Operating which
are exchangeable for approximately 6.548 million Paired Shares of the Trust and
Corporation (valued for purposes of the transaction at approximately $215
million), and paid $112 million in cash and notes in connection with the
transaction.
The HEI Owned Hotels consist of ten hotel assets (all of which are
managed by the Company) with 3,040 hotel rooms, located in Long Beach,
California; Norfolk, Virginia; Baltimore, Maryland; Edison, New Jersey;
Arlington, Virginia; Charleston, South Carolina; King of Prussia, Pennsylvania;
Santa Rosa, California; Novi, Michigan; and Atlanta, Georgia. The nine
additional hotels managed by HEI (the "HEI Managed Hotels"), which contain a
total of 2,297 rooms, are located in Houston, Texas; Ontario, California; Grand
Junction, Colorado; Danbury, Connecticut; Princeton, New Jersey; Smithtown, New
York; Wilmington, Delaware; Bethesda, Maryland and Virginia Beach, Virginia.
On February 21, 1997, the Company completed the purchase of the
578-room Days Inn in Chicago, Illinois for approximately $48 million in cash.
On March 11, 1997, the Company completed the purchase of the 120-suite
Hermitage Suites Hotel in Nashville, Tennessee for approximately $15.8 million,
comprised of limited partnership interests in Realty and Operating exchangeable
for 233,106 Paired Shares of the Trust and the Corporation (valued for the
purposes of this transaction at $9.4 million) and $6.4 million in cash.
On March 12, 1997, the Company completed the purchase of the 100-room
Hotel De La Poste in New Orleans, Louisiana for approximately $16.0 million in
cash.
On April 3, 1997, the Company completed the purchase of the 264-suite
Marriott Suites hotel in San Diego, California for approximately $32.5 million
in cash.
On April 4, 1997, the Company completed the purchase of the 129-room
Tremont Hotel in Chicago, Illinois for approximately $14.4 million cash.
On May 7, 1997, the Company completed the purchase of the 172-room
Raphael Hotel in Chicago, Illinois for approximately $17.8 million in cash.
On June 12, 1997, the Company completed a transaction resulting in
operating and ownership control of the 480-room Stamford Sheraton Hotel in
Stamford, Connecticut. The Company had acquired, in October 1996, first mortgage
and other notes secured by the hotel for $10.3 million. The total cost of the
acquisition, including the purchase of the mortgage notes, was approximately
$14.6 million.
16
<PAGE> 17
NOTE 4. TAX EXEMPT BONDS
On February 20, 1997, the Company guaranteed bonds issued by The
Philadelphia Authority for Industrial Development in the principal amount of
$39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds
bear interest at a rate of 6.5% with no principal amortization, were issued at a
discount to yield 6.7% and are secured by two hotels of the Company located at
the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds
of approximately $37.6 million were used to partially fund the acquisition of
the 578-room Days Inn in Chicago, Illinois.
NOTE 5. EQUITY
On March 26, 1997, the Company completed a public offering of 3,000,000
Paired Shares (the "March 1997 Offering"). Net proceeds from the March 1997
Offering of approximately $130.0 million were used, in part, to fund the
acquisition of the 264-suite Marriott Suites hotel in San Diego, California and
the 129-room Tremont Hotel and the 172-room Raphael Hotel, both located in
Chicago, Illinois.
In April 1997, the Company repurchased 703,500 paired shares with a par
value of $0.01 per paired share for an aggregate cost of approximately $25.7
million.
NOTE 6. HOTEL ASSETS HELD FOR SALE
At June 30, 1997, the Company's portfolio included five hotel
properties which were held for sale. The five properties include the 151-room
Bay Valley Resort in Bay City, Michigan, the 155-room Tyee Hotel in Olympia,
Washington, the 166-room Best Western in Las Cruces, New Mexico, the 175-room
Best Western Airport in El Paso, Texas and the 142-room Best Western in
Savannah, Georgia. On April 15, 1997, the Company sold the Radisson Marque Hotel
in Winston-Salem, North Carolina for approximately $7.6 million in cash.
NOTE 7. INTEREST RATE HEDGING AGREEMENTS
The Company enters into interest rate protection agreements as a means
of managing interest rate exposure on anticipated transactions. The agreements
are with major financial institutions which are expected to fully perform under
the terms of the agreements thereby mitigating the credit risk from the
transactions. The differential to be paid or received under these agreements is
accrued consistent with the terms of the agreements and market interest rates
and is recognized, using the effective interest method, in interest expense over
the remaining term of the related debt.
In order for the amount paid or received to be deferred under such
agreements, and therefore be treated as a hedge, the Company must determine that
it is probable that the future issuance of debt anticipated by the contract will
occur. In order to assess whether this criteria has been met, the Company
reviews their current projections to determine if the issuance of such debt is
still in line with the Company's plans and whether the Company has the ability
to issue such debt.
17
<PAGE> 18
If the Company were not to issue the anticipated debt, the Company
would still pay or receive the amount determined at settlement and would treat
such amount as a loss or gain, accordingly and include it in continuing
operations. Further, if prior to settlement, the Company were to determine that
an interest rate protection agreement no longer qualified to be treated as a
hedge, the Company would record a gain or loss at each reporting date based upon
a calculation of what the settlement would have been had it been settled at such
reporting date.
On May 27, 1997, the Company entered into an interest rate protection
agreement, which had the effect of fixing the base rate of interest at 6.773%
for debt that the Company intends to issue in October 1997 with an aggregate
notional principal amount of $100 million and a term to maturity of five years.
The actual interest rate will be determined by reference to this base rate.
NOTE 8. COMBINED PRO FORMA FINANCIAL INFORMATION
Due to the impact of the 19 hotels acquired by the Company in the six
months ending June 30, 1997, the following combined pro forma statements of
operations are presented to supplement the historical statements of operations.
These combined pro forma statements reflect the acquisition of the HEI Owned
Hotels as if they occurred on January 1, 1996:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------------- --------------------
1997 1996 1997 1996
------------------------- --------------------
Combined (in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues ................................. $223,149 $108,641 $407,941 $191,481
Net income ............................... $ 18,223 $ 15,023 $ 27,564 $ 21,900
Net income per share ..................... $ 0.38 $ 0.64 $ 0.60 $ 0.99
</TABLE>
NOTE 9. SUBSEQUENT EVENTS
On July 10, 1997, the Company acquired the 385-room Radisson Plaza
Hotel at Town Center in Southfield, Michigan for approximately $40 million.
On August 5, 1997 the Company announced that it has entered into an
agreement to acquire a portfolio of three full-service, luxury properties
located in Mexico. The portfolio includes the 229-room Westin Regina Resort in
Los Cabos, Mexico, the 385-room Westina Regina Resort in Cancun, Mexico, and the
280-room Westin Regina Resort in Puerto Vallarta, Mexico. The Company expects to
purchase the portfolio from Bancomer, S.A., a subsidiary of Grupo Financiero
Bancomer, for approximately $133 million.
On August 8, 1997 the Company announced that it has entered into an
agreement to acquire 15 full-service hotels, with 4,252 rooms for approximately
$470 million. The properties are predominantly located in the northeastern
United States with a large concentration of the properties located in suburban
Boston. The Company expects to purchase the properties from Flatley Co./Tara
Hotels, a privately held company.
NOTE 10. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.128, Earnings Per Share (SFAS
128) which specifies the computation, presentation, and disclosure requirements
for earnings per share. SFAS 128 replaces the presentation of primary and fully
diluted EPS pursuant to Accounting Principles Board Opinion No. 15 Earnings Per
Share (APB 15) with the presentation of basic and diluted EPS. Basic EPS'
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company is required to adopt SFAS 128 with its December
31, 1997 financial statements and restate all prior period EPS information. The
Company will continue to account for EPS under APB 15 until that time.
A summary of the Company's basic EPS and diluted EPS for the three and
six months ended June 30, 1997 and 1996 follows:
18
<PAGE> 19
<TABLE>
<CAPTION>
Three months ended June 30, 1997 Three months ended June 30, 1996
---------------------------------------------------------------------------
BASIC EARNINGS PER SHARE Trust Corporation Combined Trust Corporation Combined
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item...... $ 0.37 $ 0.03 $ 0.40 $0.24 $ 0.12 $ 0.36
Extraordinary item.................... - - - - 0.05 0.05
============ =========== ============ ============ =========== ============
Net income per share..................
$ 0.37 $ 0.03 $ 0.40 $ 0.24 $ 0.17 $ 0.41
============ =========== ============ ============ =========== ============
DILUTED EARNINGS PER SHARE
Income before extraordinary item...... $ 0.35 $ 0.03 $ 0.38 $ 0.24 $ 0.12 $ 0.36
Extraordinary item.................... - - - - 0.05 0.05
============ =========== ============ ============ =========== ============
Net income per share.................. $ 0.35 $ 0.03 $ 0.38 $ 0.24 $ 0.17 $ 0.41
============ =========== ============ ============ =========== ============
Six months ended June 30, 1997 Six months ended June 30, 1996
---------------------------------------------------------------------------
BASIC EARNINGS PER SHARE Trust Corporation Combined Trust Corporation Combined
---------------------------------------------------------------------------
Income before extraordinary item...... $ 0.66 $(0.07) $ 0.59 $ 0.58 $(0.01) $ 0.57
Extraordinary item.................... - - - - 0.05 0.05
============ =========== ============ ============ =========== ============
Net income per share.................. $ 0.66 $(0.07) $ 0.59 $ 0.58 $ 0.04 $ 0.62
============ =========== ============ ============ =========== ============
DILUTED EARNINGS PER SHARE
Income before extraordinary item...... $ 0.63 $(0.07) $ 0.56 $ 0.58 $(0.01) $ 0.57
Extraordinary item.................... - - - - 0.05 0.05
============ =========== ============ ============ =========== ============
Net income per share.................. $ 0.63 $(0.07) $ 0.56 $ 0.58 $ 0.04 $ 0.62
============ =========== ============ ============ =========== ============
</TABLE>
In February 1997, the Securities and Exchange Commission issued
Financial Reporting Release No. 48, Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments, (FRR 48). FFR 48 requires clarification and
expansion of existing disclosures for derivative financial instruments, other
financial instruments and derivative commodity instruments, as defined therein.
The amendments require enhanced disclosure with respect to these derivative
instruments in the footnotes to the financial statements. These disclosures are
required in filings that include financial statements for periods ending after
June 15, 1997, and accordingly have been included herein in the footnotes to the
Company's financial statements for the quarter ended June 30, 1997.
Additionally, the amendments expand existing disclosure requirements to
include quantitative and qualitative discussions with respect to market risk
inherent in market risk sensitive instruments. These amendments are designed to
provide additional information about market risk sensitive instruments which
investors can use to better understand and evaluate market risk exposures of
registrants, including the Company. These disclosures, subject to certain market
capitalization requirements, as defined, are effective for filings that include
annual financial statements for years ending after June 15, 1998.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes
standards for reporting and display of comprehensive income and its components.
This statement requires a separate statement to report the components of
comprehensive income for each period reported. The provisions of this statement
are effective for fiscal years beginning after December 15, 1997. Management
believes that they currently do not have items that would require presentation
in a separate statement of comprehensive income.
19
<PAGE> 20
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, (SFAS 131), which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and require that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 15, 1997. Management believes this statement may
require expanded disclosure in the Company's financial statements.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis included in the
Company's Joint Annual Report on Form 10-K for the year ended December 31, 1996.
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1997 AND 1996
THE TRUST
Rents from the Corporation, which are based largely on hotel revenues,
increased $40.3 million and $67.7 million for the three and six months ended
June 30, 1997, respectively as compared to the corresponding periods of 1996.
The increase was primarily the result of rents earned by the Trust on 41 hotels
containing approximately 13,200 rooms (the "Acquired Hotels") acquired by the
Trust since June 30, 1996. The investment in the Acquired Hotels (the 177-room
Days Inn in Philadelphia, Pennsylvania and 251-suite Doubletree Guest Suites at
the Philadelphia airport in Philadelphia, Pennsylvania acquired in July 1996; a
portfolio of 8 hotels owned by an institution (the "Institutional Portfolio"), a
portfolio of 9 hotels owned by Hotels of Distinction Ventures, Inc. (the "HOD
Portfolio") (excluding the 293-room Radisson Marque in Winston-Salem, North
Carolina which was acquired by the Corporation), and the 294-room Marriott
Forrestal Village in Princeton, New Jersey acquired in August 1996; the 121-room
Doral Tuscany and the 199-room Doral Court in New York, New York acquired in
September 1996; the 257-room Westwood Marquis in Los Angeles, California
acquired in December 1996; the 220-room Deerfield Beach Hilton in Deerfield
Beach, Florida and 263-room Radisson Denver South in Denver, Colorado acquired
in January 1997; the HEI Owned Hotels and the 578-room Days Inn Chicago acquired
in February 1997; the 120-suite Hermitage Suites in Nashville, Tennessee and the
100-room Hotel De La Poste in New Orleans, Louisiana acquired in March 1997; the
264-suite Marriott Suites hotel in San Diego, California and the 129-room
Tremont Hotel in Chicago, Illinois acquired in April 1997; the 172-room Raphael
Hotel in Chicago, Illinois acquired in May 1997; and the 480-room Stamford
Sheraton Hotel in Stamford, Connecticut acquired in June 1997), accounted for
increased rents of $38.1 million and $63.9 million for the three and six months
ended June 30, 1997, respectively as compared to the corresponding periods in
1996. Rents earned on hotels acquired during the six months ended June 30, 1996,
and thereby owned for a partial period in 1996 and a full period in 1997 (the
442-room Clarion Hotel located at the San Francisco Airport, the 308-suite
Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree Guest Suites
in Ft. Lauderdale, Florida, and the 260-room Westin in Tampa, Florida acquired
in April 1996), increased by $2.2 million and $3.4 million for the three and six
months ended June 30, 1997, respectively as compared to the same periods in
1996. In addition, rents earned by the Trust from continuously owned properties
leased to the Corporation increased by approximately $400,000 for the six months
ended June 30, 1997, as compared to the corresponding period in 1996.
Interest from the Corporation increased by approximately $833,000 and
$1.2 million for the three and six months ended June 30, 1997, respectively as
compared to the corresponding periods of 1996. The increase in interest income
was primarily a result of interest paid on the
21
<PAGE> 22
first mortgage of the Midland Hotel in Chicago, Illinois which was acquired by
the Corporation in March 1996.
Interest from mortgage and other notes amounted to $3.1 million and
$7.2 million for the three and six months ended June 30, 1997, respectively as
compared to $2.2 million and $4.7 million for the corresponding periods in 1996.
The increase resulted from the purchase during the third quarter of 1996 of debt
obligations in part secured by the 305-room Holiday Inn in Milpitas, California
and a first mortgage note secured by the King 8 Hotel, Gambling Hall and Truck
Plaza located in Las Vegas, Nevada which was sold in the fourth quarter of 1996.
The increase was offset in part by principal amortization.
Other income for the six months ended June 30, 1997 includes a $1.2
million gain (net of related expenses) realized in connection with the sale of
securities.
Interest expense increased by approximately $7.4 million and $14.7
million for the three and six months ended June 30, 1997, respectively as
compared to the corresponding periods of 1996. The increase was due to
borrowings under two loan facilities and a term loan (the "Lehman Facilities")
with Lehman Brothers, Inc. and certain of its affiliates ("Lehman Brothers"),
and a loan facility with Goldman Sachs (the "Goldman Facility" and together with
the Lehman Facilities, the "Credit Facilities"); a mortgage secured by the Doral
Court and Doral Tuscany in New York, with the Sumitomo Trust and Banking Co.,
Ltd. ("Sumitomo") (the "Doral Mortgage"); a mortgage secured by the Boston Park
Plaza with the Life Insurance Company of Georgia ("Georgia Life") (the "BPP
Mortgage"); a short term loan with The Prudential Insurance Company of America
on behalf of Prudential Property Investment Separate Account II ("Prudential")
(the "Prudential Loan"); and the Tax Exempt Bonds, used to acquire the above
mentioned properties offset by the net proceeds from two public offerings in
1996 and the March 1997 Offering.
Depreciation and amortization expense increased by approximately $18.7
million and $35.6 million during the three and six months ended June 30, 1997,
respectively as compared to the corresponding periods of 1996, principally due
to the acquisition of the Acquired Hotels.
Administrative and general expenses for the three months ended June 30,
1997 increased by approximately $1.4 million to $2.9 million, as compared to
$1.5 million for the corresponding period of 1996. Administrative and general
expenses for the six months ended June 30, 1997 increased by approximately $2.4
million to $5.1 million as compared to $2.7 million for the corresponding period
in 1996. The increases resulted predominantly from expenses incurred as a result
of the awards granted under the Trust's Long-Term Incentive Plan and the
increase in payroll costs commensurate with the Company's growth.
Minority interest represents primarily the interest of the limited
partners in Realty for the three and six months ended June 30, 1997. Minority
interest also represents the interests of third parties in consolidated joint
ventures, including approximately $796,000 and $904,000 for three and six months
ending June 30, 1997, respectively relating to the 41.8% minority interest of a
third-party in the joint venture that owns the Boston Park Plaza hotel and
approximately $67,000 and $149,000 for the three and six months ending June 30,
1997, respectively relating to the 6.5% minority interest of a third-party in
the joint venture that owns the Westwood Marquis.
22
<PAGE> 23
THE CORPORATION
Hotel revenues increased by approximately $142.0 million and $253.8
million for the three and six months ended June 30, 1997, respectively as
compared to the corresponding periods of 1996. The leasing and assumption of
management of the Acquired Hotels and the addition of the 293-room Radisson
Marque hotel in Winston-Salem, North Carolina resulted in increases in hotel
revenues of approximately $132.4 million and $227.7 million for the three and
six months ended June 30, 1997, respectively. Furthermore, the leasing,
assumption of management, and addition of hotels during the six months ended
June 30, 1996 (the 442-room Clarion Hotel located at the San Francisco Airport,
the 308-suite Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree
Guest Suites in Ft. Lauderdale, Florida, the 260-room Westin in Tampa, Florida
and the 257-room Midland Hotel in Chicago, Illinois) resulted in increases in
hotel revenues of approximately $3.0 million and $17.1 million for the three and
six months ended June 30, 1997, respectively as compared to the same periods in
1996. The remaining increase of $6.6 million and $9.0 million for the three and
six months ended June 30, 1997, respectively is attributable to other
continuously owned properties.
Hotel gross margin for the three months ended June 30, 1997 was $71.9
million, or 33.5% of hotel revenues, as compared to $24.1 million, or 33.2% of
hotel revenues, for the same period of 1996. Hotel gross margin for the six
months ended June 30, 1997 was $116.3 million, or 30.9% of hotel revenues, as
compared to $38.8 million, or 31.6% of hotel revenues, for the same period of
1996. The decrease in gross margin percentage for the six months ended June 30,
1997 was primarily due to the increase in the food and beverage revenue
component of total hotel revenue (26.8% and 19.2% for the six months ended June
30, 1997 and 1996, respectively) resulting from the Company's continued
investment in full-service hotels offset, in part, by increases in room revenue
per available room ("REVPAR") and the termination of third-party management
agreements.
Gaming revenues for the three months ended June 30, 1997 as compared to
the corresponding period in 1996, decreased by approximately $3.1 million to
$3.8 million. Gaming revenues for the six months ended June 30, 1997, as
compared to the corresponding period in 1996, decreased by approximately $6.0
million to $7.7 million. Gaming gross margin for the three months ended June 30,
1997 was a loss of $352,000, as compared to a profit of $557,000 for the
corresponding period in 1996. Gaming gross margin for the six months ended June
30, 1997 was a loss of $521,000, as compared to a profit of $1.6 million for the
corresponding period in 1996.
The decrease in gaming revenues and the decline in gaming gross margin
predominately resulted from the sale of the Bourbon Street Hotel and Casino in
September 1996. The real property of the King 8 was also sold in 1996 for
approximately $18.8 million. The sale of the personal property of the King 8 for
$3 million is scheduled to close following the receipt by the purchaser or his
designee of required gaming licenses and approval. A subsidiary of the
Corporation leases the real property from the purchaser and has agreed to
continue to operate the hotel and casino while the purchaser obtains required
gaming licenses and approvals.
Management fees and other income for the three months ended June 30,
1997 includes approximately $314,000 of management fee income from the joint
venture that owns the Boston Park Plaza hotel and approximately $891,000 of
management fee income from the HEI Managed
23
<PAGE> 24
Hotels. Management fees and other income for the six months ended June 30, 1997
includes approximately $471,000 of management fee income from the joint venture
that owns the Boston Park Plaza hotel and approximately $1.2 million of
management fee income from the HEI Managed Hotels.
Administrative and general expenses for the three months ended June 30,
1997 increased to $4.8 million or 2.2% of revenues, as compared to $1.5 million
or 1.8% of revenues for the corresponding period of 1996. Administrative and
general expenses for the six months ended June 30, 1997 increased to $8.4
million or 2.2% of revenues, as compared to $2.6 million or 1.9% of revenues for
the corresponding period in 1996. The increase was primarily a result of
increases in payroll costs commensurate with the Company's growth, the
assumption of management of hotels previously operated by third-parties, and
expenses incurred as a result of awards granted under the Corporation's
Long-Term Incentive Plan.
Depreciation and amortization expense increased by approximately $5.0
million for each of the three and six months ended June 30, 1997 as compared to
the corresponding periods of 1996.
Minority interest represents primarily the interest of the limited
partners in Operating. Minority interest also represents the interests of third
parties in consolidated joint ventures including approximately $1.4 million and
$952,000 for the three and six months ended June 30, 1997, respectively relating
to the 41.8% minority interest of a third-party in the joint venture that owns
the Boston Park Plaza hotel.
For information with respect to rent and interest paid to the Trust
during the three and six months ended June 30, 1997 and 1996, see, "The Trust"
immediately above.
EXTERNAL GROWTH
During the six months ended June 30, 1997 the Company acquired equity
interests in 19 hotels containing more than 5,300 rooms at a combined cost
exceeding $500 million, as follows: the 220-room Deerfield Beach Hilton in
Deerfield Beach, Florida (January 1997); the 263-room Radisson Denver South in
Denver, Colorado (January 1997); the HEI Owned Hotels consisting of 3,040 rooms
(February 1997); the 578-room Days Inn in Chicago, Illinois (February 1997); the
120-suite Hermitage Suites Hotel in Nashville, Tennessee (March 1997); the
100-room Hotel De La Poste in New Orleans, Louisiana (March 1997); the 264-suite
Marriott Suites hotel in San Diego, California (April 1997); the 129-room
Tremont Hotel in Chicago, Illinois (April 1997); the 172-room Raphael Hotel in
Chicago, Illinois (May 1997); and the 480-room Sheraton in Stamford, Connecticut
(June 1997).
INTERNAL GROWTH
On a same-store-sales basis, including the results of all hotels
acquired prior to June 30, 1997 for the period from their respective dates of
acquisition if acquired in 1997 as compared to the same period in 1996 and
excluding hotels held for sale and hotels under substantial renovation during
the second quarter (the Doral Inn in New York, New York, the Doubletree Guest
Suites in Philadelphia, Pennsylvania (to be reflagged Westin), and the Westin in
Tampa,
24
<PAGE> 25
Florida), REVPAR for the three months ended June 30, 1997 increased 10.0% from
$66.82 to $73.52 over the same period in 1996. The increase in REVPAR resulted
from an increase in average daily rate ("ADR") of 9.4%, from $90.89 to $99.46,
while the occupancy rate increased by less than one percentage point to 73.9%.
On a same-store-sales basis, including the results of all hotels
acquired prior to June 30, 1997, for the period from their respective dates of
acquisition if acquired in 1997 as compared to the same period in 1996 and
excluding hotels held for sale and hotels under substantial renovation during
the second quarter (the Doral Inn in New York, New York, the Doubletree Guest
Suites at the Philadelphia airport in Philadelphia, Pennsylvania, and the Westin
in Tampa, Florida), REVPAR for the six months ended June 30, 1997, increased
7.7% from $65.85 to $70.93 over the same period in 1996. The increase in REVPAR
resulted from an increase in ADR of 9.4%, from $91.73 to $100.33, while the
occupancy rate decreased slightly from 71.8% to 70.7%.
The overall REVPAR increase for the three and six months ended June 30,
1997 was largely attributable to the strong increase in REVPAR at the Company's
upscale hotels. These hotels experienced an increase in REVPAR of 9.7% and 8.1%
for the three and six months ended June 30, 1997, respectively as compared to
the corresponding periods of 1996. ADR for the Company's upscale hotels
increased 9.2% and 8.8% for the three and six months ended June 30, 1997,
respectively as compared to the corresponding periods in 1996 while occupancy
rates increased by less than one basis point for the three months ended June 30,
1997 and decreased by less than one basis point for the six months ended June
30, 1997.
25
<PAGE> 26
The following tables summarize average occupancy, ADR and REVPAR on a
year-over-year basis for the Company's 86 owned and operated (including Company
owned but third-party managed hotels, third party owned but Company managed
hotels, and including hotels acquired during 1997 for the period beginning with
their respective dates of acquisition and ending at the end of each period),
non-gaming hotels for the three and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
--------------------------
66 Upscale Hotels 1997 1996
--------------------------
<S> <C> <C>
Occupancy Rate.................. 75.4% 75.0%
ADR............................. $103.04 $94.38
REVPAR.......................... $ 77.72 $70.82
REVPAR % change................. 9.7%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
--------------------------
20 Midscale/Economy Hotels 1997 1996
--------------------------
<S> <C> <C>
Occupancy Rate.................. 62.7% 68.0%
ADR............................. $76.95 $68.75
REVPAR.......................... $48.27 $46.74
REVPAR % change................. 3.3%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
--------------------------
78 Non-Gaming Hotels(1) 1997 1996
--------------------------
<S> <C> <C>
Occupancy Rate.................. 73.9% 73.5%
ADR............................. $99.46 $90.89
REVPAR.......................... $73.52 $66.82
REVPAR % change................. 10.0%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
66 Upscale Hotels 1997 1996
------------------------
<S> <C> <C>
Occupancy Rate.................. 72.4% 72.9%
ADR............................. $104.10 $95.66
REVPAR.......................... $ 75.38 $69.72
REVPAR % change................. 8.1%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
20 Midscale/Economy Hotels 1997 1996
------------------------
<S> <C> <C>
Occupancy Rate.................. 59.3% 66.3%
ADR............................. $74.23 $65.97
REVPAR.......................... $44.04 $43.75
REVPAR % change................. 0.7%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
78 Non-Gaming Hotels(1) 1997 1996
------------------------
<S> <C> <C>
Occupancy Rate.................. 70.7% 71.8%
ADR............................. $100.33 $91.73
REVPAR.......................... $ 70.93 $65.85
REVPAR % change................. 7.7%
</TABLE>
(1) Excluding five hotels held for sale and three hotels under substantial
renovation during the quarter.
Management believes that increases in REVPAR resulted primarily from
increases in demand due to continued favorable economic conditions which have
resulted in increased
26
<PAGE> 27
business and leisure travel throughout the United States, while the supply of
hotel rooms has not increased as rapidly, particularly in major urban locations.
Revenue increases for the quarter were greatest at hotels located in the major
urban markets of New York, Philadelphia, San Francisco, San Diego, and Chicago.
REVPAR was positively impacted by the Easter holiday which fell during the first
quarter of 1997 and during the second quarter of 1996.
Management believes that there are several important factors that have
contributed to the improved profitability of hotel properties, including
increased ADR and effective cost management. Because a substantial portion of
the hotels' operating costs and expenses are generally fixed, the Company
derives substantial operating leverage from increases in revenue. However, the
Company's continued investment in full-service properties has led to a larger
component of food and beverage revenue when compared to the same period last
year. Consequently, gross margins for the six months ended June 30, 1997
declined to 30.9% from 31.6% in the corresponding period in 1996.
During the six months ended June 30, 1997, consistent with its business
objective to capture the economic benefits otherwise retained by third-party
operators, the Corporation assumed management of the 19 hotels acquired during
the period. Management believes that the assumption of direct control over the
operations of these hotels will allow the Corporation to effectively use the
experience of management to improve operations. In addition, during the six
months ended June 30, 1997 the Corporation assumed management of the HEI Managed
Hotels.
During the three months ended June 30, 1997, the Company completed the
renovation of the Edmond Meany Tower in Seattle, Washington. Renovations have
begun and are scheduled to be completed in 1997 and 1998 for the Sheraton Colony
Square in Atlanta, Georgia, the Clarion Hotel at the San Francisco Airport,
Westin in Tampa, Florida, the Doubletree Guest Suites at the Philadelphia
airport in Philadelphia, Pennsylvania, the Westwood Marquis in Los Angeles,
California, and the Doral Inn, the Doral Tuscany and the Doral Court in New
York. In addition, the Boston Park Plaza's renovation is currently scheduled to
begin in November 1997 during a seasonally weak period.
SEASONALITY AND DIVERSIFICATION
Demand is affected by normally recurring seasonal patterns. Generally
the Company's portfolio of hotels as a whole has performed better in the second
and third quarters due to decreased travel in the winter months. Acquisitions
and renovations have affected this seasonality, however the second quarter
continues to represent a better performing period. Additional acquisitions and
renovations may further affect the seasonality of the Company's current
portfolio. The Company has continued to implement a business strategy of
franchise and geographic diversification.
27
<PAGE> 28
COMBINED LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
The principal source of cash used to fund the Company's operating
expenses, interest expense, recurring capital expenditures and distribution
payments by the Trust is cash flow provided by operating activities. The Company
anticipates that cash flow provided by operating activities will provide the
necessary funds on a short and long term basis to meet operating cash
requirements including all distributions to shareholders by the Trust. During
the second quarter of 1997, the Trust paid a distribution of $0.39 per share
declared in the first quarter of 1997. During the third quarter of 1997, the
Trust paid a distribution of $0.39 per share declared in the second quarter of
1997.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
The Company intends to finance the acquisition of additional hotel
properties, major hotel renovations and capital improvements and provide for
general corporate purposes through the Credit Facilities, through additional
lines of credit and, when market conditions warrant, through the issuance of
additional equity or debt securities.
During the quarter, the maturity date of a $94 million non-recourse
secured term loan (the "Term Loan"), which was originally due April 26, 1997,
was extended to October 26, 1997, on the same terms and conditions and with a
right to further extend at the Company's option to April 1998.
Also during the quarter, the maturity date of the Prudential Loan,
which was originally due May 30, 1997, was extended to July 14, 1997.
On June 12, 1997, the Company completed a transaction resulting in
operating and ownership control of the 480-room Stamford Sheraton Hotel in
Stamford, Connecticut. In connection with this transaction, the Company entered
into a $10.25 million mortgage agreement with Lehman Brothers (the "Stamford
Note"). The Stamford Note is secured by the Stamford Sheraton, bears interest
at LIBOR plus 225 basis points and matures on January 31, 2000.
28
<PAGE> 29
The following is a summary of the Credit Facilities, the
Doral Mortgage, the BPP Mortgage, the Prudential Loan, and the Tax Exempt Bonds
as of June 30, 1997:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING AT
FACILITY/LENDER EXPIRATION DATE AMOUNT OF FACILITY 6/30/97 INTEREST RATE AT 6/30/97
--------------- --------------- ------------------ ------- ------------------------
<S> <C> <C> <C> <C>
Mortgage Facility/ October 27, 1997 $71.0 million $70.6 million One Month LIBOR + 1.75%
Lehman Brothers..... (7.44%)
Acquisition Facility/ October 1, 1998 $135.0 million $96.8 million One, Two, or Three Month
Lehman Brothers..... LIBOR + 1.625% (7.31%)
Term Loan/ October 26, 1997 $93.96 million $93.96 million One, Two, or Three Month
Lehman Brothers..... LIBOR + 1.95% for first
$23.96 million and +1.75%
for $70.0 million (7.64% and
7.19%)
Goldman Facility/ August 16, 1997 $300.0 million $268.0 million One Month LIBOR +1.75% to
Goldman Sachs....... Extendible to 8/16/97 and +2.75% thereafter
February 16, 1998 (7.44%)
Stamford Note/ January 31, 2000 $10.25 million $10.25 million One Month LIBOR +2.25% (7.94%)
Lehman Brothers.....
Doral Mortgage/ September, 2001 $27.4 million $27.4 million 7.64%
Sumitomo............
BPP Mortgage/ May, 2003 $25.0 million $25.0 million 8.42%
Georgia Life........
Tax Exempt Bonds/..... October, 2013 $39.5 million $39.5 million 6.70%
Prudential Loan/ July 14, 1997 $72.0 million $72.0 million 7.00%
Prudential..........
---------------------------------------
Totals $774.11 million $703.51 million
=======================================
</TABLE>
As previously discussed, during the second quarter ended June 30, 1997,
the Company completed the renovation of the Edmond Meany Tower Hotel in Seattle,
Washington. Hotels with significant renovations in progress at the end of the
second quarter and planned for 1997 and 1998, included the Sheraton Colony
Square in Atlanta, Georgia; the Westin in Tampa, Florida; the Doubletree
Philadelphia Airport in Philadelphia, Pennsylvania; the Westwood Marquis in Los
Angeles, California; the Clarion Hotel at the San Francisco Airport; and the
Doral Inn, Doral Tuscany and Doral Court in New York, New York. In addition, the
Boston Park Plaza's renovation is currently scheduled to begin in November 1997
during a seasonally weak period. The Company plans to expend in excess of $100
million for renovations in 1997 including the renovations mentioned above. Major
and minor renovations, expansions and upgrades of other hotels are also being
contemplated. In addition, the Company intends to develop new hotels on a
selective basis and, as of June 30, 1997, had begun construction of a 426-room
hotel in downtown Seattle, Washington and a 423-room hotel in San Francisco,
California. Sources of capital for major renovations, expansions and upgrades of
hotels as well as new construction are expected to be excess funds from
operations, additional debt financing, and additional equity raised in the
public and private markets.
As of June 30, 1997, since January 1, 1996, the Company has invested
over $1.3 billion in acquisitions of hotel assets. As part of its investment
strategy, the Company plans to continue
29
<PAGE> 30
to acquire additional hotels. Future acquisitions are expected to be funded
through further draws under the Credit Facilities, draws under new lines of
credit, issuance of long-term debt on either a secured or unsecured basis,
issuance of limited partnership units by Realty and Operating that are
exchangeable for Paired Shares and the issuance of additional equity or debt
securities by the Company. The Company intends to incur additional indebtedness
in a manner consistent with its policy of maintaining a ratio of debt-to-total
market capitalization of not more than 50%.
On April 3, 1997, the Company announced that it was working with
institutional lenders on the development of new credit facilities for up to $700
million which would consolidate and replace current credit facilities and
provide capacity for future acquisitions. In July, 1997, the Company entered
into a $200 million three-year unsecured term loan arranged by Bankers Trust
Company and co-arranged by affiliates of Goldman Sachs and Lehman Brothers. The
term loan bears interest at a rate which will vary depending upon the leverage
of the Company starting at LIBOR plus 112.5 basis points. The initial rate is
LIBOR plus 162.5 basis points. Proceeds from the term loan were used to finance
the repayment of existing indebtedness, including the Prudential Loan and for
the acquisition of the 385-room Radisson Plaza Hotel at Town Center in
Southfield, Michigan.
During the quarter ended June 30, 1997, the Trust and the Corporation
repurchased 703,500 paired shares at an aggregate cost of approximately $25.7
million.
Management of each of the Trust and of the Corporation believes that it
will have access to capital resources sufficient to satisfy the cash
requirements of each of the Trust and the Corporation and to expand and develop
their business in accordance with their strategy for future growth.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is one measure
of financial performance of an equity REIT such as the Trust. Combined FFO (as
defined by the National Association of Real Estate Investments Trusts) (1) for
the three months ended June 30, 1997 grew by 184.6% to $51.8 million, compared
to combined FFO of $18.2 million for the corresponding period in 1996. Combined
FFO for the six months ended June 30, 1997 grew by 171.1% to $85.0 million,
compared to combined FFO of $31.3 million for the corresponding period in 1996.
The following table shows the calculation of historical combined FFO for the
indicated periods:
<TABLE>
<CAPTION>
Three months ended
June 30
-------------------
1997 1996
-------------------
(in thousands)
<S> <C> <C>
Income before extraordinary item
and minority interest......................... $25,858 $13,058
Real estate related depreciation
and amortization.............................. 29,827 6,130
Amortization of financing costs ............... (942) (482)
Loss on sale of real estate investments ....... 504 347
Minority interest-consolidated joint
ventures ..................................... (3,407) (844)
------- -------
Funds From Operations ......................... $51,840 $18,209
======= =======
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
Six months ended
June 30
----------------------
1997 1996
----------------------
(in thousands)
<S> <C> <C>
Income before extraordinary item and minority interest $35,900 $18,964
Real estate related depreciation and amortization .... 54,387 13,790
Amortization of financing costs ...................... (2,063) (761)
Loss on sale of real estate investments .............. 504 347
Minority interest-consolidated joint ventures ........ (3,775) (1,006)
------ -------
Funds From Operations ................................ $84,953 $31,334
======= =======
</TABLE>
- -------------
(1) With respect to the presentation of FFO, management elected early
adoption of the "new definition" as recommended in the March 1995
NAREIT White Paper on FFO beginning January 1, 1995. Management and
industry analysts generally consider funds from operations to be one
measure of the financial performance of an equity REIT that provides a
relevant basis for comparison among REITs and it is presented to assist
investors in analyzing the performance of the Company. FFO is defined
as income before minority interest (computed in accordance with
generally accepted accounting principles), excluding gains (losses)
from debt restructuring and sales of property, and real estate related
depreciation and amortization (excluding amortization of financing
costs). FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs. FFO should
not be considered an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flows from
operating activities as a measure of liquidity.
FFO includes $1.5 million and $780,000 of interest income recognized in
excess of the interest received on mortgage notes receivable (as a result of the
notes having been purchased at a discount) for the three months ended June 30,
1997 and 1996, respectively. FFO includes $2.9 million and $1.6 million of
interest income recognized in excess of interest received on mortgage notes
receivable for the six months ended June 30, 1997 and 1996, respectively.
31
<PAGE> 32
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the quarter ended June 30, 1997, the Trust and the
Corporation issued 38,215 Paired Shares in exchange for a like number of limited
partnership units of Realty and Operating. The issuance of Paired Shares by the
Trust and the Corporation was exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the
Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
10.1 Form of Amendment No. 2 to Indemnification Agreement dated June 26,
1997 between Starwood Lodging Trust and each of its Trustees and
executive officers (Messrs. Ronald C. Brown, Bruce W. Duncan, Steven R.
Goldman, Madison F. Grose, Gary M. Mendell, Roger S. Pratt, Stephen R.
Quazzo, Daniel H. Stern and Barry S. Sternlicht).
10.2 Form of Amendment No. 2 to Indemnification Agreement dated June 26,
1997 between the Starwood Lodging Corporation and each of its Directors
and executive officers (Messrs. Jean-Marc Chapus, Eric A. Danziger,
Theodore W. Darnall, Jonathan D. Eilian, Bruce M. Ford, Graeme W.
Henderson, Earle F. Jones, Michael A. Leven, Alan M. Schnaid and Barry
S. Sternlicht).
32
<PAGE> 33
10.3 Form of Amendment No. 2 to Amended and Restated Loan Agreement dated
April 25, 1997 between SLT Realty Limited Partnership, Starwood Lodging
Trust, CP Hotel Realty Limited Partnership, Midland Building
Corporation and Lehman Brothers Holdings Inc., D/B/A Lehman Capital, a
Division of Lehman Brothers Holdings Inc.
10.4 Form of letter dated April 9, 1997 from SLT Realty Limited Partnership
and Starwood Lodging Trust (collectively the "Borrowers") to Prudential
Property Investment Separate Account II whereby the Borrowers exercised
their option to extend the maturity date of the Purchase Money
Promissory Note, in the original amount of $97,500,000, dated February
14, 1997, from April 15, 1997 to May 14, 1997.
10.5 Form of Amendment to Purchase Money Promissory Note dated April 26,
1997 between SLT Realty Limited Partnership and Starwood Lodging Trust
(together "Makers") in favor of the Prudential Insurance Company of
America, on behalf of Prudential Property Investment Separate Account
II ("Payee").
10.6 Form of Amendment No. 2 to Purchase Money Promissory Note dated May 28,
1997 between SLT Realty Limited Partnership and Starwood Lodging Trust
(together "Makers") in favor of the Prudential Insurance Company of
America, on behalf of Prudential Property Investment Separate Account
II ("Payee").
10.7 Form of Employment Agreement between Starwood Lodging Trust and Barry
S. Sternlicht dated as of June 30, 1997.
11. Combined statement regarding computation of per share earnings.
(b) Reports on Form 8-K.
None.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
Registrant Registrant
/s/ RONALD C. BROWN /s/ ALAN M. SCHNAID
- ------------------------------ ---------------------------------------
Ronald C. Brown Alan M. Schnaid
Senior Vice President and Vice President and Corporate Controller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
Date: August 14, 1997.
34
<PAGE> 1
Exhibit 10.1
AMENDMENT NO. 2 TO
INDEMNIFICATION AGREEMENT
June 26, 1997
Starwood Lodging Trust
2231 East Camelback Road, Suite 410
Phoenix, Arizona 85016
Re: Indemnification Agreement
Gentlemen:
Please refer to the Indemnification Agreement (the
"Agreement") dated as of March 1, 1996, and Amendment No. 1 to
Indemnification Agreement ("Amendment No. 1"), each between Starwood Lodging
Trust, a Maryland real estate investment trust (the "Trust") and the
undersigned.
Defined terms used herein have the same meaning as in the
Agreement.
The Agreement as previously amended and clarified is hereby
further amended and clarified as follows (paragraph numbers below correspond to
the Article or Section numbers of the Agreement affected by that paragraph):
2. The obligation to indemnify set forth in Article 2 of the
Agreement is intended to include the obligation to advance expenses to
Indemnitee.
4. The first paragraph of Article 4 of the Agreement is
without limitation on the provisions of Article 2 of the Agreement.
5. The exceptions to the indemnification obligations under
Article 3 and the expense advance obligations under Article 4, as set forth in
subparagraphs (a) through (f) of Article 5, are subject to any contrary
determination by a court of competent jurisdiction.
11. The reference to Article 4 in Section 11(a)(i) and the
reference to Article 3 in Section 11(b) shall be deemed to include in each case
a reference to Article 2 as well.
Yours very truly,
AGREED TO:
Starwood Lodging Trust,
a Maryland real estate investment trust
By:_________________________________
Its:________________________________
<PAGE> 1
Exhibit 10.2
AMENDMENT NO. 2 TO
INDEMNIFICATION AGREEMENT
June 26, 1997
Starwood Lodging Corporation
2231 East Camelback Road, Suite 400
Phoenix, Arizona 85016
Re: Indemnification Agreement
Gentlemen:
Please refer to the Indemnification Agreement (the
"Agreement") dated as of March 1, 1996, and Amendment No. 1 to
Indemnification Agreement ("Amendment No. 1"), each between Starwood Lodging
Corporation, a Maryland corporation (the "Corporation") and the undersigned.
Defined terms used herein have the same meaning as in the
Agreement.
The Agreement as previously amended and clarified is hereby
further amended and clarified as follows (paragraph numbers below correspond to
the Article or Section numbers of the Agreement affected by that paragraph):
2. The obligation to indemnify set forth in Article 2 of the
Agreement is intended to include the obligation to advance expenses to
Indemnitee.
4. The first paragraph of Article 4 of the Agreement is
without limitation on the provisions of Article 2 of the Agreement.
5. The exceptions to the indemnification obligations under
Article 3 and the expense advance obligations under Article 4, as set forth in
subparagraphs (a) through (f) of Article 5, are subject to any contrary
determination by a court of competent jurisdiction.
11. The reference to Article 4 in Section 11 (a)(i) and the
reference to Article 3 in Section 11(b) shall be deemed to include in each case
a reference to Article 2 as well.
Yours very truly,
AGREED TO:
Starwood Lodging Corporation.
a Maryland corporation
By:______________________________
Its:_____________________________
<PAGE> 1
Exhibit 10.3
SECOND AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
This Second Amendment to Amended and Restated Loan Agreement
is made as of April 25, 1997 between SLT Realty Limited Partnership
("Borrower"), Starwood Lodging Trust (the "REIT"), CP Hotel Realty Limited
Partnership ("CP"), Midland Building Corporation ("Midland") and Lehman Brothers
Holdings Inc., D/B/A Lehman Capital, a Division of Lehman Brothers Holdings Inc.
("Lender"). All capitalized words and phrases not otherwise defined herein shall
have the meanings set forth in that certain Amended and Restated Loan Agreement
dated as of April 26, 1996, as amended by that certain First Amendment To
Amended and Restated Loan Agreement dated as of August 29, 1996, each between
Borrower, the REIT, CP, Midland and the Lender (the "Loan Agreement").
Preliminary Statement
The Maturity Date of the Loan is April 26, 1997.
Borrower, the REIT, CP, Midland and Lender have agreed to
extend the Maturity Date of the Loan and provide for the payment of certain
extension fees.
NOW THEREFORE, in consideration of the mutual covenants and
agreement hereinafter set forth and in and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto consent and agree as follows:
1. The Loan Agreement is hereby modified and amended as
follows:
The definition of Maturity Date is hereby deleted and the
following substituted therefor:
"Maturity Date" shall mean October 26, 1997 or such earlier
date on which the principal balance of the Loan and all other sums due
in connection with the Loan shall be due as a result of the
acceleration of the Loan.
2. Borrower shall have the right to extend the Maturity Date
for one additional six (6) month period by giving Lender written notice to
extend no later than September 26, 1997, but no earlier than August 26, 1997,
and by paying an additional extension fee equal to 0.25% of the then outstanding
principal balance of the Loan (the "Additional Extension Fee"). Upon Lender's
receipt of such notice and the Additional Extension Fee, and provided that no
monetary Default or Event of Default has occurred and is continuing, and
Borrower has complied with the terms and conditions of paragraph 4 of this
Agreement, the Maturity Date shall be extended to April 26, 1998.
3. Simultaneously with the execution and delivery of this
Agreement and as a condition precedent to the extension of the Maturity Date,
Borrower shall pay to Lender the sum of $234,900.00 as consideration for the
extension of the Maturity Date.
<PAGE> 2
4. Notwithstanding anything to the contrary in Section 5.19 of
the Loan Agreement, Borrower and/or Guarantor shall spend (i) the Minimum
Spending Requirement for each Real Property Asset on or before October 26, 1997,
(ii) the Deferred Maintenance Spending Requirement for each Real Property Asset
other than the Real Property Asset identified as the Holiday Inn-Calverton on
Schedule 1 of the Loan Agreement, on or before October 26, 1997 and (iii) the
Deferred Maintenance Spending Requirement for the Holiday Inn-Calverton on or
before June 1, 1997. Prior to May 26, 1997, Borrower shall deliver evidence
reasonably satisfactory the Lender of the amount of the Minimum Spending
Requirement and Deferred Maintenance Spending Requirement that has been spent to
date, together with an itemization of the work for which such amounts were spent
and a budget showing in reasonable detail the remaining work to be done, the
amounts to be spent and the schedule of expenditures, each of which shall be
reasonably satisfactory the Lender. Upon Lender's receipt and review of the
foregoing evidence, Lender may, in its sole discretion, extend the dates by
which the Minimum Spreading Requirement and the Deferred Maintenance Spending
Requirement must be spent to a date no later than April 26, 1998.
5. Borrower, the REIT, CP and Midland shall pay all of
Lender's reasonable out-of-pocket costs and expenses, including reasonable
attorneys' fees and disbursements, in connection with the execution of this
Agreement and any documentation in connection with an additional extension of
the Maturity Date.
6. Borrower, the REIT, CP and Midland represent, warrant and
covenant that (i) to the best of their knowledge, no Event of Default has
occurred and is continuing and (ii) there are no offsets, counterclaims or
defenses against the Loan, this Agreement, the Loan Agreement or any of the Loan
Document and that Borrower, the REIT, CP and Midland each has full power,
authority and legal right to execute this Agreement and to keep and observe all
of the terms of this Agreement on their part to be observed or performed.
7. Except as expressly modified pursuant to this Agreement,
all of the terms, covenants and provisions of the Loan Agreement and the other
Loan Documents shall continue in full force and effect. In the event of any
conflict or ambiguity between the terms, covenants and provisions of this
Agreement and those of the Loan Agreement and the other Loan Documents, the
terms, covenants and provisions of this Agreement shall control.
8. This Agreement may not be modified, amended, waived,
changed or terminated orally, but only by an agreement in writing signed by the
party against whom the enforcement of the modification, amendment, waiver,
change or termination is sought.
9. This Agreement shall be binding upon and inure to the
benefit of Borrower, the REIT, CP, Midland, Lender, all future holders of the
Note and their respective successors and assigns.
10. This Agreement may be executed in any number of duplicate
originals and each such duplicate original shall be deemed to constitute but one
and the same instrument.
<PAGE> 3
11. If any term, covenant or condition of this Agreement shall
be held to be invalid, illegal or unenforceable in any respect, this Agreement
shall be construed without such provision.
12. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the applicable laws of the
United States of America.
[NO FURTHER TEXT ON THIS PAGE]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
SLT REALTY LIMITED PARTNERSHIP
By: Starwood Lodging Trust, its general
partner
BY:/s/ Ronald C. Brown
------------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
STARWOOD LODGING TRUST
By:/s/ Ronald C. Brown
------------------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
CP HOTEL REALTY LIMITED PARTNERSHIP
By: SLT Realty Limited Partnership, its
general partner
By: Starwood Lodging Trust, its
general partner
By:/s/ Ronald C. Brown
--------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
MIDLAND BUILDING CORPORATION
By:
------------------------------------------
Name: Nir E. Margalit
Title: Secretary
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
SLT REALTY LIMITED PARTNERSHIP
By: Starwood Lodging Trust, its general
partner
By:
------------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
STARWOOD LODGING TRUST
By:
------------------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
CP HOTEL REALTY LIMITED PARTNERSHIP
By: SLT Realty Limited Partnership, its
general partner
By: Starwood Lodging Trust, its
general partner
By:
--------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
MIDLAND BUILDING CORPORATION
By: /s/ Nir E. Margalit
------------------------------------------
Name: Nir E. Margalit
Title: Secretary
<PAGE> 6
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN
BROTHERS HOLDINGS INC., a Delaware corporation
By:/s/ Francis X. Gilhool
------------------------------------------
Name: Francis X. Gilhool
Title: SVP
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
SLT REALTY LIMITED PARTNERSHIP
By: Starwood Lodging Trust, its general
Partner
By:
------------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
STARWOOD LODGING TRUST
By:
------------------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
CP HOTEL REALTY LIMITED PARTNERSHIP
By: SLT Realty Limited Partnership, its
general partner
By: Starwood Lodging Trust, its
general partner
By:
--------------------------------
Name: Ronald C. Brown
Title: Senior Vice President
MIDLAND BUILDING CORPORATION
By:/s/ Nir E. Margalit
------------------------------------------
Name: Nir E. Margalit
Title: Secretary
<PAGE> 8
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN
BROTHERS HOLDINGS INC., a Delaware corporation
By:/s/ Francis X. Gilhool
------------------------------------------
Name: Francis X. Gilhool
Title: SVP
<PAGE> 1
Exhibit 10.4
SLT REALTY LIMITED PARTNERSHIP
2231 East Camelback Road Suite 410
Phoenix, Arizona 85016
STARWOOD LODGING TRUST
2231 East Camelback Road Suite 410
Phoenix, Arizona 85016
April 9,1997
VIA FACSIMILE
Prudential Property Investment Separate Account II
c/o Prudential Real Estate Investors
8 Campus Drive
Parsippany, NJ 07054
Attn: Gary L. Kauffman
(Fax 201 683-1790)
Attn: James P. Walker, Esq.
(Fax 201 683-1788)
Ladies and Gentlemen:
Pursuant to the terms of that certain Purchase Money Promissory Note, in the
original amount of $97,500,000.00, by and between the undersigned and Prudential
Property Investment Separate Account II, dated February 14, 1997, notice is
hereby given under section 1. (c). that the undersigned hereby exercise their
option to extend the maturity date of said note from April 15, 1997 to May 14,
1997.
Very truly yours,
SLT REALTY LIMITED PARTNERSHIP, a Delaware
limited partnership
By: STARWOOD LODGING TRUST, a Maryland real
estate investment trust, its general
partner
By: /s/ Ronald Brown
-----------------------------------------
Ronald Brown, Senior Vice President and
Chief Financial Officer
cc: Robert S. Insolia, Esq.
(Fax 212 326-2061)
<PAGE> 1
Exhibit 10.5
AMENDMENT TO PURCHASE MONEY PROMISSORY NOTE
WHEREAS, SLT Realty Limited Partnership, as Maker, executed
and delivered to The Prudential Insurance Company of America, as Payee, a
certain promissory note, dated as of February 14, 1997, in the principal amount
of $97,500,000.00 (the "Note"), which Note had original maturity date of April
15, 1997 which was extended to May 14, 1997 by Maker's election; and
WHEREAS, the parties now intend to extend the maturity date of
the Note to May 30, 1997;
NOW THEREFORE, Maker and Payee agree as follows:
1. The capitalized terms used herein shall have the same meaning ascribed to
them in the Note.
2. The Maturity Date of the Note is extended to May 30, 1997.
3. All other terms of the Note are unmodified and remain in full force and
effect.
IN WITNESS WHEREOF, Maker and Payee have caused this Amendment
to be executed and delivered on the 26th day of April, 1997.
SLT REALTY LIMITED PARTNERSHIP, a Delaware
limited partnership
By: STARWOOD LODGING TRUST, a Maryland real
estate investment trust, its general
partner
By: /s/ Ronald Brown
------------------------------------------
Ronald Brown, Senior Vice President and
Chief Financial Officer
THE PRUDENTAL INSURANCE COMPANY OF AMERICA
By: /s/ Gary L. Kauffman
------------------------------------------
Gary L. Kauffman, Vice President
<PAGE> 1
Exhibit 10.6
SECOND AMENDMENT TO PURCHASE MONEY PROMISSORY NOTE
WHEREAS, SLT Realty Limited Partnership, as Maker, executed
and delivered to The Prudential Insurance Company of America, as Payee, a
certain promissory note, dated as of February 14, 1997, in the principal amount
of $97,500,000.00 (the "Note"), which Note had an original maturity date of
April 15, 1997 which was extended to May 14, 1997 by Maker's election and by
amendment was further extended to May 30, 1997; and
WHEREAS, the parties now intend to extend the maturity date of
the Note to July 14, 1997;
NOW THEREFORE, Maker and Payee agree as follows:
1. The capitalized terms used herein shall have the same meaning ascribed to
them in the Note.
2. The Maturity Date of the Note is extended to July 14, 1997.
3. All other terms of the Note are unmodified and remain in full force and
effect.
IN WITNESS WHEREOF Maker and Payee have caused this Amendment
to be executed and delivered on the 28th day of May, 1997.
SLT REALTY LIMITED PARTNERSHIP, a Delaware
limited partnership
By: STARWOOD LODGING TRUST, a Maryland real
estate investment trust, its general
partner
By: /s/ Ronald Brown
------------------------------------------
Ronald Brown, Senior Vice President and
Chief Financial Officer
THE PRUDENTAL INSURANCE COMPANY OF AMERICA
By: /s/ Gary L. Kauffman
-----------------------------------------
Gary L. Kauffman, Vice President
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
between
STARWOOD LODGING TRUST
and
BARRY S. STERNLICHT
Employment Agreement ("Agreement") dated as of June 30, 1997, between
Barry S. Sternlicht (the "Executive") and Starwood Lodging Trust, a Maryland
real estate investment trust (the "Company"), with its principal office at 2231
East Camelback Road, Suite 410, Phoenix, Arizona 85016.
WHEREAS, the Executive has served as Chairman and Chief Executive
Officer of the Company since December 1994 and currently serves as such;
WHEREAS, the Company desires to continue the services of Executive as
its Chairman and Chief Executive Officer and to enter into an agreement
embodying the terms of such continuing relationship; and
WHEREAS, Executive is willing to accept such continued employment upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements and covenants
contained herein, the Executive and the Company hereby agree as follows:
ARTICLE I
Employment and Term
Section 1.01 Position; Responsibilities. (a) The Company hereby employs
and continues the employment of Executive as its Chairman and Chief Executive
Officer ("CEO") upon the terms and conditions hereinafter set forth.
(b) As CEO, Executive shall at all times be the senior-most officer of
the Company, with the duties, responsibilities and authority customarily
associated with such position and consistent with such duties, responsibilities
and authority as has heretofore been his as CEO. Such duties include authority
and responsibility for acquisitions, divestitures, finance and investor
relations, subject to policies adopted by the Board of Trustees of the Company
(the "Board"). Executive shall perform such other additional duties and
services of senior executive nature, consistent with his position, as may be
requested of him from time to time by the Board. Executive shall report directly
and solely to the Board.
<PAGE> 2
Section 1.02 Performance of Duties; Other Commitments and Activities.
(a) Executive shall at all times endeavor to duly and faithfully perform all of
his duties hereunder to the best of his abilities.
(b) Executive shall devote such time and effort as may be necessary and
appropriate from time to time in the circumstances for the proper discharge of
his duties and obligations under this Agreement. The Company acknowledges that
Executive is involved in other business endeavors including with Starwood
Capital Group L.L.C. ("SCG") and as a consequence performs multiple executive
roles. Subject to the Executive's duties and obligations to the Company as set
forth in this Section 1.02(b), and subject to non-competition agreement between
the Company and Executive and between the Company and SCG, the Company consents
to the continuation of Executive's additional business endeavors and multiple
executive roles.
(c) Executive's base of operations under this Agreement shall continue
to be Greenwich, CT, although Executive may, at his election, render his
services from other locations. Executive shall not be required to relocate or
render services, on other than a temporary basis, outside of such town.
Section 1.03 Term. Executive's term of employment under this Agreement
(the "Term") shall commence on the date hereof (the "Commencement Date") and
shall expire on August 31, 1999, unless extended or sooner terminated as herein
provided. In the event the Company and Executive have not, by August 1, 1999,
agreed to an extension of Executive's employment by the Company, the Executive
shall, for purposes of Section 2.04 hereof and for all other purposes set forth
in this Agreement, be deemed to have terminated for "Good Reason" on August 31,
1999.
Section 1.04 Representation and Warranty of Executive. Executive hereby
represents and warrants to the Company that he is not aware of any presently
existing fact, circumstance or event (including, but without limitation, any
health condition or legal constraint) which would preclude or restrict him from
providing to the Company the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof, or which could
otherwise result in the termination of his employment hereunder for Cause or
Good Reason (as such terms are hereinafter defined).
Section 1.05 Representation and Warranty of Company. The Company hereby
represents and warrants to Executive that (i) it is not aware of any fact,
circumstance or event which would give rise to any breach of any term or
provision of this Agreement or any agreement covering any Existing Awards (as
hereinafter defined), or which would form the basis for any claim or allegation
that (A) Executive's employment hereunder could be terminated for Cause or Good
Reason hereunder, or (B) the rights of Executive under any Existing Award should
be in whole or any part limited, forfeited or otherwise restricted; and (ii) it
has received all authorizations and has taken all actions, necessary or
appropriate for the
2
<PAGE> 3
due execution, delivery and performance of this Agreement, all Existing Awards,
and all Plan Agreements (as hereinafter defined), including all amendments
thereto effected by this Agreement.
ARTICLE II
Compensation
Section 2.01 General. The Company shall compensate Executive for all of
his services under this Agreement, as set forth herein.
Section 2.02 Basic Compensation. Executive's minimum annual salary
("Base Salary") shall continue at the rate of $250,000 and shall be payable in
bi-weekly or other installments in accordance with the Company's normal payment
schedule for senior management (not less frequently than monthly). The Base
Salary shall be subject to annual review commencing at the end of 1997 and at
the end of each year thereafter during the Term, and may be increased (but not
decreased) for subsequent years. Executive's Base Salary shall at all times be
no less than the salary of any other executive of the Company or any executive
of Starwood Lodging Corporation (the "Corporation").
Section 2.03 Incentive Compensation. In addition to the Base Salary,
the Company shall pay to the Executive as incentive compensation ("Incentive
Compensation") in respect of each fiscal year (or portion thereof) of the
Company, an amount determined in accordance with any bonus or short term
incentive compensation program (which may be based upon achieving certain
specified performance criteria) which may be established by the Board either for
the Executive or for senior management generally. Executive's Incentive
Compensation shall at all times be no less than the incentive compensation
awarded to any other executive of the Company or any executive of the
Corporation.
All Incentive Compensation earned under this Section 2.03 shall be
payable as soon as reasonably practicable, but in no event later than 120 days
after the end of the relevant fiscal year of the Company.
Section 2.04 Equity Incentive and Other Benefit Programs. (a) Executive
has previously been granted certain options, warrants, restricted stock and
performance awards (collectively, the "Existing Awards"), summarized on the
attached Exhibit A, under the Starwood Lodging Trust 1995 Long-Term Incentive
Plan (amended and restated as of August 12, 1996) (the "LTIP"), which were
approved by the shareholders of the Company at the annual meeting of
shareholders held December 30, 1996 (as well as certain options which were
granted under the Starwood Lodging Trust 1995 Share Option Plan, prior to the
amendment and restatement as of August 12, 1996) (the "Pre-Existing Awards"),
all of which grants and awards are hereby confirmed as having been duly and
validly authorized and issued, and being in full force and effect as of the date
of execution of this Agreement.
3
<PAGE> 4
Nothing in this Agreement shall be deemed to modify or otherwise affect any of
the terms or provisions (including, but without limitation, any contingencies)
of any Pre-Existing Awards.
(b) Notwithstanding any provision to the contrary contained in any
agreement(s) (each, a "Plan Agreement") covering the relevant grant of Existing
Awards, the following terms shall apply with respect to such grants (the
relevant provisions of this Agreement constituting an amendment to the relevant
Plan Agreement(s) to the extent necessary to effectuate the same): (i) with
respect to the Three Year Option and the Five Year Option noted on Exhibit A,
together with the Performance Awards relating thereto (collectively, the "Recent
Options"), (A) termination for Cause and for Good Reason shall be as set forth
in and subject to this Agreement and (B) in the event the Executive's employment
by the Company shall terminate for any reason other than (1) termination by the
Company for Cause, or (2) termination by the Executive without Good Reason (any
such termination specified in this clause (B), a "Non-Cause Termination"), all
unvested portions of the Recent Options shall thereupon immediately vest in
full, free of restrictions (except that Executive may not exercise or sell with
respect to such unvested portions for a period of one-year from the date of
Termination if the reason for such Termination shall have been the failure of
the Company and Executive to agree to an extension of Executive's employment by
the Company by August 1, 1999), and the Recent Options shall remain exercisable
until the third anniversary of the date of such termination; (ii) with respect
to the remainder of the Existing Awards and all Pre-Existing Awards, in the
event of any Non-Cause Termination, all unvested portions of such Awards shall
thereupon immediately vest in full, free of restrictions (except that Employee
may not exercise or sell with respect to such unvested portions for a period of
one-year from the date of Termination if the reason for such Termination shall
have been the failure of the Company and Executive to agree to an extension of
Executive's employment by the Company by August 1, 1999), and shall remain
exercisable for the period provided by the terms of such Awards but no less than
a period ending three years from the date of termination of employment
hereunder; and (iii) no unvested portion of any Existing Award shall be subject
to forfeiture or restriction under any circumstance other than in the event of a
termination for Cause, or, in the case of the Recent Options, by Executive
without Good Reason. Executive shall be eligible for grants in the future of
additional Paired Options, Paired Shares and Performance Awards under the LTIP
(any such future grants, collectively, "Subsequent Awards"). All Paired Shares
included in or underlying any Existing Awards or Pre-Existing Awards will be
subject to applicable resale and other restrictions as set forth in the Plan
Agreement(s). The Company shall use its best efforts to file and keep effective
a registration statement on Form S-8 with the Securities and Exchange Commission
covering such Paired Shares.
(c) The Executive shall be entitled to participate in the LTIP, any
successor plan and all employee benefit plans, including retirement programs, if
any, group health care plans, and all fringe benefit plans, of the Company. Such
plans shall at all times be comparable to those made available to the
senior-most management of the Corporation and the Executive
4
<PAGE> 5
shall be entitled to participate in such on a basis and to an extent that is no
less favorable to the Executive than is made available to any other executive of
the Company or the Corporation.
Section 2.05 Expense Reimbursements. The Company shall reimburse the
Executive for all proper expenses incurred by him in the performance of his
duties hereunder in accordance with the policies and procedures of the Company
as in effect from time to time.
Section 2.06 Withholding. The Base Salary and all other payments to the
Executive for his services to the Company shall be subject to all withholding
and deductions required by federal, state or other law (including those
authorized by the Executive but not otherwise required by law), including but
not limited to state, federal and local income taxes, unemployment tax, Medicare
and FICA, together with such deductions as Executive may from time to time
specifically authorize under any employee benefit program which may be adopted
by the Company for the benefit of its senior executives or Executive.
ARTICLE III
Termination of Employment
Section 3.01 Termination. (a) Executive's employment hereunder shall be
terminable by either party with or without Cause and with or without notice
except as otherwise provided herein, but with the effect set forth herein.
(b) Executive shall give the Company at least 30 days' advance written
notice prior to any termination by Executive other than for Good Reason. The
Company shall give Executive at least 30 days' advance written notice prior to
any termination of Executive without Cause.
(c) Executive may resign and terminate his employment hereunder for
Good Reason (which shall also be deemed a termination by the Company other than
for Cause), subject, however, to prior delivery to the Company of a Preliminary
Notice of Good Reason and the failure of the Company to remedy the same within
the cure period provided below. For purposes of this Agreement, "Good Reason"
means (i) the failure to elect and continue Executive as CEO or Chairman of the
Company or to nominate Executive for re-election as a member of the Board
(unless a Cause Termination Notice (as hereinafter defined) shall theretofore
have been given to Executive); (ii) the failure to assign Executive duties,
authorities, responsibilities and reporting requirements consistent with his
position and otherwise as set forth herein, or if the scope of any of
Executive's material duties or responsibilities as CEO of the Company is reduced
or expanded to a significant degree without Executive's prior consent, except
for any reduction in duties and responsibilities due to Executive's illness or
disability or temporary suspensions of duties and responsibilities pending
results of any Board commissioned investigation as to potential Cause for
termination of Executive's employment and except if a Cause Termination Notice
shall theretofore have been
5
<PAGE> 6
given to Executive; (iii) a reduction in or a substantial delay in the payment
of Executive's compensation or benefits from those required to be provided in
accordance with the provisions of this Agreement, including under or in
connection with any Existing Award or Pre-Existing Award; (iv) a requirement by
the Company or the Board, without Executive's prior consent, that Executive be
based outside of Greenwich, Connecticut, other than on travel reasonably
required to carry out Executive's obligations under the Agreement; (v) the
failure of the Company to indemnify Executive (including the prompt advancement
of expenses), or to maintain directors' and officers' liability insurance
coverage for Executive, in accordance with the provisions of Section 5.12; (vi)
the Company's purported termination of the Executive's employment for Cause
other than in accordance with the requirements of this Agreement; (vii) a Change
of Control, as such term is defined and used in the LTIP, shall have occurred
(unless a Cause Termination Notice shall theretofore have been given to
Executive); or (viii) any other breach by the Company of any provision of this
Agreement; provided, that in the event Good Reason is based on clause (ii),
(iii), (iv), (v) or (viii) above, (a) "Good Reason" shall not include acts which
are cured by the Company within 30 days from receipt by the Company of a written
notice from Executive (a "Preliminary Notice of Good Reason") identifying in
reasonable detail the act or acts constituting Good Reason, (b) Good Reason
shall not exist unless the Preliminary Notice of Good Reason shall have been
given by Executive within 60 days after learning of the act, failure or event
(or, in the case of a series of related acts, failures or events, within 120
days of the first such act, failure or event) which Executive alleges
constitutes Good Reason hereunder, (c) if the Company has failed to cure as
provided above, Good Reason shall not exist unless Executive shall have given
notice of termination hereunder for Good Reason within 60 days from delivery of
the Preliminary Notice of Good Reason (which termination shall be effective 30
days from the giving of such notice), and (d) if the Company has commenced an
expedited arbitration in the manner prescribed below within 15 days after
receipt of the Executive's notice of termination called for under the
immediately preceding clause (c), such termination shall be effective as a
termination of employment and shall be deemed a termination by Executive for
Good Reason unless and until the Arbitrator shall have determined otherwise. If
the Company has timely commenced such an arbitration proceeding, in the manner
prescribed below, no payments shall be due Executive under Section 3.02 (i) or
(ii) hereof until the conclusion of the arbitration proceeding or further
proceeding contemplated by Section 5.04 hereof and only if an award is rendered
by the Arbitrator in favor of Executive. Notwithstanding the foregoing, if the
Company fails to file a demand for arbitration with the American Arbitration
Association ("AAA") and pay the requisite fees pursuant to Rule 4 of the AAA's
National Rules for the Resolution of Employment Disputes effective June 1, 1996
(the "National Rules") within 30 days after receipt of notice of termination
from the Executive, and diligently pursue such proceeding in accordance with the
procedures set forth in Section 5.04 hereof, Executive's termination of
employment from the Company shall be conclusively presumed to have been for Good
Reason.
(d) The Company shall have the right to terminate Executive's
employment hereunder for Cause. For purposes hereof, "Cause" shall be defined as
Executive's having (a) been convicted of a criminal offense constituting a
felony, (b) committed one or more acts or omissions
6
<PAGE> 7
constituting fraud or wilful misconduct, including such acts or omissions which
constitute a breach of his fiduciary duties under Maryland laws as an officer of
the Company or member of the Board, or (c) failed, after written warning from
the Board specifying in reasonable detail the breach(es) complained of, to
substantially perform his duties under this Agreement (excluding, however, any
failure to meet any performance targets), except where such failure results from
Executive's incapacity due to physical or mental illness.
Notwithstanding the foregoing, termination by the Company for Cause
shall not be effective until and unless each of the following provisions shall
have been complied with: (i) notice of intention to terminate for Cause, the
giving of which shall have been authorized by a vote of not less than 50% of all
disinterested Trustees then in office, which shall include a written statement
of the particular acts or circumstances which are the basis for the termination
for Cause and provide a reasonable period (not less than 30 days) to cure (a
"Preliminary Cause Notice"), shall have been given to Executive by the Board
within sixty days after the Company first learns of the act, failure or event
constituting Cause; and (ii) Executive shall not have cured the acts or
circumstances complained of within the cure period; and (iii) the Board shall
have called an in personam meeting of the Board, at which termination of
Executive is an agenda item, and shall have provided Executive with not less
than 20 days' notice thereof; and (iv) Executive shall have been afforded the
opportunity, accompanied by counsel, to provide written materials to the
Trustees in advance of such meeting and, if he so desires, to personally address
the Trustees at such meeting; and (v) the Board shall have provided, within
three business days after such meeting, a written notice of termination for
Cause, stating that, based upon the evidence it has received and reviewed, and
specifying in reasonable detail the acts and circumstances complained of, it has
voted by a vote of at least a majority of all of the disinterested Trustees then
in office to terminate Executive for Cause (such a notice, a "Cause Termination
Notice"), which such Notice shall be effective on the sixteenth day after
receipt thereof by Executive, subject to the provisions hereof; provided that if
Executive has commenced an expedited arbitration in the manner prescribed below
within 15 days after his receipt of the Cause Termination Notice, disputing the
Company's right under this Agreement to so terminate for Cause, Executive shall
not be deemed to have been terminated for Cause unless and until the Arbitrator
shall thereafter have determined that the Executive was properly terminated for
Cause in accordance with the provisions hereof; and provided, further that the
Company may suspend the Executive (a) with pay, at any time after any indictment
of Executive for a criminal offense constituting a felony or after the giving of
the Preliminary Cause Notice, and (b) without pay, at any time after the giving
of the Cause Termination Notice, except that any payments not so made shall be
made within three business days after the Arbitrator shall have made a
determination that Executive was terminated other than in compliance with the
foregoing provisions relating to termination for Cause. If Executive or his
representative fails to file a demand for arbitration with the AAA and pay the
requisite fees pursuant to Rule 4 of the National Rules within 30 days of his
receipt of a Cause Termination Notice from the Board, and diligently pursue such
proceeding in accordance with the procedures set forth in Section 5.04 hereof,
such termination shall, for purposes of Section 3.02 hereof, be conclusively
presumed to have been for Cause, it being understood and agreed
7
<PAGE> 8
that any decision of the Arbitrator that Executive has been terminated hereunder
for Cause, or any failure of Executive to contest the Company's allegations of
Cause hereunder (by failing to file and/or prosecute a demand for arbitration or
otherwise), is not intended to, and shall not, have any effect or bearing
whatsoever on any Pre-Existing Award, and the parties specifically agree and
undertake that, notwithstanding anything to the contrary, no finding of any
Arbitrator pursuant hereto that Executive was properly terminated for Cause
under this Agreement shall be binding upon or admissible in any court or other
proceeding in which any Pre-Existing Awards are at issue.
If the Arbitrator declines to rule that the Executive was terminated
for Cause, Executive shall be treated as having been terminated without Cause
and Executive shall have the rights provided under Section 3.02 below and
provided elsewhere in this Agreement with respect to a termination without
Cause.
For all purposes of this Agreement, "Good Reason" and "Cause" shall
have the applicable defined meaning as set forth above in this Section 3.01.
No termination of Executive's employment shall require that Executive
resign any other position (including as Trustee or Chairman) he may then be
holding with the Company; provided, however, that (i) if Executive's employment
hereunder is terminated for Cause under the above provisions, Executive shall
resign forthwith from all positions he may then be holding with the Company, if
requested to do so by the Board, and (ii) if Executive terminates his employment
hereunder other than for Good Reason, Executive shall resign forthwith from all
such positions, if requested to do so by the Board, except for any position to
which he has been elected by the shareholders of the Company (such as Trustee).
Section 3.02 Severance Package. In the event the Executive's employment
under this Agreement is terminated by the Company other than for Cause (and a
termination due to the Executive's death or permanent disability shall be
treated for purposes of this Agreement as a termination by the Company other
than for Cause) or is terminated by the Executive for Good Reason, then, as and
for a severance package ("Severance Package"),
(i) Executive shall, subject only to the delays permitted by Section
3.01 for arbitration, receive (A) an amount, which shall be payable in one lump
sum as soon as practicable, but in any event within 30 days of the date of
determination that Executive's termination is (x) other than for Cause, or (y)
for Good Reason as applicable, equal to two years of Base Salary based on the
Base Salary then in effect; provided, however, that the foregoing payment shall
be increased if and to the extent any other executive of the Company or any
executive of the Corporation shall become entitled upon his or her termination
of employment to a greater amount or measurement of payment as part of his or
her severance package, and (B) Company paid medical insurance benefits available
to other senior executives of the Company during the 12-month period subsequent
to termination of employment, all
8
<PAGE> 9
costs of which shall be paid by the Company (and thereafter all COBRA rights
available to the Executive shall be paid by the Executive); and
(ii) All Pre-Existing Awards and Existing Awards shall, notwithstanding
any provision to the contrary contained in any Plan Agreement(s) covering the
same (the relevant provisions of this Agreement constituting an amendment to the
relevant Plan Agreement(s) to the extent necessary to effectuate the same),
immediately vest in full (with all Performance Periods with respect to all
Pre-Existing and Existing Awards terminating on the effective date of
Executive's termination of employment and all relevant Performance Measures
being computed through such date), with preservation of all of Executive's
rights relating to all Existing Awards and under the relevant agreements
granting or otherwise governing same for the full terms thereof, and, following
timely exercise of any such Awards, Executive shall receive title to the shares
issued upon exercise or otherwise in respect thereof free and clear of any lien,
claim or encumbrance by, through or under the Company.
If a corporate transaction which would constitute a Change of Control
event under the LTIP is agreed to during the pendency of an arbitration
hereunder, the Company will include appropriate provisions which will enable the
Executive to participate in such Change of Control event as if the arbitration
were resolved favorably to the Executive, but subject to such a favorable
resolution.
The parties agree that the foregoing shall be the Executive's sole and
exclusive monetary remedy under this Agreement by reason of termination by the
Executive for Good Reason or by the Company other than for Cause, it being
agreed that as his actual damages under this Agreement would be difficult to
measure or quantify and would be impracticable to determine, such amount shall
constitute liquidated damages under this Agreement for the Executive by reason
of such termination by Executive for Good Reason, or by reason of any
termination by the Company other than for Cause hereunder. Such payments shall
not be reduced or limited by amounts Executive might earn or be able to earn
from other employment or ventures. The parties agree that the Company shall have
no recourse whatsoever to any monetary remedy by reason of Executive's
termination of employment, other than for reimbursement of actual out-of-pocket
damages actually suffered and incurred by the Company as a direct result of
Executive's termination for Cause hereunder (excluding the costs of identifying
and/or hiring any replacement for Executive, or any attorney's fees or costs of
investigation, which shall be borne solely by the Company), all of which are
hereby waived; provided, however, that the foregoing limitation shall not apply
to any claims the Company may have against Executive relating to tortious
conduct by Executive which causes damage to the Company.
Section 3.03 Rights on Termination for Cause or Without Good Reason. No
Severance Package shall be due or owing to the Executive in the event that the
Company shall duly terminate the Executive's employment for Cause or in the
event that the Executive shall terminate his employment with the Company for
reasons other than Good Reason (it being
9
<PAGE> 10
understood and agreed that the provisions hereof relating to Existing or
Pre-Existing Awards, including those set out in Section 2.04, shall not be
affected thereby); provided, however that Executive shall in all events be paid
all accrued but unpaid Base Salary, awarded but unpaid Incentive Compensation,
and other benefits through the date of termination. In addition, in the event
that the Company shall terminate the Executive's employment for Cause or in the
event that the Executive shall terminate his employment with the Company for
reasons other than Good Reason, then except as provided in Section 2.04 above or
in the following two sentences, all unvested Recent Options, unvested
Performance Awards and unvested restricted Paired Shares then held by Executive
shall automatically be forfeited (subject, however, to any contrary provisions
in the relevant Plan Agreements, as amended through the date of termination,
relating to such Recent Options, Awards or Paired Shares, or any contrary
determination of the Board in its sole discretion). No forfeiture of unvested
Recent Options, Performance Awards or unvested restricted Paired Shares required
hereby shall occur or be effective until 15 days after the later of (i) the
conclusion of any arbitration proceeding or further proceeding contemplated by
Section 3.01 hereof, or (ii) if no arbitration proceeding is commenced, until
the time for commencing such a proceeding has lapsed, or (iii) with respect to
Pre-Existing Awards, the determination by a court of competent jurisdiction that
cause, as such term is defined and used in the relevant Plan Agreement(s)
covering the grants of the Pre-Existing Awards, has occurred (the latest of such
three dates being referred to herein as the "Forfeiture Date"), but, except as
otherwise provided in Section 2.04 above or in the relevant Plan Agreement(s)
governing the terms thereof, no additional service-based or time-based vesting
shall occur with respect to any such Recent Options, Performance Awards or
Paired Shares following the date Executive's employment is deemed terminated
under Section 3.01. It is expressly agreed that Executive may exercise vested
options and other Existing and Pre-Existing Awards, and receive a settlement of
vested Performance Awards, at any time prior to the Forfeiture Date. In all
other respects, the terms of the grant of any such options or award of any such
Paired Shares shall govern.
ARTICLE IV
Confidential Information; Inducing Company Employees
Section 4.01 Confidential Information. Except in the course of his
employment with the Company, or as he may be required pursuant to any law or
court order or similar process, the Executive shall not at any time either
during or after his termination of employment hereunder, directly or indirectly
disclose or use any secret, proprietary, confidential information or data of the
Company or the Corporation, or any of their respective subsidiaries or
affiliates; provided, however, that after the expiration of 18 months from such
termination of employment, the Company's sole remedy shall be to seek and
procure appropriate equitable remedies. In the event of any dispute between the
Executive and the Company or between the Executive or the Company and others,
the Executive shall cooperate with the Company as to redaction or other
protective measures with respect to any unnecessary public disclosure of any
such confidential information or proprietary data.
10
<PAGE> 11
Section 4.02 Inducing of Company Employees. Except in the course of his
employment with the Company, or with the prior written approval of the Board,
Executive shall not at any time through the 12 month period after his
termination of employment hereunder, in any way directly or indirectly hire,
attempt to hire, or cause to be hired any person or persons who to Executive's
best knowledge was employed at any time during the period commencing six months
prior to such termination by the Company, the Corporation, or their respective
subsidiaries or SLT Realty Limited Partnership or SLC Operating Limited
Partnership.
ARTICLE V
Miscellaneous
Section 5.01 Notices. All notices, requests or other communications
provided for in this Agreement shall be made, if to the Company, to the
Secretary of the Company at the Company's principal executive office, and if to
the Executive, to his address on the books of the Company (or to such other
address as the Company or Executive may give to the other for purposes of notice
hereunder).
Copies of all notices given to Executive shall be sent to:
Dennis Block, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Copies of all notices given to the Company shall be sent to:
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013-1010
Attention: Sherwin L. Samuels, Esq.
All notices, requests or other communications required or permitted by
this Agreement shall be made in writing either (a) by personal delivery to the
party entitled thereto, (b) by mailing via certified mail, postage prepaid,
return receipt requested, in the United States mails to the last known address
of the party entitled thereto, or (c) by reputable overnight courier service.
The notice, request or other communication shall be deemed to be received upon
actual receipt by the party entitled thereto; provided, however, that if a
notice, request or other communication is not received during regular business
hours, it shall be deemed to be received on the next succeeding business day of
the Company.
11
<PAGE> 12
Section 5.02 Assignment and Succession. The rights and obligations of
the Company under this Agreement may not be assigned in whole or any part except
in the case of a consolidation or merger with, or a transfer of all or
substantially all of the assets of the Company to, another entity acceptable to
Executive, which not later than 15 days prior to the consummation of such
combination transaction expressly assumes in a writing satisfactory in form and
substance to Executive all of the Company's obligations to Executive hereunder,
under all Existing and Pre-Existing Awards and any Subsequent Awards and
otherwise. No such assignment shall limit or restrict Executive's right to
terminate this Agreement for Good Reason, which right shall remain absolute.
Executive's rights and obligations hereunder are personal and may not be
assigned; provided, however that in the event of the termination of the
Executive's employment due to the Executive's death or permanent disability, the
Executive's legal representative shall have the right to receive the Severance
Package as more particularly set forth in Section 3.02 above. This Agreement
shall inure to the benefit of and be enforceable by Executive's heirs,
beneficiaries and/or legal representatives.
Section 5.03 Headings. The Article, Section, paragraph and subparagraph
headings are for convenience of reference only and shall not define or limit the
provisions hereof.
Section 5.04 Arbitration. In the event of any controversy, dispute or
claim arising out of or related to this Agreement or the Executive's employment
by the Company, the parties shall negotiate in good faith in an attempt to reach
a mutually acceptable settlement of such dispute. If negotiations in good faith
do not result in a settlement of any such controversy, dispute or claim, it
shall, except as otherwise provided for herein be finally settled by expedited
arbitration conducted by a single arbitrator selected as hereinafter provided
(the "Arbitrator") in accordance with the National Rules, subject to the
following (the parties hereby agreeing that, notwithstanding the provisions of
Rule 1 of the National Rules, in the event that there is a conflict between the
provisions of the National Rules and the provisions of this Agreement, the
provisions of this Agreement shall control):
(a) The Arbitrator shall be determined from a list of names of five
impartial arbitrators each of whom shall be an attorney experienced in
arbitration matters concerning executive employment disputes, supplied by the
AAA chosen by Executive and the Company each in turn striking a name from the
list until one name remains (with the Company being the first to strike a name).
(b) The expenses of the arbitration shall be borne equally by each
party; and each party shall bear its own legal fees and expenses, except that
the prevailing party shall be awarded his or its reasonable attorney's fees and
expenses with respect to such dispute.
(c) The Arbitrator shall determine whether and to what extent any party
shall be entitled to damages under this Agreement; provided that no party shall
be entitled to punitive or consequential damages (including, in the case of the
Company, any claim for alleged lost
12
<PAGE> 13
profits or other damages that would have been avoided had Executive remained an
employee), and each party waives all such rights if any.
(d) The Arbitrator shall not have the power to add to nor modify any of
the terms or conditions of this Agreement. The Arbitrator's decision shall not
go beyond what is necessary for the interpretation and application of the
provision(s) of this Agreement in respect of the issue before the Arbitrator.
The Arbitrator shall not substitute his or her judgment for that of the parties
in the exercise of rights granted or retained by this Agreement. The
Arbitrator's award or other permitted remedy, if any, and the decision shall be
based upon the issue as drafted and submitted by the respective parties and the
relevant and competent evidence adduced at the hearing.
(e) The Arbitrator shall have the authority to award any remedy or
relief (including provisional remedies and relief) that a court of competent
jurisdiction could order or grant. The Arbitrator's written decision shall be
rendered within sixty days of the closing of the hearing. The decision reached
by the Arbitrator shall be final and binding upon the parties as to the matter
in dispute. To the extent that the relief or remedy granted by the Arbitrator is
relief or remedy on which a court could enter judgment, a judgment upon the
award rendered by the Arbitrator shall be entered in any court having
jurisdiction thereof (unless in the case of an award of damages, the full amount
of the award is paid within 10 days of its determination by the Arbitrator).
Otherwise, the award shall be binding on the parties in connection with their
continuing performance of this Agreement and, except as otherwise provided
herein with respect to Existing Grants, in any subsequent arbitral or judicial
proceedings between the parties.
(f) The arbitration shall take place in New York, New York or Chicago,
Illinois, as elected by the party commencing arbitration.
(g) The arbitration proceeding and all filing, testimony, documents and
information relating to or presented during the arbitration proceeding shall be
disclosed exclusively for the purpose of facilitating the arbitration process
and in any court proceeding relating to the arbitration, and for no other
purpose, and shall be deemed to be information subject to the confidentiality
provisions of this Agreement.
(h) The parties shall continue performing their respective obligations
under this Agreement notwithstanding the existence of a dispute while the
dispute is being resolved unless and until such obligations are terminated or
expire in accordance with the provisions hereof.
(i) The parties may obtain a pre-hearing exchange of information
including depositions, interrogatories, production of documents, exchange of
summaries of testimony or exchange of statements of position, and the Arbitrator
shall limit such disclosure to avoid unnecessary burden to the parties and shall
schedule promptly all discovery and other
13
<PAGE> 14
procedural steps and otherwise assume case management initiative and control to
effect an efficient and expeditious resolution of the dispute. At any oral
hearing of evidence in connection with an arbitration proceeding, each party and
its counsel shall have the right to examine its witness and to cross-examine the
witnesses of the other party. No testimony of any witness, or any evidence,
shall be introduced by affidavit, except as the parties otherwise agree in
writing.
(j) Notwithstanding the dispute resolution procedures contained in this
Section 5.04, either party may apply to any court sitting in the County, City
and State of New York (i) to enforce this agreement to arbitrate, (ii) to seek
provisional injunctive relief so as to maintain the status quo until the
arbitration award is rendered or the dispute is otherwise resolved, (iii) to
confirm any arbitration award, or (iv) to challenge or vacate any final
judgment, award or decision of the Arbitrator that does not comport with the
express provisions of this Section 5.04.
Section 5.05 Invalidity. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect under any law, the
validity, legality or enforceability of the remaining provisions hereof shall
not in any way be affected or impaired.
Section 5.06 Waivers. No omission or delay by either party hereto in
exercising any right, power or privilege hereunder shall impair such right,
power or privilege, nor shall any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof, or the exercise of
any other right, power or privilege.
Section 5.07 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 5.08 Entire Agreement. Except as otherwise provided or referred
to herein, this Agreement contains the entire understanding of the parties and
supersedes all prior agreements and understandings relating to the subject
matter hereof. This Agreement may not be amended, except by a written instrument
hereafter signed by each of the parties hereto.
Section 5.09 Interpretation. The parties hereto acknowledge and agree
that each party and its or his counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its drafting. Accordingly,
(i) the rules of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of this
Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party regardless of which party was generally responsible for the preparation of
this Agreement. Except where the context requires otherwise, all references
herein to Sections, paragraphs and clauses shall be deemed to be reference to
Sections, paragraphs and clauses of this Agreement. The words "include",
"including" and "includes" shall be deemed in each case to be followed by the
14
<PAGE> 15
phrase "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section 5.10 Governing Law. This Agreement and the performance hereof
shall be construed and governed in accordance with the internal laws of the
State of New York without reference to principles of conflict of laws.
Section 5.11 Indemnification. In addition to any additional benefits
provided under applicable state law, as a Trustee and officer of the Company,
the Executive shall be entitled to the benefits of: (a) those provisions of the
Declaration of Trust of the Company, as amended, and of the Trustees Regulations
of the Company, as amended, which provide for indemnification of officers and
Trustees of the Company (and no such provision shall be amended in any way to
limit or reduce the extent of indemnification available to Executive as a
Trustee or officer of the Company), (b) the Indemnification Agreement between
the Company and Executive dated as of June 8, 1995, as amended through the date
hereof (the "Indemnification Agreement").
The rights of Executive under such indemnification obligations shall
survive the termination of this Agreement and be applicable for so long as the
Executive may be subject to any claim, demand, liability, cost or expense, which
the indemnification obligations referred to in this Section are intended to
protect and indemnify him against.
The Company shall, at no cost to the Executive, use its best efforts to
at all times include the Executive during the term of Executive's employment
hereunder and for so long thereafter as Executive may be subject to any such
claim, as an insured under any directors' and officers' liability insurance
policy maintained by the Company, which policy shall provide such coverage in
such amounts as the Board shall deem appropriate for coverage of all Trustees
and officers of the Company.
Section 5.12 Disclaimer. The name "Starwood Lodging Trust" is the
designation of a Maryland real estate investment trust and its Trustees (as
Trustees but not personally) under a Declaration of Trust dated August 25, 1969,
as amended and restated, and all persons dealing with Starwood Lodging Trust
must look solely to Starwood Lodging Trust's property for the enforcement of any
claims against Starwood Lodging Trust, as the Trustees, officers, agents and
security holders of Starwood Lodging Trust assume no personal obligations of
Starwood
15
<PAGE> 16
Lodging Trust, and their respective property shall not be subject to claims of
any person relating to such obligation.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officer and the Executive has signed this Agreement as of
the day and year first above written.
STARWOOD LODGING TRUST
By:
----------------------------
Name:
--------------------------
Its:
---------------------------
-------------------------------
BARRY S. STERNLICHT
16
<PAGE> 17
EXHIBIT A
to
EMPLOYMENT AGREEMENT
between
STARWOOD LODGING TRUST
and
BARRY S. STERNLICHT
DATED AS OF JUNE 30, 1997
Existing Awards:
1. Award as of February 21, 1996 of 30,000 Paired Shares in the
form of warrants vesting over a one year period;
2. Paired Option to purchase 975,000 Paired Shares vesting over
the three year period August 12, 1996 to August 12, 1999;
3. Paired Option to purchase 450,000 Paired Shares vesting over
the five year period August 12, 1996 to August 12, 2001;
4. Performance Awards relating to all Paired Shares underlying
the above Paired Options granted to Barry S. Sternlicht.
Pre-Existing Awards:
1. Paired Option to purchase 616,500 Paired Shares granted June
29, 1995.
2. Paired Option to purchase 9,000 Paired Shares granted June 29,
1995.
3. Paired Option to purchase 120,000 Paired Shares granted April
30, 1996.
4. Paired Option to purchase 9,000 Paired Shares granted June 30,
1996.
17
<PAGE> 1
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EXHIBIT 11
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before extraordinary item....... $18,135 $ 8,521 $26,009 $12,611
Extraordinary item..................... -- 1,077 -- 1,077
------- ------- ------- -------
Net income............................ $18,135 $ 9,598 $26,009 $13,688
======= ======= ======== =======
Weighted average number of paired
shares outstanding during the period.. 45,537 23,335 43,719 22,016
Stock option equivalents............. 1,835 -- 1,945 --
Restricted stock equivalents......... 391 -- 398 --
Deferred stock equivalents........... 1 -- 1 --
------- ------- ------- -------
Paired shares used for computation of
primary earnings per share............ 47,764 23,335 46,063 22,016
Additional dilution from stock option
equivalents......................... 321 -- 208 --
------- ------- ------- -------
Paired shares used for computation of
fully diluted earnings per share...... 48,085 23,335 46,271 22,016
======= ======= ======= =======
PRIMARY EARNINGS PER PAIRED SHARE
Income before extraordinary item...... $ 0.38 $ 0.36 $ 0.56 $ 0.57
Extraordinary item.................... -- 0.05 -- 0.05
------- ------- ------- -------
Net income per share.................. $ 0.38 $ 0.41 $ 0.56 $ 0.62
======= ======= ======= =======
FULLY DILUTED EARNINGS PER PAIRED SHARE
Income before extraordinary item...... $ 0.38 $ 0.36 $ 0.56 $ 0.57
Extraordinary item.................... -- 0.05 -- 0.05
------- ------- ------- -------
Net income per share.................. $ 0.38 $ 0.41 $ 0.56 $ 0.62
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
<CIK> 0000048595
<NAME> STARWOOD LODGING TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,324,000
<SECURITIES> 0
<RECEIVABLES> 235,078,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,329,000
<PP&E> 1,530,996,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,783,727,000
<CURRENT-LIABILITIES> 44,406,000
<BONDS> 0
0
0
<COMMON> 456,000
<OTHER-SE> 1,032,915,000
<TOTAL-LIABILITY-AND-EQUITY> 1,783,727,000
<SALES> 0
<TOTAL-REVENUES> 60,913,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,471,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,801,000
<INCOME-PRETAX> 16,844,000
<INCOME-TAX> 16,844,000
<INCOME-CONTINUING> 16,844,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,844,000
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K.
</LEGEND>
<CIK> 0000316206
<NAME> STARWOOD LODGING CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 37,715,000
<SECURITIES> 0
<RECEIVABLES> 49,229,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,479,000
<PP&E> 114,981,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 231,404,000
<CURRENT-LIABILITIES> 43,226,000
<BONDS> 0
0
0
<COMMON> 456,000
<OTHER-SE> 46,039,000
<TOTAL-LIABILITY-AND-EQUITY> 231,404,000
<SALES> 218,425,000
<TOTAL-REVENUES> 219,550,000
<CGS> 0
<TOTAL-COSTS> 146,911,000
<OTHER-EXPENSES> 66,655,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,767,000
<INCOME-PRETAX> 1,291,000
<INCOME-TAX> 1,291,000
<INCOME-CONTINUING> 1,291,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,291,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
