<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 10, 1997
Commission File Number: 1-6828
STARWOOD LODGING
TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-0901263
(I.R.S. employer identification no.)
2231 East Camelback Road., Suite 410
Phoenix, Arizona 85016
(Address of principal executive
offices, including zip code)
(602) 852-3900
(Registrant's telephone number,
including area code)
Commission File Number: 1-7959
STARWOOD LODGING CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
2231 East Camelback Road, Suite 400
Phoenix, Arizona 85016
(Address of principal executive
offices, including zip code)
(602) 852-3900
(Registrant's telephone number,
including area code)
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<PAGE> 2
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 10, 1997, Starwood Lodging Trust (the "Trust") and
Starwood Lodging Corporation (the "Corporation" and, together with the Trust,
"Starwood Lodging" or the "Company"), whose shares are paired and trade together
as a unit (NYSE:HOT) completed the acquisition of a portfolio of fifteen
full-service hotels, including four golf courses (the "Flatley Portfolio"), from
Flatley Co./Tara Hotels ("Flatley") for $470 million of cash. The Company
borrowed the cash under its $1.2 billion unsecured revolving credit and term
loan facility which was arranged and structured by Bankers Trust Company, and
co-arranged by Lehman Brothers with BankBoston and Bank of Montreal. The Company
expects to continue to use the facilities acquired as hotels.
The portfolio consists of the 383-room Sheraton Tara Hotel in
Parsippany, New Jersey, the 376-room Sheraton Tara Hotel in Braintree,
Massachusetts, the 370-room Sheraton Tara Hotel in Framingham, Massachusetts,
the 337-room Sheraton Tara Hotel in Nashua, New Hampshire, the 272-room Sheraton
Tara Hotel in Newton, Massachusetts, the 220-room Sheraton Tara Hotel in South
Portland, Maine, the 207-room Sheraton Tara Airport Hotel in Warwick, Rhode
Island, the 119-room Sheraton Tara Lexington in Lexington, Massachusetts, the
442-room Tara Stamford Hotel in Stamford, Connecticut, the 367-room Tara's
Ferncroft Conference Resort in Danvers, Massachusetts, the 261-room Tara's Cape
Codder Hotel in Hyannis, Massachusetts, the 224-room Tara Hyannis Hotel & Resort
in Hyannis, Massachusetts, the 200-room Merrimack Hotel and Conference Center in
Merrimack, New Hampshire, the 194-room Wayfarer Inn in Bedford, New Hampshire,
and the 280-room Colonial Hilton & Resort in Lynnfield, Massachusetts.
This Current Report on Form 8-K may contain statements which constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include all statements that are
not strictly historical including statements regarding the intent, belief or
current expectations of Starwood Lodging, its Trustees, Directors or its
officers with respect to the consummation of, the acquisition described in this
Report. Investors are cautioned that any such forward-looking statements involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including, without limitation, real estate conditions, execution of hotel
development programs, the purchase or development of a brand, completion of
pending acquisitions including the completion of customary due diligence and
closing conditions, changes in local or national economic conditions and other
risks and uncertainties relating to real estate investments and the financing
thereof, as more specifically described in the Starwood Lodging Annual Report on
Form 10-K for the year ended December 31, 1996, and other filings with the
Securities and Exchange Commission.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses to be Acquired. See Index
to Financial Statements (page F -1).
(b) Pro Forma Financial Information. See Index to Financial
Statements (page F -1).
EXHIBITS.
2 Acquisition agreement
23 Consent of Coopers and Lybrand L.L.P.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION
By:____________________________ By:___________________________________
Ronald C. Brown Alan M. Schnaid
Senior Vice President and Vice President and Corporate Controller
Chief Financial Officer Principal Accounting Officer
Date: December ___, 1997
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
STARWOOD LODGING TRUST AND STARWOOD LODGING
CORPORATION -- PRO FORMA
Combined Consolidated and Separate Consolidated Pro Forma Balance Sheets
at June 30, 1997....................................................F-2
Notes to the Pro Forma Balance Sheets........................................F-5
Combined Consolidated and Separate Consolidated Pro Forma Statements of
Operations for the six months ended June 30, 1997...................F-8
Combined Consolidated and Separate Consolidated Pro Forma Statements of
Operations for the year ended December 31, 1996....................F-11
Notes to Pro Forma Combined Consolidated and Separate Consolidated
Statements of Operations ..........................................F-14
- -------------------
Report of Independent Accountants...........................................F-17
Combined Balance Sheet as of December 31, 1996..............................F-18
Combined Statement of Revenues over Expenses and Equity (Deficit) for
the year ended December 31, 1996...................................F-19
Combined Statement of Cash Flows for the year ended December 31, 1996.......F-20
Notes to Combined Financial Statements......................................F-21
F-1
<PAGE> 6
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA BALANCE SHEETS
JUNE 30, 1997
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STARWOOD STARWOOD
LODGING LODGING
COMBINED FLATLEY COMBINED
CONSOLIDATED PORTFOLIO CONSOLIDATED
------------ ----------- ------------
(A) (B)
<S> <C> <C> <C>
ASSETS
Hotel assets held for sale, net .......................... $ 21,637 $ -- $ 21,637
Hotel assets, net ........................................ 1,624,340 452,077 2,076,417
----------- ----------- -----------
1,645,977 452,077 2,098,054
Mortgage notes receivable, net ........................... 80,053 -- 80,053
Investments .............................................. 440 -- 440
----------- ----------- -----------
Total real estate investments ........................ 1,726,470 452,077 2,178,547
Cash and cash equivalents ................................ 42,039 -- 42,039
Accounts, interest and rent receivable ................... 61,270 -- 61,270
Notes receivable, net .................................... 2,744 -- 2,744
Inventories, prepaid expenses and other assets ........... 42,368 17,923 60,291
----------- ----------- -----------
$ 1,874,891 $ 470,000 $ 2,344,891
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving lines of credit $ 568,037 $ 470,000(C) $ 1,038,037
Mortgage and other notes payable ......................... 139,356 -- 139,356
Accounts payable and other liabilities ................... 64,887 -- 64,887
Distributions payable .................................... 22,745 -- 22,745
----------- ----------- -----------
795,025 470,000 1,265,025
----------- ----------- -----------
Commitments and contingencies.............................
MINORITY INTEREST ........................................ 262,958 -- 262,958
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,550,000 ............................... 456 -- 456
Corporation common stock,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,550,000 ............................... 456 -- 456
Additional paid-in capital ............................... 1,091,757 -- 1,091,757
Accumulated deficit ...................................... (275,761) -- (275,761)
----------- ----------- -----------
816,908 -- 816,908
----------- ----------- -----------
$ 1,874,891 $ 470,000 $ 2,344,891
=========== =========== ===========
</TABLE>
F-2
<PAGE> 7
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STARWOOD STARWOOD
LODGING FLATLEY LODGING
CONSOLIDATED PORTFOLIO CONSOLIDATED
----------- ----------- -----------
(A) (B)
<S> <C> <C> <C>
ASSETS
Hotel assets held for sale, net .......................... $ 19,851 $ -- $ 19,851
Hotel assets, net ........................................ 1,511,145 452,077 1,963,222
----------- ----------- -----------
1,530,996 452,077 1,983,073
Mortgage notes receivable, net ........................... 80,053 -- 80,053
Mortgage notes receivable - Corporation .................. 89,930 -- 89,930
Investments .............................................. 440 -- 440
----------- ----------- -----------
Total real estate investments ........................ 1,701,419 452,077 2,153,496
Cash and cash equivalents ................................ 4,324 -- 4,324
Rent and interest receivable ............................. 12,805 -- 12,805
Notes receivable, net .................................... 1,980 -- 1,980
Notes receivable - Corporation ........................... 50,310 -- 50,310
Prepaid expenses and other assets ........................ 12,889 17,923 30,812
----------- ----------- -----------
$ 1,783,727 $ 470,000 $ 2,253,727
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Collateralized notes payable and revolving
lines of credit....................................... $ 568,037 $ 470,000(C) $ 1,038,037
Mortgage and other notes payable ......................... 137,913 -- 137,913
Accounts payable and other liabilities ................... 21,760 -- 21,760
Distributions payable .................................... 22,646 -- 22,646
----------- ----------- -----------
750,356 470,000 1,220,356
----------- ----------- -----------
Commitments and contingencies ............................ -- -- --
MINORITY INTEREST ........................................ 251,977 -- 251,977
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Trust shares of beneficial interest,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,550,000 ............................... 456 -- 456
Additional paid-in capital ............................... 977,212 -- 977,212
Accumulated deficit ...................................... (196,274) -- (196,274)
----------- ----------- -----------
781,394 -- 781,394
----------- ----------- -----------
$ 1,783,727 $ 470,000 $ 2,253,727
=========== =========== ===========
</TABLE>
F-3
<PAGE> 8
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STARWOOD STARWOOD
LODGING FLATLEY LODGING
CONSOLIDATED PORTFOLIO CONSOLIDATED
------------ --------- ------------
(A) (B)
<S> <C> <C> <C>
ASSETS
Hotel assets held for sale, net .......................... $ 1,786 $ -- $ 1,786
Hotel assets, net ........................................ 113,195 -- 113,195
--------- --------- ---------
Total real estate investments ........................ 114,981 -- 114,981
Cash and cash equivalents ................................ 37,715 -- 37,715
Accounts and interest receivable ......................... 48,465 -- 48,465
Notes receivable, net .................................... 764 -- 764
Inventories, prepaid expenses and other assets ........... 29,479 -- 29,479
--------- --------- ---------
$ 231,404 $ -- $ 231,404
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage and other notes payable ......................... $ 1,443 $ -- $ 1,443
Accounts payable and other liabilities ................... 43,127 -- 43,127
Mortgage notes payable - Trust ........................... 89,930 -- 89,930
Notes payable - Trust .................................... 50,310 -- 50,310
Distributions payable .................................... 99 -- 99
--------- --------- ---------
184,909 -- 184,909
--------- --------- ---------
Commitments and contingencies ............................ -- -- --
MINORITY INTEREST ........................................ 10,981 -- 10,981
--------- --------- ---------
SHAREHOLDERS' EQUITY
Corporation common stock,
$.01 par value; authorized 100,000,000 shares;
outstanding 45,550,000 ............................... 456 -- 456
Additional paid-in capital ............................... 114,545 -- 114,545
Accumulated deficit ...................................... (79,487) -- (79,487)
--------- --------- ---------
35,514 -- 35,514
--------- --------- ---------
$ 231,404 $ -- $ 231,404
========= ========= =========
</TABLE>
F-4
<PAGE> 9
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA BALANCE SHEETS
AT JUNE 30, 1997
NOTE 1. BASIS OF PRESENTATION
(A) The Trust and the Corporation have unilateral control of SLT Realty
Limited Partnership ("Realty") and SLC Operating Limited Partnership
("Operating" and, together with Realty the "Partnerships"),
respectively, and therefore, the historical financial statements of
Realty and Operating are consolidated with those of the Trust and the
Corporation. Unless the context otherwise requires, all references
herein to the "Company" refer to the Trust and the Corporation, and all
references to the "Trust" and the "Corporation" include the Trust and
the Corporation and those entities respectively owned or controlled by
the Trust or the Corporation, including Realty and Operating.
NOTE 2. ACQUIRED PROPERTIES
(B) On September 10, 1997 the Company completed the acquisition of fifteen
hotel properties containing 4,252 full-service hotel rooms (the
"Flatley Portfolio") from Flatley Co./Tara Hotels ("Flatley"). The
Flatley Portfolio consists of:
<TABLE>
<CAPTION>
NAME CITY STATE TOTAL ROOMS
- ---- ---- ----- -----------
<S> <C> <C> <C>
Sheraton Tara Hotel Parsippany NJ 383
Sheraton Tara Hotel Braintree MA 376
Sheraton Tara Hotel Framingham MA 370
Sheraton Tara Hotel Nashua NH 337
Sheraton Tara Hotel (1) Newton MA 272
Sheraton Tara Hotel South Portland ME 220
Sheraton Tara Airport Hotel Warwick RI 207
Sheraton Tara Lexington Lexington MA 119
Tara Stamford Hotel Stamford CT 442
Tara's Ferncroft Conference Resort Danvers MA 367
Tara's Cape Codder Hotel Hyannis MA 261
Tara Hyannis Hotel & Resort Hyannis MA 224
Merrimack Hotel and Conference Center Merrimack NH 200
Wayfarer Inn Bedford NH 194
Colonial Hilton & Resort Lynnfield MA 280
-----
4,252
=====
</TABLE>
(1) Represents an operating lease.
(C) Represents the $470 million cash consideration for the Flatley
Portfolio, drawn from an existing line of credit.
F-5
<PAGE> 10
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
PRO FORMA COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The following Unaudited Combined Consolidated and Separate
Consolidated Pro Forma Statements of Operations for the six months ended June
30, 1997 and the twelve months ended December 31, 1996 give effect to the
acquisition of the Flatley Portfolio as of the beginning of the periods
presented. The pro forma information is based upon historical information and
does not purport to present what actual results would have been had such
transactions, in fact, occurred at the beginning of each period presented, or to
project results for any future period. Historical Starwood Lodging Trust and
Starwood Lodging Corporation results are for the six months ended June 30, 1997
and the twelve months ended December 31, 1996. The historical Flatley results
are for the six months ended June 30, 1997 and the twelve months ended December
31, 1996.
Historical Starwood Lodging Trust and Starwood Lodging Corporation
results include the results of the properties acquired in 1996 (the Westin in
Washington, D.C. - acquired on January 4, a 58.2% interest in the Boston Park
Plaza in Boston, Massachusetts - acquired on January 24, the Doubletree Guest
Suites DFW Airport in Irving, Texas, the Doubletree Guest Suites in Ft.
Lauderdale, Florida and the Westin Hotel in Tampa, Florida - all three acquired
on April 26, the Midland Hotel in Chicago, Illinois - acquired on March 22, the
Clarion Hotel - San Francisco Airport in Milbrae, California - acquired on April
25, the Doubletree Guest Suites in Philadelphia, Pennsylvania - acquired on
June 3, the Days Inn in Philadelphia, Pennsylvania - acquired on July 1, a
portfolio of eight hotels owned by an institution consisting of the Ritz Carlton
in Kansas City, Missouri, the Ritz Carlton in Philadelphia, Pennsylvania, the
Westin Hotel in Waltham, Massachusetts, the Westin LAX in Los Angeles,
California, the Westin Horton Plaza in San Diego, California, the Westin Hotel
Concourse in Atlanta, Georgia, the Doubletree Grand at Mall of America in
Bloomington, Minnesota and the Wyndham Hotel in Ft. Lauderdale, Florida - all
acquired on August 12, a portfolio of nine hotels owned by Hotels of Distinction
Ventures, Inc. consisting of the Hotel Park Tucson in Tucson, Arizona, the
Embassy Suites in Palm Desert, California, the Marque in Atlanta, Georgia, the
Arlington Park Hilton in Arlington Heights, Illinois, the Sheraton Needham in
Needham, Massachusetts, the Sheraton Minneapolis Metrodome in Minneapolis,
Minnesota, the Embassy Suites in St Louis, Missouri, the Radisson Marque in
Winston-Salem, North Carolina and the Allentown Hilton in Allentown,
Pennsylvania - all acquired on August 16 except for the Sheraton Minneapolis
Metrodome which closed on September 5, the Princeton Marriott in Princeton, New
Jersey - acquired on August 29, the Doral Court and Doral Tuscany both in New
York,
F-6
<PAGE> 11
New York - acquired on September 19, and a 93.5% interest in the Westwood
Marquis Hotel & Gardens in Westwood, California - acquired on December 31) and
the properties acquired in 1997 (the Deerfield Beach Hilton in Deerfield Beach,
Florida - acquired on January 8, the Radisson Denver South in Denver, Colorado -
acquired on January 17, the Embassy Suites Hotel in Atlanta, Georgia, the BWI
Airport Marriott in Baltimore, Maryland, the Charleston Hilton North in
Charleston, South Carolina, the Holiday Inn Crowne Plaza Edison in Edison, New
Jersey, the Courtyard by Marriott Crystal City in Arlington, Virginia, the Novi
Hilton in Novi, Michigan, the Omni Waterside Hotel in Norfolk, Virginia, the
Park Ridge Hotel in King of Prussia, Pennsylvania, the Sheraton Hotel in Long
Beach, California, and the Sonoma County Hilton in Santa Rosa, California - all
acquired on February 14, the Days Inn Lake Shore Drive in Chicago, Illinois -
acquired February 21, the Hermitage Suites Hotel in Nashville, Tennessee -
acquired on March 11, the Hotel De La Poste in New Orleans - acquired on March
12, the San Diego Marriott Suites in San Diego, California - acquired on April
3, the Tremont Hotel in Chicago, Illinois - acquired on April 4, the Raphael
Hotel in Chicago, Illinois - acquired May 7, and the Stamford Sheraton in
Stamford, Connecticut - acquired on June 9) from their respective dates of
acquisition.
F-7
<PAGE> 12
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STARWOOD STARWOOD
LODGING LODGING
COMBINED FLATLEY PRO FORMA COMBINED
CONSOLIDATED PORTFOLIO ADJUSTMENTS CONSOLIDATED
------------ --------- --------- ------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel ........................................................ $ 376,795 $ 75,999 $ -- $ 452,794
Gaming ....................................................... 7,727 -- -- 7,727
Interest from mortgage and other notes ....................... 7,213 -- -- 7,213
Rent from leased hotel properties and
income from investments ................................. 441 -- -- 441
Management fees and other income ............................. 4,196 -- -- 4,196
Gain (loss) on sales of real estate investments .............. (504) -- -- (504)
--------- --------- --------- ---------
395,868 75,999 -- 471,867
--------- --------- --------- ---------
EXPENSES
Hotel operations ............................................. 260,474 56,154 (1,893)(C) 314,735
Gaming operations ............................................ 8,248 -- -- 8,248
Interest ..................................................... 23,311 -- 17,390(E) 40,701
Depreciation and amortization ................................ 54,387 -- 12,689(F) 67,076
Administrative and general ................................... 13,548 -- -- 13,548
--------- --------- --------- ---------
359,968 56,154 28,186 444,308
--------- --------- --------- ---------
Income (loss) before minority interest ....................... 35,900 $ 19,845 $ (28,186) 27,559
========= =========
Minority interest (G) ........................................ 9,891 8,102
--------- ---------
Net income ................................................... $ 26,009 $ 19,457
========= =========
Net income per share (H) ..................................... $ 0.56 $ 0.42
========= =========
Weighted average number of Paired Shares ..................... 46,063 46,063
========= =========
</TABLE>
F-8
<PAGE> 13
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL
STARWOOD PRO FORMA
LODGING STARWOOD
TRUST FLATLEY PRO FORMA LODGING TRUST
CONSOLIDATED PORTFOLIO ADJUSTMENTS CONSOLIDATED
------------ --------- ----------- -------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Rents from Corporation ....................... $ 95,505 $ -- $ 20,079(D) $ 115,584
Interest from Corporation .................... 5,290 -- -- 5,290
Interest from mortgage and other notes ....... 7,213 -- -- 7,213
Rent from leased hotel properties and
income from investments ................. 441 -- -- 441
Other income ................................. 1,551 -- -- 1,551
Gain (loss) on sale of real estate investments -- -- -- --
--------- --------- --------- ---------
110,000 -- 20,079 130,079
--------- --------- --------- ---------
EXPENSES
Interest ..................................... 23,260 -- 17,390(E) 40,650
Depreciation and amortization ................ 42,801 -- 12,689(F) 55,490
Administrative and general ................... 5,117 -- -- 5,117
--------- --------- --------- ---------
71,178 -- 30,079 101,257
--------- --------- --------- ---------
Income (loss) before minority interest ....... 38,822 $ -- ($ 10,000) 28,822
========= =========
Minority interest (G) ........................ 9,760 7,615
--------- ---------
Net income ................................... $ 29,062 $ 21,207
========= =========
Net income per share (H) ..................... $ 0.63 $ 0.46
========= =========
Weighted average number of shares ............ 46,063 46,063
========= =========
</TABLE>
F-9
<PAGE> 14
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL
STARWOOD PRO FORMA
LODGING STARWOOD LODGING
CORPORATION FLATLEY PRO FORMA CORPORATION
CONSOLIDATED PORTFOLIO ADJUSTMENTS CONSOLIDATED
--------- --------- --------- ---------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel ............................................. $ 376,795 $ 75,999 $ -- $ 452,794
Gaming ............................................ 7,727 -- -- 7,727
Management fees and other income .................. 2,645 -- -- 2,645
Gain (loss) on sales of real estate investments.... (504) -- -- (504)
--------- --------- --------- ---------
386,663 75,999 -- 462,662
--------- --------- --------- ---------
EXPENSES
Hotel operations .................................. 260,474 56,154 (1,893)(C) 314,735
Gaming operations ................................. 8,248 -- -- 8,248
Rent - Trust ...................................... 95,505 -- 20,079(D) 115,584
Interest - Trust .................................. 5,290 -- -- 5,290
Interest .......................................... 51 -- -- 51
Depreciation and amortization ..................... 11,586 -- -- 11,586
Administrative and general ........................ 8,431 -- -- 8,431
--------- --------- --------- ---------
389,585 56,154 18,186 463,925
--------- --------- --------- ---------
Income (loss) before minority interest ............ (2,922) $ 19,845 ($ 18,186) (1,263)
========= =========
Minority interest (G) ............................. 131 487
--------- ---------
Net loss .......................................... ($ 3,053) ($ 1,750)
========= =========
Net loss per share (H) ............................ ($ 0.07) ($ 0.04)
========= =========
Weighted average number of shares ................. 46,063 46,063
========= =========
</TABLE>
F-10
<PAGE> 15
STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION
UNAUDITED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STARWOOD STARWOOD
LODGING LODGING
COMBINED FLATLEY PRO FORMA COMBINED
CONSOLIDATED PORTFOLIO ADJUSTMENTS CONSOLIDATED
------------ --------- ----------- ------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel .............................................. $ 385,110 $ 158,220 $ -- $ 543,330
Gaming ............................................. 23,630 -- -- 23,630
Interest from mortgage and other notes ............. 11,262 -- -- 11,262
Rent from leased hotel properties and
income from investments ....................... 822 -- -- 822
Management fees and other income ................... 3,424 -- -- 3,424
Gain (loss) on sales of real estate investments..... 4,290 -- -- 4,290
--------- --------- --------- ---------
428,538 158,220 -- 586,758
--------- --------- --------- ---------
EXPENSES
Hotel operations ................................... 275,015 114,786 (3,950)(C) 385,851
Gaming operations .................................. 21,834 -- -- 21,834
Interest ........................................... 23,337 -- 34,780(E) 58,117
Depreciation and amortization ...................... 55,745 -- 25,379(F) 81,124
Administrative and general ......................... 16,495 -- -- 16,495
--------- --------- --------- ---------
392,426 114,786 56,209 563,421
--------- --------- --------- ---------
Income (loss) before minority interest ............. 36,112 $ 43,434 ($ 56,209) 23,337
========= =========
Minority interest (G) .............................. 10,238 7,293
--------- ---------
Income from operations ............................. $ 25,874 $ 16,044
========= =========
Income from operations per share (H) ............... $ 0.87 $ 0.54
========= =========
Weighted average number of Paired Shares ........... 29,884 29,884
========= =========
</TABLE>
F-11
<PAGE> 16
STARWOOD LODGING TRUST
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STARWOOD STARWOOD
LODGING TRUST FLATLEY PRO FORMA LODGING TRUST
CONSOLIDATED PORTFOLIO ADJUSTMENTS CONSOLIDATED
------------- --------- ----------- -------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Rents from Corporation ....................................... $ 87,593 $ - $ 44,582(D) $ 132,175
Interest from Corporation .................................... 9,084 - - 9,084
Interest from mortgage and other notes ....................... 11,262 - - 11,262
Rent from leased hotel properties and
income from investments ................................. 822 - - 822
Other income ................................................. 2,008 - - 2,008
Gain (loss) on sale of real estate investments ............... 4,290 - - 4,290
--------- --------- --------- ---------
115,059 - 44,582 159,641
--------- --------- --------- ---------
EXPENSES
Interest ..................................................... 23,088 - 34,780(E) 57,868
Depreciation and amortization ................................ 42,517 - 25,379(F) 67,896
Administrative and general ................................... 4,134 - - 4,134
--------- --------- --------- ---------
69,739 - 60,159 129,898
--------- --------- --------- ---------
Income (loss) before minority interest ....................... 45,320 $ - $( 15,577) 29,743
========= =========
Minority interest (G) ........................................ 11,731 8,140
--------- ---------
Net income ................................................... $ 33,589 $ 21,603
========= =========
Net income (H) ............................................... $ 1.12 $ 0.72
========= =========
Weighted average number of shares 29,884 29,884
========= =========
</TABLE>
F-12
<PAGE> 17
STARWOOD LODGING CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
STARWOOD PRO FORMA
LODGING STARWOOD LODGING
CORPORATION FLATLEY PRO FORMA CORPORATION
CONSOLIDATED PORTFOLIO ADJUSTMENTS CONSOLIDATED
------------ --------- ----------- ------------
(A) (B)
<S> <C> <C> <C> <C>
REVENUE
Hotel ..................................... $ 385,110 $ 158,220 $ -- $ 543,330
Gaming .................................... 23,630 -- -- 23,630
Management fees and other income .......... 1,416 -- -- 1,416
--------- --------- --------- ---------
410,156 158,220 -- 568,376
--------- --------- --------- ---------
EXPENSES
Hotel operations .......................... 275,015 114,786 (3,950)(C) 385,851
Gaming operations ......................... 21,834 -- -- 21,834
Rent - Trust .............................. 87,593 -- 44,582(D) 132,175
Interest - Trust .......................... 9,084 -- -- 9,084
Interest .................................. 249 -- -- 249
Depreciation and amortization ............. 13,228 -- -- 13,228
Administrative and general ................ 12,361 -- -- 12,361
--------- --------- --------- ---------
419,364 114,786 40,632 574,782
--------- --------- --------- ---------
Income (loss) before minority interest .... (9,208) $ 43,434 $ (40,632) (6,406)
========= =========
Minority interest (G) ..................... (1,493) (847)
--------- ---------
Loss from operations ...................... $ (7,715) $ (5,559)
========= =========
Loss from operations per share (H) ........ $ (0.26) $ (0.19)
========= =========
Weighted average number of shares 29,884 29,884
========= =========
</TABLE>
F-13
<PAGE> 18
STARWOOD LODGING TRUST AND
STARWOOD LODGING CORPORATION
NOTES TO THE UNAUDITED COMBINED CONSOLIDATED AND
SEPARATE CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
NOTE 1. BASIS OF PRESENTATION
The Trust and the Corporation have unilateral control of SLT Realty Limited
Partnership ("Realty") and SLC Operating Limited Partnership ("Operating" and,
together with Realty the "Partnerships"), respectively, and therefore, the
historical financial statements of Realty and Operating are consolidated with
those of the Trust and the Corporation. Unless the context otherwise requires,
all references herein to the "Company" refer to the Trust and the Corporation,
and all references to the "Trust" and the "Corporation" include the Trust and
the Corporation and those entities respectively owned or controlled by the Trust
or the Corporation, including Realty and Operating.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) Reflects the historical statements of operations of the Company.
Operations for properties sold or pending sale are not considered
material to the pro forma presentation.
(B) Reflects the historical statements of operations before interest and
depreciation expense (reflecting the Company's cost basis) in the
Flatley Portfolio.
F-14
<PAGE> 19
Listed below are the effects each acquired hotel had on the Combined Pro Forma
Statements of Operations for the six months ended June 30, 1997 and the year
ended December 31, 1996 (in thousands):
SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HOTEL REVENUES EXPENSES EBITDA
----- -------- -------- ------
<S> <C> <C> <C>
Sheraton Tara Hotel
(Parsippany) .................... $ 10,917 $ 6,866 $ 4,051
Sheraton Tara Hotel
(Braintree) ..................... 8,771 6,289 2,482
Sheraton Tara Hotel
(Framingham) .................... 7,638 5,369 2,269
Sheraton Tara Hotel
(Nashua) ........................ 4,462 3,595 867
Sheraton Tara Hotel
(Newton) ........................ 4,448 3,403 1,045
Sheraton Tara Hotel
(South Portland) ................ 3,023 2,420 603
Sheraton Tara Airport Hotel...... 2,873 2,227 646
Sheraton Tara Lexington ......... 2,615 1,911 704
Tara Stamford Hotel ............. 6,709 4,766 1,943
Tara's Ferncroft
Conference Resort ............... 7,322 4,963 2,359
Tara's Cape Codder Hotel ........ 2,453 2,121 332
Tara Hyannis Hotel & Resort...... 3,765 3,366 399
Merrimack Hotel and
Conference Center ............... 1,078 1,317 (239)
Wayfarer Inn .................... 3,057 2,631 426
Colonial Hilton & Resort ........ 6,868 4,910 1,958
-------- -------- --------
Totals .......................... $ 75,999 $ 56,154 $ 19,845
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HOTEL REVENUES EXPENSES EBITDA
----- -------- -------- ------
<S> <C> <C> <C>
Sheraton Tara Hotel
(Parsippany) .................... $ 19,134 $ 12,724 $ 6,410
Sheraton Tara Hotel
(Braintree) ..................... 17,672 13,077 4,595
Sheraton Tara Hotel
(Framingham) .................... 15,472 10,901 4,571
Sheraton Tara Hotel
(Nashua) ........................ 10,211 7,972 2,239
Sheraton Tara Hotel
(Newton) ........................ 8,518 6,065 2,453
Sheraton Tara Hotel
(South Portland) ................ 6,529 4,806 1,723
Sheraton Tara Airport Hotel ..... 5,909 4,641 1,268
Sheraton Tara Lexington ......... 5,202 3,856 1,346
Tara Stamford Hotel ............. 13,760 9,814 3,946
Tara's Ferncroft
Conference Resort ............... 16,599 11,077 5,522
Tara's Cape Codder Hotel ........ 5,505 4,434 1,071
Tara Hyannis Hotel & Resort ..... 8,822 6,943 1,879
Merrimack Hotel and
Conference Center ............... 2,586 2,888 (302)
Wayfarer Inn .................... 7,411 5,542 1,869
Colonial Hilton & Resort ........ 14,890 10,046 4,844
-------- -------- --------
Totals .......................... $158,220 $114,786 $ 43,434
======== ======== ========
</TABLE>
F-15
<PAGE> 20
Additional information related to the Flatley Portfolio hotels is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
ADR ($) Occupancy (%) REVPAR ($)
---------------------- ---------------------- ----------------------
Hotel 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sheraton Tara Hotel (Parsippany) 101.57 93.32 91.46 71.7 67.7 66.3 72.81 63.18 60.64
Sheraton Tara Hotel (Braintree) 108.52 97.79 91.98 79.0 71.3 72.5 85.77 69.72 66.69
Sheraton Tara Hotel (Framingham) 94.60 89.99 86.89 66.8 57.3 59.2 63.18 51.56 51.44
Sheraton Tara Hotel (Nashua) 76.33 69.91 67.96 59.2 61.5 59.1 45.20 42.99 40.16
Sheraton Tara Hotel (Newton) 101.27 97.47 90.02 70.1 66.8 72.0 70.95 65.11 64.81
Sheraton Tara Hotel (South Portland) 84.94 78.38 75.66 61.5 66.6 65.2 52.22 52.20 49.33
Sheraton Tara Airport Hotel 75.96 73.01 69.33 76.2 69.2 75.6 57.86 50.52 52.41
Sheraton Tara Lexington 105.58 95.52 89.52 72.1 69.2 70.5 76.09 63.11 66.10
Tara Stamford Hotel 87.98 79.12 72.92 67.6 60.4 60.1 59.45 47.79 43.82
Tara's Ferncroft Conference Resort 92.93 84.25 79.78 57.5 57.0 54.5 53.46 48.02 43.48
Tara's Cape Codder Hotel 84.65 86.26 78.09 43.8 40.3 46.1 37.03 34.76 36.00
Tara Hyannis Hotel & Resort 102.59 101.54 94.16 58.0 57.8 63.2 59.47 58.69 59.51
Merrimack Hotel and Conference Ctr 65.71 N/A N/A 31.8 N/A N/A 20.88 N/A N/A
Wayfarer Inn 82.05 76.01 70.61 65.5 64.3 67.0 53.77 48.87 47.31
Colonial Hilton & Resort 95.65 88.29 83.89 66.0 62.0 61.5 63.12 54.74 51.59
</TABLE>
N/A = Not available.
(C) Reflects the elimination of fees paid by the Flatley Portfolio hotels
to Flatley for corporate overhead allocated to the Flatley Portfolio
hotels.
(D) The Trust intends to lease to the Corporation the Flatley Portfolio
hotels under leases that provide for annual base or minimum rents plus
contingent or percentage rents based on the gross revenue of the
properties and are accounted for as operating leases.
(E) Reflects the addition of interest expense at the Company's current
weighted average borrowing rate (7.4%) on the $470 million pro forma
debt assuming draw down to acquire the Flatley Portfolio as of January
1, 1996.
(F) Reflects depreciation and amortization expense on the Company's basis
in the Flatley Portfolio hotels. The Company's basis is based on
preliminary allocations between real estate and leasehold values.
(G) Reflects Starwood Capital's and other partners' minority interests in
the income of the Partnerships.
(H) Net income (loss) per paired share has been computed using the weighted
average number of paired shares and equivalent paired shares
outstanding. All paired share information has been adjusted to reflect
a 3-for-2 stock split effective January 27, 1997.
F-16
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Investors and Shareholders
of Starwood Lodging Trust & Starwood Lodging Corporation
We have audited the accompanying combined balance sheet of The Flatley Hotels
(described in Note 1) as of December 31, 1996, and the related combined
statements of revenues over expenses and equity (deficit), and cash flows for
the year then ended. These combined financial statements are the responsibility
of the management of the Flatley Hotels. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Flatley Hotels
as of December 31, 1996, and the results of their operations and their cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
August 29, 1997, except for
Note 9 for which the date is
September 10, 1997
F-17
<PAGE> 22
THE FLATLEY HOTELS
COMBINED BALANCE SHEETS
----------
<TABLE>
<CAPTION>
December 31, June 30, 1997
1996 (Unaudited)
------------- -------------
<S> <C> <C>
A S S E T S:
Investments in hotel properties, at cost:
Land $ 25,977,000 $ 25,987,000
Buildings and improvements 201,004,000 202,448,000
Furniture and equipment 80,793,000 85,648,000
------------- -------------
307,774,000 314,083,000
Accumulated depreciation (135,978,000) (141,018,000)
------------- -------------
Net investment in hotel properties 171,796,000 173,065,000
Cash 3,930,000 4,747,000
Receivables, net of allowance of $122,000 and $188,000 at
December 31, 1996 and June 30, 1997, respectively 5,864,000 6,502,000
Prepaid expenses and other assets, net 7,003,000 6,476,000
------------- -------------
Total assets $ 188,593,000 $ 190,790,000
============= =============
LIABILITIES AND EQUITY (DEFICIT):
Accounts payable, trade $ 4,510,000 $ 2,368,000
Due to affiliate 81,235,000 79,692,000
Accrued expenses 4,722,000 6,691,000
Self-insurance reserves 6,372,000 5,349,000
Notes payable 147,080,000 143,288,000
------------- -------------
Total liabilities 243,919,000 237,388,000
Commitments and contingencies
Equity (deficit) (55,326,000) (46,598,000)
------------- -------------
Total liabilities and deficit $ 188,593,000 $ 190,790,000
============= =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-18
<PAGE> 23
THE FLATLEY HOTELS
COMBINED STATEMENT OF REVENUES OVER EXPENSES AND EQUITY (DEFICIT)
----------
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30, 1997
1996 (Unaudited)
------------ -------------
<S> <C> <C>
Revenues:
Room revenue $ 93,991,000 $46,313,000
Food and beverage revenue 45,967,000 21,813,000
Other revenue 18,262,000 7,873,000
------------ -----------
Total revenue 158,220,000 75,999,000
Expenses:
Property operating costs and expenses 20,196,000 10,168,000
Food and beverage 35,880,000 17,304,000
Other 17,641,000 8,542,000
Selling, general and administrative 29,019,000 14,660,000
Real estate and personal property taxes, and insurance 4,410,000 1,831,000
Franchise and reservation fees 3,690,000 1,756,000
Management fees 3,950,000 1,893,000
Interest expense 12,540,000 5,582,000
Depreciation and amortization 11,104,000 5,535,000
------------ -----------
Total expenses 138,430,000 67,271,000
------------ -----------
Excess of revenues over expenses before
extraordinary item 19,790,000 8,728,000
Extraordinary item due to early extinguishment of debt 394,000
------------ -----------
Excess of revenues over expenses 20,184,000 8,728,000
Deficit at beginning of period 75,510,000 55,326,000
------------ -----------
Deficit at end of period $ 55,326,000 $46,598,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE> 24
THE FLATLEY HOTELS
COMBINED STATEMENT OF CASH FLOWS
----------
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,1997
1996 (Unaudited)
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Excess of revenues over expenses $ 20,184,000 $ 8,728,000
Adjustments to reconcile excess of revenues over expenses
to net cash provided by operating activities:
Depreciation and amortization 11,104,000 5,535,000
Changes in assets and liabilities:
Receivables, net (997,000) (638,000)
Prepaid expenses and other assets (804,000) 359,000
Accounts payable, trade (28,000) (2,142,000)
Due to affiliate (7,951,000) (1,543,000)
Self-insurance reserves (560,000) (1,022,000)
Accrued expenses 946,000 1,969,000
------------ ------------
Net cash provided by operating activities 21,894,000 11,246,000
------------ ------------
Cash flows from investing activities:
Acquisition, improvements and additions to hotel properties (7,323,000) (6,424,000)
------------ ------------
Net cash used in investing activities (7,323,000) (6,424,000)
------------ ------------
Cash flows from financing activities:
Principal payments on notes payable (18,091,000) (3,792,000)
Proceeds from borrowings 5,000,000
Loan Fees (297,000) (213,000)
------------ ------------
Net cash used in financing activities (13,388,000) (4,005,000)
------------ ------------
Net change in cash 1,183,000 817,000
Cash, beginning of period 2,747,000 3,930,000
------------ ------------
Cash, end of period $ 3,930,000 $ 4,747,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 11,793,000 $ 5,370,000
============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-20
<PAGE> 25
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
----------
1. Organization And Basis Of Presentation:
The accompanying combined financial statements of the fifteen hotels
(collectively, the "Flatley Hotels" or the "Hotels") listed below have
been presented on a combined basis because the properties are wholly
owned by Thomas J. Flatley dba the Flatley Company ("Flatley") as of
December 31, 1996 with the exception of the general partnership
interest in the Tara Cape Codder, Hyannis and the Sheraton, Newton,
which Flatley leases (Note 4) and are expected to be the subject of a
business combination with Starwood Lodging Trust (the "Company"), a
Maryland real estate investment trust. The Company has qualified as a
REIT and does not pay federal income taxes. Accordingly, the combined
financial statements do not include a provision for income taxes.
The Hotels consist of fifteen full service hotels located in the
northeastern portion of the United States, as follows:
<TABLE>
<CAPTION>
Type Location # Of Rooms
---- -------- ----------
<S> <C> <C>
Sheraton Braintree, MA 376
Sheraton South Portland, ME 220
Sheraton Warwick, RI 207
Hilton Lynnfield, MA 280
Sheraton Nashua, NH 337
Tara Stamford, CT 442
Sheraton Parsippany, NJ 383
Sheraton Lexington, MA 119
Sheraton Framingham, MA 370
Tara Hyannis, MA 224
Tara-Cape Codder Hyannis, MA 261
Merrimack Hotel and Conference Center Merrimack, NH 200
Tara Bedford, NH 194
Sheraton Newton, MA 272
Tara Danvers, MA 367
</TABLE>
The accompanying unaudited financial statements for the six month
period ended June 30, 1997 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, such financial statements reflect all adjustments
considered necessary for a fair presentation of the interim combined
financial statements and all such adjustments are of a normal,
recurring nature.
All intercompany transactions have been eliminated in the combined
financial statements.
Continued
F-21
<PAGE> 26
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies:
Investment In Hotel Properties:
The Hotels are stated at cost. Depreciation is computed using the
straight-line method based upon the following estimated useful lives:
Years
-----
Buildings and improvements 31
Furniture and fixtures 7
Management periodically reviews the hotel property to determine if its
carrying costs will be recovered from future operations and,
accordingly, whether a reduction in carrying value should be recorded.
No such reductions have occurred in 1996.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition,
the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in operations.
Inventories:
Inventories, consisting predominantly of food and beverage, are stated
at the lower of cost (generally first-in, first-out) or market and are
included in prepaid expenses and other assets.
Prepaid Expenses And Other Assets:
Prepaid expenses consist primarily of prepaid insurance. Other assets
consist primarily of deferred loan fees which are recorded at cost and
amortized using the interest method over the related loan period and
costs associated with the purchase of a hotel operating lease, which
are amortized on a straight-line basis over the remaining lease term.
Also included in other assets are inventories, as described above.
Preopening costs are expensed as incurred.
Amortization expense for the year ended December 31, 1996 and the six
months ended June 30, 1997 is $1,048,000 and $380,000 (unaudited),
respectively.
Continued
F-22
<PAGE> 27
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
Revenue Recognition:
Revenue is recognized as earned. Earned is generally defined as the
date upon which a guest occupies a room and/or utilizes the Hotel's
services. Ongoing credit evaluations are performed and potential credit
losses are expensed at the time the accounts receivable is estimated to
be uncollectible. Historically, credit losses have not been material to
the Hotels' results of operations.
Other revenue includes green fees, golf course and health club
memberships, rental income and other incidental hotel revenue.
Use Of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value Of Financial Instruments And Concentrations Of Credit Risk:
The following disclosure of estimated fair value was determined by
available market information and appropriate valuation methodologies.
However, considerable judgment is necessary to interpret market data
and develop the related estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that could be realized upon disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The carrying values of the Hotels' notes payable approximate fair value
at December 31, 1996 as the related interest rates are either variable
or in line with market rates.
At December 31, 1996, the Hotels had amounts in banks that were in
excess of federally-insured amounts.
Continued
F-23
<PAGE> 28
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
3. Notes Payable:
Notes payable consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
Description Balance
----------- -------
<S> <C>
Note payable with monthly principal and interest payments at an
interest rate of 7.89%(e) at December 31, 1996 and a maturity of
April 30, 1997(a), allocated to and collateralized by the following
properties:
Sheraton Braintree, MA $15,520,000
Sheraton Nashua, NH 9,504,000 $25,024,000
Note payable at an interest rate of 7.68%(b) at December 31, 1996 and a
maturity of April 2, 1998(c), allocated to and collateralized by the
following properties:
Sheraton South Portland, ME $ 7,008,000
Sheraton Newton, MA 6,500,000
Tara Bedford, NH 5,200,000
Tara Hyannis, MA 13,508,000
Sheraton Lexington, MA 6,000,000 38,216,000(g)
Note payable with monthly principal and interest payments at an
interest rate of 8.14%(e) at December 31, 1996 and a maturity of
September 1, 1997(d), collateralized by the Sheraton Warwick, R.I. 7,942,000
Note payable with monthly principal and interest payments at an
interest rate of 6.63%(e) at December 31, 1996 and a maturity
of July 27, 1997(d), collateralized by the Hilton Wakefield, MA 8,447,000
Note payable with monthly principal and interest payments at an
interest rate of 7.65%(b) at December 31, 1996 and a maturity
of May 1, 1999, collateralized by the Tara Stamford, CT 12,393,000
Note payable with monthly principal and interest payments at an
interest rate of 7.66%(f) at December 31, 1996 and a maturity
of March 1, 1997, extended to March 1, 1998, collateralized by
the Sheraton Parsippany, NJ 27,200,000
</TABLE>
Continued
F-24
<PAGE> 29
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
3. Notes Payable, Continued:
<TABLE>
<CAPTION>
Description Balance
----------- -------
<S> <C>
Note payable with monthly principal and interest payments at an
interest rate of 7.53%(e) at December 31, 1996 and a maturity of
October 31, 2001, collateralized by the Cape Codder Hyannis, MA 4,958,000
Note payable with monthly principal and interest payments at an
interest rate of 7.15%(e) at December 31, 1996 and a maturity
of October 27, 1997, collateralized by the Tara Danvers, MA 22,900,000
------------
Total notes payable $147,080,000
============
</TABLE>
(a)Note was extended to April 30, 1998.
(b)At any time, the rate of interest is that declared by Bank of
America Illinois at Chicago, Illinois.
(c)Note includes two options, each to extend an additional 12 months
with a fee.
(d)Notes were extended until close of sale of the Hotels (see note 9).
(e)Variable rates are elected by the borrower generally based upon
LIBOR or prime plus a stated spread.
(f)At any time, the prime commercial lending rate as announced by The
Chase Manhattan Bank in New York City, New York.
(g)This amount is the aggregate loan amount that is evidenced by the
five individually listed notes. The aggregate loan requires a
monthly principal payment, but does not specify a methodology for
allocation of such principal/payments.
Continued
F-25
<PAGE> 30
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
3. Notes Payable, Continued:
Aggregate principal payments for the Hotel's notes payable as of
December 31, 1996 are due as follows:
<TABLE>
<S> <C>
1997 $ 44,979,000
1998 86,570,000
1999 11,323,000
2000 250,000
2001 3,958,000
------------
$147,080,000
============
</TABLE>
The majority of the notes payable are under master agreements
("Agreements") which include certain other properties owned by Flatley.
These Agreements require Flatley to maintain a specified maximum ratio
of outstanding principal balance to valuation of each property and a
maximum ratio of net operating income to projected principal and
interest payments. The Agreements also require Flatley to maintain a
specified minimum tangible net worth, liquid assets and annual cash
flow.
4. Operating Leases As Lessor And Lessee:
The Company leases, as lessor, retail space, health clubs, and other
personal property at the hotel properties under operating leases for
terms of one to ten years with renewal options of two to twenty years.
Three leases consist of monthly rents of 15% of the tenant's monthly
gross revenue. Two leases consist of monthly base rents of $8,000 and
$25,000 plus 5% and 15% of annual gross revenues in excess of $360,000
and $1,500,000, respectively. The remaining leases consist of fixed
monthly rents ranging from $685 to $8,333. Future minimum rental
receipts under the leases are as follows:
<TABLE>
<S> <C>
1997 $ 842,000
1998 773,000
1999 727,000
2000 673,000
2001 and thereafter 635,000
----------
$3,650,000
==========
</TABLE>
Continued
F-26
<PAGE> 31
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
4. Operating Leases As Lessor And Capital Leases As Lessee, Continued:
Rental income for the year ended December 31, 1996, including
additional percentage rents was approximately $894,000 from fixed
rentals and $347,000 from contingent rentals.
Flatley leases the Sheraton Tara Newton, MA under an operating lease
that expires in July 1999 with an option to renew for an additional ten
years. Rent consists of a base rent of approximately $475,000 per year
(adjusted for changes in the Consumer Price Index), plus 1% of gross
hotel revenue greater than $1,000,000 plus 43% of net income. The lease
requires Flatley to perform normal maintenance and pay real estate
taxes and normal operating costs associated with the property.
Future minimum operating lease payments under the lease are as follows:
<TABLE>
<S> <C>
1997 $488,000
1998 488,000
--------
Total $976,000
========
</TABLE>
Rental expense for the year ended December 31, 1996 was approximately
$545,000 consisting of approximately $475,000 in base rent and $70,000
in contingent rent.
5. Real Estate Tax Abatements:
During the year ended December 31, 1996 and the six months ended June
30, 1997, the Hotels received approximately $521,000 and $533,000
(unaudited), respectively, in real estate tax abatements. Such amounts
are included as an offset to real estate taxes in the respective income
statements.
6. Related Party Transactions:
Due to affiliates includes amounts payable to the corporate office of
the Flatley Company for certain operating and capital expenditures that
are paid for on behalf of the hotel property.
Cash in the amount of $3,635,000 was held by an affiliate at December
31, 1996.
The Flatley Company allocates certain corporate expenditures to the
individual hotels in the form of a management fee that ranges from 2.5%
to 3% of hotel revenues.
Continued
F-27
<PAGE> 32
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
7. Defined Contribution Plan:
The Company offers a 401(k) plan to all employees working greater than
1,000 hours per year and who have been employed greater than one year.
The employees voluntarily contribute to the plan at 1% to 16% of pre-
or post-tax salary. The Company matches up to 20% of the first 5% of
the employee contribution. For 1996, the matching contribution was
approximately $126,000.
8. Commitments And Contingencies:
Franchise Agreements:
Nine of the fifteen hotel properties owned by the Company at December
31, 1996 are operated pursuant to franchise or license agreements
("Franchise Agreements"). The Franchise Agreements generally require
the payment of a monthly royalty fee based on a percentage of gross
room revenue (ranging from 1% to 5%) and various other fees associated
with certain marketing or advertising and centralized reservation
services, also generally based on gross room revenues.
The Franchise Agreements have durations ranging from two to ten years
but generally may be terminated upon prior notice after two to five
years or upon payment of certain specified fees.
The Franchise Agreements generally contain specific standards for, and
restrictions and limitations on, the operation and maintenance of the
Hotels which are established by the franchisors to maintain uniformity
in the system created by each such franchisor. Such standards generally
regulate the appearance of the hotel, quality and type of goods and
services offered, signage, and protection of marks. Compliance with
such standards may from time to time require significant expenditures
for capital improvements.
The Franchise Agreements also generally contain financial reporting
requirements relating to calculation of royalty and other fees and
insurance requirements with respect to specified liabilities,
approved coverage limits, and minimum insurance company rating.
The Franchise Agreements generally require the consent of the
franchisor to a transfer of an interest in the applicable franchise,
and both the consent of the franchisor and the execution of a new
franchise agreement in the event of a transfer of all or a controlling
portion of the franchisee under the relevant Franchise Agreement.
Continued
F-28
<PAGE> 33
THE FLATLEY HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
----------
8. Commitments And Contingencies, Continued:
Self-Insurance:
Flatley is self-insured for workers' compensation, in certain states,
and general liability claims. Accrual for loss incidences are made
based upon the Hotels' claims experience. Due to uncertainties inherent
in the claims process, actual losses could differ from accrued amounts.
Environmental Matters:
Phase 1 environmental assessments have been prepared for each of the
Hotels. These environmental assessments have shown that some of the
Hotels have asbestos and storage tanks that need to be removed. In
addition, Phase 2 environmental assessments are needed for certain
hotel properties.
Based upon the above-described environmental reports and testing and
facts known to management, future remediation costs are not expected to
have a material adverse effect on the results of operations, financial
position or cash flows of the Hotels and compliance with environmental
laws has not had, and is not expected to have, a material effect on the
capital expenditures or earnings of the Hotels.
9. Subsequent Events:
Flatley sold the Hotels to Starwood Lodging Trust on September 10, 1997
for approximately $470,000,000 in cash.
F-29
<PAGE> 34
AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") is
entered into and dated as of August 4, 1997, by and among Mr. Thomas J.
Flatley, individually; Thomas J. Flatley and John J. Roche, as Trustees of
Hyannis-1992 Realty Trust, a Massachusetts nominee trust; Tara Hotel Management
Co. LLC, a Massachusetts limited liability company; John S. Flatley, as
Trustee; and Gregory D. Stoyle, as Trustee (each a "Seller" and collectively
the "Sellers"), and SLT Realty Limited Partnership, a Delaware limited
partnership ("SLT Realty"), and SLC Operating Limited Partnership, a Delaware
limited partnership ("SLC Operating"; SLT Realty and SLC Operating are
referred to collectively herein as the "Buyer").
PRELIMINARY STATEMENT
A. Sellers and Buyer entered into that certain Purchase and Sale
Agreement, dated July 18, 1997 (the "Agreement"), for the purchase and sale of
certain hotel properties as described therein.
B. Sellers and Buyer desire to amend certain terms and conditions of
the Agreement.
C. Initial capitalized terms used but not defined in this Amendment
shall have the meanings set forth in the Agreement.
NOW, THEREFORE, for the mutual covenants set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1. Estoppel and Consent for Ground Lease and Ancillary Leases.
Subparagraph 5.04(p) of the Agreement is hereby amended by adding at the end
thereof the following:
"Sellers shall use commercially reasonable efforts, subject to the
terms and conditions of Section 7.04 of this Agreement, to obtain an
estoppel certificate from the lessor under the Ground Lease and
Ancillary Leases in favor of Buyer dated no more than ninety (90)
days prior to Closing substantially in the form attached hereto as
Exhibit S and made a part hereof."
2. Estoppel Certificate for Air Space Lease. Sellers shall use
commercially reasonable efforts, subject to the terms and conditions of Section
7.04 of the Agreement, to cause the lessor under the Ground Lease to obtain an
estoppel certificate from the Massachusetts Turnpike Authority, as lessor under
that certain Lease of Premises, dated April 1, 1968, and recorded in Middlesex
County (South) Registry of Deeds in Book 11489, page 170, as amended (the "Air
Space Lease"), dated no more than ninety (90) days prior to Closing, certifying:
(i) the name of the person or entity
<PAGE> 35
which is the tenant under the Air Space Lease: (ii) that the Air Space lease is
in full force and effect: and (iii) that no default exists, and no event has
occurred or circumstance exists which, with the delivery of notice or passage of
time, would constitute a default under the Air Space Lease.
3. Notice of Lease for Shop Premises. Sellers shall use
commercially reasonable efforts, subject to the terms and conditions of Section
7.04 of the Agreement, to obtain a Notice of Lease for the Ancillary Lease
listed as Item No. 1 in Schedule 1.01(a) to the Agreement in substantially the
same form as the Notice of Lease for the Ground Lease as recorded in Middlesex
South Registry of Deeds in Book 11582, page 137.
4. Legal Descriptions. Sellers agree to amend the legal
descriptions in Schedule 1.01(c) of the Agreement if necessary to make such
legal description consistent with the Surveys and the other terms and
conditions of the Agreement. Seller shall not unreasonably withhold its consent
to the replacement of the legal description for the Newton Sheraton in Schedule
1.01(c) of the Agreement with an appropriate revised legal description.
5. Additional Corporation. Schedule 1.01(b) of the Agreement is
hereby amended by adding as Item No. 3 thereto the "Park Central East Lake
Management Corp., a New Jersey corporation." Seller shall deliver all of their
right, title and interest in and to such shares if Seller can locate any
documentation evidencing the same.
6. Termination of Management Agreements. Sellers and Manager agree
to enter into a termination and release agreement at or prior to Closing in
form and substance reasonably acceptable to Buyer terminating each of the
Management Agreements for the Hotels and releasing all parties from any further
obligations thereunder, and further agree that no fees or any other amounts
shall be payable to Sellers or Manager by Buyer in connection with such
termination.
7. Compliance with ADA Letters. Sellers agree to continue to
perform the work presently being performed by Sellers and scheduled to be
completed prior to the Closing Date as required under the ADA compliance
letters referenced in Schedule 4.01(n) of the Agreement (the "ADA Work"), as
amended by any waiver or determinations by appropriate governmental authorities
that any matters referred to therein are in compliance with ADA requirements,
at no cost or expense to Buyer prior to Closing; provided that related ADA
compliance work (excluding the ADA Work) not completed by Closing shall be
completed by Buyer at Buyer's cost and expense. Sellers agree that
notwithstanding anything to the contrary in the Agreement, the matters included
in such ADA compliance letters may be taken into account in the determination
of whether (i) a Due Diligence Material Adverse Effect has occurred under this
Agreement during the Due Diligence Period (except to the extent Seller has
performed or committed to perform the work required to remediate the same prior
to Closing) or (ii) a Material Adverse Effect has occurred at the time of
Closing under this Agreement (except to the extent Seller has performed the
work required to remediate the same prior to the Closing).
<PAGE> 36
8. Repair of Roofs. Sellers acknowledge that in connection with
Buyer's inspection of the Hotels during the Initial Inspection Period, Law
Engineering ("Law") has determined that certain repairs are needed with respect
to the roofs for the Braintree Sheraton, Framingham Sheraton, Nashua Sheraton,
Newton Sheraton, Stamford Tara and Lexington Sheraton Hotels (the "Defective
Roofs"). Sellers agree to perform and complete, or cause to be performed and
completed, the repair of each of the Defective Roofs to the extent necessary to
eliminate any current leaks, in a good and workmanlike manner (the "Repair
Work"), free and clear of all liens and encumbrances, as soon as reasonably
possible after the date hereof. Upon completion of the Repair Work for each of
the Defective Roofs, Seller promptly shall provide written notice to Buyer of
such completion (the "Completion Notice"), and Buyer shall have the right to
have Law inspect the Repair Work within ten (10) business days after receipt of
such Completion Notice to determine whether the Repair Work for the Defective
Roofs identified in the Completion Notice is satisfactory to eliminate such
leaks.
9. Closing Date. Section 5.01 of the Agreement is hereby deleted,
and replaced with the following:
5.01 Time and Place for Closing. Subject to the satisfaction
of each of the conditions precedent herein set forth, the Closing shall
take place at 10:00 a.m. Eastern Time on September 15, 1997, at the
offices of Bingham, Dana & Gould LLP, 150 Federal Street, Boston,
Massachusetts, by means of a so-called "New York-style" closing, with
the concurrent delivery of all Closing Documents and the payment of the
Purchase Price in full; provided, however, that Buyer shall have the
right to change the date of Closing to any Business Day prior to
September 15, 1997, but no earlier than September 2, 1997, by providing
five (5) days advance written notice to Sellers. In the event that any
condition precedent to the obligations of Buyer to close hereunder has
not been satisfied or waived in writing prior to the date set for
Closing, Buyer may, in its sole discretion, extend the date set for
Closing from time to time for up to thirty (30) days or for such longer
period of time as Sellers and Buyer may agree, during which Buyer may
(i) cure such condition(s) or (ii) pay an amount to Sellers to cure
such condition(s), provided that as a condition precedent to Buyer
extending the Closing, (i) Buyer shall make an additional deposit in
the amount of $5,000,000 (the "Extension Deposit") with the Escrow
Agent to be held in accordance with the Earnest Money Escrow
Agreement, and (ii) Buyer shall waive any matters which exist as of
September 15, 1997 (or earlier date if so elected by Buyer) for the
purpose of determining whether a Material Adverse Effect has occurred
at Closing. In no event shall the date for Closing be extended beyond
October 31, 1997 (the "Outside Closing Date"). The date on which the
transactions herein contemplated shall be consummated is herein
referred to as the "Closing Date" and the transactions occurring at
that time are herein referred to as "Closing."
10. No Further Amendments. Except as expressly set forth herein,
the Agreement is not otherwise amended, and shall remain in full force and
effect.
-3-
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf as of the day and year first above written.
SELLERS:
/s/ Thomas J. Flatley
------------------------------------
Thomas J. Flatley
TARA HOTEL MANAGEMENT CO. LLC
By: /s/ Thomas J. Flatley
--------------------------
Name: Thomas J. Flatley
------------------------
Title: Member
-----------------------
/s/ Thomas J. Flatley
-----------------------------
Thomas J. Flatley, as Trustee of Hyannis-1992
Realty Trust and not individually
/s/ John J. Roche
-----------------------------
John J. Roche, as Trustee of Hyannis-1992
Realty Trust and not individually
/s/ John S. Flatley
-----------------------------
John S. Flatley, as Trustee and not individually
/s/ Gregory D. Stoyle
-----------------------------
Gregory D. Stoyle, as Trustee and not
individually
-5-
<PAGE> 38
BUYER:
SLT REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Starwood Lodging Trust,
a Maryland real estate investment trust
Its: General Partner
By: /s/ Steven R. Goldman
--------------------------------------
Name: Steven R. Goldman
--------------------------------------
Title: SVP
--------------------------------------
SLC OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Starwood Lodging Corporation,
a Maryland corporation
Its: General Partner
By: /s/ Joseph Love
--------------------------------------
Name: Joseph Love
--------------------------------------
Title: VP
--------------------------------------
-6-
<PAGE> 1
Exhibit 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Starwood Lodging Trust and Starwood Lodging Corporation (the "Company") on Form
S-3 (File Nos. 333-13411 and 333-13325) of our report dated August 29, 1997
(except for note 9 for which the date is September 10, 1997) on the combined
financial statements of the Flatley Hotels as of and for the year ended December
31, 1996, which report is included in this report on Form 8-K/A.
Coopers & Lybrand L.L.P.
Phoenix, Arizona
December 16, 1997
