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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 26, 1996
WESTIN HOTELS LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
Delaware 0-15097 91-1328985
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.
2001 Sixth Avenue
Seattle, Washington 98121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206)443-5000
N/A
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(Former name or former address, if changed since last report)
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WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
REPORT ON FORM 8-K
ITEM 5. OTHER EVENTS.
On September 26, 1996, in response to two separate offers to the
limited partners to purchase units at $185 and $230 per unit, respectively, the
General Partner distributed a letter to its limited partners providing certain
unit sales price information. The letter indicates that (1) the average price
recently reported for units that are being transferred through certain secondary
markets that specialize in trading limited partnership interests ("Limited
Partnership Exchanges") exceeds the purchase prices of the recent offers and (2)
these trading prices have been increasing. The average unit price computed on a
per transaction basis for units traded during the second quarter of 1996 was
$225. During the third quarter of 1996, the average price computed to date on a
per unit basis has increased to $259 per unit. The average unit price computed
to date on a per transaction basis during the third quarter of 1996 is $289. The
range of unit prices for the third quarter of 1996 is $210 per unit to $340 per
unit.
The General Partner also reported that in May 1996 it received reports
estimating the market value for each of the Hotels. Based on the estimated
values and after consideration of Partnership liabilities, the calculated value
of limited partners' equity is in excess of $300 per unit. Such valuation,
however, does not necessarily reflect fair market value of the units or what a
limited partner would realize on liquidation of the Partnership.
In addition, the General Partner indicated that, as a result of the
increased cash flow from operations previously reported, it anticipates, barring
unforeseen circumstances, that the Partnership will be in a position to resume
significant cash distributions to the limited partners.
A complete copy of this General Partner's letter to the limited
partners is included as an exhibit to this report.
On October 11, 1996, the General Partner distributed another letter to
its limited partners addressing certain tax issues and the potential effect on
unit transfers. In the letter, the General Partner stated it had determined,
based on the advice of tax counsel, that it is in the best interest of the
Partnership to implement a unit transfer policy that relies on the protections
of the 5% safe harbor, promulgated by the Internal Revenue Service, to prevent
the Partnership from being deemed a "publicly traded partnership" ("PTP"),
taxable as a corporation, for federal income tax purposes, pursuant to Section
7704 of the Internal Revenue Code.
Section 7704 states that a PTP includes a partnership in which
interests are "readily tradable on a secondary market or the substantial
equivalent thereof." Notice 88-75, issued by the Internal Revenue Service
provides partnerships with assurance, through compliance with certain safe
harbor definitions, that a partnership will not be deemed a PTP taxable as a
corporation. The most lenient of the safe harbors available is the 5% safe
harbor, which applies if the sum of the percentage interests in partnership
capital or profits represented by units traded during any calendar year does not
exceed 5% of the total Partnership interests.
To comply with the 5% safe harbor, for the 1996 fourth quarter the
General Partner will suspend its approval of any unit sales transfer request
that would exceed aggregate 1996 unit sales of 6,848 units, unless it receives
the advice of counsel to the Partnership that such transfer would not pose a
significant risk that the Partnership would be deemed a PTP.
At the end of the 1996 third quarter, the Partnership had processed
4,485 unit sales. For the 1996 fourth quarter, the Partnership had received as
of October 11, 1996, 257 unit sales transfer requests. Any transaction received
that cannot be processed in the 1996 calendar quarter due to the 5% safe harbor
will be returned to the person submitting the request.
A complete copy of this General Partner's letter to the limited
partners is included as an exhibit to this report.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(C) EXHIBITS
20.1 Letter to Limited Partners dated September 26, 1996.
20.2 Letter to Limited Partners dated October 11, 1996.
*****
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTIN HOTELS LIMITED PARTNERSHIP
(a Delaware limited partnership)
By: WESTIN REALTY CORP.,
Its sole General Partner
By: /s/ Richard Mahoney
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Richard Mahoney, Director,
Vice President, Chief Financial
Officer and Treasurer
DATE: September 26, 1996
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September 26, 1996
Dear Limited Partners:
We have recently become aware of two separate offers to purchase units of Westin
Hotels Limited Partnership. We understand that the purchase prices that have
been offered are $185 and $230 per unit, respectively. Although the General
Partner is not advising you whether or not to accept either offer, you should
consider the following information, which indicates that the units may be worth
more than the prices being offered, before determining whether to sell your
units.
Although the market for units is limited, unit sales do occur through certain
secondary markets that specialize in trading limited partnership interests
("Limited Partnership Exchanges"). The above-referenced offers are below the
average price recently reported to us for the units that are being transferred
through various Limited Partnership Exchanges. In addition, the trading prices
at these Limited Partnership Exchanges have been steadily increasing. The
average unit price computed on a per transaction basis for units traded during
the second quarter of 1996 was $225. During the third quarter of 1996, the
average price computed to date on a per unit basis has increased to $259 per
unit. The average unit price computed to date on a per transaction basis during
the third quarter of 1996 is $289. The range of unit prices for the third
quarter of 1996 is $210 per unit to $340 per units.
In May 1996, the General Partner received reports estimating the market value
for each of the Hotels. Based on these estimated values and after consideration
of Partnership liabilities, the calculated value of Limited Partners' equity is
in excess of $300 per unit. However, such valuation does not necessarily reflect
fair market value of the units or what you would realize on liquidation of the
Partnership.
As discussed in our most recent quarterly reports, the Partnership's operating
profits have improved and are continuing to improve. Also as reported, the
Partnership has just recently invested $45 million in your Hotels, including
significant renovations to the guest rooms and food and beverage outlets. This
investment has increased the asset value of the Hotels and contributed directly
to improved operating results for each property. As a result of the increased
cash flow from operations, the General Partner anticipates, barring unforeseen
circumstances, that the Partnership will be in a position to resume significant
cash distributions to the Limited Partners in 1997.
We recommend that you consult with your tax advisor regarding the tax
ramifications of selling your units. For tax purposes, the basis of your units
has been reduced since you purchased them in 1986 by both cash distributions and
net passive losses. As a result, assuming you have been able to recognize your
net passive losses every year, sale of the units could result in a taxable
capital gain.
The General Partner is providing this information to you because this is the
first time that there have been general solicitations to purchase units from the
Limited Partners. We hope this information is helpful in making your decision of
whether to accept either of the current offers. Please note, however, if
additional offers are made, the General Partner may choose not to
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provide information similar to that provided in this letter. Should you have any
additional questions or concerns, please contact our Investor Relations
Department at 1-800-323-5888.
Sincerely yours,
Westin Hotels Limited Partnership
by Westin Realty Corp., its General Partner
/s/ Richard Mahoney
Richard Mahoney
Vice President, Chief Financial Officer and Treasurer
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October 11, 1996
Dear Limited Partners:
Partly as a result of recent direct solicitations to purchase units to limited
partners, aggregate trading activity in units has increased in 1996 over prior
years' trading activity. Historically, the trading activity for units in any
calendar year ranged between 2% and 3% of the outstanding units. The increase in
trading activity has raised the concern that the Partnership could be deemed a
"publicly traded partnership", taxable as a corporation, for federal income tax
purposes. If the Partnership were to be taxable as a corporation, then the
Partnership's income would be subject to double taxation. Rather than being
taxed solely at the partner level, the Partnership's income will be subject to
corporate tax (currently a maximum federal rate of 35%) and any distributions to
a partner would be subject to that partner's individual tax rate.
This tax issue first arose in 1987 when Congress enacted Section 7704 of the
Internal Revenue Code, which, with certain exceptions that are not relevant to
the Partnership, treats a partnership that is considered a publicly traded
partnership ("PTP") as a corporation for federal income tax purposes. Under
Section 7704, a PTP includes a partnership in which interests are "readily
tradable on a secondary market or the substantial equivalent thereof." In 1988,
the Internal Revenue Service issued Notice 88-75 (the "Notice"), providing
partnerships with assurance, through compliance with certain safe harbor
definitions, that a partnership will not be deemed a PTP taxable as a
corporation. While the Service adopted final regulations in November 1995
amending these safe harbor definitions, the Partnership may continue to rely on
the safe harbors in the Notice until 2005. Of the safe harbors available to the
Partnership, the one that is most lenient in terms of allowing partners to
transfer their interests is the 5% safe harbor. The 5% safe harbor applies if
the sum of the percentage interests in partnership capital or profits
represented by units traded during any calendar year does not exceed 5% of the
total Partnership interests.
Based on advice of tax counsel, the General Partner has determined that it is in
the best interest of the Partnership to implement a unit transfer policy that
relies on the protections afforded by the 5% safe harbor. Compliance with the 5%
safe harbor will ensure that the Partnership will not be deemed a PTP while
allowing the maximum number of unit trades. Consequently, for the 1996 fourth
quarter, the General Partner will approve transfer requests that otherwise
satisfy all
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transfer requirements only to the extent that aggregate 1996 unit sales do not
exceed 6,848 units. The General Partner will suspend its approval of any
subsequent unit sale transfer request that would exceed this limit, unless it
receives the advice of counsel to the Partnership that such transfer would not
pose a significant risk that the Partnership would be deemed a PTP. At the end
of the 1996 third quarter, the Partnership had processed 4,485 unit sales. For
the 1996 fourth quarter, the Partnership has received to date 257 unit sales
transfer requests.
The 5% safe harbor limit only applies to transfers reflecting unit sales and
does not apply to "private transfers" such as transfers at death, transfers
between family members, and distributions from a qualified retirement plan or
individual retirement account. Any transfer request that cannot be processed in
the 1996 calendar quarter due to the 5% safe harbor limitation will be returned
to the person submitting the request. Since the 5% limitation is an annual
limit, the General Partner will resume processing unit sale transfers in the
1997 first quarter.
While we recognize that the 5% annual unit sales limitation may limit your
ability to sell your units, we believe that, for the benefit of all partners,
our principal duty is to take all reasonable steps to ensure that the
Partnership will not be taxable as a corporation. We will continue to seek ways
to facilitate unit sale transfers while ensuring adequate protection for the
Partnership from being deemed a "publicly traded partnership" for federal income
tax purposes. Please address any questions or concerns to our Investor Relations
department at 1-800-323-5888.
Sincerely,
Westin Hotels Limited Partnership
by Westin Realty Corp., its General Partner
/s/ Richard Mahoney
Richard Mahoney
Vice President, Chief Financial Officer & Treasurer
