<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 SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-15097
WESTIN HOTELS LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTERS)
<TABLE>
<S> <C>
DELAWARE 91-1328985
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2231 EAST CAMELBACK ROAD, SUITE 400 (602) 852-3900
PHOENIX, AZ 85016-3435 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, CODE)
INCLUDING ZIP CODE)
</TABLE>
Indicate by check mark whether the Registrant (1) has 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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares (units) outstanding of each of the issuer's
classes of common stock (units), as of the latest practicable date (applicable
only to corporate issuers).
135,600 limited partnership units issued and outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
2
Consolidated Balance Sheets.................................
3
Consolidated Statements of Operations.......................
4
Consolidated Statement of Partners' Equity..................
5
Consolidated Statements of Cash Flows.......................
6
Notes to Consolidated Financial Statements..................
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations...................................
PART II. OTHER INFORMATION
Item 5. Other Information........................................... 11
Item 6. Exhibits and Reports on Form 8-K............................ 11
SIGNATURES............................................................ 14
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of
$2,499 in 1998 and $561 in 1997........................ $ 25,945 $ 15,750
Guest and trade accounts receivable, less allowance for
doubtful accounts of $307 in 1998 and $278 in 1997..... 11,288 8,408
Other receivables......................................... 390 745
Inventories............................................... 593 641
Prepaid expenses and other current assets................. 600 1,640
-------- --------
TOTAL CURRENT ASSETS........................................ 38,816 27,184
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $113,952 in 1998 and $106,092 in 1997..... 239,886 233,954
RESTRICTED CASH............................................. 3,193 7,960
OTHER ASSETS................................................ 797 687
-------- --------
TOTAL ASSETS................................................ $282,692 $269,785
======== ========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade and other........................................ $ 2,736 $ 2,147
Starwood and affiliates................................ 4,133 1,998
-------- --------
Total accounts payable............................ 6,869 4,145
Accrued expenses.......................................... 13,188 9,587
Current maturities of long-term obligations............... 524 564
Other current liabilities................................. 1,481 1,296
-------- --------
TOTAL CURRENT LIABILITIES................................... 22,062 15,592
LONG-TERM OBLIGATIONS....................................... 128,295 129,180
LONG-TERM OBLIGATION TO STARWOOD............................ 36,227 33,809
DEFERRED INCENTIVE MANAGEMENT FEES.......................... 24,627 22,281
-------- --------
TOTAL LIABILITIES........................................... 211,211 200,862
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS.......................................... 3,905 3,733
PARTNERS' EQUITY (DEFICIT):
General Partner........................................... (2,521) (2,307)
Limited Partners (135,600 Units issued and outstanding)... 70,097 67,497
-------- --------
TOTAL PARTNERS' EQUITY...................................... 67,576 65,190
-------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY...................... $282,692 $269,785
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Rooms............................................ $24,845 $23,174 $ 69,821 $61,287
Food and beverage................................ 8,354 7,801 26,061 23,096
Other operating departments...................... 3,343 2,782 9,364 7,952
------- ------- -------- -------
TOTAL OPERATING REVENUES........................... 36,542 33,757 105,246 92,335
------- ------- -------- -------
OPERATING EXPENSES:
Rooms............................................ 6,571 5,881 18,757 16,434
Food and beverage................................ 6,259 6,062 19,357 17,863
Other operating departments...................... 830 792 2,498 2,368
Administrative and general....................... 2,209 2,266 7,200 6,937
Management fees.................................. 2,359 2,106 7,021 6,242
Advertising and business promotion............... 2,372 2,228 7,404 6,199
Property maintenance and energy.................. 2,291 2,283 6,467 6,369
Local taxes and insurance........................ 2,147 2,111 6,267 6,615
Rent............................................. 213 201 613 606
Depreciation and amortization.................... 2,360 2,291 7,842 6,725
------- ------- -------- -------
TOTAL OPERATING EXPENSES........................... 27,611 26,221 83,426 76,358
------- ------- -------- -------
OPERATING PROFIT................................... 8,931 7,536 21,820 15,977
------- ------- -------- -------
OTHER INCOME (EXPENSE):
Interest income.................................. 88 293 594 809
Interest expense................................. (2,589) (2,518) (7,774) (7,931)
Interest expense on long-term obligation to
Starwood...................................... (828) (772) (2,418) (2,222)
Other, net....................................... 4 (47) (2) (62)
------- ------- -------- -------
NET OTHER EXPENSE.................................. (3,325) (3,044) (9,600) (9,406)
------- ------- -------- -------
INCOME BEFORE MINORITY INTERESTS................... 5,606 4,492 12,220 6,571
MINORITY INTERESTS................................. (73) (61) (173) (115)
------- ------- -------- -------
NET INCOME......................................... $ 5,533 $ 4,431 $ 12,047 $ 6,456
======= ======= ======== =======
NET INCOME PER UNIT
(135,600 Units issued and outstanding)........... $ 40.80 $ 32.68 $ 88.84 $ 47.61
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997................................ $(2,307) $67,497 $65,190
Cash distributions.......................................... -- (9,661) (9,661)
Net income (loss)........................................... (214) 12,261 12,047
------- ------- -------
BALANCE AT SEPTEMBER 30, 1998............................... $(2,521) $70,097 $67,576
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Funds provided by operations.............................. $27,876 $18,809
Net change in receivables, inventories, prepaid expenses
and other current assets, net of accounts payable,
accrued expenses and other current liabilities......... 1,376 (7,413)
------- -------
Net cash provided by operating activities.............. 29,252 11,396
------- -------
INVESTING ACTIVITIES:
Acquisition of property and equipment, net................ (13,792) (7,298)
Increase in restricted cash............................... (9,436) (9,148)
Decrease in restricted cash to fund acquisition of
property and equipment................................. 14,382 7,877
Increase in other assets.................................. (140) (417)
------- -------
Net cash used in investing activities.................. (8,986) (8,986)
------- -------
FINANCING ACTIVITIES:
Cash distribution......................................... (9,661) (6,441)
Repayment of long-term obligations........................ (410) (119)
------- -------
Net cash used in financing activities.................. (10,071) (6,560)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 10,195 (4,150)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 15,750 14,752
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $25,945 $10,602
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 7
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Westin Hotels Limited Partnership, a Delaware limited partnership (the
"Partnership"), and its subsidiary limited partnerships, The Westin St. Francis
Limited Partnership and The Westin Chicago Limited Partnership. The Westin St.
Francis Limited Partnership owns and operates The Westin St. Francis in downtown
San Francisco, California, and The Westin Chicago Limited Partnership owns and
operates The Westin Michigan Avenue, Chicago in downtown Chicago, Illinois. All
significant intercompany transactions and accounts have been eliminated.
The consolidated financial statements and related information for the
periods ended September 30, 1998 and September 30, 1997 are unaudited. In the
opinion of management, all adjustments necessary for a fair statement of the
results of these interim periods have been included. All such interim
adjustments are of a normal recurring nature. The results of operations for the
periods ended September 30, 1998 and September 30, 1997 should not be regarded
as indicative of the results that may be expected for the full year.
(2) FURTHER INFORMATION
Reference is made to "Notes to Consolidated Financial Statements" contained
in the Partnership's Annual Report on Form 10-K filed for 1997 for information
regarding significant accounting policies, Partnership organization, restricted
cash, accrued expenses, long-term obligations, operating leases, contingencies,
subsequent events and related party transactions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains certain statements that may be deemed "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements relating to the Partnership's
objectives, strategies, plans, intentions and expectations, and all statements
(other than statements of historical facts) that address actions, events or
circumstances that the Partnership or its management expects, believes or
intends will occur in the future, are forward-looking statements. All such
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from historical results or those anticipated
in the forward-looking statements, including, without limitation, risks and
uncertainties associated with the following: the availability of capital for
renovations; competition within the lodging industry; the cyclicality of the
hotel business; general real estate and economic conditions; impact of the Year
2000 issue; and the other risks and uncertainties set forth in the annual,
quarterly and current reports of the Partnership. The Partnership undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
GENERAL
The primary market focus of The Westin St. Francis and The Westin Michigan
Avenue, Chicago (individually a "Hotel," collectively the "Hotels") is on
business travelers, tourists, conventions and other groups. Both The Westin St.
Francis and The Westin Michigan Avenue, Chicago experience seasonal trends, with
the lowest occupancy levels occurring during the first quarter, followed by
higher occupancies during the last three quarters of the year.
Westin Realty Corp. is the sole general partner of the Partnership. St.
Francis Hotel Corporation and 909 North Michigan Avenue Corporation are the
respective general partners of the subsidiary limited partnerships, The Westin
St. Francis Limited Partnership and The Westin Chicago Limited Partnership (the
"Hotel Partnerships"), that directly own and operate each Hotel. As of January
2, 1998, each general partner
6
<PAGE> 8
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(individually a "General Partner," collectively the "General Partners") is a
subsidiary of Starwood Hotels & Resorts Worldwide, Inc.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
CONSOLIDATED 1998 1997 1998 1997
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
REVPAR (revenue per available room)................. $138.85 $130.58 $132.22 $116.38
Operating profit as a percentage of revenues:
Rooms............................................. 73.6% 74.6% 73.1% 73.2%
Food and beverage................................. 25.1% 22.3% 25.7% 22.7%
EBITDA (in thousands)(1)............................ $11,383 $10,073 $30,254 $23,449
</TABLE>
- ---------------
(1) EBITDA is net earnings before interest expense, depreciation and
amortization, income tax expense, and minority interests. The General
Partner considers EBITDA to be a measure of the Partnership's operating
performance due to the significance of the Partnership's long-lived assets
and because such data can be used to measure the Partnership's ability to
service debt, fund capital expenditures and pay cash distributions. EBITDA
is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and such information should not be
considered as an alternative to net income, cash flow from operations or any
other performance measure prescribed by generally accepted accounting
principles.
Three Months Ended September 30, 1998 Compared with Three Months Ended
September 30, 1997
Operating profit of $8.9 million for the third quarter of 1998 represents
an 18.5% improvement over the same quarter of the prior year. The Partnership's
third quarter EBITDA of $11.4 million improved 13.0% over EBITDA of $10.1
million in the prior year period.
Consolidated rooms revenues for the third quarter of 1998 were $24.8
million and represent a 7.2% increase over the same 1997 quarter. Consolidated
REVPAR for the third quarter of 1998 reached $138.85, a 6.3% increase over the
third quarter of 1997. The Westin St. Francis' REVPAR increase of 6.3% to
$147.87 and the Westin Michigan Avenue, Chicago's REVPAR increase of 6.4% to
$124.45 was due to increases in average room rates in all segments. At The
Westin St. Francis, the average room rate for the third quarter of 1998
increased 7.0% over the third quarter of 1997 to $176.20 and the occupancy rate
decreased from 84.43% to 83.92%. At The Westin Michigan Avenue, Chicago, the
average room rate increased 16.3% to $162.97 and the occupancy rate decreased
from 83.43% to 76.37% due to a decrease in group segment room nights.
Consolidated rooms profit for the third quarter of 1998 increased 5.7% or
$1.0 million to $18.3 million over the same 1997 quarter. This improvement was
attributable to the REVPAR growth previously noted.
Consolidated food and beverage revenues of $8.4 million in the third
quarter of 1998 represent a $0.6 million, or 7.1%, increase when compared to the
same 1997 period. The $0.6 million increase in food and beverage revenues at The
Westin St. Francis was a direct result of the increased banquet business. The
Westin Michigan Avenue, Chicago reported a $95,000 decrease in food and beverage
revenues attributable to decreased banquet business.
Consolidated food and beverage profit for the third quarter of 1998
increased 20.4%, or $0.4 million, over the same period in 1997, reflecting the
success of cost containment strategies at The Westin St. Francis. The Westin St.
Francis contributed $0.5 million to the consolidated increase in food and
beverage profit, which represents a 49.9% increase over the same 1997 quarter.
The Westin Michigan Avenue, Chicago food and
7
<PAGE> 9
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
beverage profit decreased $0.1 million, or 29.2%, from the same period in 1997
as a result of a decrease in banquet revenue.
Consolidated operating expenses for the third quarter of 1998 increased to
$27.6 million, a 5.3% increase over 1997. The most significant increases were in
rooms expense and food and beverage expense due to increased business.
Nine Months Ended September 30, 1998 Compared with Nine Months Ended September
30, 1997
Consolidated 1998 year-to-date operating profit of $21.8 million was $5.8
million higher than the corresponding 1997 period. The Partnership generated
EBITDA of $30.3 million, a 29.0% increase over the first nine months of 1997.
Consolidated rooms revenues of $69.8 million for the first nine months of
1998 were $8.5 million higher than the prior year period. Improved yield
management in all segments, resulting in increased average rates in all
segments, were the major contributors to this improvement. The Westin St.
Francis' average room rate increased 8.0% to $177.25 and The Westin Michigan
Avenue, Chicago reported an increase in average room rate of 13.1% to $154.08.
The result was a consolidated REVPAR increase of 13.6% to $132.22 for the first
nine months of 1998 over the same period in 1997. REVPAR at The Westin St.
Francis increased $18.38 to $145.89 and REVPAR at The Westin Michigan Avenue,
Chicago increased $11.79 to $110.28.
For the nine months ended September 30, 1998, consolidated rooms profit
increased to $51.1 million from $44.9 million for the same 1997 period. The
Westin St. Francis contributed $4.4 million to this increase, a 14.9%
improvement over year-to-date 1997, and The Westin Michigan Avenue, Chicago
contributed $1.8 million, an 11.7% improvement. Both Hotels achieved slight
increases in their profit margins as a result of the Hotels' focus on improved
cost control over room expenses.
Consolidated 1998 year-to-date food and beverage revenues were $26.1
million versus $23.1 million in 1997 as a result of increased banquet business.
Of the $3.0 million increase in food and beverage revenues, $2.6 million came
from The Westin St. Francis and $0.4 million from The Westin Michigan Avenue,
Chicago. All the food and beverage outlets at both Hotels reported higher
year-to-date revenues than those for 1997, except for the nightclub Oz at The
Westin St. Francis, which was closed in March 1998 and is being remodeled into a
banquet room.
The consolidated food and beverage profit increase of $1.5 million to $6.7
million for the nine months ended September 30, 1998 was a 28.1% improvement
over that of the corresponding 1997 period. The food and beverage profit
increase at The Westin St. Francis of $1.5 million represents a 44.2%
improvement over the 1997 nine month period. The food and beverage profit at The
Westin Michigan Avenue, Chicago remained consistent with the corresponding 1997
period.
Other operating departments contributed $9.4 million to 1998 year-to-date
operating revenues, an increase of 17.8% from the same 1997 period. Both Hotels
reported increases in revenues from both telecommunications and their parking
garages as well as from sub-rentals, which includes the rental of retail space
and in-room movies.
Consolidated operating expenses year-to-date increased $7.1 million to
$83.4 million over the same 1997 period. The greatest operating expense
increases, other than room expenses and food and beverage expenses, were due to
increased advertising and business promotion and greater depreciation and
amortization due to capital additions. Management fees increased $0.8 million
during the nine months ended September 30, 1998 over management fees for the
same 1997 period due to improved Partnership net operating cash flow, as
defined.
8
<PAGE> 10
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Liquidity and Capital Resources
As of September 30, 1998, the Partnership had cash and cash equivalents of
$25.9 million, a $10.2 million increase from December 31, 1997. Total net cash
provided by operating activities for the nine months ended September 30, 1998
equaled $29.3 million.
Pursuant to the Restructuring Agreement, as defined, the Partnership is
required to make quarterly deposits to FF&E Reserve Accounts based upon 5.0% of
gross revenue through maturity of the Mortgage Loan in 2006. During the nine
months ended September 30, 1998, The Westin St. Francis and The Westin Michigan
Avenue, Chicago expended $11.3 million and $3.1 million, respectively, from
their FF&E Reserve Accounts. The consolidated balance of $3.2 million of the
Hotels' FF&E Reserve Accounts is included in restricted cash in the consolidated
balance sheets.
The Restructuring Agreement terms require that both Hotels make deposits
into Tax Escrow Accounts for payment of real and personal property taxes. The
consolidated balances of these Tax Escrow Accounts are included in cash and cash
equivalents under current assets in the consolidated balance sheets.
Capital expenditures in 1998 are expected to approximate $16.2 million. The
Westin St. Francis is expected to spend approximately $7.0 million on capital
improvements in 1998. Approximately $0.6 million is for the renovation of guest
rooms; $3.3 million is for renovation of food and beverage facilities,
particularly the conversion of Club Oz to a banquet room; $1.8 million will have
been spent on other areas, such as health club upgrades, technology enhancements
and marble stone work; and $1.3 million will have been expended for the facade
project. The facade restoration is scheduled to be completed in 1999. The Westin
Michigan Avenue, Chicago expects to spend a total of $9.2 million for capital
improvements during 1998. In third quarter 1998, the Hotel completed an
extensive renovation to its tower rooms, which completely updated and raised the
caliber of the guest rooms. During 1998, the Hotel commenced and completed the
conversion of 18 parlor suites into rentable guest rooms, which increased its
guest room inventory. The total cost for the renovation of the rooms and
conversion of the suites was $7.6 million. In addition, $0.3 million will be
spent on partial roof replacement; $0.8 million on other areas, such as updating
EDP and engineering systems; and $0.5 million for minibars and other food and
beverage equipment. All capital projects have been approved by the Lender.
The Mortgage Loans, as restructured, provided for the suspension of
principal payments through December 1, 1998. Under the terms of the Mortgage
Loan, the Partnership is scheduled to make interest payments of $10.8 million in
1998.
The General Partner is exploring alternative financing for the long-term
obligation to the General Partner through a second mortgage to obtain a reduced
interest rate.
At this time, the General Partner anticipates that the cash flow from
operations and the corresponding contributions to the FF&E Reserve Accounts will
provide adequate funding for 1998 capital expenditures and interest payments on
the Mortgage Loans. In addition, barring any unforeseen adverse occurrence, the
General Partner anticipates that the Partnership will be in a position to
continue distributions to the limited partners at an annual level of $95.00 per
Unit in 1998. Future distributions will be based on available net cash flow, as
defined in the Partnership agreement, and are dependent upon the net cash flow,
as defined, generated by the Hotels and the adequacy of cash reserves. The
amount of each distribution will be determined by the General Partner at the end
of each calendar quarter according to the terms of the Partnership agreement and
will be distributed to the limited partners within 75 days of the end of the
quarter. Cash distributions of $23.75 per Unit each were paid to the limited
partners on March 13, 1998, June 12, 1998 and September 11, 1998.
9
<PAGE> 11
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The Board of Directors of the General Partner is in the process of authorizing a
cash distribution of $23.75 per Unit to be paid to the limited partners on
December 14, 1998.
As required by the Partnership agreement, the General Partner will review
the opportunities to sell or refinance the Hotel properties when it reasonably
believes that such action is in the best interest of the Partnership. As the
real estate market for upscale hotel properties continues to improve, the
General Partner will monitor the market conditions for appropriate opportunities
to sell or refinance the properties. By the end of 2001, the General Partner
must use its best efforts to sell or refinance the Hotel properties.
RISKS RELATING TO YEAR 2000
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, in less
than two years, the computerized systems, which include information and
non-information technology systems, and applications used by the Partnership
will need to be reviewed and evaluated to ensure all such financial, information
and operational systems are Year 2000 compliant.
State of Readiness
The Partnership has assembled a team of computer experts to address the
Year 2000 compliance issue which will be completed in three phases as follows:
<TABLE>
<CAPTION>
PHASE DESCRIPTION STATUS ESTIMATED COMPLETION
- ----- --------------------------------------------------- ---------- --------------------
<C> <S> <C> <C>
I Discovery In process First Quarter 1999
- Identify computerized systems, including
information and non-information systems
- Inventory all computerized systems
- Contact vendors for compliance statements
II Testing -- Second Quarter 1999
- Test all applications and hardware with
validation tools
- Submit test statistics to an independent third
party for verification
- Review test results
III Remediation -- Third Quarter 1999
- Implement modifications or upgrades, as necessary
</TABLE>
Year 2000 Project Costs
The total costs for the Year 2000 compliance review, evaluation, assessment
and remediation efforts are not expected to be in excess of $350,000. Of this
amount, approximately $115,000 had been expended as of September 30, 1998, and
an additional $25,000 is expected to be incurred in the remainder of 1998.
Starwood Year 2000 Risks
There can be no assurance that the efforts related to the Year 2000
compliance will be sufficient to make the Hotels' computerized systems and
applications Year 2000 compliant in a timely manner or that the allocated
resources will be sufficient. A failure to become Year 2000 compliant could
affect the integrity of the guest check-in, billing and accounting functions.
Certain physical property, machinery and equipment could also fail resulting in
safety risks and guest dissatisfaction.
10
<PAGE> 12
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Contingency Plan
The Partnership is in the process of developing its contingency plan for
the Hotels to provide for the most likely worst case scenarios regarding Year
2000 compliance. This contingency plan is expected to be completed in 1999.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
AFFILIATE TRANSACTIONS
The Partnership reimbursed the General Partner for administrative expenses
totaling approximately $412,000 year-to-date 1998 and approximately $76,000 for
the third quarter 1998. Affiliates of the General Partner, including Starwood
Hotels & Resorts Worldwide, Inc. ("Starwood"), as manager of the Hotels,
received base management, marketing and reservation fees from the Partnership
totaling $5.7 million year-to-date, 1998 and $2.0 million for the third quarter
1998. The Partnership accrued incentive management fees, payable to Starwood, of
$6.2 million year-to-date 1998, $3.1 million for the third quarter 1998.
INVESTOR RELATIONS
The Partnership's investor relations function is handled by
ReSource/Phoenix(R) at 2401 Kerner Boulevard, San Rafael, CA 94901-5529. The
toll-free number for ReSource/Phoenix(R) is 1-800-323-5888.
UNIT SALES
Relying on the protections of the 5% safe harbor pursuant to Section 7704
of the Internal Revenue Code, on May 1, 1998, when sales of Partnership Units
reached 6,845, the General Partner suspended Unit sales for the remainder of
1998. The General Partner is, however, continuing to accept paperwork for Unit
sales for processing in 1999. To date, the General Partner has received requests
for the transfer of 2,713 Units which will be completed in 1999. Of these, 210
Unit sales were through Limited Partnership Exchanges. The average price of
these sales was $954.39 per Unit. The majority of the remaining sales requests
were in conjunction with previous tender offers and range in price from $725 to
$775 per Unit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
4. Instruments defining the rights of security holders.
4.1 Amended and Restated Agreement of Limited Partnership of Westin
Hotels Limited Partnership.(1)
4.2 Amended and Restated Agreement of Limited Partnership of The Westin
St. Francis Limited Partnership.(1)
4.3 First Amendment to Amended and Restated Agreement of Limited
Partnership of The Westin St. Francis Limited Partnership.(3)
4.4 Amended and Restated Agreement of Limited Partnership of The Westin
Chicago Limited Partnership.(1)
11
<PAGE> 13
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4.5 First Amendment to Amended and Restated Agreement of Limited
Partnership of The Westin Chicago Limited Partnership.(3)
10. Material contracts.
10.1 Restructuring Agreement dated as of June 2, 1994.(3)
10.2 Second Restructuring Agreement dated as of May 27, 1997.(4)
10.3 Amended and Restated Management Agreements between The Westin St.
Francis Limited Partnership and Westin Hotel Company, and between
The Westin Chicago Limited Partnership and Westin Hotel Company,
for property management services.(2)
10.4 First Amendments to Amended and Restated Management Agreements of
The Westin St. Francis Limited Partnership and of The Westin
Chicago Limited Partnership.(3)
10.5 Assignment and Assumption of Agreements between Westin Hotel
Company and St. Francis Hotel Corporation.(6)
10.6 Assignment and Assumption of Agreements between Westin Hotel
Company and North Michigan Avenue Corporation.(6)
10.7 Contribution Agreement between St. Francis Hotel Corporation and
The Westin St. Francis Limited Partnership, and between 909 North
Michigan Avenue Corporation and The Westin Chicago Limited
Partnership, for contribution of Hotel assets and the transfer of
limited partnership interests.(2)
10.8 Promissory Note of St. Francis Hotel Corporation dated August 21,
1986 to Teacher Retirement System of Texas.(1)
10.9 First Amendment to Promissory Note of St. Francis Hotel
Corporation dated as of June 2, 1994.(3)
10.10 Second Amendment to Promissory Note of St. Francis Hotel
Corporation dated as of May 27, 1997.(5)
10.11 Deed of Trust, Financing Statement, Security Agreement and
Fixture filing dated August 21, 1986 respecting The Westin St.
Francis.(1)
10.12 First Amendment to Deed of Trust, Financing Statement, Security
Agreement and Fixture Filing dated as of June 2, 1994.(3)
10.13 Second Amendment to Deed of Trust, Financing Statement, Security
Agreement and Fixture Filing (With Assignment of Rents and
Leases) dated as of May 27, 1997.(5)
10.14 Promissory Note of 909 North Michigan Avenue Corporation dated
August 21, 1986 to Teacher Retirement System of Texas.(1)
10.15 First Amendment to Promissory Note of 909 North Michigan Avenue
Corporation dated as of June 2, 1994.(3)
10.16 Second Amendment to Promissory Note of 909 North Michigan Avenue
Corporation dated as of May 27, 1997.(5)
10.17 Mortgage and Security Agreement dated August 21, 1986 for The
Westin Hotel, Chicago.(1)
12
<PAGE> 14
WESTIN HOTELS LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
10.18 First Amendment to Mortgage and Security Agreement dated as of
June 2, 1994.(3)
10.19 Second Amendment to Mortgage and Security Agreement dated as of
May 27, 1997.(5)
10.20 St. Francis FF&E Escrow Agreement dated as of June 2, 1994.(3)
10.21 Chicago FF&E Escrow Agreement dated as of June 2, 1994.(3)
10.22 Promissory Note dated June 2, 1994 in favor of Westin Realty
Corp. by Westin Hotels Limited Partnership.(3)
10.23 Loan Agreement dated as of June 2, 1994 between Westin Hotels
Limited Partnership and Westin Realty Corp.(3)
27. Financial Data Schedule
- ---------------
(1) Incorporated by reference to Exhibits 4.1, 4.2, 4.3, 10.3, 10.4, 10.5 and
10.6, respectively, to the Partnership's 1986 Annual Report on Form 10-K.
(2) Incorporated by reference to Exhibits 10.1 and 10.2, respectively, of the
Partnership's Registration Statement on Form S-11 (No. 33-3918).
(3) Incorporated by reference to Exhibits 4.3, 4.5, 10.1, 10.3, 10.6, 10.8,
10.10, 10.12, 10.13, 10.14, 10.15 and 10.16, respectively, to the
Partnership's Form 10-Q for the period ending June 30, 1994.
(4) Incorporated by reference to Exhibit 10. to the Partnership's Form 8-K dated
May 27, 1997.
(5) Incorporated by reference to Exhibits 10.8, 10.11, 10.14, 10.17,
respectively, to the Partnership's Form 10-Q for the period ending June 30,
1997.
(6) Incorporated by reference to Exhibits 10.5 and 10.6, respectively, to the
Partnership's 1997 Annual Report on Form 10-K.
13
<PAGE> 15
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, thereunto duly authorized in the City of Phoenix, State of Arizona,
on the 30th day of October, 1998.
WESTIN HOTELS LIMITED PARTNERSHIP
(a Delaware limited partnership)
By: WESTIN REALTY CORP.,
Its sole General Partner
By: [/s/ ALAN M. SCHNAID]
------------------------------------
Alan M. Schnaid, Director,
Vice President and Assistant
Treasurer
Date: October 30, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 25,945
<SECURITIES> 0
<RECEIVABLES> 11,985
<ALLOWANCES> 307
<INVENTORY> 593
<CURRENT-ASSETS> 38,816
<PP&E> 353,838
<DEPRECIATION> 113,952
<TOTAL-ASSETS> 282,692
<CURRENT-LIABILITIES> 22,062
<BONDS> 164,522
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 282,692
<SALES> 105,246
<TOTAL-REVENUES> 105,246
<CGS> 0
<TOTAL-COSTS> 40,612
<OTHER-EXPENSES> 42,814
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,192
<INCOME-PRETAX> 12,047
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,047
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,047
<EPS-PRIMARY> 88.84
<EPS-DILUTED> 88.84
</TABLE>
