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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
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)
DELAWARE
(State or other jurisdiction of incorporation or organization)
91-1328985
(I.R.S. employer identification no.)
777 WESTCHESTER AVENUE
WHITE PLAINS, NY 10604
(Address of principal executive offices, including zip code)
1-800-323-5888
(Registrant's telephone number, including area code)
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.
135,600 limited partnership units issued and outstanding as of November 8, 1999.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets................................. 2
Consolidated Statements of Income........................... 3
Consolidated Statement of Partners' Capital (Deficit)....... 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
PART II. OTHER INFORMATION
Item 5. Other Information........................................... 11
Item 6. Exhibits and Reports on Form 8-K............................ 11
</TABLE>
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PART I. FINANCIAL INFORMATION
WESTIN HOTELS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
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SEPTEMBER 30, DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of
$3,788 and $2,779...................................... $ 38,180 $ 31,524
Guest and trade accounts receivable, less allowance for
doubtful accounts of $391 and $290..................... 13,008 8,753
Other receivables......................................... 387 192
Inventories............................................... 646 641
Prepaid expenses and other current assets................. 1,131 858
-------- --------
Total current assets................................... 53,352 41,968
Property and equipment, at cost, net of accumulated
depreciation of $122,409 and $116,282..................... 236,463 238,983
Restricted cash............................................. 5,354 3,890
Other assets................................................ 1,011 820
-------- --------
$296,180 $285,661
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable --
Trade and other........................................ $ 1,610 $ 1,601
General Partner and affiliates......................... 3,624 5,945
-------- --------
Total accounts payable............................... 5,234 7,546
Accrued expenses.......................................... 14,930 11,150
Current maturities of long-term obligations............... 1,843 735
Other current liabilities................................. 2,438 1,340
-------- --------
Total current liabilities.............................. 24,445 20,771
Long-term obligations....................................... 126,418 128,122
Long-term obligation to General Partner..................... 39,324 36,928
Deferred incentive management fees payable to General
Partner................................................... 28,168 25,618
-------- --------
Total liabilities...................................... 218,355 211,439
-------- --------
Minority interests.......................................... 4,163 3,981
-------- --------
Commitments and contingencies
Partners' capital (deficit):
General Partner........................................... (2,765) (2,563)
Limited Partners (135,600 Units issued and outstanding)... 76,427 72,804
-------- --------
Total Partners' capital................................ 73,662 70,241
-------- --------
$296,180 $285,661
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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WESTIN HOTELS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
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Operating revenues:
Rooms............................................... $26,216 $24,845 $72,804 $69,821
Food and beverage................................. 9,416 8,354 32,179 26,061
Other operating departments....................... 3,340 3,343 9,431 9,364
------- ------- ------- -------
Total operating revenues............................ 38,972 36,542 114,414 105,246
------- ------- ------- -------
Operating expenses:
Rooms............................................. 6,455 6,571 18,771 18,757
Food and beverage................................. 7,956 6,259 25,322 19,357
Other operating departments....................... 950 830 2,913 2,498
Administrative and general........................ 2,337 2,209 7,007 7,200
Related party management fees..................... 2,858 2,359 9,104 7,021
Advertising and business promotion................ 2,239 2,372 7,030 7,404
Property maintenance and energy................... 2,376 2,291 6,584 6,467
Local taxes and insurance......................... 2,329 2,147 7,006 6,267
Rent.............................................. 164 213 465 613
Depreciation and amortization..................... 2,572 2,360 7,726 7,842
------- ------- ------- -------
Total operating expenses............................ 30,236 27,611 91,928 83,426
------- ------- ------- -------
Operating profit.................................... 8,736 8,931 22,486 21,820
------- ------- ------- -------
Other income (expense):
Interest income................................... 412 88 1,047 594
Interest expense.................................. (2,592) (2,589) (7,873) (7,774)
Interest expense on long-term obligation to
General Partner................................ (799) (828) (2,396) (2,418)
Other, net........................................ -- 4 -- (2)
------- ------- ------- -------
Net other expense................................... (2,979) (3,325) (9,222) (9,600)
------- ------- ------- -------
Income before minority interests.................... 5,757 5,606 13,264 12,220
Minority interests in net income.................... (74) (73) (182) (173)
------- ------- ------- -------
Net income.......................................... $ 5,683 $ 5,533 $13,082 $12,047
======= ======= ======= =======
Net income per Unit (135,600 Units issued and
outstanding)...................................... $ 41.91 $ 40.80 $ 96.47 $ 88.84
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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WESTIN HOTELS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
(UNAUDITED)
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GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -------
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Balance at December 31, 1998................................ $(2,563) $72,804 $70,241
Cash distributions.......................................... -- (9,661) (9,661)
Net income (loss)......................................... (202) 13,284 13,082
------- ------- -------
Balance at September 30, 1999............................... $(2,765) $76,427 $73,662
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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WESTIN HOTELS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
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OPERATING ACTIVITIES
Net income.................................................. $ 13,082 $ 12,047
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 7,726 7,842
Amortization of deferred loan fees........................ 34 30
Interest expense on long-term obligation to General
Partner................................................ 2,396 2,418
Interest earned on restricted cash........................ (158) (162)
Minority interests........................................ 182 173
Changes in assets and liabilities:
Increase in receivables, net.............................. (4,450) (2,525)
(Increase) decrease in inventories........................ (5) 48
(Increase) decrease in prepaid expenses and other current
assets................................................. (273) 1,040
Increase in trade and other accounts payable.............. 9 589
Increase in accrued expenses and other current
liabilities............................................ 4,878 3,786
Decrease in payable to General Partner and affiliates..... (1,609) (190)
Increase in incentive management fees payable to General
Partner................................................ 1,838 4,671
-------- --------
Net cash provided by operating activities.............. 23,650 29,767
-------- --------
INVESTING ACTIVITIES
Additions to property and equipment......................... (5,206) (13,792)
(Increase) decrease in restricted cash, net of acquisitions
of property and equipment................................. (1,306) 4,946
Increase in other assets.................................... (225) (140)
-------- --------
Net cash used in investing activities.................. (6,737) (8,986)
-------- --------
FINANCING ACTIVITIES
Cash distributions.......................................... (9,661) (9,661)
Repayment of long-term obligations.......................... (596) (925)
-------- --------
Net cash used in financing activities.................. (10,257) (10,586)
-------- --------
Net increase in cash and cash equivalents................... 6,656 10,195
Cash and cash equivalents at beginning of period............ 31,524 15,750
-------- --------
Cash and cash equivalents at end of period.................. $ 38,180 $ 25,945
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 7,842 $ 7,775
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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WESTIN HOTELS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 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, 1999 and September 30, 1998 are unaudited. In the
opinion of the General Partner of the Partnership, 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 three or nine months ended September 30, 1999 should not be
regarded as indicative of the results that may be expected for the full fiscal
year ending December 31, 1999.
NOTE 2. FURTHER INFORMATION
Reference is made to "Notes to Consolidated Financial Statements" contained
in the Partnership's Form 10-K filed for 1998 for information regarding
significant accounting policies, Partnership organization, restricted cash,
accrued expenses, long-term obligations, operating leases, commitments and
contingencies, and related party transactions. The consolidated financial
statements should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Forward-looking statements contained herein include, but are not limited
to, statements relating to the Partnership's objectives, strategies and plans,
and all statements (other than statements of historical fact) that address
actions, events or circumstances that the Partnership or its management expects,
believes or intends will occur in the future. Forward-looking statements are not
guarantees of future performance and involve risks and uncertainties that could
cause actual results to differ materially from historical results or those
anticipated at the time the forward-looking statements are made, 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 circumstances.
GENERAL
The primary market focus of The Westin St. Francis and The Westin Michigan
Avenue, Chicago (individually a "Hotel" and collectively the "Hotels") is on
business travelers, tourists, conventions and other groups. Both Hotels
experience seasonal trends, with the lowest occupancy levels occurring during
the first quarter of each year, 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"), which directly own and operate each Hotel. Since January
2, 1998, each general partner (individually a "General Partner" and collectively
the "General Partners") has been a subsidiary of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood").
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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CONSOLIDATED 1999 1998 1999 1998
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REVPAR (revenue per available room)................. $146.66 $138.85 $137.25 $132.22
Operating profit as a percentage of revenues:
Rooms............................................. 75.4% 73.6% 74.2% 73.1%
Food and beverage................................. 15.5% 25.1% 21.3% 25.7%
EBITDA (in thousands)(1)............................ $11,720 $11,383 $31,259 $30,254
</TABLE>
- -------------------
(1) EBITDA is net income 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, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998. Operating profit of $8.7 million for the third quarter of
1999 represents a 2.2% decrease over the same quarter of the prior year due
primarily to decreases in food and beverage profit at The Westin Michigan
Avenue, Chicago, and higher depreciation expense. The Partnership's third
quarter increase in EBITDA of 3.0% to $11.7 million from $11.4 million in the
prior year period was primarily due to improved results at The Westin St.
Francis.
Consolidated rooms revenues for the third quarter of 1999 were $26.2
million and represent a 5.5% increase over the same quarter in 1998.
Consolidated REVPAR for the third quarter of 1999 reached $146.66,
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a 5.6% increase over the third quarter of 1998. The Westin St. Francis' REVPAR
increase of 10.4% to $163.20 was due to increases in revenues in all segments.
The Westin Michigan Avenue, Chicago's REVPAR decrease of 3.3% to $120.40 was
primarily due to a decrease in group segment revenue. The average room rate at
The Westin St. Francis for the third quarter of 1999 increased 5.3% to $185.47
compared to the same period in 1998, and the occupancy rate increased to 88.0%
from 83.9%. At The Westin Michigan Avenue, Chicago, the average room rate for
the third quarter of 1999 decreased 10.1% to $146.57 compared to the same period
in 1998, and the occupancy rate increased to 82.2% from 76.4% due to an increase
in discounted rates.
Consolidated rooms profit for the third quarter of 1999 increased 8.1%, or
$1.5 million, to $19.8 million over the same 1998 quarter. This improvement was
attributable primarily to the REVPAR growth at The Westin St. Francis.
Consolidated food and beverage revenues of $9.4 million in the third
quarter of 1999 represent a $1.1 million, or 12.7%, increase when compared to
the same 1998 period. Food and beverage revenues increased primarily as a result
of increased banquet business at The Westin St. Francis offset by decreased
banquet revenues at The Westin Michigan Avenue, Chicago.
Consolidated food and beverage profit for the third quarter of 1999
decreased $0.6 million to $1.5 million from the same period in 1998 due to the
decrease in banquet revenues at The Westin Michigan Avenue, Chicago and an
increase in food and beverage costs at The Westin St. Francis. The Westin St.
Francis contributed $1.3 million to the consolidated food and beverage profit
for the quarter ended September 30, 1999.
Consolidated operating expenses for the third quarter of 1999 increased to
$30.2 million, a 9.5% increase over the same period in 1998. The most
significant increases were in management fee expense due to increased revenues
and in food and beverage expense due to increased banquet business discussed
above.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998. Operating profit of $22.5 million for the nine months ended
September 30, 1999 represents a 3.1% improvement over the same period of the
prior year. The Partnership's EBITDA of $31.3 million for the nine months ended
September 30, 1999 improved 3.3% over EBITDA of $30.3 million in the prior year
period.
Consolidated rooms revenues for the nine months ended September 30, 1999
were $72.8 million and represent a 4.3% increase over the same period in 1998.
Consolidated REVPAR for the first nine months of 1999 reached $137.25, a 3.8%
increase over the corresponding 1998 period. The Westin St. Francis' REVPAR
increase of 5.8% to $154.28 was due to overall increases in revenues and
occupancy in all segments. The Westin Michigan Avenue, Chicago's REVPAR of
$110.23 for the first nine months of 1999 was consistent with its REVPAR for the
same 1998 period. At The Westin St. Francis, the average room rate for the first
nine months of 1999 increased 3.9% over the same period in 1998 to $184.10 and
the occupancy rate increased to 83.8% from 82.3%. At The Westin Michigan Avenue,
Chicago, the average room rate decreased 1.4% to $151.99 and the occupancy rate
increased to 72.5% from 71.6% due to an increase in discounted rates.
Consolidated rooms profit for the first nine months of 1999 increased $3.0
million, or 5.8%, to $54.0 million over the same 1998 period. This improvement
was attributable to the revenue growth discussed above.
Consolidated food and beverage revenues of $32.2 million for the nine
months ended September 30, 1999 represent a $6.1 million, or 23.5%, increase
when compared to the same 1998 period. The $6.1 million increase in food and
beverage revenues was primarily the result of increased banquet business at The
Westin St. Francis offset by decreased banquet revenues at The Westin Michigan
Avenue, Chicago.
Consolidated food and beverage profit for the first nine months of 1999
increased 2.3%, or $0.2 million, over the same period in 1998, reflecting the
increase in banquet business at The Westin St. Francis, offset by a decrease in
banquet revenues at The Westin Michigan Avenue, Chicago. The Westin St. Francis
contributed $1.2 million to the consolidated increase in food and beverage
profit, which represents a 25.3% increase over the same 1998 period.
Consolidated operating expenses for the nine months ended September 30,
1999 increased to $91.9 million, a 10.2% increase over the same period in 1998.
The most significant increase was in management fee
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expense, which was due to increased revenues and in food and beverage expense
from increased banquet business at The Westin St. Francis discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Partnership had cash and cash equivalents of
$38.2 million, a $6.7 million increase from December 31, 1998. Total net cash
provided by operating activities for the nine months ended September 30, 1999
equaled $23.7 million.
Pursuant to the mortgage loan restructuring agreement (the "Restructuring
Agreement"), the Partnership is required to make quarterly deposits to FF&E
Reserve Accounts, as defined in the Restructuring Agreement, based upon 5.0% of
gross revenues through maturity of the mortgage loan in 2006. The consolidated
Hotels' FF&E Reserve Account balance of $5.4 million is included in restricted
cash in the accompanying consolidated balance sheets.
The Restructuring Agreement also requires 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 in the accompanying consolidated balance sheets.
Year-to-date capital expenditures totaled $5.2 million. The Westin St.
Francis spent $4.5 million on capital expenditures primarily related to guest
room, facade, kitchen and health club renovation. The Westin Michigan Avenue,
Chicago spent $0.7 million on capital expenditures primarily related to the
conversion of an abandoned health club and basement areas to offices, roof
replacement and miscellaneous EDP improvements.
Capital expenditures for the remainder of 1999 are expected to be
approximately $12.5 million. The expenditures will include the renovation of
guest rooms and food and beverage facilities and a facade project at The Westin
St. Francis and a roof replacement, a main building guest room renovation, an
update of the EDP and engineering systems, and an upgrade of the minibars and
other food and beverage equipment at The Westin Michigan Avenue, Chicago. All
capital projects have been approved by the mortgage loan lender, as required by
the Restructuring Agreement.
Under the terms of the mortgage loan, the Partnership is scheduled to make
principal and interest payments of $10.8 million in 1999. Principal and interest
payments of $8.1 million were made during the nine months ended September 30,
1999.
At this time, the Partnership anticipates that the cash flow from
operations and the corresponding contributions to the FF&E Reserve Accounts will
provide adequate funding for 1999 capital expenditures and interest payments on
the mortgage loan. In addition, the Partnership currently anticipates that it
will be in a position to continue distributions to the limited partners at an
annual level of $95 per Unit in 1999. 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 Partnership's
limited partners within 75 days of the end of the quarter. Cash distributions of
$95 per Unit were paid to the limited partners in 1998. Additionally, cash
distributions of $23.75 per Unit were paid to the limited partners on March 15,
1999 for the fourth quarter of 1998, on June 14, 1999 for the first quarter of
1999 and on September 13, 1999 for the second quarter of 1999. The Board of
Directors of the General Partner has authorized a third quarter cash
distribution of $23.75 per Unit to be paid to the Partnership's limited partners
of record as of September 30, 1999 on December 14, 1999.
As required by the Partnership agreement, the General Partner must use its
best efforts to sell or refinance the Hotel properties by the end of 2001.
Accordingly, the General Partner has reviewed options regarding the sale of the
Hotels. In order to capitalize on over $56 million of capital improvements
completed on The Westin St. Francis since 1994 and the resulting enhanced
performance, as well as the overall strength of the San Francisco hotel market,
the General Partner has marketed The Westin St. Francis for sale. A
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broker has been retained and the formal marketing material has been completed
and distributed to potential buyers.
A significant renovation program is currently underway at The Westin
Michigan Avenue, Chicago, which is expected to be completed in early 2000. The
General Partner has not yet marketed The Westin Michigan Avenue, Chicago in
order to permit the Hotel's management to increase operating revenues to levels
commensurate with a renovated hotel.
There can be no assurance that the Hotels will be sold within any specified
time period. Furthermore, there can be no assurance that if the Hotels are sold,
the purchase price will reflect the appraised values of the Hotels.
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, by the
year-end of 1999, 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 Complete --
- Identify computerized systems, including
information and non-information systems
- Inventory all computerized systems
- Contact vendors for compliance statements
II Testing Complete --
- Test all applications and hardware with
validation tools
- Submit test statistics to an independent third
party for verification
- Review test results
III Remediation In process Fourth 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 approximately $260,000. Of this amount, approximately $165,000 had
been expended as of September 30, 1999, and an additional $95,000 is expected to
be incurred in the remainder of 1999.
PARTNERSHIP 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.
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 by December 1, 1999.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
AFFILIATE TRANSACTIONS
The Partnership reimbursed the General Partner for general and
administrative expenses totaling approximately $0.1 million for the third
quarter of 1999. Affiliates of the General Partner, including Starwood, as
manager of the Hotels, received base management fees of $1.4 million in the
third quarter of 1999. The Partnership accrued incentive management fees,
payable to Starwood, of $1.5 million for the third quarter of 1999. Marketing
fees of $0.7 million were paid by the Partnership to the General Partner for the
third quarter of 1999. Additionally, the Partnership incurred approximately $1.4
million for services provided by the General Partner in the third quarter of
1999, which include property and workers' compensation insurance, systems
support, reservations and advertising.
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, the General Partner suspended Unit sales for the
remainder of 1999 as sale transfer requests totaling 6,848 have been received
for 1999. The General Partner is, however, continuing to accept paperwork for
Unit sales for processing in 2000. Through the date of this filing, the General
Partner has received requests for the transfer of 5,014 Units which will be
completed in 2000. Sale requests for 4,846 Units were in conjunction with a
tender offer priced at $1,000 per Unit. The remaining 168 Unit sale requests
were completed through limited partnership exchanges at a range in price of $725
to $925 per Unit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10. Material contracts.
10.1 Second Amendment to Amended and Restated Management Agreement of
The Westin St. Francis Limited Partnership (filed herewith).
10.2 Second Amendment to Amended and Restated Management Agreement of
The Westin Chicago Limited Partnership (filed herewith).
27. Financial Data Schedule (filed herewith).
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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.
WESTIN HOTELS LIMITED PARTNERSHIP
(a Delaware limited partnership)
By: WESTIN REALTY CORP.,
Its sole General Partner
By: /s/ ALAN M. SCHNAID
------------------------------------
Alan M. Schnaid
Vice President
Date: November 8, 1999
12
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.1 Second Amendment to Amended and Restated Management
Agreement of The Westin St. Francis Limited Partnership
(filed herewith).
10.2 Second Amendment to Amended and Restated Management
Agreement of The Westin Chicago Limited Partnership (filed
herewith).
27 Financial Data Schedule (filed herewith).
</TABLE>
<PAGE> 1
Exhibit 10.1
SAN FRANCISCO
SECOND AMENDMENT TO AMENDED AND
RESTATED MANAGEMENT AGREEMENT
This Second Amendment to Amended and Restated Management Agreement
(this "Second Amendment") is made and entered into as of this 1st day of
September, 1999 by and among St. Francis Hotel Corporation, a Delaware
corporation, in its capacity as successor-by-assignment to Westin Hotel Company,
a Delaware corporation, (in such capacity, "Westin"), The Westin St. Francis
Limited Partnership, a Delaware limited partnership (the "Hotel Partnership"),
St.Francis Hotel Corporation, a Delaware corporation, in its capacity as general
partner of the Hotel Partnership; (in such capacity, the "Hotel General
Partner"), and Westin Hotels Limited Partnership, a Delaware limited partnership
("WHLP").
RECITALS
1. Westin, the General Partner, the Hotel Partnership and WHLP are parties to
that certain Amended and Restated Management Agreement dated August 21, 1986 (as
amended from time to time, the "Management Agreement') pertaining to the
management of the hotel located on Union Square in San Francisco, California and
currently known as The Westin St. Francis (the "Hotel").
2. The Hotel General Partner and WHLP are parties to a certain Amended and
Restated Agreement of Limited Partnership for the Hotel Partnership dated as of
December 31, 1986 (as amended from time to time, the "Hotel Partnership
Agreement") providing for the ownership and operation of the Hotel by the Hotel
Partnership. WHLP is the sole limited partner of the Hotel Partnership.
3. Westin Realty Corp., a Delaware corporation (the "Parent General Partner")
and the persons and entities from time to time reflected on the books and
records of WHLP as limited partners therein (collectively, the "Limited
Partners"), are parties to a certain Amended and Restated Agreement of Limited
Partnership of WHLP dated as of December 31, 1986 (the "WHLP Partnership
Agreement") providing for the ownership and operation of the Hotel through the
ownership of limited partnership interests in the Hotel Partnership, and the
ownership and operation of the hotel commonly known as The Westin Michigan
Avenue in Chicago, Illinois (the "Chicago Hotel") through the ownership of
limited partnership interests in the Westin Chicago Limited Partnership, a
limited partnership owning the Chicago Hotel (the "Chicago Hotel Partnership").
4. The Parent General Partner has been actively reviewing opportunities to sell
the Hotel in accordance with Section 8.02(d) of the WHLP Partnership Agreement
and has determined that it is in the best interests of WHLP and the Limited
Partners to solicit offers to purchase the Hotel at this time and to endeavor to
sell the Hotel to a qualified buyer in accordance with and subject to the WHLP
Partnership Agreement, the Management Agreement and the Hotel Partnership
Agreement.
<PAGE> 2
SAN FRANCISCO
5. Each of the Management Agreement and the management agreement pertaining to
the Chicago Hotel dated August 21, 1986 by and among 909 Michigan Avenue
Corporation, a Delaware corporation (the "Chicago Hotel General Partner"), the
Chicago Hotel Partnership and WHLP (the "Chicago Management Agreement")
(collectively, the "Management Agreements") contain certain terms and provisions
that provide for Incentive Management Fees (as defined in each of such
Management Agreements) payable to Westin based upon the pooled operations of the
Hotel and the Chicago Hotel, reflecting the common ownership by WHLP of the
Hotel Partnership and the Chicago Hotel Partnership.
6. The WHLP Partnership Agreement contains certain cash flow distribution
priorities by which the payment of the Incentive Management Fees is provided
for.
7. The Management Agreements provide that they shall survive sales of the Hotel
and the Chicago Hotel (collectively, the "Hotels") unless terminated by Westin
in accordance with their terms.
8. The Parent General Partner, the Hotel General Partner and the Chicago Hotel
General Partner (collectively, the "General Partners') have determined that it
is in the best interests of WHLP, the Hotel Partnership and the Chicago Hotel
Partnership and the Limited Partners to cause the Management Agreements to be
amended in the manner set forth below to facilitate prospective sales of one or
more of the Hotels by clarifying certain ambiguities that arise under the
Management Agreements following a sale of one or both of the Hotels.
9. Westin has agreed to amend the Management Agreements in the manner requested
by the General Partners to facilitate the General Partners' efforts to sell the
Hotels and to avoid possible disputes with subsequent owners of the Hotels
regarding the effect of certain provisions in the Management Agreements
following a sale of the Hotels.
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Effectiveness of Amendment. This Second Amendment shall become effective only
upon the sale of the Hotel by the Hotel Partnership.
2. Defined Terms. Capitalized terms used but not otherwise defined in this
Second Amendment shall have the meaning given in the Management Agreement.
3. Amended Incentive Management Fee Provisions. Effective upon a sale of the
Hotel and for all periods following the date of the closing of such sale,
whether effected by a sale, exchange, involuntary conversion, condemnation or
other disposition of all or substantially all of the assets
-2-
<PAGE> 3
SAN FRANCISCO
comprising the Hotel by the Hotel Partnership or the transfer by WHLP of the
general and limited partnership interests in the Hotel Partnership by sale,
operation of merger or otherwise, Sections 3.2(b) - (e) shall be deleted in
their entirety and replaced with the following:
"a. Base Management Fee. The party owning the Hotel (the "Owner") shall pay to
Westin an annual Base Management Fee equal to three and one-half percent (3.5%)
of the annual Gross Revenue. The Base Management Fee shall be paid monthly based
on the monthly Gross Revenue of the Hotel, prior to distributions of cash to the
Owner.
b. Incentive Management Fees. Westin shall receive Incentive Management Fees
based upon the Net Operating Cash Flow (as defined below) of the Hotel;
provided, however, that if the party owning the Hotel (the "Owner") also owns,
directly or indirectly, the Chicago Hotel, managed by an affiliate of Westin
pursuant to a management agreement in substantially the same form as this
Agreement (the "Chicago Management Agreement"), the Incentive Management Fees
payable under this Agreement and the Chicago Management Agreement shall be
determined on a pooled basis based upon the combined Net Operating Cash Flow of
the Hotel and the Chicago Hotel. In such event, the expense and liability for
the Incentive Management Fees, as computed by Westin, shall be allocated between
the Owner and the partnership or other entity owning the Chicago Hotel (the
"Chicago Hotel Owner") in the ratio of the positive Net Operating Cash Flows of
each Hotel, provided that if one of the Hotels has negative Net Operating Cash
Flow, then no Incentive Management Fee shall be payable with respect thereto,
and the entire Incentive Management Fee payable in respect of the combined Net
Operating Cash Flows of the Hotels shall be payable with respect to whichever of
the Hotels had positive Net Operating Cash Flow.
(1) The Owner shall pay on a quarterly basis to Westin
pursuant to Section 3.2(e) an Incentive Management Fee based upon
one-fourth of the anticipated annual Net Operating Cash Flow of the
Hotel, as disclosed in the then current approved Operating Plan and
Budget, but adjusted as required during such Operating Year. The
Incentive Management Fee for the final quarter of any Operating Year
shall be that amount required to adjust the preceding three quarters'
estimates to the annual actual computed amount taking into account the
pooling adjustments provided for in the succeeding sentence. If Owner
also owns, directly or indirectly, the Chicago Hotel, and if the
Chicago Hotel has negative Net Operating Cash Flow for the Operating
Year in question, then in addition to the adjustment provided for in
the immediately preceding sentence, the Incentive Management Fee shall
be further adjusted to reflect a reduction in Net Operating Cash Flow
of the Hotel by the amount of the negative Net Operating Cash Flow of
the Chicago Hotel.
(2) In any quarter for which the Hotel's Net Cash Flow, as
defined below, is insufficient to pay Westin the full amount of the
current quarter's Incentive Management Fee in accordance with the
payment provisions of Section 3.2(f),the unpaid portion may be deferred
-3-
<PAGE> 4
SAN FRANCISCO
until subsequent quarters of Owner's Operating Year, without interest.
Incentive Management Fees unpaid at the end of any Operating Year may
be deferred to subsequent Operating Years without interest.
(3) The annual Incentive Management Fee, as described herein,
shall be equal to 20% of Net Operating Cash Flow of the Hotel.
c. Annual Statement. After each Operating Year, Westin shall cause to be
prepared and delivered to Owner a statement showing the calculation and payment
of the Base Management Fee and the annual Incentive Management Fee for that
Operating Year.
d. Definitions. For purposes of this Section 3.2, with respect to any fiscal
period:
(4) "Net Cash Flow" shall mean all cash receipts and funds
received by Owner from the ownership and operation of the Hotel, (other
than (i) capital contributions to Owner, (ii) the proceeds of any
borrowing by Owner, (iii) any amounts received by Owner from or as a
result of any Sale or refinancing of the Hotel, or (iv) working capital
or other reasonable reserves of the Owner), less the sum of the
following to the extent made from such cash receipts or other funds
received by the Owner (other than the aforesaid funds withdrawn from
reserves therefor):
(1) all sums paid to lenders including, but not by
way of limitation, all principal and interest payments on
mortgages and other indebtedness of the Owner related to or
secured by the Hotel including all principal and interest
payments on the Mortgage Loans;
(2) all cash expenditures incurred incident to the
normal operation of the Owner's business, including without
limitation those expenses of Westin and its Affiliates
reimbursed by Owner pursuant to the provisions hereof (but not
including Incentive Management Fees);
(3) all cash contributed or advanced to or on behalf
of Owner, whether for capital improvements to, or renovation
of, the Hotel but not including cash contributed to Owner by
the owners of the equity interests in Owner for any other
purpose; and
(4) such reserves as Owner in its reasonable
discretion deems to be reasonably required for the proper
operation of the Hotel.
(4) Net Operating Cash Flow shall mean net income (loss) from
operations of the Hotel as determined in accordance with generally
accepted accounting principles, subject to
-4-
<PAGE> 5
SAN FRANCISCO
the following adjustments:
(a) in arriving at Net Operating Cash Flow the
following shall be added back if and to the extent that they
have been deducted in determining such net income (loss):
(1) all interest expense;
(2) depreciation and amortization expense;
(3) other expense items of an extraordinary
nonrecurring nature not associated with normal
operations of the Hotel including, but not limited
to, any uninsured casualty loss and any deductible
paid in conjunction with a loss covered by insurance;
and
(b) the amount of net income (loss) shall be further
adjusted by deducting the amount of all capital improvements
or renovations funded by sources other than external
borrowings.
e. Payment of Incentive Management Fee. The Incentive Management Fee shall
accrue at the rate provided for in Section 3.2(b) and shall be paid from the Net
Cash Flow of the Hotel not less frequently than quarterly; provided, however,
that if Owner also owns, directly or indirectly, the Chicago Hotel, the amount
of the Incentive Management Fees currently payable shall be determined on the
basis of the combined Net Cash Flows of the Hotel and the Chicago Hotel. Westin
shall determine the amount of the Hotel Net Cash Flow available for payment of
Incentive Management Fees in accordance with the following priorities:
(1) 100% of the Net Cash Flow then available for distribution
shall be paid by Westin to the Owner until, with respect to such
Operating Year, the Owner has received an amount equal to $9,236,394
(the "First Incentive Threshold"); provided that if Owner also owns,
directly or indirectly, the Chicago Hotel, the First Incentive
Threshold shall be $12,882,000;
(2) 100% of any remaining Net Cash Flow then available for
distribution shall be paid to Westin as the Incentive Management Fees
payable by Owner with respect to such Operating Year, until Westin has
received an amount equal to 50% of the aggregate Incentive Management
Fees payable by Owner with respect to such Operating Year;
(3) subject to the proviso in subsection (v) below, 70% of any
remaining Net Cash Flow then available shall be paid to Owner and 30%
shall be paid to Westin as
-5-
<PAGE> 6
SAN FRANCISCO
additional amounts of current Incentive Management Fees then payable by
Owner, until the aggregate amount of current Incentive Management Fees
then payable by Owner are paid; and
(4) subject to the proviso in subsection (f) below, 70% of any
remaining Net Cash Flow then available for distribution shall be paid
to Owner and 30% shall be paid to Westin in respect of the aggregate
amounts of deferred Incentive Management Fees then payable by Owner,
until such aggregate amounts of deferred Incentive Management Fees then
payable by the Owner are paid.
(5) During any such Operating Year in which Owner shall have
received an amount equal to $14,583,780 (the "Second Incentive
Threshold"), pursuant to clauses (i) through (iv), the 70%/30%
apportionment in subsections (iii) and (iv) of this Section 3.2(e)
shall be replaced with a 50%/50% apportionment for the balance of such
Operating Year; provided that if Owner also owns, directly or
indirectly, the Chicago Hotel, the Second Incentive Threshold shall be
$20,340,000.
f. Application of Sale or Refinancing Proceeds. Sale or Refinancing Proceeds (as
defined below) received by Owner in any Operating Year from a financing or a
Sale of the Hotel shall be paid to Westin by Owner to the extent of all current
and deferred Incentive Management Fees then payable. Payments pursuant to this
Section 3.2(f) shall be made by the end of the Operating Year of the refinancing
or Sale or within 90 days after the date of such refinancing or Sale, whichever
is later. For purposes hereof, "Sale or Refinancing Proceeds' means the net cash
proceeds received by Owner from or as a result of any Sale or refinancing of the
Hotel, or if Owner is a general or limited partnership, limited liability
company, corporation trust or other entity (an "Entity") the net cash proceeds
to the owners of the equity interests (of all classes) of such Entity from the
Sale of the equity interests in such Entity, after deducting (i) any expenses
incurred in connection therewith, (ii) any amounts applied by the Owner in its
sole discretion towards the payment of any indebtedness of the Owner related to
or secured by the Hotel, including payments of principal and interest on the
Mortgage Loans (but not including payment of Incentive Management Fees), (iii)
the payment of any other expenses related to the ownership or operation of the
Hotel and (iv) the establishment of any reserves deemed reasonably necessary by
such Owner related to the ownership or operation of the Hotel."
4. Acknowledgment and Ratification. Except as expressly amended hereby, the
terms and provisions of the Management Agreement are hereby ratified and
confirmed.
signatures on following page
-6-
<PAGE> 7
SAN FRANCISCO
IN WITNESS WHEREOF, the parties has hereunto executed this First
Amendment as of the date first above referenced.
WESTIN:
ST. FRANCIS HOTEL CORPORATION, a Delaware corporation,
successor-by-assignment to Westin Hotel Company
/s/ Ted Darnall
By: ___________________________________________________
Ted Darnall
President
HOTEL GENERAL PARTNER:
ST. FRANCIS HOTEL CORPORATION, a Delaware corporation
/s/ Ted Darnall
By: ___________________________________________________
Ted Darnall
President
HOTEL PARTNERSHIP:
THE WESTIN ST. FRANCIS LIMITED PARTNERSHIP, a Delaware
limited partnership
By: ST. FRANCIS HOTEL CORPORATION, General Partner
/s/ Ted Darnall
By: ___________________________________________________
Ted Darnall
President
WHLP:
WESTIN HOTELS LIMITED PARTNERSHIP, a Delaware limited
partnership
By: WESTIN REALTY CORP., GENERAL PARTNER
/s/ Thomas C. Janson, Jr.
By: ___________________________________________________
Thomas C. Janson, Jr.
Vice President & Secretary
-7-
<PAGE> 1
Exhibit 10.2
CHICAGO
SECOND AMENDMENT TO AMENDED AND
RESTATED MANAGEMENT AGREEMENT
This Second Amendment to Amended and Restated Management Agreement
(this "Second Amendment") is made and entered into as of this 1st day of
September, 1999 by and among 909 North Michigan Avenue Corporation, a Delaware
corporation, in its capacity as successor-by-assignment to Westin Hotel Company,
a Delaware corporation, (in such capacity, "Westin"), The Westin Chicago Limited
Partnership, a Delaware limited partnership (the "Hotel Partnership"), 909 North
Michigan Avenue Corporation, a Delaware corporation, in its capacity as general
partner of the Hotel Partnership; (in such capacity, the "Hotel General
Partner"), and Westin Hotels Limited Partnership, a Delaware limited partnership
("WHLP").
RECITALS
1. Westin, the General Partner, the Hotel Partnership and WHLP are parties to
that certain Amended and Restated Management Agreement dated August 21, 1986 (as
amended from time to time, the "Management Agreement') pertaining to the
management of the hotel located at 909 N. Michigan Avenue, Chicago, Illinois,
currently known as The Westin Michigan Avenue (the "Hotel").
2. The Hotel General Partner and WHLP are parties to a certain Amended and
Restated Agreement of Limited Partnership for the Hotel Partnership dated as of
December 31, 1986 (as amended from time to time, the "Hotel Partnership
Agreement") providing for the ownership and operation of the Hotel by the Hotel
Partnership. WHLP is the sole limited partner of the Hotel Partnership.
3. Westin Realty Corp., a Delaware corporation (the "Parent General Partner")
and the persons and entities from time to time reflected on the books and
records of WHLP as limited partners therein (collectively, the "Limited
Partners"), are parties to a certain Amended and Restated Agreement of Limited
Partnership of WHLP dated as of December 31, 1986 (the "WHLP Partnership
Agreement") providing for the ownership and operation of the Hotel through the
ownership of limited partnership interests in the Hotel Partnership, and the
ownership and operation of the hotel commonly known as The Westin St. Francis in
San Francisco, California (the "SF Hotel") through the ownership of limited
partnership interests in the Westin St. Francis Limited Partnership, a limited
partnership owning the SF Hotel (the "SF Hotel Partnership").
4. The Parent General Partner has been actively reviewing opportunities to sell
the SF Hotel in accordance with Section 8.02(d) of the WHLP Partnership
Agreement and has determined that it is in the best interests of WHLP and the
Limited Partners to solicit offers to purchase the SF Hotel at this time and to
endeavor to sell the SF Hotel to a qualified buyer in accordance with and
subject to the WHLP Partnership Agreement, the SF Hotel Partnership Agreement,
and the management agreement pertaining to the SF Hotel dated August 21, 1986 by
and among St. Francis Hotel Corporation, a Delaware corporation (the "SF Hotel
General Partner"), the SF Hotel Partnership and WHLP (the "SF Management
Agreement").
<PAGE> 2
CHICAGO
5. Each of the Management Agreement and the SF Management Agreement
(collectively, the "Management Agreements") contain certain terms and provisions
that provide for Incentive Management Fees (as defined in each of such
Management Agreements) payable to Westin based upon the pooled operations of the
Hotel and the SF Hotel, reflecting the common ownership by WHLP of the Hotel
Partnership and the SF Hotel Partnership.
6. The WHLP Partnership Agreement contains certain cash flow distribution
priorities by which the payment of the Incentive Management Fees is provided
for.
7. The Management Agreements provide that they shall survive sales of the Hotel
and the SF Hotel (collectively, the "Hotels") unless terminated by Westin in
accordance with their terms.
8. The Parent General Partner, the Hotel General Partner and the SF Hotel
General Partner (collectively, the "General Partners') have determined that it
is in the best interests of WHLP, the Hotel Partnership and the SF Hotel
Partners to cause the Management Agreements to be amended in the manner set
forth below to facilitate maximum bids for the SF Hotel, by clarifying certain
ambiguities that arise under the Management Agreements following a sale of one
or both of the Hotels.
9. Westin has agreed to amend the Management Agreements in the manner requested
by the General Partners to facilitate the General Partners' efforts to sell the
SF Hotel and to avoid possible disputes with subsequent owners of the SF Hotel
regarding the effect of certain provisions in the Management Agreements
following a sale of one or more of the Hotels.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Effectiveness of Amendment. This Second Amendment shall become effective only
upon the sale of the Hotel by the Hotel Partnership.
2. Defined Terms. Capitalized terms used but not otherwise defined in this
Second Amendment shall have the meaning given in the Management Agreement.
3. Amended Incentive Management Fee Provisions. Effective upon a sale of the
Hotel and for all periods following the date of the closing of such sale,
whether effected by a sale, exchange, involuntary conversion, condemnation or
other disposition of all or substantially all of the assets comprising the Hotel
by the Hotel Partnership or the transfer by WHLP of the general and limited
partnership interests in the Hotel Partnership by sale, operation of merger or
otherwise, Sections 3.2(a) - (e) shall be deleted in their entirety and replaced
with the following:
<PAGE> 3
CHICAGO
"a. Base Management Fee. The party owning the Hotel (the "Owner") shall pay to
Westin an annual Base Management Fee equal to three and one-half percent (3.5%)
of the annual Gross Revenue. The Base Management Fee shall be paid monthly based
on the monthly Gross Revenue of the Hotel, prior to distributions of cash to the
Owner.
b. Incentive Management Fees. Westin shall receive Incentive Management Fees
based upon the Net Operating Cash Flow (as defined below) of the Hotel;
provided, however, that if the Owner also owns, directly or indirectly, the SF
Hotel managed by an affiliate of Westin pursuant to a management agreement in
substantially the same form as this Agreement (the "SF Management Agreement"),
the Incentive Management Fees payable under this Agreement and the SF Management
Agreement shall be determined on a pooled basis based upon the combined Net
Operating Cash Flow of the Hotel and the SF Hotel. In such event, the expense
and liability for the Incentive Management Fees, as computed by Westin, shall be
allocated between the Owner and the partnership or other entity owning the SF
Hotel (the "SF Hotel Owner") in the ratio of the positive Net Operating Cash
Flows of each Hotel, provided that if one of the Hotels has negative Net
Operating Cash Flow, then no Incentive Management Fee shall be payable with
respect thereto, and the entire Incentive Management Fee payable in respect of
the combined Net Operating Cash Flows of the Hotels shall be payable with
respect to whichever of the Hotels had positive Net Operating Cash Flow.
(1) The Owner shall pay on a quarterly basis to Westin
pursuant to Section 3.2(e) an Incentive Management Fee based upon
one-fourth of the anticipated annual Net Operating Cash Flow of the
Hotel, as disclosed in the then current approved Operating Plan and
Budget, but adjusted as required during such Operating Year. The
Incentive Management Fee for the final quarter of any Operating Year
shall be that amount required to adjust the preceding three quarters'
estimates to the annual actual computed amount taking into account the
pooling adjustments provided for in the succeeding sentence. If Owner
also owns, directly or indirectly, the SF Hotel, and if the SF Hotel
has negative Net Operating Cash Flow for the Operating Year in
question, then in addition to the adjustment provided for in the
immediately preceding sentence, the Incentive Management Fee shall be
further adjusted to reflect a reduction in Net Operating Cash Flow of
the Hotel by the amount of the negative Net Operating Cash Flow of the
SF Hotel.
(2) In any quarter for which the Hotel's Net Cash Flow, as
defined below, is insufficient to pay Westin the full amount of the
current quarter's Incentive Management Fee in accordance with the
payment provisions of Section 3.2(f), the unpaid portion may be
deferred until subsequent quarters of Owner's Operating Year, without
interest. Incentive Management Fees unpaid at the end of any Operating
Year may be deferred to subsequent Operating Years without interest.
(3) The annual Incentive Management Fee, as described herein,
shall be equal to 20% of Net Operating Cash Flow of the Hotel.
-3-
<PAGE> 4
CHICAGO
c. Annual Statement. After each Operating Year, Westin shall cause to be
prepared and delivered to Owner a statement showing the calculation and payment
of the Base Management Fee and the annual Incentive Management Fee for that
Operating Year.
d. Definitions. For purposes of this Section 3.2, with respect to any fiscal
period:
(1) "Net Cash Flow" shall mean all cash receipts and funds
received by Owner from the ownership and operation of the Hotel, (other
than (i) capital contributions to Owner, (ii) the proceeds of any
borrowing by Owner, (iii) any amounts received by Owner from or as a
result of any Sale or refinancing of the Hotel, or (iv) working capital
or other reasonable reserves of the Owner), less the sum of the
following to the extent made from such cash receipts or other funds
received by the Owner (other than the aforesaid funds withdrawn from
reserves therefor):
(1) all sums paid to lenders including, but not by
way of limitation, all principal and interest payments on
mortgages and other indebtedness of the Owner related to or
secured by the Hotel including all principal and interest
payments on the Mortgage Loans;
(2) all cash expenditures incurred incident to the
normal operation of the Owner's business, including without
limitation those expenses of Westin and its Affiliates
reimbursed by Owner pursuant to the provisions hereof (but not
including Incentive Management Fees);
(3) all cash contributed or advanced to or on behalf
of Owner, whether for capital improvements to, or renovation
of, the Hotel but not including cash contributed to Owner by
the owners of the equity interests in Owner for any other
purpose; and
(4) such reserves as Owner in its reasonable
discretion deems to be reasonably required for the proper
operation of the Hotel.
(2) Net Operating Cash Flow shall mean net income (loss) from
operations of the Hotel as determined in accordance with generally
accepted accounting principles, subject to the following adjustments:
(1) in arriving at Net Operating Cash Flow the
following shall be added back if and to the extent that they
have been deducted in determining such net income (loss):
(1) all interest expense;
(2) depreciation and amortization expense;
-4-
<PAGE> 5
CHICAGO
(3) other expense items of an extraordinary
nonrecurring nature not associated with normal
operations of the Hotel including, but not limited
to, any uninsured casualty loss and any deductible
paid in conjunction with a loss covered by insurance;
and
(2) the amount of net income (loss) shall be further
adjusted by deducting the amount of all capital improvements
or renovations funded by sources other than external
borrowings.
e. Payment of Incentive Management Fee. The Incentive Management Fee shall
accrue at the rate provided for in Section 3.2(b) and shall be paid from the Net
Cash Flow of the Hotel not less frequently than quarterly; provided, however,
that if Owner also owns, directly or indirectly, the SF Hotel, the amount of
Incentive Management Fees currently payable shall be determined on the basis of
the combined Net Cash Flows of the Hotel and the SF Hotel. Westin shall
determine the amount of the Net Cash Flow available for payment of Incentive
Management Fees in accordance with the following priorities:
(1) 100% of the Net Cash Flow then available for distribution
shall be paid by Westin to the Owner until, with respect to such
Operating Year, the Owner has received an amount equal to $3,645,606
(the "First Incentive Threshold); provided that if Owner also owns,
directly or indirectly, the SF Hotel, the First Incentive Threshold
shall be $12,882,000;
(2) 100% of any remaining Net Cash Flow then available for
distribution shall be paid to Westin as the Incentive Management Fees
payable by Owner with respect to such Operating Year, until Westin has
received an amount equal to 50% of the aggregate Incentive Management
Fees payable by Owner with respect to such Operating Year;
(3) subject to the proviso in subsection (5) below, 70% of any
remaining Net Cash Flow then available shall be paid to Owner and 30%
shall be paid to Westin as additional amounts of current Incentive
Management Fees then payable by Owner, until the aggregate amount of
current Incentive Management Fees then payable by Owner are paid; and
(4) subject to the proviso in subsection (5) below, 70% of any
remaining Net Cash Flow then available for distribution shall be paid
to Owner and 30% shall be paid to Westin in respect of the aggregate
amounts of deferred Incentive Management Fees then payable by Owner,
until such aggregate amounts of deferred Incentive Management Fees then
payable by the Owner are paid.
(5) During any such Operating Year in which Owner shall have
received an amount equal to $5,756,220 (the "Second Incentive
Threshold"), pursuant to clauses (1) through (4) of this Section
3.2(e), the 70%/30% apportionment in subsections (3) and (4) of
-5-
<PAGE> 6
CHICAGO
this Section 3.2(e) shall be replaced with a 50%/50% apportionment for
the balance of such Operating Year; provided that if Owner also owns,
directly or indirectly, the SF Hotel, the Second Incentive Threshold
shall be $20,340,000.
f. Application of Sale or Refinancing Proceeds. Sale or Refinancing Proceeds (as
defined below) received by Owner in any Operating Year from a financing or a
Sale of the Hotel shall be paid to Westin by Owner to the extent of all current
and deferred Incentive Management Fees then payable. Payments pursuant to this
Section 3.2(f) shall be made by the end of the Operating Year of the refinancing
or Sale or within 90 days after the date of such refinancing or Sale, whichever
is later. For purposes hereof, "Sale or Refinancing Proceeds' means the net cash
proceeds received by Owner from or as a result of any Sale or refinancing of the
Hotel, or if Owner is a general or limited partnership, limited liability
company, corporation trust or other entity (an "Entity") the net cash proceeds
to the owners of the equity interests (of all classes) of such Entity from the
Sale of the equity interests in such Entity, after deducting (i) any expenses
incurred in connection therewith, (ii) any amounts applied by the Owner in its
sole discretion towards the payment of any indebtedness of the Owner related to
or secured by the Hotel, including payments of principal and interest on the
Mortgage Loans (but not including payment of Incentive Management Fees), (iii)
the payment of any other expenses related to the ownership or operation of the
Hotel and (iv) the establishment of any reserves deemed reasonably necessary by
such Owner related to the ownership or operation of the Hotel."
4. Acknowledgment and Ratification. Except as expressly amended hereby, the
terms and provisions of the Management Agreement are hereby ratified and
confirmed.
signatures on following page
-6-
<PAGE> 7
CHICAGO
IN WITNESS WHEREOF, the parties has hereunto executed this First Amendment as of
the date first referenced above.
WESTIN:
909 NORTH MICHIGAN AVENUE CORPORATION, a Delaware
corporation, successor-by-assignment to Westin Hotel
Company
/s/ Ted Darnall
By: ___________________________________________________
Ted Darnall
President
HOTEL GENERAL PARTNER:
909 NORTH MICHIGAN AVENUE CORPORATION, a Delaware
corporation
/s/ Ted Darnall
By: ___________________________________________________
Ted Darnall
President
HOTEL PARTNERSHIP:
THE WESTIN CHICAGO LIMITED PARTNERSHIP, a Delaware
limited partnership
By: 909 NORTH MICHIGAN AVENUE CORPORATION, General
Partner
/s/ Ted Darnall
By: ___________________________________________________
Ted Darnall
President
WHLP:
WESTIN HOTELS LIMITED PARTNERSHIP, a Delaware limited
partnership
By: WESTIN REALTY CORP., General Partner
/s/ Tom Janson
By: ___________________________________________________
Tom Janson
Vice President & Secretary
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128 AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 38,180
<SECURITIES> 0
<RECEIVABLES> 13,786
<ALLOWANCES> 391
<INVENTORY> 646
<CURRENT-ASSETS> 53,352
<PP&E> 358,872
<DEPRECIATION> 122,409
<TOTAL-ASSETS> 296,180
<CURRENT-LIABILITIES> 24,445
<BONDS> 167,585
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 296,180
<SALES> 0
<TOTAL-REVENUES> 114,414
<CGS> 0
<TOTAL-COSTS> 47,006
<OTHER-EXPENSES> 44,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,269
<INCOME-PRETAX> 13,082
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,082
<EPS-BASIC> 96.47
<EPS-DILUTED> 96.47
</TABLE>
