<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 1, 1997
PRIME HOSPITALITY CORP.
(Exact name of Registrant as specified in its charter)
COMMISSION FILE NO. 1-6869
DELAWARE 22-2640625
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
700 ROUTE 46 EAST, FAIRFIELD, NEW JERSEY 07004
(address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973)882-1010
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<PAGE> 2
Item 2. Acquisition of Assets
On December 1, 1997, Prime Hospitality Corp. ("Prime") completed its merger
with Homegate Hospitality, Inc. ("Homegate"). Pursuant to the merger, Prime has
exchanged 6,513,292 shares of its common stock for the 10,725,000 outstanding
shares of Homegate and Homegate has now become a wholly owned subsidiary of
Prime. The transaction is valued at approximately $125 million based on the
closing price of Prime's common stock as of November 30, 1997 and will be
accounted for as a pooling of interests. The consideration was based on an
arm's length negotiation between the two parties. Factors involved in arriving
at the consideration included analyses of Homegate's projected financial and
operating performance, similar merger and acquisition transactions, market
value and replacement costs for similar hotels, potential synergies between the
companies and other relevant information.
In order to facilitate uninterrupted development of the Homegate hotels,
the Company agreed to provide up to $65.0 million of interim loans to Homegate
pending completion of the merger. The interim loans bore interest at a rate per
annum equal to the one month London Interbank Offered Rate plus 3.50%. As of
November 30, 1997, an aggregate amount of $43.9 million of interim loans was
outstanding. For financial statement purposes, the interim loans will be
classified as intercompany loans and eliminated in consolidation.
With the merger, Prime now owns or operates 133 hotels nationwide,
which includes hotels under its proprietary AmeriSuites, Homegate and Wellesley
Inns trade names as well as a portfolio of upscale full-service hotels. Prime is
rapidly developing its AmeriSuites all-suite hotel brand, with 59 hotels open
and another 47 under development. Prime also intends to aggressively develop the
Homegate chain through strategic alliances with Trammell Crow Residential and
Greystar Capital Partners. The Homegate hotels are high-quality, mid-price
extended-stay hotels, with 12 hotels in operation and another 42 hotels under
development.
As of year end 1997, Prime expects that it will operate a portfolio of
approximately 150 hotels, with approximately 75 more AmeriSuites and Homegate
properties under development.
Item 7. Financial Statements and Exhibits
(a) Unaudited financial statements of Homegate Hospitality, Inc. for the
three and nine months ended September 30, 1997 and 1996 and audited financial
statements of Homegate Hospitality, Inc. for the period from inception (February
9, 1996) through December 31, 1996.
(b) Pro forma financial statements for the combined companies for the three
and nine months ended September 30, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994.
(c) Reference is made to the Agreement and Plan of Merger, dated as of
July 25, 1997, among Prime Hospitality Corp., PH Sub Corporation and Homegate
Hospitality, Inc. filed as an Exhibit to the Company's Form S-4, dated October
27, 1997, which is incorporated herein by reference.
-1-
<PAGE> 3
Homegate Hospitality, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,534,752 $ 31,475,679
Restricted cash 680,747 959,198
Accounts receivable
Hotel 288,727 241,403
Other 156,125 256,939
Interest -- 208,411
Earnest money deposits 490,000 546,000
Prepaid expenses 461,680 552,054
-------------- --------------
Total current assets 3,612,031 34,239,684
Property and equipment, net (Note 2) 121,428,027 51,106,541
Loans receivable (Note 3) -- 1,900,500
Deferred loan costs, net 1,027,155 335,547
Other assets, net 641,523 951,136
-------------- --------------
Total assets $ 126,708,736 $ 88,533,408
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,069,305 $ 1,101,225
Accrued expenses 704,464 224,694
Payables to affiliates 1,703,447 1,132,274
Note payable - Prime Hospitality (Note 4) 23,894,000 --
Current maturities of mortgage and other notes payable 720,214 425,738
-------------- --------------
Total current liabilities 28,091,430 2,883,931
Mortgage and other notes payable (Note 5) 35,662,582 20,961,009
Stockholders' equity (Note 6)
Preferred stock, $.01 par value; 5,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
10,725,000 shares issued and outstanding 107,250 107,250
Additional paid in capital 65,447,625 65,447,625
Retained earnings (deficit) (2,600,151) (866,407)
-------------- --------------
Total stockholders' equity 62,954,724 64,688,468
-------------- --------------
Total liabilities and stockholders' equity $ 126,708,736 $ 88,533,408
============== ==============
</TABLE>
See accompanying notes.
2
<PAGE> 4
Homegate Hospitality, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Room revenue $ 1,954,579 $ 630,051 $ 5,976,507 $ 654,854
Other revenue 49,134 4,844 152,526 6,548
Interest income 32,225 - 635,443 -
-------------- -------------- -------------- --------------
Total revenues 2,035,938 634,895 6,764,476 661,402
COSTS AND EXPENSES
Property operating expenses 1,463,214 461,239 4,172,895 491,552
Corporate operating expenses 532,913 314,309 1,947,001 518,582
Depreciation and amortization 428,097 103,267 1,053,262 112,800
Interest 444,920 168,803 1,325,065 190,260
-------------- -------------- -------------- --------------
Total costs and expenses 2,869,144 1,047,618 8,498,223 1,313,194
-------------- -------------- -------------- --------------
Net loss $ (833,206) $ (412,723) $ (1,733,747) $ (651,792)
============== ============== ============== ==============
Net loss per share $ (.08) $ (.04) $ (.16) $ (.06)
============== ============== ============== ==============
Weighted average number
of shares outstanding 10,725,000 10,725,000 10,725,000 10,725,000
============== ============== ============== ==============
</TABLE>
See accompanying notes.
3
<PAGE> 5
Homegate Hospitality, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
OPERATING ACTIVITIES 1997 1996
---- ----
<S> <C> <C>
Net loss $ (1,733,747) $ (651,793)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 1,053,262 112,800
Amortization of loan costs 25,519 -
Accrued interest added to mortgage note payable 155,459 70,000
Changes in operating assets and liabilities
Restricted cash 278,452 --
Accounts receivable 261,900 (652,418)
Prepaid expenses 90,374 (93,389)
Property taxes payable 315,121 --
Other current liabilities 14,089 --
Accounts payable (203,671) 1,029,882
Accrued expenses 479,771 411,923
Payables to affiliates (33,089) 202,596
-------------- --------------
Net cash provided by operating activities 703,440 429,601
-------------- --------------
INVESTING ACTIVITIES
Acquisition of land (21,895,896) (30,004,529)
Acquisition of hotel facility (2,773,410) (6,049,645)
Construction in progress, net of payables to affiliates (28,361,841) --
Additions to property and equipment, net of development costs payable (14,585,900) (1,284,775)
Additions to earnest money deposits (420,000) --
Additions to development costs (262,255) --
Additions to other assets (226,611) (754,698)
-------------- --------------
Net cash used in investing activities (68,525,913) (38,093,647)
-------------- --------------
FINANCING ACTIVITIES
Proceeds from mortgage and other notes payable 39,127,752 20,849,854
Principal payments on mortgage and other notes payable (393,162) --
Payment of deferred loan costs (853,044) (351,741)
Contributions from partners -- 18,669,920
-------------- --------------
Net cash provided by financing activities 37,881,546 39,168,033
-------------- --------------
Net increase/(decrease) in cash and cash equivalents (29,940,927) 1,503,987
Cash and cash equivalents at beginning of period 31,475,679 --
-------------- --------------
Cash and cash equivalents at end of period $ 1,534,752 $ 1,503,987
============== ==============
</TABLE>
See accompanying notes.
4
<PAGE> 6
Homegate Hospitality, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Homegate Hospitality, Inc. (the "Company") was organized in Delaware on August
16, 1996. The Company was capitalized with the issuance of 10 shares of common
stock to Extended Stay Limited Partnership ("ESLP"). The Company was formed to
continue the extended-stay lodging facility development, acquisition and
management operations of ESLP, and to acquire, develop and maintain
extended-stay lodging facilities throughout the United States.
ESLP, a Delaware limited partnership, was formed on February 9, 1996, by ESH
Partners, L.P. ("Crow") and JMI/Greystar Extended Stay Partners, L.P.
("Greystar"), as the general partners, and various limited partners. On October
24, 1996, ESLP was merged with and into the Company. Accordingly, the financial
results of ESLP, the predecessor to the Company, for the period from inception
(February 9, 1996) through September 30, 1996, have been included herein. ESLP
had no operations until June 1996.
The financial statements included herein have been prepared in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not
include all disclosures required under generally accepted accounting principles
for complete financial statements. In the opinion of management, the financial
statements reflect all adjustments, which consist only of normal recurring
adjustments, necessary for a fair presentation of the financial statements for
the interim periods presented. Interim results of operations are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
On July 25, 1997, the Company entered into a definitive merger agreement
("Merger Agreement") with Prime Hospitality Corp. ("Prime") pursuant to which
the Company will merge with a wholly owned subsidiary of Prime. Under the Merger
Agreement, Prime will issue 0.6073 shares of its common stock for each of the
10,725,000 outstanding shares of the Company's common stock. The Merger
Agreement is subject to the approval of the stockholders of the Company and
other customary terms and conditions. A meeting of the Company's stockholders
has been called for on December 1, 1997 and the merger is expected to be
completed promptly thereafter.
5
<PAGE> 7
2. PROPERTY AND EQUIPMENT
At September 30, 1997 and December 31, 1996, property and equipment consisted of
the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Land $ 41,565,767 $ 16,473,296
Buildings and improvements 42,308,785 28,300,127
Construction in progress 32,780,024 4,623,153
Furniture, fixtures, and equipment 6,036,495 1,985,837
-------------- --------------
122,691,071 51,382,413
Less accumulated depreciation 1,263,044 275,872
-------------- --------------
$ 121,428,027 $ 51,106,541
============== ==============
</TABLE>
During the third quarter of 1997, the Company acquired three land parcels in
Austin, Texas, and one in Tampa, Florida that are under development for hotel
construction. Additionally, the Company acquired one land parcel in each of the
following cities: Aurora, Colorado; Orlando, Florida; Columbia, Maryland; and
Columbus, Ohio for future development of hotel facilities. On August 12, 1997
the company purchased an existing corporate housing project in Charlotte, North
Carolina. The Company is intending to convert this project to an extended stay
hotel in 1998. The Company must first obtain the proper zoning for this
conversion to occur. As of September 30, 1997, the Company had entered into
agreements, letters of intent, contracts, or other arrangements for the future
purchase of eleven additional land parcels.
Trammell Crow Residential (TCR) and Greystar Realty Services (GRS) are
developing the hotel facilities under an agreement that expires at the earlier
of the completion of the sixtieth hotel or December 31, 1998.
3. LOANS RECEIVABLE
During 1996, the Company advanced $1,900,500 under two promissory notes to an
unrelated party for the purchase of two parcels of land in Austin, Texas (the
"Rutherford and Jolleyville sites"), on which extended-stay hotel facilities are
being developed. During the first quarter and second quarters of 1997, the
Company advanced an additional $400,000 and $793,837, respectively, under the
notes for various development costs. These notes accrued interest at ten percent
and matured on the sooner of November 2000 or five business days after demand.
On July 3, 1997, the Company purchased the Rutherford and Jolleyville sites for
a total purchase price of $508,713, net of the two promissory notes and the
related accrued interest.
4. NOTE PAYABLE - PRIME HOSPITALITY
In accordance with a commitment letter executed by the Company and Prime
contemporaneously with the execution of the Merger Agreement, the Company and
Prime thereafter executed a loan agreement pursuant to which Prime provided a
$65 million interim secured construction term loan facility ("Construction Term
Loan Facility") to the Company. The Construction Term Loan Facility is
6
<PAGE> 8
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
to be used for the acquisition and development of specific sites. The
Construction Term Loan Facility matures and all amounts outstanding thereunder
are due at the earlier of (a) April 1, 1998, (b) the date on which the Company
enters into any agreement (other than the Merger Agreement) with respect to any
alternative proposal or otherwise relating to the merger or sale of
substantially all of the assets of the Company and (c) four months after the
termination of the Merger Agreement. The Company paid a loan fee of 1% of the
aggregate principal amount of the Construction Term Loan Facility. Monthly
interest payments commence December 15, 1997. The interest accrues monthly at a
rate of the one month LIBOR plus 3.5%; provided that the interest rate will
increase to the one month LIBOR plus 5% on the date that is the earlier of (a)
November 30, 1997 and (b) the date of the termination of the Merger Agreement
(other than a termination as a result of a breach by Prime). The loan is secured
by a first priority perfected security interest in specified sites. The amount
of any loan under the facility may not exceed 75% of the total project costs of
the related project. The outstanding balance at September 30, 1997 was
$23,894,000.
5. MORTGAGE AND OTHER NOTES PAYABLE
MORTGAGE NOTES PAYABLE
The Company has entered into a Master Loan Agreement (the "Note") with Bank One,
Arizona, N.A. ("BOA"). The Note provides up to $30 million in
construction/mini-perm mortgage loans for the acquisition and development of
land and hotel facilities for up to five years. As of September 30, 1997, six
loans have been committed under the Note with aggregate note amounts equaling
$24,611,067.
On May 31, 1996, a loan, in the amount of $3,448,250, was committed under the
Note in connection with the acquisition of the hotel in Grand Prairie, Texas.
This loan, secured by the hotel in Grand Prairie, accrues interest at either
LIBOR plus 2.25% or prime plus .5% based on the election of the Company (7.91%
at September 30, 1997), and required interest payments for the first ten months
of the loan, followed by principal and interest payments based upon a fifteen
year amortization until maturity, May 31, 1999. The outstanding balance at
September 30, 1997 was $2,861,194.
On August 15, 1996, a loan, in the amount of $3,509,885, was committed under the
Note in connection with the construction of the hotel in Phoenix, Arizona. This
loan, secured by the hotel at 44th and Oak, accrues interest at either LIBOR
plus 2.5% or prime plus .5% based on the election of the Company (8.13% at
September 30, 1997), and required interest payments for the first twelve months
of the loan, followed by principal and interest payments based upon a fifteen
year amortization until maturity, August 15, 1998. The maturity date may be
extended for thirty-six months with the payment of an extension fee of .25% of
the loan amount. The outstanding balance at September 30, 1997 was $3,168,839.
7
<PAGE> 9
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
On February 4, 1997, a loan, in the amount of $5,070,000, was committed under
the Note, secured by the Austin Town Lake hotel facility. The funding of this
loan by BOA occurred on May 12, 1997. This loan accrues interest at either LIBOR
plus 2.25% or prime plus .5% based on the election of the Company (7.91% at
September 30, 1997), and requires principal and interest payments based upon a
fifteen year amortization until maturity, February 4, 2000. The outstanding
balance at September 30, 1997 was $4,859,006.
On July 21, 1997, a loan, in the amount of $3,961,379, was committed under the
Note in connection with the construction of the hotel in Denver, Colorado. This
loan, secured by the hotel at Denver Tech Center, accrues interest at either
LIBOR plus 2.5% or prime plus .5% based on the election of the Company (8.13% at
September 30, 1997), and requires interest payments for the first twelve months
of the loan, followed by principal and interest payments based upon a fifteen
year amortization until maturity, July 21, 1999. The maturity date may be
extended for thirty-six months with the payment of an extension fee of .25% of
the loan amount. The outstanding balance at September 30, 1997 was $2,477,954.
On August 6, 1997, a loan, in the amount of $4,294,828, was committed under the
Note in connection with the construction of the hotel in Phoenix, Arizona. This
loan, secured by a hotel at Phoenix Interstate 10 & Chandler, accrues interest
at either LIBOR plus 2.5% or prime plus .5% based on the election of the Company
(8.16% at September 30, 1997), and requires interest payments for the first
twelve months of the loan, followed by principal and interest payments based
upon a fifteen year amortization until maturity, August 6, 1999. The maturity
date may be extended for thirty-six months with the payment of an extension fee
of .25% of the loan amount. The outstanding balance at September 30, 1997 was
$1,858,231.
On August 18, 1997, a loan, in the amount of $4,326,725, was committed under the
Note in connection with the construction of the hotel in Dallas, Texas. This
loan, secured by a hotel at Dallas Park Central (Vantage Point Drive), accrues
interest at either LIBOR plus 2.5% or prime plus .5% based on the election of
the Company (8.16% at September 30, 1997), and requires interest payments for
the first twelve months of the loan, followed by principal and interest payments
based upon a fifteen year amortization until maturity, August 18, 1999. The
maturity date may be extended for thirty-six months with the payment of an
extension fee of .25% of the loan amount. The outstanding balance at September
30, 1997 was $1,084,082.
In connection with the acquisition of the 511 Queens corporate housing project
in Charlotte, North Carolina, the Company entered into a $1,900,000 mortgage
note due to Morgan Guaranty Trust Company of New York, with interest at 7.97%
through September 1, 2007. The note is due in monthly installments of
$14,626.77, including interest, from October 1997 through September 2007, and is
secured by the 511 Queens property and improvements. The outstanding balance at
September 30, 1997 was $1,897,992.
8
<PAGE> 10
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
In connection with the acquisition of Westar, the Company assumed an $18,100,000
mortgage note due to Nomura Asset Capital Corporation ("Nomura"), with interest
at 9.71% through January 11, 2011 and thereafter at the greater of 14.71% or the
Treasury Rate plus 9%. The note is due in monthly installments of $160,789,
including interest, from February 1996 through January 2021, and is secured by
the Westar hotel properties and improvements. The outstanding balance at
September 30, 1997 was $17,837,175.
The mortgage note payable to Nomura does not allow for prepayment of the debt
until January 11, 2011, except by providing the lender with U.S. obligations
that produce payments which replicate the payment obligations of the Company
under the note. This restriction represents a substantial prepayment penalty. On
or after January 11, 2011, the loan can be prepaid at any time with no
prepayment penalty.
Restricted cash includes cash retained by Nomura's mortgage servicer for payment
of taxes, insurance and debt service.
OTHER NOTES PAYABLE
The Company has two unsecured notes payable for the purchase of directors and
officers insurance. The notes accrue interest at 6.98% and require monthly
principal and interest payments of $16,497 through July 1999. The outstanding
balance at September 30, 1997 was $338,323.
6. STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating earnings per share, the dilutive effect of stock options will be
excluded. Management believes that adoption of SFAS No. 128 will not have a
material effect on earnings per share.
9
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Homegate Hospitality, Inc.
We have audited the accompanying balance sheet of Homegate Hospitality,
Inc. as of December 31, 1996, and the related statements of operations, changes
in stockholders' equity and cash flows for the period from inception (February
9, 1996) through December 31, 1996. Our audit also included the financial
statement schedule listed in the index. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Homegate Hospitality, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the period from inception (February 9, 1996) through December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
February 20, 1997
10
<PAGE> 12
HOMEGATE HOSPITALITY, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $31,475,679
Restricted cash............................................................... 959,198
Accounts receivable
Hotel......................................................................... 241,403
Other......................................................................... 256,939
Interest...................................................................... 208,411
Prepaid insurance............................................................. 552,054
-----------
Total current assets.................................................. 33,693,684
Property and equipment, net (Note 2).......................................... 51,106,541
Loans receivable (Note 3)..................................................... 1,900,500
Deferred loan costs, net of accumulated amortization of $16,113............... 335,547
Other assets, net of accumulated amortization of $68,586...................... 1,497,136
-----------
Total assets.......................................................... $88,533,408
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,101,225
Accrued expenses.............................................................. 224,694
Payables to affiliates (Note 6)............................................... 1,132,274
Current maturities of mortgage and other notes payable........................ 425,738
-----------
Total current liabilities............................................. 2,883,931
Mortgage and other notes payable (Note 4)..................................... 20,961,009
Stockholders' equity (Note 7)
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued..... --
Common stock, $.01 par value; 20,000,000 shares authorized; 10,725,000 shares
issued and outstanding........................................................ 107,250
Additional paid in capital.................................................... 65,447,625
Retained earnings (deficit)................................................... (866,407)
-----------
Total stockholders' equity................................................. 64,688,468
-----------
Total liabilities and stockholders' equity............................ $88,533,408
===========
</TABLE>
See accompanying notes.
11
<PAGE> 13
HOMEGATE HOSPITALITY, INC.
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (FEBRUARY 9, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues:
Room revenue.................................................................. $ 2,233,391
6,770
Interest income............................................................... 450,536
----------
2,690,697
Costs and expenses:
Property operating expenses................................................... 1,675,936
Corporate operating expenses.................................................. 951,261
Depreciation and amortization................................................. 344,459
Interest...................................................................... 585,448
----------
3,557,104
----------
Net loss........................................................................ $ (866,407)
==========
Pro forma net loss per share.................................................... $ (.08)
==========
Pro forma weighted average number of shares outstanding......................... 10,725,000
</TABLE>
See accompanying notes.
12
<PAGE> 14
HOMEGATE HOSPITALITY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER COMMON PAID IN RETAINED PARTNERS'
OF SHARES STOCK CAPITAL EARNINGS CAPITAL TOTAL
---------- -------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Capital contributed at
inception (February 9,
1996)................. -- $ -- $ -- $ -- $ 20,000,000 $20,000,000
Net loss of ESLP
(February 9, 1996
through October 23,
1996)................. -- -- -- -- (732,642) (732,642)
Issuance of common stock
to ESLP partners...... 6,386,087 63,861 19,936,139 (732,642) (19,267,358) --
Sale of common stock in
initial public
offering, net of
offering costs........ 4,325,000 43,250 45,351,625 -- -- 45,394,875
Issuance of common stock
to employees and
others................ 13,913 139 159,861 -- -- 160,000
Net loss of the Company
(October 24, 1996
through December 31,
1996)................. -- -- -- (133,765) -- (133,765)
--------- -----------
Balance at December 31,
1996.................. 10,725,000 $107,250 $65,447,625 $(866,407) $ -- $64,688,468
========== ======== =========== ========= ============ ===========
</TABLE>
See accompanying notes.
13
<PAGE> 15
HOMEGATE HOSPITALITY, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (FEBRUARY 9, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Operating activities
Net loss..................................................................... $ (866,407)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization................................................ 344,459
Amortization of loan costs................................................... 16,113
Accrued interest added to mortgage note payable.............................. 70,000
Changes in operating assets and liabilities:
Restricted cash.............................................................. (959,198)
Accounts receivable.......................................................... (706,753)
Prepaid insurance, net of financing.......................................... (67,368)
Accounts payable............................................................. 1,101,225
Accrued expenses............................................................. 224,694
Payables to affiliates....................................................... 126,623
------------
Net cash used in operating activities................................ (716,612)
Investing activities
Acquisition of hotel facilities, net of debt assumed......................... (19,501,988)
Acquisition of land.......................................................... (8,835,000)
Additions to property and equipment, net of development costs payable........ (4,037,851)
Advances under loans receivable.............................................. (1,900,500)
Additions to other assets.................................................... (1,533,061)
------------
Net cash used in investing activities........................................ (35,808,400)
------------
Financing activities
Proceeds from mortgage note payable.......................................... 2,893,092
Principal payments on mortgage and other notes payable....................... (62,955)
Payment of deferred loan costs............................................... (384,322)
Capital contribution from ESLP partners...................................... 20,000,000
Payment of initial public offering costs..................................... (861,997)
Proceeds from issuance of common stock....................................... 46,416,873
------------
Net cash provided by financing activities............................ 68,000,691
------------
Net increase in cash and cash equivalents.................................... 31,475,679
Cash and cash equivalents at beginning of period............................. --
Cash and cash equivalents at end of period................................... $ 31,475,679
============
</TABLE>
See accompanying notes.
14
<PAGE> 16
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
ORGANIZATION
Homegate Hospitality, Inc. (the "Company") was organized in Delaware on
August 16, 1996. The Company was capitalized with the issuance of 10 shares of
common stock to Extended Stay Limited Partnership ("ESLP"). The Company was
formed to continue the extended-stay lodging facility development, acquisition,
and management operations of ESLP, and to acquire, develop and maintain
extended-stay lodging facilities throughout the United States.
ESLP, a Delaware limited partnership, was formed on February 9, 1996, by
ESH Partners, L.P. ("Crow") and JMI/Greystar Extended Stay Partners, L.P.
("Greystar"), as the general partners and various limited partners. On October
24, 1996, ESLP was merged with and into the Company (see Note 7). Accordingly,
the financial results of ESLP, the predecessor to the Company, for the period
from inception (February 9, 1996) through October 23, 1996, have been included
herein.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, VPS I, L.P. All material
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from these estimates.
REVENUE RECOGNITION
Room revenue and other income are recognized when earned, utilizing the
accrual method of accounting.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
PROPERTY AND EQUIPMENT
The Company capitalizes costs directly related to the acquisition,
renovation or development of property and equipment while maintenance and
repairs are charged to operating expense when incurred. Interest costs during
construction periods are also capitalized. Property and equipment is recorded at
cost. The building and improvements and furniture and fixtures are depreciated
over their estimated useful lives, which are 40 years and 7 years, respectively,
using the straight-line method.
DEFERRED LOAN COSTS
Costs incurred in obtaining financing have been deferred and are amortized
over the life of the loan.
15
<PAGE> 17
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OTHER ASSETS
Other assets include site deposits, pursuit costs, pre-opening costs, and
organization costs. Site deposits have been paid to escrow agents in conjunction
with executed purchase agreements, whereby the Company is considering the
purchase of certain land parcels.
Costs related to the acquisition of property sites are capitalized when it
is probable that a site will be acquired and are reclassified to property and
equipment upon acquisition. In the event the acquisition is not consummated, the
costs are expensed.
Compensation, promotional and other costs relating to the opening of new
properties are capitalized. Amortization is provided using the straight line
method over a twelve-month period.
Organization costs incurred in conjunction with the formation of the ESLP
have been capitalized and are being amortized over sixty months using the
straight-line method.
PRO FORMA NET LOSS PER SHARE
The pro forma net loss per share was calculated by dividing the net loss by
the pro forma weighted average shares outstanding which assume the initial
public offering occurred as of the beginning of the period.
2. PROPERTY AND EQUIPMENT
At December 31, 1996, property and equipment consists of the following:
<TABLE>
<S> <C>
Land............................................................ $ 16,473,296
Buildings and improvements...................................... 28,300,127
Construction in progress........................................ 4,623,153
Furniture, fixtures, and equipment.............................. 1,985,837
-----------
51,382,413
Less accumulated depreciation................................... 275,872
-----------
$ 51,106,541
===========
</TABLE>
On May 31, 1996, ESLP acquired Studio Suites in Grand Prairie, Texas.
Operations of the Studio Suites commenced during June 1996 and are included in
the accompanying statement of operations since acquisition.
During 1996, the Company acquired two land parcels in Phoenix, one parcel
of land in Denver, two parcels of land in Kansas, and one parcel of land in
Dallas, all of which are under development for hotel construction. Estimated
costs to complete development on these projects total approximately $24.9
million. Additionally, the Company acquired one parcel in Indianapolis, for
future development of a hotel facility. As of December 31, 1996, the Company has
entered into agreements, letters of intent, contracts, or other arrangements to
purchase eighteen additional land parcels.
Long-lived assets are evaluated when indicators of impairment are present
and provisions for possible losses are recorded when the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.
ACQUISITION OF WESTAR
On September 6, 1996, ESLP acquired all the interests in VPS I, L.P. an
unaffiliated Delaware limited partnership that owned five hotels in several
Texas cities operating under the name Westar Suites ("Westar"). ESLP paid
$7,738,696 and assumed debt of $18,001,924 (See Note 4). The acquisition was
accounted for as a purchase with the excess of the purchase price over the net
book value of the Westar assets acquired allocated
16
<PAGE> 18
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
to property and equipment. The Company's statement of operations includes the
operations of Westar from the date of acquisition.
Assuming that Westar had been acquired at the beginning of the period
presented (February 9, 1996), operating results of the Company would have been
as follows:
<TABLE>
<S> <C>
Room revenue..................................................... $6,854,060
Net income (loss)................................................ (746,024)
Proforma earnings (loss) per share (.07)
</TABLE>
ACQUISITION OF INNHOME AMERICA -- TOWNE LAKE
On December 31, 1996, the Company acquired, from an unrelated party, an
extended-stay hotel in Austin, Texas operating under the name InnHome
America -- Towne Lake ("InnHome") for a total purchase price of $7.7 million.
The acquisition was accounted for as a purchase with the excess of the purchase
price over the net book value of the InnHome assets acquired allocated to
property and equipment.
Assuming that InnHome had been acquired at the beginning of the period
presented (February 9, 1996), operating results of the Company would have been
as follows:
<TABLE>
<S> <C>
Room revenue..................................................... $3,916,343
Net income (loss)................................................ (198,465)
Proforma earnings (loss) per share............................... (.02)
</TABLE>
3. LOANS RECEIVABLE
The Company advanced $1,900,500 under two promissory notes to two unrelated
parties for the purchase of two parcels of land in Austin, Texas, on which
extended-stay hotel facilities will be developed. These notes accrue interest at
ten percent and mature on the sooner of November 2000 or five business days
after demand. Monthly interest payments of $15,838 begin on February 1, 1997.
The Company has a letter agreement to purchase the hotels upon completion for a
total price equal to the lesser of $14.1 million or actual costs.
4. MORTGAGE AND OTHER NOTES PAYABLE
MORTGAGE NOTES PAYABLE
The Company has entered into a Master Loan Agreement (the "Note") with Bank
One, Arizona. The Note provides up to $30 million in construction/mini-perm
mortgage loans for the acquisition and development of land and hotel facilities
for up to five years. A loan was committed under the Note in connection with the
acquisition of Studio Suites. This loan, secured by Studio Suites, accrues
interest at either LIBOR plus 2.25% or prime plus .5% based on the election of
the Company (7.75% at December 31, 1996), and requires interest payments for the
first ten months of the loan, followed by principal and interest payments based
upon a fifteen year amortization until maturity, May 31, 1999. The outstanding
balance at December 31, 1996, includes $2,847,930 of original principal borrowed
and $70,000 of accrued interest added from an interest reserve.
Another loan, in the amount of $3,509,885, was committed under the Note in
connection with the construction of the hotel in Phoenix, Arizona. This loan,
secured by the hotel at 44th and Oak, accrues interest at either LIBOR plus
2.25% or prime plus .5% based on the election of the Company (7.75% at December
31, 1996), and requires interest payments for the first twelve months of the
loan, followed by principal and interest payments based upon a fifteen year
amortization until maturity, August 15, 1998. The maturity date may be extended
for thirty-six months with the payment of an extension fee of .25% of the loan
amount. The outstanding balance at December 31, 1996 was $45,162.
17
<PAGE> 19
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
In connection with the acquisition of Westar, the Company assumed an
$18,100,000 mortgage note due to Nomura Asset Capital Corporation, with interest
at 9.71% through January 11, 2011 and the greater of 14.71% or the Treasury Rate
plus 9% thereafter. The note is due in monthly installments of $160,789,
including interest, commencing February 1996 through January 2021, and is
secured by the Westar hotel properties and improvements. The outstanding balance
at December 31, 1996 was $17,961,075.
Restricted cash includes cash retained by the mortgage servicer for payment
of taxes, insurance and debt service.
The mortgage note payable to Nomura Asset Capital Corporation does not
allow for prepayment of the debt until January 11, 2011, except by providing the
lender with U.S. obligations that produce payments which replicate the payment
obligations of the Company under the note. This restriction represents a
substantial prepayment penalty. On or after January 11, 2011, the loan can be
prepaid at any time with no prepayment penalty.
OTHER NOTES PAYABLE
The Company has two unsecured notes payable for the purchase of directors
and officers insurance. The notes accrue interest at 6.98% and require monthly
principal and interest payments of $16,497 through July 1999. The outstanding
balance at December 31, 1996 was $462,580.
Principal maturities of the mortgages and other notes payable at December
31, 1996, are as follows:
<TABLE>
<CAPTION>
MORTGAGE OTHER
NOTES NOTES TOTAL
----------- --------- ------------
<S> <C> <C> <C>
1997.................................. $ 257,582 $ 168,156 $ 425,738
1998.................................. 300,549 183,089 483,638
1999.................................. 2,920,239 111,335 3,031,574
2000.................................. 221,514 -- 221,514
2001.................................. 249,377 -- 249,377
Thereafter............................ 16,974,906 -- 16,974,906
----------- -------- -----------
$20,924,167 $ 462,580 $ 21,386,747
=========== ======== ===========
</TABLE>
Interest incurred during 1996 was $718,298, of which $132,850 was
capitalized. The Company paid interest totaling $532,596 during 1996.
The carrying value of the mortgage and other notes payable as of December
31, 1996 approximates fair value as the interest rate approximates market rate
for similar debt instruments.
5. INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes result from temporary differences between the carrying amounts of
assets for financial reporting purposes and the amounts used for income tax
purposes and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
The portion of the loss included in the accompanying financial statements
that was incurred by ESLP prior to its merger into the Company will be included
in a separate partnership tax return. The loss incurred by the Company
subsequent to the merger will be reflected in its corporate income tax return.
18
<PAGE> 20
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The differences between the provision for income taxes ($0) and the amounts
computed by applying the statutory federal income tax rates to loss before
income taxes are:
<TABLE>
<S> <C>
Statutory rate applied to loss before income taxes............... $(294,578)
ESLP partnership loss............................................ 249,098
---------
(45,480)
Provision for valuation allowance................................ 45,480
---------
$ --
=========
The components of the Company's deferred taxes at December 31, 1996, are:
Deferred tax asset -- net operating loss carryforward............ $ 45,480
Valuation allowance.............................................. (45,480)
---------
Net deferred tax asset (liability)............................... $ --
=========
</TABLE>
At December 31, 1996, the Company has unused net operating loss
carryforwards of approximately $134,000 for income tax purposes, that expire in
the year 2011.
No tax payments were made in 1996.
6. RELATED PARTY TRANSACTIONS
Wyndham Management Corporation ("Wyndham") an affiliate of Crow,
administered and funded payroll and insurance benefits for all employees of the
Company through September 30, 1996 and continues to administer payroll for the
employees of the Studio Suites and Westar hotels. Payables to affiliates
includes $46,267 due to Wyndham at December 31, 1996, for reimbursement of
payroll and insurance expenditures. Payroll and insurance expenditures
reimbursed to Wyndham was $179,123 during 1996.
Wyndham is entitled to receive a management fee equal to 3% of gross
revenues, as defined, for management of the Company's hotels. Management fees
were $69,265 in 1996. Payables to affiliates includes $51,710 due to Wyndham at
December 31, 1996, for management fees and marketing fees.
Trammell Crow Residential (TCR), an affiliate of Crow, and Greystar Realty
Services (GRS), an affiliate of Greystar, have collectively agreed to develop up
to 60 hotel facilities for the Company, under an agreement that expires at the
earlier of the completion of the sixtieth hotel or December 31, 1998.
Development fees paid to TCR and GRS were $460,175 and $50,000, respectively,
during 1996.
Payables to affiliates includes $879,523, $28,420 and $126,353 due to TCR,
Wyndham, and Greystar, respectively, at December 31, 1996, for reimbursement of
construction costs and out-of-pocket expenditures incurred in conjunction with
the pursuit and acquisition of land and property.
7. STOCKHOLDERS' EQUITY
COMMON STOCKHOLDERS VOTING RIGHTS
Common stockholders are entitled to one vote for each share held on all
matters presented for a vote of stockholders. Stockholders are entitled to
receive pro rata, such dividends, if any, as may be declared by the Board of
Directors in their discretion from funds legally available. Upon liquidation or
dissolution, stockholders are entitled to receive pro rata, all of the remaining
assets of the Company available for distribution to its stockholders.
19
<PAGE> 21
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
ISSUANCE OF COMMON STOCK TO ESLP PARTNERS
On October 24, 1996, ESLP merged with and into the Company. The Company
issued 6,386,087 shares of common stock to the partners of ESLP in exchange for
their partnership interests. The cost basis of the partnership interests
acquired for stock was $19,267,358.
INITIAL PUBLIC OFFERING
On October 24, 1996, the Company completed an initial public offering of
4,325,000 shares of its common stock at a public offering price of $11.50 per
share (the "Offering"). The proceeds to the Company from the offering were
$45,394,875, net of offering expenses.
LONG-TERM INCENTIVE PLAN
The Company has adopted the 1996 Long-Term Incentive Plan (the "1996 Plan")
to attract and retain employees and consultants. Under the plan, options and
stock awards may be granted with respect to a total of not more than 1,250,000
shares of common stock, subject to antidilution and other adjustment provisions.
The options generally vest over a four-year period and may be exercised over a
period of 10 years from the date of grant, subject to the vesting provisions.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
On October 24, 1996, the Company granted options to acquire an aggregate of
511,250 shares of common stock to certain employees and Company advisors. The
exercise price for these options is the initial public offering price of $11.50.
The stock option grants include 336,250 shares granted to Company officers and
employees, 25,000 shares granted to advisors from Greystar, 55,000 shares
granted to advisors from TCR, 45,000 shares granted to advisors from Crow Realty
Investors, L.P., and 50,000 shares granted to advisors from Wyndham Hotel
Company. The options granted to advisors from TCR vested immediately and the
remaining stock options will vest ratably over a four-year period. No options
were exercised, forfeited or expired in 1996.
The effect of applying the fair value method prescribed by Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
to the Company's stock based awards to employees would have increased net loss
by $146,000 or $.01 per share. The fair value was estimated using the Black-
Scholes option-pricing model based on the weighted average market price at grant
date of $11.50 and the following weighted average assumptions: risk-free
interest rate of 6.12%, volatility of 10% and dividend yield of 0%.
COMMON STOCK AWARDS
In connection with the Offering, the Company granted 13,913 shares of
common stock under the Plan to certain employees and consultants of the Company.
As a result, $64,998 has been recorded to compensation expense and $34,995 has
been capitalized to property and equipment for stock granted to employees. In
addition, $60,007 has been recorded to offering costs for services provided by
consultants in connection with the Offering.
8. PROFIT SHARING AND SAVINGS PLAN
The Company has a 401(k) plan for all full-time employees. Employees may
contribute up to 15% of their gross pay, subject to certain limitations. The
Company's 401(k) plan was effective December 1, 1996.
20
<PAGE> 22
HOMEGATE HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The Company matches 50% of the amount contributed by each employee, up to 6% of
the employee's gross pay. In 1996, expenses included $2,298 representing the
employer's matching contribution to the plan.
9. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Company purchased three land sites for
an aggregate purchase price of $3,224,066. Additionally, the Company began
development on two more hotel facilities. Total expected development costs for
the two facilities are approximately $8,077,374.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1996 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues.................. $-- $ 24,803 $ 634,895 $ 2,029,296
Net loss........................ -- (239,070) (412,723) (214,614)
Pro forma loss per share........ -- (.02) (.04) (.02)
</TABLE>
21
<PAGE> 23
PRIME HOSPITALITY CORP.
PROFORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
PROFORMA PROFORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $22,850 $1,535 $24,385
Accounts receivable, net of reserves 15,408 681 16,089
Restricted cash 445 445
Current portion of mortgage and notes receivables 25,526 (23,894)(C) 1,632
Other current assets 17,823 952 18,775
----------- --------- --------- -----------
Total current assets 81,607 3,613 (23,894) 61,326
Property, equipment and leasehold
improvements, net of accumulated depreciation
and amortization 900,414 121,428 1,021,842
Mortgages and notes receivable, net of current portion 19,941 19,941
Other assets 28,514 1,668 30,182
----------- --------- --------- -----------
Total assets $1,030,476 $126,709 ($23,894) $1,133,291
=========== ========= ========= ===========
Current liabilities:
Current portion of long-term debt $3,079 $24,614 ($23,894)(C) $3,799
Other current liabilities 61,403 3,477 64,880
----------- --------- --------- -----------
Total current liabilities 64,482 28,091 (23,894) 68,679
Long-term debt, net of current portion 492,485 35,663 528,148
Other liabilities 16,343 16,343
----------- --------- --------- -----------
Total liabilities 573,310 63,754 (23,894) 613,170
Stockholders' equity:
Preferred stock
Common stock 406 107 (42)(A) 471
Capital in excess of par value 344,039 65,448 42 (A) 409,529
Retained earnings(deficit) 113,759 (2,600) 0 111,159
Treasury stock (1,038) (1,038)
----------- --------- --------- -----------
Total stockholders' equity 457,166 62,955 0 520,121
----------- --------- --------- -----------
Total liabilities and stockholders' equity $1,030,476 $126,709 ($23,894) $1,133,291
=========== ========= ========= ===========
</TABLE>
<PAGE> 24
PRIME HOSPITALITY CORP.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PROFORMA PROFORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Total revenue $ 85,803 $ 2,002 (534) $ 87,271
Costs and expenses:
Direct hotel operating expenses 41,741 1,251 -- 42,992
Occupancy and other operating 5,438 211 -- 5,649
General and administrative 5,201 532 -- 5,733
Depreciation and amortization 8,203 428 -- 8,631
-------- -------- ------- --------
Total costs and expenses 60,583 2,422 0 63,005
-------- -------- ------- --------
Operating income (loss) 25,220 (420) (534) 24,266
Investment income 763 32 -- 795
Interest expense (7,011) (445) 534 (6,922)
Other income 23 -- -- 23
-------- -------- ------- --------
Income (loss) before income taxes and
extraordinary items 18,995 (833) 0 18,162
Income tax expense 7,598 -- -- 7,598
-------- -------- ------- --------
Income (loss) before extraordinary items 11,397 (833) 0 10,564
Extraordinary items, net -- -- -- 0
-------- -------- ------- ---------
Net income (loss) $11,397 ($833) $0 $10,564
======== ======== ======= =========
Fully diluted earnings (loss) per common share $0.25 ($0.08) -- $0.21
Number of shares used in fully diluted earnings
(loss) per common share calculations 49,158 10,725 (4,212)(B) 55,671
</TABLE>
23
<PAGE> 25
PRIME HOSPITALITY CORP.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PROFORMA PROFORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Total revenue $ 245,290 $ 6,129 (534) $ 250,885
Costs and expenses:
Direct hotel operating expenses 120,467 3,525 -- 123,992
Occupancy and other operating 16,693 648 -- 17,341
General and administrative 15,306 1,947 -- 17,253
Depreciation and amortization 23,304 1,053 -- 24,357
--------- -------- --------- ---------
Total costs and expenses 175,770 7,173 0 182,943
--------- -------- --------- ---------
Operating income (loss) 69,520 (1,044) (534) 67,942
Investment income 2,391 635 -- 3,026
Interest expense (18,772) (1,325) 534 (19,563)
Other income 1,881 -- -- 1,881
--------- -------- --------- ---------
Income (loss) before income taxes and
extraordinary items 55,020 (1,734) 0 53,286
Income tax expense 22,008 -- -- 22,008
--------- -------- --------- ---------
Income (loss) before extraordinary items 33,012 (1,734) 0 31,278
Extraordinary items, net 75 -- -- 75
--------- -------- --------- ---------
Net income (loss) $ 33,087 ($1,734) $0 $31,353
========= ======== ========= =========
Fully diluted earnings (loss) per common share $0.73 ($0.16) -- $0.62
Number of shares used in fully diluted earnings
(loss) per common share calculations 49,047 10,725 (4,212)(B) 55,560
</TABLE>
24
<PAGE> 26
PRIME HOSPITALITY CORP.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PROFORMA PROFORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Total revenue $ 68,847 $ 635 -- $ 69,482
Costs and expenses:
Direct hotel operating expenses 37,393 384 -- 37,777
Occupancy and other operating 4,185 78 -- 4,263
General and administrative 4,330 314 -- 4,644
Depreciation and amortization 6,100 103 -- 6,203
-------- -------- ------- --------
Total costs and expenses 52,008 879 0 52,887
-------- -------- ------- --------
Operating income (loss) 16,839 (244) 0 16,595
Investment income 1,765 -- -- 1,765
Interest expense (5,982) (169) -- (6,151)
Other income 869 -- -- 869
-------- -------- ------- --------
Income (loss) before income taxes and
extraordinary items 13,491 (413) 0 13,078
Income tax expense 5,396 -- -- 3,396
-------- -------- ------- --------
Income (loss) before extraordinary items 8,095 (413) 0 7,682
Extraordinary items, net 7 -- -- 7
-------- -------- ------- --------
Net income (loss) $8,102 ($413) $0 $7,689
======== ======== ======= ========
Fully diluted earnings (loss) per common share $0.20 ($0.04) -- $0.17
Number of shares used in fully diluted earnings
(loss) per common share calculations 45,760 10,725 (4,212)(B) 52,273
</TABLE>
25
<PAGE> 27
PRIME HOSPITALITY CORP.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PROFORMA PROFORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
----- -------- ----------- --------
<S> <C> <C> <C> <C>
Total revenue $ 197,353 $ 661 -- $ 198,014
Costs and expenses:
Direct hotel operating expenses 106,875 409 -- 107,284
Occupancy and other operating 11,769 83 -- 11,852
General and administrative 13,087 519 -- 13,606
Depreciation and amortization 17,202 112 -- 17,314
--------- -------- ------- ---------
Total costs and expenses 148,933 1,123 0 150,056
--------- -------- ------- ---------
Operating income (loss) 48,420 (462) 0 47,958
Investment income 3,886 -- -- 3,886
Interest expense (18,191) (190) -- (18,381)
Other income 4,301 -- -- 4,301
--------- -------- ------- ---------
Income (loss) before income taxes and
extraordinary items 38,416 (652) 0 37,764
Income tax expense 15,366 15,366
--------- -------- ------- ---------
Income (loss) before extraordinary items 23,050 (652) 0 22,398
Extraordinary items, net 183 -- -- 183
--------- -------- ------- ---------
Net income (loss) $ 23,233 ($652) $ 0 $22,581
========= ======== ======= =========
Fully diluted earnings (loss) per common share $0.62 ($0.06) -- $0.53
Number of shares used in fully diluted earnings
(loss) per common share calculations 42,045 10,725 (4,936)(B) 47,834
</TABLE>
26
<PAGE> 28
PRIME HOSPITALITY CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
-------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Total revenue................................. $268,868 $ 2,232 $ -- $ 271,100
Costs and expenses:
Direct hotel operating expenses............. 145,419 1,438 -- 146,857
Occupancy and other operating............... 16,833 238 -- 17,071
General and administrative.................. 17,813 951 -- 18,764
Depreciation and amortization............... 23,632 344 -- 23,976
-------- -------- -------- --------
Total costs and expenses...................... 203,697 2,971 -- 206,668
-------- -------- -------- --------
Operating income (loss)....................... 65,171 (739) -- 64,432
Investment income............................. 4,610 451 -- 5,061
Interest expense.............................. (22,564) (585) -- (23,149)
Other income.................................. 4,306 7 -- 4,313
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary items......................... 51,523 (866) -- 50,657
Income tax expense............................ 20,609 -- -- 20,609
-------- -------- -------- --------
Income (loss) before extraordinary items...... 30,914 (866) -- 30,048
Extraordinary items, net...................... 202 -- -- 202
-------- -------- -------- --------
Net income (loss)............................. $ 31,116 ($ 866) -- $ 30,250
======== ======== ======== ========
Fully diluted earnings (loss) per common
share....................................... $ 0.80 ($ 0.08) $ -- $ 0.69
Number of shares used in fully diluted
earnings (loss) per common share
calculations................................ 43,794 10,725 (4,755)(B) 49,764
</TABLE>
27
<PAGE> 29
PRIME HOSPITALITY CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
-------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Total revenue.................................... $205,628 $ -- $ -- $ 205,628
Costs and expenses:
Direct hotel operating expenses................ 116,565 -- -- 116,565
Occupancy and other operating.................. 11,763 -- -- 11,763
General and administrative..................... 15,515 -- -- 15,515
Depreciation and amortization.................. 15,227 -- -- 15,227
Other expenses................................. 2,200 -- -- 2,200
-------- -------- -------- --------
Total costs and expenses......................... 161,270 -- -- 161,270
-------- -------- -------- --------
Operating income................................. 44,358 -- -- 44,358
Investment income................................ 4,861 -- -- 4,861
Interest expense................................. (22,350) -- -- (22,350)
Other income..................................... 2,239 -- -- 2,239
-------- -------- -------- --------
Income before income taxes and extraordinary
items.......................................... 29,108 -- -- 29,108
Income tax expense............................... 11,643 -- -- 11,643
-------- -------- -------- --------
Income before extraordinary items................ 17,465 -- -- 17,465
Extraordinary items, net......................... 104 -- -- 104
-------- -------- -------- --------
Net income....................................... $ 17,569 $ -- $ -- $ 17,569
======== ======== ======== ========
Fully diluted earnings per common share.......... $ 0.54 $ -- $ -- $ 0.54
Number of shares used in fully diluted earnings
per common share calculations.................. 37,423 -- -- 37,423
</TABLE>
28
<PAGE> 30
PRIME HOSPITALITY CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA
PRIME HOMEGATE ADJUSTMENTS COMBINED
-------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Total revenue................................. $134,303 $ -- $ -- $ 134,303
Costs and expenses:
Direct hotel operating expenses............. 66,620 -- -- 66,620
Occupancy and other operating............... 9,799 -- -- 9,799
General and administrative.................. 15,089 -- -- 15,089
Depreciation and amortization............... 9,384 -- -- 9,384
-------- -------- -------- --------
Total costs and expenses...................... 100,892 -- -- 100,892
-------- -------- -------- --------
Operating income.............................. 33,411 -- -- 33,411
Investment income............................. 1,966 -- -- 1,966
Interest expense.............................. (14,036) -- -- (14,036)
Other income.................................. 9,089 -- -- 9,089
-------- -------- -------- --------
Income before income taxes and extraordinary
items....................................... 30,430 -- -- 30,430
Income tax expense............................ 12,172 -- -- 12,172
-------- -------- -------- --------
Income before extraordinary items............. 18,258 -- -- 18,258
Extraordinary items, net...................... 172 -- -- 172
-------- -------- -------- --------
Net income.................................... $ 18,430 $ -- $ -- $ 18,430
======== ======== ======== ========
Fully diluted earnings per common share....... $0.58 $ -- $ -- $0.58
Number of shares used in fully diluted
earnings per common share calculations...... 32,022 -- -- 32,022
</TABLE>
29
<PAGE> 31
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
The Merger between Prime and Homegate is intended to be accounted for as a
pooling of interests. Accordingly, the pro forma financial statements have been
prepared assuming the companies have been together for all periods presented.
Shares issued by Prime for the acquisition of Homegate have been assumed to be
outstanding from the inception date of Homegate's predecessor, ESLP (February 9,
1996).
The pro forma financial information contains no adjustments to conform the
accounting policies of the companies because any such adjustments have been
determined to be immaterial. Certain reclassifications have been made to the
December 31, 1994, 1995 and 1996 financial information to conform them to the
nine months ended September 30, 1996 and 1997 presentations.
The following adjustments are necessary to reflect the Merger (in
thousands):
The pro forma combined statements of operations for the three and nine
months ended September 30, 1997, do not reflect nonrecurring costs and
charges resulting directly from the Merger nor their related tax effect.
These costs and charges are estimated as follows:
<TABLE>
<S> <C>
Cost of terminating the management agreement............................... $12,000
Transaction related costs.................................................. 3,433
Transition costs........................................................... 325
------
Total............................................................ $15,758
======
</TABLE>
Costs to terminate the management agreement represent amounts paid to
Wyndham Hotel Corporation pursuant to a termination agreement. These
amounts are: $8.0 million by Prime and $4.0 million by a shareholder of
Homegate. The amount paid by the shareholder will be reflected as a
contribution to capital and will be included as a Merger expense.
Transaction related costs primarily represent management's best
estimate of fees to be paid for investment banking, legal, accounting and
other professional services.
Transition costs represent management's best estimate of the costs to
consolidate operations. This plan was formulated by Prime and Homegate
management in order to more efficiently provide services in markets where
multiple locations will exist as a result of the Merger. The plan of
consolidation calls for affected operations to be merged over a period of
three months. These costs include costs associated with the merging of
Prime and Homegate operations, including the combining of systems,
facilities and management resources as well as costs associated with the
formation of a regional operating and reporting infrastructure. Included
are $175,000 related to severance and related benefits. These costs
represent anticipated payments to identified employees, as required by
their respective employment agreements, who will be terminated after the
Merger and certain other anticipated payments to be made to certain
employees.
A. To reflect the exchange of approximately 6.5 million shares of
Prime Common Stock for all the issued and outstanding shares of Homegate
Common Stock. Cash paid for fractional shares has been ignored, since the
amounts are not expected to be material.
B. To adjust pro forma amounts based on historical share amounts,
converting each outstanding share of Homegate Common Stock into Prime
Common Stock based on the fixed Exchange Ratio of 0.6073 per share. For the
nine months ended September 30, 1996 and the year ended December 31, 1996,
the adjusted pro forma share amounts were prorated to reflect the inception
date of Homegate's predecessor, ESLP, as of February 9, 1996.
C. To eliminate interim loans from Prime to Homegate.
30
<PAGE> 32
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.
PRIME HOSPITALITY CORP.
Date: December 15, 1997 By: /s/ David A. Simon
---------------------------------------
David A. Simon
President and Chief Executive Officer
Date: December 15, 1997 By: /s/ John M. Elwood
---------------------------------------
John M. Elwood, Executive Vice
President and Chief Financial Officer
31
