<PAGE>
================================================================================
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 5, 1996
COMMISSION FILE NUMBER: 0-26528
PATRIOT AMERICAN HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 75-2599709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3030 LBJ FREEWAY, SUITE 1500 75234
DALLAS, TEXAS (Zip Code)
(Address of principal executive office)
(972) 888-8000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changes since last
report)
================================================================================
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
ITEM 5. OTHER EVENTS
On September 15, 1996, Patriot American Hospitality, Inc.
(collectively with its subsidiaries, the "Company") through Patriot American
Hospitality Partnership, L.P. (the "Operating Partnership"), in which the
Company currently owns an approximate 85.9% controlling ownership interest,
acquired an approximate 99% non-voting ownership interest in PAH Windwatch, LLC,
a Delaware limited liability company. The Company's investment in PAH Windwatch,
LLC of approximately $6.2 million is evidenced by a promissory note. On
September 25, 1996, PAH Windwatch, LLC acquired the Marriott WindWatch Hotel
(the "WindWatch Hotel"), located in Hauppauge (Long Island), New York for
approximately $31.1 million.
As part of the financing for the acquisition of the WindWatch Hotel,
the Company, through the Operating Partnership, advanced PAH Windwatch, LLC
$31.4 million, which is evidenced by a first lien mortgage note. The principal
amount of the note is due and payable on August 31, 1999. Interest at an annual
rate equal to 9% is due and payable monthly commencing October 1, 1996. All
amounts owed under the mortgage note will become due and payable upon the sale
of the hotel to a third party purchaser. The mortgage note is collateralized by
a deed of trust on the WindWatch Hotel.
The WindWatch Hotel is a full-service hotel with 362 guest rooms and
approximately 13,000 square feet of meeting space and two restaurants. The hotel
was acquired from Colony Hill Associates, LP, an unrelated entity, which filed
for bankruptcy protection in November 1991 and was operating under Chapter 11 of
the U.S. Bankruptcy code.
Unlike most of the Company's other investments, the WindWatch Hotel is
not operated by a lessee. The hotel is currently managed by Marriott
International, Inc.("Marriott"). Pursuant to the Purchase and Sale Agreement
dated March 15, 1996, the existing management agreement with Marriott has been
terminated and the Company is currently negotiating the terms of a new
management agreement. Until such time as a new agreement is reached, Marriott
will continue to manage the WindWatch Hotel under the terms of the prior
agreement. Pursuant to this agreement, Marriott receives an annual basic
management fee equal to 5% of gross receipts. In addition, in any year the hotel
generates a profit, as defined in the agreement, Marriott will receive an amount
equal to the excess of 15% of the profit over the basic management fee.
On August 19, 1996, the Company, through the Operating Partnership,
acquired the 492-room Bonaventure Resort & Spa in Ft. Lauderdale, Florida from
BV Hotel & Spa Acquisition, Ltd. (d/b/a Bonaventure Hotel & Spa), an unrelated
entity, for approximately $19.7 million, including approximately $3.5 million
relating to the assumption of certain operating liabilities and acquisition
costs. The hotel is situated on 23 acres and is 15 miles west of the Ft.
Lauderdale International Airport. The Company intends to commence an approximate
$10 million renovation of the hotel and implement a strategic and marketing plan
which will include branding the facility as a Registry Resort and Spa. The hotel
is leased for a period of twelve years pursuant to a Participating Lease
agreement with CHC Lease Partners, who in turn, has entered into a management
agreement with a subsidiary of CHC International, Inc. to manage the hotel. The
hotel acquisition was financed primarily with funds drawn on the Company's line
of credit facility with Paine Webber Real Estate Services, Inc. (the "Line of
Credit").
On August 29, 1996, the Company, through the Operating Partnership
acquired the 257-room Valley River Inn in Eugene, Oregon from The Valley River
Inn Limited Partnership, an unrelated entity, for approximately $19.1 million.
The hotel is situated on the banks of the Willamette River and is adjacent to
the Valley River Center Mall. The hotel is leased for a period of 10 years to
NorthCoast Hotels L.L.C. ("NorthCoast") pursuant to a Participating Lease
agreement. NorthCoast has entered into a management agreement with WestCoast
Hotels, Inc. to manage the hotel. The hotel acquisition was financed primarily
with funds drawn on the Company's Line of Credit.
During September 1996, the Company entered into three partnership
agreements in which the Operating Partnership owns a 90% general partnership
interest and DTR PAH Holding, Inc. ("DTR"), an affiliate of Doubletree Hotels
Corporation, owns a 10% limited partnerhip interest. The three partnerships,
formed for the purpose of acquiring certain hotel properties, are PAH-DT
Tallahassee Partners, L.P. ("Tallahassee Partners"), PAH-DT Chicago O'Hare
Partners, L.P. ("Chicago Partners"), and PAH-DT Miami Airport Partners, L.P.
("Miami Partners"). Each partnership is a Delaware limited partnership.
2
<PAGE>
On September 19, 1996, Tallahassee Partners acquired the sixteen
story, 244-room Capitol Plaza Holiday Inn in Tallahassee, Florida from Feliz
Industries, Inc., an unrelated entity, for approximately $11.2 million. The
full-service hotel is located in the capitol city's central business district
and has approximately 5,300 square feet of meeting space and a full-service
restaurant and lounge. The hotel is leased for a period of ten years to DTR
North Canton, Inc. (the "Doubletree Lessee"), a subsidiary of Doubletree Hotels
Corporation pursuant to a Participating Lease agreement. The Doubletree Lessee
has entered into a management agreement with a subsidiary of Doubletree Hotels
to manage the hotel. The Company intends to spend approximately $3.8 million
making certain improvements to the hotel, upon completion of which the hotel
will be converted to a Doubletree Hotel. The hotel acquisition was funded
through cash contributions to the partnership of approximately $10.1 million by
the Operating Partnership and approximately $1.1 million by DTR. The Operating
Partnership's contribution was financed primarily with funds drawn on the
Company's Line of Credit.
On September 24, 1996, Chicago Partners acquired the 242-room Holiday
Inn - Des Plaines Hotel in Des Plaines, Illinois from Concord O'Hare Limited
Partnership, an unrelated entity, for approximately $8.5 million. The full-
service hotel is located within two miles of the O'Hare International Airport
and has approximately 1,900 square feet of meeting facilities. The hotel is
leased for a period of ten years to the Doubletree Lessee pursuant to a
Participating Lease agreement. The Doubletree Lessee has entered into a
management agreement with a subsidiary of Doubletree Hotels to manage the hotel.
The Company intends to commence an approximate $4.8 million renovation to the
hotel, upon completion of which the hotel will be converted to a Club Hotel by
Doubletree brand property. The hotel acquisition was funded through cash
contributions to the partnership of approximately $7.6 million from the
Operating Partnership and approximately $.8 million from DTR.
On September 26, 1996, Miami Partners acquired the ten story, 264-room
Holiday Inn - Miami Airport Lakes Hotel in Miami, Florida from Hernando Realty
Corporation, an unrelated entity, for approximately $12.5 million. The full-
service hotel is located within the Blue Lagoon area, the corporate hub of the
Miami International Airport area. The hotel is leased for a period of ten years
to the Doubletree Lessee pursuant to a Participating Lease agreement. The
Doubletree Lessee has entered into a management agreement with a subsidiary of
Doubletree Hotels to manage the hotel. The hotel will be converted to a Club
Hotel by Doubletree brand upon completion of an approximate $2.8 million
renovation of the property. The acquisition of the hotel was funded through cash
contributed to the partnership of approximately $11.3 million from the Operating
Partnership and approximately $1.2 million by DTR. The Operating Partnership's
contribution was financed primarily with funds drawn on the Company's Line of
Credit.
On September 27, 1996, the Company, through the Operating Partnership,
acquired the 184-room Mayfair Suites Hotel in St. Louis, Missouri from Mayfair
Operating Corporation, an unrelated entity, for approximately $8.8 million. The
full-service historic hotel was built in 1925 and is located in the downtown
business and entertainment district. The hotel is leased for a period of ten
years to Grand Heritage Leasing, LLC ("Grand Heritage") pursuant to a
Participating Lease agreement. Grand Heritage has entered into a management
agreement with an affiliate, Grand Heritage Hotels, Inc. to manage the hotel.
The hotel acquisition was financed primarily with funds drawn on the Company's
Line of Credit.
On November 15, 1996, the Company, through the Operating Partnership,
acquired the 147-room Tutwiler Hotel in Birmingham, Alabama from Historic Hotel
Partners of Birmingham, Limited Partnership, an unrelated entity, for
approximately $7.6 million plus 85,078 limited partnership units in the
Operating Partnership ("OP Units") valued at approximately $3.1 million based on
the average market price of the Company's common stock at the date of the
acquisition. The full-service historic hotel located in the downtown business
district, was originally built in 1913 and renovated in 1986 to become the
Tutwiler Hotel. The hotel is leased for a period of ten years to Grand Heritage
pursuant to a Participating Lease agreement. Grand Heritage has entered into a
management agreement with an affiliate to manage the hotel. The cash portion of
the purchased was financed primarily with funds drawn on the Company's Line of
Credit.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED
The index to the financial information for certain of the properties
acquired by the Company is included on pages F-1 and F-2 of this report.
(B) PRO FORMA FINANCIAL INFORMATION
The index to the pro forma financial information of the Company and
for the Company's Lessees is included on pages F-1 and F-2 of this report.
(C) EXHIBITS
NUMBER
EXHIBIT DESCRIPTION
------- --------------------------
23.1 Consent of Ernst & Young LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Pannell Kerr Forster PC
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused the report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: December 5, 1996
PATRIOT AMERICAN HOSPITALITY, INC.
By: /S/ Rex E. Stewart
----------------------------------------------------
Rex E. Stewart
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
5
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
PRO FORMA FINANCIAL INFORMATION:
PATRIOT AMERICAN HOSPITALITY, INC.:
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1995 (unaudited)................................ F-5
Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1995 (unaudited)........................................ F-7
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1996 (unaudited)................................ F-9
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 (unaudited)... F-11
COMBINED LESSEES:
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1995 (unaudited)................................ F-13
Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1995 (unaudited)........................................ F-15
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1996 (unaudited)................................ F-16
FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED:
MARRIOTT WINDWATCH HOTEL:
Report of Independent Auditors - Ernst & Young LLP.................................... F-17
Statements of Direct Revenue and Direct Operating Expenses
for the the year ended December 29, 1995 and for the periods
from December 31, 1994 through October 6, 1995 (unaudited)
and December 30, 1995 through September 24, 1996 (unaudited)........................ F-18
Notes to Statements of Direct Revenue and Direct Operating Expenses................... F-19
CONCORD O'HARE LIMITED PARTNERSHIP:
Report of Independent Auditors - Ernst & Young, LLP................................... F-24
Balance Sheets as of December 29, 1995 and September 23, 1996 (unaudited)............. F-25
Statements of Operations for the year ended December 29, 1995 and
for the periods from December 31, 1994 through October 6, 1995 (unaudited)
and December 30, 1995 through September 23, 1996 (unaudited)........................ F-26
Statements of Partners' Capital for the year ended December 29, 1995
and for the period December 30, 1995 through September 23, 1996 (unaudited)......... F-27
Statements of Cash Flows for the year ended December 29, 1995 and
for the periods from December 31, 1994 through October 6, 1995 (unaudited)
and December 30, 1995 through September 23, 1996 (unaudited)........................ F-28
Notes to Financial Statements......................................................... F-29
HOLIDAY INN - MIAMI AIRPORT:
Report of Independent Accountants - Coopers & Lybrand L.L.P........................... F-35
Statements of Direct Revenue and Direct Operating Expenses for the
year ended August 31, 1996, for the twelve months ended December 31, 1995
(unaudited) and for the nine months ended September 30, 1996 (unaudited)............ F-36
Notes to Statements of Direct Revenue and Direct Operating Expenses................... F-37
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MAYFAIR SUITES HOTEL:
Report of Independent Auditors - Ernst & Young LLP.................................... F-41
Statements of Direct Revenue and Direct Operating Expenses
for the year ended December 31, 1995 and for the nine months ended
September 30, 1995 and 1996 (unaudited)............................................. F-42
Notes to Statements of Direct Revenue and Direct Operating Expenses................... F-43
HISTORICAL HOTEL PARTNERS OF BIRMINGHAM LIMITED PARTNERSHIP:
Independent Auditor's Report - Pannell Kerr Forster PC................................ F-47
Balance Sheets as of December 31, 1994 and 1995....................................... F-48
Statements of Operations for the years ended December 31, 1994 and 1995............... F-49
Statements of Partners' Equity for the years ended December 31, 1994 and 1995........ F-50
Statements of Cash Flow for the years ended December 31, 1994 and 1995................ F-51
Notes to Financial Statements......................................................... F-52
Independent Accountant's Report - Pannell Kerr Forster PC............................. F-55
Balance Sheet as of September 29, 1996 (unaudited).................................... F-56
Statement of Operations for the nine months ended September 29, 1996 (unaudited)...... F-57
Statement of Partners' Equity for the nine months ended September 29, 1996 (unaudited) F-58
Statement of Cash Flow for the nine months ended September 29, 1996 (unaudited)....... F-59
Notes to Financial Statements......................................................... F-60
</TABLE>
F-2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Patriot American Hospitality, Inc. (collectively with its subsidiaries, the
"Company") completed an initial public offering (the "Initial Offering") of
14,605,000 shares of its common stock on October 2, 1995 (including 1,905,000
shares of common stock issued upon exercise of the underwriters' over-allotment
option) and commenced operations. Upon completion of the Initial Offering, the
Company, through its wholly-owned subsidiary, PAH LP, Inc., contributed
substantially all of the net proceeds of the Initial Offering to Patriot
American Hospitality Partnership, L.P. (the "Operating Partnership") in exchange
for an approximately 85.3% limited partnership interest in the Operating
Partnership. The Company, through is wholly-owned subsidiary, PAH GP, Inc., is
the sole general partner and the holder of a 1.0% general partnership interest
in the Operating Partnership.
The Operating Partnership used approximately $263,000 of the net proceeds
of the Initial Offering to acquire ownership interests in 20 hotels (the
"Initial Hotels") from various entities (the "Selling Entities") and to repay
existing mortgage and other indebtness of the Initial Hotels. In consideration
for the sale of the Initial Hotels, certain owners in the Selling Entities,
including affiliates of the Company, elected to receive limited partnership
units in the Operating Partnership ("OP Units"). The 2,324,312 OP Units received
by such owners represented an approximate 13.7% equity interest in the Operating
Partnership as the Company commenced operations. The balance of the proceeds
from the Initial Offering, together with proceeds from the Company's Line of
Credit, were used to finance acquisitions of two additional hotel investments,
provide for renovations to existing hotels and for general working capital
during 1995.
During the first quarter of 1996, the Company acquired three additional
hotel properties, utilizing cash drawn on its line of credit and issuing 167,012
OP Units in connection with the purchases. During the second quarter of 1996,
the Company acquired eight additional hotel properties, utilizing cash drawn on
its line of credit and issuing 331,577 OP Units in connection with the
purchases. In addition, in May 1996, the Company sold an aggregate of
approximately $40,000 of equity securities to an institutional investor that
purchased the securities on behalf of two owners (the "Private Placement"). The
proceeds of the Private Placement were used primarily to reduce amounts
outstanding under the line of credit.
During the third quarter of 1996, the Company completed a public offering
(the "Follow-on Offering") of 6,146,700 shares of its common stock (including
646,700 shares of common stock issued upon exercise of the underwriter's over-
allotment option). The offering price of all shares sold in the Follow-on
Offering was $28.25 per share, resulting in net proceeds (less the underwriters'
discount and offering expenses) of approximately $160,222, of which
approximately $151,963 was used to reduce amounts outstanding under the Line of
Credit. The Company acquired nine additional hotel properties, financed
primarily with funds drawn on its Line of Credit and 17,036 OP Units issued in
connection with the purchase of certain hotel properties. At September 30, 1996,
the Operating Partnership owned interests in 42 hotels and the Company owned an
approximate 86.2% interest in the Operating Partnership.
On November 15, 1996, the Company acquired the 147-room Tutwiler Hotel in
Birmingham, Alabama financed primarily with funds drawn on its Line of Credit
and 85,078 OP Units issued in connection with the purchase. Subsequent to the
acquisition, the Company owns an approximate 85.9% interest in the Operating
Partnership.
The Company leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Marriott WindWatch Hotel, which are seperately owned through
special purpose corporations, to lessees that are independent of the Company
(the "Lessees"). The Company leases 24 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve years pursuant to separate
participating leases providing for the payment of the greater of base or
participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Eight of the hotels are leased to NorthCoast Hotels,
L.L.C. ("NorthCoast") under similiar Participating Lease agreements. DTR North
Canton, Inc. (the "Doubletree Lessee") leases four hotels and Crow Hotel Lessee,
Inc. (the "Wyndham Lessee") leases two hotels under similiar Participatng Lease
agreements. Metro Hotels Leasing Corporation ("Metro Lease Partners") leases one
hotel, and Grand Heritage Leasing, L.L.C. ( the "Grand Heritage Lessee") leases
two hotels (including the recently acquired Tutwiler Hotel) under similiar
Participating Lease agreements. The Lessees, in turn, have entered into separate
agreements with hotel management entities (the "Operators") to manage the
hotels. The Crowne Plaza Ravinia Hotel and the Marriott
F-3
<PAGE>
WindWatch Hotel acquisitions were structured without lessees and are managed
directly by Holiday Inns, Inc. and Marriott International, Inc., respectively.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the nine months ended September 30, 1995, for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 of the
Company are presented as if (i) the Initial Offering and the aquisition of the
20 Initial Hotels, (ii) the subsequent acquisition of 23 additional hotel
properties, and (iii) the Private Placement and Follow-on Offering had occurred
as of January 1, 1995 and carried forward through each period presented. Such
pro forma information is based in part upon the Consolidated Statements of
Operations of the Company filed with the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1996 and with the Company's Annual
Report on Form 10-K for the period ended December 31, 1995 and the Pro Forma
Condensed Combined Statements of Operations of the Lessees included in this
Current Report. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what actual results of operations
of the Company would have been assuming such transactions had been completed as
of the beginning of the periods presented, nor do they purport to represent the
results of operations for future periods. Further, the unaudited Pro Forma
Condensed Consolidated Statements of Operations for the interim periods
presented are not necessarily indicative of the results of operations for the
full year.
F-4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HOTELS
OWNED AS OF
SEPTEMBER 30, TUTWILER PRO FORMA
1996 (A) HOTEL (B) TOTAL
------------ ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Participating lease revenue................ $65,328 (C) $1,002 (C) $66,330
Interest and other income.................. 53 (D) -- 53
------- ------ -------
Total revenue........................... 65,381 1,002 66,383
------- ------ -------
Expenses:
Real estate and personal property taxes
and casualty insurance................... 6,861 (E) 68 (E) 6,929
Ground lease expense....................... 1,002 (F) -- 1,002
General and administrative................. 3,270 (G) -- 3,270
Interest expense........................... 7,129 (H) 452 (H) 7,581
Depreciation............................... 15,998 (I) 400 (I) 16,398
------- ------ -------
Total expenses.......................... 34,260 920 35,180
------- ------ -------
Income before equity in earnings of
unconsolidated subsidiaries
and minority interests..................... 31,121 82 31,203
Equity in earnings of unconsolidated
subsidiaries............................ 3,351 (J) -- 3,351
------- ------ -------
Income before minority interests............. 34,472 82 34,554
Minority interest in Operating
Partnership.............................. (4,730)(K) (114)(K) (4,844)
Minority interest in other partnerships.... (196)(L) -- (196)
------- ------ -------
Net income applicable to common
shareholders............................... $29,546 $ (32) $29,514
======= ====== =======
Net income per common share.................. $ 1.35 $ 1.35
======= =======
Fully diluted weighted average number of
common shares and common shares
equivalents outstanding.................... 21,847 21,847
======= =======
</TABLE>
- -------------------------------------------------
(A) Represents the Company's pro forma results of operations for the nine months
ended September 30, 1995 of the 42 hotel properties owned by the Company as
of September 30, 1996.
(B) Represents the Company's pro forma results of operations related to the
Tutwiler Hotel as if the Company had acquired and owned the hotel at the
beginning of the period.
(C) Represents lease payments from the Lessees to the Operating Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the period
presented.
(D) Represents interest income earned on the Company's mortgage notes receivable
from unconsolidated subsidiaries assuming the mortgage notes were
outstanding at the beginning of the period.
(E) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Operating Partnership.
(F) Represents ground lease payments to be made with respect to certain of the
hotels.
F-5
<PAGE>
(G) Represents salaries, insurance, travel, audit, legal and other expenses
associated with operating as a public company. Also includes, annual
amortization of unearned stock compensation computed on a straight-line
basis over the three to four year vesting period.
(H) Represents interest expense incurred on the net borrowings under the line of
credit which were used, in part, to purchase hotel properties.
(I) Represents depreciation on the hotels owned as of September 30, 1996 of
$15,934 and amortization of $64. The adjustment related to the Tutwiler
Hotel represents depreciation. Depreciation is computed using the straight-
line method and is based upon the estimated useful lives of 35 years for
buildings and improvements and 5-7 years for furniture and equipment. These
estimated useful lives are based on management's knowledge of the properties
and the hotel industry in general. Amortization of franchise fees is
computed using straight-line method over the terms of the related franchise
agreement.
(J) Represents equity in income of the unconsolidated subsidiaries which own the
Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel.
(K) Represents the minority interest assuming the Initial Offering, Private
Placement and Follow-on Offering and the acquisition of 43 hotel properties
had occurred at the beginning of the period presented. As of September 30,
1996, the minority interest percentage is approximately 13.8%. Subsequent to
the Tutwiler Hotel acquisition, the minority interest percentage is
approximately 14.1%.
(L) Represents the minority interest related to the partnerships with DTR
assuming such entities had been formed and the three hotels owned by such
partnerships had been acquired at the beginning of the period presented.
F-6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
COMPANY TUTWILER PRO FORMA
HISTORICAL (A) ADJUSTMENTS (B) HOTEL (C) TOTAL
-------------- --------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue............................... $10,582 $76,400 (D) $1,289 (D) $88,271
Interest and other income................................. 513 67 (E) -- 580
------- ------- ------ -------
Total revenue......................................... 11,095 76,467 1,289 88,851
------- ------- ------ -------
Expenses:
Real estate and personal property
taxes amd casualty insurance............................ 901 8,319 (F) 90 (F) 9,310
Ground lease expense...................................... -- 1,368 (G) -- 1,368
General and administrative................................ 607 3,828 (H) -- 4,435
Interest expense.......................................... 89 9,369 (I) 599 (I) 10,057
Depreciation and amortization............................. 2,590 18,762 (J) 534 (J) 21,886
------- ------- ------ -------
Total expenses........................................ 4,187 41,646 1,223 47,056
------- ------- ------ -------
Income before equity in earnings of
unconsolidated subsidiaries
and minority interests.................................... 6,908 34,821 66 41,795
Equity in earnings of unconsolidated
subsidiaries.............................................. 156 4,520 (K) -- 4,676
------- ------- ------ -------
Income before minority interests and
extraordinary items....................................... 7,064 39,341 66 46,471
Minority interest in Operating
Partnership............................................. (968) (5,404)(L) (148)(L) (6,520)
Minority interest in other partnerships................... -- (232)(M) -- (232)
Extraordinary items, net of
minority interests...................................... (737) 737 (N) -- --
------- ------- ------ -------
Net income applicable to common
shareholders.............................................. $ 5,359 $34,442 $ (82) $39,719
======= ======= ====== =======
Net income per common share.................................... $0.37 $1.82
======= =======
Fully diluted weighted average number
of common shares and common
share equivalents outstanding............................. 14,675 21,847
======= =======
</TABLE>
- --------------------
(A) Represents the Company's historical results of operations from the date of
the Initial Offering, October 2, 1995, through December 31, 1995.
(B) Represents adjustments to the Company's results of operations assuming the
Initial Offering and acquisition of the 20 Initial Hotels, the Private
Placement, the Follow-on Offering and the acquisition of 22 additional
hotels occurred at the beginning of the period presented.
(C) Represents adjustments to the Company's results of operations assuming the
acquisition of the Tutwiler Hotel occurred at the beginning of the period
presented.
(D) Represents lease payments from the Lessees to the Operating Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the period
presented.
F-7
<PAGE>
(E) Represents adjustments to interest income earned on the Company's mortgage
notes receivables from unconsolidated subsidiaries assuming the mortgage
notes were outstanding at the beginning of the period presented.
(F) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Operating Partnership.
(G) Represents ground lease payments to be made with respect to certain of the
hotels.
(H) Represents salaries, insurance, travel, audit, legal and other expenses
associated with operating as a public company. Also includes annual
amortization of unearned stock compensation computed on a straight-line
basis over the three to four year vesting periods.
(I) Represents adjustments to interest expense incurred on the net borrowings
under the line of credit which were used, in part, to purchase hotel
properties.
(J) Represents depreciation on the hotels owned as of September 30, 1996 of
$18,707 and amortization of $55. The adjustments related to the Tutwiler
Hotel represents depreciation. Depreciation is computed using the straight-
line method and is based upon the estimated useful lives of 35 years for
buildings and improvements and 5-7 years for furniture and equipment. These
estimated useful lives are based on management's knowledge of the
properties and the hotel industry in general. Amortization of franchise
fees is computed using the straight-line method over the terms of the
related franchise agreement.
(K) Represents equity in income of the unconsolidated subsidiaries which own
the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel.
(L) Represents the adjustments to minority interest assuming the Initial
Offering and acquisition of the 20 Initial Hotels, the Private Placement,
the Follow-on Offering and the acquisition of 22 additional hotel
properties occurred at the beginning of the period presented. Prior to the
acquisition of the Tutwiler Hotel, the minority interest percentage was
approximately 13.8%. Subsequent to the acquisition of the Tutwiler Hotel,
the minority interest percentage is approximately 14.1%
(M) Represents the minority interest related to the partnerships with DTR
assuming such entities had been formed and the three hotels owned by such
partnerships had been acquired at the beginning of the period presented.
(N) In connection with the Initial Offering and acquisition of the 20 Initial
Hotels, the Company incurred prepayment penalties and charged-off deferred
financing costs associated with mortgage notes which were repaid. These
extraordinary items have been eliminated for purposes of the pro forma
presentation.
F-8
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
COMPANY TUTWILER PROFORMA
HISTORICAL (A) ADJUSTMENTS (B) HOTEL (C) TOTAL
-------------- --------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue................. $52,735 $16,993 (D) $1,188 (D) $70,916
Interest and other income................... 412 21 (E) -- 433
------- ------- ------ -------
Total revenue............................. 53,147 17,014 1,188 71,349
------- ------- ------ -------
Expenses:
Real estate and personal property
taxes and casualty insurance.............. 4,452 2,724 (F) 68 (F) 7,244
Ground lease expense........................ 711 312 (G) -- 1,023
General and administrative.................. 3,273 690 (H) -- 3,963
Interest expense............................ 4,481 2,215 (I) 423 (I) 7,119
Depreciation and amortization............... 11,628 5,070 (J) 401 (J) 17,099
------- ------- ------ -------
Total expenses............................ 24,545 11,011 892 36,448
Income before equity in earnings of
unconsolidated subsidiaries
and minority interests........................ 28,602 6,003 296 34,901
Equity in earnings of unconsolidated
subsidiaries................................ 4,377 1,371 (K) -- 5,748
------- ------- ------ -------
Income before minority interests................. 32,979 7,374 296 40,649
Minority interest in Operating
Partnership................................. (5,142) (406)(L) (162)(L) (5,710)
Minority interest in other partnerships....... (2) (148)(M) -- (150)
------- ------- ------ -------
Net income applicable to common
shareholders.................................. $27,835 $ 6,820 $ 134 $34,789
======= ======= ====== =======
Net income per common share...................... $1.67 $ 1.59
======= =======
Fully diluted weighted average number
of common shares and common
share equivalents outstanding................. 16,677 21,847
======= =======
</TABLE>
- --------------------
(A) Represents the Company's historical results of operations for the nine
months ended September 30, 1996.
(B) Represents adjustments to the Company's results of operations assuming the
Private Placement, the Follow-on Offering and the acquisition of 20
additional hotels occurred at the beginning of the period presented.
(C) Represents adjustments to the Company's results of operations assuming the
acquisition of the Tutwiler Hotel occurred at the beginning of the period
presented.
(D) Represents lease payments from the Lessees to the Operating Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the period
presented.
(E) Represents adjustments to interest income earned on the Company's mortgage
notes receivables from unconsolidated subsidiaries assuming the mortgage
notes were outstanding at the beginning of the period presented.
(F) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Operating Partnership.
(G) Represents ground lease payments to be made with respect to certain of the
hotels.
F-9
<PAGE>
(H) Represents salaries, insurance, travel, audit, legal and other expenses
associated with operating as a public company. Also includes annual
amortization of unearned stock compensation computed on a straight-line
basis over the three to four year vesting periods.
(I) Represents adjustments to interest expense incurred on the net borrowings
under the line of credit which were used, in part, to purchase hotel
properties.
(J) Represents depreciation on the hotels. Depreciation is computed using the
straight-line method and is based upon the estimated useful lives of 35
years for buildings and improvements and 5-7 years for furniture and
equipment. These estimated useful lives are based on management's knowledge
of the properties and the hotel industry in general.
(K) Represents equity in income of the unconsolidated subsidiaries which own
the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel.
(L) Represents the adjustments to minority interest assuming the Private
Placement, the Follow-on Offering and the acquisition of 20 additional
hotel properties occurred at the beginning of the period presented. Prior
to the acquisition of the Tutwiler Hotel, the minority interest percentage
was approximately 13.8%. Subsequent to the acquisition of the Tutwiler
Hotel, the minority interest percentage is approximately 14.1%
(M) Represents the minority interest related to the partnerships with DTR,
assuming such entities had been formed and the three hotels owned by such
partnerships had been acquired at the beginning of the period presented.
F-10
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if (i) the Initial Offering and the acquisition of the 20 Initial
Hotels, (ii) the subsequent acquisition of 23 additional hotel properties, and
(iii) the Private Placement and Follow-on Offering had occurred on September 30,
1996. Such pro forma information is based in part upon the Company's
Consolidated Balance Sheet as of September 30, 1996 and should be read in
conjunction with the financial statements filed with the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1996. In
management's opinion, all adjustments necessary to reflect the effect of these
transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of September 30, 1996, nor does
it purport to represent the future financial position of the Company.
<TABLE>
<CAPTION>
COMPANY TUTWILER
HISTORICAL HOTEL (A) PRO FORMA
---------- --------- ---------
ASSETS
<S> <C> <C> <C>
Net investment in hotel properties......... $557,890 $10,727 $568,617
Mortgage notes and other receivables
from unconsolidated subsidiaries...... 72,004 -- 72,004
Investment in unconsolidated subsidiaries.. 11,607 -- 11,607
Cash and cash equivalents.................. 7,004 -- 7,004
Accounts receivable........................ 8,831 -- 8,831
Deferred expenses, net..................... 3,282 -- 3,282
Prepaid expenses and other assets.......... 3,031 -- 3,031
-------- ------- --------
Total assets....................... $663,649 $10,727 $674,376
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Borrowings under line of credit
and mortgage note..................... $113,592 7,613 121,205
Dividends and distributions payable........ 12,158 -- 12,158
Accounts payable and accrued expenses...... 8,500 -- 8,500
Due to unconsolidated subsidiaries......... 6,263 -- 6,263
Minority interest in Operating Partnership. 73,268 3,114 76,382
Minority interest in other partnerships.... 3,214 -- 3,214
Shareholders' equity:
Preferred stock....................... -- -- --
Common stock.......................... -- -- --
Paid-in capital....................... 451,305 -- 451,305
Unearned stock compensation, net...... (5,867) -- (5,867)
Retained earnings..................... 1,216 -- 1,216
-------- ------- --------
Total shareholders' equity......... 446,654 -- 446,654
-------- ------- --------
Total liabilities and shareholders'
equity........................... $663,649 $10, 727 $674,376
======== ======== ========
</TABLE>
- --------------------
(A) On November 15, 1996, the Company acquired the 147-room Tutwiler Hotel
located in Birmingham, Alabama for approximately $10,727 (including
acquisition related expenses). The purchase was financed with funds of
approximately $7,613 drawn on the Company's line of credit and
approximately 85,078 OP Units valued at approximately $3,114 as of the date
of acquisition.
F-11
<PAGE>
COMBINED LESSEES
PRO FORMA CONDEDSED COMBINED STATEMENTS OF OPERATIONS
The combined Lessees' (CHC Lease Partners, NorthCoast, Metro Lease
Partners, Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee combined)
unaudited Pro Forma Condensed Combined Statements of Operations for the nine
months ended September 30, 1995, for the year ended December 31, 1995 and for
the nine months ended September 30, 1996 are presented as if (i) the Initial
Offering and the acquisition of the 20 Initial Hotels, (ii) the subsequent
acquisition of 23 additional hotel proprties, and (iii) the Private Placement
and Follow-on Offering had occurred on January 1, 1995, and the hotels (except
the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel) had been leased
to the Lessees pursuant to the Participating Leases. The pro forma information
is based in part upon the Statements of Operations of CHC Lease Partners, the
Statements of Operations of NorthCoast and the Combined Statements of Operations
of the Initial Hotels filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1996 and is also based in part on the
Statement of Operations of CHC Lease Partners and the Initial Hotels filed with
the Company's Annual Report on Form 10-K for the period ended December 31, 1995.
In management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
The Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel are not
leased to a Lessee but are managed directly by Holiday Inns, Inc. and Marriott
International, Inc., respectively. Therefore, the results of operations of the
Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel are not included in
these Pro Froma Condensed Combined Statements of Operations.
These unaudited Pro Forma Condensed Combined Statements of Operations are
not necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statements of Operations for the interim periods presented
are not necessarily indicative of the results of operations for the full year.
F-12
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
COMBINED
HOTELS TUTWILER
HISTORICAL (A) ADJUSTMENTS (B) HOTEL (C) PRO FORMA
-------------- --------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Room............................... $141,253 $ -- $2,610 $143,863
Food and beverage.................. 53,894 -- -- 53,894
Conference center.................. 1,858 -- -- 1,858
Telephone and other................ 14,208 -- 271 14,479
-------- -------- ------ --------
Total revenue.................. 211,213 -- 2,881 214,094
-------- -------- ------ --------
Expenses:
Departmental costs and expenses.... 83,606 (638) (D) 814 83,782
General and administrative......... 20,485 (1,852) (E) 274 18,907
Ground lease expense............... 2,979 (1,322) (F) -- 1,657
Repair and maintenance............. 10,784 -- 178 10,962
Utilities.......................... 9,447 -- 203 9,650
Marketing.......................... 18,592 100 (G) 288 18,980
Interest Expense................... 22,118 (22,118) (H) -- --
Real estate and personal property
taxes and insurance.............. 8,079 (6,477) (I) 7 1,609
Depreciation and amortization...... 12,904 (12,904) (J) -- --
Participating lease payments....... -- 65,328 (K) 1,002 (K) 66,330
-------- -------- ------ --------
Total expenses................. 188,994 20,117 2,766 211,877
-------- -------- ------ --------
Income (loss) before lessee
income (expense)................. 22,219 (20,117) 115 2,217
Dividend and interest income....... 10 (10) (L) -- --
Management fees.................... (7,612) 4,503 (M) (86) (3,195)
Lessee general and administrative -- (1,154) (N) -- (1,154)
-------- -------- ------ --------
Net income (loss).............. $ 14,617 $(16,778) $ 29 $ (2,132)
======== ======== ====== ========
</TABLE>
- --------------------
(A) Represents the combined historical results of operations of the 40 hotel
properties leased to the Lessees as of September 30, 1996.
(B) Represents adjustments to the Lessees' results of operations assuming the
40 hotels leased to the Lessees as of September 30, 1996 had been leased at
the beginning of the period presented.
(C) Represents adjustments to the Lessees' results of operations assuming the
Tutwiler Hotel had been leased to one of the Lessees at the beginning of
the period presented.
(D) Reflects the elimination of equipment lease expense related to leases that
were paid off in connection with the acquisition of certain of the hotels.
(E) Reflects the elimination of expenses which are not expected to be incurred
by the Lessees, including certain audit and accounting, legal and
professional fees.
(F) Represents adjustments to the ground lease payments to eliminate ground
lease expenses to be paid by the Operating Partnership and to reflect
adjustments related to renegotiation of certain ground lease agreements.
(G) Represents adjustments to reflect revisions to marketing agreements for
certain hotels.
(H) Represents elimination of interest expense due to the repayment of
mortgages and other notes payable at acquisition.
F-13
<PAGE>
(I) Decrease represents real estate and personal property taxes, and casualty
insurance to be paid by the Operating Partnership.
(J) Decrease represents elimination of amortization expense related to the
amortization of deferred costs and elimination of depreciation expense.
(K) Represents Participating Lease payments calculated on a pro forma basis by
applying the provisions of the Participtating Leases to the historical
revenue of the hotels.
(L) Decrease reflects the elimination of interest income earned on invested
cash balances.
(M) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees. Management fees paid to
the Operators are subordinate to the Lessees' obligations to the Company
under the Participating Lease agreements.
(N) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-14
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
COMBINED
HOTELS TUTWILER
HISTORICAL (A) ADJUSTMENTS (B) HOTEL (C) PRO FORMA
-------------- -------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Room............................... $21,508 $166,554 $3,407 $191,469
Food and beverage.................. 8,649 67,979 -- 76,628
Conference center.................. 576 1,858 -- 2,434
Telephone and other................ 1,732 17,189 368 19,289
------- -------- ------ --------
Total revenue.................... 32,465 253,580 3,775 289,820
------- -------- ------ --------
Expenses:
Departmental costs and expenses.... 12,173 101,605 1,105 114,883
General and administrative......... 2,714 22,400 382 25,496
Ground lease expense............... -- 2,467 -- 2,467
Repair and maintenance............. 1,476 13,297 309 15,082
Utilities.......................... 1,319 11,247 270 12,836
Marketing.......................... 2,928 22,458 393 25,779
Insurance.......................... 191 1,898 10 2,099
Participating lease payments....... 10,582 76,400 (D) 1,289 (D) 88,271
------- -------- ------ --------
Total expenses................... 31,383 251,772 3,758 286,913
------- -------- ------ --------
Income (loss) before lessee
income (expense)................. 1,082 1,808 17 2,907
Dividend and interest income....... 198 (E) -- -- 198
Management fees.................... (536) (4,332) (F) (113) (4,981)
Lessee general and administrative (235) (1,313) (G) -- (1,548)
------- -------- ------ --------
Net income (loss)................ $ 509 $ (3,837) $ (96) $ (3,424)
======= ======== ====== ========
</TABLE>
- --------------------
(A) Represents the combined historical results of operations of CHC Lease
Partners from October 2, 1995 (inception) and Metro Lease Partners results
of operations from November 15, 1995 (inception) through December 31, 1995.
(B) Represents adjustments to the Lessees' results of operations assuming the
40 hotels leased to the Lessees as of September 30, 1996 had been leased at
the beginning of the period presented.
(C) Represents adjustments to the Lessees' results of operations assuming the
Tutwiler Hotel had been leased to one of the Lessees at the beginning of
the period presented.
(D) Represents Participating Lease payments calculated on a pro forma basis by
applying the provisions of the Participtating Leases to the historical
revenue of the hotels.
(E) Includes dividend income on approximately 250,000 OP Units in the Operating
Partnership which form a portion of the required capitalization of CHC
Lease Partners. Pro forma amounts exclude additional dividend income earned
on OP Units held by certain Lessees, and pro forma interest income earned
on invested cash balances.
(F) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees. Management fees paid to
the Operators are subordinate to the Lessees' obligations to the Company
under the Participating Lease agreements.
(G) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-15
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
COMBINED
HOTELS TUTWILER
HISTORICAL (A) ADJUSTMENTS (B) HOTEL (C) PRO FORMA
-------------- --------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Room............................... $109,099 $42,077 $2,855 $154,031
Food and beverage.................. 35,349 19,698 -- 55,047
Conference center.................. 1,652 -- -- 1,652
Telephone and other................ 9,808 5,090 293 15,191
-------- ------- ------ --------
Total revenue.................... 155,908 66,865 3,148 225,921
-------- ------- ------ --------
Expenses:
Departmental costs and expenses.... 57,012 29,211 882 87,105
General and administrative......... 13,092 7,735 312 21,139
Ground lease expense............... 571 1,239 -- 1,810
Repair and maintenance............. 7,140 3,803 190 11,133
Utilities.......................... 6,677 3,290 202 10,169
Marketing.......................... 13,405 5,608 266 19,279
Insurance.......................... 644 793 8 1,445
Participating lease payments....... 52,735 16,993 (D) 1,188 (D) 70,916
-------- ------- ------ --------
Total expenses................... 151,276 68,672 3,048 222,996
-------- ------- ------ --------
Income (loss) before lessee
income (expense).................. 4,632 (1,807) 100 2,925
Dividend and interest income....... 1,209 (E) -- -- 1,209
Management fees.................... (3,366) (1,111)(F) (94) (4,571)
Lessee general and administrative.. (1,093) (219)(G) -- (1,312)
-------- ------- ------ --------
Net income (loss)................ $ 1,382 $(3,137) $ 6 $ (1,749)
======== ======= ====== ========
</TABLE>
- --------------------
(A) Represents the combined historical results of operations of CHC Lease
Partners and Metro Lease Partners for the nine months ended September 30,
1996, and NorthCoast, Doubletree Lessee, Wyndham Lessee and Grand Heritage
Lessee for the period from their respective inception of operations through
September 30, 1996.
(B) Represents adjustments to the Lessees' results of operations assuming the
40 hotels leased to the Lessees as of September 30, 1996 had been leased at
the beginning of the period presented.
(C) Represents adjustments to the Lessees' results of operations assuming the
Tutwiler Hotel had been leased to one of the Lessees at the beginning of
the period presented.
(D) Represents Participating Lease payments calculated on a pro forma basis by
applying the provisions of the Participtating Leases to the historical
revenue of the hotels.
(E) Includes dividend income on approximately 250,000 OP Units and 31,074 OP
Units in the Operating Partnership which form a portion of the required
capitalization of CHC Lease Partners and NorthCoast, respectively. Pro
forma amounts exclude additional dividend income earned on the OP Units
held by certain Lessees, and pro forma interest income earned on invested
cash balances.
(F) Represents management fees paid to the Operators under the terms of their
respective management agreements with the Lessees. Management fees paid to
the Operators are subordinate to the Lessees' obligations to the Company
under the Participating Lease agreements.
(G) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-16
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Patriot American Hospitality, Inc.
We have audited the accompanying Statement of Direct Revenue and Direct
Operating Expenses of the Marriott WindWatch Hotel (the "Property") for the year
ended December 29, 1995. This Statement is the responsibility of the Property's
management. Our responsibility is to express an opinion on this Statement 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 Statement of Direct Revenue and Direct Operating
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the Statement of
Direct Revenue and Direct Operating Expenses. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Direct Revenue
and Direct Operating Expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Statement of Direct Revenue and Direct Operating Expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission as described in Note 1, and is not intended
to be a complete presentation of the Property's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material
respects, the direct revenue and direct operating expenses as described in Note
1 of the Marriott WindWatch Hotel for the year ended December 29, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 10, 1996
F-17
<PAGE>
Marriott WindWatch Hotel
Statements of Direct Revenue and Direct Operating Expenses
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 31, DECEMBER 30,
YEAR ENDED 1994 THROUGH 1995 THROUGH
DECEMBER 29, OCTOBER 6, SEPTEMBER 24,
1995 1995 1996
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
DIRECT REVENUE FROM HOTEL OPERATIONS
Rooms $ 9,981,666 $ 7,855,712 $ 7,978,294
Food and beverage 7,602,352 5,546,586 5,488,525
Telephone and other 545,023 597,441 429,692
----------- ----------- -----------
Total direct revenue 18,129,041 13,999,739 13,896,511
----------- ----------- -----------
DIRECT OPERATING EXPENSES
Departmental costs and expenses 9,028,804 6,889,181 6,602,667
General and administrative 1,673,301 1,148,892 1,174,434
Repairs and maintenance 979,538 720,978 789,031
Utilities 1,134,097 903,160 890,240
Advertising and promotion 1,193,719 937,404 880,502
Management and incentive fees paid
to affiliate 906,453 669,987 683,843
Real estate and personal property taxes,
and insurance 944,437 798,780 791,909
----------- ----------- -----------
Total direct operating expenses 15,860,349 12,068,382 11,812,626
----------- ----------- -----------
Direct revenue in excess of direct
operating expenses $ 2,268,692 $ 1,931,357 2,083,885
=========== =========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
Mariott WindWatch Hotel
Notes to Statements of Direct Revenue and Direct Operating Expenses
(Amounts and disclosures for the periods December 31, 1994 through October 6,
1995 and December 30, 1995 through September 24, 1996 are unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Marriott WindWatch Hotel (the "Property"), located in Hauppauge (Long
Island), New York, is a full-service hotel with 362 guest rooms, and
approximately 13,000 square feet of meeting space and two restaurants. The
property is owned by Colony Hill Associates, LP, ("the Partnership") and is
adjacent to an 18-hole golf course, also owned by the Partnership. The
Partnership filed for bankruptcy protection in 1991, and continues to operate
under Chapter 11 of the U.S. Bankruptcy code. On September 25, 1996, the
Partnership sold the Property to Patriot American Hospitality Partnership, L.P.
BASIS OF PRESENTATION
The accompanying Statements of Direct Revenue and Direct Operating Expenses (the
"Statements") have been prepared to substantially comply with the rules and
regulations of the Securities and Exchange Commission for business combinations
accounted for as a purchase. The accompanying Statements include revenue and
expenses directly related to the operations of the Property as reflected in the
records of the Property's management company. The accompanying Statements,
rather than full audited financial statements, are presented for the Property
because the Partnership that owns the Property maintains its financial records
on a combined basis including the Property, a golf course, which was developed
in conjunction with the hotel by the Partnership, a sewage treatment plant and
undeveloped land. In addition, the Partnership filed for bankruptcy in 1991
under Chapter 11 of the U.S. Bankruptcy Code and financial records supporting
the historical cost basis of the Property, debt or equity are not available from
the owner. Because it is not practicable to obtain full audited financial
statements for the Property, the presentation does not include all revenue and
expenses of the Partnership, as they relate to the Property, such as: 1)
interest or other income earned on investments of the Partnership; 2)
depreciation expense related to long-lived and short-lived assets (including the
Property and related improvements); 3) amortization expense related to
organizational costs or other deferred expenses of the Partnership; 4) interest
expense incurred on indebtedness of the Property and amortization of deferred
loan costs; and 5) certain Partnership related general and administrative
expenses. Therefore, the Statements are not representative of the actual
operations of the Property for the period presented.
F-19
<PAGE>
Marriott WindWatch Hotel
Notes to Statements of Direct Revenue
and Direct Operating Expenses (continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
FISCAL YEAR
The Property reports on a 52-week fiscal year (13 four-week periods) which ended
on December 29, 1995 and included 364 days of operations. The periods ended
October 6, 1995 and September 24, 1996 included 280 and 270 days of operations,
respectively.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying Statements of Direct Revenue and Direct Operating Expenses for
the periods ended October 6, 1995 and September 24, 1996 are unaudited; however,
in the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the Statements of
Direct Revenue and Direct Operating Expenses for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CAPITALIZATION POLICY
Maintenance and repairs are charged to operations as incurred; major renewals
and betterments are capitalized.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed and an
allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible. Such losses have
been within management's expectations.
SEASONALITY
The hotel industry is seasonal in nature. Historically, revenue at the Property
has been greater in the second and third quarters of a calendar year.
F-20
<PAGE>
Marriott WindWatch Hotel
Notes to Statements of Direct Revenue
and Direct Operating Expenses (continued)
3. COMMITMENTS
LAND LEASE
Land comprising a portion of the Property's parking lot is leased from Long
Island Lighting Company ("LIL Co"). The lease requires annual rent of $30,000
and expires in 2021, with options to extend the lease for five five-year
periods.
OPERATING LEASES
Equipment is leased under non-cancelable operating lease agreements expiring at
varying intervals through November 2000. The following is a schedule of future
minimum rental payments required under these leases as of December 29, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
------ --------
<S> <C>
1996 $25,739
1997 9,387
1998 9,069
1999 5,566
2000 5,102
-------
$54,863
=======
</TABLE>
Rental expense (including the land lease) totalled $69,836 for the year ended
December 29, 1995 and $31,998 and $40,273 for the periods ended October 6, 1995
and September 24, 1996, respectively, and is included in general and
administrative expense in the accompanying Statement.
MANAGEMENT AND OTHER AGREEMENTS
The Partnership has an agreement with Marriott International, Inc. ("Marriott"),
to manage the Property. The agreement expires in 2014 and contains provisions
whereby Marriott may extend the agreement for five additional 10-year periods.
Under the terms of the agreement, Marriott receives an annual basic management
fee equal to 5% of gross receipts. In addition, in any year that the Property
generates a profit, as defined in the agreement, an amount equal to the excess
of 15% of the profit over the basic fee is payable (none paid in 1995 or 1996)
to Marriott.
Pursuant to the management agreement, Marriott provides the Property certain
services which are furnished generally on a central or regional basis to hotels
in the Marriott chain. Marriott allocates the costs of providing these services
among all hotels that receive the
F-21
<PAGE>
Marriott WindWatch Hotel
Notes to Statements of Direct Revenue
and Direct Operating Expenses (continued)
3. COMMITMENTS (CONTINUED)
services. Services provided include sales, training, manpower development and
management personnel relocation, central advertising and sales, reservations and
computer, payroll and accounting services.
The costs allocated by Marriott for the year ended December 29, 1995, were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Payroll taxes and benefits $1,107,611
Liability and self-insurance 329,949
Advertising and promotional costs 170,413
Travel agent commissions 168,662
Reservations 136,351
Printing and supplies 95,147
Employee training and relocation 82,542
Property insurance 16,564
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
The Partnership owns a local sewer plant that services the Property. The
Property paid the Partnership for the services provided ($109,274 for the year
ended December 29, 1995 and $84,991 and $81,956 for periods ended October 6,
1995 and September 24, 1996, respectively).
5. EMPLOYEE BENEFITS
Marriott maintains a 401(k) savings plan for all eligible employees. Under the
401(k) savings plan, eligible employees can make pre-tax contributions to the
plan. No matching contribution is provided.
In addition, Marriott offers certain management employees a retirement plan, the
costs of which are allocated to the Property by Marriott.
The Property is in close proximity to a former municipal landfill, which has
been designated as a National Priorities List ("NPL") site by the United States
Environmental Protection Agency ("EPA"). The Hotel property is downgradient of
the NPL site. An environmental consultant reports that the current data relating
to the NPL site does not suggest any groundwater contamination from the former
landfill has migrated onto the Property. The environmental consultant also
reports that it is unlikely that any groundwater
F-22
<PAGE>
Marriott WindWatch Hotel
Notes to Statements of Direct Revenue
and Direct Operating Expenses (continued)
6. CONTINGENCIES (CONTINUED)
contamination from the former landfill will, in the future, migrate onto the
Property resulting in contaminants above applicable action levels. Remediation
activities by the municipality, under the supervision of the EPA and the New
York State Department of Environmental Conservation ("DEC"), are ongoing but
have not yet been completed. The DEC has indicated that it does not intend to
pursue as potentially responsible parties nearby landowners whose property
becomes contaminated as a result of off-site migration from the former landfill.
7. SUBSEQUENT EVENT
On September 25, 1996, the Partnership sold the Property to Patriot American
Hospitality, L.P. ("Patriot") for approximately $30,200,000.
8. UNAUDITED FINANCIAL INFORMATION
The following supplemental financial information has been provided on an
unaudited basis.
Patriot's estimated allocation of the purchase price including acquisition-
related costs and purchase of net working capital assets will be $1,435,000 to
net working capital assets acquired, $6,741,000 to land, $20,425,000 to building
and improvements and $2,500,000 furniture, fixtures, and equipment (FF&E).
Expected lives for building and improvements and FF&E are 35 years and 5 to 7
years, respectively.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Patriot American Hospitality, Inc.
We have audited the accompanying balance sheet of Concord O'Hare Limited
Partnership, as of December 29, 1995, and the related statements of operations,
partners' capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 Concord O'Hare Limited
Partnership, as of December 29, 1995 and the results of its operations, changes
in partners' capital and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
August 30, 1996
Dallas, Texas
F-24
<PAGE>
Concord O'Hare Limited Partnership
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 29, SEPTEMBER 23,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotel property, at cost
Building and improvements $10,310,192 $10,310,192
Furniture and equipment 1,664,890 1,679,466
----------- -----------
11,975,082 11,989,658
Less accumulated depreciation (3,023,612) (3,312,459)
----------- -----------
Net investment in hotel property 8,951,470 8,677,199
Cash and cash equivalents 20,526 --
Cash held in escrow 224,544 117,866
Investments, restricted 789,045 789,045
Accounts receivable, net of allowance
of $3,299 in 1995 and $11,589 in 1996 167,119 98,515
Inventories 59,087 49,452
Deferred expenses, net of accumulated
amortization of $62,775 in 1995 and
$69,648 in 1996 30,225 23,352
Prepaid expenses and other assets 40,213 59,363
----------- -----------
$10,282,229 $ 9,814,792
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable $ 8,148,029 $ 8,105,440
Accrued real estate taxes 529,362 439,712
Accounts payable and other accrued 379,392 367,257
liabilities
Due to affiliates 121,771 139,192
----------- -----------
9,178,554 9,051,601
Partners' capital 1,103,675 763,191
----------- -----------
$10,282,229 $ 9,814,792
=========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE>
Concord O'Hare Limited Partnership
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 31, DECEMBER 30,
YEAR ENDED 1994 THROUGH 1995 THROUGH
DECEMBER 29, OCTOBER 6, SEPTEMBER 23,
1995 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE
Rooms $3,840,776 $2,978,488 $3,058,067
Food and beverage 705,421 488,928 589,874
Telephone and other 233,383 203,764 168,103
---------- ---------- ----------
Total revenue 4,779,580 3,671,180 3,816,044
---------- ---------- ----------
EXPENSES
Departmental costs and expenses 1,853,302 1,451,426 1,525,651
General and administrative 503,005 359,690 433,994
Repairs and maintenance 272,404 210,990 225,861
Utilities 224,824 172,309 167,864
Marketing 444,754 340,900 342,950
Management fees 139,565 107,972 150,602
Interest expense 724,982 566,141 535,844
Real estate and personal property
taxes, and insurance 580,980 494,689 478,042
Depreciation and amortization 446,011 343,758 295,720
---------- ---------- ----------
Total expenses 5,189,827 4,047,875 4,156,528
---------- ---------- ----------
Net loss $ (410,247) $ (376,695) $ (340,484)
========== ========== ==========
</TABLE>
See accompanying notes.
F-26
<PAGE>
Concord O'Hare Limited Partnership
Statements of Partners' Capital
<TABLE>
<CAPTION>
<S> <C>
Balance at December 30, 1994 $1,470,646
Contribution of partner payable to capital 90,000
Distributions (46,724)
Net loss (410,247)
----------
Balance at December 29, 1995 1,103,675
Net loss (unaudited) (340,484)
----------
Balance at September 23, 1996 (unaudited) $ 763,191
==========
</TABLE>
See accompanying notes.
F-27
<PAGE>
Concord O'Hare Limited Partnership
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 31, DECEMBER 30,
YEAR ENDED 1994 THROUGH 1995 THROUGH
DECEMBER 29, OCTOBER 6, SEPTEMBER 23,
1995 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(410,247) $(376,695) $(340,484)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 446,011 343,758 295,720
Changes in assets and liabilities
Cash held in escrow (16,212) (145,620) 106,678
Accounts receivable (29,460) 51,459 68,604
Inventories (2,820) (5,800) 9,635
Investments 6,674 - -
Prepaid expenses and other assets 1,183 (25,666) (19,150)
Accrued real estate taxes 1,005 197,317 (89,650)
Accounts payable and other
accrued liabilities 92,006 188,043 (12,135)
Due to affiliates 114,982 96,510 17,421
--------- --------- ---------
Net cash provided by operating
activities 203,122 323,306 36,639
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements and additions to hotel
property (101,165) (86,539) (14,576)
--------- --------- ---------
Net cash used in investing activities (101,165) (86,539) (14,576)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage note (60,385) (43,980) (42,589)
Partner distributions (46,724) - -
--------- --------- ---------
Net cash used in financing activities (107,109) (43,980) (42,589)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents (5,152) 192,787 (20,526)
Cash and cash equivalents at beginning
of period 25,678 25,678 20,526
--------- --------- ---------
Cash and cash equivalents at end of
period $ 20,526 $ 218,465 $ -
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 727,368 $ 566,141 $ 535,844
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES
Conversion of partner payable to capital $ 90,000 $ - $ -
========= ========= =========
</TABLE>
See accompanying notes.
F-28
<PAGE>
Concord O'Hare Limited Partnership
Notes to Financial Statements
(amounts and disclosures for the periods December 31, 1994 through October 6,
1995 and December 30, 1995 through September 23, 1996 are unaudited)
1. ORGANIZATION
On December 28, 1987, Concord O'Hare Limited Partnership (the "Partnership")
was formed under the limited partnership laws of the state of Delaware to
acquire, own, and operate the Holiday Inn - Des Plaines Hotel, a full-service
242-room hotel located in Des Plaines, Illinois (the "Property"). On
September 24, 1996, the Partnership sold the Property to PAH-DT Chicago
Partners, L.P., a subsidiary of Patriot American Hospitality Partnership, L.P.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying statements of operations for the periods ended October 6, 1995
and September 23, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the statements of operations for these interim periods have
been included. The results of interim periods are not necessarily indicative of
the results to be obtained for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Partnership reports on a 52-week fiscal year (13 four-week periods) which
ended on December 29, 1995 and included 364 days of operations. The periods
ended October 6, 1995 and September 23, 1996 included 280 and 269, days of
operations, respectively.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity date of three months or
less when purchased are considered to be cash equivalents.
CASH HELD IN ESCROW
Cash held in escrow consists primarily of amounts escrowed for taxes.
INVENTORIES
Inventories, consisting of food, beverages, and linens are stated at cost which
approximates market as determined on a first-in, first-out basis.
F-29
<PAGE>
Concord O'Hare Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACOUNTING POLICIES (CONTINUED)
HOTEL PROPERTY
The hotel property is stated at the lower of cost or net realizable value.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of 31.5 years for building and improvements and seven
to 10 years for furniture and equipment.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, the Partnership would record impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. No such
impairment losses have been recognized to date by the Partnership.
CAPITALIZATION POLICY
Maintenance and repairs are charged to operations as incurred; asset renewals
and betterments are capitalized.
INVESTMENTS
Investments are comprised of certificates of deposit held with a bank which
mature annually in October. The investments are pledged as collateral for one of
the Partnership's mortgage notes payable.
DEFERRED EXPENSES
Deferred expenses consist of deferred franchise costs. Franchise costs are being
amortized on a straight-line basis over the 10-year term of the agreement.
INCOME TAXES
The Partnership is not subject to federal or state income taxes; however, it
must file informational income tax returns and the partners must take income or
loss of the Partnership into consideration when filing their respective tax
returns.
F-30
<PAGE>
Concord O'Hare Limited Partnership
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed and an
allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible. Such losses have
been within management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. CONCENTRATIONS OF CREDIT RISK
At December 29, 1995, the Partnership had investments with a bank in excess of
the Federal Deposit Insurance Corporation's insured limit by $689,044.
During 1995, the Partnership contracted with a major airline to provide the
airline's employees with rooms at a discounted rate considerably lower than the
hotel's transient or other group rates. The contracted rooms made up
approximately 33% of the occupied rooms and approximately 20% of the room
revenue during the year. The contract expired in May 1996 and has not been
renewed.
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable are cross collateralized and cross defaulted and consist
of the following:
A note payable to Charter One Bank is collateralized by the Property with
monthly payments of principal and interest based on 3.25% above the weekly
average yield on United States Treasury securities, as defined (8.84% at
December 29, 1995), reset the first day of July each year with a 30-year
amortization from each reset date through maturity at June 30, 1997, at which
time all outstanding principal and accrued interest is due. As of December 29,
1995, the outstanding balance on the note was $6,567,083.
F-31
<PAGE>
Concord O'Hare Limited Partnership
Notes to Financial Statements (continued)
4. MORTGAGE NOTES PAYABLE (CONTINUED)
A second note payable to Charter One Bank is collateralized by the Property, a
pledge of land parcels owned by an affiliate, a pledge of income producing real
property, and a pledge of the Partnership's investments. The terms of the note
call for quarterly payments of interest only at rates based on Citibank prime
(8.75% at December 29, 1995) for the first $788,750 of outstanding principal,
and Citibank prime plus 1% for outstanding principal above $788,750. The loan
matures June 30, 1997, at which time all outstanding principal and accrued
interest is due. As of December 29, 1995, the outstanding balance of the note
was $1,580,946.
5. COMMITMENTS
OPERATING LEASES
Vehicles are leased under noncancellable operating leases expiring at varying
intervals through September of 1997.
Future minimum payments required under these leases subsequent to December 29,
1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------ --------
<S> <C>
1996 $37,728
1997 17,040
-------
$54,768
=======
</TABLE>
Rental expense incurred under these leases was approximately $33,661 during the
year ended December 29, 1995, and $24,991 and $28,153 for the periods ended
October 6, 1995 and September 23, 1996, respectively.
OTHER LEASE AGREEMENTS
The Property leases space for a gift shop to a third party. The lease expires
April 30, 1998, and calls for monthly lease payments of $800 which increase
annually by the Consumer Price Index. Income under the lease was $6,400 for the
year ended December 29, 1995, and $4,800 and $7,272 for the periods ended
October 6, 1995 and September 23, 1996, respectively, and is included in
telephone and other income in the accompanying financial statements.
F-32
<PAGE>
Concord O'Hare Limited Partnership
Notes to Financial Statements (continued)
5. COMMITMENTS (CONTINUED)
FRANCHISE AGREEMENT
Under the terms of the hotel franchise agreement expiring in March 1999, payment
of royalty fees, marketing fees, reservation fees and other fees are payable
monthly. Fees are generally computed based on percentages of gross room
revenues. Total fees incurred for these services were approximately $249,650
during the year ended December 29, 1995, and $193,692 and $198,389 for the
periods ended October 6, 1995 and September 23, 1996, respectively.
HOTEL MANAGEMENT
The Property is currently operated under a management agreement with Lane
Hospitality, a third party. The management agreement provides for a term of 10
years expiring April 2001. Base management fees are based on 3% of gross
revenues, as defined. Lane Hospitality is also entitled to receive an incentive
management fee equal to 15% of net operating income, as defined, less the base
management fee. Base management fees were $139,565 for the year ended December
29, 1995, and $107,972 and $150,602 for the periods ended October 6, 1995 and
September 23, 1996, respectively. No incentive management fees were earned
during 1995 or 1996.
Additionally, the management agreement provides for a monthly accounting fee
equal to 0.5% of gross revenues, as defined. Accounting fees were $23,261 for
the year ended December 29, 1995, and $17,996 and $25,063 for periods ended
October 6, 1995 and September 23, 1996, respectively, which are included in
general and administrative expenses.
6. RELATED PARTY TRANSACTIONS
The Partnership has agreed to pay its general partner a partnership management
fee in the amount of 1% of revenues for its management services plus an
additional fee for administration of the Partnership. Partnership management
fees were $77,898 during the year ended December 29, 1995, and $52,307 and
$57,422 for the periods ended October 6, 1995 and September 23, 1996,
respectively, and is included in general and administrative expenses in the
accompanying financial statements. As of December 29, 1995, the Partnership owed
its general partner $121,771 for these fees.
F-33
<PAGE>
Concord O'Hare Limited Partnership
Notes to Financial Statements (continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 29, 1995. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts which could be realized on
disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Management estimates that the fair value of (i) investments, accounts
receivable, accounts payable and accrued expenses approximate carrying value due
to the relatively short maturity of these instruments; and (ii) mortgage notes
payable approximate carrying value based upon the Partnership's effective
borrowing rate for issuance of debt with similar terms and remaining maturities.
8. SUBSEQUENT EVENT
On September 24, 1996, the Partnership sold the Property and the related hotel
assets as specified in the sales contract to PAH-DT Chicago Partners, L.P., a
subsidiary of Patriot American Hospitality Partnership, L.P., for approximately
$8,500,000.
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Patriot American Hospitality, Inc.:
We have audited the accompanying Statement of Direct Revenue and Direct
Operating Expenses of the Holiday Inn Miami Airport (the "Property") for the
year ended August 31, 1996. This statement is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement 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 Statement of Direct Revenue and Direct Operating
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the Statement of
Direct Revenue and Direct Operating Expenses. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Direct Revenue
and Direct Operating Expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Statement of Direct Revenue and Direct Operating Expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the report on Form 8-K of
Patriot American Hospitality, Inc. as described in Note 1, and is not intended
to be a complete presentation of the Property's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material
respects, the direct revenue and direct operating expenses as described in Note
1 of the Holiday Inn Miami Airport for the year ended August 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Dallas, Texas
October 15, 1996
F-35
<PAGE>
HOLIDAY INN MIAMI AIRPORT
STATEMENTS OF DIRECT REVENUE
AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
Year Twelve Months Nine Months
Ended Ended Ended
August 31, December 31, September 30,
1996 1995 1996
---------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Direct revenue from hotel operations:
Rooms $3,642,115 $3,939,762 $2,786,982
Food and beverage 489,083 574,132 372,240
Telephone and other 237,782 239,947 186,374
---------- ---------- ----------
Total direct revenue 4,368,980 4,753,841 3,345,596
---------- ---------- ----------
Direct operating expenses:
Departmental costs and expenses 1,004,988 1,039,538 778,386
Food and beverage 539,860 572,926 421,460
General and administrative 360,867 316,502 287,107
Repairs and maintenance 271,453 272,603 205,988
Utilities 300,741 288,155 227,179
Advertising and promotion 175,736 174,428 138,167
Franchise fees 259,609 283,484 195,164
Management fees paid to affiliate 82,726 90,332 63,287
Real estate and personal property taxes, and
insurance 267,732 273,632 199,399
---------- ---------- ----------
Total direct operating expenses 3,263,712 3,311,600 2,516,137
---------- ---------- ----------
Direct revenue in excess of direct
operating expenses $1,105,268 $1,442,241 $ 829,459
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
HOLIDAY INN MIAMI AIRPORT
NOTES TO STATEMENTS OF DIRECT REVENUE
AND DIRECT OPERATING EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION:
---------------------------------------
ORGANIZATION
------------
The Holiday Inn Miami Airport (the "Property"), located in Miami, Florida,
is a full-service hotel with 264 guest rooms, approximately 5,668 square
feet of meeting space and a restaurant which is operated by the hotel. The
Property was constructed in 1978 and is owned by the Hernando Realty
Corporation (the "Corporation").
BASIS OF PRESENTATION
---------------------
The accompanying Statements of Direct Revenue and Direct Operating Expenses
(the "Statements") have been prepared to substantially comply with the
rules and regulations of the Securities and Exchange Commission for
business combinations accounted for as a purchase. The accompanying
Statements include revenue and expenses directly related to the operations
of the Property as reflected in the records of the Property's management
company. The accompanying Statements, rather than full audited financial
statements, are presented for the Property because the Property was
acquired from an unaffiliated third party in a negotiated transaction and
records that supported historical costs, indebtedness and equity of the
Property were unavailable. Because it was not practicable to obtain full
audited financial statements for the Property, the presentation does not
include all revenue and expenses of the Corporation, as they relate to the
Property, such as (1) interest or other income earned on investments of the
Corporation, (2) depreciation expense related to long-lived and short-lived
assets (including the Property and related improvements), (3) amortization
expense related to organizational costs or other deferred expenses of the
Corporation, (4) interest expense incurred on indebtedness of the Property
and amortization of deferred loan costs, and (5) certain Corporation
related general and administrative expenses. Therefore, the Statements are
not representative of the actual operations of the Property for the periods
presented. Included in Note 7 is certain unaudited financial information
related to the items discussed above.
INTERIM UNAUDITED FINANCIAL INFORMATION
---------------------------------------
The accompanying Statements of Direct Revenue and Direct Operating Expenses
for the twelve months ended December 31, 1995 and the eight months ended
August 31, 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the Statements of Direct Revenue and Direct
Operating Expenses for these interim periods have been included. The
results of interim periods are not necessarily indicative of the results to
be obtained for a full year.
F-37
<PAGE>
HOLIDAY INN MIAMI AIRPORT
NOTES TO STATEMENTS OF DIRECT REVENUE
AND DIRECT OPERATING EXPENSES, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
CAPITALIZATION POLICY
---------------------
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized.
REVENUE RECOGNITION
-------------------
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the
portion of accounts receivable which is estimated to be uncollectible.
Such losses have been within management's expectations.
SEASONALITY
-----------
The hotel industry is seasonal in nature. Generally, revenue at the
Property is greater in the first and second quarters of a calendar year.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses.
Actual results could differ from those estimates.
3. COMMITMENTS AND CONTINGENCIES:
------------------------------
Franchise costs represent the annual expense for franchise royalties,
reservation and marketing services under the terms of a hotel franchise
agreement that expires on December 1, 2002. The agreement provides for a
royalty fee of 4% of gross room revenue, a marketing and reservation
contribution of 2.5% of gross room revenue, and certain additional fees.
F-38
<PAGE>
HOLIDAY INN MIAMI AIRPORT
NOTES TO STATEMENTS OF DIRECT REVENUE
AND DIRECT OPERATING EXPENSES, CONTINUED
4. TRANSACTIONS WITH AFFILIATES:
-----------------------------
The Corporation has entered into a management agreement with an affiliate
to manage the operations of the Property. The agreement can be terminated
by either party on August 31 upon prior 30 day written notice. Management
fees are based on 2.0% of total direct revenues.
5. EMPLOYEE BENEFIT PLAN:
----------------------
The Corporation maintains a defined benefit savings plan for all eligible
employees. Corporation contributions are based on the participating
employees' compensation reduced by any forfeitures in the plan. Vesting
begins after three years with 100% vesting after seven years. The
Corporation's contributions were $45,683 for 1996.
6. SUBSEQUENT EVENT:
-----------------
On September 26, 1996, the Corporation sold the Property to Patriot
American Hospitality Partnership, L.P. ("Patriot") for approximately $12.5
million. The purchase was funded from the Company's line of credit.
7. UNAUDITED FINANCIAL INFORMATION:
--------------------------------
The following supplemental financial information has been provided by the
Property's management company on an unaudited basis for certain of those
expenses which have been omitted from the accompanying Statement.
Supporting information was not provided by the owner.
The records of the Property's management company reflect interest expense
related to mortgage and other debt of $316,795 for the year ended August
31, 1996.
Additions to furniture, fixtures and equipment ("FF&E") for the Property
totaled $133,778 for the year ended August 31, 1996. Depreciation expense
related to FF&E is computed using the straight-line method based on
estimated useful lives ranging from five to ten years. Estimated
depreciation expense related to FF&E was $486,341 for the year ended August
31, 1996.
F-39
<PAGE>
HOLIDAY INN MIAMI AIRPORT
NOTES TO STATEMENTS OF DIRECT REVENUE
AND DIRECT OPERATING EXPENSES, CONTINUED
Patriot's estimated allocation of the purchase price will be $1.8 million
to land, $9.0 million to building and improvements, and $1.7 million to
FF&E. Expected lives for the building and improvements and FF&E are thirty-
five years and five to seven years, respectively.
F-40
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Patriot American Hospitality, Inc:
We have audited the accompanying Statement of Direct Revenue and Direct
Operating Expenses of the Mayfair Suites Hotel (the "Property") for the year
ended December 31, 1995. This statement is the responsibility of the Property's
management. Our responsibility is to express an opinion on this statement 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 Statement of Direct Revenue and Direct Operating
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the Statement of
Direct Revenue and Direct Operating Expenses. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Direct Revenue
and Direct Operating Expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Statement of Direct Revenue and Direct Operating Expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission as described in Note 1, and is not intended
to be a complete presentation of the Property's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material
respects, the direct revenue and direct operating expenses as described in Note
1 of Mayfair Suites Hotel for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
September 10, 1996
F-41
<PAGE>
Mayfair Suites Hotel
Statements of Direct Revenue and Direct Operating Expenses
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1995 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
DIRECT REVENUE FROM HOTEL OPERATIONS
Rooms $3,164,625 $2,445,246 $2,514,686
Food and beverage 846,754 614,607 585,989
Telephone 203,059 150,702 138,498
Other 223,041 163,191 150,232
---------- ---------- ----------
Total direct revenue 4,437,479 3,373,746 3,389,405
---------- ---------- ----------
DIRECT OPERATING EXPENSES
Departmental costs and expenses 2,045,688 1,514,832 1,574,668
General and administrative 1,014,082 755,363 508,579
Repairs and maintenance 303,768 221,789 253,773
Utilities 237,909 188,788 210,871
Advertising and promotion 520,743 355,667 326,278
Management fees 155,312 118,723 144,510
Real estate and personal property taxes,
and insurance 74,267 59,564 74,255
---------- ---------- ----------
Total direct operating expenses 4,351,769 3,214,726 3,092,934
---------- ---------- ----------
Direct revenue in excess of direct
operating expenses $ 85,710 $ 159,020 $ 296,471
========== ========== ==========
</TABLE>
See accompanying notes.
F-42
<PAGE>
Mayfair Suites Hotel
Notes to Statements of Direct Revenue and Direct Operating Expenses
(Amounts and disclosures for the nine months ended
September 30, 1995 and 1996 are unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mayfair Suites (the "Property"), located in St. Louis, Missouri, is a full-
service hotel with 184 guest rooms. The Property is owned by Mayfair Operating
Corporation (the "Corporation"). On September 30, 1996, the Corporation sold the
Property to Patriot American Hospitality Partnership, L.P.
BASIS OF PRESENTATION
The accompanying Statements of Direct Revenue and Direct Operating Expenses (the
"Statements") have been prepared to substantially comply with the rules and
regulations of the Securities and Exchange Commission for business combinations
accounted for as a purchase. The accompanying Statements include revenue and
expenses directly related to the operations of the Property as reflected in the
records of the Property's management company. The accompanying Statements,
rather than full audited financial statements, are presented for the Property
because the Property was acquired in a negotiated transaction from an
unaffiliated third party which acquired the Property through foreclosure.
Consequently, financial records supporting the historical cost basis of the
Property indebtedness and equity were not available from the prior owner.
Because it was not practicable to obtain full audited financial statements for
the Property, the presentation does not include all revenue and expenses of the
Corporation, as they relate to the Property, such as: 1) interest or other
income earned on investments of the Corporation; 2) depreciation expense related
to long-lived and short-lived assets (including the Property and related
improvements); 3) amortization expense related to organizational costs or other
deferred expenses of the Corporation; 4) interest expense incurred on
indebtedness of the Property and amortization of deferred loan costs; and 5)
certain Corporate related general and administrative expenses and corporate
taxes. Therefore, the Statements are not representative of the actual operations
of the Property for the period presented. Included in Note 6 is certain
unaudited financial information related to the items discussed above.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying Statements of Direct Revenue and Direct Operating Expenses for
the nine months ended September 30, 1995 and 1996 are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Statements of Direct
Revenue and Direct
F-43
<PAGE>
Mayfair Suites Hotel
Notes to Statements of Direct Revenue and Direct Operating Expenses
(continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Operating Expenses for these interim periods have been included. The results of
interim periods are not necessarily indicative of the results to be obtained for
a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CAPITALIZATION POLICY
Maintenance and repairs are charged to operations as incurred; major renewals
and betterments are capitalized.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed and an
allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible. Such losses have
been within management's expectations.
3. COMMITMENTS AND CONTINGENCIES
MANAGEMENT AGREEMENT
During 1995 the Property was operated under a management agreement with
Doubletree Hotels Corporation ("Doubletree"). The agreement was for a term of
approximately 15 years expiring January 31, 2007. Management fees were based on
3.5% of gross revenue, as defined. In addition, the agreement provided for an
incentive management fee equal to 5% of net operating income in excess of
$1,900,000, as defined, to be paid annually. No incentive management fees were
earned during 1995 or 1996.
In June of 1996, the management agreement with Doubletree was terminated.
Effective July 1, 1996, the Corporation entered into a management agreement with
Waterford Hotel Group ("Waterford") to manage the operations of the Property.
Management fees will be based on 2.5% of total sales, as defined. Waterford will
also be entitled to an incentive management fee equal to 25% of net operating
income, as defined, in excess of $1,000,000. No incentive management fees were
earned during 1996.
In addition to the base and incentive fees described above, Waterford also
earned a Start-Up fee, as defined, of $35,000 in 1996.
F-44
<PAGE>
Mayfair Suites Hotel
Notes to Statements of Direct Revenue and Direct Operating Expenses
(continued)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONTINGENCIES
The Corporation has been subject to various legal proceedings and claims that
arise in the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters can not be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the financial position or results of
operations of the Corporation.
4. EMPLOYEE BENEFITS
Doubletree maintains a 401(k) savings plan for all eligible employees. Under
this plan, eligible employees can make pre-tax contributions to the plan ranging
from 1% to 18% of their annual compensation up to a maximum of $9,240 (subject
to certain exceptions for highly compensated employees). Doubletree matches 100%
of the employee's contribution up to 3% of their total compensation. Eligibility
for participation in the plan is based on the employee's completion of one year
of eligible service, as defined. Contributions by Doubletree were approximately
$15,000 for the year ended December 31, 1995 and are included in general and
administrative expenses in the accompanying Statements
5. SUBSEQUENT EVENTS (UNAUDITED)
On September 30, 1996, the Corporation sold the Property and related assets to
Patriot American Hospitality Partnership, L.P. ("Patriot") for approximately
$8,600,000.
6. UNAUDITED FINANCIAL INFORMATION
The following supplemental financial information has been provided by the
Property's management company on an unaudited basis for certain of those
expenses which have been omitted from the accompanying Statements. Supporting
information was not provided by the owner.
The records of the Property's management company reflect interest expense
related to mortgage and other debt of approximately $2,530,000 for the year
ended December 31, 1995. The Corporation incurred owner related expenses of
$81,517 for the year ended December 31, 1995.
F-45
<PAGE>
Mayfair Suites Hotel
Notes to Statements of Direct Revenue and Direct Operating Expenses
(continued)
6. UNAUDITED FINANCIAL INFORMATION (CONTINUED)
Additions to furniture, fixtures and equipment ("FF&E") for the Property
totalled $174,620 for the year ended December 31, 1995. Depreciation expense
related to FF&E is computed using the straight-line method based on estimated
useful lives ranging from three to seven years. Estimated depreciation expense
related to FF&E was $304,000 for the year ended December 31, 1995.
Patriot's estimated allocation of the purchase price (including acquisition-
related costs) will be $250,000 to land, $7,610,000 to building and improvements
and $950,000 to FF&E. Expected lives for the building and improvements and FF&E
are 35 years and five to seven years, respectively.
F-46
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Historic Hotel Partners of Birmingham Limited Partnership
We have audited the balance sheets of Historic Hotel Partners of Birmingham
Limited Partnership as of December 31, 1995 and 1994, and the related statements
of operations, partners' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Historic Hotel Partners of
Birmingham Limited Partnership at December 31, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
March 1, 1996 /s/ PANNELL KERR FORSTER PC
F-47
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current assets
Cash $ 89,287 $ 193,078
Accounts receivable (net of an allowance
for doubtful accounts of $249 for 1995
and $5,000 for 1994) 280,890 220,838
Prepaid expenses 60,097 81,607
---------- ----------
Total current assets 430,274 495,523
---------- ----------
Property and equipment (net) (note 2) 4,642,728 4,810,757
---------- ----------
Other assets
Deposits 47,205 47,205
Organization costs (net of accumulated
amortization of $32,826 for 1995
and $28,456 for 1994) 8,010 12,380
---------- ----------
Total other assets 55,215 59,585
---------- ----------
$5,128,217 $5,365,865
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable $ 148,586 $ 120,084
Taxes payable and accrued 19,133 14,202
Accrued expenses 77,059 86,580
Advance deposits 17,133 270
Current portion of long-term debt (note 3) 254,849 237,393
---------- ----------
Total current liabilities 516,760 458,529
Long-term debt, net of current
portion (note 3) 3,571,388 3,826,232
---------- ----------
Total liabilities 4,088,148 4,284,761
Commitments (notes 4 and 5)
Partners' equity 1,040,069 1,081,104
---------- ----------
$5,128,217 $5,365,865
========== ==========
</TABLE>
See notes to financial statements
F-48
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Revenues
Rooms $3,407,204 $3,142,837
Telephone 129,698 137,303
Parking 37,639 41,690
Other 200,396 225,461
---------- ----------
Total revenues 3,774,937 3,547,291
---------- ----------
Departmental expenses
Rooms 973,395 864,845
Telephone 94,900 98,860
Parking 36,963 35,790
---------- ----------
Total departmental expenses 1,105,258 999,495
---------- ----------
Gross operating income 2,669,679 2,547,796
---------- ----------
Unallocated expenses
Administrative and general
Hotel 281,803 272,054
Partnership 40,686 44,353
Credit card commissions 60,461 61,294
Sales and marketing 393,122 384,655
Repairs and maintenance 308,841 235,211
Utilities 270,196 279,129
Management fees 263,516 247,457
---------- ----------
Total unallocated expenses 1,618,625 1,524,153
---------- ----------
Gross operating profit 1,051,054 1,023,643
---------- ----------
Capital expenses
Rent, taxes and insurance 96,701 85,538
Interest 174,858 134,100
Depreciation and amortization 320,530 254,749
---------- ----------
Total capital expenses 592,089 474,387
---------- ----------
Net income $ 458,965 $ 549,256
========== ==========
</TABLE>
See notes to financial statements
F-49
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Balance, beginning of year $ 1,081,104 $ 1,031,848
Net income for the year 458,965 549,256
Distributions to Partners (500,000) (500,000)
----------- -----------
Balance, end of year $ 1,040,069 $ 1,081,104
=========== ===========
</TABLE>
See notes to financial statements
F-50
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 458,965 $ 549,256
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 320,530 254,749
Changes in assets and liabilities
Accounts receivable (60,052) (76,342)
Prepaid expenses 21,510 (14,758)
Deposits -- (42,000)
Accounts payable 28,503 (75,898)
Taxes payable and accrued 4,931 (25,396)
Accrued expenses (9,521) 10,505
Advance deposits 16,863 (215)
--------- ---------
Net cash provided by operating
activities 781,729 579,901
--------- ---------
Cash flows from investing activities
Acquisition of property and equipment (148,132) (157,309)
Cash flows from financing activities
Principal payments on long term debt (237,388) (223,424)
Distributions to partners (500,000) (500,000)
--------- ---------
Net cash (used) by financing
activities (737,388) (723,424)
--------- ---------
Net (decrease) increase in cash (103,791) (300,832)
Cash at beginning of year 193,078 493,910
--------- ---------
Cash at end of year 89,287 193,078
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 172,536 $ 131,337
--------- ---------
</TABLE>
See notes to financial statements
F-51
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1 - Operations and summary of significant accounting policies
- ------------------------------------------------------------------
Operations
- ----------
Historic Hotel Partners of Birmingham Limited Partnership, a Delaware limited
partnership, holds a leasehold interest in and operates the Tutwiler Hotel in
Birmingham, Alabama.
Property and equipment
- ----------------------
Depreciation is computed using the straight-line and accelerated methods over
the following estimated useful lives:
Building and improvements 15 - 40 years
Furniture and equipment 3 - 8 years
Depreciation expense totaled $316,161 and $242,372 in 1995 and 1994,
respectively.
Amortization
- ------------
Organization costs, pre-opening costs, and mortgage loan fees are amortized on a
straight-line basis over the following periods:
Organization costs - five years
Pre-opening costs - two years
Mortgage loan fees - term of the related loan
Income taxes
- ------------
Provision for Federal and state income taxes is not reflected in the financial
statements since partners are taxed individually on their share of Partnership
income or loss.
Statements of cash flows
- ------------------------
The Partnership defines cash and equivalents as cash on hand, demand deposits at
banks, and short-term highly liquid investments with an initial maturity of
three months or less. At various times throughout the year, the Partnership has
amounts on deposit with one financial institution in excess of federally insured
limits.
F-52
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
Note 1 - Operations and summary of significant accounting policies (continued)
- ------------------------------------------------------------------------------
Financial statement estimates
- -----------------------------
The preparation of financial statements in conformity with generally accepted
accounting procedures requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
- -----------------
Certain items in the 1994 financial statements have been reclassified to conform
with the 1995 presentation. These reclassifications have no effect on the 1994
net income as previously reported.
Note 2 - Property and equipment
- -------------------------------
Property and equipment is stated at cost and consists of the following:
December 31
---------------------------
1995 1994
---------- ----------
Land improvements $ 1,045 $ 1,045
Building 4,262,608 4,233,810
Furniture, fixtures and equipment 1,225,707 1,109,368
---------- ----------
5,489,360 5,344,223
Less accumulated depreciation (846,632) (533,466)
---------- ----------
Net property and equipment $4,642,728 $4,810,757
========== ==========
Note 3 - Long-term debt
- -----------------------
Substantially all property and equipment is pledged as collateral for the
Partnership's portion of mortgage revenue bonds that mature December 16, 2006.
Interest accrues at a variable rate based on the rate used by the remarketing
agent which approximated three percent in both 1995 and 1994. The loan requires
quarterly payments of interest plus principal amounts that escalate at 69.822
percent of scheduled bond redemptions.
Scheduled maturities for the next five years are: 1996-$254,849; 1997-$268,813;
1998-$286,268; 1999-$303,724; and, 2000-$321,179.
F-53
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
Note 4 - Ground lease
- ---------------------
Under the terms of a Cancellation of Rent Obligations and Automatic Extension of
Lease Term Agreement dated November 29, 1989, the Partnership is granted rent
free use of the ground underlying the Hotel through November 30, 2035.
Note 5 - Related party transactions
- -----------------------------------
The Hotel is managed, under an agreement that expires October 30, 2002, by an
affiliate under common control. The management agreement provides for base
management fees equal to four percent of gross revenues of the Hotel and an
incentive management fee equal to ten percent of net income, as defined. In
addition to the management fees, the management company receives one percent of
gross revenues for chain services which includes advertising, sales, purchases
and similar services.
Expenses under this agreement were as follows:
1995 1994
-------- --------
Base management fee $150,998 $141,892
Incentive management fee 74,769 70,092
Chain services 37,749 35,473
-------- --------
$263,516 $247,457
-------- --------
Charges by another affiliate under common control for marketing services were
$25,849 and $21,753 for the years ended December 31, 1995 and 1994,
respectively.
Note 6 - Pension plan
- ---------------------
During 1995, the affiliate management company (note 5) established a 401(K)
plan. All employees of the Partnership who meet certain age and length of
service requirements are eligible to participate in the plan. Employees can
contribute from one percent to fifteen percent of base compensation as a salary
reduction contribution to the plan. The Partnership does not contribute to the
plan.
F-54
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Partners
Historic Hotel Partners of Birmingham,
Limited Partnership
We have reviewed the accompanying balance sheet of Historic Hotel Partners of
Birmingham, Limited Partnership as of September 29, 1996, and the related
statements of operations, partners' equity, and cash flows for the nine months
then ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Historic Hotel Partners of Birmingham, Limited Partnership.
A review consists principally of inquiries of management personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ PANNELL KERR FORSTER PC
October 23, 1996
F-55
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
BALANCE SHEET
SEPTEMBER 29, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash $ 370,949
Accounts receivable (net of an allowance
for doubtful accounts of $2,354) 503,605
Prepaid expenses 71,474
----------
Total current assets 946,028
----------
Property and equipment (net) (note 2) 4,578,994
----------
Other assets
Deposits 47,205
Organization costs (net of accumulated
amortization of $36,104) 4,732
----------
Total other assets 51,937
----------
$5,576,959
==========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable $ 122,567
Taxes payable and accrued 29,624
Accrued expenses 148,322
Advance deposits 18,450
Current portion of long-term debt (note 3) 262,991
----------
Total current liabilities 581,954
Long-term debt, net of current
portion (note 3) 3,563,246
----------
Total liabilities 4,145,200
Commitments (notes 4 and 5)
Partners' equity 1,431,759
----------
$5,576,959
==========
</TABLE>
See notes to financial statements
F-56
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996
<TABLE>
<S> <C>
Revenues
Rooms $2,854,772
Telephone 101,681
Parking 45,081
Other 146,275
----------
Total revenues 3,147,809
----------
Departmental expenses
Rooms 777,927
Telephone 74,300
Parking 29,691
----------
Total departmental expenses 881,918
----------
Gross operating income 2,265,891
----------
Unallocated expenses
Administrative and general
Hotel 226,449
Partnership 32,271
Credit card commissions 53,891
Sales and marketing 266,157
Repairs and maintenance 190,434
Utilities 202,242
Management fees 157,390
----------
Total unallocated expenses 1,128,834
----------
Gross operating profit 1,137,057
----------
Capital expenses
Rent, taxes and insurance 64,934
Interest 109,902
Depreciation and amortization 220,531
----------
Total capital expenses 395,367
----------
Net income $ 741,690
==========
</TABLE>
See notes to financial statements
F-57
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
STATEMENT OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996
<TABLE>
<S> <C>
Balance, December 31, 1995 $ 1,040,069
Net income for the nine months ended September 29, 1996 741,690
Distributions to Partners (350,000)
-----------
Balance, September 29, 1996 $ 1,431,759
===========
</TABLE>
See notes to financial statements
F-58
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 741,690
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 220,531
Loss on disposal of property and equipment 4,997
Changes in assets and liabilities
Accounts receivable (222,715)
Prepaid expenses (11,377)
Accounts payable (26,019)
Taxes payable and accrued 10,491
Accrued expenses 71,263
Advance deposits 1,317
---------
Net cash provided by operating
activities 790,178
Cash flows from investing activities
Acquisition of property and equipment (158,516)
Cash flows from financing activities
Distributions to partners (350,000)
---------
Net increase in cash 281,662
Cash at December 31, 1995 89,287
---------
Cash at September 29, 1996 $ 370,949
---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 97,902
---------
</TABLE>
See notes to financial statements
F-59
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
Note 1 - Operations and summary of significant accounting policies
- ------------------------------------------------------------------
Operations
- ----------
Historic Hotel Partners of Birmingham, Limited Partnership, a Delaware limited
partnership, holds a leasehold interest in and operates the Tutwiler Hotel in
Birmingham, Alabama.
Property and equipment
- ----------------------
Depreciation is computed using the straight-line and accelerated methods over
the following estimated useful lives:
Building and improvements 15 - 40 years
Furniture and equipment 3 - 8 years
Depreciation expense totaled $217,253 for the nine months ended September 29,
1996.
Amortization
- ------------
Organization costs are amortized on a straight-line basis over five years.
Income taxes
- ------------
Provision for Federal and state income taxes is not reflected in the financial
statements since partners are taxed individually on their share of Partnership
income or loss.
Statement of cash flows
- -----------------------
The Partnership defines cash and equivalents as cash on hand, demand deposits at
banks, and short-term highly liquid investments with an initial maturity of
three months or less. At various times throughout the nine months, the
Partnership had amounts on deposit with one financial institution in excess of
federally insured limits.
Accounting period
- -----------------
The Partnership maintains a calendar year end with the following number of days
in each month end.
January 29 days July and August 28 days
February 28 days September 35 days
March 35 days October and November 28 days
April and May 28 days December 35 days
June 35 days
F-60
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 29, 1996
Note 1 - Operations and summary of significant accounting policies (continued)
- ------------------------------------------------------------------------------
Financial statement estimates
- -----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 - Property and equipment
- -------------------------------
Property and equipment is stated at cost and consists of the following:
Land improvements $ 1,045
Building 4,262,608
Furniture, fixtures and equipment 1,208,037
Construction in progress 158,516
-----------
5,630,206
Less accumulated depreciation (1,051,212)
-----------
Net property and equipment $ 4,578,994
-----------
Note 3 - Long-term debt
- -----------------------
Substantially all property and equipment is pledged as collateral for the
Partnership's portion of mortgage revenue bonds that mature December 16, 2006.
Interest accrues at a variable rate based on the rate used by the remarketing
agent which approximated three percent for the nine months ended September 29,
1996. The loan requires quarterly payments of interest plus principal amounts
that escalate at 69.822 percent of scheduled bond redemptions.
Debt maturities for the next five twelve-month periods are as follows: 1997-
$262,991; 1998-$278,996; 1999-$296,450; 2000-$313,906; 2001-$333,398; and
thereafter, $2,340,496.
F-61
<PAGE>
HISTORIC HOTEL PARTNERS OF BIRMINGHAM, LIMITED PARTNERSHIP
(SEE ACCOUNTANT'S REVIEW REPORT)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 29, 1996
Note 4 - Ground lease
- ---------------------
Under the terms of a Cancellation of Rent Obligations and Automatic Extension of
Lease Term Agreement dated November 29, 1989, the Partnership is granted rent
free use of the ground underlying the Hotel through November 30, 2035.
Note 5 - Related party transactions
- -----------------------------------
The Hotel is managed, under an agreement that expires October 30, 2002, by an
affiliate under common control. The management agreement provides for base
management fees equal to four percent of gross revenues of the Hotel, and an
incentive management fee equal to ten percent of net income, as defined. There
were no incentive management fees for the nine-month period. In addition to the
management fees, the management company receives one percent of gross revenues
for chain services, which includes advertising, sales, purchases, and similar
services. Total management fees for the nine months ended September 29, 1996
were $157,390.
Note 6 - Pension plan
- ---------------------
The affiliate management company (note 5) sponsors a 401(k) plan in which
employees of the Partnership who meet certain age and length of service
requirements are eligible to participate. Employees can contribute from one
percent to fifteen percent of base compensation as a salary reduction
contribution to the plan. The Partnership does not contribute to the plan.
Note 7 - Fair value of financial instruments
- --------------------------------------------
The carrying amounts of the Partnership's financial instruments, including cash,
accounts receivable, and accounts payable, approximate fair values because of
the short maturities of these instruments. The carrying amount of long-term
debt approximates fair value because the interest rate is variable.
Note 8 - Subsequent event
- -------------------------
On October 4, 1996, the Partnership entered into a contract with Patriot
American Hospitality, L.P. to sell the Tutwiler Hotel for approximately
$7,613,000 in cash and limited partnership units valued at approximately
$3,114,000.
F-62
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-10317) pertaining to the 1995 Incentive Plan and Non-Employee
Directors' Incentive Plan of Patriot American Hospitality, Inc. (the "Company")
and in the Registration Statement on Form S-3 (No. 333-12973) of the Company and
the related Prospectus of our reports (a) dated April 10, 1996 with respect to
the Statement of Direct Revenue and Direct Operating Expenses of the Marriott
WindWatch Hotel for the year ended December 29, 1995, (b) dated August 30, 1996
with respect to the Financial Statements of Concord O'Hare Limited Partnership
for the year ended December 29, 1995, and (c) dated September 10, 1996 with
respect to the Statement of Direct Revenue and Direct Operating Expenses of the
Mayfair Suites Hotel for the year ended December 31, 1995; all of which are
included in the Company's Current Report on Form 8-K dated December 5, 1996.
ERNST & YOUNG, LLP
Dallas, Texas
December 4, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-10317) pertaining to the 1995 Incentive Plan and Non-Employee
Directors' Incentive Plan of Patriot American Hospitality, Inc. (the "Company")
of our report dated October 15, 1996 with respect to the Statement of Direct
Revenue and Direct Operating Expenses of the Holiday Inn Miami Airport for the
year ended August 31, 1996 which is included in the Company's Current Report on
Form 8-K dated December 5, 1996.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
December 4, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-10317) pertaining to the 1995 Incentive Plan and Non-Employee
Directors' Incentive Plan of Patriot American Hospitality, Inc. (the "Company")
of our reports (a) dated March 1, 1996 with respect to the Financial Statements
of Historic Hotel Partners of Birmingham Limited Partnership for the year ended
December 31, 1995 and (b) dated October 23, 1996 with respect to the Financial
Statements of Historic Hotel Partners of Birmingham Limited Partnership for the
nine months ended September 29, 1996; both of which are included in the
Company's Current Report on Form 8-K dated December 5, 1996.
PANNELL KERR FORSTER PC
Alexandria, Virginia
December 4, 1996
