1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
_________________________
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 29, 1996
COMMISSION FILE NUMBER 0-26304
SUNSTONE HOTEL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
_________________________
MARYLAND 52-1891908
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
115 CALLE DE INDUSTRIAS, SUITE 201, SAN CLEMENTE, CA 92672
(Address of Principal Executive Offices) (Zip Code)
(714) 361-3900
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(former name or former address, if changed since last report)
The undersigned Registrant hereby amends the following items, the financial
statements, Pro Forma Financial information and Exhibits of their Form 8-K
dated October 29, 1996, as set forth in the pages attached hereto:
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2
Item 7 of the Current Report on Form 8-K dated October 29, 1996 filed
by Sunstone Hotel Investors, Inc. is hereby amended to read in its entirety as
follows:
Item 7. FINANCIAL STATEMENTS, PRO FORMA, FINANCIAL INFORMATION AND
EXHIBITS.
(a) Pro Forma Financial Information. (See Index to Financial
Statements (page F-1).
(b) Financial Statements of Business Acquired. See Index to
Financial Statements (page F-1).
(c) Exhibits
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Kemper CPA Group L.L.C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ Robert A. Alter, President
---------------------------------
Robert A. Alter, President
Date: January 7, 1997
3
SUNSTONE HOTEL INVESTORS, INC.
INDEX
Page
Sunstone Hotel Investors, Inc.
Proforma Consolidated Statement of Income for the Nine Months Ended
September 30, 1996 1
Proforma Consolidated Balance Sheet as of September 30, 1996 2
Proforma Consolidated Statement of Income for the Period from August
16, 1995 (Inception) to December 31, 1995 3
Sunstone Hotel Properties, Inc.
Unaudited Proforma Combined Statement of Operations for the Nine
Months Ended September 30, 1996 4
Unaudited Proforma Combined Statement of Operations for the Period
from August 16, 1995 (Inception) to December 31, 1995 5
Flagstaff Holiday Inn (a Division of Flagstaff Hotel Assets, Inc.)
Balance Sheets as of December 31, 1994, 1995 and June 30, 1996
(unaudited) 7
Statements of Income for the Years Ended December 31, 1994 and 1995
and for the Six Months Ended June 30, 1995 and 1996 (Unaudited) 8
Statements of Retained Earnings for the Years Ended December 31,
1994 and 1995 and for the Six Months Ended June 30, 1996
(Unaudited) 9
Statements of Cash Flows for the Years Ended December 31, 1994 and
1995 and for the Six Months Ended June 30, 1996 (Unaudited) 10
Notes to Financial Statements 11
Mesa Holiday Inn (a Division of Flagstaff Hotel Assets, Inc.)
Balance Sheets as of December 31, 1995 and June 30, 1996 (Unaudited) 16
Statements of Income for the Period from Inception, October 1, 1995,
Through December 31, 1995 and for the Six Months Ended June 30,
1995 and 1996 (Unaudited) 17
Statements of Retained Earnings for the Period from Inception, October
1, 1995, Through December 31, 1995 and for the Six Months Ended
June 30, 1996 (Unaudited) 18
Statements of Cash Flows for the Period From Inception October 1,
1995 Through December 31, 1995 and for the Six Months Ended
June 30, 1996 (Unaudited) 19
Notes to Financial Statements 20
Tucson Desert Assets, Inc.
Balance Sheets as of December 31, 1994, 1995 and June 30, 1996
(unaudited) 25
Statements of Income for the Years Ended December 31, 1994 and
1995 and for the Six Months Ended June 30, 1995 and 1996
(Unaudited) 26
Statements of Retained Earnings for the Years Ended December 31,
1994 and 1995 and for the Six Months Ended June 30, 1996
(Unaudited) 27
Statements of Cash Flows for the Years Ended December 31, 1994
and 1995 and for the Six Months Ended June 30, 1996 (Unaudited) 28
Notes to Financial Statements 29
Ventura Hospitality Partners, Inc.
Balance Sheets as of December 31, 1995 and July 31, 1996 34
Statements of Operations for the period from July 22, 1995 (inception)
to December 31, 1995 and for the seven months ended July 31, 1996 35
Statement of Partners' Equity for the period from inception to
July 31, 1996 36
Statements of Cash Flows for the period from July 22, 1995 (inception)
to December 31, 1995 and for the seven months ended July 31, 1996 37
Notes to Financial Statements 38
F-1
4
SUNSTONE HOTEL INVESTORS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
Sunstone Sunstone
Hotel Acquisition Pro Forma Hotel
Investors, Inc. Hotels Adjustments Investors, Inc.
------------------------------- ------------- ---------------
(Historical) (A) (Pro Forma)
Lease revenue $10,407,000 $ 4,652,756 $15,059,756
Interest income 141,000 141,000
----------- ----------- ----------- -----------
10,548,000 4,652,756 0 15,200,756
----------- ----------- ----------- -----------
Real estate related depreciation
and amortization 3,057,000 2,195,912 0 5,252,912
Interest expense and amortization
of financing costs 1,279,000 2,314,066 3,593,066
Real estate, personal property
taxes and insurance 757,000 317,148 0 1,074,148
General and administrative 457,000 457,000
----------- ----------- ----------- -----------
5,550,000 4,827,126 0 10,377,126
----------- ----------- ----------- -----------
Minority interest 829,000 (28,771)(B) 800,229
----------- ----------- ----------- -----------
Income before extraordinary item $ 4,169,000 $ (174,370) $ 28,771 $ 4,023,401
=========== =========== =========== ===========
Income before extraordinary item per share $ 0.59 $ 0.57
=========== ===========
Weighted average shares outstanding 7,078,063 7,078,063
=========== ===========
- ---------------
(A) Represents the results of operations from the acquisition of the three
hotels from Beck Summit Management Group, and the Radisson Suites
Hotel.
(B) Calculated as a percentage of income before minority interest. The
percentage is equal to the percentage of the Partnership owned by
parties other than the Company (16.5%).
1
5
SUNSTONE HOTEL INVESTORS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
Sunstone Sunstone
Hotel Acquisition Pro Forma Hotel
ASSETS: Investors, Inc. Hotels Adjustments Investors, Inc.
------------------------------- ------------- ---------------
(Historical) (Pro Forma)
Investment in hotel properties, net $ 104,301,000 $ 43,508,000 (A) $ $ 147,809,000
Mortgage notes receivable 2,850,000 2,850,000
Cash 2,022,000 (964,000)(A) 1,058,000
Rent receivable- Lessee 2,908,000 2,908,000
Prepaid expenses and other assets, net 1,266,000 1,266,000
------------- ------------- ------------- -------------
$ 113,347,000 $ 42,544,000 $ 155,891,000
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving line of credit $ 17,780,000 $ 18,281,000 (B) $ 36,061,000
Mortgage notes payable 3,003,000 16,837,000 (C) 19,840,000
Accounts payable and other accrued expenses 1,930,000 1,930,000
------------- ------------- ------------- -------------
22,713,000 35,118,000 57,831,000
------------- ------------- ------------- -------------
Minority interest 10,840,000 7,426,000 (D) (2,044,742)(E) 16,221,258
------------- ------------- ------------- -------------
Stockholders' equity:
Common stock, $.01 par value, 50,000,000
authorized; 10,923,500 issued and outstanding 109,000 $ 109,000
Preferred stock, $.01 par value, 10,000,000
authorized, no shares issued or outstanding
Additional paid-in capital 79,079,000 2,044,742 (E) 81,123,742
Retained earnings 606,000 606,000
------------- ------------- ------------- -------------
79,794,000 81,838,742
------------- ------------- ------------- -------------
$ 113,347,000 $ 42,544,000 $ $ 155,891,000
============= ============= ============= =============
- --------------------
(A) Reflects the purchase prices of three hotels from Beck Summit Hotel
Management Group, reported on Form 8-K dated October 29, 1996, filed on
November 12, 1996, ($27,727,000), and the purchase price of the
250-room Radisson Suites Hotel in Oxnard, California, on December 20,
1996, from affiliates of ING Barings and Westmont Hospitality
($15,781,000).
(B) Reflects the cash paid for the Oxnard Hotel property from a draw on the
Company's revolving line of credit, and $2.5 million drawn on line of
credit to finance acquisition of Beck Summit hotels.
(C) Reflects the assumption of debt on the acquisition of the three hotels
in October 1996.
(D) Reflects the issuance of 706,347 operating partnership units in
connection with the acquisition of the three hotels in October 1996.
(E) Reflects the reallocation between minority interest and shareholders'
equity to reflect the limited partners' interest in the partnership
(16.5%).
2
6
SUNSTONE HOTEL INVESTORS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM AUGUST 16, 1995 (INCEPTION)
TO DECEMBER 31, 1995
(Unaudited)
Sunstone Sunstone
Hotel Acquisition Pro Forma Hotel
Investors, Inc. Hotels Adjustments Investors, Inc.
------------------------------- ------------- ---------------
(Historical) (A) (Pro Forma)
Lease revenue $ 3,013,000 $ 2,056,244 $ 5,069,244
Interest income 47,000 47,000
----------- ----------- ----------- -----------
3,060,000 2,056,244 0 5,116,244
----------- ----------- ----------- -----------
Real estate related depreciation
and amortization 968,000 878,141 1,846,141
Interest expense and amortization
of financing costs 47,000 912,873 959,873
Real estate, personal property
taxes and insurance 312,000 242,335 554,335
General and administrative 109,000 109,000
----------- ----------- ----------- -----------
1,436,000 2,033,349 0 3,469,349
----------- ----------- ----------- -----------
Minority interest 284,000 (3,778)(B) 287,778
----------- ----------- ----------- -----------
Income before extraordinary item $ 1,908,000 $ 22,895 $ 3,778 $ 1,934,673
=========== =========== =========== ===========
Income before extraordinary item per share $ 0.30 $ 0.31
=========== ===========
Weighted average shares outstanding 6,322,000 6,322,000
=========== ===========
- ----------
(A) Represents the results of operations from the acquisition of the three
hotels from Beck Summit Management Group, and the Radisson Suites
Hotel.
(B) Calculated as a percentage of income before minority interest. The
percentage is equal to the percentage of the Partnership owned by
parties other than the Company (16.5%).
3
7
SUNSTONE HOTEL PROPERTIES, INC.
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS SEPTEMBER 30, 1996
Sunstone Hotel Acquisition Pro Forma Sunstone Hotel
Properties, Inc. Hotels Adjustments Properties, Inc.
---------------- ----------- ----------- ----------------
(Historical) (A) (Pro Forma)
Room $23,717,000 $ 9,993,188 $33,710,188
Food and beverage 1,503,000 2,013,052 3,516,052
Other 1,242,000 360,328 1,602,328
-----------------------------------------------------------------------
26,462,000 12,366,568 38,828,568
-----------------------------------------------------------------------
Room 5,741,000 2,193,510 7,934,510
Food and beverage 1,297,000 1,644,028 2,941,028
General and administrative 1,983,000 1,059,521 3,042,521
Management fee 529,000 494,663 (247,331)(B) 776,331
Franchise costs 863,000 863,000
Advertising and promotion 2,436,000 781,067 3,217,067
Utilities 1,279,000 790,376 2,069,376
Repairs and maintenance 1,151,000 541,992 1,692,992
Other 773,000 594,293 (317,148)(C) 1,050,145
Rent expense 10,407,000 4,652,756 (D) 15,059,756
Amortization and depreciation 819,569 (819,569)(E)
Interest -- 1,747,360 (1,747,360)(F)
-----------------------------------------------------------------------
Total expenses 26,459,000 10,666,379 1,521,348 38,646,727
-----------------------------------------------------------------------
Net income $ 3,000 $ 1,700,189 $(1,521,348) $ 181,841
=======================================================================
- ----------
(A) Represents the results of operations from the acquisition of the three
hotels from Beck Summit Management Group, and the Radisson Suites
Hotel.
(B) Represents the adjustment to reflect management fees of 2% of total
revenues for the Acquisition Hotels.
(C) Represents the elimination of insurance and tax expense which would be
a pro forma cost incurred by the Company.
(D) Represents rent expense calculated on a pro forma basis by applying the
rent provisions of the Percentage Leases to the historical revenues of
the Acquisition Hotels.
(E) Represents the elimination of depreciation expense which would be a pro
forma cost incurred by the Company.
(F) Represents the elimination of interest expense which would be a pro
forma cost incurred by the Company.
4
8
SUNSTONE HOTEL PROPERTIES, INC.
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS
For the Period from August 16, 1995 (Inception) to December 31, 1995
Sunstone Hotel Acquisition Pro Forma Sunstone Hotel
Properties, Inc. Hotels Adjustments Properties, Inc.
---------------- ----------- ----------- ----------------
(Historical) (A) (Pro Forma)
Room $6,786,000 $4,431,554 $ $11,217,554
Food and beverage 232,000 1,182,616 1,414,616
Other 318,000 233,851 551,851
---------- ---------- ------------ -----------
7,336,000 5,848,021 13,184,021
---------- ---------- ------------ -----------
Room 1,697,000 1,045,039 2,742,039
Food and beverage 242,000 891,455 1,133,455
General and administrative 461,000 627,171 1,088,171
Management fee 132,000 205,226 (88,266)(B) 248,960
Franchise costs 192,000 192,000
Advertising and promotion 638,000 386,762 1,024,762
Utilities 294,000 366,434 660,434
Repairs and maintenance 316,000 249,804 565,804
Other 193,000 330,048 (242,335)(C) 280,713
Rent expense 3,190,000 2,056,244 (D) 5,246,244
Amortization and depreciation 517,239 (517,239)(E)
Interest 811,813 (811,813)(F)
---------- ---------- ------------ -----------
Total expenses 7,355,000 5,430,991 396,591 13,182,582
---------- ---------- ------------ -----------
Net income (loss) ($19,000) $417,030 ($396,591) $ 1,439
========== ========== ============ ===========
- ----------
(A) Represents the results of operations from the acquisition of the three
hotels from Beck Summit Management Group, and the Radisson Suites
Hotel.
(B) Represents the adjustment to reflect management fees of 2% of total
revenues for the Acquisition Hotels.
(C) Represents the elimination of insurance and tax expense which would be
a pro forma cost incurred by the Company.
(D) Represents rent expense calculated on a pro forma basis by applying the
rent provisions of the Percentage Leases to the historical revenues of
the Acquisition Hotels.
(E) Represents the elimination of depreciation expense which would be a pro
forma cost incurred by the Company.
(F) Represents the elimination of interest expense which would be a pro
forma cost incurred by the Company.
5
9
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Flagstaff Holiday Inn
(a Division of Flagstaff Hotel Assets, Inc.)
We have audited the accompanying balance sheets of Flagstaff Holiday Inn (a
division of Flagstaff Hotel Assets, Inc.) as of December 31, 1994 and 1995 and
the related statements of income, retained earnings, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company'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 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 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 Flagstaff Holiday Inn (a
division of Flagstaff Hotel Assets, Inc.) as of December 31, 1994 and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Kemper CPA Group L.L.C.
January 26, 1996
Lawrenceville, Illinois
6
10
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
BALANCE SHEETS
ASSETS
December 31,
----------- June 30, 1996
1994 1995 (Unaudited)
----------- ----------- -----------
CURRENT ASSETS:
Cash $ 49,263 $ 145,399 $ 152,588
Accounts receivable 52,106 42,822 97,530
Other receivables 8,145 -0- -0-
Food and beverage inventory 4,375 3,982 4,531
Prepaid expenses 23,124 25,704 11,213
----------- ----------- -----------
Total Current Assets 137,013 217,907 265,862
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements 1,146,977 1,146,977 1,148,153
Buildings 4,499,189 4,499,189 4,499,189
Furniture and equipment 1,195,033 1,232,432 1,422,396
----------- ----------- -----------
6,841,199 6,878,598 7,069,738
Less: Accumulated depreciation 782,036 1,016,558 1,133,819
----------- ----------- -----------
Total Property and Equipment 6,059,163 5,862,040 5,935,919
----------- ----------- -----------
OTHER ASSETS:
Loan costs - net 89,707 66,803 55,351
Franchise fees - net 9,750 8,250 7,500
Advances to affiliate 30,000 57,985 -0-
Restricted cash 13,140 13,461 13,637
----------- ----------- -----------
Total Other Assets 142,597 146,499 76,488
----------- ----------- -----------
TOTAL ASSETS $6,338,773 $6,226,446 $6,278,269
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 37,763 $ 26,537 $ 109,093
Taxes payable and accrued 74,418 11,635 98,031
Accrued expenses 3,795 115,999 9,364
Current maturities of long-term debt 367,844 218,707 232,098
----------- ----------- -----------
Total Current Liabilities 483,820 372,878 448,586
----------- ----------- -----------
LONG-TERM DEBT - Less Current Maturities 5,451,998 5,244,969 5,099,129
----------- ----------- -----------
OTHER LIABILITIES:
Advances from affiliate 135,000 52,532 177,425
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value; 1,000 shares
authorized, issued and outstanding 1,000 1,000 1,000
Retained earnings (deficit) 266,955 555,067 552,129
----------- ----------- -----------
Total Stockholders' Equity 267,955 556,067 553,129
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,338,773 $6,226,446 $6,278,269
=========== =========== ===========
The accompanying notes are an integral part of this statement.
7
11
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
STATEMENTS OF INCOME
Six Months Ended June 30,
Years Ended December 31, ----------------------------
------------------------ 1995 1996
1994 1995 (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
REVENUE:
Rooms $2,399,035 $2,328,413 $1,053,610 $ 947,798
Food 267,272 234,725 111,060 103,601
Beverage 72,612 58,580 28,205 25,883
Telephone 66,721 56,654 32,426 18,959
Other income - net 14,903 16,786 5,911 13,131
----------- ----------- ----------- -----------
Total Revenue 2,820,543 2,695,158 1,231,212 1,109,372
----------- ----------- ----------- -----------
COST AND OPERATING EXPENSES:
Rooms 513,610 462,942 220,772 202,641
Food 192,734 177,771 82,702 82,761
Beverage 32,817 30,867 15,411 15,273
Telephone 48,726 43,357 20,590 15,586
Administrative and general 382,311 384,627 166,339 155,307
Marketing 81,491 87,606 36,515 34,230
Utilities 187,488 176,324 87,532 79,229
Maintenance and repairs 97,017 90,768 46,614 44,145
Property taxes 132,987 142,036 84,378 89,941
----------- ----------- ----------- -----------
Total Costs and Operating Expenses 1,669,181 1,596,298 760,853 719,113
----------- ----------- ----------- -----------
OPERATING INCOME 1,151,362 1,098,860 470,359 390,259
----------- ----------- ----------- -----------
CAPITAL EXPENSES:
Amortization 24,404 24,404 12,202 12,202
Depreciation 231,356 234,522 115,679 117,261
Interest 591,618 551,822 279,774 263,734
Abandoned sale costs 13,251 -0- -0- -0-
----------- ----------- ----------- -----------
Total Capital Expenses 860,629 810,748 407,655 393,197
----------- ----------- ----------- -----------
NET INCOME $ 290,733 $ 288,112 $ 62,704 $ (2,938)
=========== =========== =========== ===========
The accompanying notes are an integral part of this statement.
8
12
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
STATEMENTS OF RETAINED EARNINGS
Balance, January 1, 1994 $ (23,778)
Net income for the year ended December 31, 1994 290,733
-----------
Balance, December 31, 1994 266,955
Net income for the year ended December 31, 1995 288,112
-----------
Balance, December 31, 1995 555,067
Net income for the six months ended June 30, 1996 (unaudited) (2,938)
-----------
Balance, June 30, 1996 (unaudited) $ 552,129
===========
The accompanying notes are an integral part of this statement.
9
13
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
Years Ended December 31, ----------------------------
---------------------------- 1995 1996
1994 1995 (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Cash flows from operating activities:
Cash received from customers $ 2,846,718 $ 2,745,995 $1,227,460 $1,052,765
Interest and dividends received 1,701 3,822 623 1,899
Cash paid to suppliers and employees (1,730,048) (1,642,971) (718,097) (597,403)
Interest paid (591,618) (506,371) (279,774) (309,185)
----------- ----------- ---------- ----------
Net cash provided (used) by operating activities 526,753 600,475 230,212 148,076
----------- ----------- ---------- ----------
Cash flows from investing activities:
Cash payments for the purchase of property (162,865) (37,399) (1,838) (191,140)
Additions to restricted cash -0- (321) (129) (176)
Proceeds from restricted assets 36,860 -0- -0- -0-
Advances from affiliated company 190,737 242,257 219,460 -0-
Advances to affiliated company (193,924) (352,710) (135,000) 182,878
----------- ----------- ---------- ----------
Net cash provided (used) by investing activities (129,192) (148,173) 82,493 (8,438)
----------- ----------- ---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (355,158) (356,166) (266,014) (132,449)
Cash payment of loan costs (14,283) -0- -0- -0-
----------- ----------- ---------- ----------
Net cash provided (used) by financing activities (369,441) (356,166) (266,014) (132,449)
----------- ----------- ---------- ----------
Net increase (decrease) in cash and equivalents 28,120 96,136 46,691 7,189
Cash, beginning of year 21,143 49,263 49,263 145,399
----------- ----------- ---------- ----------
Cash, end of year $ 49,263 $ 145,399 95,954 $ 152,588
=========== =========== ========== ==========
Reconciliation of net income to net cash
provided by operating activities:
Net Income $ 290,733 $ 288,112 $ 62,704 $ (2,938)
----------- ----------- ---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 255,760 258,926 127,881 129,463
(Increase) decrease in accounts receivable (17,549) 17,429 (3,129) (54,708)
(Increase) decrease in other receivable (8,145) -0- -0- -0-
(Increase) decrease in prepaid expenses (5,981) (2,580) 11,356 14,491
(Increase) decrease in inventories 1,947 393 (1,173) (549)
Increase (decrease) in accounts payable 4,087 (11,226) 7,637 82,556
Increase (decrease) in accrued liabilities 5,901 49,421 24,936 (20,239)
----------- ----------- ---------- ----------
Total adjustments 236,020 312,363 167,508 151,014
----------- ----------- ---------- ----------
Net cash provided (used) by operating activities $ 526,753 $ 600,475 $ 230,212 $ 148,076
=========== =========== ========== ==========
Noncash investing and financing activities:
None
The accompanying notes are an integral part of this statement.
10
14
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying unaudited financial statements for the six month periods
ending June 30, 1995 and 1996 and as of June 30, 1996, have been prepared in
accordance with the requirements for presentation of interim financial
statements and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations,
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, all adjustments consisting only of normal recurring
adjustments that are necessary for a fair presentation for interim periods
presented have been reflected.
Organization
Flagstaff Holiday Inn is a division of Flagstaff Hotel Assets, Inc. The
accompanying financial statements present only the financial position, results
of operations and cash flows of Flagstaff Holiday Inn.
Cash
For purposes of the cash flow statement the Company considers all unrestricted
checking and money market accounts to be cash.
Accounts Receivable - Recognition of Bad Debts
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
Inventory
Inventory of food and beverages for resale is stated at cost.
Property and Equipment
Property and equipment are recorded at cost. All property and equipment is
depreciated using the straight-line method over the following estimated useful
lives:
Years
-----
Buildings 40
Land improvements 15
Furniture and equipment 10
11
15
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Amortization
Costs incurred in obtaining long-term financing are amortized over the life of
the loan. Franchise fees are amortized on the straight-line method over the
term of the franchise.
Income Taxes
The Company, with the consent of its shareholders, has elected to have its
income taxed under Section 1372 of the Internal Revenue Code, which provides
that in lieu of corporation income taxes, the shareholders are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision
or liability for federal income taxes is reflected in these financial
statements.
Restricted Cash
Under terms of the loan agreement, funds are to be set aside in a reserve
account. Withdrawals from this account are only permitted for capital
expenditures.
NOTE 2. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31, June 30,
------------ 1996
1994 1995 (Unaudited)
---- ---- -----------
Mortgage payable to Finova Capital
Corporation dated December 28, 1993.
Interest at fixed rate of 9.67%.
Interest and principal payable monthly
based on 180 month amortization. All
unpaid interest and principal due
January 1, 1999. Collateralized by all
property of the Flagstaff Holiday Inn. $5,819,842 $5,463,676 $5,331,227
========== ========== ==========
At December 31, 1995, scheduled maturities of long-term debt are as follows:
1997 $ 218,707
1998 240,819
1999 265,166
2000 4,738,984
2001 -0-
12
16
FLAGSTAFF HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. LONG-TERM DEBT, CONTINUED
The provisions of the loan agreement contain various covenants pertaining to
maintenance of cash balances, dividends, and limitations on management fees.
The Company is in compliance with these covenants.
NOTE 3. RELATED PARTY TRANSACTIONS
Advances to Affiliate
Flagstaff Holiday Inn has advanced monies to Mesa Holiday Inn (a division of
Flagstaff Hotel Assets, Inc.). The balance of these advances is $30,000,
$57,985 and $-0- at December 31, 1994 and 1995, and June 30, 1996 (unaudited),
respectively. There are no payment terms, interest or due dates on these
advances. These advances will be repaid as funds become available.
Mortgages
Tucson Desert Assets, Inc. and Flagstaff Hotel Assets, Inc. are jointly and
severally liable to Greyhound Financial Corporation for the mortgage described
in Note 2. The total amount of the mortgage was $8,953,603, $8,405,655, and
$8,201,887 at December 31, 1994 and 1995, and June 30, 1996 (unaudited),
respectively.
Tucson Desert Assets, Inc. and Flagstaff Hotel Assets, Inc. are jointly and
severally liable to Finova Capital Corporation for a mortgage on motel property
in Mesa, Arizona. The total amount of the mortgage was $-0-, $8,956,190, and
$8,797,032 at December 31, 1994 and 1995, and June 30, 1996 (unaudited),
respectively.
Advances from Affiliate
Flagstaff Holiday Inn has received monies from Tucson Desert Assets, Inc. (a
corporation wholly owned by the shareholders of Flagstaff Hotel Assets, Inc.).
The balance of these advances are $135,000, $52,532, and $177,425 at December
31, 1994 and 1995, and June 30, 1996, (unaudited), respectively. There are no
payment terms, interest or due dates on these advances. These advances will be
repaid as funds become available.
Management Fees
Fees are paid to Summit Hotel Management Co., Inc. (a corporation 100%-owned by
the shareholders owning 80% of Flagstaff Hotel Assets, Inc.) for management and
accounting services rendered. The total expense for these services was
$87,650, $84,388, and $32,311 at December 31, 1994 and 1995, and June 30, 1996
(unaudited), respectively.
13
17
FLAGSTAFF HOLIDAY INN
NOTES TO FINANCIAL STATEMENTS
NOTE 4. CREDIT RISK AND UNCERTAINTIES
Nature of Operations
Flagstaff Holiday Inn operates a motel in Flagstaff, Arizona. The Inn
primarily provides rental rooms, restaurant, and bar facilities.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
The Company maintains cash balances at several banks. Accounts at each bank
are insured by the Federal Deposit Insurance Corporation up to $100,000. Bank
balances were fully covered by depository insurance at December 31, 1994 and
1995, and June 30, 1996 (unaudited).
The Company maintains cash balances in money market funds. Such balances are
not insured.
Accounts Receivable
The Company regularly extends credit to visitors and customers located in the
Flagstaff, Arizona area.
NOTE 5. ABANDONED SALES COST
The Company incurred $13,251 of costs in conjunction with a potential sale of
the property during 1994. The sale was not consummated and these costs were
charged to expense.
14
18
INDEPENDENT AUDITOR'S REPORT
To the Owners
Mesa Holiday Inn
(a Division of Flagstaff Hotel Assets, Inc.)
We have audited the accompanying balance sheet of Mesa Holiday Inn (a division
of Flagstaff Hotel Assets, Inc.) as of December 31, 1995, and the related
statements of income, retained deficit, and cash flows for the short year
beginning October 1, 1995 and ending December 31, 1995. These financial
statements are the responsibility of the Company'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 Mesa Holiday Inn (a division
of Flagstaff Hotel Assets, Inc.) as of December 31, 1995, and the results of
its operations and its cash flows for the short year beginning October 1, 1995
and ending December 31, 1995 in conformity with generally accepted accounting
principles.
Kemper CPA Group L.L.C.
February 2, 1996
Lawrenceville, Illinois
15
19
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
BALANCE SHEET
ASSETS
Three Months Six Months
Ended Ended
December 31, June 30, 1996
1995 (Unaudited)
----------- -----------
CURRENT ASSETS:
Cash $ 65,819 $ 9,030
Accounts receivable 92,214 95,157
Inventory 14,446 17,448
Prepaid expenses 35,565 13,896
----------- -----------
Total Current Assets 208,044 135,531
----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements 1,768,927 1,799,345
Buildings 7,191,571 7,245,402
Furniture and equipment 3,751,866 3,919,690
----------- -----------
12,712,364 12,964,437
Less: Accumulated depreciation (5,144,991) (5,347,295)
----------- -----------
Total Property and Equipment 7,567,373 7,617,142
----------- -----------
OTHER ASSETS:
Loan costs - net 152,587 143,723
Franchise fees - net 25,746 24,192
Restricted cash 169,333 20,376
Deposits 8,000 8,000
----------- -----------
Total Other Assets 355,666 196,291
----------- -----------
TOTAL ASSETS $ 8,131,083 $ 7,948,964
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 247,458 $ 174,501
Bank overdraft -0- 43,496
Taxes withheld and accrued 34,679 12,205
Accrued expenses 150,828 81,557
Current maturities of long-term debt 278,610 295,189
----------- -----------
Total Current Liabilities 711,575 606,948
----------- -----------
LONG-TERM DEBT - Less Current Maturities 8,677,580 8,501,843
----------- -----------
ADVANCES FROM AFFILIATE 741,305 150,000
----------- -----------
RETAINED DEFICIT (1,999,377) (1,309,827)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,131,083 $ 7,948,964
=========== ===========
The accompanying notes are an integral part of this statement.
16
20
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
STATEMENTS OF INCOME
Six Months Ended
Three Months June 30,
Ended ----------------------------
December 31, 1995 1996
1995 (Unaudited) (Unaudited)
------------ ----------- -----------
REVENUE:
Rooms $ 850,935 $2,400,820 $2,532,280
Restaurant 210,190 416,138 378,554
Bar 131,937 248,672 249,154
Telephone 37,486 78,715 98,641
Other income - net 20,544 53,727 51,552
---------- ---------- ----------
Total Revenue 1,251,092 3,198,072 3,310,181
---------- ---------- ----------
COST AND OPERATING EXPENSES:
Rooms 214,880 441,983 477,170
Restaurant 168,174 340,041 306,312
Bar 85,898 158,787 175,901
Telephone 21,278 34,779 47,421
Administrative and general 181,265 350,148 456,081
Marketing 44,695 97,375 111,490
Utilities 72,657 151,820 168,031
Maintenance and repairs 66,596 106,457 130,694
Property taxes 40,683 79,515 81,367
---------- ---------- ----------
Total Costs and Operating Expenses 896,126 1,760,905 1,954,467
---------- ---------- ----------
OPERATING INCOME 354,966 1,437,167 1,355,714
---------- ---------- ----------
CAPITAL EXPENSES:
Amortization 13,671 9,534 16,419
Depreciation 86,676 143,630 202,304
Interest 233,190 452,542 447,442
---------- ---------- ----------
Total Capital Expenses 333,537 605,706 666,165
---------- ---------- ----------
NET INCOME $ 21,429 $ 831,461 $ 689,549
========== ========== ==========
The accompanying notes are an integral part of this statement.
17
21
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
STATEMENTS OF RETAINED DEFICIT
Balance, October 1, 1995 $(2,020,806)
Net income for the three months ended December 31, 1995 21,429
-----------
Balance, December 31, 1995 (1,999,377)
Net income for the six months ended June 30, 1996 (unaudited) 689,549
-----------
Balance, June 30, 1996 (unaudited) $(1,309,827)
===========
The accompanying notes are an integral part of this statement.
18
22
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
STATEMENTS OF CASH FLOWS
Three Months Six Months Ended
Ended June 30,
December 31, 1995 1996
1995 (Unaudited) (Unaudited)
---- ----------- -----------
Cash flows from operating activities:
Cash received from customers $ 1,205,273 $ 3,209,439 $ 3,306,195
Interest and dividends received 1,333 -0- 1,043
Cash paid to suppliers and employees (816,187) (1,766,468) (1,986,312)
Interest paid (156,495) (988,775) (524,137)
-------- -------- --------
Net cash provided (used) by operating activities 233,924 454,196 796,789
------- ------- -------
Cash flows from investing activities:
Cash payments for the purchase of property (163,419) (539,747) (252,073)
Additions to restricted cash 38,667 148,694 148,957
Advances from affiliate company 7,985 -0- -0-
Advances to affiliate company -0- -0- (591,305)
--- --- --------
Net cash provided (used) by investing activities (116,767) (391,053) (694,421)
-------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt (43,810) -0- (159,157)
Cash payment of loan costs (16,658) -0- -0-
------- --- ---
Net cash provided (used) by financing activities (60,468) -0- (159,157)
------- --- --------
Net increase (decrease) in cash and equivalents 56,689 63,143 (56,789)
Cash, beginning of year 9,130 9,130 65,819
----- ----- ------
Cash, end of period $ 65,819 $ 72,273 $ 9,030
====== ====== =====
Reconciliation of net income to net cash provided
by operating activities:
Net Income $ 21,429 $ 831,461 $ 689,549
------ ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 100,349 153,164 212,722
(Increase) decrease in accounts receivable (5,000) 11,367 (2,942)
(Increase) decrease in prepaid expenses (47,653) 51,409 21,669
(Increase) decrease in inventories 13,877 5,164 (3,002)
Increase (decrease) in accounts payable 2,167 (21,189) (72,957)
Increase (decrease) in bank overdraft 114,518 -0- 43,496
Increase (decrease) in accrued liabilities 34,237 (577,180) (91,746)
------ -------- -------
Total adjustments 212,495 (377,265) 107,240
------- -------- -------
Net cash provided (used) by operating activities $ 233,924 $ 454,196 $ 796,789
======= ======= =======
Noncash investing and financing activities:
None
The accompanying notes are an integral part of this statement.
19
23
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying unaudited financial statements for the six month periods ending
June 30, 1996 and 1995 and as of June 30, 1996, have been prepared in accordance
with the requirements for presentation of interim financial statements and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments consisting only of normal recurring adjustments that
are necessary for a fair presentation for interim periods presented have been
reflected.
Organization
Mesa Holiday Inn was a division of Flagstaff Hotel Assets, Inc. at June 30, 1996
(unaudited) and December 31, 1995 and a division of T C Properties, Ltd. at June
30, 1995 (unaudited) (See Note 5). The accompanying financial statements present
only the financial position, results of operations and cash flows of Mesa
Holiday Inn.
Cash
For purposes of the cash flow statement the Company considers all unrestricted
checking and money market accounts to be cash.
Accounts Receivable - Recognition of Bad Debts
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become uncollectible,
they will be charged to operations when that determination is made.
Inventory
Inventory of food and beverages purchased for resale is stated at cost.
Property and Equipment
All property and equipment is depreciated using the straight-line method over
the following estimated useful lives:
Years
-----
Buildings 20 - 40
Land improvements 15
Furniture and equipment 10
20
24
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Amortization
Costs incurred in obtaining long-term financing are amortized over the life of
the loan. Franchise fees are amortized on the straight-line method over the term
of the franchise.
Income Taxes
The Company, with the consent of its shareholders, has elected to have its
income taxed under Section 1372 of the Internal Revenue Code, which provides
that in lieu of corporation income taxes, the shareholders are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes is reflected in these financial statements.
Restricted Cash
Under terms of the loan agreement, funds are to be set aside in a reserve
account. Withdrawals from this account are only permitted for capital
expenditures.
NOTE 2. LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
December 31, 1996
1995 (Unaudited)
----------- -----------
Mortgage payable to Finova Capital
Corporation dated September 26, 1995.
Interest at fixed rate of 9.95%. Interest and
principal payable monthly based on 180 month
amortization. All unpaid interest and
principal due January 1, 1999. Collateralized
by all property of the Mesa Holiday Inn. $ 8,956,190 $ 8,797,032
=========== ===========
At December 31, 1995, maturities of long-term debt are as follows:
1996 $ 278,610
1997 307,631
1998 339,676
1999 8,030,273
2000 -0-
The provisions of the loan agreement contain various covenants pertaining to
maintenance of cash balances, dividends, and limitations on management fees.
The Company is in compliance with these covenants.
21
25
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 3. RELATED PARTY TRANSACTIONS
Advances from Affiliate
Mesa Holiday Inn has received monies from Triple T of Pennsylvania, Inc. (a
corporation wholly owned by the shareholders owning 80% of Flagstaff Hotel
Assets, Inc.). The balance of these advances at June 30, 1996 (unaudited) and
December 31, 1995 was $150,000 and $683,320, respectively. There are no payment
terms, interest or due dates on these advances. These advances will be repaid as
funds become available.
Mesa Holiday has received monies from Flagstaff Holiday Inn (a division of
Flagstaff Hotel Assets, Inc.). The balance of these advances at June 30, 1996
(unaudited) and December 31, 1995 is $-0- and $57,985, respectively. There are
no payment terms, interest or due dates on these advances. These advances will
be repaid as funds become available.
Management Fees
Fees are paid to Summit Hotel Management Co., Inc. (a corporation 80%-owned by
the shareholders owning 80% of Flagstaff Hotel Assets, Inc.) for management
services rendered during the year. For the six months ended June 30, 1996 and
1995 (unaudited) and the three months ended December 31, 1995, respectively, the
total expense for this services was $94,942, $-0-, and $35,792. At June 30, 1996
and 1995 (unaudited) and December 31, 1995, respectively, Mesa Holiday Inn owed
Summit Hotel Management Co., Inc. $7,829, $-0- and $10,110.
NOTE 4. CREDIT RISK AND UNCERTAINTIES
Nature of Operations
Mesa Holiday Inn operates a motel in Mesa, Arizona. The Inn primarily provides
rental rooms, restaurant, and bar facilities.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
22
26
MESA HOLIDAY INN
(a Division of Flagstaff Hotel Assets, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 4. CREDIT RISK AND UNCERTAINTIES, CONTINUED
Cash
The Company maintains cash balances at several banks. Accounts at each bank are
insured by the Federal Deposit Insurance Corporation up to $100,000. Bank
balances were fully covered by depository insurance at December 31, 1995 and
June 30, 1996 (unaudited).
The Company maintains cash balances in money market funds. Such balances are not
insured.
Accounts Receivable
The Company regularly extends credit to visitors and customers located in the
Mesa, Arizona area.
NOTE 5. DEBT RESTRUCTURING
On September 26, 1995 Flagstaff Hotel Assets, Inc. acquired Mesa Holiday Inn
from T C Properties, Ltd. (a related party) as part of a debt restructuring
agreement with Wells Fargo Bank, National Association. Wells Fargo Bank agreed
to accept $2,500,000 less in principal and $786,324 less in unpaid interest than
the full amount of monies owed the bank. Finova Capital Corporation agreed to
loan the necessary monies required by Wells Fargo Bank. As part of the agreement
Finova Capital Corporation required the ownership of Mesa Holiday Inn be
transferred to Flagstaff Hotel Assets, Inc.
23
27
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Tucson Desert Assets, Inc.
We have audited the accompanying balance sheets of Tucson Desert Assets, Inc. as
of December 31, 1994 and 1995 and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company'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 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 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 Tucson Desert Assets, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Kemper CPA Group L.L.C.
January 26, 1996
Lawrenceville, Illinois
24
28
TUCSON DESERT ASSETS, INC.
BALANCE SHEETS
ASSETS
December 31, June 30, 1996
1994 1995 (Unaudited)
---- ---- -----------
CURRENT ASSETS:
Cash $ 19,026 $ 94,731 $ 149,513
Accounts receivable 36,577 76,651 46,594
Other receivables 5,213 -0- -0-
Prepaid expenses 13,559 14,928 750
----------- ----------- -----------
Total Current Assets 74,375 186,310 196,857
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Land 500,000 500,000 500,000
Buildings 2,271,060 2,271,060 2,271,060
Furniture and equipment 913,271 1,042,337 1,070,527
----------- ----------- -----------
3,684,331 3,813,397 3,841,587
Less: Accumulated depreciation 564,378 720,510 801,015
----------- ----------- -----------
Total Property and Equipment 3,119,953 3,092,887 3,040,572
----------- ----------- -----------
OTHER ASSETS:
Loan costs - net 42,344 31,533 26,127
Franchise fees - net 28,575 26,194 25,003
Restricted cash 17,729 18,163 18,399
Advances to affiliate -0- 52,532 177,425
----------- ----------- -----------
Total Other Assets 88,648 128,422 246,954
----------- ----------- -----------
TOTAL ASSETS $ 3,282,976 $ 3,407,619 $ 3,484,383
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 26,254 $ 26,104 $ 23,227
Taxes payable and accrued 57,422 71,348 70,500
Accrued expenses 8,984 34,968 10,811
Current maturities of long-term debt 198,070 117,765 124,975
----------- ----------- -----------
Total Current Liabilities 290,730 250,185 229,513
----------- ----------- -----------
LONG-TERM DEBT - Less Current Maturities 2,935,691 2,824,214 2,745,685
----------- ----------- -----------
OTHER LIABILITIES:
Advances from affiliate 30,000 -0- -0-
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - no par value; 1,000 shares
authorized, issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 44,000 44,000 44,000
Retained earnings (deficit) (18,445) 288,220 464,185
----------- ----------- -----------
Total Stockholders' Equity 26,555 333,220 509,185
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,282,976 $ 3,407,619 $ 3,484,383
=========== =========== ===========
The accompanying notes are an integral part of this statement.
25
29
TUCSON DESERT ASSETS, INC.
STATEMENTS OF INCOME
Six Months Ended June 30,
-------------------------
Years Ended December 31, 1995 1996
------------------------
1994 1995 (Unaudited) (Unaudited)
---- ---- ----------- -----------
REVENUE:
Rooms $1,705,180 $1,908,045 $1,143,025 $1,234,608
Telephone 31,517 45,761 24,822 23,633
Other income - net 18,800 26,037 11,119 8,621
---------- ---------- ---------- ----------
Total Revenue 1,755,497 1,979,843 1,178,966 1,266,862
---------- ---------- ---------- ----------
COST AND OPERATING EXPENSES:
Rooms 404,633 421,560 215,554 230,533
Telephone 28,548 26,217 13,088 14,875
Administrative and general 259,686 305,157 166,684 175,094
Marketing 144,582 152,275 82,445 92,247
Utilities 124,995 126,622 57,732 61,305
Maintenance and repairs 73,304 66,491 33,848 33,163
Property taxes 93,010 108,396 47,718 54,569
---------- ---------- ---------- ----------
Total Costs and Operating Expenses 1,128,758 1,206,718 617,069 661,786
---------- ---------- ---------- ----------
OPERATING INCOME 626,739 773,125 561,897 605,076
---------- ---------- ---------- ----------
CAPITAL EXPENSES:
Amortization 13,300 13,193 6,596 6,596
Depreciation 146,181 156,132 75,000 80,505
Interest 318,563 297,135 203,148 142,010
Abandoned sale costs 9,622 -0- -0- -0-
---------- ---------- ---------- ----------
Total Capital Expenses 487,666 466,460 284,744 229,111
---------- ---------- ---------- ----------
NET INCOME $ 139,073 $ 306,665 $ 277,153 $ 375,965
========== ========== ========== ==========
The accompanying notes are an integral part of this statement.
26
30
TUCSON DESERT ASSETS, INC.
STATEMENTS OF RETAINED EARNINGS
Balance, January 1, 1994 $(157,518)
Net income for the year ended December 31, 1994 139,073
-------
Balance, December 31, 1994 (18,445)
Net income for the year ended December 31, 1995 306,665
-------
Balance, December 31, 1995 288,220
Net income for the six months ended June 30, 1996 (unaudited) 375,965
Dividends paid (unaudited) (200,000)
--------
Balance, June 30, 1996 (unaudited) $ 464,185
=========
The accompanying notes are an integral part of this statement.
27
31
TUCSON DESERT ASSETS, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-------------------------
Years Ended December 31, 1995 1996
------------------------
1994 1995 (Unaudited) (Unaudited)
---- ---- ----------- -----------
Cash flows from operating activities:
Cash received from customers $ 1,747,014 $ 1,948,492 $ 1,144,808 $ 1,292,914
Interest and dividends received 808 3,706 3,098 4,005
Cash paid to suppliers and employees (1,141,095) (1,200,018) (606,691) (651,016)
Interest paid (318,563) (272,661) (203,148) (166,484)
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities 288,164 479,519 338,067 479,419
----------- ----------- ----------- -----------
Cash flows from investing activities:
Advances to affiliate (190,737) (242,257) (189,757) (124,893)
Advances from affiliate 193,924 159,725 22,796 -0-
Cash payments for the purchase of property (69,242) (129,066) (42,067) (28,190)
Additions to restricted cash (17,729) (434) (175) (236)
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities (83,784) (212,032) (209,203) (153,319)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (191,239) (191,782) (143,237) (71,318)
Cash payment of loan costs (6,430) -0- -0- -0-
Dividends -0- -0- -0- (200,000)
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities (197,669) (191,782) (143,237) (271,318)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and equivalents 6,711 75,705 (14,373) 54,782
Cash, beginning of year 12,315 19,026 19,026 94,731
----------- ----------- ----------- -----------
Cash, end of year $ 19,026 $ 94,731 $ 4,653 $ 149,513
=========== =========== =========== ===========
Reconciliation of net income to net cash provided
by operating activities:
Net Income $ 139,073 $ 306,665 $ 277,153 $ 375,965
----------- ----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 159,481 169,325 81,596 87,101
(Increase) decrease in accounts receivable (6,323) (34,861) (31,060) 30,057
(Increase) decrease in other receivable (5,213) -0- -0- -0-
(Increase) decrease in prepaid expenses 1,168 (1,369) 12,095 14,178
Increase (decrease) in accounts payable (1,679) (150) (4,661) (2,877)
Increase (decrease) in accrued liabilities 1,657 39,909 2,944 (25,005)
----------- ----------- ----------- -----------
Total adjustments 149,091 172,854 60,914 103,454
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities $ 288,164 $ 479,519 $ 338,067 $ 479,419
=========== =========== =========== ===========
Noncash investing and financing activities:
None
The accompanying notes are an integral part of this statement.
28
32
TUCSON DESERT ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying unaudited financial statements for the six month periods ending
June 30, 1995 and 1996 and as of June 30, 1996, have been prepared in accordance
with the requirements for presentation of interim financial statements and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments consisting only of normal recurring adjustments that
are necessary for a fair presentation for interim periods presented have been
reflected.
Cash
For purposes of the cash flow statement the Company considers all unrestricted
checking and money market accounts to be cash.
Accounts Receivable - Recognition of Bad Debts
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become uncollectible,
they will be charged to operations when that determination is made.
Property and Equipment
Property and equipment are recorded at cost. All property and equipment is
depreciated using the straight-line method over the following estimated useful
lives:
Years
-----
Buildings 40
Furniture and equipment 5-10
Amortization
Costs incurred in obtaining long-term financing are amortized over the life of
the loan. Franchise fees are amortized on the straight-line method over the term
of the franchise.
29
33
TUCSON DESERT ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes
The Company, with the consent of its shareholders, has elected to have its
income taxed under Section 1372 of the Internal Revenue Code, which provides
that in lieu of corporation income taxes, the shareholders are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes is reflected in these financial statements.
Restricted Cash
Under terms of the loan agreement, funds are to be set aside in a reserve
account. Withdrawals from this account are only permitted for capital
expenditures.
NOTE 2. LONG-TERM DEBT
Long-term debt consists of the following (See Note 3):
December 31, June 30,
------------ 1996
1994 1995 (Unaudited)
---- ---- -----------
Mortgage payable to Finova Capital
Corporation dated December 28, 1993. Interest
at fixed rate of 9.67%. Interest and
principal payable monthly based on 180 month
amortization. All unpaid interest and
principal due January 1, 1999.
Collateralized by all property
of the Tucson Desert Assets, Inc. $3,133,761 $2,941,979 $2,870,660
========== ========== ==========
At December 31, 1995, scheduled maturities of long-term debt are as follows:
1996 $ 117,765
1997 129,672
1998 142,782
1999 2,551,760
2000 0
The provisions of the loan agreement contain various covenants pertaining to
maintenance of cash balances, dividends, and limitations on management fees.
The Company is in compliance with these covenants.
30
34
TUCSON DESERT ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3. RELATED PARTY TRANSACTIONS
Advances to Affiliate
Flagstaff Hotel Assets, Inc. (a corporation wholly owned by the shareholders of
Tucson Desert Assets, Inc.) has advanced monies to Tucson Desert Assets, Inc.
The balance of these advances is $30,000, at December 31, 1994, and $-0- at
December 31, 1995, and June 30, 1996 (unaudited), respectively. There are no
payment terms, interest or due dates on these advances. These advances will be
repaid as funds become available.
Advances from Affiliate
Flagstaff Hotel Assets, Inc. (a corporation wholly owned by the shareholders of
Tucson Desert Assets, Inc.) has received monies from Tucson Desert Assets, Inc.
The balance of these advances at December 31, 1994 and 1995, and June 30, 1996,
(unaudited) was $-0-, $52,532, and $177,425, respectively. There are no payment
terms, interest or due dates on these advances. These advances will be repaid as
funds become available.
Mortgages
Tucson Desert Assets, Inc. and Flagstaff Hotel Assets, Inc. are jointly and
severally liable to Finova Capital Corporation for the mortgage described in
Note 2. The total amount of the mortgage was $8,953,603, $8,405,655, and
$8,201,887 at December 31, 1994 and 1995, and June 30, 1996 (unaudited),
respectively.
Tucson Desert Assets, Inc. and Flagstaff Hotel Assets, Inc. are jointly and
severally liable to Finova Capital Corporation for a mortgage on motel property
in Mesa, Arizona. The total amount of the mortgage was $-0-, $8,956,190, and
$8,797,032 at December 31, 1994 and 1995, and June 30, 1996 (unaudited),
respectively.
Management Fees
Fees are paid to Summit Hotel Management Co., Inc. (a corporation 100%-owned by
the shareholders of Tucson Desert Assets, Inc.) for management and accounting
services rendered. The total expense for these services was $61,398 and $64,097
for the years ended December 31, 1994 and 1995, and $34,048 and $34,362 for the
six months ended June 30, 1996 and 1995 (unaudited), respectively.
31
35
TUCSON DESERT ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4. CREDIT RISK AND UNCERTAINTIES
Nature of Operations
Tucson Desert Assets, Inc. operates a motel in Tucson, Arizona. The motel
primarily provides rental rooms.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
The Company maintains cash balances at several banks. Accounts at each bank are
insured by the Federal Deposit Insurance Corporation up to $100,000. Bank
balances were fully covered by depository insurance at December 31, 1994 and
1995, and June 30, 1996.
The Company maintains cash balances in money market funds. Such balances are not
insured.
Accounts Receivable
The Company regularly extends credit to visitors and customers located in the
Tucson, Arizona area.
NOTE 5. ABANDONED SALES COST
The Company incurred $9,622 of costs in conjunction with a potential sale of the
property during the year ended December 31, 1994. The sale was not consummated
and these costs were charged to expense.
32
36
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Investors and Shareholders
of Sunstone Hotel Investors, Inc.
We have audited the accompanying balance sheet of Ventura Hospitality Partners,
L.P. (referred to as the "Partnership") as of December 31, 1995 and July 31,
1996, and the related statements of operations, partners' equity, and cash flows
for the period from July 22, 1995 (inception) to December 31, 1995, and the
seven months ended July 31, 1996. 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 Ventura Hospitality Partners,
L.P. as of December 31, 1995 and July 31, 1996, and the results of its
operations and its cash flows for the period from July 22, 1995 (inception) to
December 31, 1995, and the seven months ended July 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
November 22, 1996
33
37
VENTURA HOSPITALITY PARTNERS, L.P.
BALANCE SHEETS
----------
December 31,
July 31,1996 1995
------------ ------------
A S S E T S:
Investments in hotel properties, at cost:
Land $2,894,151 $2,894,151
Building and improvements 6,902,819 6,899,997
Furniture and equipment 918,890 818,708
Accumulated depreciation (433,460) (237,460)
------------ ------------
Net investment in hotel properties 10,282,400 10,375,396
------------ ------------
Cash 1,317,028 680,683
Receivables, net 176,534 209,847
Inventory 26,454 29,859
Prepaids 28,861 346,451
Other assets 178,738 193,512
------------ ------------
Total assets $ 12,010,015 $ 11,835,748
============ ============
LIABILITIES AND PARTNERS' EQUITY:
Accounts payable, trade $316,394 $386,804
Accrued expenses 127,703 225,579
Notes payable 7,153,214 7,153,214
------------ ------------
Total liabilities 7,597,311 7,765,597
------------ ------------
Partners' equity 4,412,704 4,070,151
------------ ------------
Total liabilities and partners' equity $ 12,010,015 $ 11,835,748
============ ============
The accompanying notes are an integral part of these financial statements.
34
38
VENTURA HOSPITALITY PARTNERS, L.P.
STATEMENTS OF OPERATIONS
----------
For The
Period from
July 22, 1995
Seven Months (inception) to
Ended December 31,
July 31,1996 1995
------------ ------------
Revenues:
Room revenue $ 2,747,367 $ 1,991,947
Food and beverage revenue 705,749 730,500
Other revenue 141,291 121,356
------------ ------------
Total revenue 3,594,407 2,843,803
------------ ------------
Expenses:
Room 646,231 460,741
Food and beverage 609,756 559,144
Other 98,601 78,075
------------ ------------
Total expenses 1,354,588 1,097,960
------------ ------------
Departmental profit 2,239,819 1,745,843
General and administrative 335,657 278,711
Utilities and other operating costs 191,682 180,172
Property operating costs and maintenance 183,371 124,236
Management fee 143,186 113,752
Advertising and promotion 349,167 252,112
Personal property taxes and insurance 126,679 107,740
------------ ------------
Gross operating profit 910,077 689,120
------------ ------------
Interest expense 346,750 260,264
Depreciation and amortization 220,774 256,298
------------ ------------
Net income $ 342,553 $ 172,558
============ ============
The accompanying notes are an integral part of these financial statements.
35
39
VENTURA HOSPITALITY PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY
----------
Initial capitalization $ 3,897,593
Net income 172,558
-----------
Balance, December 31, 1995 4,070,151
Net income 342,553
-----------
Balance, July 31, 1996 $ 4,412,704
===========
The accompanying notes are an integral part of these financial statements.
36
40
VENTURA HOSPITALITY PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
----------
For The Year
Seven Months Ended
Ended December 31,
July 31,1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 342,553 $ 172,558
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 220,774 256,298
Changes in assets and liabilities:
Receivables 33,312 (209,847)
Inventory 6,012 (29,859)
Prepaid expenses and other assets 314,110 (558,801)
Accounts payable, trade (123,192) 386,804
Accrued expenses (44,221) 225,579
------------ ------------
Net cash provided by (used in) operating activities 749,348 242,732
------------ ------------
Cash flows from investing activities:
Acquisition, improvements and additions to hotel properties (113,003) (10,612,856)
------------ ------------
Net cash used in investing activities (113,003) (10,612,856)
------------ ------------
Cash flows from financing activities:
Principal payments on notes payable (46,786)
Proceeds from notes payable 7,200,000
Contributions 3,897,593
------------ ------------
Net cash (used in) provided by financing activities 11,050,807
------------ ------------
Net change in cash 636,345 680,683
Cash, beginning of period 680,683
------------ ------------
Cash, end of period $1,317,028 $680,683
============ ============
The accompanying notes are an integral part of these financial statements.
37
41
VENTURA HOSPITALITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
----------
1. Organization And Basis Of Presentation:
Organization:
Ventura Hospitality Partners, L.P. (the "Partnership") was formed for
the purpose of owning, operating and holding for investment and ultimate
resale the Radisson-Oxnard (a 250-room, full service Hotel in Oxnard,
California).
The accompanying interim financial statements reflect, in the opinion of
the Partnership's management, all adjustments necessary for a fair
presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature.
2. Summary Of Significant Accounting Policies:
Cash And Cash Equivalents:
For purpose of reporting cash flows, all highly liquid debt instruments
with maturities of three months or less on the date of acquisition are
considered to be cash equivalents.
Inventories:
Inventories consist of food, beverages and guest supplies and are stated
at cost, which approximates market, with cost determined using the
first-in, first-out method.
Investment In Hotel Property:
The Hotel is stated at cost less reductions due to debt restructuring in
1993. Depreciation is computed using the straight-line method based upon
the following useful lives:
Years
-------
Building and improvements 40
Furniture and fixtures 7
Equipment 5
The Partnership's management periodically reviews the Hotel property to
determine if its carrying costs will be recovered from future operations
and, accordingly, whether a reduction in carrying value should be
recorded. No such reductions have occurred to date.
Continued
38
42
VENTURA HOSPITALITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
Investment In Hotel Properties, Continued:
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition,
the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in operations.
Amortizable Assets:
Amortizable assets consist primarily of deferred finance costs which are
recorded at cost and amortized over the life of the loan.
Income Taxes:
No provision has been made in the accompanying financial statements for
federal or state income taxes as the taxable income or loss of the
Partnership is included in the owners' federal and state income tax
returns. The Partnership's tax returns and the amount of allocable
income or loss are subject to examination by the federal and state
taxing authorities. If such examinations result in changes to income
or loss, the tax liability of the partners could be changed accordingly.
Revenue Recognition:
Revenue is recognized as earned. Earned is generally defined as the date
upon which a guest occupies a room and/or utilizes the Hotel's services.
Ongoing credit evaluations are performed and potential credit losses are
expensed at the time the accounts receivable is estimated to be
uncollectible. Historically, credit losses have not been material to the
Hotel's results of operations and, accordingly, no allowance for
doubtful accounts is recorded.
Impact Of New Accounting Standards:
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
Of." This statement shall be effective for financial statements for
fiscal years beginning after December 15, 1995. Management believes that
adoption of this standard will not have a material effect on its
financial position or results of operations.
Continued
39
43
VENTURA HOSPITALITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
Accounting 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,
including disclosure of contingent assets and liabilities at the date of
the financial statements. Ultimate actual results may, in some
instances, differ from previously estimated amounts.
3. Notes Payable:
Mortgage note payable, interest only at LIBOR plus 3.50% (8.9375% at
July 31, 1996), collateralized by the property of the Partnership, due
on August 1, 2000
$ 6,200,000
Subordinated participation agreement payable to seller, plus interest at
4% through July 1996 (increasing to 8% over the term of the agreement)
payable at the rate of 2.25% of gross revenues of the property, due
July 2000
953,214
-----------
$ 7,153,214
===========
Continued
40
44
VENTURA HOSPITALITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
----------
4. Related Parties:
In 1995 and 1996, the Partnership incurred management fees of $113,752
and $143,776, respectively, payable to an affiliate of a partner.
6. Subsequent Events:
The Partners of the Partnership have entered into negotiations to sell
the Hotel to Sunstone Hotel Investors, Inc. for approximately
$15.7 million.
41