1
EXHIBIT 99.5
PRESENTATION TO THE
FIRECRACKER SPECIAL COMMITTEE
REGARDING
PROJECT FIRECRACKER
GOLDMAN, SACHS & CO.
JULY 12, 1999
2
TABLE OF EXHIBITS
PROJECT FIRECRACKER
EXHIBIT
PROCESS OVERVIEW I
FIRECRACKER OVERVIEW II
FIRECRACKER TRADING ANALYSIS III
SUMMARY OF ALTERNATIVES CONSIDERED AND PROCESS IV
SUMMARY OF SHP ACQUISITION PROPOSAL V
OVERVIEW OF CURRENT LODGING ENVIRONMENT VI
VALUATION ANALYSIS VII
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3
EXHIBIT I
4
PROCESS OVERVIEW
IN THE PROCESS OF EVALUATING SHP ACQUISITION'S OFFER, GOLDMAN SACHS CONDUCTED
AN OPEN AUCTION FOR THE ALL-CASH SALE OF FIRECRACKER
. Public announcement of offer by SHP Acquisition (a company newly organized
by Westbrook Real Estate Fund III, L.P. and certain of its affiliates,
Robert Alter and certain management personnel of Firecracker's Lessee, and
certain affiliates of Firecracker) to purchase Firecracker made on April 5,
1999
. Special Committee appointed Goldman Sachs and announced its intention to
consider Firecracker's alternatives on April 19, 1999
. Broad market interest was solicited
-- 38 potential bidders initially contacted
-- 20 potential bidders received the Sunstone Information Package
-- 3 bidders submitted preliminary bids on May 10-11, 1999
-- SHP Acquisition and one additional bidder, Apollo Real Estate Capital
Advisors IV, Inc. ("Apollo"), were invited into second round of
bidding with comprehensive due diligence, including data room visits
and property tours, and contract negotiation
. Extensive month-long contract negotiations conducted with SHP Acquisition
-- On June 24, 1999, the Special Committee authorized final negotiations
with SHP Acquisition
-- Firecracker and SHP Acquisition made substantial progress toward
negotiation of a definitive merger agreement by Wednesday, June 30,
1999 (subject to approval of the Special Committee)
. One week contract discussions with, and additional due diligence by, Apollo
-- On July 1, 1999, the Special Committee elected not to accept SHP
Acquisition's offer at that time in order to allow Apollo to submit a
final proposal on the final bid date (July 9, 1999)
. Final proposals received from each of SHP Acquisition and Apollo on July
9,1999, including contract mark-ups and financing term sheets
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5
EXHIBIT II
6
FIRECRACKER OVERVIEW
- -------------------------------------------------------------- --------------------------------------------------------------
COMPANY OVERVIEW FINAL OVERVIEW(A)
- -------------------------------------------------------------- --------------------------------------------------------------
. Firecracker is a self-administered real estate investment CURRENT STOCK PRICE (7/9/1999): $9.00
trust ("REIT") that through its 94.6% ownership interest
in Firecracker, LP (the "Operating Partnership") owns and DIVIDEND / DIVIDEND YIELD: $1.14 / 12.7%
leases primarily full-service, mid-priced hotels and
limited-service hotels located in Minnesota and the 1999E (C) 2000E (C)
Pacific and Mountain regions of the western United --------------------------------------------------------------
States. The Company focuses on acquiring underperforming FFO/SHARE $1.45 $1.57
and undercapitalized hotels with re-branding
opportunities that are in strong markets. Since its IPO ANNUAL FFO/SHARE GROWTH 3.6% 8.3%
as a predominantly limited-service hotel REIT,
Firecracker has transformed itself primarily into a FFO MULTIPLE 6.2x 5.7x
full-service hotel company through acquisitions and its
renovation/repositioning strategy. As of June 1999, the EBITDA ($ MILLIONS) $91.7 $100.7
Company's portfolio consisted of 59 hotels with 10,525
rooms including one hotel currently under development. EBITDA MULTIPLE 9.0x 8.2x
--------------------------------------------------------------
. HEADQUARTERS: San Clemente, CA
- -------------------------------------------------------------- --------------------------------------------------------------
FINANCIAL OVERVIEW ($ MILLIONS) SENIOR MANAGEMENT
- -------------------------------------------------------------- --------------------------------------------------------------
NET DEBT (B): $436.9 NAME TITLE
--------------------------------------------------------------
EQUITY MARKET CAP (A): $360.2 Robert Alter (f) Chairman and CEO
PREFERRED STOCK (A): $25.0 Charles Biederman (f) Vice Chairman and Executive VP
TOTAL MARKET CAP (A): $822.1 Terrence Crowley Chief Operating Officer
NET DEBT/TOTAL MARKET CAP: 53.1% Daniel Lutz Corporate Controller and VP
UPREIT: YES Ken Coatsworth Director of Finance
COMMON SHARES OUTSTANDING: 37.9 MM . TOTAL BOARD MEMBERS: (D) 9
OP UNITS: 2.1 MM . TOTAL INDEPENDENT BOARD MEMBERS: 6
IPO DATE: 8/10/95 . INSIDER OWNERSHIP AND WESTBROOK REAL ESTATE FUND I, 8.9%
L.P. OWNERSHIP (D) (E):
BANK LOAN RATINGS (MOODY'S/S&P): BA2 / BB-
[FN]
(a) As of 7/9/1999.
(b) Net debt at 10/31/1999 estimated by Firecracker management (versus $396.6
at 3/31/99). Assumes no dividend is paid in respect of second quarter.
(c) Source: Projections dated 6/28/1999 prepared by independent consultants
hired by Firecracker management at the direction of the Special Committee.
(d) Source: Firecracker Proxy, 5/24/1999.
(e) Includes Westbrook Real Estate Fund I, L.P. holdings of 2,290,262 shares of
common stock. Does not include 1,699,605 shares of common stock initially
issuable to Westbrook upon the conversion of its Preferred Stock.
(f) Affiliated with SHP Acquisition, the entity that made an offer to
Firecracker disclosed on 4/5/1999.
</FN>
7
FIRECRACKER OVERVIEW
LEGAL AND ORGANIZATIONAL STRUCTURE
[GRAPHIC]
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8
CAPTION>
FIRECRACKER OVERVIEW
HISTORICAL AND MANAGEMENT PROJECTED CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS)
ASSETS 3/31/1999A 10/31/1999E (B)(C)
---------------- ------------------
Investments in Hotel Properties, Net $842,323 $880,918
Other Real Estate Investment Properties, Net 19,410 19,890
Cash and Cash Equivalents 663 7,555
Restricted Cash 3,173 --
Rent Receivable - Lessee 12,347 15,615
Notes Receivable 1,674 1,590
Other Assets 9,462 5,403
---------------- ------------------
Total Assets $889,052 $930,971
================ ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
Revolving Line of Credit $287,500 $300,300
Notes Payable 109,747 144,178
Accounts Payable and Other Accrued Expenses 21,761 13,690
Distributions Payable to Preferred Shareholders 492 1,171
---------------- ----------------------
Total Liabilities 419,500 459,339
Minority Interest 25,069 23,671
Stockholder's Equity (a) 444,483 447,961
================ ======================
Total Liabilities and Stockholder's Equity $889,052 $930,971
================ ======================
[FN]
(a) Includes Class A Convertible Preferred Stock with a liquidation value of
$25 million.
(b) Assumes no dividend is paid in respect of second quarter.
(c) Estimated by Firecracker management on 7/8/1999. Does not take into account
Firecracker's transaction costs.
</FN>
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9
FIRECRACKER OVERVIEW
HISTORICAL AND MANAGEMENT PROJECTED INCOME STATEMENT
($ IN THOUSANDS, EXCEPT PER SHARE)
HISTORICAL
--------------------------------------------------------
1997A 1998A AS OF MAY 1998A AS OF MAY 1999A 1999E (A) 2000E (A)
- ---------------------------------------------------------------------------------------------------------------------------------
ADR $ 76.06 $ 83.15 $ 81.08 $ 85.83 $ 86.81 $ 90.77
Occupancy Rate 70.9% 65.9% 63.3% 65.0% 68.5% 70.1%
RevPAR $ 53.92 $ 54.81 $ 51.35 $ 55.82 $ 59.46 $ 63.63
Growth (c) 1.7% 8.7% 8.5% 7.0%
Total Revenue $ 45,151 $ 99,155 $39,484 $ 40,896 $110,018 $119,946
Real Estate Property Taxes
& Insurance (4,670) (11,409) (5,362) (5,081) (13,392) (14,004)
General & Administrative (1,890) (5,344) (2,468) (2,342) (4,957) (5,205)
EBITDA (B) 38,591 82,402 31,655 33,474 91,670 100,737
Growth (c) 113.5% 5.7% 11.2% 9.9%
Funds From Operations (FFO) 32,000 60,695 23,439 22,440 60,491 65,516
FULLY DILUTED FFO/SHARE
AND UNIT $ 1.34 $ 1.40 $ 0.60 $ 0.54 $ 1.45 $ 1.57
Growth (c) 4.5% -10.2% 3.6% 8.3%
Dividend/Share $ 1.03 $ 1.11 NA NA NA
Growth (c) 7.8%
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Projections dated 06/28/1999 prepared by independent consultants hired by
Firecracker management at the direction of the Special Committee.
(b) Lease revenue less property taxes and insurance less general and
administrative expense. Does not include cost of withdrawn debt offering of
$1.45 million in 1998 or loss on the sale of hotel properties of $489,500
in 1999.
(c) Growth with respect to previous comparable period.
10
FIRECRACKER OVERVIEW
ISSUES TO CONSIDER AS A GOING CONCERN
. Access to capital for growth is significantly impaired in the current
market environment
-- The negative lodging environment of the past eighteen months is
unlikely to turn around in the near-term
-- Mid-scale, full-service and limited-service properties with limited
barriers to entry are vulnerable to overbuilding and deteriorating
supply/demand fundamentals
. Firecracker's stock has under-performed other lodging stocks in 1998 and
1999 year to date
-- On January 27, 1999, the Company announced 1998 year-end FFO of $1.40
per share, $0.08 below consensus estimates; the stock dropped 16.5%
that day on the announcement
-- Actual first quarter 1999 FFO per share results were $0.34 versus
consensus Street estimates of $0.38 per share at the beginning of the
year
. A renovation program which ran over budget and behind schedule has left
Firecracker with significant cash flow constraints which are not fully
understood by the research community
-- With lower than expected lease revenue, Firecracker must consider
selling assets, refinancing properties and postponing additional hotel
renovations in order to meet its ongoing obligations
-- Firecracker is unlikely to be able to fund its second quarter and
third quarter 1999 dividends unless it completes some asset sales--
Firecracker is in jeopardy of violating a borrowing capacity covenant
under its Credit Facility in July 1999
. Ongoing concerns exist with respect to Firecracker's REIT/Lessee conflicted
structure (a)
-- Historically, the Lessee has been operated at a loss
-- Currently, the Lessee is operating above breakeven, but at the expense
of reduced revenues and thus reduced rent payments to Firecracker
(a) Sunstone Hotel Properties, Inc. (the "Lessee") operates all of
Firecracker's properties under separate 10-year leases for each property
(see Legal and Organization Structure).
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11
FIRECRACKER OVERVIEW
PROPERTY-LEVEL PERFORMANCE: BUDGETED VS. ACTUAL INCOME STATEMENT
($ IN THOUSANDS)
1998 AS OF MAY 1999
------------------------------------------------- ----------------------------------------------
BUDGET(A) Actual Difference Percent Budget(A) Actual Difference Percent
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Room $214,119 $204,492 $ (9,627) -4.5% $ 93,124 $ 86,354 $ (6,770) -7.3%
Food and Beverage 42,018 41,857 (161) -0.4% 15,662 14,733 (929) -5.9%
Other 20,599 27,247 6,648 32.3% 8,195 10,800 (2,604) 31.8%
-------- -------- -------- ------ --------- -------- -------- ------
Total Revenue 276,736 273,596 (3,140) -1.1% 116,982 111,887 (5,095) -4.4%
DEPARTMENTAL EXPENSES
Room 47,210 47,585 (375) -0.8% 19,496 16,587 2,909 14.9%
Food and Beverage 33,496 34,474 (978) -2.9% 11,908 11,401 507 4.3%
Other 13,281 17,382 (4,101) -30.9% 5,511 9,077 (3,566) -64.7%
-------- -------- -------- ------ --------- -------- -------- ------
Total Departmental Expenses 93,988 99,441 (5,453) -5.8% 36,915 37,065 (150) -0.4%
UNDISTRIBUTED EXPENSES
General and Administrative (b) 21,109 28,697 (7,588) -35.9% 8,635 11,150 (2,515) -29.1%
Advertising and Promotion 13,001 20,719 (7,718) -59.4% 5,468 5,077 391 7.1%
Repairs and Maintenance 11,581 11,314 267 2.3% 4,625 4,114 512 11.1%
Utilities 11,373 10,960 413 3.6% 4,551 3,841 710 15.6%
Other 9,725 -- 9,725 100.0% 4,144 3,896 248 6.0%
-------- -------- -------- ------ --------- ------ -------- ------
Total Undistributed Expenses 66,789 71,690 (4,901) -7.3% 27,423 28,077 (655) -2.4%
GROSS OPERATING PROFIT 115,959 102,465 (13,494) -11.6% 52,644 46,744 (5,900) -11.2%
REIT LEASE REVENUE 102,673 98,682 (3,991) -3.9% 44,641 40,638 (4,003) -9.0%
- --------------------------------------------------------------------------------
(a) Prepared by the Lessee.
(b) Includes corporate overhead of the Lessee.
12
FIRECRACKER OVERVIEW
REVIEW OF YEAR-TO-DATE PROPERTY-LEVEL MONTHLY PERFORMANCE
[GRAPHIC CHART]
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13
FIRECRACKER OVERVIEW
PROPERTY-LEVEL PERFORMANCE: COMPARISON OF PROJECTIONS
($ IN THOUSANDS, EXCEPT PER SHARE)
LESSEE FIRECRACKER MANAGEMENT/
HVS 1999 MANAGEMENT MANAGEMENT CONSULTANTS
NOV. 1998 (A) BUDGET (B) 4/29/1999 (C) 6/11/1999 (C) 6/28/99 (D)
- --------------------------------- -----------------------------------------------------------------------------------------------
1999
- ----
Occupancy 69.6% 70.8% 70.0% 69.1% 68.5%
Average Daily Rate (ADR) $ 89.08 $ 88.64 $ 87.32 $ 87.27 $ 86.61
Revenue per Available Room (RevPAR) 61.99 62.79 61.17 60.31 59.33
Total Revenues $302,200.0 $295,350.2 $ 288,612.0 $ 285,322.2 $ 281,289.8
Gross Operating Profit 136,100.0 135,647.4 132,712.0 132,006.0 127,187.2
REIT Rent Revenue 115,500.0 113,617.2 113,362.0 111,480.7 109,734.9
2000
- ----
Occupancy 71.1% NA 71.2% 70.8% 70.1%
ADR $ 93.40 NA $ 92.84 $ 92.22 $ 90.77
RevPAR 66.45 NA 66.15 65.31 63.63
Total Revenues $329,300.0 NA $ 320,200.0 $ 316,390.4 $ 306,659.1
Gross Operating Profit 151,500.0 NA 146,900.0 145,897.6 139,396.3
REIT Rent Revenue 127,900.0 NA 127,153.0 125,533.3 119,542.3
- --------------------------------------------------------------------------------
[FN]
(a) Prepared by outside consultants, HVS.
(b) Prepared by Lessee.
(c) Prepared collectively by the Lessee and the Management Company and reviewed
by Firecracker management.
(d) Prepared by independent consultants hired by Firecracker management at the
direction of the Special Committee.
</FN>
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14
EXHIBIT III
15
FIRECRACKER
DAILY COMMON STOCK PRICE AND TRADING VOLUME HISTORY
PRIOR TO THE ANNOUNCEMENT OF THE WESTBROOK/FIRECRACKER MANAGEMENT OFFER,
FIRECRACKER'S STOCK HAD FALLEN OVER 50% IN THE PREVIOUS 12 MONTHS
[GRAPHIC]
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16
FIRECRACKER
WEEKLY COMMON STOCK PRICE AND TRADING VOLUME HISTORY SINCE IPO
IPO PRICE: $9.50
SINCE IPO:
HIGH $17.56 (11/28/1997)
LOW $7.06 (3/12/1999)
[GRAPHIC]
[GOLDMAN SACHS LOGO]
17
FIRECRACKER SHARES TRADED AT VARIOUS PRICES [GOLDMAN SACHS LOGO]
[GRAPHIC CHARTS]
18
FIRECRACKER [GOLDMAN SACHS LOGO]
SUMMARY OF ANALYST RECOMMENDATIONS FFO ESTIMATES
----------------------
COMPANY ANALYST RECOMMENDATION LAST UPDATE 1999 2000
- --------------------------------------------------------------------------------------------------------------------------
Goldman Sachs David Kostin Market Perform 4/30/1999 $ 1.52 $ 1.60
A.G. Edwards Manual Pyles Maintain Position 6/24/1999 1.46 1.54
Bear Stearns Robert LaFleur Attractive 6/22/1999 1.48 1.62
Everen Jeff Donnelly Short-term Outperform 6/15/1999 1.50 1.65
Jefferies & Co. Mark Benson Accumulate 6/11/1999 1.53 1.64
Merrill Lynch Eric Hemel Accumulate 5/1/1999 1.53 1.66
Putnam, Lovell Paul Saint-Pierre Buy 6/7/1999 1.50 1.60
Raymond James Paul Puryear Neutral 6/23/1999 1.48 1.65
Sands Brothers Brad Cohen Buy 4/30/1999 1.50 NA
Sutro & Co. Janet Campbell Hold 5/31/1999 1.53 NA
FIRST CALL CONSENSUS
ESTIMATES $ 1.50 $ 1.62
FIRECRACKER
MANAGEMENT'S
PROJECTIONS (A) $ 1.45 $ 1.57
(a) Based upon projections completed on 6/28/1999 by independent consultants
hired by Firecracker management at the direction of the Special Committee
19
REVIEW OF ANALYST COMMENTARY [GOLDMAN SACHS LOGO]
AFTER ANNOUNCEMENT BY SHP ACQUISITION
FFO PER SHARE (a)
------------------
FIRM DATE RATING 1999E 2000E COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Raymond James 5/3/1999 Neutral $1.53 $1.65 . We view the current tender offer of $9.50-$10.00
as inadequate versus our range of NAV estimates
at $11-$12 and would encourage investors and the
Board to also consider what appears to be
moderately strengthening fundamentals for the
hotel industry
n . Firecracker is trading in line with its peers on
a multiple basis with adequate growth prospects
for the near term, but given the risks
surrounding the outcome of any possible merger,
we maintain our NEUTRAL rating
Goldman Sachs 4/30/1999 Market Performer 1.52 1.60 . Firecracker reported 1Q 1999 Funds From
Operations (FFO) of $0.34 per share, $0.01 above
our estimate and 10.5% below 1Q 1998. We are
maintaining our 1999 and 2000 FFO estimates of
$1.52 and $1.60, respectively
. At $9 3/16, Firecracker is trading at a 6.1
multiple of our 1999 FFO estimate, a 10% discount
to the hotel REIT sector average. The 1999-2000
growth rate of 6.3% is a 17% discount to the
sector average. The shares have a current
annualized dividend yield of 12.2%
Goldman Sachs 4/7/1999 Market Performer 1.52 1.60 . Focus on redevelopment of underperforming hotels
produces solid RevPAR growth and attractive
returns on invested capital
. Based on our estimate of Firecracker's 1999E NOI
of $100 million and using a conservative
capitalization rate (before capitalized
expenditures) of 12%, our net asset value
estimate for Firecracker would be $10.20 per
share
(a) As of respective research report date. Continued
20
REVIEW OF ANALYST COMMENTARY [GOLDMAN SACHS LOGO]
AFTER ANNOUNCEMENT BY SHP ACQUISITION
FFO PER SHARE (a)
------------------
FIRM DATE RATING 1999E 2000E COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Jefferies & Co. 4/7/1999 Accumulate 1.55 1.64 . Firecracker announced yesterday that it had
received a management led buyout proposal for the
Company. The offer price of $9.50 to $10.00 per
share implies an equity buyout price of $365
million. While this price represents more than a
20% premium over the previous closing price, we
believe that the underlying value of the hotel
assets warrants a higher price for the shares.
Given our $12 to $13 net asset value per share
estimate, we believe that the proposed $10 buyout
price represents a surprisingly large discount to
our estimated value of the underlying real
estate. We view this offer as a first step in
what should be an interesting real estate
negotiating process
Merrill Lynch 4/6/1999 Accumulate 1.53 1.66 . Firecracker received a management led buyout
offer of $9.50 to $10.00 per share in cash, which
is 10-15% below our estimated NAV figure of
$11.10
. An alternative buyer of Firecracker would own
properties encumbered with 10+ year lease
agreements with the management team that
effectively lost out in the buyout bid*
. Thus, it is hard to envision a scenario where
another bidder (either a REIT, a C-Corp, or
another private equity fund) would offer a higher
price for the assets
. Therefore, the issues the board faces are more
likely to pertain to the "fairness" of the buyout
offer than the logistics of conducting an
effective auction process
* THIS REPORT DOES NOT ACKNOWLEDGE THE INFORMATION PUBLICLY DISCLOSED ON THE
PREVIOUS DAY (4/5/99) BY SHP ACQUISITION THAT THE TERMS OF ITS PROPOSAL
CONTEMPLATED THAT, IN THE EVENT AN AGREEMENT IS SIGNED WITH SHP
ACQUISITION, AND A SUCCESSFUL SUPERIOR PROPOSAL FOR FIRECRACKER,
FIRECRACKER WOULD HAVE HAD THE RIGHT TO PURCHASE, AND THE LESSEE WOULD HAVE
HAD THE RIGHT TO SELL, THE LESSEE AND THE MANAGEMENT COMPANY FOR A PRICE OF
$35 MILLION.
(a) As of respective research report date. Continued
21
REVIEW OF ANALYST COMMENTARY [GOLDMAN SACHS LOGO]
AFTER ANNOUNCEMENT BY SHP ACQUISITION
FFO PER SHARE (a)
------------------
FIRM DATE RATING 1999E 2000E COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Raymond James 4/6/1999 Neutral 1.53 1.65 . We have estimated Firecracker's net asset value
at between $10.00 and $12.00, employing cap rates
of 11.00% and 10.00%, respectively. Based upon
our understanding of the current offer by SHP
Acquisition, we view a $9.50 to $10.00 bid to be
inadequate and would expect a final buyout number
to be $11.00-$12.00
. There is little doubt that the recent price makes
Firecracker an attractive target for both private
and publicly traded entities. However, with Bob
Alter owning the lessee and operating company and
participating in the buyout group, other
potential bidders are disadvantaged
(a) As of respective research report date. Continued
22
REVIEW OF ANALYST COMMENTARY [GOLDMAN SACHS LOGO]
BEFORE ANNOUNCEMENT BY SHP ACQUISITION
FFO PER SHARE (a)
------------------
FIRM DATE RATING 1999E 2000E COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
A.G. Edwards 2/8/1999 Maintain 1.55 1.66 . Fourth-quarter 1998 operating FFO per share were
/Aggressive $0.27, 16% below the year-earlier quarter and
16% below our expectations
. The lackluster demand and continued supply
problems in several of the trust's markets have
us concerned about meaningful FFO growth into the
foreseeable future
Jefferies & Co. 2/2/1999 Accumulate 1.55 1.64 . Lowered Investment Rating to Accumulate from Buy
- Our growing concern with a number of
Firecracker's markets and the ability of its
properties to compete in these markets, our
expectations that the impact of rooms being out
of service due to renovation may make quarter to
quarter earnings estimates more volatile as the
overall earnings growth rate of the Company
slows, and a severely restricted capital
position, are all the basis for our investment
rating downgrade
Continued
(a) As of respective research report date.
23
REVIEW OF ANALYST COMMENTARY [GOLDMAN SACHS LOGO]
BEFORE ANNOUNCEMENT BY SHP ACQUISITION
FFO PER SHARE (a)
------------------
FIRM DATE RATING 1999E 2000E COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1/28/1999 Accumulate 1.57 1.69 . Firecracker reported 4Q1998 FFO of $0.22, a 31%
decrease from the year-ago period and our
estimate. However, the $0.22 includes five cents
of non-recurring charges. Therefore, on an apples
to apples basis, Firecracker's FFO declined 15.5%
to $0.27
. As a result, we are lowering our 1999 FFO
estimate to $1.57 from $1.65 while our 2000 FFO
estimate decreases to $1.69 from $1.76
. Despite these estimate reductions, we are
maintaining our Accumulate rating based on our
above-average dividend yield which is nearly 13%
Raymond James 1/28/1999 Neutral 1.55 N.A. . We are lowering our 1999 FFO estimate by $0.10
per share to $1.55 per share, which is a 7%
increase from 1998 FFO of $1.45 per share (before
the special 4Q charges) and assumes a 3-4% RevPAR
increase. The Company is not giving guidance on
1999 FFO
. We believe the dividend remains secure and
provides investors an 11.5% yield. However, there
is little price appreciation potential in the
stock given the 4Q performance and concerns about
the lodging industry, we are lowering our rating
on the stock to a NEUTRAL (3)
(a) As of respective research report date.
EXHIBIT IV
25
PROJECT FIRECRACKER [GOLDMAN SACHS LOGO]
SUMMARY OF ALTERNATIVES CONSIDERED BY THE SPECIAL COMMITTEE
--------------------------- ------------------------------------ ---------------------------
PROS CONS ISSUES
--------------------------- ------------------------------------ ---------------------------
1. Stand-Alone Strategy Wait for better REIT market Capital constraints Creditworthiness of Lessee
Liquidity shortage Management continuity
Shareholder value in the short term
2. Auction the REIT No tag-along for Lessee and Limited market appetite for REIT Franchise agreements
subject to existing Management Company assets encumbered by leases and Properties operated by
leases and management No breakup fee payable to management contracts Lessee until leases expire
contracts SHP Acquisition
3. Negotiate agreement Can deliver integrated hotel $50-60mm additional investment for Financing of SHP
with SHP acquisition company to third parties third party as a result of tag- Acquisition offer
and continue auction along and breakup fee payable to Franchise agreements
of integrated hotel Preserve ability to deliver SHP Acquisition Value of Lessee
company a transaction with SHP Size of breakup fee
Acquisition
4. Liquidate through a Breaks leases (compensation High corporate tax leakage under Kahler portfolio
sale of assets payable to Lessee) most circumstances (a) Taxable gain to Alter &
Timing Biederman
Execution risk Franchise agreements
May lose SHP's bid Possible Injunction
(a) Circumvented by the structure proposed by Apollo.
26
SUMMARY OF FIRECRACKER SALE PROCESS
-------------------------------------------------------------------------------------------------------------------
DATE EVENT
-------------------------------------------------------------------------------------------------------------------
THE SPECIAL April 5, 1999 SHP Acquisition publicly files a management sponsored offer to acquire Firecracker
COMMITTEE
CONDUCTED A April 19, 1999 Special Committee of the Board of Directors of Firecracker engages Goldman Sachs as the sole
FULL TWO- advisor
STEP AUCTION
PROCESS April 28, 1999 Special Committee authorizes contact with 38 potential bidders
April 30, 1999 Twenty potential bidders receive Sunstone Information Package with instructions to bid under
alternative structures, (a) REIT as a stand alone entity encumbered by leases and management
contracts and (b) for the consolidated company (REIT, Lessee and Management Company as one
integrated entity)
May 10-11, 1999 Receive preliminary bids from 3 bidders (Apollo, Lend Lease and Lowe Enterprises) to purchase
the consolidated company; Apollo indicates breaking leases may realize higher value for
Firecracker shareholders
May 12, 1999 Lend Lease and Lowe Enterprises are advised that their bids were not competitive and dropped
from the process
May 24, 1999 Receive preliminary bid from Apollo to purchase Firecracker subject to existing leases and
contracts
May 29-30, 1999 SHP Acquisition (Westbrook) visits data room
May 28, 1999 Apollo receives final round bid letter establishing June 17, 1999 as final bid date.
Letter offers expense reimbursement up to $2 million for a firm bid
June 1-3, 1999 Apollo (on basis of offer subject to existing leases) visits data room
June 11, 1999 SHP Acquisition receives final round bid letter establishing July 9, 1999 as revised final bid
date. Letter offers expense reimbursement up to $2 million for a firm bid
June 15, 1999 Apollo receives final round bid letter establishing July 9, 1999 as revised final bid date. As
an alternative to expense reimbursement previously offered, letter offers expense reimbursement
up to $750,000 for a bona fide offer that is subject to financing
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Continued
[GOLDMAN SACHS LOGO]
27
SUMMARY OF FIRECRACKER SALE PROCESS
THE SPECIAL -------------------------------------------------------------------------------------------------------------------
COMMITTEE DATE EVENT
CONDUCTED A -------------------------------------------------------------------------------------------------------------------
FULL TWO- June 21, 1999 Apollo and its advisors begin conducting property tours of all 59 assets
STEP AUCTION
PROCESS June 24, 1999 Apollo receives follow-up letter clarifying certain items in the letter sent on June 15, 1999
June 25, 1999 Receive proposal from SHP Acquisition with a July 2, 1999 expiration
June 30, 1999 Substantial progress made on negotiating a definitive merger agreement (subject to approval of
the Special Committee) with SHP Acquisition
July 1, 1999 Special Committee elects not to accept SHP Acquisition's offer at such time in order to allow
Apollo to submit a final proposal on the final bid date
July 6-8, 1999 Apollo's advisors conduct additional data room visits and further due diligence
July 8, 1999 Receive initial contract mark-up from Apollo
July 9, 1999 Receive final proposal from each of SHP Acquisition and Apollo, including contract mark-ups and
financing term sheets
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
[GOLDMAN SACHS LOGO]
28
FIRECRACKER - FINAL BID INSTRUCTIONS
FINAL BID . Final bidders were invited to submit a firm proposal to
INSTRUCTIONS WERE purchase all the outstanding shares of Firecracker and
SENT TO SHP OP units of the Operating Partnership by noon on
ACQUISTION AND July 9, 1999. Bidders were asked to address:
APOLLO
-- The price per share to be paid to all shareholders
and unit holders, including form of consideration if
other than 100% cash.
-- The source of equity funds and the assumed amount of
the equity investment.
-- The assumed amount(s), terms and conditions of any
financing to be utilized, including the terms and
documentation of the commitment(s). Bidders were
instructed to submit proposals that were not subject
to financing contingencies.
. In arriving at bid amounts, final bidders were
instructed to take into account information disclosed
in the preliminary bid letter, the Firecracker
Information Package, additional information provided to
bidders, in the data room.
. Final bidders were entitled to reimbursement of
documented out-of-pocket expenses subject to the
following terms and conditions:
-- (A) The Special Committee receives a firm proposal
supported by full documentation on or prior to the
final bid date stating a price per share not less
than the higher end of the range disclosed by SHP
Acquisition in its offer and the final proposal is
rejected; OR
(B) The Special Committee accepts a bid from a third
party prior to the final bid date.
-- Expense reimbursement is capped at $2.0 million (a).
. Depending upon the structure indicated in their
preliminary bid letter, final bidders were provided
with a merger agreement reflecting a stock transaction
or an asset purchase transaction and were instructed to
submit a markup of such agreement with their final bid.
[GOLDMAN SACHS LOGO]
(a) Expense reimbursement for Apollo is capped at $750,000 in the event that
their final proposal contains some degree of financing contingency and the
Special Committee does not accept a bid from a third party prior to the
final bid date.
29
EXHIBIT V
30
SUMMARY OF OFFERS BY SHP ACQUISITION, L.L.C.
COMPARISON OF KEY TERMS
APRIL 5, 1999 OFFER FINAL OFFER (A)
===================================================================================================================================
. Price $9.50-10.00/share $10.35/share (b)
- -----------------------------------------------------------------------------------------------------------------------------------
. Ability to pay dividends pre-
closing Yes No (c)
- -----------------------------------------------------------------------------------------------------------------------------------
. Financing
-- Amount $530 million, including second $454 million increasing to $502 million (not
mortgages on mortgaged assets including mortgaged assets), based on Lender due
($502 million excluding second diligence
mortgages on mortgaged assets)
-- Conditionality Bid subject to financing SHP Acquisition's obligation conditional upon Lender
confirmation within 60 days funding at least $429 million. Lender's obligation
conditional upon:
(i) structural, title, engineering, environmental
defects less than $25 million;
(ii) no material adverse change (1.5% decline in
rolling 12-month NOI); and
(iii) November 23, 1999 expiration
- -----------------------------------------------------------------------------------------------------------------------------------
. Break-up Fee 3% of transaction value plus $25 million ($17.5 million plus up to $7.5 million
expenses (approximately $35 of expenses)
million in the aggregate)
- -----------------------------------------------------------------------------------------------------------------------------------
. Non-refundable deposit None $25 million
- -----------------------------------------------------------------------------------------------------------------------------------
. Lessee/Management Company Put/Call @ $35 million Call by Firecracker @ $30 million
Purchase (No Put for the Lessee)
- -----------------------------------------------------------------------------------------------------------------------------------
(a) As set forth in SHP Acquisition's final bid letter dated July 9, 1999 as modified by SHP Acquisition's amendment thereto
and subsequent negotiations with representatives of SHP Acquisition.
(b) Subject to certain purchase price adjustments if seller expenses exceed $11.5 million and the cost of obtaining franchisor
consents exceeds $12.5 million. Additionally, Firecracker has the right to cure under certain other circumstances via a
purchase price reduction.
(c) Firecracker has the ability to pay out one half of the cash flow generated between July 1, 1999 and the date five business
days prior to closing.
[GOLDMAN SACHS LOGO]
31
SUMMARY OF OFFERS BY SHP ACQUISITION, L.L.C.
COMPARISON OF KEY TERMS
APRIL 5, 1999 OFFER FINAL OFFER (A)
===================================================================================================================================
. Closing Conditions
-- All franchisor consents Yes Marriott, Holiday Inn and Hilton only.
Cost of obtaining all franchisor consents handled by
a potential purchase price reduction as follows:
(i) less than $12.5 million, SHP Acquisition's
cost;
(ii) greater than $12.5 million but not more
than $25 million, split 50/50; and
(iii) thereafter, at its option, Firecracker's
cost via a purchase price reduction
-- Lender consents Yes Only if refinancing amount plus the amount by which
($69 million of debt to PaineWebber's loan (after hold backs for property
remain in place) defects) exceeds $454 million is less than $69
million. Firecracker has the ability to cure.
-- Contribution Agreement Yes No
(Westbrook agreement with
Alter to purchase
Lessee/Management
Company)
- -----------------------------------------------------------------------------------------------------------------------------------
. Material Adverse Change Customary Customary
- -----------------------------------------------------------------------------------------------------------------------------------
. Reps and Warranties Not qualified by Alter's knowledge Certain reps qualified by Alter's knowledge
===================================================================================================================================
(a) As set forth in SHP Acquisition's final bid letter dated July 9, 1999 as
modified by SHP Acquisition's amendment thereto and subsequent negotiations
with representatives of SHP Acquisition.
[GOLDMAN SACHS LOGO]
32
APOLLO'S BID FOR FIRECRACKER
. On May 10, 1999, Apollo submitted a preliminary bid to purchase Firecracker
for a purchase price per share between $10.50-11.00, and indicated that
breaking the leases and management contracts may realize higher value for
Firecracker shareholders. On May 24, 1999, Apollo submitted a revised
preliminary bid to purchase Firecracker subject to existing leases and
management contracts for a purchase price per share in the range indicated in
its preliminary bid letter
. Apollo contemplates an asset purchase transaction that would enable it to
effectively break the operating leases between the REIT and the Lessee at
minimal cost without making an additional negotiated payment to acquire the
Lessee or the Management Company
. Based on preliminary discussions with tax counsel, Apollo could effect a
transaction that would allow it to terminate the leases without payment of a
corporate level tax
. The leases can be terminated for a fee that is equal to the hotel's net
operating profit for the trailing twelve months
-- Firecracker's accountants estimate that, assuming a September 30, 1999
closing, such fee would amount to approximately $7.3 million(a)
-- The fee may be reduced by 50% for a bulk sale (such term not defined in
the lease agreements)
. While this acquisition structure would potentially minimize any payment to
the Lessee, it involves substantial business and legal risks that must be
considered
. On July 9, 1999, Apollo submitted a final proposal to purchase Firecracker
subject to existing leases and management contracts for a purchase price per
share of $10.00
[GOLDMAN SACHS LOGO]
(a) Based on projections of 6/11/1999 prepared collectively by the Lessee and
the Management Company and reviewed by Firecracker management.
33
EXHIBIT VI
34
LODGING INDUSTRY - U.S. OUTLOOK
GOLDMAN SACHS RESEARCH 1999 OUTLOOK
GOLDMAN SACHS . Goldman Sachs Research continues its bearish stance
RESEARCH EXPECTS on the lodging sector and expects the sector to show
LODGING STOCKS TO negative returns relative to the broader market
SHOW LACKLUSTER
PERFORMANCE IN 1999 . Supply growth will still be greater than demand in
1999 and 2000; RevPAR growth will continue to slow
ON JUNE 3, 1999, and may lead to a decline in valuation multiples
GOLDMAN SACHS
RESEARCH ISSUED A . Another wave of earnings reductions could occur as
REPORT IN WHICH IT current RevPAR trends are at the bottom of full year
INDICATED THAT IT expectations
CONSIDERED
DOWNGRADING THE . The hotel industry has now entered a period of
SECTOR aggravated competition - market share maintenance is
taking precedence over profit growth
[GOLDMAN SACHS LOGO]
35
COMPARISON OF SELECTED LODGING COMPOSITES
ONE YEAR DAILY INDEXED COMMON STOCK PRICE HISTORY
[GRAPHIC]
Full Service REITs:
- ------------------
Starwood through 1/6/1999
Host Marriott after 1/1/1999
Felcor Lodging Trust
Meristar Hospitality
Boykin Lodging
LaSalle Properties
Limited Service REITs:
- ---------------------
Equity Inns
Hospitality Properties
Innkeepers USA
Winston Hotels
US C-Corps:
- ----------
Starwood after 1/6/1999
Host Marriott through 1/1/1999
Hilton
Marriott Int'l
Four Seasons
MeriStar Hotels & Resorts
Florida Panthers
US Franchise System
Prime Hospitality
Promus Hotel Corp
Red Roof Inns
[GOLDMAN SACHS LOGO]
36
COMPARISON OF SELECTED LODGING COMPOSITES
THREE YEAR WEEKLY INDEXED COMMON STOCK PRICE HISTORY
[GRAPHIC]
Full Service REITs:
- ------------------
Starwood through 1/6/1999
Host Marriott after 1/1/1999
Felcor Lodging Trust
Meristar Hospitality
Boykin Lodging
LaSalle Properties
Limited Service REITs:
- ---------------------
Equity Inns
Hospitality Properties
Innkeepers USA
Winston Hotels
US C-Corps:
- ----------
Starwood after 1/6/1999
Host Marriott through 1/1/1999
Hilton
Marriott Int'l
Four Seasons
MeriStar Hotels & Resorts
Florida Panthers
US Franchise System
Prime Hospitality
Promus Hotel Corp
Red Roof Inns
[GOLDMAN SACHS LOGO]
37
EXHIBIT VII
38
SUMMARY OF FINAL OFFER BY SHP ACQUISITION L.L.C.
VALUATION SUMMARY
($ IN THOUSANDS, EXCEPT PER SHARE)
SHP Acquisition Offer per Share (a) $10.35
Diluted Shares Outstanding (b) 40,365
-------
Total Equity Consideration $417,776
Total Net Debt (c) 436,923
Preferred Stock (d) 25,000
-------
TOTAL ENTERPRISE VALUE OF FIRECRACKER $879,699
Price of Lessee/Management Company (e) $17,500
-------
TOTAL ENTERPRISE VALUE OF INTEGRATED COMPANY $897,199
1999E (F) 2000E (F)
---------------------------------------------------------------------
Firecracker FFO Multiple (g) 7.1 x 6.6 x
Firecracker EBITDA Multiple (h) 9.6 x 8.7 x
Firecracker Value/Room (i) $ 83,582
Integrated Company NOI Cap Rate (j) 9.8% 10.8%
Integrated Company Value/Room (l) $ 85,245
(a) SHP Acquisition's final offer.
(b) Assumes conversion of all outstanding OP units and treats stock options
and warrants using the treasury method (i.e., issuing new shares in an
amount equal to the aggregate in the money value of such options and
warrants outstanding).
(c) Net debt at 10/31/1999 estimated by Firecracker management. Assumes no
dividend is paid in respect of second quarter.
(d) Convertible at $14.71. Preferred stock to be redeemed at par.
(e) Derived from the terms of SHP Acquisition's agreement to purchase the
Lessee and the Management Company. Includes Robert Alter's capital
account of $10.5 million (the value of his shares/units is included in
the equity consideration), $3.0 million in cash paid to Robert Alter,
$1.75 million in cash paid to Charles Biederman and $2.25 million paid
in cash to certain employees of the Lessee. Assumes a debt-free
purchase.
(f) Based on projections dated 06/28/1999 prepared by independent
consultants hired by Firecracker Management at the direction of the
Special Committee.
(g) SHP Acquisition's offer per share divided by projected FFO per
share of $1.45 and $1.57 for 1999E and 2000E, respectively.
(h) Total Enterprise Value of Firecracker divided by projected EBITDA of
$91.7 million and $100.7 million for 1999E and 2000E, respectively.
(i) Total Enterprise Value of Firecracker divided by 10,525 rooms (includes
new builds).
(j) Integrated company NOI divided by Total Enterprise Value of Integrated
Company. NOI is equal to gross operating profit less 4% FF&E reserves,
3% management fee, franchise fees, real estate taxes, property
insurance and ground lease payments, plus additional income from
laundry, telephone contracts from certain assets, and accounting fee
reimbursements.
[GOLDMAN SACHS LOGO]
39
SUMMARY OF FINAL OFFER BY SHP ACQUISITION L.L.C.
PREMIUM/DISCOUNT TO HISTORICAL FIRECRACKER PRICES
Price Premium/Discounts to Final
Offer Price
----------------------------------------
SHP ACQUISITION'S FINAL OFFER $ 10.35
Current (07/09/1999) $ 9.00 15.0%
Pre-Announcement Price (04/05/99)(a) $ 7.56 36.9%
30 Day Average (Pre-Announcement) $ 7.24 43.0%
90 Day Average (Pre-Announcement) $ 8.41 23.1%
180 Day Average (Pre-Announcement) $ 8.81 17.5%
One Year Average (Pre-Announcement) $ 10.81 (4.3)%
(a) Last closing price prior to the announcement of SHP Acquisition L.L.C.'s
proposal disclosed in a schedule 13-D dated April 6, 1999.
[GOLDMAN SACHS LOGO]
40
COMPARISON OF SELECTED LODGING COMPANIES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
[GOLDMAN SACHS LOGO]
- ------------------------------------------------------------------------------------------------------------------------------------
7/9/1999 % OF MARKET CAPITALIZATION (A)
52-WEEK SHARES/ ------------------------------- NET DEBT/
COMPANY SHARE PRICE HIGH UNITS EQUITY NET DEBT LEVERED TOTAL CAP
- ------------------------------------------------------------------------------------------------------------------------------------
FIRECRACKER-PRE ANNOUNCEMENT (4/5/1999) (o) $ 7.56 46.3 % 40.0 $ 302.6 $ 436.9 $ 764.4 57.2 %
- ------------------------------------------------------------------------------------------------------------------------------------
REITS/REAL ESTATE COMPANIES
- ---------------------------
Hospitality Properties Trust (d) $ 27.19 81.9 % 45.6 $ 1,240.5 $ 580.3 $ 1,820.8 31.9 %
Lasalle Hotel Properties (e) 15.81 93.4 18.5 291.8 210.5 502.3 41.9
Host Marriott (f) 11.19 75.9 297.1 3,324.0 4,829.0 8,703.0 55.5
- ------------------------------------------------------------------------------------------------------------------------------------
FIRECRACKER (O) 9.00 66.1 40.0 360.2 436.9 822.1 53.1
- ------------------------------------------------------------------------------------------------------------------------------------
Boykin Lodging (g) 14.88 66.7 18.5 275.6 287.1 562.7 51.0
Equity Inns (e) 9.31 66.5 38.6 359.4 339.8 768.0 44.2
MeriStar Hospitality 20.94 87.0 52.6 1,101.6 1,656.5 2,758.1 60.1
Felcor Lodging Trust (d) 21.00 65.1 71.6 1,504.5 1,644.6 3,444.1 47.8
Patriot American Hospitality (n) 4.81 98.7 275.0 1,323.3 3,752.9 6,076.2 61.8
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH 98.7 % $ 8,703.0 61.8 %
MEAN 77.9 2,828.6 49.7
LOW 65.1 502.3 31.9
- ------------------------------------------------------------------------------------------------------------------------------------
C-CORPS
- -------
US Franchise Systems (h) $ 21.25 91.6 % 19.9 $ 422.3 $ 0.0 $ 422.3 0.0 %
Florida Panthers (m) 11.00 59.1 40.8 448.8 559.7 1,008.5 55.5
Four Seasons (i)(j) 70.00 100.0 33.8 2,369.4 147.4 2,516.8 5.9
Marriott International (d) 37.69 85.8 269.3 10,149.4 605.0 10,754.4 5.6
Starwood Hotel & Resorts (l) 27.50 56.1 210.4 5,786.0 8,325.0 14,418.2 57.7
Hilton 14.25 67.9 258.3 3,680.8 3,060.0 6,740.8 45.4
MeriStar Hotels & Resorts 3.56 80.3 27.4 97.6 49.8 147.4 33.8
Promus Hotel 28.56 66.6 82.9 2,367.8 764.2 3,132.0 24.4
Red Roof Inns (h) 18.31 89.6 26.9 492.6 529.2 1,021.8 51.8
Prime Hospitality (d) 11.94 64.3 55.4 661.4 588.4 1,249.8 47.1
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH 100.0 % $14,418.2 57.7 %
MEAN 76.1 4,141.2 32.7
LOW 56.1 147.4 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
5-YEAR 1999
EBITDA MULTIPLES(B) FFO/PE MULTIPLES(C) ANNUAL FFO/EPS FFO/PE
------------------- ------------------- DIVIDEND GROWTH TO 5-YR.
COMPANY 1999E 2000E 1999E 2000E YIELD RATE (C) GROWTH
- ------------------------------------------------------------------------------------------------------------------------------------
FIRECRACKER-PRE ANNOUNCEMENT (4/5/1999) (o) 8.3 x 7.6 x 5.2 x 4.8 x 15.1 % 11.0 % 0.5 x
- ------------------------------------------------------------------------------------------------------------------------------------
REITS/REAL ESTATE COMPANIES
- ---------------------------
Hospitality Properties Trust (d) 8.4 x 7.1 x 6.9 x 6.2 x 10.0 % 7.5 % 0.9 x
Lasalle Hotel Properties (e) 8.6 7.9 6.8 6.4 9.5 7.5 0.9
Host Marriott (f) 8.6 8.2 6.3 5.8 7.5 15.0 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
FIRECRACKER (O) 9.0 8.2 6.2 5.7 12.7 11.0 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Boykin Lodging (g) 8.0 NA 5.7 5.5 12.6 8.0 0.7
Equity Inns (e) 7.9 7.5 5.6 5.5 13.3 8.0 0.7
MeriStar Hospitality 8.4 8.0 5.4 5.1 9.6 10.0 0.5
Felcor Lodging Trust (d) 7.8 7.3 5.2 4.8 10.5 10.0 0.5
Patriot American Hospitality (n) 9.1 8.7 2.8 3.1 0.0 14.0 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH 9.1 x 8.7 x 6.9 x 6.4 x 13.3 % 15.0 % 0.9 x
MEAN 8.4 7.9 5.7 5.3 9.5 10.1 0.6
LOW 7.8 7.1 2.8 3.1 0.0 7.5 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
C-CORPS
- -------
US Franchise Systems (h) NM 22.8 x 47.2 x 28.3 x 0.0 % 35.0 % 1.3 x
Florida Panthers (m) 9.1 8.1 28.9 NA 0.0 20.0 1.4
41
Four Seasons (i)(j) 24.5 17.0 28.1 24.6 0.3 18.0 1.6
Marriott International (d) 12.1 10.2 22.7 19.2 0.5 18.0 1.3
Starwood Hotel & Resorts (l) 8.0 7.6 18.0 14.5 2.2 20.0 0.9
Hilton 9.5 8.4 17.4 15.5 0.6 15.0 1.2
MeriStar Hotels & Resorts 6.3 5.8 14.8 11.9 0.0 25.0 0.6
Promus Hotel 7.3 7.1 13.1 12.4 0.0 15.0 0.9
Red Roof Inns (h) 6.7 6.7 12.3 11.2 0.0 11.5 1.1
Prime Hospitality (d) 6.5 5.9 10.9 9.6 0.0 15.0 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH 24.5 x 22.8 x 47.2 x 28.3 x 2.2 % 35.0% 1.6 x
MEAN 10.0 10.0 21.3 16.4 0.4 19.3 1.1
LOW 6.3 5.8 10.9 9.6 0.0 11.5 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Ordered by 1999 FFO/PE multiples. REITS are compared on the basis of FFO
multiples. C-Corps use PE multiples as a point of comparison.
(a) Equity market cap. does not include preferred stock. Levered market cap.
includes preferred stock.
(b) EBITDA estimates are from GS Research unless otherwise noted.
(c) All FFO/EPS estimates are calendarized IBES median estimates unless
otherwise noted.
(d) EBITDA estimates are from Merrill Lynch research.
(e) EBITDA estimates are from Prudential research.
(f) Financials stated pro forma for special cash dividend (2/10/1999) and $300
million 8.375% note offering (2/25/1999).
(g) EBITDA estimates are from AG Edwards research.
(h) EBITDA estimates are from CIBC Oppenheimer research.
(i) EBITDA estimates are from PaineWebber research.
(j) Four Seasons financial information is reported in Canadian dollars.
(l) EBITDA estimates from SalomonSmithBarney.
(m) Florida Panthers' EBITDA estimates are from Jefferies & Co. research. EBITDA
and EPS estimates have been calendarized to a December 31 fiscal year end.
(n) Financials stated pro forma for $1.0 billion equity investment led by Apollo
RE Advisors and Thomas H. Lee Company. At closing, Patriot American will
convert to c-corp status.
(o) EBITDA and FFO estimates are based on management's projections dated
6/28/1999 prepared by independent consultants hired by Firecracker
management at the direction of the Special Committee. EBITDA does not
include loss on sale of hotel properties of $495,500 in 1999. Net debt at
10/31/1999 estimated by Firecracker management.
42
SUMMARY OF SELECTED ACQUISITIONS OF COMPANIES IN THE LODGING INDUSTRY
($ IN MILLIONS) (A)
TARGET TRANSACTION VALUE
TARGET AS A MULTIPLE OF: PREMIUM OVER
EQUITY TARGET ------------------------ FORWARD FORWARD STOCK PRICE
MARKET TRANSACTION FORWARD FORWARD P/E FFO ONE MONTH CONSIDERATION
DATE ACQUIROR/TARGET CAP ($) VALUE ($)(B) EBITDA (C) EBIT (C) MULTIPLE (C) MULTIPLE (C) PRIOR (%) (CASH/STOCK)
====================================================================================================================================
04/06/1999 SHP ACQUISITION/ $ 418 $ 880 9.6 X 17.4 X NA 7.1 X 34.6 % 100% CASH
FIRECRACKER (D)
02/08/1999 Ladbroke/Stakis 1,890 2,113 10.8 NA 15.2 NA 44.0 40% cash/
60% stock
12/15/1998 Apollo led 1,357 5,653 7.9 NA NA 4.8 12.0 100% cash
investor group/
Patriot American
Hospitality
04/21/1998 Equity Inns/ 620 969 12.0 14.8 NA 9.7 25.5 100% stock
RFS Hotel
Investors
(WITHDRAWN)
04/17/1998 Host Marriott/ 940 1,755 11.4 NA NA NA NA 54% stock
Blackstone
Portfolio
(13 hotels)
04/09/1998 Blackstone & 867 867 NA 18.6 NA NA 16.5 100% cash
Colony/Savoy
03/24/1998 Felcor Suite 1,146 1,846 10.1 NA NA NA 8.4 100% stock
Hotels/ Bristol (e)
03/15/1998 CapStar/American 785 1,277 10.7 NA NA 9.5 (1.0) 100% stock
General
02/20/1998 Bass PLC/ 1,400 2,950 14.0 NA NA NA NA 100% cash
InterContinental
01/04/1998 Meditrust/ 2,007 2,907 9.7 NA 20.8 NA 34.0 75% stock
La Quinta
12/03/1997 Patriot American 1,328 2,113 11.3 15.2 25.9 NA 24.0 75% stock
Hospitality/
Interstate
Hotel Company
10/20/1997 Starwood Lodging 10,700 14,200 12.6 16.3 29.6 NA 31.0 75% stock
Trust/ITT Corp.
09/09/1997 Starwood Lodging 800 1,830 11.3 NA NA NA NA 80% stock
Trust/Westin
Hotels (f)
09/02/1997 Promus/Doubletree 1,874 2,388 11.0 14.3 22.7 NA 7.0 100% stock
07/25/1997 Prime Hospitality 133 158 7.6 11.5 38.0 NA 35.6 100% stock
Corp./Homegate (g) Pooling
04/14/1997 Patriot American/ 611 763 11.2 13.9 28.0 NA 3.0 100% stock
Wyndham Hotel (h)
02/18/1997 Marriott 908 970 12.8 NA NA NA 76.0 100% stock
International/
Renaissance Hotel
Group N.V.
01/17/1997 Extended Stay 296 296 11.5 19.7 35.7 NA 32.5 100% stock
America/Studio Pooling
Plus Hotels
Inc. (g)
HIGH (EXCLUDING FIRECRACKER): 14.0 19.7 38.0 9.7 76.0
MEDIAN (EXCLUDING FIRECRACKER): 11.3 15.0 27.0 9.5 24.8
MEAN (EXCLUDING FIRECRACKER): 11.0 15.5 27.0 8.0 24.9
LOW (EXCLUDING FIRECRACKER): 7.6 11.5 15.2 4.8 (1.0)
(a) Multiples are for the year that the transaction is announced.
43
(b) Target equity market cap plus assumed debt.
(c) Forward multiples based on latest available research estimates as of date of
announcement unless otherwise noted.
(d) Assumes offer price of $10.35 per share. Based on projections dated
6/28/1999 prepared by independent consultants hired by REIT management at
the direction of the Special Committee. Does not include loss on sale of
hotel properties of $489.5 thousand.
(e) Real estate EBITDA contribution is assumed to be 91.5% of total Bristol
EBITDA.
(f) Transaction multiples are based on Westin management estimates.
(g) EBITDA multiples based on rolling four quarter analyst estimates. Homegate
multiple on 1997E EBITDA would have been 22.2X.
(h) Patriot has option to replace up to $100mm of stock with cash.
[GOLDMAN SACHS LOGO]
44
INTEGRATED COMPANY
2000E NET ASSET VALUE ANALYSIS AT VARIOUS CAP RATES
($ in thousands except per share amounts)
CAPITALIZATION RATE 13.00% 12.50% 12.00% 11.50% 11.00% 10.50%
==========================================================================
2000E Property NOI (a)(b) $ 97,103 $ 97,103 $ 97,103 $ 97,103 $ 97,103 $ 97,103
Real Estate Value (c) 746,944 776,821 809,189 844,371 882,752 924,787
Plus:
Notes Receivable 1,590 1,590 1,590 1,590 1,590 1,590
Other Assets (d) 2,600 2,600 2,600 2,600 2,600 2,600
Less:
Total Net Debt (e) $ 436,923 $ 436,923 $ 436,923 $ 436,923 $ 436,923 $ 436,923
Preferred Stock (f) 25,000 25,000 25,000 25,000 25,000 25,000
------- ------- ------- ------- ------- ------
NET ASSET VALUE WITH LESSEE/MGMT. COMPANY $ 289,211 $ 319,088 $ 351,456 $ 386,638 $ 425,019 $ 467,054
Diluted Shares Outstanding (g) 40,365 40,365 40,365 40,365 40,365 40,365
NET ASSET VALUE PER SHARE WITH LESSEE/MGMT. COMPANY $ 7.16 $ 7.91 $ 8.71 $ 9.58 $ 10.53 $ 11.57
Price Per Share of Lessee/Management Company (h) $ 0.74 $ 0.74 $ 0.74 $ 0.74 $ 0.74 $ 0.74
NET ASSET VALUE PER SHARE WITHOUT LESSEE/MGMT.
COMPANY $ 6.42 $ 7.16 $ 7.96 $ 8.84 $ 9.79 $ 10.83
PREMIUM/DISCOUNT TO NAV/SHARE WITHOUT LESSEE/MGMT. COMPANY
--------------------------------------------------------------------------
Share Price
- -------------------------------------------------------------------------------------------------------------------------------
SHP Acquisition's Final Offer $10.35 (i) 61.2% 44.5% 30.0% 17.1% 5.8% (4.4%)
- -------------------------------------------------------------------------------------------------------------------------------
Current (07/09/1999) $9.00 40.1% 25.7% 13.0% 1.9% (8.0%) (16.9%)
30 Day Avg. (Pre-Announcement) $7.24 12.7% 1.1% (9.1%) (18.1%) (26.0%) (33.2%)
90 Day Avg. (Pre-Announcement) $8.41 31.0% 17.4% 5.6% (4.8%) (14.1%) (22.3%)
180 Day Avg. (Pre-Announcement) $8.81 37.1% 23.0% 10.6% (0.3%) (10.0%) (18.7%)
One Year Avg. (Pre-Announcement) $10.81 68.3% 50.9% 35.7% 22.3% 10.4% (0.2%)
(a) Projections dated 06/28/1999 prepared by independent consultants hired by
Firecracker management at the direction of the Special Committee.
(b) Gross operating profit less 4% FF&E reserves, 3% management fee, franchise
fees, real estate taxes, property insurance and ground lease payments, plus
additional income from laundry, telephone contracts from certain assets, and
accounting fee reimbursements.
(c) Calculated by dividing NOI by the capitalization rate.
(d) Reflects Firecracker Management's estimated value of office land adjacent to
Firecracker's headquarters.
(e) Net debt at 10/31/1999 estimated by Firecracker management. Assumes no
dividend is paid in respect of second quarter.
(f) Convertible at $14.71. Preferred stock to be redeemed at par.
(g) Assumes conversion of all outstanding OP units and treats stock options and
warrants using the treasury method (i.e., issuing new shares in an amount
equal to the aggregate in the money value of such options and warrants
outstanding). Also assumes a $10.35 price per share for determining the
conversion of options and warrants.
(h) In conjunction with a Superior Proposal, Firecracker has the right to
purchase the Lessee and the Management Company at a purchase price of $30
million.
(i) SHP Acquisition's 7/9/99 offer.
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45
ANALYSIS AT VARIOUS PRICES
($ IN THOUSANDS EXCEPT PER SHARE/ROOM AMOUNTS)
NET PRICE TO FIRECRACKER SHAREHOLDERS $ 9.00 $ 9.50 $ 10.00 $ 10.50 $ 11.00 $ 11.50
====================================================================
Discount/Premium to Pre-Offer Market Price 19.0% 25.6% 32.2% 38.8% 45.5% 52.1%
Diluted Shares Outstanding (a) 40,306 40,322 40,348 40,372 40,403 40,433
------- ------- ------- ------- ------- -------
Total Equity Consideration $ 362,755 $ 383,058 $ 403,475 $ 423,905 $ 444,438 $ 464,977
Total Net Debt (b) 436,923 436,923 436,923 436,923 436,923 436,923
Preferred Equity (c) 25,000 25,000 25,000 25,000 25,000 25,000
------- ------- ------- ------- ------- -------
Enterprise Value of Firecracker $ 824,678 $ 844,981 $ 865,398 $ 885,828 $ 906,361 $ 926,900
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EBITDA (D)(E) IMPLIED FIRECRACKER EBITDA MULTIPLES
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1998A $ 82,402 10.0 x 10.3 x 10.5 x 10.8 x 11.0 x 11.2 x
1999E $ 91,670 9.0 x 9.2 x 9.4 x 9.7 x 9.9 x 10.1 x
2000E $ 100,737 8.2 x 8.4 x 8.6 x 8.8 x 9.0 x 9.2 x
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FFO PER SHARE (D) IMPLIED FIRECRACKER FFO MULTIPLES
-------------------------------------------------------------------------------
1998A $ 1.40 6.4 x 6.8 x 7.1 x 7.5 x 7.9 x 8.2 x
1999E $ 1.45 6.2 x 6.6 x 6.9 x 7.2 x 7.6 x 7.9 x
2000E $ 1.57 5.7 x 6.1 x 6.4 x 6.7 x 7.0 x 7.3 x
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ENTERPRISE VALUE OF FIRECRACKER PER ROOM (F)
---------------------------------------------------------------------
No. of Rooms 10,525 $ 78,354 $ 80,283 $ 82,223 $ 84,164 $ 86,115 $ 88,067
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Price of Lessee/Management
Company (g) 30,000 30,000 30,000 30,000 30,000 30,000
Total Enterprise Value of
Integrated Company $ 854,678 $ 874,981 $ 895,398 $ 915,828 $ 936,361 $ 956,900
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NET OPERATING INCOME OF INTEGRATED COMPANY(D)(H) IMPLIED INTEGRATED COMPANY CAP RATES
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1998A $ 67,900 7.9% 7.8% 7.6% 7.4% 7.3% 7.1%
1999E $ 88,317 10.3% 10.1% 9.9% 9.6% 9.4% 9.2%
2000E $ 97,103 11.4% 11.1% 10.8% 10.6% 10.4% 10.1%
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ENTERPRISE VALUE OF INTEGRATED COMPANY PER ROOM (F)
---------------------------------------------------------------------
No. of Rooms 10,525 $ 81,205 $ 83,134 $ 85,073 $ 87,015 $ 88,965 $ 90,917
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(a) Assumes conversion of all outstanding OP units and treats stock options and
warrants using the treasury method (i.e., issuing new shares in an amount
equal to the aggregate in the money value of such options and warrants
outstanding).
(b) Net debt at 10/31/1999 estimated by Firecracker management. Assumes no
dividend is paid in respect of second quarter.
(c) Convertible at $14.71. Preferred stock is redeemed at par.
(d) Based on projections dated 06/28/1999 prepared by independent consultants
hired by Firecracker management at the direction of the Special Committee.
(e) Lease revenue less property taxes and insurance less general and
administrative expense. Does not include cost of withdrawn debt offering of
46
$1.45 million in 1998 or loss on the sale of hotel properties of $489,500 in
1999.
(f) Includes new builds.
(g) In conjunction with a Superior Proposal, Firecracker has the right to
purchase the Lessee and the Management Company at a purchase price of $30
million.
(h) Gross operating profit less 4% FF&E reserves, 3% management fee, franchise
fees, real estate taxes, property insurance and ground lease payments, plus
additional income from laundry, telephone contracts from certain assets, and
accounting fee reimbursements.
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