EXHIBIT 99.8
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapStar Hotel Company:
We have audited the accompanying combined balance sheet of CapStar Tinton
Falls, L.P. and CapStar Kansas City Partners, L.P. (the "Partnerships") as of
December 31, 1996 and related combined statements of operations, partners'
capital and cash flows for the year then ended. These combined financial
statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of CapStar
Tinton Falls, L.P. and CapStar Kansas City Partners, L.P. as of December 31,
1996, and the results of their combined operations and their combined cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Washington D.C.
July 24, 1997
1
CAPSTAR TINTON FALLS, L.P. AND CAPSTAR
KANSAS CITY PARTNERS, L.P.
COMBINED BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
1997 1996
------------- ------------
(UNAUDITED)
ASSETS
Property and equipment:
Land............................................................................... $ 885,500 885,500
Buildings.......................................................................... 5,710,773 5,705,501
Furniture, fixtures and equipment.................................................. 1,824,851 1,678,904
------------- ------------
8,421,124 8,269,905
Less--accumulated depreciation..................................................... (1,034,363) (908,501)
Total property and equipment, net.................................................... 7,386,761 7,361,404
Cash and cash equivalents.......................................................... 172,394 487,781
Accounts receivable................................................................ 182,612 167,736
Inventory and other assets......................................................... 159,555 104,513
Deposits and retainers............................................................. 56,415 56,415
Organization costs and financing cost, net of accumulated amortization of $161,113
in 1997 and $147,977 in 1996..................................................... 331,098 344,233
------------- ------------
Total assets......................................................................... $ 8,288,835 8,522,082
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses................................................ $ 726,223 662,327
Notes payable (note 3)............................................................... 5,489,204 5,524,439
------------- ------------
Total liabilities.................................................................... 6,215,427 6,186,766
Partners' capital.................................................................... 2,073,408 2,335,316
------------- ------------
Total liabilities and partners' capital.............................................. $ 8,288,835 8,522,082
------------- ------------
------------- ------------
See accompanying notes to combined financial statements.
2
CAPSTAR TINTON FALLS, L.P. AND CAPSTAR
KANSAS CITY PARTNERS, L.P.
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
1997 1996
------------ ----------
(UNAUDITED)
Revenue:
Rooms................................................................................ $ 1,207,085 6,013,577
Food and beverage.................................................................... 581,048 2,668,119
Other operating departments.......................................................... 62,449 317,454
------------ ----------
1,850,582 8,999,150
------------ ----------
Operating costs and expenses:
Rooms................................................................................ 370,017 1,551,816
Food and beverage.................................................................... 505,280 2,192,080
Other operating departments.......................................................... 29,135 158,689
Undistributed operating expenses:
Administrative and general........................................................... 185,259 810,930
Sales and marketing.................................................................. 133,353 580,692
Management fees (note 4)............................................................. 55,161 310,953
Property operating costs............................................................. 378,318 1,568,451
Property taxes, insurance and other.................................................. 117,657 463,422
Interest (note 3).................................................................... 131,812 503,334
Depreciation and amortization........................................................ 138,998 451,336
------------ ----------
2,044,990 8,591,703
------------ ----------
Net income (loss)...................................................................... $ (194,408) 407,447
------------ ----------
------------ ----------
See accompanying notes to combined financial statements.
3
CAPSTAR TINTON FALLS, L.P. AND CAPSTAR
KANSAS CITY PARTNERS, L.P.
COMBINED STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)AND THE YEAR ENDED DECEMBER
31, 1996
Balance at January 1, 1996...................................................... $2,197,869
Distributions................................................................. (270,000)
Net income.................................................................... 407,447
---------
Balance at December 31, 1996.................................................... 2,335,316
Distributions (unaudited)..................................................... (67,500)
Net loss (unaudited).......................................................... (194,408)
---------
Balance at March 31, 1997 (unaudited)........................................... $2,073,408
---------
---------
See accompanying notes to combined financial statements.
4
CAPSTAR TINTON FALLS, L.P. AND CAPSTAR
KANSAS CITY PARTNERS, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)AND THE YEAR ENDED DECEMBER
31, 1996
1997 1996
----------- ----------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)...................................................................... $(194,408) 407,447
Adjustments to reconcile net income (loss) to cash provided (used) by operating
activities:
Depreciation and amortization........................................................ 138,998 451,336
Decrease (increase) in accounts receivable........................................... (14,876) 57,670
Decrease (increase) in inventory and other assets.................................... (55,042) 32,649
Increase in accounts payable and accrued expenses.................................... 63,896 26,612
----------- ----------
Total adjustments...................................................................... 132,976 568,267
----------- ----------
Net cash provided (used) by operating activities......................................... (61,432) 975,714
----------- ----------
Cash flows from investing activities--purchases of property and equipment................ (151,220) (367,029)
----------- ----------
Cash flows from financing activities:
Repayments on notes payable............................................................ (35,235) (139,590)
Capital distributions.................................................................. (67,500) (270,000)
----------- ----------
Net cash used by financing activities.................................................... (102,735) (409,590)
----------- ----------
Net increase (decrease) in cash and cash equivalents..................................... (315,387) 199,095
Cash and cash equivalents at beginning of period......................................... 487,781 288,686
----------- ----------
Cash and cash equivalents at end of period............................................... $ 172,394 487,781
----------- ----------
----------- ----------
Supplemental disclosure of cash flow information:
Interest paid.......................................................................... $ 131,812 503,334
----------- ----------
----------- ----------
See accompanying notes to combined financial statements.
5
CAPSTAR TINTON FALLS, L.P. AND CAPSTAR
KANSAS CITY PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(1) ORGANIZATION
CapStar Tinton Falls, L.P. is a limited partnership which owns one hotel
located in Tinton Falls, New Jersey known as the Holiday Inn Tinton Falls.
CapStar Kansas City Partners, L.P. is a limited partnership which owns one hotel
located in Kansas City, Missouri known as the Kansas City Holiday Inn Sports
Complex. The general partner of CapStar Tinton Falls, L.P. and CapStar Kansas
City Partners, L.P. (the "Partnerships") is CapStar Hotel Partners, L.P.
CapStar Hotel Company purchased the Holiday Inn Tinton Falls and the Kansas
City Holiday Inn Sport Complex from the Partnerships for approximately
$10,100,000 on April 30, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements include the accounts of the Partnerships
and have been prepared using the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
The Partnerships consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORY
Inventories, consisting primarily of china, tableware, linens, and food and
beverage items are stated at cost, using the first-in, first-out method of
inventory valuation.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed on the
buildings using the straight-line method over its useful life of 39 years.
Furniture, fixtures and equipment are depreciated using the straight-line method
over 5 to 7 years.
Management periodically evaluates potential permanent impairment of the net
carrying value of the hotels. If the net carrying value of the hotels exceed
their fair values, the excess is charged to operations. No impairment losses
were recorded during 1997 or 1996.
ORGANIZATION COSTS AND FINANCING COSTS
Organization costs incurred in the formation of the Partnerships are
amortized over useful lives of five to 40 years. Costs associated with the
acquisition of debt are amortized over the terms of the loans using a method
that approximates the interest method.
6
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write offs occur when
management deems a receivable uncollectible.
REVENUE
Revenue is earned by the Partnerships through the operations of the hotels
and is recognized when earned.
INCOME TAXES
The combined financial statements contain no provision for federal income
taxes since the Partnerships' income, losses, deductions, and credits for tax
purposes are reported on the income tax returns of the partners.
USE OF ESTIMATES
Management has made a number of estimates and assumptions related to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these combined financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(3) NOTES PAYABLE
CapStar Tinton Falls, L.P. had a note payable to Sovereign Bank. The note
had a fixed interest rate at 8 percent and required monthly payments of
principal and interest. The note was secured by the hotel property and had a
maturity date of February 1, 1998. The outstanding balance of the note was
$2,700,454 (unaudited) at March 31, 1997 and $2,711,314 at December 31, 1996.
Interest expense incurred on the note was $57,241 (unaudited) for the three
months ended March 31, 1997 and $219,417 in 1996.
CapStar Kansas City Partners, L.P. had a note payable to ORIX USA
Corporation. The note had an interest rate equal to the London Interbank Offered
Rate plus 4.25 percent (9.69 percent at December 31, 1996) and required monthly
payments of principal and interest. The note was secured by the hotel property
and had a maturity date of January 22, 2002. The outstanding balance of the note
was $2,788,750 (unaudited) at March 31, 1997 and $2,813,125 at December 31,
1996. Interest expense incurred on the note was $74,571 (unaudited) for the
three months ended March 31, 1997 and $283,917 in 1996.
Both of the above notes were repaid in full upon the sale of the hotels by
the Partnerships.
(4) RELATED-PARTY TRANSACTIONS
The two hotels are managed by CapStar Management Company, L.P. (CMC), a
subsidiary of CapStar Hotel Company. The hotels paid base management fees to CMC
based on gross revenue plus incentive management fees if the hotels' operating
results exceeded levels specified in the management contract. Management fees
incurred by the Partnerships were $55,161 (unaudited) for the three months ended
March 31, 1997 and $310,953 in 1996.
7