ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements, Supplementary Data and
Financial Statement Schedules are filed as part of this Annual Report on Form
10-K:
MeriStar Hospitality Corporation
Independent Auditors' Report ..................................................................... 40
Consolidated Balance Sheets as of December 31, 2001 and 2000 ..................................... 41
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 ....... 42
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and
1999. ......................................................................................... 44
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 ....... 45
Notes to the Consolidated Financial Statements ................................................... 46
Schedule III - Real Estate and Accumulated Depreciation .......................................... 61
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.
The Consolidated Financial Statements, Supplementary Data and Financial
Statement Schdules of MeriStar Hospitality Operating Partnership, L.P. are
incorporated herein by reference to Exhibit 13 filed herewith.
39
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MeriStar Hospitality Corporation:
We have audited the accompanying consolidated balance sheets of MeriStar
Hospitality Corporation and subsidiaries as of December 31, 2001 and 2000 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2001. In connection with our audits of the consolidated financial statements, we
have also audited the financial statement schedule of real estate and
accumulated depreciation. These consolidated financial statements and financial
statement schedule are the responsibility of MeriStar Hospitality's management.
Our responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MeriStar
Hospitality Corporation and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG LLP
Washington, D.C.
January 28,2002, except as to Note 17
which is as of February 7, 2002
40
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(in thousands, except per share amounts)
2001 2000
----------- -----------
ASSETS
Investments in hotel properties $ 3,183,677 $ 3,193,730
Accumulated depreciation (397,380) (287,229)
------------ ------------
2,786,297 2,906,501
Cash and cash equivalents 23,448 250
Accounts receivable, net of allowance for doubtful accounts of $973
and $0 47,178 2,833
Prepaid expenses and other 18,306 2,767
Note receivable from MeriStar Hotels 36,000 -
Due from MeriStar Hotels 8,877 22,221
Investments in and advances to affiliates 41,714 42,196
Restricted cash 21,304 19,918
Intangible assets, net of accumulated amortization of $11,224 and
$9,729 26,736 16,322
----------- ------------
$ 3,009,860 $ 3,013,008
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 129,786 $ 74,420
Accrued interest 45,009 28,365
Income taxes payable 350 1,151
Dividends and distributions payable 1,090 24,581
Deferred income taxes 9,031 10,140
Interest rate swaps 12,100 -
Long-term debt 1,700,134 1,638,319
----------- ------------
Total liabilities 1,897,500 1,776,976
----------- ------------
Minority interests 89,797 101,477
Stockholders' Equity:
Common stock, par value $0.01 per share
Authorized- 250,000 shares
Issued - 48,761 and 48,463 shares 487 485
Additional paid-in capital 1,183,463 1,177,218
Retained earnings (deficit) (68,241) 42,837
Accumulated other comprehensive income (12,503) (6,081)
Unearned stock-based compensation (5,287) (7,550)
Less common stock held in treasury - 4,237 and 4,083 shares (75,356) (72,354)
----------- ------------
Total stockholders' equity 1,022,563 1,134,555
----------- ------------
$ 3,009,860 $ 3,013,008
=========== ============
See accompanying notes to consolidated financial statements.
41
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands, except per share amounts)
2001 2000 1999
---------- ----------- ----------
Revenue:
Participating lease revenue $ 17,295 $ 391,729 $ 368,012
Hotel operations:
Rooms 706,381 - -
Food and beverage 269,382 - -
Other operating departments 81,971 - -
Office rental, parking and other revenue 9,859 9,049 6,892
---------- ----------- ----------
Total revenue 1,084,888 400,778 374,904
---------- ----------- ----------
Hotel operating expenses by department:
Rooms 170,925 - -
Food and beverage 194,495 - -
Other operating departments 43,558 - -
Office rental, parking and other operating expenses 3,057 2,731 1,964
Undistributed operating expenses:
Administrative and general 169,279 9,445 5,749
Property operating costs 160,041 - -
Property taxes, insurance and other 75,609 47,481 47,027
Depreciation and amortization 117,732 111,947 103,099
Write down of investment in STS Hotel Net 2,112 - -
Loss on asset impairment 43,582 - -
Swap termination costs 9,297 - -
Loss on fair value of non-hedging derivatives 6,666 - -
FelCor merger costs 5,817 - -
Costs to terminate leases with Prime Hospitality Corporation 1,315 - -
Restructuring charge 1,080 - -
---------- ----------- ----------
Total operating expenses 1,004,565 171,604 157,839
---------- ----------- ----------
Net operating income 80,323 229,174 217,065
Interest expense, net 122,376 117,524 100,398
---------- ----------- ----------
Income (loss) before minority interests, income taxes, gain (loss) on
sale of assets and extraordinary gain (loss) (42,053) 111,650 116,667
Minority interests (2,958) 10,240 11,069
---------- ----------- ----------
Income (loss) before income taxes, gain (loss) on sale of assets and
extraordinary gain (loss) (39,095) 101,410 105,598
Income tax expense (benefit) (1,178) 2,028 2,102
---------- ----------- ----------
Income (loss) before gain (loss) on sale of assets and extraordinary
gain (loss) (37,917) 99,382 103,496
Gain (loss) on sale of assets, net of tax effect of $(44) in 2001 and
$70 in 2000 (2,132) 3,425 -
Extraordinary gain (loss) on early extinguishment of debt, net of tax
effect of $(57) in 2001, $62 in 2000, ($93) in 1999 (2,713) 3,054 (4,532)
---------- ----------- ----------
Net income (loss) $ (42,762) $ 105,861 $ 98,964
========== =========== ==========
42
2001 2000 1999
--------- ----------- ----------
Earnings per share:
Basic:
Income (loss) before extraordinary gain (loss) $(0.91) $2.21 $ 2.19
Extraordinary gain (loss) (0.06) 0.07 (0.10)
--------- ----------- ----------
Net income (loss) $(0.97) $2.28 $ 2.09
========= =========== ==========
Diluted:
Income (loss) before extraordinary gain (loss) $(0.91) $2.14 $ 2.11
Extraordinary gain (loss) (0.06) 0.06 (0.08)
--------- ----------- ----------
Net income (loss) $(0.97) $2.20 $ 2.03
========= =========== ==========
See accompanying notes to consolidated financial statements.
43
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands)
Common Stock
--------------------------------------
Issued Treasury Accumlated
------------------ ------------------- Additional Other Unearned
Paid In Retained Comprehen- Stock-Based
Shares Amount Shares Amount Capital Earnings sive Income Compensation Total
-------- -------- --------- --------- ---------- --------- ------------ ------------- -----------
Balance, January 1, 1999 46,718 $ 467 - $ - $1,133,357 $ 27,222 $ (6,487) $ - $1,154,559
Net income for the year - - - - - 98,964 - - 98,964
Foreign currency
translation adjustment - - - - - - 1,240 - 1,240
----------
Comprehensive income 100,204
Issuances of common stock 95 1 - - 1,990 - - - 1,991
Shares repurchased - - (407) (6,252) - - - - (6,252)
Redemption of OP Units 851 9 - - 29,403 - - - 29,412
Dividends declared - - - - - (96,018) - - (96,018)
-------- ------- -------- -------- --------- --------- ------------ ------------- ----------
Balance, December 31,
1999 47,664 477 (407) (6,252) 1,164,750 30,168 (5,247) - 1,183,896
Net income for the year - - - - - 105,861 - - 105,861
Foreign currency
translation adjustment - - - - - - (834) - (834)
----------
Comprehensive income 105,027
Issuances of common stock 133 1 - - 1,831 - - - 1,832
Issuances of restricted
stock 589 6 - - 10,614 - - (10,620) -
Amortization on unearned
stock-based compensation - - - - - - - 3,070 3,070
Shares repurchased - - (3,676) (66,102) - - - - (66,102)
Redemption of OP Units 77 1 - - 23 - - - 24
Dividends declared - - - - - (93,192) - - (93,192)
-------- ------- -------- -------- --------- --------- ------------ ------------- ----------
Balance, December 31,
2000 48,463 485 (4,083) (72,354) 1,177,218 42,837 (6,081) (7,550) 1,134,555
Net income (loss) for
the year - - - - - (42,762) - - (42,762)
Foreign currency
translation adjustment - - - - - - (1,176) - (1,176)
Derivative instruments
transition adjustment (2,842) (2,842)
Change in valuation of
derivative instruments (2,404) (2,404)
----------
Comprehensive income (loss) (49,184)
Issuances of common stock 48 - - 847 - - - 847
Forfeiture of restricted stock (28) (28)
Amortization on unearned
stock-based compensation - - - - - - - 2,263 2,263
Shares repurchased - - (154) (3,002) - - - - (3,002)
Redemption of OP Units 250 2 - - 5,426 - - - 5,428
Dividends declared - - - - - (68,316) - - (68,316)
-------- ------- -------- -------- --------- --------- ------------ ------------- ----------
Balance, December 31, 2001 48,761 $ 487 (4,237) $(75,356) $1,183,463 $ (68,241) $ (12,503) $ (5,287) $1,022,563
======== ======= ======== ======== ========== ========= ============ ============= ==========
See accompanying notes to the consolidated financial statements.
44
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands)
2001 2000 1999
------------ ----------- -----------
Operating activities:
Net income (loss) $ (42,762) $ 105,861 $ 98,964
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 117,732 111,947 103,099
(Gain) loss on assets sold, before tax effect 2,176 (3,495) -
Extraordinary (gain) loss on early extinguishment of debt,
before tax effect 2,770 (3,116) 4,625
Loss on asset impairment 43,582 - -
Loss on fair value of non-hedging derivatives 6,666 - -
Write down of investment in STS Hotel Net 2,112 - -
Minority interests (2,958) 10,240 11,069
Amortization of unearned stock-based compensation 2,263 3,070 -
Deferred income taxes (1,109) 795 892
Changes in operating assets and liabilities:
Accounts receivable, net 2,855 (1,505) 1,716
Prepaid expenses and other (2,039) 6,370 (5,260)
Income tax receivable - - 339
Intangible assets, net - - (245)
Due from MeriStar Hotels 13,344 (10,745) (4,039)
Accounts payable, accrued expenses, accrued interest and
other liabilities 6,304 4,194 17,303
Income taxes payable (801) 421 730
------------ ----------- -----------
Net cash provided by operating activities 150,135 224,037 229,193
------------ ----------- -----------
Investing activities:
Investment in hotel properties, net (44,476) (90,703) (170,063)
Proceeds from disposition of assets 9,715 24,148 8,900
Investments in and advances to affiliates, net - (2,111) (31,298)
Hotel operating cash received in lease conversions 3,257 - -
Purchases of minority interests - - (72)
Notes receivable from MeriStar Hotels (36,000) 57,110 9,890
Change in restricted cash (1,386) (2,730) (5,309)
------------ ----------- -----------
Net cash used in investing activities (68,890) (14,286) (187,952)
------------ ----------- -----------
Financing activities:
Deferred financing costs (18,927) (1,615) (6,899)
Proceeds from issuance of long-term debt 933,250 179,388 484,924
Principal payments on long-term debt (871,467) (214,724) (410,217)
Proceeds from issuances of common stock, net 847 1,741 1,991
Purchases of OP units (1,513) (7,535) -
Purchases of treasury stock (3,002) (66,102) (6,252)
Dividends paid to stockholders (89,470) (94,062) (94,774)
Distributions to minority investors (8,069) (9,212) (11,585)
------------ ----------- -----------
Net cash used in financing activities (58,351) (212,121) (42,812)
------------ ----------- -----------
Effect of exchange rate changes on cash and cash equivalents 304 64 (53)
Net increase (decrease) in cash and cash equivalents 23,198 (2,306) (1,624)
Cash and cash equivalents, beginning of year 250 2,556 4,180
------------ ----------- -----------
Cash and cash equivalents, end of year $ 23,448 $ 250 $ 2,556
============ =========== ===========
See accompanying notes to consolidated financial statements.
45
MERISTAR HOSPITALITY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
(dollars in thousands, except per share amounts)
1. Organization
We own a portfolio of primarily upscale, full-service hotels in the United
States and Canada. Our portfolio is diversified by franchise and brand
affiliations. As of December 31, 2001, we owned 112 hotels, with 28,653 rooms,
all of which were leased by our taxable subsidiaries and managed by MeriStar
Hotels & Resorts, Inc.
We were created on August 3, 1998, when American General Hospitality
Corporation, a corporation operating as a real estate investment trust, or REIT,
merged with CapStar Hotel Company. In connection with the merger between CapStar
and American General, we created MeriStar Hotels, a separate publicly traded
company, to be the lessee and manager of nearly all of our hotels.
On January 1, 2001, changes to the federal tax laws governing real estate
investment trusts became effective. Those changes are commonly known as the REIT
Modernization Act, or RMA. The RMA permits real estate investment trusts to
create taxable subsidiaries that are subject to taxation similar to subchapter
C-Corporations. Because of the RMA, we have created a number of these taxable
subsidiaries to lease our real property. The RMA prohibits our taxable
subsidiaries from engaging in the following activities:
. Managing the properties they lease (our taxable subsidiaries must
enter into an "arm's length" management agreement with an independent
third-party manager that is actively involved in the trade or business
of hotel management and manages properties on behalf of other owners);
. Leasing a property that contains gambling operations; and
. Owning a brand or franchise.
We believe establishing taxable subsidiaries to lease the properties we own
provides a more efficient alignment of and ability to capture the economic
interests of property ownership. Under the prior lease structure with MeriStar
Hotels, we received lease payments based on the revenues generated by the
properties; MeriStar Hotels, however, operated the properties in order to
maximize net operating income from the properties. This inconsistency could
potentially result in the properties being operated in a way that did not
maximize revenues. With the assignment of the leases from MeriStar Hotels to our
taxable subsidiaries and the execution of the new management agreements (as
described below), we gained the economic risks and rewards usually associated
with ownership of real estate, and property revenues became the basis for
MeriStar Hotels' management fees.
Subsidiaries of MeriStar Hotels assigned the participating leases to our
wholly-owned taxable subsidiaries as of January 1, 2001. In connection with the
assignment, the taxable subsidiaries executed new management agreements with a
subsidiary of MeriStar Hotels to manage our hotels. Under these management
agreements, the taxable subsidiaries pay a management fee to MeriStar Hotels for
each property. The taxable subsidiaries in turn make rental payments to us under
the participating leases. The management agreements have been structured to
substantially mirror the economics of the former leases. The assignment of the
leases from MeriStar Hotels to our taxable subsidiaries did not result in any
cash consideration exchanged among the parties except for the transfer of hotel
operating assets and liabilities to the taxable subsidiaries. Under the new
management agreements, the base management fee is 2.5% of total hotel revenue.
MeriStar Hotels can also earn incentive management fees, based on meeting
performance thresholds, of up to 1.5% of total hotel revenue. The agreements
have an initial term of 10 years with three renewal periods of five years each
at the option of MeriStar Hotels, subject to some exceptions. Because these
leases have been assigned to our taxable subsidiaries, we now bear the operating
risk associated with our hotels.
On May 9, 2001, our operating partnership and we entered into an Agreement
and Plan of Merger with FelCor Lodging Trust Incorporated and its operating
partnership. On September 13, the Securities and
46
Exchange Commission rendered our S-4 document effective. On September 21, 2001,
we mutually agreed with FelCor to terminate the merger agreement due to
unfavorable market conditions. We have incurred $5,817 of costs related to this
merger through December 31, 2001 and these costs have been expensed in our
statement of operations.
2. Summary of Significant Accounting Policies
Principles of Consolidation - Our consolidated financial statements include
the accounts of all of our majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
We use the equity method to account for investments in unconsolidated joint
ventures and affiliated companies in which we hold a voting interest of 50% or
less and exercise significant influence. We use the cost method to account for
our investment in entities in which we do not have the ability to exercise
significant influence.
Cash Equivalents and Restricted Cash - We consider all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Restricted cash represents amounts required to be maintained in
escrow under certain of our credit facilities.
Investments in Hotel Properties - We record investments in hotel properties
at cost (the allocated purchase price for hotel acquisitions) or at fair value
at the time of contribution (for contributed property). We depreciate property
and equipment balances using the straight-line method over lives ranging from
five to 40 years. For the years ended December 31, 2001, 2000 and 1999, we
capitalized interest of $6,098, $8,613, and $12,540, respectively. We carry
properties held for sale at the lower of their carrying values or estimated fair
values less costs to sell. We discontinue depreciation of these properties when
a property is classified as held for sale. Our properties held for sale are not
material and, therefore, are included in investments in hotel properties.
Intangible Assets - Intangible assets consist primarily of deferred
financing fees. We amortize these deferred fees on a straight-line basis over
the lives of the related borrowings.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of -
Whenever events or changes in circumstances indicate that the carrying values of
long-lived assets (including property and equipment and all intangibles) may be
impaired, we perform an analysis to determine the recoverability of the asset's
carrying value. The carrying value of the asset includes the original purchase
price (net of depreciation) plus the value of all capital improvements (net of
depreciation). If the analysis indicates that the carrying value is not
recoverable from future cash flows, we write down the asset to its estimated
fair value and recognize an impairment loss. The estimated fair value is based
on what we estimate the current sale price of the asset to be based on
comparable sales information or other estimates of the asset's value. Any
impairment losses we recognize are recorded as operating expenses. In 2001, we
recognized $43.6 million of impairment losses. We did not recognize any
impairment losses in 2000 or 1999.
We review long-lived assets for impairment when one or more of the
following events have occurred:
a. Current or immediate short-term (future twelve months) projected cash
flows are significantly less than the most recent historical cash
flows.
b. The unplanned departure of an executive officer or other key personnel
which could adversely affect our ability to maintain our competitive
position and manage future growth.
c. A significant adverse change in legal factors or an adverse action or
assessment by a regulator, which could affect the value of our
long-lived assets.
d. Events which could cause significant adverse changes and uncertainty
in business and leisure travel patterns.
We make estimates of the undiscounted cash flows from the expected future
operations of the asset. In projecting the expected future operations of the
asset, we base our estimates on future budgeted earnings before interest
expense, income taxes, depreciation and amortization, or EBITDA, amounts and use
growth assumptions to project these amounts out over the expected life of the
underlying asset. Our growth assumptions are based on assumed future
improvements in the national economy and improvements in demand for lodging.
Income Taxes - We account for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards or SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts.
In conjunction with the merger on August 3, 1998, we became a REIT and were
therefore no longer subject to federal income taxes, provided that we comply
with various requirements necessary to maintain REIT status. REITs are subject
to state and local taxes in certain jurisdictions.
When RMA became effective on January 1, 2001, we created taxable
subsidiaries that are subject to taxation similar to subchapter C-corporations.
Because of the RMA, we have created a number of these taxable subsidiaries as
the lessees of our real property. The income of these taxable subsidiaries is
subject to federal income tax.
47
Foreign Currency Translation - We maintain results of operations for our
Canadian hotels in Canadian dollars and translate those results using the
average exchange rates during the period. We translate assets and liabilities to
U.S. dollars using the exchange rate in effect at the balance sheet date. We
reflect resulting translation adjustments in accumulated other compensation
income (loss).
Revenue Recognition - Prior to January 1, 2001, we earned participating
lease revenue from the leasing of all of our hotel operating properties. We
earned participating lease revenue from only eight hotels in 2001. Participating
lease revenue represented lease payments from lessees pursuant to participating
lease agreements. Effective January 1, 2001, in conjunction with RMA, we began
to earn rooms, food and beverage, and other revenue through the operations of
our hospitality properties. We recognize those revenues as hotel services are
delivered. Office, retail and parking rental is generally recognized on a
straight-line basis over the terms of the respective leases.
Paticipating Lease Agreement-Changes to the federal tax laws governing
REITs became effective on January 1, 2000. Under those changes, we have created
a number of taxable subsidiaries to lease our real property. Our taxable
susidiaries are wholly-owned and are similar to a subchapter C-corporation. As a
result, on January 1, 2001, MeriStar Hotels assigned their participating leases
to our taxable subsidiaries and the taxable subsidiaries entered into management
agreements with MeriStar Hotels to manage our properties. Under these management
agreements, the taxable subsideries pay MeriStar Hotels a management fee. The
taxable subsidiaries in turn make rental payments to us under the participating
leases. The management agreements have been structured to substantially mirror
the economics and terms of the former leases.
Use of Estimates - Preparing financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
Segment Information - SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," requires public entities to report selected
information about operating segments in financial reports issued to
shareholders. Based on the guidance provided in the standard, we have determined
that our business is conducted in one reportable segment. The standard also
establishes requirements for related disclosures about products and services,
geographic areas and major customers.
The following table summarizes geographic information required to be disclosed
under SFAS No. 131:
2001 2000 1999
------------- ------------- ------------
Revenue:
U.S. $1,061,621 $ 394,257 $367,893
Foreign 23,267 6,521 7,011
------------- ------------- ------------
$1,084,888 $ 400,778 $374,904
============= ============= ============
Investments in hotel
properties, net:
U.S. $2,734,028 $2,850,348
Foreign 52,269 56,153
------------- -------------
$2,786,297 $2,906,501
============= =============
Comprehensive Income - SFAS No. 130, "Reporting Comprehensive Income,"
requires an enterprise to display comprehensive income and its components in a
financial statement to be included in an enterprise's full set of annual
financial statements or in the notes to financial statements. Comprehensive
income represents a measure of all changes in equity of an enterprise that
result from recognized transactions and other economic events for the period
other than transactions with owners in their capacity as owners. Our
comprehensive income includes net income and other comprehensive income from
foreign currency items and derivative instruments.
48
Derivative Instruments and Hedging Activity - SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," requires an entity to recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 137 and No. 138 amended certain
provisions of SFAS No. 133. We adopted these accounting pronouncements effective
January 1, 2001.
New Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board issued SFAS No. 141, "Business Combinations," SFAS No. 142,
"Goodwill and Other Intangible Assets," and SFAS No. 143 "Accounting for Asset
Retirement Obligations." In August 2001, the FASB issued SFAS No. 144
"Accounting for the Impairment of Disposal of Long-Lived Assets," which
supersedes SFAS No. 121. We are currently in the process of evaluating the
effect these new standards will have on our financial statements.
3. Investments in Hotel Properties
Investments in hotel properties consists of the following:
December 31,
--------------------------------
2001 2000
-------------- -------------
Land $ 310,921 $ 317,072
Buildings 2,473,651 2,461,089
Furniture, fixtures and equipment 354,392 338,350
Construction-in-progress 44,713 77,219
-------------- -------------
Total $3,183,677 $3,193,730
============== =============
4. Investments in and Advances to Affiliates
We have ownership interests in certain unconsolidated joint ventures and
affiliated companies.
In conjunction with the lease assignments from MeriStar Hotels on January
1, 2001, we acquired the ownership interest in Ballston Parking Associates of
$1,629. We account for this investment using the cost method.
In 1999, we invested $40,000 in MeriStar Investment Partners, LP ("MIP"), a
joint venture established to acquire upscale, full-service hotels. Our
investment is in the form of a preferred partnership interest. We receive a
16% preferred return on our investment. We account for this investment using the
cost method.
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
-------------------------------
2001 2000
-------------- --------------
Senior unsecured notes ......................... $ 750,000 $ -
Credit facility ................................ 224,000 898,000
Secured facility ............................... 330,000 330,000
Subordinated notes ............................. 205,000 205,000
Convertible notes .............................. 154,300 154,300
Mortgage debt and other ........................ 52,335 59,036
Unamortized issue discount ..................... (15,501) (8,017)
-------------- --------------
$1,700,134 $1,638,319
============== ==============
49
Future Maturities- Aggregate future maturities of the above obligations are
as follows:
2002 ............................................................ $ 15,543
2003 ............................................................ 232,589
2004 ............................................................ 171,168
2005 ............................................................ 9,265
2006 ............................................................ 10,006
Thereafter ...................................................... 1,261,563
--------------
$1,700,134
==============
Senior Unsecured Notes - In December 2001, we issued $250,000 aggregate
principal amount of 10.5% senior notes due June 2009. The notes are unsecured
obligations of certain subsidiaries of ours and we guarantee payment of
principal and interest on the notes. The net proceeds from the sale of $248,420
were used to repay amounts outstanding under the credit facility. The repayments
of term loans under the credit facility resulted in an extraordinary loss of
$1,527 ($1,489, net of tax) from the write-off of deferred financing costs.
In January 2001, we issued $300,000 aggregate principal amount of 9.0%
senior notes due 2008 and $200,000 of 9.13% senior notes due 2011. The notes are
unsecured obligations of certain subsidiaries of ours and we guarantee payment
of principal and interest on the notes. The net proceeds from the sale of
$492,000 were used to repay amounts outstanding under the credit facility and to
make payments to terminate certain swap agreements that hedged variable rate
loans that were repaid. The repayments of term loans under the credit facility
resulted in an extraordinary loss of $1,243 ($1,224, net of tax) from the
write-off of deferred financing costs.
Credit Facility - In conjunction with the merger, we entered into a
$1,000,000 senior secured credit facility. The credit facility was structured as
a $300,000, five-year term loan facility; a $200,000, five-and-a-half year term
loan facility; and a $500,000, three-year revolving credit facility with two,
one-year optional extensions. We used the proceeds from the sales of senior
unsecured notes in 2001 to repay amounts outstanding under the two term loans.
The credit facility is secured by our common stock and our general partnership,
limited partnership and limited liability ownership interests in our
subsidiaries. The interest rate on the term loans and revolving facility ranges
from 100 to 200 basis points over the 30-day LIBOR, depending on certain
financial performance covenants and long-term senior unsecured debt ratings. The
weighted average interest rate on borrowings outstanding under our credit
facility as of December 31, 2001 and 2000 was 8.3%. As of December 31, 2001, we
had $76,000 available to borrow under the credit facility.
Our senior credit facility requires us to meet or exceed certain financial
performance ratios at the end of each quarter. Travel disruptions and safety
concerns following the terrorist attacks on September 11, 2001 and the slowdown
of the national economy resulted in a significant negative impact to the lodging
industry and our operations. This decline in operations would have caused us to
be out of compliance with certain financial covenants specified in our senior
credit agreement. On October 24, 2001, however, we finalized a temporary waiver
on all affected financial covenants with our senior bank group and engaged in
discussions to amend our senior credit agreement further. This waiver to the
credit agreement allowed these financial covenants to be waived for the period
beginning September 30, 2001 and ending February 28, 2002. In December 2001, we
amended the terms of our senior credit facility. This permanently relaxed the
financial covenants required under the loan and allows us to extend the
maturity date of the credit facility from July 2002 until July 2003. We incurred
$4,382 of costs related to the amended agreement.
Secured Facility - In 1999 we completed a $330,000, 10-year non-recourse
financing secured by a portfolio of 19 hotels. The loan bears a fixed interest
rate of 8.01% and matures in 2009. We used most of the net proceeds to repay
amounts outstanding under our prior credit facilities.
50
Subordinated Notes - In 1999 we issued $55,000 aggregate principal amount
(issue price of $51,906, net of discount) of 8.75% senior subordinated notes due
2007. The net proceeds of $51,219 were used to repay amounts outstanding under
our credit facility and to invest in MIP. These notes are our unsecured
obligations and are guaranteed by certain of our subsidiaries. These notes
provide for semi-annual payments of interest on February 15 and August 15,
commencing on August 15, 1999.
In 1997, we completed the offering of $150,000 aggregate principal amount
(issue price of $149,799, net of discount) of 8.75% senior subordinated notes
due 2007, generating net proceeds of $144,620. The indenture pursuant to which
the subordinated notes were issued contains certain covenants, including
maintenance of certain financial ratios, reporting requirements, and other
customary restrictions. The subordinated notes are our unsecured obligations and
are guaranteed by certain of our subsidiaries. These notes provide for
semi-annual payments of interest on February 15 and August 15, commencing on
February 15, 1998.
Convertible Notes - In 1997, we completed the offering of $172,500
aggregate principal amount of 4.75% convertible subordinated notes due 2004,
generating net proceeds of $167,581. The proceeds were used to repay amounts
outstanding under our prior credit facility and to finance certain hotel
acquisitions. The convertible notes are unsecured obligations and provide for
semi-annual payments of interest on April 15 and October 15, commencing on April
15, 1998. During 2000, we repurchased $18,200 of our convertible notes at a
discount. This resulted in an extraordinary gain of $3,116 ($3,054, net of tax
effect).
Mortgage Debt - In connection with the merger, we assumed mortgage debt
secured by seven hotels. The mortgage debt matures between 2001 and 2012, and
the interest rates on the mortgages range from 7.5% to 10.5%.
Hedge Agreements and Other Derivatives- Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows. We assess interest rate cash flow risk by continually identifying and
monitoring changes in interest rate exposures that may adversely impact expected
future cash flows, and by evaluating hedging opportunities. We do not enter into
derivative instruments for any purpose other than cash flow hedging purposes.
We recognized a transition adjustment of $2,842 as the fair value of our
derivative instruments at January 1, 2001. We recorded a liability and
corresponding charge to other comprehensive loss for this amount. As of December
31, 2001, the fair value of the derivative instruments represents a liability of
$12,100.
Upon the sale of our $250,000 senior unsecured notes in December 2001, we
reduced the term loans and our revolver under our senior secured credit facility
by an aggregate amount of $248,400. At that time, we converted three swap
agreements to non-hedging derivatives. These swap agreements had notional
principal amounts of approximately $151,400 and were originally designated to
hedge interest rates on borrowings under our senior secured credit facility that
were repaid. We recognized a $6,666 loss when this amount was transferred out of
accumulated other comprehensive income because the debt being hedged was repaid.
Upon the sale of our $500,000 senior unsecured notes in January 2001, we
reduced the term loans under our senior secured credit facility by $300,000. At
that time, we terminated three swap agreements with a notional amount of
$300,000. These swap agreements were originally designated as cash flow hedges
of interest rates on the variable rate term loans that were repaid. We made net
payments totaling $9,297 million to our counter parties to terminate these swap
agreements, and recognized a $9,297 million loss related to those terminated
swaps.
As of December 31, 2001, we had three swap agreements with notional amounts
totaling $300,000. A portion of these swap agreements ($148,600) provide hedges
against the impact future interest rates have on our floating LIBOR debt
instruments. The remaining portion of the swap agreements ($151,400) have been
converted to non-hedging derivatives. The swap agreements effectively fix the
30-day LIBOR between 4.77% and 6.4%. The swap agreements expire between December
2002 and July 2003. For the year ended December 31, 2001 and 2000, we have
(made)/received net payments of approximately $(6,285) and $3,081, respectively.
51
The fair value of swap agreements designated as cash flow hedges is $5,246
at December 31, 2001 and recorded in accumulated other comprehensive income. The
estimated amount recorded in accumulated other comprehensive income expected to
be reclassified to the statement of operations during 2002 is $4,735.
In anticipation of the August 1999 completion of our mortgage-backed
secured facility, we entered into two separate hedge transactions during July
1999. Upon completion of the secured facility, we terminated the underlying
treasury lock agreements, resulting in a net payment to us of $5,100. This
amount was deferred and is being recognized as a reduction to interest expense
over the life of the underlying debt. As a result, the effective interest rate
on the secured facility is 7.76%.
Additionally, in anticipation of the August 1997 offering of $150,000
aggregate principal amount of our 8.75% senior subordinated notes due 2007, we
entered into separate hedge transactions during June and July 1997. Upon
completion of the subordinated notes offering, we terminated the underlying swap
agreements, resulting in a net payment to us of $836. This amount was deferred
and is being recognized as a reduction to interest expense over the life of the
underlying debt. As a result, the effective interest rate on the subordinated
notes is 8.69%.
As of December 31, 2001, after consideration of the hedge agreements
described above, 95.6% of our debt was fixed and our overall weighted average
interest rate was 8.49%.
We have determined the fair value of our outstanding balance of long-term
debt approximates $1,625,000 at December 31, 2001.
6. Income Taxes
When the RMA became effective on January 1, 2001, we created taxable
subsidiaries to lease certain of our properties. These subsidiaries are subject
to taxation similar to C-corporations. The income of these taxable subsidiaries
is subject to federal income tax.
Our income taxes were allocated as follows:
2001 2000 1999
------------ ------------ ------------
Taxes on income (loss) before gain (loss) on sale of
assets and extraordinary gain (loss) .................... $(1,178) $2,028 $2,102
Taxes on gain (loss) on sale of assets .................. (44) 70 -
Tax expense (benefit) on extraordinary gain (loss) ...... (57) 62 (93)
------------ ------------ ------------
Total income tax expense (benefit) .................... $(1,279) $2,160 $2,009
============ ============ ============
Our income (loss) before taxes (including the gain (loss) on sale of assets
and extraordinary items, and net of minority interests) was $(44,940), $107,889,
and $101,066 in 2001, 2000 and 1999, respectively. Our total income tax expense
(benefit) was $(1,279), $2,160 and $2,009, respectively. Therefore, our
effective income tax rates were 2.7%, 2.0% and 2.0%, respectively.
Our effective income tax rate differs from the federal statutory income tax rate
as follows:
2001 2000 1999
------------ ------------ ------------
Statutory tax rate 35.0% 35.0% 35.0%
Effect of REIT dividends paid deduction (34.3) (35.0) (35.0)
State and local taxes 1.8 1.7 1.7
Difference in effective rate on foreign subsidiaries 0.2 0.3 0.3
------------ ------------ ------------
2.7% 2.0% 2.0%
============ ============ ============
52
The components of income tax expense (benefit) related to income (loss)
before gain (loss) on sale of assets and extraordinary gain (loss) are as
follows:
2001 2000 1999
------------ ------------ ------------
Current:
Federal $ - $ - $ -
State 400 800 1,020
Foreign 100 433 190
------------ ------------ ------------
500 1,233 1,210
Deferred:
Federal (337) - -
State (1,231) 685 842
Foreign (110) 110 50
------------ ------------ ------------
(1,678) 795 892
------------ ------------ ------------
$ (1,178) $ 2,028 $ 2,102
============ ============ ============
The tax effects of the principal temporary differences that give rise to
our net deferred tax liability are as follows:
December 31,
---------------------------
2001 2000
------------ ------------
Accelerated depreciation/basis difference $ 2,130 $ 2,611
Fair value of hotel assets acquired 6,800 6,800
Allowance for doubtful accounts 82 (30)
Accrued vacation (15) (15)
Accrued expenses 482 482
Net operating loss (449) -
Other 1 292
------------ ------------
Net deferred tax liability $ 9,031 $10,140
============ ============
Our taxable subsidiaries had a net operating loss in 2001. We have not
recorded a valuation allowance against the deferred tax assets this loss creates
as of December 31, 2001 as we believe it is more likely than not we will realize
these deferred tax assets.
In conjunction with the merger and related transactions, we had several
significant events that affect income tax-related balances for the years ended
December 31, 2001 and 2000. These events are summarized below:
... REITs are subject to federal income taxes in certain instances for asset
dispositions occurring within 10 years of electing REIT status. We do not
expect to incur federal tax liability resulting from the disposition of
assets with built-in gain. The 2001 and 2000 asset dispositions were not
subject to the built-in gain rules.
... At the time of the merger in 1998, we established a new accounting basis
for American General's assets and liabilities based on their fair values.
In accordance with generally accepted accounting principles, we have
provided a deferred income tax liability for the estimated future tax
effect of differences between the accounting and tax bases of assets
acquired from American General. This deferred income tax liability, related
to future state and local income taxes, is estimated as $6,800, based on
information available at the date of the merger and subsequently.
7. Stockholders' Equity and Minority Interests
Common Stock Transactions- We are authorized to issue up to 100,000 shares
of our preferred stock, par value $0.01 per share, from time to time with such
rights, preferences and priorities as the Board of Directors shall designate. We
have not issued any preferred stock.
53
In September 1999, our Board of Directors authorized the repurchase of up
to 5,000 shares of our common stock from time to time in open market or
privately negotiated transactions. As of December 31, 2001 we have repurchased a
total of 4,200 shares for $75,356.
In May 2000, we implemented a stock purchase plan that allowed eligible
employees to purchase our common stock at a discount to market value. We had
reserved 500,000 shares of common stock for issuance under this plan. In
September 2001, we discontinued the stock purchase plan.
OP Units - Substantially all of our assets are held indirectly by and
operated through MeriStar Hospitality Operating Partnership, L.P., our
subsidiary operating partnership.
Our operating partnership's partnership agreement provides for five classes
of partnership interests: Common OP Units, Class B OP Units, Class C OP Units,
Class D OP Units and Profits-Only OP Units. Holders of Common OP Units and Class
B OP Units receive distributions per OP Unit equivalent to the dividend paid on
each of our common shares. Holders of Class C OP Units receive a non-cumulative,
quarterly distribution equal to $0.5575 per Class C OP Unit so long as the
common OP Units and Class B OP Units receive a distribution for such quarter and
the dividend rate on our common stock does not exceed $0.5575. The Class C OP
Units automatically convert into Common OP Units when that dividend rate is
exceeded. Holders of Class D OP Units receive a 6.5% cumulative annual preferred
return based on an assumed price per common share of $22.16; the return is
compounded quarterly to the extent not paid on a current basis, and holders are
entitled to a liquidation preference of $22.16 per Class D OP Unit. All net
income and capital proceeds earned by the operating partnership (after payment
of the annual preferred return and, if applicable, the liquidation preference)
will be shared by the holders of the Common OP Units in proportion to the number
of Common OP Units in the relevant operating partnership owned by each such
holder.
During 1999, we issued 65,875 Common OP Units to partially finance the
purchase of a hotel, and we issued 974,588 Common OP units as a conditional
component of a purchase agreement for a hotel we purchased in 1998.
On March 21, 2001, June 28, 2001, September 18, 2001 and December 17, 2001,
we declared our first, second, third and fourth quarter dividends, respectively,
equivalent to an annual rate of $1.525 per share of common stock and Common OP
Unit. The amount of the dividend for each quarter was $0.505 per share of common
stock or Common OP Unit for the first, second and third quarters and $0.01 per
share of common stock and OP unit for the fourth quarter. These dividends were
paid on April 30, 2001, July 31, 2001, October 12, 2001 and January 31, 2002.
On March 21, 2000, June 21, 2000, September 25, 2000 and December 20, 2000,
we declared our first, second, third and fourth quarter dividends, respectively,
equivalent to an annual rate of $2.02 per share of common stock or Common OP
Unit. The amount of the dividend for each quarter was $0.505 per share of common
stock or Common OP Unit. These dividends were paid on April 28, 2000, July 31,
2000, October 31, 2000 and January 31, 2001.
On March 17, 1999, June 21, 1999, September 15, 1999 and December 6, 1999,
we declared our first, second, third and fourth quarter dividends, respectively,
equivalent to an annual rate of $2.02 per share of common stock and OP Unit. The
amount of the dividend for each quarter was $0.505 per share of common stock or
OP Unit. These dividends were paid on April 30, 1999, July 30, 1999, October 29,
1999 and January 31, 2000.
54
8. Earnings Per Share
The following table presents the computation of basic and diluted earnings
per share:
Year Ended December 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Basic Earning Per Share Computation:
Net income (loss) before extraordinary
gain (loss) $ (40,049) $ 102,807 $ 103,496
Dividends paid on unvested restricted stock (502) (1,168) -
---------- ---------- ----------
Income (loss) available to common stockholders (40,551) 101,639 103,496
Weighted average number of shares
of Common Stock outstanding 44,507 45,958 47,276
---------- ---------- ----------
Basic earnings per share before extraordinary
gain (loss) $ (0.91) $ 2.21 $ 2.19
========== ========== ==========
Diluted Earnings Per Share Computation:
Income (loss) available to common shareholders $ (40,551) $ 101,639 $ 103,496
Minority interest, net of tax - 554 10,143
Interest on convertible debt, net of tax - 7,338 8,137
Dividends on unvested restricted stock - 254 -
---------- ---------- ----------
Adjusted net income $ (40,551) $ 109,785 $ 121,776
---------- ---------- ----------
Weighted average number of shares
of common stock outstanding 44,507 45,958 47,276
Common stock equivalents:
Operating partnership units - 441 5,205
Stock options - 208 102
Convertible debt - 4,612 5,066
Restricted stock - 176 -
---------- ---------- ----------
Total weighted average number of diluted
shares of common stock outstanding 44,507 51,395 57,649
---------- ---------- ----------
Diluted earnings per share before extraordinary
gain (loss) $ (0.91) $ 2.14 $ 2.11
========== ========== ==========
9. Related-Party Transactions
Pursuant to an intercompany agreement, we and MeriStar Hotels provide each
other with, among other things, reciprocal rights to participate in certain
transactions entered into by each party. In particular, MeriStar Hotels has a
right of first refusal to become the manager of any real property we acquire.
We also may provide each other with certain services. These may include
administrative, renovation supervision, corporate, accounting, finance, risk
management, legal, tax, information technology, human resources, acquisition
identification and due diligence, and operational services, for which MeriStar
Hotels is compensated in an amount that we would be charged by a third party for
comparable services. During the years ended December 31, 2001, 2000 and 1999, we
paid MeriStar Hotels a net amouunt of $151, $1,165 and $1,600 respectively, for
such services.
MeriStar Hotels has a revolving credit facility with us. On March 1, 2000,
MeriStar repaid the remaining balance of $57,100 on its revolving credit
agreement with us upon closing its bank revolving credit facility. At that time,
the revolving credit facility was amended to reduce the maximum borrowing
55
limit from $75,000 to $50,000 and to increase the interest rate on the facility
from LIBOR plus 350 basis points to LIBOR plus 650 basis points. During 2001,
2000 and 1999, we earned interest of $5,005, $955, and $4,907, respectively,
from this facility. As of December 31, 2001, MeriStar Hotels had $36,000 of
borrowings outstanding under this facility.
Certain members of our management and our respective affiliates owned
equity interests relating to a hotel that we acquired in January 1999. These
persons and affiliates received an aggregate of $1,488 of our OP Units in
exchange for their interests in the hotel.
Of the $300,000 aggregate principal amount of 9.0% senior unsecured notes
due in 2008 we sold in January 2001, $30,000 principal amount was sold at a
price of 99.688% to an affiliate of Oak Hill Capital Partners. The notes
purchased were identical to those purchased by third parties.
Of the $200,000 aggregate principal amount of 9.13% senior unsecured notes
due in 2011 we sold in January 2001, $20,000 principal amount was sold at a
price of 99.603% to an affiliate of Oak Hill Capital Partners. The notes
purchased were identical to those purchased by third parties.
Of the $250,000 aggregate principal amount of 10.5% senior unsecured notes
due in 2009 we sold in December 2001, $23,000 principal amount was sold at a
price of 99.368% to an affiliate of Oak Hill Capital Partners. The notes
purchased are identical to those purchased by third parties.
10. Stock-Based Compensation
Stock Options
In connection with the merger, we adopted a new equity incentive plan. This
plan authorizes us to award up to 5,565,518 options on shares of common stock.
We may grant awards to officers or other of our key employees or an affiliate.
These options are exercisable in three annual installments and expire 10 years
from the grant date.
In addition, we adopted a new equity incentive plan for non-employee
directors. The directors' plan authorizes us to award up to 500,000 options.
These options are exercisable in three annual installments and expire 10 years
from the grant date.
56
Stock option activity for 2001, 2000 and 1999 is as follows:
Equity Incentive Plan Directors' Plan
--------------------------------- --------------------------------
Number of Average Number Average
Shares Option Price of Shares Option Price
------------- ---------------- ------------ ----------------
Balance, January 1, 1999 3,703,379 $24.80 45,000 $21.38
Granted 1,015,750 19.37 35,000 23.63
Exercised (94,012) 15.64 - -
Canceled (264,064) 27.87 - -
------------- ---------------- ------------ ----------------
Balance, December 31, 1999 4,361,053 23.56 80,000 22.36
Granted 584,875 16.13 35,000 19.00
Exercised (47,153) 17.26 - -
Canceled (113,441) 28.62 - -
------------- ---------------- ------------ ----------------
Balance, December 31, 2000 4,785,334 22.68 115,000 21.34
Granted 88,500 13.33 47,500 23.00
Exercised (41,839) 16.12 - -
Canceled (2,194,165) 26.87 - -
------------- ---------------- ------------ ----------------
Balance, December 31, 2001 2,637,830 $19.47 162,500 $21.83
============= ================ ============ ================
Shares exercisable at December 31, 1999 2,577,620 $24.53 15,000 $21.38
============= ================ ============ ================
Shares exercisable at December 31, 2000 3,482,816 $23.99 26,667 $22.56
============= ================ ============ ================
Shares exercisable at December 31, 2001 2,020,759 $20.09 80,000 $21.69
============= ================ ============ ================
The following table summarizes information about stock options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------------------- -------------------------------
Weighted Weighted
Average Weighted Average
Range of exercise Number Remaining Average Number Exercise
prices outstanding Contractual Life Exercise Price exercisable Price
- --------------------- ------------- ------------------- ----------------- ------------- -------------
$13.33 to $15.64 1,031,598 6.46 $15.13 801,434 $15.37
$16.25 to $19.00 72,750 7.89 17.43 39,169 17.02
$19.19 to 19.19 925,000 7.10 19.19 616,667 19.19
$19.75 to $29.44 624,407 6.62 25.25 496,914 26.10
$29.55 to $31.61 146,575 5.87 30.93 146,575 30.93
------------- ------------------- ----------------- ------------- -------------
$13.33 to $31.61 2,800,330 6.71 $19.61 2,100,759 $20.15
============= =================== ================= ============= =============
We have adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." Accordingly, we apply Accounting Principles Board
Opinion No. 25 in accounting for the Equity Incentive Plan and, therefore, no
compensation cost has been recognized for the Equity Incentive Plan.
Pro forma information regarding net income and diluted earnings per share
is required by SFAS No. 123, and has been determined as if we have accounted for
our employee stock options under the fair value method. We estimated the fair
value for these options at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions for 2001, 2000 and
1999:
2001 2000 1999
--------------- ---------------- --------------
Risk-free interest rate 3.6% 6.71% 6.70%
Dividend rate $1.525 $2.02 $2.02
Volatility factor 0.57 0.27 0.31
Weighted average expected life 3.10 years 3.06 years 3.07 years
57
Our pro forma net income (loss) and diluted earnings (loss) per share as if
the fair value method had been applied were $(45,215) and $(1.02) for 2001,
$98,216 and $2.07 for 2000, $98,273 and $2.02 for 1999. The effects of applying
SFAS No. 123 for disclosing compensation costs may not be representative of the
effects on reported net income and diluted earnings per share for future years.
Other Stock-Based Compensation
As of December 31, 2001, we have granted 479,000 shares of restricted stock
to employees. This restricted stock vests ratably over three-year or five-year
periods. The issuance of restricted stock has resulted in $5,287 of unearned
stock-based compensation recorded as a reduction to stockholders' equity on our
balance sheet as of December 31, 2001.
In 2000, we granted 462,500 Profits-Only OP Units, or POPs, to some of our
employees pursuant to our POPs Plan. As of December 31, 2001, 387,500 POPs are
outstanding. These POPs were originally eligible for vesting based on us
achieving certain financial performance criteria. During 2001, we converted
these POPs to fixed awards and extended the vesting period to 2004. In 2001, we
granted 350,000 POPs to some of our employees pursuant to our POPs Plan. These
POPs are fixed awards and vest ratably over three years.
11. Restructuring Charges
During 2001, we incurred a restructuring charge of $1,080 in connection
with operational changes at our corporate headquarters. The restructuring
included eliminating seven corporate staff positions and office space no longer
needed under the new structure.
The restructuring charge consists of:
Severance $ 168
Noncancelable lease cost 912
------
Total $1,080
======
During 2001, we applied $168 and $520 in severance and lease termination
costs, respectively, against the restructuring reserve. Approximately $392 of
the restructuring accrual remains at December 31, 2001.
12. Commitments and Contingencies
We lease land at certain hotels from third parties. Certain leases contain
contingent rent features based on gross revenues at the respective property.
Future minimum lease payments required under these operating leases as of
December 31, 2001 were as follows:
2002 $ 1,446
2003 1,446
2004 1,446
2005 1,449
2006 1,449
Thereafter 52,315
-------------
$59,551
=============
58
We lease certain office, retail and parking space to outside parties under
non-cancelable operating leases with initial or remaining terms in excess of one
year. Future minimum rental receipts under these leases as of December 31, 2001
were as follows:
2002 $ 4,969
2003 4,190
2004 3,915
2005 2,398
2006 1,217
Thereafter 1,896
-------------
$18,585
=============
In the course of our normal business activities, various lawsuits, claims
and proceedings have been or may be instituted or asserted against us. Based on
currently available facts, we believe that the disposition of matters that are
pending or asserted will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity.
13. Acquisitions and Dispositions
During 2001, we sold two hotels and received proceeds of $9,715. The sales
resulted in a loss of $2,176 ($2,132, net of tax).
During 2001, we terminated the leases of eight of our hotels from
affiliates of Prime Hospitality Corporation for a total cost of $1,315.
Concurrently, we signed long-term management agreements with MeriStar Hotels for
four of these properties. The term on the remaining four management agreements
is one year with additional one-year renewal periods.
During 2000, we sold three limited-service hotels and received proceeds of
$24,148. This resulted in a gain on sale of assets of $3,495 ($3,425, net of
tax). We also purchased a full-service hotel for $19,400. Of the purchase
amount, we paid $11,400 in cash and we will pay $8,000 from the hotel's future
cash flow within the next five years. We funded the acquisition using existing
cash and borrowings under our revolving credit facility.
During 1999, we acquired one hotel for a purchase price of $10,642 of cash
and $1,488 of OP Units. We funded the acquisition using existing cash and
borrowings on our credit facility. We also sold two hotels during 1999 for a
total price of $8,900. The resulting gain on the sales was immaterial.
14. Consolidating Financial Information
The Company and certain subsidiaries of MeriStar Hospitality Operating
Partnership, L.P. (MHOP), our subsidiary operating partnership, are guarantors
of senior unsecured notes issued by MHOP. MHOP and certain of its subsidiaries
are guarantors of the Company's unsecured subordinated notes. We own a one
percent general partner interest in MHOP and MeriStar LP, Inc., our wholly-owned
subsidiary, owns approximately a 90 percent limited partner interest in MHOP.
All guarantees are full and unconditional, and joint and several. Exhibit 99 to
this Annual Report on Form 10-K presents supplementary consolidating information
for MHOP, including each of the guarantor subsidiaries. This schedule presents
MHOP consolidating balance sheets as of December 31, 2001 and 2000, and
consolidating statements of operations and cash flows for each of the years in
the three-year period ended December 31, 2001.
15. Quarterly Financial Information (Unaudited)
The following is a summary of our quarterly results of operations:
2001 2000
------------------------------------------ -------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Total revenue ..................... $302,684 $307,167 $247,538 $227,499 $67,100 $81,539 $117,631 $134,508
Total operating expenses .......... 256,742 249,667 234,003 264,153 41,698 43,631 42,506 43,769
Net operating income
(loss) ......................... 45,942 57,500 13,535 (36,654) 25,402 37,908 75,125 90,739
Income (loss) before
extraordinary gain (loss) ...... 13,039 24,560 (17,302) (60,346) (3,426) 10,424 41,259 54,550
Net income (loss) ................. 11,815 24,560 (17,302) (61,835) (372) 10,424 41,259 54,550
Diluted earnings (loss)
per share ...................... $ 0.25 $ 0.52 $ (0.39) $ (1.37) $ (0.01) $ 0.22 $ 0.83 $ 1.13
59
16. Supplemental Cash Flow Information
2001 2000 1999
---------- ----------- ----------
Cash paid for interest and income taxes:
Interest, net of capitalized interest of $6,098, $8,613, and $12,540,
respectively $105,732 $120,539 $93,491
Income taxes 698 874 1,261
Non-cash investing and financing activities:
OP Units issued in purchase of property and equipment - - 1,488
Redemption of OP Units 5,428 24 29,412
Dividends reinvested - 91 -
Issuance of restricted stock - 10,620 -
Deferred purchase price - 8,000 -
Operating assets received and liabilities assumed from lease conversion:
Accounts receivable 47,200 - -
Prepaid expenses and other 13,500 - -
Furniture and fixtures, net 152 - -
Investment in affiliates, net 1,629 - -
----------
Total operating assets received 62,481 - -
==========
Accounts payable and accrued expenses 65,706 - -
Long-term debt 32 - -
----------
Total liabilities acquired 65,738 - -
==========
17. Subsequent Event
On February 7, 2002, we sold $200,000 of senior unsecured notes. These
notes have an interest rate of 9.13% and mature in January 2011. We used the
proceeds to pay down our revolving credit facility. As a result of this
financing, we redesignated some swap agreements as non-hedging derivatives. We
recognized a $4,700 loss when this amount was transferred out of accumulated
other comprehensive income because the debt being hedged was repaid.
60
MERISTAR HOSPITALITY CORPORATION
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(dollars in thousands)
Costs subsequent Gross amount
Initial cost to Company to acquisition at end of year
----------------------- --------------- --------------
Building Building Building Accum-
and and and ulated Year of
Encum- Improve Improve- Improve Deprecia Construc- Date
Description brances Land ments Land ments Land ments tion tion Acquired Life
- -------------------------------------------------------- --------------- -------------- --------------------------------
Hotel Assets:
Salt Lake Airport Hilton, UT - 770 12,828 - 4,185 770 17,013 2,579 1980 3/3/1995 40
Radisson Hotel, Schaumburg, IL - 1,080 5,131 (230) 938 850 6,069 1,107 1979 6/30/1995 40
Sheraton Hotel, Colorado
Springs, CO (1) 1,071 14,592 1 4,526 1,072 19,118 2,848 1974 6/30/1995 40
Hilton Hotel, Bellevue, WA 48 5,211 6,766 (441) 3,686 4,770 10,452 1,358 1979 8/4/1995 40
Marriott Hotel, Somerset, NJ (1) 1,978 23,001 - 4,811 1,978 27,812 4,092 1978 10/3/1995 40
Westin Atlanta Airport, Atlanta,
GA - 2,650 15,926 (300) 9,517 2,350 25,443 3,734 1982 11/15/1995 40
Sheraton Hotel, Charlotte, NC (1) 4,700 11,057 - 4,032 4,700 15,089 2,123 1985 2/2/1996 40
Radisson Hotel Southwest,
Cleveland, OH - 1,330 6,353 - 5,537 1,330 11,890 1,479 1978 2/16/1996 40
Orange County Airport Hilton,
Irvine, CA (1) 9,990 7,993 - 3,723 9,990 11,716 1,544 1976 2/22/1996 40
The Latham Hotel, Washington,
DC - 6,500 5,320 - 4,233 6,500 9,553 1,169 1981 3/8/1996 40
Hilton Hotel, Arlington, TX (1) 1,836 14,689 79 3,766 1,915 18,455 2,479 1983 4/17/1996 40
Hilton Hotel, Arlington, VA - 4,000 15,069 - 851 4,000 15,920 2,117 1990 8/23/1996 40
Southwest Hilton, Houston, TX - 2,300 15,665 (613) (2,871) 1,687 12,794 2,168 1979 10/31/1996 40
Embassy Suites, Englewood, CO (1) 2,500 20,700 - 3,537 2,500 24,237 2,973 1986 12/12/1996 40
Holiday Inn, Colorado Springs, CO - 1,600 4,232 (426) (257) 1,174 3,975 619 1974 12/17/1996 40
Embassy Row Hilton,
Washington, DC - 2,200 13,247 - 3,276 2,200 16,523 1,888 1969 12/17/1996 40
Hilton Hotel & Towers,
Lafayette, LA (1) 1,700 16,062 - 2,169 1,700 18,231 2,164 1981 12/17/1996 40
Hilton Hotel, Sacramento, CA (1) 4,000 16,013 - 2,686 4,000 18,699 2,236 1983 12/17/1996 40
Santa Barbara Inn, Santa
Barbara, CA - 2,600 5,141 - 1,497 2,600 6,638 770 1959 12/17/1996 40
San Pedro Hilton, San Pedro,
CA - 640 6,047 - 2,517 640 8,564 975 1989 1/28/1997 40
Doubletree Hotel, Albuquerque,
NM (1) 2,700 15,075 - 2,376 2,700 17,451 1,957 1975 1/31/1997 40
Westchase Hilton & Towers,
Houston, TX (1) 3,000 23,991 - 1,578 3,000 25,569 3,113 1980 1/31/1997 40
Sheraton Great Valley Inn,
Frazer, PA - 2,150 11,653 11 3,610 2,161 15,263 1,576 1971 3/27/1997 40
Holiday Inn Calgary Airport,
Calgary, Alberta, Canada - 751 5,011 (77) 1,675 674 6,686 666 1981 4/1/1997 40
Sheraton Hotel Dallas, Dallas,
TX - 1,300 17,268 (569) (5,551) 731 11,717 2,389 1974 4/1/1997 40
Radisson Hotel Dallas, Dallas,
TX - 1,800 17,580 (868) (7,542) 932 10,038 2,236 1972 4/1/1997 40
Sheraton Hotel Guildford,
Surrey, BC, Canada - 2,366 24,008 (244) (1,335) 2,122 22,673 2,650 1992 4/1/1997 40
Doubletree Guest Suites,
Indianapolis, IN - 1,000 8,242 - 999 1,000 9,241 1,057 1987 4/1/1997 40
Ramada Vancouver Centre,
Vancouver, BC, Canada - 4,400 7,840 (451) 1,877 3,949 9,717 1,057 1968 4/1/1997 40
Holiday Inn Sports Complex,
Kansas City, MO - 420 4,742 - 2,129 420 6,871 715 1975 4/30/1997 40
Hilton Crystal City, Arlington,
VA - 5,800 29,879 - 1,674 5,800 31,553 3,464 1974 7/1/1997 40
Doral Palm Springs, Cathedral
City, CA - 1,604 16,141 - 3,022 1,604 19,163 2,045 1985 7/1/1997 40
Radisson Hotel & Suites,
Chicago, IL - 4,870 39,175 - 3,619 4,870 42,794 4,586 1971 7/15/1997 40
Georgetown Inn, Washington, DC - 6,100 7,103 - 1,824 6,100 8,927 884 1962 7/15/1997 40
Embassy Suites Center City,
Philadelphia, PA (1) 5,500 26,763 - 3,529 5,500 30,292 3,085 1963 8/12/1997 40
61
Doubletree Hotel Austin,
Austin, TX (1) 2,975 25,678 - 3,288 2,975 28,966 3,003 1984 8/14/1997 40
Radisson Plaza Hotel,
Lexington, KY - 1,100 30,375 - 6,315 1,100 36,690 3,780 1982 8/14/1997 40
Jekyll Inn, Jekyll Island, GA - - 7,803 - 3,548 - 11,351 1,148 1971 8/20/1997 40
Holiday Inn Metrotown,
Burnaby, BC, Canada - 1,115 5,303 (114) 796 1,001 6,099 620 1989 8/22/1997 40
Embassy Suites International
Airport, Tucson, AZ - 1,640 10,444 - 2,392 1,640 12,836 1,230 1982 10/23/1997 40
Westin Morristown, NJ - 2,500 19,128 100 3,835 2,600 22,963 2,195 1962 11/20/1997 40
Doubletree Hotel Bradley
International Airport, Windsor
Locks, CT - 1,013 10,228 87 1,861 1,100 12,089 1,142 1985 11/24/1997 40
Sheraton Hotel, Mesa, AZ - 1,850 16,938 - 2,650 1,850 19,588 2,140 1985 12/5/1997 40
Metro Airport Hilton & Suites,
Detroit, MI - 1,750 12,639 - 1,371 1,750 14,010 1,355 1989 12/16/1997 40
Marriott Hotel, Los Angeles,
CA - 5,900 48,250 - 7,615 5,900 55,865 5,362 1983 12/18/1997 40
Austin Hilton & Towers, TX - 2,700 15,852 - 2,876 2,700 18,728 1,758 1974 1/6/1998 40
Dallas Renaissance North, TX - 3,400 20,813 - 3,826 3,400 24,639 2,320 1979 1/6/1998 40
Houston Sheraton Brookhollow
Hotel, TX - 2,500 17,609 - 2,562 2,500 20,171 1,959 1980 1/6/1998 40
Seelbach Hilton, Louisville, KY - 1,400 38,462 - 7,265 1,400 45,727 4,117 1905 1/6/1998 40
Midland Hilton & Towers, TX - 150 8,487 - 1,814 150 10,301 968 1976 1/6/1998 40
Westin Oklahoma, OK - 3,500 27,588 - 2,745 3,500 30,333 2,908 1977 1/6/1998 40
Sheraton Hotel, Columbia, MD - 3,600 21,393 - 3,871 3,600 25,264 2,141 1972 3/27/1998 40
Radisson Cross Keys,
Baltimore, MD - 1,500 5,615 - 1,566 1,500 7,181 598 1973 3/27/1998 40
Sheraton Fisherman's Wharf,
San Francisco, CA (1) 19,708 61,751 - 4,984 19,708 66,735 5,983 1975 4/2/1998 40
Hartford Hilton, CT - 4,073 24,458 - 3,051 4,073 27,509 2,158 1975 5/21/1998 40
Holiday Inn Dallas DFW
Airport South,TX 12,211 3,388 28,847 - 274 3,388 29,121 2,499 1974 8/3/1998 40
Courtyard by Marriott
Meadowlands, NJ - - 9,649 - 144 - 9,793 829 1993 8/3/1998 40
Hotel Maison de Ville, New
Orleans, LA - 292 3,015 - 58 292 3,073 261 1778 8/3/1998 40
Hilton Hotel Toledo, OH - - 11,708 - 90 - 11,798 1,017 1987 8/3/1998 40
Holiday Inn Select Dallas DFW
Airport West, TX - 947 8,346 (270) (2,083) 677 6,263 828 1974 8/3/1998 40
Holiday Inn Select New Orleans
International Airport LA (1) 3,040 25,616 - 2,786 3,040 28,402 2,317 1973 8/3/1998 40
Crowne Plaza Madison, WI (1) 2,629 21,634 - 441 2,629 22,075 1,875 1987 8/3/1998 40
Wyndham Albuquerque Airport
Hotel, NM - - 18,889 - 241 - 19,130 1,628 1972 8/3/1998 40
Wyndham San Jose Airport
Hotel, TX - - 35,743 - 1,296 - 37,039 3,120 1974 8/3/1998 40
Holiday Inn Select Mission
Valley, CA - 2,410 20,998 - 302 2,410 21,300 1,822 1970 8/3/1998 40
Sheraton Safari Resort, Lake
Buena Vista, FL - 4,103 35,263 - 9,058 4,103 44,321 3,528 1985 8/3/1998 40
Hilton Monterey, CA - 2,141 17,666 - 5,252 2,141 22,918 1,799 1971 8/3/1998 40
Hilton Hotel Durham, NC - 1,586 15,577 - 3,052 1,586 18,629 1,438 1987 8/3/1998 40
Wyndham Garden Hotel
Marietta, GA - 1,900 17,077 - 694 1,900 17,771 1,486 1985 8/3/1998 40
Westin Resort Key Largo, FL - 3,167 29,190 - 675 3,167 29,865 2,542 1985 8/3/1998 40
Doubletree Guest Suites
Atlanta, GA 8,393 2,236 18,514 - 3,900 2,236 22,414 1,831 1985 8/3/1998 40
Radisson Hotel Arlington
Heights, IL - 1,540 12,645 - 8,291 1,540 20,936 1,443 1981 8/3/1998 40
Holiday Inn Select Bucks
County, PA - 2,610 21,744 - 3,161 2,610 24,905 1,943 1987 8/3/1998 40
Hilton Hotel Cocoa Beach, FL - 2,783 23,076 - 1,925 2,783 25,001 2,123 1986 8/3/1998 40
Radisson Universal Orlando, FL - 9,555 73,486 - 8,484 9,555 81,970 6,747 1972 8/3/1998 40
Crowne Plaza Phoenix, AZ - 1,852 15,957 - 3,485 1,852 19,442 1,632 1981 8/3/1998 40
62
Hilton Airport Hotel Grand
Rapids, MI (1) 2,049 16,657 - 1,116 2,049 17,773 1,481 1979 8/3/1998 40
Marriott West Loop Houston, TX (1) 2,943 23,934 - 4,409 2,943 28,343 2,229 1976 8/3/1998 40
Courtyard by Marriott Durham, NC - 1,406 11,001 - 76 1,406 11,077 946 1996 8/3/1998 40
Courtyard by Marriott, Marina
Del Rey, CA - 3,450 24,534 - 2,659 3,450 27,193 2,148 1976 8/3/1998 40
Courtyard by Marriott, Century
City, CA - 2,165 16,465 - 1,142 2,165 17,607 1,424 1986 8/3/1998 40
Courtyard by Marriott,
Orlando, FL - - 41,267 - 2,593 - 43,860 3,653 1972 8/3/1998 40
Crowne Plaza, San Jose, CA (1) 2,130 23,404 (24) 1,676 2,106 25,080 2,128 1975 8/3/1998 40
Doubletree Hotel Westshore,
Tampa, FL - 2,904 23,476 - 9,689 2,904 33,165 2,361 1972 8/3/1998 40
Howard Johnson Resort Key
Largo, FL - 1,784 12,419 - 1,195 1,784 13,614 1,101 1971 8/3/1998 40
Radisson Annapolis, MD - 1,711 13,671 - 2,012 1,711 15,683 1,228 1975 8/3/1998 40
Holiday Inn Fort Lauderdale,
FL - 2,381 19,419 - 2,192 2,381 21,611 1,763 1969 8/3/1998 40
Holiday Inn Madeira Beach, FL - 1,781 13,349 - 123 1,781 13,472 1,159 1972 8/3/1998 40
Holiday Inn Chicago O'Hare, IL 18,038 4,290 72,631 - 15,883 4,290 88,514 6,777 1975 8/3/1998 40
Holiday Inn & Suites
Alexandria, VA - 1,769 14,064 - 1,639 1,769 15,703 1,242 1985 8/3/1998 40
Hilton Clearwater, FL - - 69,285 - 4,318 - 73,603 6,126 1980 8/3/1998 40
Radisson Rochester, NY - - 6,499 - 2,934 - 9,433 675 1971 8/3/1998 40
Radisson Old Towne
Alexandria, VA - 2,241 17,796 - 3,824 2,241 21,620 1,632 1975 8/3/1998 40
Ramada Inn Clearwater, FL - 1,270 13,453 - 160 1,270 13,613 1,616 1969 8/3/1998 40
Crowne Plaza Las Vegas, NV - 3,006 24,011 - (206) 3,006 23,805 2,059 1989 8/3/1998 40
Crowne Plaza Portland, OR 4,754 2,950 23,254 - 211 2,950 23,465 2,047 1988 8/3/1998 40
Four Points Hotel, Mt.
Arlington, NJ 3,932 6,553 6,058 - (1,562) 6,553 4,496 537 1984 8/3/1998 40
Ramada Inn Mahwah, NJ - 1,117 8,994 (312) (2,385) 805 6,609 801 1972 8/3/1998 40
Ramada Plaza Meriden, CT - 1,247 10,057 - (53) 1,247 10,004 864 1985 8/3/1998 40
Ramada Plaza Shelton, CT 4,416 2,040 16,235 - 41 2,040 16,276 1,395 1989 8/3/1998 40
Sheraton Crossroads Mahwah, NJ - 3,258 26,185 - 309 3,258 26,494 2,320 1986 8/3/1998 40
St. Tropez, Las Vegas, NV - 3,027 24,429 - 42 3,027 24,471 2,096 1986 8/3/1998 40
Doral Forrestal, Princeton, NJ - 9,578 57,555 - 8,551 9,578 66,106 5,364 1981 8/11/1998 40
South Seas Resort, Captiva, FL 543 3,084 83,573 - 8,623 3,084 92,196 7,187 1975 10/1/1998 40
Radisson Suites Beach Resort,
Marco Island, FL - 7,120 35,300 - 2,253 7,120 37,553 2,983 1983 10/1/1998 40
Best Western Sanibel Island, FL - 3,868 3,984 17 338 3,885 4,322 260 1967 10/1/1998 40
The Dunes Golf & Tennis Club,
Sanibel Island, FL - 7,705 3,043 9 31 7,714 3,074 252 1964 10/1/1998 40
Sanibel Inn, Sanibel Island, FL - 8,482 12,045 - 167 8,482 12,212 979 1964 10/1/1998 40
Seaside Inn, Sanibel Island, FL - 1,702 6,416 22 80 1,724 6,496 525 1964 10/1/1998 40
Song of the Sea, Sanibel Island,
FL - 339 3,223 19 70 358 3,293 266 1964 10/1/1998 40
Sundial Beach Resort, Sanibel
Island, FL - 320 12,009 - 1,974 320 13,983 1,043 1975 10/1/1998 40
Holiday Inn Madison, WI - 4,143 6,692 - 526 4,143 7,218 516 1965 1/11/1999 40
Safety Harbor Resort and Spa,
Safety Harbor, FL - 732 19,618 - 1,639 732 21,257 934 1926 5/31/2000 40
-------- ---------- ------- --------- -------- ---------- --------
$315,515 $2,199,762 $(4,594) $273,889 $310,921 $2,473,651 $233,612
======== ========== ======= ========= ======== ========== ========
(1) These properties secure the Secured Facility which, as of December 31, 2001,
had an outstanding balance of $319,788.
The components of our hotel property and equipment are as follows:
Property and Accumulated
Equipment Depreciation
------------------- -------------------
Land $ 310,921 $ -
Building and Improvements 2,473,651 233,612
Furniture and equipment 354,392 163,768
Construction in progress 44,713 -
------------------ ------------------
Total property and equipment $3,183,677 $ 397,380
================== ==================
A reconciliation of our investment in hotel property and equipment and related
accumulated depreciation is as follows:
------------------- ------------------- -------------------
2001 2000 1999
------------------- ------------------- -------------------
Hotel property and equipment
Balance, beginning of period $3,193,730 $3,118,723 $ 2,957,543
Acquisitions during period - 19,618 12,081
Improvements and construction
-in-progress 47,467 78,911 160,294
Loss on asset impairment (43,582)
Cost of real estate sold (13,938) (23,522) (11,195)
------------------ ------------------ ------------------
Balance, end of period 3,183,677 3,193,730 3,118,723
------------------ ------------------ ------------------
Accumulated depreciation
Balance, beginning of period 287,229 182,430 83,797
Additions-depreciation expense 112,465 107,363 99,297
Cost of real estate sold (2,314) (2,564) (664)
------------------ ------------------ ------------------
Balance, end of period 397,380 287,229 182,430
------------------ ------------------ ------------------
Net hotel property and equipment, end of period $2,786,297 $2,906,501 $ 2,936,293
================== ================== ==================
63