1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 16, 2001
FELCOR LODGING TRUST INCORPORATED
(Exact name of registrant as specified in its charter)
MARYLAND 1-14236 72-2541756
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 444-4900
(NOT APPLICABLE)
(Former name or former address, if changed since last report)
2
ITEM 5. OTHER EVENTS
FelCor Lodging Trust Incorporated, a Maryland corporation ("FelCor"),
FelCor Lodging Limited Partnership, a Delaware limited partnership ("FelCor
OP"), MeriStar Hospitality Corporation, a Maryland corporation ("MeriStar"), and
MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership
("MeriStar OP"), entered into an Agreement and Plan of Merger, dated as of May
9, 2001 (the "Merger Agreement"). On August 16, 2001, FelCor, FelCor OP,
MeriStar and MeriStar OP entered into a First Amendment (the "First Amendment")
to the Merger Agreement and added FelCor Mergesub, L.L.C., a Delaware limited
liability company ("FelCor Mergesub"), as a party to the Merger Agreement. The
merger pursuant to the Merger Agreement, as amended, is currently expected to
close in October 2001.
A copy of the Merger Agreement and a more complete description of it and
the associated transactions can be found in the Registration Statement on Form
S-4 of FelCor and FelCor OP (file no. 333-62510) (the "Registration Statement").
A copy of the First Amendment is attached as Exhibit 2.1 to this report, and a
more complete description of it and the associated transactions can be found in
the Registration Statement. All investors are encouraged to read, carefully and
in its entirety, the Registration Statement, the Merger Agreement and the First
Amendment.
The consolidated financial statements of MeriStar as of December 31, 2000
and 1999 and for the years ended December 31, 2000, 1999 and 1998, and as of
June 30, 2001 and for the six months ended June 30, 2001 and 2000, are included
in this Form 8-K, commencing on page F-1. See "Index to Financial Statements"
below.
ITEM 7. EXHIBITS
(c) Exhibits. The following exhibits are furnished in accordance with Item
601 of Regulation S-K:
<Table>
<Caption>
Exhibit No. Description
2.1* First Amendment to Agreement and Plan of Merger by and among
FelCor Lodging Trust Incorporated, FelCor Lodging Limited
Partnership, MeriStar Hospitality Corporation, MeriStar
Hospitality Operating Partnership, L.P., and FelCor Mergersub,
L.L.C., dated as of August 16, 2001
</Table>
* Incorporated herein by reference to the Current Report on Form 8-K of
MeriStar Hospitality Corporation filed with the Securities and Exchange
Commission on August 29, 2001.
3
INDEX TO FINANCIAL STATEMENTS
MERISTAR HOSPITALITY CORPORATION
Condensed Consolidated Balance Sheets--June 30, 2001
(unaudited) and December 31, 2000................................................................ F-2
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss)--Six Months
Ended June 30, 2001 and 2000 (unaudited)......................................................... F-3
Condensed Consolidated Statements of Cash Flows--Six Months Ended June 30, 2001 and
2000 (unaudited).....................................................................................F-5
Notes to Condensed Consolidated Financial Statements....................................................F-6
Independent Auditors' Report........................................................................ F-12
Consolidated Balance Sheets as of December 31, 2000 and 1999........................................ F-13
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.......... F-14
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999
and 1998......................................................................................... F-15
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......... F-16
Notes to the Consolidated Financial Statements...................................................... F-17
Schedule III--Real Estate and Accumulated Depreciation.............................................. F-33
F-1
4
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
June 30, 2001 December 31, 2000
------------- -----------------
(unaudited)
Assets
Investments in hotel properties $ 3,209,185 $ 3,193,730
Accumulated depreciation (342,051) (287,229)
------------- -------------
2,867,134 2,906,501
Cash and cash equivalents 20,550 250
Accounts receivable, net 57,040 2,833
Prepaid expenses and other 15,765 2,767
Deferred tax asset 40 --
Note receivable from MeriStar Hotels & Resorts 36,000 --
Due from MeriStar Hotels & Resorts 10,893 22,221
Investments in affiliates 41,714 42,196
Restricted cash 20,201 19,918
Intangible assets, net of accumulated amortization
of $10,978 and $9,729 21,570 16,322
------------- -------------
$ 3,090,907 $ 3,013,008
============= =============
Liabilities, Minority Interests and Stockholders' Equity
Accounts payable, accrued expenses and other liabilities $ 131,324 $ 74,420
Accrued interest 44,352 28,365
Income taxes payable 1,603 1,151
Dividends and distributions payable 24,245 24,581
Deferred income taxes 10,559 10,140
Interest rate swaps 7,110 --
Long-term debt 1,653,050 1,638,319
------------- -------------
Total liabilities 1,872,243 1,776,976
------------- -------------
Minority interests 95,981 101,477
Stockholders' equity:
Preferred stock, par value $0.01 per share
Authorized - 100,000 shares -- --
Common stock, par value $0.01 per share
Authorized - 250,000 shares
Issued - 48,641 and 48,463 shares 486 485
Additional paid-in capital 1,180,687 1,177,218
Retained earnings 34,689 42,837
Accumulated other comprehensive loss (13,350) (6,081)
Unearned stock-based compensation (5,708) (7,550)
Less common stock held in treasury - 4,161 and 4,083
shares (74,121) (72,354)
------------- -------------
Total stockholders' equity 1,122,683 1,134,555
------------- -------------
$ 3,090,907 $ 3,013,008
============= =============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-2
5
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(LOSS) UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenue:
Hotel operations:
Rooms $ 202,380 $ -- $ 402,760 $ --
Food and beverage 74,092 -- 145,383 --
Other operating departments 23,534 -- 46,005 --
Participating lease revenue 5,352 79,508 10,736 145,031
Office rental and other revenues 1,809 2,031 4,967 3,608
----------- ----------- ----------- -----------
Total revenue 307,167 81,539 609,851 148,639
----------- ----------- ----------- -----------
Hotel operating expenses by department:
Rooms 46,565 -- 92,287 --
Food and beverage 52,486 -- 103,890 --
Other operating departments 12,046 -- 23,616 --
Office rental, parking and other operating
expenses 688 737 1,625 1,343
Undistributed operating expenses:
Administrative and general 43,138 2,379 88,055 4,150
Property operating costs 42,278 -- 84,977 --
Property taxes, insurance and other 18,654 12,402 37,041 25,093
Depreciation and amortization 28,708 28,113 58,405 54,743
Write down of investment in STS Hotel Net -- -- 2,112 --
Swap termination costs -- -- 9,297 --
FelCor merger costs 3,789 -- 3,789 --
Cost to terminate leases with Prime
Hospitality Corporation 1,315 -- 1,315 --
----------- ----------- ----------- -----------
Total operating expenses 249,667 43,631 506,409 85,329
----------- ----------- ----------- -----------
Net operating income 57,500 37,908 103,442 63,310
Interest expense, net 30,032 29,657 60,261 58,417
----------- ----------- ----------- -----------
Income before minority interests, income
taxes, (loss)/gain on sale of assets and
extraordinary (loss)/gain 27,468 8,251 43,181 4,893
Minority interests 2,017 1,109 3,121 1,247
----------- ----------- ----------- -----------
Income before income taxes, (loss)/gain on
sale of assets and extraordinary (loss)/gain 25,451 7,142 40,060 3,646
Income taxes 891 143 1,402 73
----------- ----------- ----------- -----------
Income before (loss)/gain on sale of assets
and extraordinary (loss)/gain 24,560 6,999 38,658 3,573
(Loss)/gain on sale of assets, net of tax effect of
($22) and $70 -- 3,425 (1,059) 3,425
Extraordinary (loss)/gain on early extinguishment
of debt, net of tax effect of ($19) and $62 -- -- (1,224) 3,054
----------- ----------- ----------- -----------
Net income $ 24,560 $ 10,424 $ 36,375 $ 10,052
=========== =========== =========== ===========
</Table>
F-3
6
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE
INCOME (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Other comprehensive income:
Net income $ 24,560 $ 10,424 $ 36,375 $ 10,052
Foreign currency translation adjustment 815 (379) (159) (534)
Derivative instruments transition adjustment -- -- (2,842) --
Change in valuation of derivative instruments 525 -- (4,268) --
------------ ------------ ------------ ------------
Comprehensive income $ 25,900 $ 10,045 $ 29,106 $ 9,518
============ ============ ============ ============
Earnings per share:
Basic:
Income before extraordinary (loss)/gain $ 0.55 $ 0.22 $ 0.84 $ 0.14
Extraordinary (loss)/gain -- -- (0.03) 0.07
------------ ------------ ------------ ------------
Net income $ 0.55 $ 0.22 $ 0.81 $ 0.21
============ ============ ============ ============
Diluted:
Income before extraordinary (loss)/gain $ 0.52 $ 0.22 $ 0.82 $ 0.14
Extraordinary (loss)/gain -- -- (0.03) 0.07
------------ ------------ ------------ ------------
Net income $ 0.52 $ 0.22 $ 0.79 $ 0.21
============ ============ ============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-4
7
MERISTAR HOSPITALITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
<Table>
<Caption>
Six months ended
June 30,
--------
2001 2000
----------- -----------
Operating activities:
Net income $ 36,375 $ 10,052
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 58,405 54,743
Loss/(gain) on sale of assets, before tax effect 1,081 (3,495)
Write down of investment in STS Hotel Net 2,112 --
Extraordinary loss/(gain) on early extinguishment of debt,
before tax effect 1,243 (3,116)
Minority interests 3,121 1,247
Amortization of unearned stock based compensation 1,842 395
Deferred income taxes 379 56
Changes in operating assets and liabilities:
Accounts receivable, net (7,007) (3,638)
Prepaid expenses and other 502 8,295
Due from MeriStar Hotels & Resorts 11,328 (11,449)
Accounts payable, accrued expenses and other liabilities (8,802) 69,253
Accrued interest 15,987 (1,144)
Income taxes payable 452 (115)
----------- -----------
Net cash provided by operating activities 117,018 121,084
----------- -----------
Investing activities:
Investment in hotel properties (23,782) (61,243)
Proceeds from disposition of assets 7,274 24,148
Hotel operating cash received in lease conversions 3,257 --
Investments in affiliates -- (5,511)
Note receivable from MeriStar Hotels & Resorts (36,000) 57,110
Change in restricted cash (283) (1,477)
----------- -----------
Net cash (used in) provided by investing activities (49,534) 13,027
----------- -----------
Financing activities:
Deferred financing costs (9,906) (1,412)
Proceeds from issuance of long-term debt 599,529 100,194
Principal payments on long-term debt (584,830) (141,359)
Proceeds from issuance of common stock, net 705 1,207
Purchase of OP units (1,513) (7,535)
Purchase of treasury stock (1,767) (34,468)
Dividends paid to stockholders (45,251) (47,816)
Distributions to minority investors (4,434) (4,853)
----------- -----------
Net cash (used in) financing activities (47,467) (136,042)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 283 (22)
----------- -----------
Net increase (decrease) in cash and cash equivalents 20,300 (1,953)
Cash and cash equivalents, beginning of period 250 2,556
----------- -----------
Cash and cash equivalents, end of period $ 20,550 $ 603
=========== ===========
</Table>
See accompanying notes to condensed consolidated financial statements.
F-5
8
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
UNAUDITED (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 June 30, 2001, we owned 113 hotels, with 28,877 rooms, 109
of which are leased by our taxable subsidiaries and managed by MeriStar Hotels &
Resorts, Inc., or MeriStar Hotels. Four of our hotels are leased by affiliates
of Prime Hospitality Corporation. During 2000, substantially all of our hotels
were leased to and operated by MeriStar Hotels.
We were created on August 3, 1998, when American General Hospitality
Corporation, a corporation operating as a real estate investment trust, and its
associated entities merged with CapStar Hotel Company and its associated
entities. In connection with the merger between CapStar and American General,
MeriStar Hotels, a separate publicly traded company, was created 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, commonly known as the REIT Modernization Act, or RMA, became
effective. The REIT Modernization Act permits real estate investment trusts to
create taxable subsidiaries on or after January 1, 2001, which are subject to
taxation similar to subchapter C-Corporations. Because of the RMA, we have
created a number of these taxable subsidiaries that are the lessees of our real
property. The REIT Modernization Act prohibits our taxable subsidiaries from
engaging in the following activities:
o they may not manage the properties themselves; they will need to enter
into an "arms 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,
o they may not lease a property that contains gambling operations, and
o they may not own a brand or franchise.
We believe that establishing taxable REIT subsidiaries to lease the properties
provides a more efficient alignment of and ability to capture the economic
interest of property ownership. Under the prior lease structure with MeriStar
Hotels, we received lease payments based on the revenues generated by the
properties, but MeriStar Hotels 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 for each of the 106 properties managed by
MeriStar Hotels to the taxable REIT subsidiaries and the execution of the new
management agreements, we gained the economic risks and rewards related to the
properties that are 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 transactions did
not result in any cash consideration exchanged among the parties except in
regard to 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 plus incentives payments, based on meeting
performance thresholds, that could total 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, we and our operating partnership entered into an Agreement and
Plan of Merger with FelCor Lodging Trust Incorporated and its operating
partnership. Under the merger agreement, we will merge with and into FelCor.
Immediately after the merger, a wholly-owned subsidiary of FelCor's operating
partnership will be merged with and into our operating partnership. Our
operating partnership will survive as a subsidiary of FelCor's operating
partnership. Holders of our common stock will receive 0.784 of a share of FelCor
common stock and $4.60 in cash for each share of
F-6
9
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
our common stock. The merger agreement requires the approval of holders of a
majority of our outstanding shares of common stock and holders of a majority of
the outstanding shares of common stock of FelCor. We currently expect the merger
to close during the third quarter of 2001. A copy of the merger agreement has
been filed as an exhibit to our current report of Form 8-K, filed on May 10,
2001. We have incurred $3,789 of costs related to this merger through June 30,
2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We have prepared these unaudited interim financial statements according to the
rules and regulations of the Securities and Exchange Commission. We have omitted
certain information and footnote disclosures that are normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. These interim financial statements
should be read in conjunction with the financial statements, accompanying notes
and other information included in our Annual Report on Form 10-K for the year
ended December 31, 2000. Certain 2000 amounts have been reclassified to conform
to the 2001 presentation.
In our opinion, the accompanying unaudited condensed consolidated interim
financial statements reflect all adjustments, which are of a normal and
recurring nature, necessary for a fair presentation of the financial condition
and results of operations and cash flows for the periods presented. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities, as well as the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Our actual results could
differ from those estimates. The results of operations for the interim periods
are not necessarily indicative of the results for the entire year.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" requires a public entity 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. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Revenues for Canadian operations totaled $6,061 and $1,753
for the three months ended June 30, 2001 and 2000, respectively. Revenues for
Canadian operations totaled $11,583 and $3,178 for the six months ended June 30,
2001 and 2000, respectively.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin or SAB No. 101, "Revenue Recognition in Financial Statements". SAB No.
101 addresses lessor revenue recognition in interim periods related to rental
agreements which provide for minimum rental payments, plus contingent rents
based on the lessee's operations, such as a percentage of sales in excess of an
annual specified revenue target. SAB No. 101 requires the deferral of contingent
rental income until specified targets are met. This SAB relates only to the
recognition of our lease revenue in interim periods for financial reporting
purposes; it has no effect on the timing of rent payments under our leases. The
effect of SAB No. 101 was to recognize additional revenue of $748 for the three
months ended June 30, 2001 and to defer recognition of additional contingent
rental income of $26,643 for the three months ended June 30, 2000. Additional
contingent rental income of $425 and $59,322 was deferred for the six months
ended June 30, 2001 and 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 1999, the Financial Accounting Standard Board
issued Statement of Financial Accounting Standard No. 137 which amended
Statement of Financial Accounting Standard No. 133 to defer the effective date
to all fiscal quarters of all fiscal years beginning after June 15, 2000. In
June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 138 which provides additional guidance and
amendments to Statement of Financial Accounting Standard No. 133. We adopted
these accounting pronouncements on January 1, 2001.
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.
F-7
10
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Our interest rate swap agreements have been designated as hedges against changes
in future cash flows associated with the interest payments of our variable rate
debt obligations. Accordingly, the interest rate swap agreements are reflected
at fair value in our consolidated balance sheet as of June 30, 2001 and the
related unrealized gains or losses on these contracts are record in
stockholders' equity as a component of accumulated other comprehensive income.
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 June 30,
2001, the fair value of our derivative instruments represents a liability of
$7,110. The estimated net amount recorded in accumulated other comprehensive
income expected to be reclassified to the statement of operations within the
next six months is approximately $3,065.
On June 30, 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141 "Business Combinations" and No. 142
"Goodwill and other Intangible Assets". We are currently in the process of
evaluating the effect these new standards will have on our financial statements.
3. NOTE RECEIVABLE FROM MERISTAR HOTELS & RESORTS
We may lend MeriStar Hotels up to $50,000 for general corporate purposes
pursuant to a revolving credit agreement. The interest rate on this credit
agreement is 650 basis points over the 30-day London Interbank Offered Rate. As
of June 30, 2001, $36,000 was outstanding under this revolving credit agreement.
The merger agreement requires that we amend this revolving credit facility so
that it matures on February 28, 2004 with an interest rate of the 30-day London
Interbank Offered Rate plus 600 basis points.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<Table>
<Caption>
June 30, 2001 December 31, 2000
------------- -----------------
Senior unsecured notes $ 498,367 $ --
Credit facility 422,000 898,000
Secured facility 322,218 324,554
Subordinated notes 202,623 202,429
Convertible notes 154,300 154,300
Mortgage debt and other 53,542 59,036
---------- -----------
$1,653,050 $ 1,638,319
========== ===========
</Table>
As of June 30, 2001 aggregate future maturities of the above obligations are as
follows:
<Table>
2001 $ 19,697
2002 47,897
2003 313,589
2004 240,168
2005 9,265
Thereafter 1,022,434
----------
$1,653,050
==========
</Table>
On January 26, 2001, we sold $300,000 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 interest rates of the 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.
In conjunction with the sales of the senior unsecured notes, we terminated three
swap agreements with notional amounts totaling $300,000. These swap agreements
were designated to the credit facility term loans that were repaid with the
proceeds from the sale. We made payments totaling $9,297 to terminate these swap
agreements.
F-8
11
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On June 28, 2001, we declared a dividend for the three months ended June 30,
2001 of $0.505 per share of common stock and per unit of limited partnership
interest in our subsidiary operating partnership. The dividend was paid on July
31, 2001.
6. EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per
share:
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
BASIC EARNINGS PER SHARE
COMPUTATION:
Income before extraordinary
(loss)/gain $ 24,560 $ 10,424 $ 37,599 $ 6,998
Dividends paid on unvested
restricted stock (202) (288) (403) (335)
------------- ------------- ------------- -------------
Income available to common
stockholders 24,358 10,136 37,196 6,663
Weighted average number of shares
of common stock outstanding 44,472 45,480 44,483 45,997
------------- ------------- ------------- -------------
Basic earnings per share before
extraordinary (loss)/gain $ 0.55 $ 0.22 $ 0.84 $ 0.14
============= ============= ============= =============
DILUTED EARNINGS PER SHARE
COMPUTATION:
Income available to common
stockholders $ 24,358 $ 10,136 $ 37,196 $ 6,663
Minority interest, net of tax 1,982 647 3,054 --
Interest on convertible debt, net of
tax 1,796 -- 3,591 --
Dividends on unvested restricted stock 8 -- -- --
------------- ------------- ------------- -------------
Adjusted net income $ 28,144 $ 10,783 $ 43,841 $ 6,663
============= ============= ============= =============
Weighted average number of shares
of common stock outstanding 44,472 45,480 44,483 45,997
Common stock equivalents:
Operating partnership units 4,236 2,919 4,265 --
Stock options 403 243 359 149
Convertible debt 4,538 -- 4,538 --
Restricted stock 16 -- -- --
------------- ------------- ------------- -------------
Total weighted average number of
diluted shares of common stock
outstanding 53,665 48,642 53,645 46,146
============= ============= ============= =============
Diluted earnings per share before
extraordinary (loss)/gain $ 0.52 $ 0.22 $ 0.82 $ 0.14
============= ============= ============= =============
</Table>
F-9
12
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
<Table>
<Caption>
Six months ended June 30,
----------------------------
2001 2000
------------ ------------
Cash paid for interest and income taxes:
Interest, net of capitalized interest of
$3,822 and $3,530 respectively $ 44,274 $ 59,471
Income taxes 574 264
Non-cash investing and financing activities:
Deferred financing costs written-off 1,243 334
Conversion of OP Units to Common Stock 2,845 24
Dividends reinvested -- 23
Issuance of restricted stock -- 9,683
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 315 --
Accumulated depreciation (163) --
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) --
============
</Table>
8. PARTICIPATING LEASE AGREEMENTS
Changes to the federal tax laws governing REITs became effective on January 1,
2001. Under those changes, we created taxable subsidiaries that lease the
property we currently own. Our taxable subsidiaries are wholly-owned and are
similar to a subchapter C corporation. Accordingly, on January 1, 2001, we and
MeriStar Hotels assigned the participating leases to the taxable subsidiaries
and the taxable subsidiaries entered into management agreements with MeriStar
Hotels to manage our properties. Under these management agreements, the taxable
subsidiaries 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.
As of June 30, 2001, we lease four of our hotels to Prime Hospitality. These
leases continue to have non-cancelable remaining terms ranging from 8 to 10
years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The rent due under each percentage lease is the
greater of base rent or percentage rent, as defined. Percentage rent applicable
to room and food and beverage revenue varies by lease and is calculated by
multiplying fixed percentages by the total amounts of such revenues over
specified threshold amounts. Both the minimum rent and the revenue thresholds
used in computing percentage rents are subject to annual adjustments based on
increases in the United States Consumer Price Index. Percentage rent applicable
to other revenues is calculated by multiplying fixed percentages by the total
amounts of such revenues. During interim reporting periods, we defer recognition
of revenue for lease payments considered to be contingent until specified
percentage rent thresholds are met.
Total lease payments received from Prime Hospitality on our leases were $3,752
and $7,536 for the three and six months ended June 30, 2001 and $5,736 and
$10,466 for the three and six months ended June 30, 2000. Total lease payments
received on all of our leases were $108,631 and $201,385 for the three and six
months ended June 30, 2000.
F-10
13
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCK-BASED COMPENSATION
As of June 30, 2001, we have granted 586,500 shares of restricted stock to
employees. This restricted stock vests ratably over a three-year or five-year
period. The issuance of restricted stock has resulted in $5,708 of unearned
stock-based compensation recorded as a reduction to stockholders' equity on our
condensed consolidated balance sheet as of June 30, 2001.
On March 29, 2000 we granted 462,500 Profits-Only Partnership Units, or POPs, to
some of our executive officers and executive officers of MeriStar Hotels
pursuant to our POPs Plan. The units vest ratably over three years based on
achieving certain operating performance criteria and upon the occurrence of
certain other events. We account for these POPs using variable plan accounting.
On April 16, 2001, we granted 350,000 POPs to some of our executive officers
pursuant to our POPs Plan. The units vest ratably over three years and upon the
occurrence of certain other events.
10. ACQUISITIONS AND DISPOSITIONS
On May 2, 2001, we terminated the leases of four 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 these
properties.
On March 21, 2001, we sold one hotel and received proceeds of $7,274. The sale
resulted in a loss of $1,081 ($1,059, net of tax).
11. RECENT DEVELOPMENTS
On May 9, 2001, we and our operating partnership entered into an Agreement and
Plan of Merger with FelCor Lodging Trust Incorporated and its operating
partnership. Under the merger agreement, we will merge with and into FelCor.
Immediately after the merger, a wholly-owned subsidiary of FelCor's operating
partnership will be merged with and into our operating partnership. Our
operating partnership will survive as a subsidiary of FelCor's operating
partnership. Holders of our common stock will receive 0.784 of a share of FelCor
common stock and $4.60 in cash for each share of our common stock. The merger
agreement requires the approval of holders of a majority of our outstanding
shares of common stock and holders of a majority of the outstanding shares of
common stock of FelCor. We currently expect the merger to close during the third
quarter of 2001. A copy of the merger agreement has been filed as an exhibit to
our current report of Form 8-K, filed on May 10, 2001. We have incurred $3,789
of costs related to this merger through June 30, 2001.
FelCor has filed a registration statement on Form S-4 with the SEC in connection
with the merger transaction. The registration statement has not yet been
declared effective. The Form S-4 contains a prospectus, a proxy statement, and
other documents for our stockholder meeting and that of FelCor, at which time
the proposed transaction will be considered. We and FelCor plan to mail the
proxy statement and prospectus contained in the Form S-4 to our respective
stockholders after the registration statement is declared effective by the SEC.
The Form S-4, proxy statement and prospectus will contain important information
about us, FelCor, the merger and related matters. Investors and stockholders
should read the Form S-4, proxy statement and the prospectus and the other
documents filed with the SEC in connection with the merger carefully before they
make any decision with respect to the merger. For more information regarding the
persons participating in the solicitation and their interest in the merger,
please see our Statement on Schedule 14 A, filed on May 10, 2001.
F-11
14
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MeriStar Hospitality Corporation:
We have audited the accompanying consolidated balance sheets of MeriStar
Hospitality Corporation and subsidiaries (the "Company) as of December 31, 2000
and 1999 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, 2000. 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 the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and 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, 2000 and 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2000, 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.
February 2, 2001
F-12
15
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999
----------- -----------
ASSETS
Investments in hotel properties ....................................... $ 3,193,730 $ 3,118,723
Accumulated depreciation .............................................. (287,229) (182,430)
----------- -----------
2,906,501 2,936,293
Cash and cash equivalents ............................................. 250 2,556
Accounts receivable, net .............................................. 2,833 1,328
Prepaid expenses and other ............................................ 2,767 9,137
Note receivable from Lessee ........................................... -- 57,110
Due from Lessee ....................................................... 22,221 11,476
Investments in and advances to affiliates ............................. 42,196 40,085
Restricted cash ....................................................... 19,918 17,188
Intangible assets, net of accumulated amortization of $9,729 and
$5,742 .............................................................. 16,322 19,028
----------- -----------
$ 3,013,008 $ 3,094,201
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities .............. $ 74,420 $ 58,055
Accrued interest ...................................................... 28,365 31,380
Income taxes payable .................................................. 1,151 730
Dividends and distributions payable ................................... 24,581 26,263
Deferred income taxes ................................................. 10,140 9,345
Long-term debt ........................................................ 1,638,319 1,676,771
----------- -----------
Total liabilities ..................................................... 1,776,976 1,802,544
----------- -----------
Minority interests .................................................... 101,477 107,761
Stockholders' Equity:
Common stock, par value $0.01 per share
Authorized-- 250,000 shares
Issued--48,463 and 47,664 shares .............................. 485 477
Additional paid-in capital ....................................... 1,177,218 1,164,750
Retained earnings ................................................ 42,837 30,168
Accumulated other comprehensive income ........................... (6,081) (5,247)
Unearned stock-based compensation ................................ (7,550) --
Less common stock held in treasury--4,083 and 407 shares ......... (72,354) (6,252)
----------- -----------
Total stockholders' equity .................................. 1,134,555 1,183,896
----------- -----------
$ 3,013,008 $ 3,094,201
=========== ===========
See accompanying notes to consolidated financial statements.
F-13
16
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999 1998
--------- --------- ---------
Revenue:
Participating lease revenue ......................................................... $ 391,729 $ 368,012 $ 135,994
Hotel operations:
Rooms ........................................................................... -- -- 275,610
Food and beverage ............................................................... -- -- 85,374
Other operating departments ..................................................... -- -- 19,496
Office rental, parking and other revenue ............................................ 9,049 6,892 5,649
Hotel management and other fees ..................................................... -- -- 3,174
--------- --------- ---------
Total revenue .............................................................. 400,778 374,904 525,297
--------- --------- ---------
Hotel operating expenses by department:
Rooms ........................................................................... -- -- 65,048
Food and beverage ............................................................... -- -- 67,493
Other operating departments ..................................................... -- -- 10,121
Office rental, parking and other operating expenses ................................. 2,731 1,964 2,713
Undistributed operating expenses:
Administrative and general ...................................................... 9,445 5,749 62,350
Property operating costs ........................................................ -- -- 50,027
Property taxes, insurance and other ............................................. 47,481 47,027 29,814
Lease expense ................................................................... -- -- 34,641
Depreciation and amortization ................................................... 111,947 103,099 60,703
Spin-off costs .................................................................. -- -- 8,481
--------- --------- ---------
Total operating expenses ................................................... 171,604 157,839 391,391
--------- --------- ---------
Net operating income ..................................................................... 229,174 217,065 133,906
Interest expense, net .................................................................... 117,524 100,398 64,378
--------- --------- ---------
Income before minority interests, income taxes, gain on sale of assets,
extraordinary gain(loss) and cumulative effect of accounting change ................... 111,650 116,667 69,528
Minority interests ....................................................................... 10,240 11,069 5,121
--------- --------- ---------
Income before income taxes, gain on sale of assets, extraordinary gain(loss) and
cumulative effect of accounting change ................................................ 101,410 105,598 64,407
Income taxes ............................................................................. 2,028 2,102 15,699
--------- --------- ---------
Income before gain on sale of assets, extraordinary gain(loss) and cumulative effect
of accounting change .................................................................. 99,382 103,496 48,708
Gain on sale of assets, net of tax effect of $70 ......................................... 3,425 -- --
Extraordinary gain(loss) on early extinguishment of debt, net of tax effect of $62 in
2000, ($93) in 1999, and ($2,083) in 1998 ............................................. 3,054 (4,532) (4,080)
Cumulative effect of accounting change, net of tax effect of ($564) ...................... -- -- (921)
--------- --------- ---------
Net income ............................................................................... $ 105,861 $ 98,964 $ 43,707
========= ========= =========
Earnings per share:
Basic:
Income before extraordinary gain(loss) and cumulative effect of accounting
change .......................................................................... $ 2.21 $ 2.19 $ 1.45
Extraordinary gain(loss) .......................................................... 0.07 (0.10) (0.12)
Cumulative effect of accounting change
-- -- (0.03)
--------- --------- ---------
Net income ........................................................................ $ 2.28 $ 2.09 $ 1.30
========= ========= =========
Diluted:
Income before extraordinary gain(loss) and cumulative effect of accounting
change .......................................................................... $ 2.14 $ 2.11 $ 1.40
Extraordinary gain(loss) .......................................................... 0.06 (0.08) (0.11)
Cumulative effect of accounting change
-- -- (0.03)
--------- --------- ---------
Net income ........................................................................ $ 2.20 $ 2.03 $ 1.26
========= ========= =========
See accompanying notes to consolidated financial statements.
F-14
17
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
COMMON STOCK
------------------------------------------------------
ISSUED TREASURY ADDITIONAL
------------------------- -------------------------- PAID IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 1998 ............. 24,867 $ 249 -- $ -- $ 499,576 $ 22,114
Net income for the year ............ -- -- -- -- -- 43,707
Foreign currency translation
adjustment ....................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Comprehensive income .................
Issuances of common stock ............ 20,839 208 -- -- 654,671 --
Distribution to spun-off
affiliate .......................... -- -- -- -- (52,310) --
Redemption of OP Units ............... 1,012 10 -- -- 31,420 --
Dividends declared ................... -- -- -- -- -- (38,599)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ........... 46,718 467 -- -- 1,133,357 27,222
Net income for the year ............ -- -- -- -- -- 98,964
Foreign currency translation
adjustment ....................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Comprehensive income .................
Issuances of common stock ............ 95 1 -- -- 1,990 --
Shares repurchased ................... -- -- (407) (6,252) -- --
Redemption of OP Units ............... 851 9 -- -- 29,403 --
Dividends declared ................... -- -- -- -- -- (96,018)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ........... 47,664 477 (407) (6,252) 1,164,750 30,168
Net income for the year ............ -- -- -- -- -- 105,861
Foreign currency translation
adjustment ....................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Comprehensive income .................
Issuances of common stock ............ 133 1 -- -- 1,831 --
Issuances of restricted stock ........ 589 6 -- -- 10,614 --
Amortization on unearned
stock-based compensation ............. -- -- -- -- -- --
Shares repurchased ................... -- -- (3,676) (66,102) -- --
Redemption of OP Units ............... 77 1 -- -- 23 --
Dividends declared ................... -- -- -- -- -- (93,192)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 ........... 48,463 $ 485 (4,083 $ (72,354) $ 1,177,218 $ 42,837
=========== =========== =========== =========== =========== ===========
ACCUMULATED
OTHER UNEARNED
COMPREHENSIVE STOCK-BASED
INCOME COMPENSATION TOTAL
----------- ------------- -----------
Balance, January 1, 1998 ............. $ (2,527) $ -- $ 519,412
Net income for the year ............ -- -- 43,707
Foreign currency translation
adjustment ....................... (3,960) -- (3,960)
----------- ----------- -----------
Comprehensive income ................. 39,747
Issuances of common stock ............ -- -- 654,879
Distribution to spun-off
affiliate .......................... -- -- (52,310)
Redemption of OP Units ............... -- -- 31,430
Dividends declared ................... -- -- (38,599)
----------- ----------- -----------
Balance, December 31, 1998 ........... (6,487) -- 1,154,559
Net income for the year ............ -- -- 98,964
Foreign currency translation
adjustment ....................... 1,240 -- 1,240
----------- ----------- -----------
Comprehensive income ................. 100,204
-----------
Issuances of common stock ............ -- -- 1,991
Shares repurchased ................... -- -- (6,252)
Redemption of OP Units ............... -- -- 29,412
Dividends declared ................... -- -- (96,018)
----------- ----------- -----------
Balance, December 31, 1999 ........... (5,247) -- 1,183,896
Net income for the year ............ -- -- 105,861
Foreign currency translation
adjustment ....................... (834) -- (834)
----------- ----------- -----------
Comprehensive income ................. 105,027
-----------
Issuances of common stock ............ -- -- 1,832
Issuances of restricted stock ........ -- (10,620) --
Amortization on unearned
stock-based compensation ............. -- 3,070 3,070
Shares repurchased ................... -- -- (66,102)
Redemption of OP Units ............... -- -- 24
Dividends declared ................... -- -- (93,192)
----------- ----------- -----------
Balance, December 31, 2000 ........... $ (6,081) $ (7,550) $ 1,134,555
=========== =========== ===========
See accompanying notes to the consolidated financial statements.
F-15
18
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
----------- ----------- -----------
Operating activities:
Net income ....................................................................... $ 105,861 $ 98,964 $ 43,707
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................................. 111,947 103,099 60,703
Gain on assets sold, before tax effect ......................................... (3,495) -- --
Extraordinary (gain)loss on early extinguishment of debt, before tax ........... (3,116) 4,625 6,163
effect
Cumulative effect of accounting change, before tax effect ...................... -- -- 1,485
Minority interests ............................................................. 10,240 11,069 5,121
Non-cash spin-off costs ........................................................ -- -- 3,205
Amortization of unearned stock based compensation .............................. 3,070 -- --
Deferred income taxes .......................................................... 795 892 (4,445)
Changes in operating assets and liabilities:
Accounts receivable, net ..................................................... (1,505) 1,716 29,673
Prepaid expenses and other ................................................... 6,370 (5,260) 24,760
Income tax receivable ........................................................ -- 339 --
Intangible assets, net ....................................................... -- (245) --
Due from Lessee .............................................................. (10,745) (4,039) (7,437)
Accounts payable, accrued expenses, accrued interest and other liabilities ... 4,194 17,303 765
Income taxes payable ......................................................... 421 730 (904)
----------- ----------- -----------
Net cash provided by operating activities ........................................... 224,037 229,193 162,796
----------- ----------- -----------
Investing activities:
Investment in hotel properties, net .............................................. (90,703) (170,063) (701,710)
Proceeds from disposition of assets .............................................. 24,148 8,900 --
Purchases of intangible assets ................................................... -- -- (5,584)
Investments in and advances to affiliates, net ................................... (2,111) (31,298) (2,320)
Purchases of minority interests .................................................. -- (72) (44)
Repayments of notes receivable ................................................... 57,110 9,890 (67,000)
Change in restricted cash ........................................................ (2,730) (5,309) (8,847)
----------- ----------- -----------
Net cash used in investing activities ............................................... (14,286) (187,952) (785,505)
----------- ----------- -----------
Financing activities:
Deferred financing costs ......................................................... (1,615) (6,899) (4,251)
Proceeds from issuance of long-term debt ......................................... 179,388 484,924 1,407,261
Principal payments on long-term debt ............................................. (214,724) (410,217) (821,051)
Proceeds from issuances of common stock, net ..................................... 1,741 1,991 1,870
Purchase of OP units ............................................................. (7,535) -- --
Purchases of treasury stock ...................................................... (66,102) (6,252) --
Spin-off to stockholders ......................................................... -- -- (23,745)
Dividends paid to stockholders ................................................... (94,062) (94,774) (16,178)
Distributions to minority investors .............................................. (9,212) (11,585) (650)
----------- ----------- -----------
Net cash (used in) provided by financing activities ................................. (212,121) (42,812) 543,256
----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents ........................ 64 (53) 204
Net decrease in cash and cash equivalents ........................................... (2,306) (1,624) (79,249)
Cash and cash equivalents, beginning of year ........................................ 2,556 4,180 83,429
----------- ----------- -----------
Cash and cash equivalents, end of year .............................................. $ 250 $ 2,556 $ 4,180
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-16
19
MERISTAR HOSPITALITY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION
MeriStar Hospitality Corporation (the "Company") owns a portfolio of
primarily upscale, full-service hotels, diversified by franchise and brand
affiliations, in the United States and Canada. Substantially all of the
Company's hotels are leased to and operated by MeriStar Hotel & Resorts, Inc.
("OpCo"), an affiliated entity. As of December 31, 2000, the Company owned 114
hotels with 29,090 rooms, 106 of which are leased and operated by OpCo.
On August 3, 1998, CapStar Hotel Company ("CapStar") merged (the "Merger")
with and into American General Hospitality Corporation ("AGH"), with the
surviving entity being named MeriStar Hospitality Corporation. In conjunction
with the Merger, CapStar also distributed on a pro rata basis to its
stockholders all of the capital stock of OpCo, which consisted of CapStar's
hotel operations (including leased hotels) and management business (the
"Spin-Off").
In order to maintain its tax status as a Real Estate Investment Trust
("REIT"), the Company has not been permitted to engage in the operations of its
hotel properties. To comply with this requirement, the Company has leased all of
its real property to third-party lessee/managers--OpCo and Prime Hospitality
Corporation.
On January 1, 2001, the REIT Modernization Act (the "RMA") became law. The
RMA permits the Company to create a wholly-owned taxable REIT subsidiary (the
"TRS") on or after January 1, 2001, which will be subject to taxation similar to
a C-Corporation. The TRS will be allowed to lease the real property owned by the
Company. Also, the RMA prohibits the TRS from engaging in certain activities.
First, a TRS may not manage the properties itself; it will need to enter into an
"arms 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. Second, a TRS may not lease a property
that contains gambling operations. Third, a TRS may not own a brand or
franchise. The Company believes that establishing a TRS to lease its properties
will provide a more efficient alignment of and ability to capture the economic
interests of property ownership.
Until January 1, 2001, the Company leased 106 hotels to OpCo. Each of the
leases was a 12-year participating lease under which OpCo paid the Company a
fixed base rent plus participating rent based on a percentage of hotel revenues.
Because of the RMA, the Company has created a TRS. The Company and OpCo have
also agreed to assign the leases for the 106 hotels to the TRS. The new
management agreements have been structured to mirror the current economics of
the existing leases. The transactions did not result in any cash consideration
exchanged among the parties. Under the new management agreements, the base
management fee is 2.5 percent of total hotel operating revenue with incentives
up to an additional 1.5 percent of total revenue if certain operating thresholds
are achieved. The agreements have an initial term of 10 years with three renewal
periods of five years each at OpCo's option, subject to some exceptions. Because
of these changes, the Company now bears the operating risk associated with its
properties.
As of February 2, 2001, twelve states, including California, Texas and
Florida have not enacted legislation that would permit a REIT to lease
properties to a TRS. It is expected that each state will ultimately enact
legislation, during 2001 that will be retroactive to January 1, 2001, conforming
its law to the federal law. However, if conforming legislation is not enacted,
the Company could lose its status as a REIT in those states and would be taxed
as a C-Corporation. Accordingly, the Company may be required to provide for
current and deferred taxes.
F-17
20
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and all of its majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Investments in unconsolidated joint ventures and affiliated companies in
which the Company holds a voting interest of 50% or less and exercises
significant influence are accounted for using the equity method. The Company
uses the cost method to account for its investment in entities in which it does
not have the ability to exercise significant influence.
Cash Equivalents and Restricted Cash--The Company considers 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 the Company's credit facilities.
Investments in Hotel Properties--Investments in hotel properties are
recorded at cost, which includes the allocated purchase price for hotel
acquisitions, or at fair value at the time of contribution for contributed
property. Property and equipment balances are depreciated using the
straight-line method over lives ranging from five to 40 years. For the years
ended December 31, 2000, 1999 and 1998, the Company capitalized interest of
$8,613, $12,540, and $5,182, respectively. Properties held for sale are carried
at the lower of their carrying values or estimated fair values less costs to
sell. Depreciation of these properties is discontinued when an operating
property is classified as held for sale. 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. These deferred fees are amortized on a straight-line basis over
the lives of the related borrowings for up to 10 years. Total accumulated
amortization at December 31, 2000 and 1999 was $9,729 and $5,742, respectively.
In 1999 and 1998, the Company recognized extraordinary losses of $4,532 and
$4,080, (net of tax effect of $93 and $2,083), respectively, due to the
write-off of unamortized deferred financing fees in conjunction with refinancing
certain credit facilities.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of--The carrying values of long-lived assets, which include property and
equipment and all intangibles, are evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
assets. Adjustments are made if the sum of expected undiscounted future net cash
flows is less than book value. No impairment losses were recorded during 2000,
1999 or 1998.
Income Taxes--The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards ("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, the Company became a REIT
and is therefore no longer subject to federal income taxes, provided that it
complies with various requirements necessary to maintain REIT status. The
Company is subject to state and local taxes in certain jurisdictions.
Foreign Currency Translation--Results of operations for the Company's
Canadian hotels are maintained in Canadian dollars and translated using the
average exchange rates during the period. Assets and liabilities are translated
to U.S. dollars using the exchange rate in effect at the balance sheet date.
Resulting translation adjustments are reflected in accumulated other
compensation income.
F-18
21
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Revenue Recognition--Prior to the Merger, revenue was earned through the
operations and management of the hotel properties and was recognized when
earned. Subsequent to the Merger, the Company earns participating lease revenue.
Participating lease revenue represents lease payments from lessees pursuant to
participating lease agreements. Office, retail and parking rental is generally
recognized on a straight-line basis over the terms of the respective leases.
Participating Lease Agreements--The Company's participating leases have
non-cancelable remaining terms ranging from 8 to 10 years, subject to earlier
termination on the occurrence of certain contingencies, as defined. The rent due
under each percentage lease is the greater of base rent or percentage rent, as
defined. Percentage rent applicable to room and food and beverage revenue varies
by lease and is calculated by multiplying fixed percentages by the total amounts
of such revenues over specified threshold amounts. Both the minimum rent and the
revenue thresholds used in computing percentage rents are subject to annual
adjustments based on increases in the United States Consumer Price Index.
Percentage rent applicable to other revenues is calculated by multiplying fixed
percentages by the total amounts of such revenues. During interim reporting
periods, the Company defers recognition of revenue for lease payments considered
to be contingent until specified percentage rent thresholds are met.
Changes to the federal tax laws governing REITs were enacted in 1999 and
became effective on January 1, 2001. Under those changes, the Company is
permitted to create subsidiaries that lease the property the Company currently
owns and are taxable, similar to a subchapter C-Corporation. The Company's
taxable subsidiaries are wholly-owned. Accordingly, the Company and OpCo
assigned the participating leases to the taxable subsidiaries and the taxable
subsidiaries entered into management agreements with OpCo to manage the
Company's properties. Under these management agreements, the taxable
subsidiaries pay OpCo a management fee. The taxable subsidiaries in turn make
rental payments to the Company under the participating leases. The management
agreements have been structured to substantially mirror the economics of the
former leases.
Financial Instruments--From time to time the Company enters into swap and
collar agreements that are designated as, and are effective as, hedges against
the impact of interest rate fluctuation on certain of the Company's existing and
probable future long-term debt instruments. Because these agreements qualify for
hedge accounting treatment, any gains or losses are recognized as adjustments to
interest expense over the lives of the underlying debt instruments. For hedge
agreements associated with anticipated future debt instruments, gains or losses
are deferred until those debt instruments are entered into. If the Company
determines it is no longer probable that the Company will enter into an
anticipated debt instrument, any related deferred gains or losses are recognized
in the current period.
Use of Estimates--The preparation of 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 a public entity to report selected
information about operating segments in financial reports issued to
shareholders. It also establishes standards for related disclosures about
product and services, geographic areas and major customers. Based on the
guidance provided in the standard, the Company has determined that its business
is conducted in one operating segment.
F-19
22
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The following table summarizes geographic information required to be
disclosed under SFAS No. 131:
2000 1999 1998
---------- ---------- ----------
REVENUE:
U.S ........................................... $ 394,257 $ 367,893 $ 510,344
Foreign ....................................... 6,521 7,011 14,953
---------- ---------- ----------
$ 400,778 $ 374,904 $ 525,297
========== ========== ==========
INVESTMENTS IN HOTEL PROPERTIES, NET:
U.S ........................................... $2,850,348 $2,876,909
Foreign ....................................... 56,153 59,384
---------- ----------
$2,906,501 $2,936,293
========== ==========
Comprehensive Income--FAS 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. Comprehensive
income of the Company includes net income and other comprehensive income from
foreign currency items.
Cumulative Effect of Accounting Change--In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
No. 98-5, "Reporting on the Costs of Start-Up Activities," which requires that
all non-governmental entities expense costs of start-up activities, including
organizational costs, as those costs are incurred and requires the write-off of
any unamortized balances upon implementation. SOP No. 98-5 is effective for
financial statements issued for periods beginning after December 15, 1998. The
Company chose to adopt SOP No.98-5 effective July 1, 1998. The cumulative effect
of this accounting change was a charge against income for the year ended
December 31, 1998 of $921 (net of tax benefit of $564).
New Accounting Pronouncements--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that an entity recognize all
derivatives as either assets or liabilities in statements of financial position
and measure those instruments at fair value. In June 1999, the FASB issued SFAS
No. 137 which amended SFAS No. 133 to defer the effective date to all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB
issued SFAS No. 138 which provides additional guidance and amendments to SFAS
No. 133. The Company does not believe this new accounting standard will have a
material effect on its financial statements.
Reclassifications--Certain 1999 and 1998 amounts have been reclassified to
conform to 2000 presentation.
For the years ended December 31, 1999 and 1998, the Company has
reclassified distributions to common OP Unit holders as a component of minority
interest, resulting in an increase to retained earnings and a corresponding
decrease to minority interests of $13,294 and $3,567 as of December 31, 1999 and
1998, respectively. This reclassification also results in a decrease in
dividends declared in the consolidated statements of stockholders' equity of
$9,727 and $3,567 for the years ended December 31, 1999 and 1998, respectively.
F-20
23
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
3. INVESTMENTS IN HOTEL PROPERTIES
Investments in hotel properties consists of the following:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Land ...................................... $ 317,072 $ 318,360
Buildings ................................. 2,461,089 2,378,318
Furniture, fixtures and equipment ......... 338,350 320,787
Construction-in-progress .................. 77,219 101,258
---------- ----------
Total ................................ $3,193,730 $3,118,723
========== ==========
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company has ownership interests in certain unconsolidated joint
ventures and affiliated companies.
In 2000, the Company invested $2,100 in STS Hotel Net, a company that
provides high-speed internet portals to guest rooms. This investment is
accounted for using the cost method.
In 1999, the Company invested $40,000 in MeriStar Investment Partners, LP
("MIP"), a joint venture established to acquire upscale, full-service hotels.
The Company's investment is in the form of a preferred partnership interest. The
Company receives a 16% preferred return on its investment.
5. NOTE RECEIVABLE WITH LESSEE
On March 1, 2000, OpCo repaid the remaining balance of $57,100 on its
revolving credit agreement with the Company upon closing its bank revolving
credit facility. At that time, OpCo's revolving credit agreement with the
Company was also amended to reduce the maximum borrowing limit from $75,000 to
$50,000. Any amounts outstanding will bear interest at the rate of the 30-day
London Interbank Offered Rate plus 650 basis points.
6. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
New Credit Facility ............. $ 898,000 $ 908,000
New Secured Facility ............ 324,554 328,954
Subordinated Notes .............. 202,429 202,041
Convertible Notes ............... 154,300 172,500
Mortgage Debt and Other ......... 59,036 65,276
---------- ----------
$1,638,319 $1,676,771
========== ==========
New Credit Facility--In conjunction with the Merger, the Company entered
into a $1,000,000 senior secured credit facility (the "New Credit Facility").
The New Credit Facility is 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. The
New Credit Facility is secured by the Company's
F-21
24
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Common Stock and its general partnership, limited partnership and limited
liability company ownership interests in its subsidiaries. The interest rate on
the term loans and revolving facility ranges from 100 to 200 basis points over
the 30-day London Interbank Offered Rate ("LIBOR"), depending on certain
financial performance covenants and long-term senior unsecured debt ratings. The
weighted average interest rate on borrowings outstanding under the New Credit
Facility as of December 31, 2000 and 1999 was 8.3% and 8.4%, respectively. As of
December 31, 2000, the Company had $98.0 million available under the New Credit
Facility's revolving facility.
New Secured Facility--In 1999, the Company completed a $330,000 10-year
non-recourse financing ("New Secured Facility") secured by a portfolio of 19
hotels. The loan bears a fixed interest rate of 8.01% and matures in 2009. The
Company used most of the net proceeds to repay the amounts outstanding under
prior credit facilities.
Subordinated Notes--In 1999, the Company sold $55,000 aggregate principal
amount (issue price of $51,906, net of discount) of 8.75% senior subordinated
notes ("Subordinated Notes") due 2007, generating net proceeds of $51,219
million to the Company. The Company used the net proceeds to repay indebtedness
under its New Credit Facility and to invest in MIP. These notes are unsecured
obligations of the Company and provide for semi-annual payments of interest on
February 15 and August 15, commencing on August 15, 1999.
In 1997, the Company completed the offering of $150,000 aggregate principal
amount (issue price of $149,799, net of discount) of its 8.75% senior
subordinated notes due 2007 (the "Subordinated Notes"), generating net proceeds
to the Company 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 unsecured obligations of the Company and provide for
semi-annual payments of interest on February 15 and August 15, commencing on
February 15, 1998.
Convertible Notes--In 1997, the Company completed the offering of $172,500
aggregate principal amount of its 4.75% convertible subordinated notes due 2004
(the "Convertible Notes"), generating net proceeds to the Company of $167,581.
The proceeds were used to repay outstanding indebtedness under a prior credit
facility and to finance certain hotel acquisitions. The Convertible Notes are
unsecured obligations of the Company and provide for semi-annual payments of
interest on April 15 and October 15, commencing on April 15, 1998. During 2000,
the Company repurchased $18,200 of its 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, the Company 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--As of December 31, 2000, the Company has seven swap
agreements with notional principal amounts totaling $700,000. These swap
agreements provide hedges against the impact future interest rates have on the
Company's floating London Interbank Offered Rate ("LIBOR") debt instruments. The
swap agreements effectively fix the 30-day LIBOR between 6.0% and 7.2%. The swap
agreements expire between September 2001 and July 2003. For the year ended
December 31, 2000, the Company has received net payments of $3,081 on these
swaps and other similar swaps that expired during the year.
In anticipation of the August 1999 completion the New Secured Facility, the
Company entered into two separate hedge transactions during July 1999. Upon
completion of the New Secured Facility, the Company terminated the underlying
treasury lock agreements, resulting in a net payment to the Company of $5,100.
This
F-22
25
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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 New Secured Facility is 7.76%.
Additionally, in anticipation of the August 1997 offering of $150,000
aggregate principal amount of its 8.75% senior subordinated notes due 2007 (the
"Subordinated Notes"), the Company entered into separate hedge transactions
during June and July 1997. Upon completion of the Subordinated Notes offering,
the Company terminated the underlying swap agreements, resulting in a net
payment to the Company 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, 2000, after consideration of the hedge agreements
described above, the Company has fixed the effective interest rate on 88% of its
debt and its overall weighted average interest rate is 7.93%.
Future Maturities--Aggregate future maturities of the above obligations are
as follows:
2001.......... $ 28,288
2002.......... 47,897
2003.......... 667,589
2004.......... 361,168
2005.......... 9,265
Thereafter.... 524,112
----------
$1,638,319
==========
Management has determined that the fair value of the outstanding balance of
the Company's long-term debt approximates $1,589,311 at December 31, 2000.
7. INCOME TAXES
The Company's income taxes were allocated as follows:
2000 1999 1998
-------- -------- --------
Taxes on income before gain on sale of assets, extraordinary gain
(loss) and cumulative effect of accounting change ...................... $ 2,028 $ 2,102 $ 15,699
Taxes on gain on sale of assets ........................................... 70 -- --
Tax liability or (benefit) on extraordinary gain (loss) ................... 62 (93) (2,083)
Tax benefit on cumulative effect of accounting change ..................... -- -- (564)
-------- -------- --------
$ 2,160 $ 2,009 $ 13,052
======== ======== ========
The Company's effective income tax rate differs from the federal statutory
income tax rate as follows:
2000 1999 1998
-------- -------- --------
Statutory tax rate ........................................... 35.0% 35.0% 35.0%
Effect of REIT dividends paid deduction ...................... (35.0) (35.0) (35.0)
Effect of federal taxes in pre-REIT period ................... -- -- 17.9
State and local taxes ........................................ 1.7 1.7 2.1
Difference in effective rate on foreign subsidiaries ......... 0.3 0.3 2.8
Other ........................................................ -- -- 0.2
---- ---- ----
2.0% 2.0% 23.0%
==== ==== ====
F-23
26
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The components of income tax expense related to income before gain on sale
of assets, extraordinary gain(loss) and cumulative effect of accounting change
are as follows:
2000 1999 1998
-------- -------- --------
Current:
Federal ......... $ -- $ -- $ 14,873
State ........... 800 1,020 3,771
Foreign ......... 433 190 1,500
-------- -------- --------
1,233 1,210 20,144
Deferred:
Federal ......... -- -- (3,546)
State ........... 685 842 (899)
Foreign ......... 110 50 --
-------- -------- --------
795 892 (4,445)
-------- -------- --------
$ 2,028 $ 2,102 $ 15,699
======== ======== ========
The tax effects of the principal temporary differences that give rise to
the Company's net deferred tax liability are as follows:
DECEMBER 31,
-----------------
2000 1999
------- ------
Accelerated depreciation.............. $ 2,611 $1,846
Fair value of hotel assets acquired... 6,800 6,800
Allowance for doubtful accounts....... (30) (30)
Accrued vacation...................... (15) (15)
Accrued expenses...................... 482 482
Other................................. 292 262
------- ------
Net deferred tax liability............ $10,140 $9,345
======= ======
There is no valuation allowance for deferred tax assets as of December 31,
2000 or 1999 as management believes it is more likely than not that these
deferred tax assets will be fully realized.
In conjunction with the Merger and related transactions, the Company had
several significant events that affect income tax-related balances for the year
ended December 31, 2000 and 1999. These events are summarized below:
o REITs are subject to federal income taxes in certain instances for asset
dispositions occurring within 10 years of electing REIT status. The
Company does not expect to incur federal tax liability resulting from
the disposition of assets with built-in gain. The 2000 asset
dispositions were not subject to the built-in gain rules.
o As described above, for purposes of preparing the Company's financial
statements, the Company established a new accounting basis for AGH's
assets and liabilities based on their fair values. In accordance with
generally accepted accounting principles, the Company has provided a
deferred income tax liability for the estimated future tax effect of
differences between the accounting and tax bases of assets acquired from
AGH. 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.
F-24
27
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
8. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS
Common Stock Transactions--On March 15, 1998, CapStar and AGH entered into
the Merger Agreement. Pursuant to the Merger, CapStar shareholders received one
share each in the Company and OpCo, for each CapStar share owned. AGH
shareholders received 0.8475 shares of the Company for each AGH share owned. To
effect the Merger, the Company issued 20,607,611 shares valued at $755,907 to
former AGH shareholders.
CapStar also distributed on a pro rata basis to its stockholders all of the
capital stock of OpCo, which consisted of CapStar's hotel operations (including
leased hotels) and management business. In conjunction with the Spin-Off, the
Company distributed $23,745 of cash and $28,565 of net assets to the new
shareholders of OpCo.
During the 1999 Annual Meeting of Stockholders, the shareholders authorized
100,000,000 shares of preferred stock, par value $0.01 per share, of the Company
to be issued from time to time with such rights, preferences and priorities as
the Board of Directors shall designate.
In September 1999, the Company's Board of Directors authorized the
repurchase of up to five million shares of its Common Stock from time to time in
open market or privately negotiated transactions. As of December 31, 2000 the
Company has repurchased a total of 4,083,204 shares for $72,354.
In May 2000, the Company implemented a stock purchase plan that allowed
eligible employees to purchase the Company's common stock at a discount to
market value. The Company had reserved 500,000 shares of common stock for
issuance under this plan.
OP Units--Substantially all of the Company's assets are held indirectly by
and operated through MeriStar Hospitality Operating Partnership, L.P. (the
"Operating Partnership"), the Company's subsidiary operating partnership.
The Operating Partnership's partnership agreement provides four classes of
partnership interests ("OP Units"): Common OP Units, Class B OP Units, Class C
OP Units and Class D OP Units. Common OP Units and Class B OP Units receive
quarterly distributions per OP Unit equal to the dividend paid on each share of
the Company's Common Stock. Class C OP Units receive a non-cumulative, quarterly
distribution equal to $0.5575 per Class C OP Unit until such time as the
dividend rate on the Company's Common Stock exceeds $0.5575 whereupon the Class
C OP Units automatically convert into Common OP Units. Class D OP Units pay a
6.5% cumulative annual preferred return based on an assumed price per common
share of $22.16, compounded quarterly to the extent not paid on a current basis,
and are entitled to a liquidation preference of $22.16 per Class D OP Unit. The
Company may redeem them at any time after April 1, 2000 at a price of $22.16 per
share for cash or, at the Company's option, for shares of common stock having a
value equal to the redemption price. The holders have the option to redeem the
Class D OP Units at any time after April 1, 2004 for cash or, at the holders
option, for shares of common stock having a value equal to $22.16. All net
income earned and capital proceeds received by the Operating Partnership, after
payment of the annual preferred return and, if applicable, the liquidation
preference, are shared by the holders of the Common OP Units.
During 1999, 65,875 Common OP Units were issued to partially finance the
purchase of a hotel and 974,588 Common OP units were issued as a conditional
component of a purchase agreement for a hotel purchased in 1998. During 1998,
962,858 Common and Class B OP Units were issued to partially finance the
purchases of certain hotels and 3,305,175 Common OP Units were issued to former
holders of AGH OP Units. During 1997, the Company issued 1,483,759 Common and
Class B OP Units and 392,157 Class D OP Units to partially finance the purchases
of both certain hotels and lease contracts on hotels.
F-25
28
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
On March 21, 2000, June 21, 2000, September 25, 2000 and December 20, 2000,
the Company declared its first, second, third and fourth quarter dividends,
respectively, equivalent to an annual rate of $2.02 per share of Common Stock
and OP Unit in the Operating Partnership. The amount of the dividend for each
quarter was $0.505 per share of Common Stock and OP Unit and was paid on April
28, 2000, July 31, 2000, October 31, 2000 and January 31, 2001, respectively.
On March 17, 1999, June 21, 1999, September 15, 1999 and December 6, 1999,
the Company declared its first, second, third and fourth quarter dividends,
respectively, equivalent to an annual rate of $2.02 per share of Common Stock
and OP Unit in the Operating Partnership. The amount of the dividend for each
quarter was $0.505 per share of Common Stock and OP Unit and was paid on April
30, 1999, July 30, 1999, October 29, 1999 and January 31, 2000, respectively.
On September 2, 1998 and November 4, 1998, respectively, the Company
declared its third and fourth quarter dividends, equivalent to an annual rate of
$2.02 per share of Common Stock and OP Unit in the Operating Partnership. The
third quarter dividend was paid on a prorated basis from August 4, 1998 (the
first day of operations following the Merger) through September 30, 1998. The
amount of the dividend was $0.31837 per share of Common Stock and OP Unit and
was paid on October 30, 1998. The fourth quarter dividend of $0.505 per share of
Common Stock and OP Unit and was paid on January 29, 1999.
F-26
29
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
9. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for income before
extraordinary loss and cumulative effect of accounting change ("EPS"):
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
--------- --------- ---------
Basic EPS Computation:
Net income before extraordinary gain(loss) and cumulative effect
of accounting change .................................................. $ 102,807 $ 103,496 $ 48,708
Dividends paid on unvested restricted stock .............................. (1,168) -- --
--------- --------- ---------
Income available to common shareholders .................................. 101,639 103,496 48,708
Weighted average number of shares of Common Stock
outstanding ........................................................... 45,958 47,276 33,653
--------- --------- ---------
Basic EPS before extraordinary gain(loss) and cumulative effect
of accounting change .................................................. $ 2.21 $ 2.19 $ 1.45
========= ========= =========
Diluted EPS Computation:
Income available to common shareholders .................................. $ 101,639 $ 103,496 $ 48,708
Minority interest, net of tax ............................................ 554 10,143 2,633
Interest on convertible debt, net of tax ................................. 7,338 8,137 --
Dividends on unvested restricted stock ................................... 254 -- --
--------- --------- ---------
Adjusted net income ...................................................... $ 109,785 $ 121,776 $ 51,341
--------- --------- ---------
Weighted average number of shares of Common Stock
outstanding ........................................................... 45,958 47,276 33,653
Common Stock equivalents:
Stock options ....................................................... 208 102 383
OP Units ............................................................ 441 5,205 2,624
Convertible debt .................................................... 4,612 5,066 --
Restricted stock .................................................... 176 -- --
--------- --------- ---------
Total weighted average number of diluted shares of Common
Stock outstanding ..................................................... 51,395 57,649 36,660
--------- --------- ---------
Diluted EPS before extraordinary gain(loss) and cumulative
effect of accounting change ........................................... $ 2.14 $ 2.11 $ 1.40
========= ========= =========
In certain years, the effects of certain OP Units and convertible debt were
not included in the computation of diluted EPS as their effect was
anti-dilutive.
10. RELATED-PARTY TRANSACTIONS
Pursuant to an intercompany agreement, the Company and OpCo provide each
other with, among other things, reciprocal rights to participate in certain
transactions entered into by each party. In particular, OpCo has a right of
first refusal to become the lessee of any real property acquired by the Company.
OpCo also may provide the Company with certain services including
administrative, renovation supervision, corporate, accounting, finance,
insurance, legal, tax, information technology, human resources, acquisition
identification and due diligence, and operational services, for which OpCo is
compensated in an amount that the Company would be charged by a third party for
comparable services. During the years ended December 31, 2000, 1999 and 1998,
the Company paid OpCo $1,165, $1,600 and $781 respectively, for such services.
F-27
30
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Summarized financial information of the Company's significant lessee, OpCo,
is as follows:
2000 1999
---------- -----------
BALANCE SHEET DATA:
Total assets.......... $ 339,118 $ 258,931
Total liabilities..... $ 254,673 $ 179,168
OPERATING DATA:
Revenue............... $1,411,619 $1,292,114
Net income............ $ (9,380) $ 6,685
OpCo has a revolving credit facility with the Company. On March 1, 2000,
OpCo repaid the remaining balance of $57,100 on its revolving credit agreement
with the Company upon closing its bank revolving credit facility. At this time,
the revolving credit agreement was amended to reduce the maximum borrowing limit
from $75,000 to $50,000 and the interest rate on the facility was changed from
LIBOR plus 350 basis points to LIBOR plus 650 basis points. During 2000, 1999
and 1998, the Company earned interest of $955, $4,907, and $1,967, respectively,
from this facility. There were no amounts outstanding under this facility at
December 31, 2000.
In order for AGH to qualify as a REIT prior to the Merger, AGH's operating
partnership sold certain personal property relating to certain of the hotels
acquired by AGH in connection with its initial public offering to AGH Leasing,
L.P. (which has since come under the control of OpCo) for $315, which amount was
paid by issuance of a promissory note to AGH's operating partnership. The note
was transferred to the Company in connection with the Merger. The promissory
note bears interest at the rate of 10.0% per annum and requires the payment of
quarterly installments of principal and interest over a five-year period ending
on July 31, 2000. This note was repaid during 2000.
Certain members of management and their respective affiliates owned equity
interests relating to a hotel which was acquired by the Company in January 1999.
Such persons and affiliates received an aggregate of $1,488 of the Company's OP
Units in exchange for such interests in the hotel.
Certain members of management and their respective affiliates owned equity
interests relating to a hotel which was acquired by AGH in November 1997. Such
persons and affiliates received an aggregate of $13,650 in operating partnership
units in AGH's operating partnership ("AGH OP Units") in exchange for such
interests in the hotel; which converted to 11,568 OP Units at the Merger. The
AGH OP Units were converted into 11,568 shares of Common Stock in December 1998.
Of the $150,000 aggregate principal amount of Subordinated Notes sold by
the Company in August 1997, $50,000 principal amount was sold at a price of
97.866% to an affiliate of Oak Hill Capital Partners. One of the principal
stockholders of Oak Hill is a director of the Company. The Subordinated Notes
purchased are identical to those purchased by third parties, including voting
rights.
11. STOCK-BASED COMPENSATION
Stock Options
At the date of the Merger, CapStar had outstanding approximately 1,758,000
options (the "CapStar Options") under an equity incentive plan. As a result of
the Merger, all holders of CapStar Options received one option in the Company
and one option of OpCo, and the original exercise price of the CapStar Options
was allocated between the two companies. In addition, approximately 1,060,000 of
the CapStar Options became fully vested as of the Merger date.
F-28
31
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
In connection with the Merger, a new equity incentive plan (the "Equity
Incentive Plan") was adopted. This plan authorizes 4,549,561 shares of common
stock to be awarded. Awards may be granted to officers or other key employees of
the Company or an affiliate. These shares are exercisable in three annual
installments and expire ten years from the grant date.
In addition, the Company adopted a new equity incentive plan for
non-employee directors (the "Directors' Plan"). The Directors' Plan authorizes
up to 125,000 options to be awarded. These shares are exercisable in three
annual installments and expire ten years from the grant date. As of December 31,
2000, 115,000 options had been awarded.
Stock option activity for 2000, 1999 and 1998 is as follows:
EQUITY INCENTIVE PLAN DIRECTORS' PLAN
------------------------ ------------------------
NUMBER OF AVERAGE NUMBER AVERAGE
SHARES OPTION PRICE OF SHARES OPTION PRICE
---------- ---------- ---------- ------------
Balance, January 1, 1998 ........................ 1,601,406 $ 26.28 -- $ --
Granted .................................... 2,171,796 24.78 45,000 21.38
Exercised .................................. (37,823) 17.45 -- --
Forfeited .................................. (32,000) 29.44 -- --
---------- ---------- ---------- ----------
Balance, December 31, 1998 ...................... 3,703,379 24.80 45,000 21.38
Granted .................................... 1,015,750 19.37 35,000 23.63
Exercised .................................. (94,012) 15.64 -- --
Forfeited .................................. (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 -- --
Forfeited .................................. (113,441) 28.62 -- --
---------- ---------- ---------- ----------
Balance, December 31, 2000 ...................... 4,785,334 $ 22.68 115,000 $ 21.34
========== ========== ========== ==========
Shares exercisable at December 31, 1998 ......... 2,231,072 $ 24.63 -- $ --
========== ========== ========== ==========
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
========== ========== ========== ==========
The following table summarizes information about stock options outstanding
at December 31, 2000:
RANGE OF EXERCISE PRICES OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------ ----------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- ----------- --------- ----------- ---------
$14.88 to $19.19 2,013,572 7.59 $ 17.18 1,051,410 $ 16.59
$19.75 to $25.31 1,240,502 7.05 21.63 878,873 21.69
$25.80 to $31.42 1,435,280 6.02 29.98 1,435,280 29.98
$31.51 to $32.08 210,980 7.00 32.05 143,920 32.04
--------- --------- --------- --------- ---------
$14.88 to $32.08 4,900,334 6.97 $ 22.70 3,509,483 $ 23.98
========= ========= ========= ========= =========
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, the Company applies
Accounting Principles Board Opinion No. 25 in accounting
F-29
32
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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 EPS is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Risk-free interest rate............ 6.71% 6.70% 5.51%
Dividend rate...................... $2.02 $2.02 $2.02
Volatility factor.................. 0.27 0.31 0.35
Weighted average expected life..... 3.06 years 3.07 years 6.09 years
The Company's pro forma net income and diluted EPS as if the fair value
method had been applied were $98,216 and $2.07 for 2000, $98,273 and $2.02 for
1999, and $32,402 and $0.96 for 1998. The effects of applying SFAS No. 123 for
disclosing compensation costs may not be representative of the effects on
reported net income and diluted EPS for future years.
Other Stock Compensation
In conjunction with the Merger, holders of CapStar options were granted a
total of 150,000 shares of stock with a value of $3,205. This restricted stock
vests ratably over a three-year period.
As of December 31, 2000, the Company granted 586,500 shares of restricted
stock. This restricted stock vests ratably over a three-year or five-year
period. The issuance of restricted stock has resulted in $7,550 of unearned
stock-based compensation recorded as a reduction to stockholders' equity on the
Company's consolidated balance sheet as of December 31, 2000.
On March 29, 2000 the Company issued 462,500 Profits-Only OP Units to
certain of the Company's executive officers and executive officers of OpCo
pursuant to the Profits-Only Operating Partnership Units Plan which is filed as
an exhibit to this Form 10-K. The units vest over three years based on achieving
certain operating performance criteria and upon the occurrence of certain other
events.
12. COMMITMENTS AND CONTINGENCIES
The Company leases 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, 2000 were as follows:
2001.......... $ 1,556
2002.......... 1,556
2003.......... 1,556
2004.......... 1,559
2005.......... 1,559
Thereafter.... 57,396
-------
$65,182
=======
F-30
33
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Until January 1, 2001 the Company leased all of its hotels to OpCO and one
other lessee under noncancellable participating leases that expire from 2009 to
2011. Beginning January 1, 2001, the Company will lease eight hotels to one
lessee under non cancelable participating leases that expire in 2009. The
Company also leases 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, 2000 were as follows:
2001.......... $ 20,289
2002.......... 19,801
2003.......... 18,937
2004.......... 18,590
2005.......... 16,945
Thereafter.... 63,428
--------
$157,990
========
In the course of the Company's normal business activities, various
lawsuits, claims and proceedings have been or may be instituted or asserted
against the Company. Based on currently available facts, management believes
that the disposition of matters that are pending or asserted will not have a
material adverse effect on the consolidated financial position, results of
operations or liquidity of the Company.
13. ACQUISITIONS AND DISPOSITIONS
During 2000, the Company 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). The company also purchased a full service hotel for
$19,400. Of the $19,400, $11,400 was paid in cash and $8,000 will be paid from
the hotel's future cash flow within the next five years. The acquisition was
funded using existing cash and borrowings on the New Credit Facility.
During 1999, the Company acquired one hotel for a purchase price of $10,642
of cash and $1,488 of OP Units. The acquisition was funded using existing cash
and borrowings on the New Credit Facility. The Company also sold 2 hotels during
1999 for a total price of $8,900. The resulting gain on the sales was
immaterial.
During 1998, the Company acquired 70 hotels (containing 17,332 rooms), of
which 53 were acquired pursuant to the Merger. The Company purchased AGH for
approximately $1,306,000 through the issuance of approximately 23,913,000 shares
of Common Stock and OP Units in the Company's subsidiary operating partnership.
The total purchase price for the remaining 17 acquired hotels during 1998 was
$549,068 of cash and $16,932 of OP Units. The cash portions of these
acquisitions were funded through borrowings on the New Credit Facility and a
prior credit facility.
The following unaudited pro forma information is presented as if the
Merger, the Spin-Off and all 117 hotels owned at December 31, 1998 had been
acquired at the beginning of 1998. The pro forma information is provided for
informational purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the Company. Pro forma
information for 1998 for total revenue, net income and diluted EPS is $332,632,
$96,232 and $2.05, respectively.
F-31
34
MERISTAR HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's quarterly results of
operations:
2000 1999
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
Total revenue .......................... $ 67,100 $ 81,539 $117,631 $134,508 $ 64,093 $ 74,055 $103,214 $133,542
Total operating expenses ............... 41,698 43,631 42,506 43,769 39,521 38,687 37,727 41,904
Net operating income ................... 25,402 37,908 75,125 90,739 24,572 35,368 65,487 91,638
Income before extraordinary (loss)
gain ................................. (3,426) 10,424 41,259 54,550 267 7,179 37,709 58,341
Net (loss) income ...................... (372) 10,424 41,259 54,550 267 7,179 33,177 58,341
Diluted (loss) earnings per share ...... $ (0.01) $ 0.22 $ 0.83 $ 1.13 $ -- $ 0.15 $ 0.67 $ 1.14
15. SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999 1998
---- ---- ----
Cash paid for interest and income taxes:
Interest, net of capitalized interest of $8,613, $12,540
and $5,182, respectively .......................................... $ 120,539 $ 93,491 $ 48,156
Income taxes ......................................................... 874 1,261 18,591
Non-cash investing and financing activities:
Deferred financing costs written off ................................. 334 -- --
Long-term debt assumed in purchase of property and
equipment ......................................................... -- -- 543
OP Units issued in purchase of property and equipment ................ -- 1,488 16,932
Redemption of OP Units ............................................... 24 29,412 31,430
Dividends reinvested ................................................. 91 -- --
Issuance of restricted stock ......................................... 10,620 -- --
Deferred purchase price .............................................. 8,000 -- --
Book value of assets distributed to spun-off affiliate ............... -- -- $ 41,449
Book value of liabilities distributed to spun-off affiliate .......... -- -- (11,768)
Book value of debt distributed to spun-off affiliate ................. -- -- (1,116)
Fair value of assets acquired in Merger .............................. -- -- $ 1,306,018
Fair value of liabilities assumed in Merger .......................... -- -- (26,167)
Fair value of debt assumed in Merger ................................. -- -- (523,944)
16. SUBSEQUENT EVENT
On January 26, 2001, the Company sold $300,000 of 9.0% senior notes due
2008 and $200,000 of 9.13% senior notes due 2011 (collectively the "Senior
Unsecured Notes"). The notes are unsecured obligations of the Company and a
number of its subsidiaries guarantee payment of principal and interest on the
notes on a senior, unsecured basis. The net proceeds from the sale of $492,000
were used to repay amounts outstanding under the New Credit Facility and to make
payments to terminate certain swap agreements that hedged variable interest
rates of the loans that were repaid.
In conjunction with the sales of the Senior Unsecured Notes, the Company
terminated three of the seven swap agreements with notional amounts totaling
$300,000. These swap agreements were designated to the New Credit Facility term
loans that were repaid with the proceeds from the sale. The Company made
payments totaling $9,297 to terminate these swap agreements.
F-32
35
MERISTAR HOSPITALITY CORPORATION
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
INITIAL COST COSTS SUBSEQUENT
TO COMPANY TO ACQUISITION GROSS AMOUNT AT END OF YEAR
--------------- ------------------- ------------------------------
BUILDING BUILDING BUILDING ACCUM-
AND AND AND ULATED YEAR OF
ENCUM- IMPROVE- IMPROVE- IMPROVE- DEPRECIA- CONSTRUC-
DESCRIPTION BRANCES LAND MENTS LAND MENTS LAND MENTS TION TION
----------- ------- ----- -------- ------- ---------- -------- --------- --------- ---------
Hotel Assets:
Salt Lake Airport
Hilton, UT ................ -- $ 770 $12,828 $ -- $ 2,827 $ 770 $15,655 $ 2,184 1980
Radisson Hotel,
Schaumburg, IL ............ -- 1,080 5,131 -- 2,282 1,080 7,413 908 1979
Sheraton Hotel,
Colorado Springs, CO ...... (1) 1,071 14,592 1 3,728 1,072 18,320 2,387 1974
Hilton Hotel, Bellevue,
WA ........................ 48 5,211 6,766 -- 3,186 5,211 9,952 1,108 1979
Marriott Hotel,
Somerset, NJ .............. (1) 1,978 23,001 -- 4,390 1,978 27,391 3,357 1978
Westin Atlanta Airport,
Atlanta, GA ............... -- 2,650 15,926 (300) 9,403 2,350 25,329 3,084 1982
Sheraton Hotel,
Charlotte, NC ............. (1) 4,700 11,057 -- 3,906 4,700 14,963 1,739 1985
Radisson Hotel
Southwest, Cleveland,
OH ........................ -- 1,330 6,353 -- 4,547 1,330 10,900 1,190 1978
Orange County Airport
Hilton, Irvine, CA ........ (1) 9,990 7,993 -- 3,133 9,990 11,126 1,255 1976
The Latham Hotel,
Washington, DC ............ -- 6,500 5,320 -- 3,889 6,500 9,209 915 1981
Hilton Hotel,
Arlington, TX ............. (1) 1,836 14,689 79 2,828 1,915 17,517 2,018 1983
Hilton Hotel,
Arlington, VA ............. -- 4,000 15,069 -- 496 4,000 15,565 1,716 1990
Southwest Hilton,
Houston, TX ............... -- 2,300 15,665 -- 1,244 2,300 16,909 1,728 1979
Embassy Suites,
Englewood, CO ............. (1) 2,500 20,700 -- 2,782 2,500 23,482 2,380 1986
Holiday Inn, Colorado
Springs, CO ............... -- 1,600 4,232 -- 1,057 1,600 5,289 482 1974
Embassy Row Hilton,
Washington, DC ............ -- 2,200 13,247 -- 2,240 2,200 15,487 1,482 1969
Hilton Hotel & Towers,
Lafayette, LA ............. (1) 1,700 16,062 -- 1,808 1,700 17,870 1,712 1981
Hilton Hotel,
Sacramento, CA ............ (1) 4,000 16,013 -- 1,678 4,000 17,691 1,768 1983
Santa Barbara Inn,
Santa Barbara, CA ......... -- 2,600 5,141 -- 1,110 2,600 6,251 602 1959
San Pedro Hilton, San
Pedro, CA ................. -- 640 6,047 -- 2,300 640 8,347 753 1989
Doubletree Hotel,
Albuquerque, NM ........... (1) 2,700 15,075 -- 823 2,700 15,898 1,565 1975
Westchase Hilton &
Towers, Houston, TX ....... (1) 3,000 23,991 -- 1,531 3,000 25,522 2,485 1980
Four Points Hotel,
Cherry Hill, NJ ........... -- 1,700 4,178 -- 2,181 1,700 6,359 553 1991
Sheraton Great Valley
Inn, Frazer, PA ........... -- 2,150 11,653 11 2,712 2,161 14,365 1,190 1971
Holiday Inn Calgary
Airport, Calgary,
Alberta, Canada ........... -- 751 5,011 (36) 1,428 715 6,439 1,261 1981
Sheraton Hotel Dallas,
Dallas, TX ................ -- 1,300 17,268 -- 2,358 1,300 19,626 1,771 1974
Radisson Hotel Dallas,
Dallas, TX ................ -- 1,800 17,580 -- 1,466 1,800 19,046 1,746 1972
Sheraton Hotel
Guildford, Surrey, BC,
Canada .................... -- 2,366 24,008 (112) (258) 2,254 23,750 3,558 1992
Doubletree Guest
Suites, Indianapolis,
IN ........................ 1,000 8,242 -- 893 1,000 9,135 824 1987
DATE
DESCRIPTION ACQUIRED LIFE
----------- -------- ----
Hotel Assets:
Salt Lake Airport
Hilton, UT ................ 3/3/95 40
Radisson Hotel,
Schaumburg, IL ............ 6/30/95 40
Sheraton Hotel,
Colorado Springs, CO ...... 6/30/95 40
Hilton Hotel, Bellevue,
WA ........................ 8/4/95 40
Marriott Hotel,
Somerset, NJ .............. 10/3/95 40
Westin Atlanta Airport,
Atlanta, GA ............... 11/15/95 40
Sheraton Hotel,
Charlotte, NC ............. 2/2/96 40
Radisson Hotel
Southwest, Cleveland,
OH ........................ 2/16/96 40
Orange County Airport
Hilton, Irvine, CA ........ 2/22/96 40
The Latham Hotel,
Washington, DC ............ 3/8/96 40
Hilton Hotel,
Arlington, TX ............. 4/17/96 40
Hilton Hotel,
Arlington, VA ............. 8/23/96 40
Southwest Hilton,
Houston, TX ............... 10/31/96 40
Embassy Suites,
Englewood, CO ............. 12/12/96 40
Holiday Inn, Colorado
Springs, CO ............... 12/17/96 40
Embassy Row Hilton,
Washington, DC ............ 12/17/96 40
Hilton Hotel & Towers,
Lafayette, LA ............. 12/17/96 40
Hilton Hotel,
Sacramento, CA ............ 12/17/96 40
Santa Barbara Inn,
Santa Barbara, CA ......... 12/17/96 40
San Pedro Hilton, San
Pedro, CA ................. 1/28/97 40
Doubletree Hotel,
Albuquerque, NM ........... 1/31/97 40
Westchase Hilton &
Towers, Houston, TX ....... 1/31/97 40
Four Points Hotel,
Cherry Hill, NJ ........... 3/20/97 40
Sheraton Great Valley
Inn, Frazer, PA ........... 3/27/97 40
Holiday Inn Calgary
Airport, Calgary,
Alberta, Canada ........... 4/1/97 40
Sheraton Hotel Dallas,
Dallas, TX ................ 4/1/97 40
Radisson Hotel Dallas,
Dallas, TX ................ 4/1/97 40
Sheraton Hotel
Guildford, Surrey, BC,
Canada .................... 4/1/97 40
Doubletree Guest
Suites, Indianapolis,
IN ........................ 4/1/97 40
F-33
36
INITIAL COST COSTS SUBSEQUENT
TO COMPANY TO ACQUISITION GROSS AMOUNT AT END OF YEAR
----------------- -------------------- ------------------------------
BUILDING BUILDING BUILDING ACCUM-
AND AND AND ULATED YEAR OF
ENCUM- IMPROVE- IMPROVE- IMPROVE- DEPRECIA- CONSTRUC-
DESCRIPTION BRANCES LAND MENTS LAND MENTS LAND MENTS TION TION
----------- ------- ----- -------- ------- ---------- -------- --------- --------- ----------
Ramada Vancouver
Centre, Vancouver,
BC, Canada ................. -- 4,400 7,840 (208) 2,160 4,192 10,000 1,605 1968
Holiday Inn Sports
Complex, Kansas
City, MO ................... -- 420 4,742 -- 1,551 420 6,293 538 1975
Hilton Crystal City,
Arlington, VA .............. -- 5,800 29,879 -- 1,036 5,800 30,915 2,681 1974
Doubletree Resort
Hotel, Cathedral
City, CA ................... -- 1,604 16,141 -- 2,837 1,604 18,978 1,557 1985
Radisson Hotel &
Suites, Chicago,
IL ......................... 4,870 39,175 -- 1,793 4,870 40,968 3,544 1971
Georgetown Inn,
Washington, DC ............. -- 6,100 7,103 -- 1,486 6,100 8,589 655 1962
Embassy Suites Center
City,
Philadelphia, PA ........... (1) 5,500 26,763 -- 1,457 5,500 28,220 2,382 1963
Doubletree Hotel
Austin, Austin, TX ......... (1) 2,975 25,678 -- 2,501 2,975 28,179 2,295 1984
Radisson Plaza Hotel,
Lexington, KY .............. 240 1,100 30,375 -- 6,254 1,100 36,629 2,876 1982
Jekyll Inn, Jekyll
Island, GA ................. -- -- 7,803 -- 3,218 -- 11,021 848 1971
Holiday Inn
Metrotown, Burnaby,
BC, Canada ................. -- 1,115 5,303 (53) 1,292 1,062 6,595 890 1989
Embassy Suites
International
Airport, Tucson,
AZ ......................... -- 1,640 10,444 -- 2,214 1,640 12,658 901 1982
Westin Morristown,
NJ ......................... -- 2,500 19,128 100 3,501 2,600 22,629 1,626 1962
Doubletree Hotel
Bradley
International
Airport, Windsor
Locks, CT .................. -- 1,013 10,228 87 1,422 1,100 11,650 838 1985
Sheraton Hotel, Mesa,
AZ ......................... -- 1,850 16,938 -- 2,315 1,850 19,253 1,382 1985
Metro Airport Hilton
& Suites, Detroit,
MI ......................... -- 1,750 12,639 -- 1,311 1,750 13,950 995 1989
Marriott Hotel, Los
Angeles, CA ................ -- 5,900 48,250 -- 7,208 5,900 55,458 3,956 1983
Austin Hilton &
Towers, TX ................. -- 2,700 15,852 -- 2,674 2,700 18,526 1,291 1974
Dallas Renaissance
North, TX .................. -- 3,400 20,813 -- 3,550 3,400 24,363 1,708 1979
Houston Sheraton
Brookhollow Hotel,
TX ......................... -- 2,500 17,609 -- 2,148 2,500 19,757 1,467 1980
Seelbach Hilton,
Louisville, KY ............. -- 1,400 38,462 -- 5,550 1,400 44,012 3,017 1905
Midland Hilton &
Towers, TX ................. -- 150 8,487 -- 1,715 150 10,202 708 1976
Westin Oklahoma, OK ......... -- 3,500 27,588 -- 1,683 3,500 29,271 2,159 1977
Sheraton Hotel,
Columbia, MD ............... -- 3,600 21,393 -- 3,744 3,600 25,137 1,513 1972
Radisson Cross Keys,
Baltimore, MD .............. -- 1,500 5,615 -- 1,492 1,500 7,107 417 1973
Sheraton Fisherman's
Wharf, San
Francisco, CA .............. (1) 19,708 61,751 -- 2,985 19,708 64,736 4,356 1975
Hartford Hilton, CT ......... -- 4,073 24,458 -- 2,824 4,073 27,282 1,642 1975
Holiday Inn Dallas
DFW AirportSouth,
TX ......................... 12,634 3,388 28,847 -- 8 3,388 28,855 1,747 1974
Courtyard by Marriott
Meadowlands, NJ ............ 3,979 -- 9,649 -- 45 -- 9,694 581 1993
Hotel Maison de
Ville, New Orleans,
LA ......................... -- 292 3,015 -- (2) 292 3,013 181 1778
Hilton Hotel Toledo,
OH ......................... -- -- 11,708 -- 38 -- 11,746 708 1987
Holiday Inn Select
Dallas DFW Airport
West, TX ................... -- 947 8,346 -- 213 947 8,559 812 1974
DATE
DESCRIPTION ACQUIRED LIFE
----------- -------- ----
Ramada Vancouver
Centre, Vancouver,
BC, Canada ................. 4/1/97 40
Holiday Inn Sports
Complex, Kansas
City, MO ................... 4/30/97 40
Hilton Crystal City,
Arlington, VA .............. 7/1/97 40
Doubletree Resort
Hotel, Cathedral
City, CA ................... 7/1/97 40
Radisson Hotel &
Suites, Chicago,
IL ......................... 7/15/97 40
Georgetown Inn,
Washington, DC ............. 7/15/97 40
Embassy Suites Center
City,
Philadelphia, PA ........... 8/12/97 40
Doubletree Hotel
Austin, Austin, TX ......... 8/14/97 40
Radisson Plaza Hotel,
Lexington, KY .............. 8/14/97 40
Jekyll Inn, Jekyll
Island, GA ................. 8/20/97 40
Holiday Inn
Metrotown, Burnaby,
BC, Canada ................. 8/22/97 40
Embassy Suites
International
Airport, Tucson,
AZ ......................... 10/23/97 40
Westin Morristown,
NJ ......................... 11/20/97 40
Doubletree Hotel
Bradley
International
Airport, Windsor
Locks, CT .................. 11/24/97 40
Sheraton Hotel, Mesa,
AZ ......................... 12/5/97 40
Metro Airport Hilton
& Suites, Detroit,
MI ......................... 12/16/97 40
Marriott Hotel, Los
Angeles, CA ................ 12/18/97 40
Austin Hilton &
Towers, TX ................. 1/6/98 40
Dallas Renaissance
North, TX .................. 1/6/98 40
Houston Sheraton
Brookhollow Hotel,
TX ......................... 1/6/98 40
Seelbach Hilton,
Louisville, KY ............. 1/6/98 40
Midland Hilton &
Towers, TX ................. 1/6/98 40
Westin Oklahoma, OK ......... 1/6/98 40
Sheraton Hotel,
Columbia, MD ............... 3/27/98 40
Radisson Cross Keys,
Baltimore, MD .............. 3/27/98 40
Sheraton Fisherman's
Wharf, San
Francisco, CA .............. 4/2/98 40
Hartford Hilton, CT ......... 5/21/98 40
Holiday Inn Dallas
DFW AirportSouth,
TX ......................... 8/3/98 --
Courtyard by Marriott
Meadowlands, NJ ............ 8/3/98 40
Hotel Maison de
Ville, New Orleans,
LA ......................... 8/3/98 40
Hilton Hotel Toledo,
OH ......................... 8/3/98 40
Holiday Inn Select
Dallas DFW Airport
West, TX ................... 8/3/98 40
F-34
37
INITIAL COST COSTS SUBSEQUENT
TO COMPANY TO ACQUISITION GROSS AMOUNT AT END OF YEAR
----------------- -------------------- ------------------------------
BUILDING BUILDING BUILDING ACCUM-
AND AND AND ULATED YEAR OF
ENCUM- IMPROVE- IMPROVE- IMPROVE- DEPRECIA- CONSTRUC-
DESCRIPTION BRANCES LAND MENTS LAND MENTS LAND MENTS TION TION
----------- ------- ----- -------- ------- ---------- -------- --------- --------- ---------
Holiday Inn Select
New Orleans
International Airport,
LA ......................... (1) 3,040 25,616 -- 2,150 3,040 27,766 1,610 1973
Crowne Plaza Madison,
WI ......................... (1) 2,629 21,634 -- 210 2,629 21,844 1,384 1987
Wyndham Albuquerque
Airport Hotel, NM .......... -- -- 18,889 -- 112 -- 19,001 1,146 1972
Wyndham San Jose
Airport Hotel, CA .......... -- -- 35,743 -- 997 -- 36,740 2,194 1974
Holiday Inn Select
Mission Valley, CA ......... 2,410 20,998 -- 176 2,410 21,174 1,282 1970
Sheraton Safari Hotel,
Lake Buena Vista, FL ....... -- 4,103 35,263 -- 9,062 4,103 44,325 2,437 1985
Hilton Monterey, CA ......... -- 2,141 17,666 -- 4,964 2,141 22,630 1,219 1971
Hilton Hotel Durham,
NC ......................... -- 1,586 15,577 -- 2,390 1,586 17,967 973 1987
Wyndham Garden Hotel
Marietta, GA ............... -- 1,900 17,077 -- 611 1,900 17,688 1,038 1985
Westin Resort Key
Largo, FL .................. -- 3,167 29,190 -- 340 3,167 29,530 1,814 1985
Doubletree Guest Suites
Atlanta, GA ................ 8,678 2,236 18,514 -- 3,798 2,236 22,312 1,310 1985
Radisson Hotel
Arlington Heights,
IL ......................... -- 1,540 12,645 -- 6,848 1,540 19,493 954 1981
Holiday Inn Select
Bucks County, PA ........... -- 2,610 21,744 -- 2,773 2,610 24,517 1,335 1987
Hilton Hotel Cocoa
Beach, FL .................. -- 2,783 23,076 -- 1,784 2,783 24,860 1,494 1986
Radisson Twin Towers
Orlando, FL ................ -- 9,555 73,486 -- 8,209 9,555 81,695 4,701 1972
Crowne Plaza Phoenix,
AZ ......................... -- 1,852 15,957 -- 3,448 1,852 19,405 1,145 1981
Hilton Airport Hotel
Grand Rapids, MI ........... (1) 2,049 16,657 -- 539 2,049 17,196 1,033 1979
Marriott West Loop
Houston, TX ................ (1) 2,943 23,934 -- 2,623 2,943 26,557 1,563 1976
Courtyard by Marriott
Durham, NC ................. -- 1,406 11,001 -- 47 1,406 11,048 659 1996
Courtyard by Marriott,
Marina Del Rey, CA ......... (1) 3,450 24,534 -- 359 3,450 24,893 1,531 1976
Courtyard by Marriott,
Century City, CA ........... -- 2,165 16,465 -- 20 2,165 16,485 1,016 1986
Courtyard by Marriott,
Lake Buena Vista, FL ....... -- -- 41,267 -- 2,438 -- 43,705 2,565 1972
Crowne Plaza, San Jose,
CA ......................... (1) 2,130 23,404 (24) 1,501 2,106 24,905 1,501 1975
Doubletree Hotel
Westshore, Tampa, FL ....... -- 2,904 23,476 -- 7,312 2,904 30,788 1,596 1972
Howard Johnson Resort
Key Largo, FL .............. -- 1,784 12,419 -- 507 1,784 12,926 767 1971
Radisson Annapolis,
MD ......................... -- 1,711 13,671 -- 1,945 1,711 15,616 829 1975
Holiday Inn Fort
Lauderdale, FL ............. -- 2,381 19,419 -- 2,126 2,381 21,545 1,225 1969
Holiday Inn Madeira
Beach, FL .................. -- 1,781 13,349 -- 26 1,781 13,375 811 1972
Holiday Inn Chicago
O'Hare, IL ................. 19,080 4,290 72,631 -- 12,812 4,290 85,443 4,638 1975
Holiday Inn & Suites
Alexandria, VA ............. -- 1,769 14,064 -- 52 1,769 14,116 882 1985
Hilton Clearwater, FL ....... -- -- 69,285 -- 3,608 -- 72,893 4,298 1980
Radisson Rochester,
NY ......................... -- -- 6,499 -- 2,520 -- 9,019 438 1971
Radisson Old Towne
Alexandria, VA ............. -- 2,241 17,796 -- 3,690 2,241 21,486 1,223 1975
Ramada Inn Clearwater,
FL ......................... -- 1,270 13,453 -- 89 1,270 13,542 1,612 1969
Richmond Hotel and
Conference Center .......... -- 245 3,380 -- 58 245 3,438 712 1975
DATE
DESCRIPTION ACQUIRED LIFE
----------- -------- ----
Holiday Inn Select
New Orleans
International Airport,
LA ......................... 8/3/98 40
Crowne Plaza Madison,
WI ......................... 8/3/98 40
Wyndham Albuquerque
Airport Hotel, NM .......... 8/3/98 40
Wyndham San Jose
Airport Hotel, CA .......... 8/3/98 40
Holiday Inn Select
Mission Valley, CA ......... 8/3/98 40
Sheraton Safari Hotel,
Lake Buena Vista, FL ....... 8/3/98 40
Hilton Monterey, CA ......... 8/3/98 40
Hilton Hotel Durham,
NC ......................... 8/3/98 40
Wyndham Garden Hotel
Marietta, GA ............... 8/3/98 40
Westin Resort Key
Largo, FL .................. 8/3/98 40
Doubletree Guest Suites
Atlanta, GA ................ 8/3/98 40
Radisson Hotel
Arlington Heights,
IL ......................... 8/3/98 40
Holiday Inn Select
Bucks County, PA ........... 8/3/98 40
Hilton Hotel Cocoa
Beach, FL .................. 8/3/98 40
Radisson Twin Towers
Orlando, FL ................ 8/3/98 40
Crowne Plaza Phoenix,
AZ ......................... 8/3/98 40
Hilton Airport Hotel
Grand Rapids, MI ........... 8/3/98 40
Marriott West Loop
Houston, TX ................ 8/3/98 40
Courtyard by Marriott
Durham, NC ................. 8/3/98 40
Courtyard by Marriott,
Marina Del Rey, CA ......... 8/3/98 40
Courtyard by Marriott,
Century City, CA ........... 8/3/98 40
Courtyard by Marriott,
Lake Buena Vista, FL ....... 8/3/98 40
Crowne Plaza, San Jose,
CA ......................... 8/3/98 40
Doubletree Hotel
Westshore, Tampa, FL ....... 8/3/98 40
Howard Johnson Resort
Key Largo, FL .............. 8/3/98 40
Radisson Annapolis,
MD ......................... 8/3/98 40
Holiday Inn Fort
Lauderdale, FL ............. 8/3/98 40
Holiday Inn Madeira
Beach, FL .................. 8/3/98 40
Holiday Inn Chicago
O'Hare, IL ................. 8/3/98 40
Holiday Inn & Suites
Alexandria, VA ............. 8/3/98 40
Hilton Clearwater, FL ....... 8/3/98 40
Radisson Rochester,
NY ......................... 8/3/98 40
Radisson Old Towne
Alexandria, VA ............. 8/3/98 40
Ramada Inn Clearwater,
FL ......................... 8/3/98 40
Richmond Hotel and
Conference Center .......... 8/3/98 40
F-35
38
INITIAL COST COSTS SUBSEQUENT
TO COMPANY TO ACQUISITION GROSS AMOUNT AT END OF YEAR
----------------- -------------------- ------------------------------
BUILDING BUILDING BUILDING ACCUM-
AND AND AND ULATED YEAR OF
ENCUM- IMPROVE- IMPROVE- IMPROVE- DEPRECIA- CONSTRUC-
DESCRIPTION BRANCES LAND MENTS LAND MENTS LAND MENTS TION TION
----------- ------- ----- -------- ------- ---------- -------- --------- --------- ---------
Crowne Plaza Las
Vegas, NV ................... -- 3,006 24,011 -- 15 3,006 24,026 2,593 1989
Crowne Plaza
Portland, OR ................ 4,917 2,950 23,254 -- 58 2,950 23,312 2,623 1988
Four Points Hotel,
Mt. Arlington,
NJ .......................... 4,328 6,553 6,058 -- 64 6,553 6,122 645 1984
Ramada Inn Mahwah,
NJ .......................... -- 1,117 8,994 -- 121 1,117 9,115 898 1972
Ramada Plaza
Meriden, CT ................. -- 1,247 10,057 -- 12 1,247 10,069 974 1985
Ramada Plaza
Shelton, CT ................. 4,567 2,040 16,235 -- 28 2,040 16,263 1,529 1989
Sheraton
Crossroads
Mahwah, NJ .................. -- 3,258 26,185 -- 188 3,258 26,373 2,785 1986
St. Tropez Suites,
Las Vegas, NV ............... -- 3,027 24,429 -- 24 3,027 24,453 2,360 1986
Doral Forrestal,
Princeton, NJ ............... -- 9,578 57,555 -- 7,135 9,578 64,690 3,726 1981
South Seas
Plantation,
Captiva, FL ................. -- 3,084 83,573 -- 7,161 3,084 90,734 6,525 1975
Radisson Suites
Beach Resort,
Marco Island,
FL .......................... -- 7,120 35,300 -- 2,103 7,120 37,403 4,106 1983
Best Western
Sanibel Island,
FL .......................... -- 3,868 3,984 17 302 3,885 4,286 665 1967
The Dunes Golf &
Tennis Club,
Sanibel Island,
FL .......................... -- 7,705 3,043 9 21 7,714 3,064 246 1964
Sanibel Inn,
Sanibel Island,
FL .......................... -- 8,482 12,045 -- (74) 8,482 11,971 989 1964
Seaside Inn,
Sanibel Island,
FL .......................... -- 1,702 6,416 22 73 1,724 6,489 481 1964
Song of the Sea,
Sanibel Island,
FL .......................... -- 339 3,223 19 31 358 3,254 280 1964
Sundial Beach
Resort, Sanibel
Island, FL .................. -- 320 12,009 -- 556 320 12,565 806 1975
Holiday Inn,
Madison, WI ................. -- 4,143 6,692 -- 78 4,143 6,770 337 1965
Safety Harbor
Resort and Spa,
Sanibel Island,
FL .......................... -- 732 19,618 -- 1,538 732 21,156 1,547 1926
-------- ---------- ------ -------- -------- ---------- --------
$317,460 $2,207,320 $(388) $253,769 $317,072 $2,461,089 $188,647
======== ========== ===== ======== ======== ========== ========
DATE
DESCRIPTION ACQUIRED LIFE
----------- -------- ----
Crowne Plaza Las
Vegas, NV ................... 8/3/98 40
Crowne Plaza
Portland, OR ................ 8/3/98 40
Four Points Hotel,
Mt. Arlington,
NJ .......................... 8/3/98 40
Ramada Inn Mahwah,
NJ .......................... 8/3/98 40
Ramada Plaza
Meriden, CT ................. 8/3/98 40
Ramada Plaza
Shelton, CT ................. 8/3/98 40
Sheraton
Crossroads
Mahwah, NJ .................. 8/3/98 40
St. Tropez Suites,
Las Vegas, NV ............... 8/3/98 40
Doral Forrestal,
Princeton, NJ ............... 8/11/98 40
South Seas
Plantation,
Captiva, FL ................. 10/1/98 40
Radisson Suites
Beach Resort,
Marco Island,
FL .......................... 10/1/98 40
Best Western
Sanibel Island,
FL .......................... 10/1/98 40
The Dunes Golf &
Tennis Club,
Sanibel Island,
FL .......................... 10/1/98 40
Sanibel Inn,
Sanibel Island,
FL .......................... 10/1/98 40
Seaside Inn,
Sanibel Island,
FL .......................... 10/1/98 40
Song of the Sea,
Sanibel Island,
FL .......................... 10/1/98 40
Sundial Beach
Resort, Sanibel
Island, FL .................. 10/1/98 40
Holiday Inn,
Madison, WI ................. 1/11/99 40
Safety Harbor
Resort and Spa,
Sanibel Island,
FL .......................... 5/31/00 40
- --------
(1) These properties secure the New Secured Facility which, as of December 31,
2000, had an outstanding balance of $324,554.
The components of hotel property and equipment are as follows:
Property and Accumulated
Equipment Depreciation
------------ ------------
Land............................................... $ 317,072 $ --
Building and Improvements.......................... 2,461,089 188,647
Furniture and equipment............................ 338,350 98,582
Construction in progress........................... 77,219 --
---------- --------
Total property and equipment..................... $3,193,730 $287,229
========== ========
F-36
39
A reconciliation of the Company's investment in hotel property and equipment
and related accumulated depreciation is as follows:
2000 1999 1998
----------- ----------- -----------
Hotel property and equipment
Balance, beginning of period ..................... $ 3,118,723 $ 2,957,543 $ 947,597
Acquisitions during period ....................... 19,618 12,081 1,865,142
Improvements and construction-in-
progress ........................................ 78,911 160,294 144,804
Cost of real estate sold ......................... (23,522) (11,195) --
----------- ----------- -----------
Balance, end of period ........................... 3,193,730 3,118,723 2,957,543
----------- ----------- -----------
Accumulated depreciation
Balance, beginning of period ..................... 182,430 83,797 26,858
Additions-depreciation expense ................... 107,363 99,297 56,939
Cost of real estate sold ......................... (2,564) (664) --
----------- ----------- -----------
Balance, end of period ........................... 287,229 182,430 83,797
----------- ----------- -----------
Net hotel property and equipment, end of
period .......................................... $ 2,906,501 $ 2,936,293 $ 2,873,746
=========== =========== ===========
F-37
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FELCOR LODGING TRUST INCORPORATED
Date: August 31, 2001 By: /s/ Lawrence D. Robinson
------------------------------
Lawrence D. Robinson
Executive Vice President, General Counsel
and Secretary