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Exhibit 4
HOLIDAY INN MINNEAPOLIS WEST
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Boykin Lodging Company:
We have audited the accompanying balance sheet of Holiday Inn Minneapolis West
as of December 31, 1996 and the related statements of income, owner's equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Holiday Inn Minneapolis
West as of December 31, 1996 and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
August 14, 1997.
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HOLIDAY INN MINNEAPOLIS WEST
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BALANCE SHEETS
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December 31, 1996 June 30, 1997
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(Unaudited)
ASSETS
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INVESTMENT IN HOTEL PROPERTY, at cost:
Land $ 2,056,510 $ 2,056,510
Buildings and improvements 3,796,293 3,796,293
Furniture and equipment 1,454,951 1,543,734
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7,307,754 7,396,537
Less -- Accumulated depreciation (1,519,302) (1,693,976)
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Net investment in hotel property 5,788,452 5,702,561
CASH AND CASH EQUIVALENTS 220,360 361,281
ACCOUNTS RECEIVABLE, net of allowance for
doubtful accounts of approximately $6,000 148,467 118,197
INVENTORIES 22,052 19,006
PREPAIDS AND OTHER ASSETS 31,474 15,133
CASH HELD IN ESCROW 185,402 348,425
DEFERRED EXPENSES, net 12,664 7,913
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$ 6,408,871 $ 6,572,516
=========== ===========
LIABILITIES AND OWNER'S EQUITY
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MORTGAGE NOTE PAYABLE $ 5,351,041 $ 5,331,859
ACCOUNTS PAYABLE, trade 135,580 155,476
ACCRUED EXPENSES AND OTHER LIABILITIES 197,818 349,879
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5,684,439 5,837,214
OWNER'S EQUITY 724,432 735,302
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$ 6,408,871 $ 6,572,516
=========== ===========
The accompanying notes to financial statements are an
integral part of these balance sheets.
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HOLIDAY INN MINNEAPOLIS WEST
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STATEMENTS OF INCOME
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For the Six Months Ended
June 30,
For the Year Ended -----------------------------
December 31, 1996 1996 1997
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(Unaudited)
HOTEL REVENUES:
Room revenue $3,299,501 $1,558,656 $1,575,979
Food and beverage revenue 1,971,990 926,502 935,234
Other revenue 173,583 73,387 71,631
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Total revenues 5,445,074 2,558,545 2,582,844
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EXPENSES:
Departmental expenses --
Rooms 676,320 312,374 323,455
Food and beverage 1,318,623 633,691 628,854
Other 68,868 39,543 37,299
General and administrative 415,818 182,888 195,783
Advertising and promotion 125,299 65,813 63,730
Utilities 219,027 105,911 113,934
Management fees to related party 185,953 89,988 84,027
Franchisor royalties and other charges 305,052 137,404 145,455
Repairs and maintenance 233,154 114,584 138,202
Taxes, insurance and rent 422,733 210,080 188,693
Interest expense 517,554 262,668 262,590
Depreciation and amortization 428,821 215,966 181,978
Other 5,938 3,699 7,974
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Total expenses 4,923,160 2,374,609 2,371,974
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NET INCOME $ 521,914 $ 183,936 $ 210,870
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The accompanying notes to financial statements are
an integral part of these statements.
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HOLIDAY INN MINNEAPOLIS WEST
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STATEMENTS OF OWNER'S EQUITY
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BALANCE, DECEMBER 31, 1995 $ 1,002,518
Net income 521,914
Distributions (800,000)
BALANCE, DECEMBER 31, 1996 724,432
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Net income (unaudited) 210,870
Distributions (unaudited) (200,000)
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BALANCE, JUNE 30, 1997, (unaudited)
$ 735,302
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The accompanying notes to financial statements are an
integral part of these statements.
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HOLIDAY INN MINNEAPOLIS WEST
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STATEMENTS OF CASH FLOWS
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For the Six Months Ended
June 30,
For the Year Ended ----------------------------
December 31, 1996 1996 1997
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 521,914 $ 183,936 $ 210,870
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization expense 428,818 215,966 181,978
Changes in assets
and liabilities --
Accounts receivable
trade, net (46,921) (63,957) 30,270
Inventories (4,505) 1,403 3,046
Prepaids and
other assets 6,178 24,823 16,341
Escrow cash (33,238) (169,795) (163,023)
Accounts payable,
accrued expenses
and other liabilities (35,398) 126,279 171,957
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Net cash provided by
operating activities 836,848 318,655 451,439
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CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to hotel
properties, net (28,528) (19,935) (91,336)
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Net cash used for
investing activities (28,528) (19,935) (91,336)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage note payable (46,068) (19,182) (19,182)
Distributions (800,000) (250,000) (200,000)
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Net cash used for
financing activities (846,068) (269,182) (219,182)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (37,748) 29,538 140,921
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 258,108 258,108 220,360
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 220,360 $ 287,646 $ 361,281
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 518,000 $ 263,000 $ 263,000
The accompanying notes to financial statements are an
integral part of these statements.
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HOLIDAY INN MINNEAPOLIS WEST
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NOTES TO FINANCIAL STATEMENTS
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(Amounts and disclosures as of June 30, 1996 and 1997 and
for the periods then ended are unaudited.)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
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DESCRIPTION OF BUSINESS
The Holiday Inn Minneapolis West (the Hotel) is owned and operated by Crowne
West Limited Partnership (the Partnership). The Partnership was organized on
March 18, 1992, to acquire and operate the 196-room Hotel in Minneapolis,
Minnesota. The Hotel was acquired July 1, 1992, the date the Partnership began
operation.
The Partnership is controlled by Minnesota Hotel Corporation (MHC), the Managing
General Partner. The Partnership has entered into a management agreement with
MHC for day to day operation of the hotel.
BASIS OF PRESENTATION
The accompanying financial statements are prepared on the accrual basis of
accounting and include the accounts of the Hotel using historical cost basis.
The accompanying balance sheet as of June 30, 1997, and the statements of
income, owner's equity and cash flows for the six month periods ended June 30,
1996 and 1997 are unaudited. In the opinion of management, such financial
statements include all adjustments consisting solely of normal recurring
adjustments, necessary for a fair presentation of results of these interim
periods. The results of the six month period ended June 30, 1997 are not
necessarily indicative of results to be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, certificates of deposit, money market
funds, and other highly liquid investments with maturities of three months or
less.
INVENTORIES
Inventories consist primarily of food and beverages and are stated at the lower
of cost or market, determined by the first-in, first-out method.
INVESTMENT IN HOTEL PROPERTY
The hotel property is stated at cost. Depreciation is computed using the
straight-line method based upon the following estimated useful lives:
Buildings and improvements 10-30 years
Furniture and equipment 3-10 years
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The management of the Hotel reviews the hotel property for impairment when
events or changes in circumstances indicate the carrying amount of the hotel
property may not be recoverable. When such conditions exist, management
estimates the future cash flows from operations and disposition of the hotel
property. If the estimated undiscounted future cash flows are less than the
carrying amount of the asset, an adjustment to the related estimated fair market
value would be recorded and an impairment loss would be recognized. No such
impairment losses have been recognized.
Maintenance and repairs are charged to operations as incurred; major renewals
and betterments are capitalized. Upon the sale or disposition of a fixed asset,
the asset and related accumulated depreciation are removed from the accounts,
and the gain or loss is included in the determination of net income.
DEFERRED EXPENSES
Organizational costs have been capitalized and are being amortized on a
straight-line basis over five years. Costs incurred in connection with obtaining
the mortgage financing discussed in Note 4 are capitalized and amortized over
the seven-year term of the mortgage note. Accumulated amortization of
organization costs and deferred financing costs was $23,000 and $21,000,
respectively, at December 31, 1996, and $24,000 and $23,000 at June 30, 1997,
respectively.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed and an
allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectable. Such losses have
been within management's expectations.
INCOME TAXES
Under the U.S. Internal Revenue Code, the Partnership owes no federal income
tax. The Partners will owe tax on their allocable share of Partnership taxable
income.
MANAGEMENT'S USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. ACQUISITION BY BOYSTAR VENTURES, L.P.:
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In July 1997, Boykin Hotel Properties, L.P. and CapStar Hotel Company (CapStar)
formed a joint venture, BoyStar Ventures, L.P., (BoyStar). BoyStar acquired the
Holiday Inn Minneapolis West in July 1997 from the Partnership in exchange for
aggregate cash consideration of $12,300,000 and leased it to CapStar. In
connection with the sale transaction, the mortgage debt of the Partnership was
retired.
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4. MORTGAGE NOTE PAYABLE:
----------------------
The mortgage note payable is collateralized by a first mortgage on the Hotel's
land, building and furnishings and an assignment of revenue. In addition,
certain partners in the Partnership have guaranteed a portion of the principal
of the note (up to $525,500). The note is non-recourse to the other partners and
for amounts in excess of the amount guaranteed. The note agreement also provides
for the establishment of a replacement reserve of up to $300,000 to be funded
monthly based on 3% of gross revenue, and taxes and insurance are required to be
escrowed with the lender. The note agreement restricts future borrowing except
with the consent of the lender.
As indicated in Note 3, in connection with the sale of the Hotel to BoyStar, the
outstanding balance of the mortgage note was retired.
5. EMPLOYEE BENEFIT PLAN:
----------------------
The Hotel contributes specified percentages of qualifying wages of eligible
employees to a defined contribution plan. Contributions provided pursuant to the
Plan were $30,000 for the year ended December 31, 1996 and $21,000 and $22,000
for the six month periods ended June 30, 1996 and 1997, respectively.
6. COMMITMENTS:
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FRANCHISE AGREEMENTS
The Hotel is operated as a Holiday Inn pursuant to the terms of a hotel
franchise agreement expiring in 2002. The franchise agreement requires payments
for franchisor royalties, reservation fees and marketing contributions that are
computed at 7.5% of gross room revenue.
The franchise agreements contain provisions whereby the franchisor would be
entitled to additional payments in the event the franchisee would terminate the
franchise agreement prior to maturity.
7. RELATED PARTY TRANSACTIONS:
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MHC receives a fee of 3.5% of revenues for managing the Hotel pursuant to the
terms of a management agreement. The initial term of the management agreement
expires in 2002. MHC received management fees of approximately $186,000, $90,000
and $84,000 in the year ended December 31, 1996 and the six month periods ended
June 30, 1996 and 1997, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
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Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1996 and June 30, 1997. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
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MORTGAGE NOTE PAYABLE
Management estimates that the fair value of the mortgage note payable
approximates carrying value based upon the Hotel's effective borrowing rate for
issuance of debt with similar terms and remaining maturities.