1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the transition period from to
Commission file number 1-9443
RED LION INNS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 94-3029959
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
410 North 44th Street, Suite 700, Phoenix, Arizona 85008
(Address of principal executive offices) (Zip Code)
(602) 220-6666
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
2
RED LION INNS LIMITED PARTNERSHIP
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997 4
Consolidated Statements of Partners' Capital for the three months
ended March 31, 1998 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
PART II - OTHER INFORMATION
Item 6 Exhibits and Report on Form 8-K 16
SIGNATURES 17
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit amounts)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 396 $ 73
Prepaid expenses 502 --
--------- ---------
Total current assets 898 73
--------- ---------
Property and Equipment:
Land 17,705 17,705
Buildings and improvements 168,861 168,361
Furnishings and equipment 57,617 57,272
Construction in progress 339 503
--------- ---------
244,522 243,841
Less--accumulated depreciation (94,025) (91,532)
--------- ---------
150,497 152,309
Base stock 4,650 4,650
Other assets 2,053 1,373
--------- ---------
Total Assets $ 158,098 $ 158,405
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable and accrued expenses $ 186 $ 3
Current portion of long-term payable to affiliates 22,611 20,002
Accrued distributions to partners 2,320 2,320
Interest payable 18 10
Property taxes payable 565 630
Due to Lessee 387 --
Current portion of long-term debt 120,018 3,268
--------- ---------
Total current liabilities 146,105 26,233
Long-term payable to affiliates, net of current portion 5,271 5,271
Long-term debt, net of current portion 350 117,746
Deferred income taxes 2,050 2,050
--------- ---------
Total Liabilities 153,776 151,300
--------- ---------
Commitments and Contingencies (Note 7)
Partners' Capital:
Limited Partners, 4,940,000 units issued 17,297 20,025
Less -- 806,500 treasury units, at cost (11,202) (11,202)
--------- ---------
Limited Partners, net 6,095 8,823
General Partner (1,773) (1,718)
--------- ---------
Total Partners' Capital 4,322 7,105
--------- ---------
Total Liabilities and Partners' Capital $ 158,098 $ 158,405
========= =========
See notes to consolidated financial statements.
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RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit and unit amounts)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1997
---- ----
Revenues:
Gross Operating Profit of Hotels $ -- $ 8,064
Percentage Lease revenue 6,082 --
----------- -----------
6,082 8,064
----------- -----------
Expenses:
Property taxes 663 711
Base management fee -- 750
Incentive management fee -- 1,097
Depreciation 2,493 2,571
Other 289 453
----------- -----------
3,445 5,582
----------- -----------
Operating income 2,637 2,482
Interest Expense (3,100) (3,039)
----------- -----------
Loss before income taxes (463) (557)
Income Tax Expense -- --
----------- -----------
Net loss $ (463) $ (557)
=========== ===========
Allocation of Net Loss:
General Partner $ (9) $ (11)
=========== ===========
Limited Partners $ (454) $ (546)
=========== ===========
Net loss per Limited Partner Unit -
basic and diluted $ (0.11) $ (0.13)
=========== ===========
Average Limited Partner Units Outstanding 4,133,500 4,133,500
=========== ===========
See notes to consolidated financial statements.
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RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands, except unit amounts)
(unaudited)
LIMITED PARTNERS
------------------------------------------------------
ISSUED UNITS TREASURY UNITS
--------------------- --------------------- GENERAL
UNITS AMOUNT UNITS AMOUNT PARTNER TOTAL
----- ------ ----- ------ ------- -----
Balances at December 31, 1997 4,940,000 $ 20,025 (806,500) $ (11,202) $ (1,718) $ 7,105
Distributions to Unitholders -- (2,274) -- -- (46) (2,320)
Net loss -- (454) -- -- (9) (463)
--------- --------- -------- --------- --------- ---------
Balances at March 31, 1998 4,940,000 $ 17,297 (806,500) $ (11,202) $ (1,773) $ 4,322
========= ========= ======== ========= ========= =========
See notes to consolidated financial statements.
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RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---- ----
Cash Flows from Operating Activities:
Net loss $ (463) $ (557)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,493 2,571
Amortization of deferred loan costs 109 109
Changes in assets and liabilities:
Decrease in prepaid expenses 272 --
Increase in other assets (606) --
Increase (decrease) in payables and accrued expenses (57) 225
Decrease in due to Lessee (88) --
------- -------
Net cash provided by operating activities 1,660 2,378
------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment, net (681) (491)
------- -------
Cash Flows from Financing Activities:
Cash distributions to Unitholders (2,320) (2,329)
Advances from affiliates, net 2,310 1,734
Payments on long-term debt (625) (500)
Net repayments under revolving credit facility -- (1,000)
Payments on other long-term obligations (21) (8)
------- -------
Net cash used in financing activities (656) (2,103)
------- -------
Net increase (decrease) in cash and cash equivalents 323 (216)
Cash and cash equivalents at Beginning of Period 73 763
------- -------
Cash and cash equivalents at End of Period $ 396 $ 547
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 2,983 $ 2,928
======= =======
Supplemental Disclosure of noncash items:
Effective January 1, 1998, the MLP transferred a net
working capital deficit of $475,000 to Lessee in
connection with the Percentage Lease. Amounts transferred
consisted of prepaid expenses, Hotel accounts receivable,
inventories, Hotel accounts payable and accrued liabilities.
See notes to consolidated financial statements.
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RED LION INNS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Red
Lion Inns Limited Partnership, a Delaware limited partnership (the
"Partnership"), and its subsidiary limited partnership, Red Lion Inns Operating
L.P., a Delaware limited partnership (the "Operating Partnership"),
collectively, the "MLP". The MLP was organized on April 14, 1987 for the purpose
of acquiring and owning, through the Operating Partnership, ten Red Lion hotels
(the "Hotels" or individually, a "Hotel"), which are managed under a long-term
management agreement (the "Old Management Agreement") with Red Lion Hotels, Inc.
("Red Lion"), a wholly-owned subsidiary of Doubletree Corporation. On December
19, 1997, Doubletree Corporation became a wholly-owned subsidiary of Promus
Hotel Corporation ("Promus"). The general partner of the MLP is Red Lion
Properties, Inc. (the "General Partner"), an indirect, wholly-owned subsidiary
of Promus. All significant intercompany transactions and accounts have been
eliminated.
Effective January 1, 1998, the Hotels were leased to Westboy LLC ("Westboy" or
"Lessee"), an affiliate of Boykin Lodging Company ("Boykin"), pursuant to a
Percentage Lease agreement (the "Percentage Lease"). As a result of the
Percentage Lease, the lease income earned under the Percentage Lease and certain
costs related to the ownership of the Hotels (property taxes, property insurance
and depreciation) are reported in the MLP's consolidated financial statements.
The operating results of the Hotels subsequent to December 31, 1997 are not
included in the MLP's consolidated financial statements, as they are the
responsibility of Westboy as lessee. See Note 3 for additional details.
The preparation of financial statements in accordance with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. While the
General Partner endeavors to make accurate estimates, actual results could
differ from estimates.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments, primarily eliminations of all significant intercompany transactions
and accounts) necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the related disclosures contained in the MLP's annual
report on Form 10-K for the year ended December 31, 1997, as filed with
Securities and Exchange Commission. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of results to be
expected for the full year.
Gross Operating Profit of Hotels
The gross operating profit of the Hotels reported in the accompanying 1997
statement of operations represents the revenues net of the operating expenses of
the Hotels. Operating revenues and expenses and the current assets and current
liabilities of the Hotels are excluded from the 1997 financial statements of the
MLP because Red Lion, as manager, not the MLP, had operating responsibility for
the Hotels.
Income Taxes
Effective January 1, 1998, the Partnership filed its election with the Internal
Revenue Service ("IRS") to be taxed as a partnership and pay a federal excise
tax. In addition, effective January 1, 1998, the Partnership entered into the
Percentage Lease in order to satisfy the "passive income" requirements of the
Code. The Partnership does not expect to be subject to the excise tax for 1998
and, after that, so long as the Hotels are leased. Accordingly, no current
provision for federal or state income taxes has been provided by the MLP in the
accompanying consolidated financial statements.
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2. THE MERGER AGREEMENT
On December 30, 1997, the MLP agreed to a merger with an indirectly wholly-owned
limited partnership of Boykin for an aggregate consideration of approximately
$35.3 million in cash, 3,110,048 common shares of Boykin and assumption of
liabilities (the "Merger"). The Merger consideration will be allocated to the
MLP's limited partners ("Unitholders") and the General Partner pursuant to the
allocation schedule that is derived from the formula contained in the
Partnership's Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") for a liquidation of the Partnership. In conjunction
with the assumption of liabilities, the Operating Partnership, as an affiliate
of Boykin will pay off the MLP's long-term debt, long-term payable to affiliates
and the MLP's costs related to the Merger (approximately $1.6 million at March
31 1998). The MLP's costs related to the Merger are included in other assets in
the accompanying consolidated balance sheets.
In addition, the Partnership will declare a special distribution immediately
before the Merger closes payable to the Unitholders of record at the Effective
Time, as defined in the Agreement of Merger (the "Merger Agreement"). The
special distribution plus the pre-Merger portion of the dividend on the Boykin
common shares to be received by the Unitholders (but only if they continue to
hold the Boykin common shares through the record date for the Boykin dividend)
for the fiscal quarter in which the Merger occurs will approximate a quarterly
distribution at the Partnership's existing distribution rate prorated to the
Effective Time. The General Partner will also receive a special distribution in
accordance with the Merger Agreement.
The Merger is conditioned upon, among other things, the approval of the
Unitholders and Boykin's stockholders and is expected to close on or about
May 21, 1998.
3. PERCENTAGE LEASE
Effective January 1, 1998, the Operating Partnership leased all of the Hotels to
Westboy under the Percentage Lease. The Percentage Lease has an initial term of
five years with twelve five-year renewal options at Westboy's option. If the
Merger has not been consummated by December 31, 1998, the Operating Partnership
has the right to direct Westboy to assign the Percentage Lease to a person
designated by the Operating Partnership, effective on the close of business on
December 31, 1998. If the Operating Partnership does not deliver notice to
Westboy that the Operating Partnership desires Westboy to assign the Percentage
Lease on or before November 1, 1998, or if the Operating Partnership has
delivered the notice but the assignment does not close on December 31, 1998,
Westboy has the right to terminate the Percentage Lease effective on the close
of business on December 31, 1998.
Rental payments due to the MLP under the Percentage Lease consist of a fixed
monthly base rent of $1.7 million, and a variable percentage rent based on a
percentage of room revenues and certain other revenues, payable quarterly. The
percentage rent for a fiscal year will be equal to the amount, if any, by which
the sum of (a) 31.5% of Room Revenues (as defined in the Percentage Lease)
between $13,166,000 and $45,044,000, (b) 67% of Room Revenues between
$45,044,001 and $62,367,000, (c) 55% of Room Revenues in excess of $62,367,000,
(d) 30% of Other Revenues (as defined in the Percentage Lease) and (e) 10% of
Food and Beverage Revenues (as defined in the Percentage Lease) up to
$3,900,000, exceeds base rent for that fiscal year. Quarterly payments of
percentage rents are based on the prorated annual thresholds. For the quarter
ended March 31, 1998, base rental totaled $5,100,000 and percentage rental
totaled $982,000, as reflected in the accompanying 1998 Statement of Operations.
At March 31, 1998, amounts due to Lessee include reimbursement to the Hotels for
capital expenditures offset by Percentage Lease rent receivable.
Concurrent with the execution of the Percentage Lease, the Old Management
Agreement was terminated and Westboy and Red Lion entered into a new management
agreement under which Red Lion continues to manage the Hotels on substantially
similar economic terms to those set forth in the Old Management Agreement (the
"New Management Agreement"). Accordingly, management fees charged to the Hotels
subsequent to December 31, 1997 are the responsibility of Westboy, not the MLP.
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4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31, DECEMBER 31,
1998 1997
---- ----
Term loan, payable in varying installments through March 31, 1999 $115,500 $116,125
Revolving credit facility, due March 31, 1999 4,500 4,500
Other long-term obligations 368 388
-------- --------
Total long-term debt 120,368 121,014
Less current portion (120,018) (3,268)
-------- --------
$ 350 $117,746
========= =========
During 1996, the MLP entered into a three-year $125 million credit facility. The
credit facility includes a $120 million term loan and a $5 million revolving
credit line. The facility is secured by all of the assets of the Hotels .
Borrowings under the term loan and the revolving credit facility bear interest
at the MLP's election, at the London Interbank Offering Rate ("LIBOR") plus
2.25% (8.1875% at March 31, 1998) or the prime rate. The remaining principal
payments due on the three-year term loan total $2.6 million for 1998, with a
lump-sum payment of $112.9 million due on March 31, 1999.
Other long-term obligations are liabilities for special tax assessments that the
MLP has elected to pay over a 20-year period. These long-term obligations bear
interest ranging from 6.76% to 8.25% with varying maturity dates through June
2016.
Interest Rate Swap Agreements
At March 31, 1998, the MLP had four interest rate swap agreements outstanding
which have substantially converted $100 million of debt from floating LIBOR
based rates to fixed rates ranging from 6.17% to 6.23% (prior to the applicable
margin). Accordingly, the net interest received or paid on the interest rate
swap is recorded as an adjustment to interest expense. The agreements expire
from December 1998 to March 1999. Interest expense incurred by the MLP relating
to interest rate swap agreements for the three months ended March 31, 1998 and
1997, was approximately $80,000 and $150,000, respectively, and is included in
interest expense. The MLP enters into interest rate swap agreements in order to
reduce its exposure to interest rate fluctuations. The agreements have
effectively converted floating rate debt, which is tied to LIBOR, to fixed
rates.
The swap agreements contain a credit risk that the counterparties may be unable
to meet the terms of the agreements. The General Partner minimizes this risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
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5. CASH DISTRIBUTIONS TO PARTNERS
The following table presents cash available for distribution to Unitholders
("Distributable Cash") for the three-month periods ended March 31, 1998 and
1997.
(In thousands except per unit amounts)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
---- ----
Income before income taxes $ (463) $ (557)
Add (deduct):
Depreciation 2,493 2,571
Amortization of deferred loan costs 109 109
Cash reserved for capital expenditures (751) (750)
Repayments on term loan (625) (500)
Excise tax -- --
------- -------
Distributable Cash $ 763 $ 873
======= =======
Distributable Cash per unit $ 0.18 $ 0.21
======= =======
In April 1998, the General Partner declared a quarterly cash distribution of
$0.55 per limited partner unit ($2.20 annualized) for the current quarter,
payable on April 15, 1998 to Unitholders of record on March 31, 1998. This
distribution has been accrued in the accompanying consolidated financial
statements.
6. RELATED PARTY TRANSACTIONS
Amounts payable to affiliates consists of the following (in thousands):
MARCH 31, DECEMBER 31,
1998 1997
---- ----
Advances from General Partner $ 22,611 $ 23,580
General Partner Credit Facility 3,726 3,726
Deferred Incentive Management Fees 1,545 1,545
-------- --------
Total due to affiliates 27,882 28,851
Plus: Hotel working capital -- (3,578)
-------- --------
Payable to affiliates net of Hotel working 27,882 25,273
capital
Less: Current portion (22,611) (20,002)
-------- --------
Long-term portion $ 5,271 $ 5,271
======== ========
Advances from General Partner consist primarily of funds advanced for
Merger-related expenses during late 1997 and 1998, and capital improvements in
excess of the reserve for capital improvements (equal to 3% of revenues required
by the provisions of the New Management Agreement). Advances from General
Partner also include reimbursements for amounts paid on the MLP's behalf
totaling $1.8 million and $3.1 million at March 31, 1998 and December 31, 1997,
respectively. Amounts advanced bear interest at the prime rate plus 0.5% (9.0%
at March 31, 1998).
During the first 36 months of operation, which ended April 30, 1990, the General
Partner advanced, on a non-interest basis, amounts under the General Partner
Credit Facility to fund distributions of the Priority Return, as defined in the
Partnership Agreement. The General Partner Credit Facility is to be repaid out
of either (i) sale or refinancing proceeds prior to any distribution to limited
partners or (ii) excess cash flow after payment of the Priority Return, and
incentive management fees earned under the Old Management Agreement.
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In accordance with the Old Management Agreement, the MLP paid base and incentive
management fees to Red Lion. Through December 31, 1997, the MLP had deferred
payment of $1,545,000 of incentive fees due to insufficient Cash Flow for
Incentive Fees, as defined in the Old Management Agreement. The incentive
management fee that is earned but not paid on an annual basis due to
insufficient Cash Flow for Incentive Fees, is deferred without interest up to a
maximum of $6 million. The deferred amount is to be paid out of either (i) 25%
of cash flow in excess of the Priority Return and the current incentive
management fee or (ii) sale or refinancing proceeds prior to any distribution to
the limited partners.
Prior to the Percentage Lease, amounts payable to affiliates was presented net
of the working capital of the Hotels. The working capital of the Hotels consists
of the current assets and current liabilities of the Hotels, including cash held
in hotel accounts, accounts receivable, inventories, prepaid expenses, hotel
accounts payable and certain taxes other than property, income and payroll
taxes. Since Red Lion had operating responsibilities associated with the Hotels,
these current asset and current liability items were excluded from the
consolidated financial statements and assumed to be liquidated into cash and
used to pay down the payable to affiliates. The working capital of the Hotels is
now reported by Westboy, as Lessee.
The General Partner is responsible for the management and administration of the
MLP. In accordance with the Partnership Agreement, the MLP reimburses the
General Partner for related administrative costs, which is included in
administrative and general expenses in the accompanying consolidated financial
statements.
7. COMMITMENTS AND CONTINGENCIES
The Percentage Lease requires the MLP to set aside 3% of the Hotels' revenues
annually to fund capital improvements of the Hotels. During the quarter ended
March 31, 1998, the MLP had set aside $751,000 and had funded capital
improvements totaling $681,000. Accordingly, at March 31, 1998, $70,000 of the
MLP's cash is restricted.
The MLP is subject to litigation arising in the ordinary course of business. In
the opinion of the General Partner, these actions will not have a material
adverse effect, if any, on the financial position or results of operations or
liquidity of the MLP.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Effective January 1, 1998, the Operating Partnership leased all of the Hotels to
Westboy pursuant to the Percentage Lease. The Percentage Lease has an initial
term of five years with twelve five-year renewal options at Westboy's option.
Rental payments under the Percentage Lease consist of a fixed monthly base rent
of $1.7 million, and a variable percentage rent based on a percentage of room
revenues and certain other revenues, payable quarterly.
The following tables present the consolidated results of operations and related
Distributable Cash of the MLP as if the Percentage Lease had been entered into
effective January 1, 1997. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations and Distributable Cash that would actually have resulted had the
Percentage Lease been in place on the dates indicated.
Consolidated Statements of Operations
(in thousands, except per unit and unit amounts)
ACTUAL PRO FORMA
MARCH 31, MARCH 31,
1998 1997 (1)
---- --------
(unaudited)
Revenues:
Base rent $ 5,100 $ 5,100
Percentage rent 982 1,073
---------- ----------
6,082 6,173
Expenses:
Property taxes 663 711
Depreciation 2,493 2,571
Other 289 390
---------- ----------
Operating income 2,637 2,501
Interest expense (3,100) (3,031)
---------- ----------
Loss before income tax (463) (530)
Income tax expense -- --
Net loss (463) (530)
---------- ----------
Net income per limited partner unit -
basic and diluted (0.11) (0.13)
========== ==========
Average units outstanding 4,133,500 4,133,500
========== ==========
(1) The pro forma consolidated statement of operations reflects the consolidated
results of operations of the MLP for the three months ended March 31, 1997 as if
the Percentage Lease had been entered into effective January 1, 1997. Pro forma
adjustments have been made to (a) eliminate Gross Operating Profit of the
Hotels, (b) record lease income under the Percentage Lease and (c) eliminate
expenses of the Hotels which are the responsibility of Westboy, including
liability insurance and management fees.
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Distributable Cash
(in thousands, except per unit amounts)
ACTUAL PRO FORMA
MARCH 31, MARCH 31,
1998 1997 (1)
---- --------
(unaudited)
Loss before income taxes
(463) (530)
Add (deduct):
Depreciation
2,493 2,571
Amortization of deferred loan costs 109 109
Cash reserved for capital expenditures (751) (750)
Repayments on term loan (625) (500)
Excise tax -- --
------- -------
Distributable Cash $ 763 $ 900
======= =======
Distributable Cash per Limited Partner Unit $ (0.18) $ (0.21)
======= =======
(1) Pro forma Distributable Cash for the three months ended March 31, 1997 is
presented as if the Percentage Lease had been entered into effective January 1,
1997.
A summary of departmental revenues, occupancy and room rates for the Hotels
follows (in thousands except Hotel statistics):
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---- ----
Room revenues $14,491 $14,514
Food and beverage revenues 9,121 9,052
Other revenues 1,421 1,419
------- -------
Total revenues $25,033 $24,985
======= =======
Occupancy percentage 62.5% 63.8%
Average room rate $ 84.15 $ 82.54
REVPAR $ 52.58 $ 52.67
Three Months Ended March 31, 1998 Compared with the pro forma Three Months Ended
March 31, 1997
Revenues, which consist solely of base and percentage rent earned under the
Percentage Lease, for the quarter ended March 31, 1998 were $6.1 million
compared to $6.2 million on a pro forma basis for the same period last year. The
MLP's lease income is based on the revenues of the Hotels. Hotel revenues for
the first quarter 1998 were $25.0 million compared to $25.0 million for the same
period last year. REVPAR (revenue per available room) for the quarter ended
March 31, 1998 was $52.58, compared to $52.67 for the same period last year. The
flat REVPAR resulted from a 2% increase in average daily rate offset by a 1.3
percentage point decrease in occupancy. The slight decrease in lease income
results from a decrease in room revenues offset by an increase in food and
beverage revenues.
Operating income increased 5.4% to $2.6 million for the three months ended March
31, 1998 compared to the pro forma three months ended March 31, 1997. As a
percentage of revenues, operating income increased to 43% for the three months
ended March 31, 1998 as compared to 41% for the pro forma three months ended
March 31, 1997. This slight increase is due primarily to lower depreciation and
other expenses in the quarter ending March 31, 1998 as compared to the same
quarter of 1997, on a pro forma basis.
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Interest expense increased slightly to $3.1 million for the three months ended
March 31, 1998 compared to $3.0 million for the pro forma 1997 period.
Effective January 1, 1998, the Partnership filed its election with the Internal
Revenue Service ("IRS") to be taxed as a partnership and pay a federal excise
tax. In addition, effective January 1, 1998, the Partnership entered into the
Percentage Lease in order to satisfy the "passive income" requirements of the
Code. The Partnership does not expect to be subject to the excise tax for 1998
and, after that, so long as the Hotels are leased. Accordingly, no current
provision for federal or state income taxes has been provided in the
accompanying consolidated statements of operations.
During the three months ended March 31, 1998, net loss was $0.5 million ($0.11
per limited partner unit) compared to net loss of $0.5 million ($0.13 per
limited partner unit) for the pro forma three months ended March 31, 1997.
Distributable Cash was $0.8 million or $0.18 per limited partner unit this
quarter compared to $0.9 million or $0.21 per limited partner unit on a pro
forma basis for the same period in 1997. The decline in Distributable Cash is
due primarily to the higher principal payments and interest expense under the
term loan and lower depreciation expense recorded in the first quarter of 1998
as compared to the proforma first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The MLP's principal source of cash is the lease income earned under the
Percentage Lease. During the three months ended March 31, 1998, the MLP
generated sufficient cash from operations to cover operating needs. The MLP
generated $1.7 million of cash from operating activities for the three months
ended March 31, 1998, compared to $2.4 million generated in the same period in
1997. If the Merger is not consummated, it is expected that for 1998, cash
provided by operations and borrowings, if any, from available credit facilities
or from the General Partner will be sufficient to meet anticipated cash
requirements.
During 1996, the MLP entered into a three-year $125 million credit facility. The
credit facility includes a $120 million term loan and a $5 million revolving
credit line. The proceeds of the term loan were used to repay all amounts owed
under the prior mortgage note and revolving credit facility, a portion of the
payable to affiliates related to deferred incentive management fees and loan
fees. Borrowings under the credit facility bear interest at LIBOR plus 2.25% and
are secured by all of the assets of the Hotels. Remaining principal payments on
the three-year term loan amount to $2.6 million for 1998, with a lump-sum
payment of $112.9 million due on March 31, 1999. Borrowings under the revolving
credit line total $4.5 million at March 31, 1998 and are due and payable in
March 1999.
The Percentage Lease requires the MLP to set aside 3% of the Hotels' revenues
annually to fund capital improvements of the Hotels. During the quarter ended
March 31, 1998, the MLP had set aside $751,000 and had funded capital
improvements totaling $681,000. Accordingly, at March 31, 1998, $70,000 of the
MLP's cash is restricted and may be used only to fund capital expenditures. The
General Partner does not expect capital expenditures to exceed the 3% reserve
during 1998.
The MLP borrowed $2.3 million, net of repayments, from the General Partner
during the three months ended March 31, 1998.
In April 1998, the General Partner declared a quarterly cash distribution of
$0.55 per limited partner unit ($2.20 annualized) for the current quarter,
payable on April 15, 1998 to Unitholders of record on March 31, 1998.
As discussed above, the Partnership has elected to pay a 3.5% tax on its annual
gross income from the active conduct of a trade or business, effective January
1, 1998. If the Merger is not completed for any reason, the Partnership may
require Westboy to assign the Percentage Lease to a Partnership designee. If no
such assignment is made, Westboy may terminate the Percentage Lease effective
December 31, 1998. If the Percentage Lease is terminated, the Partnership will
be required to pay a 3.5% excise tax beginning January 1, 1999 on its annual
gross income. This excise tax may impair the Partnership's ability to maintain
its current level of distributions. The Partnership may also be required to pay
a 3.5% excise tax on the gain from any future sale of all or a part of the
Hotels sold after termination of the Percentage Lease.
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The statements contained in this report that are not statements of historical
fact may include forward- looking statements that involve a number of risks and
uncertainties. Moreover, from time to time the MLP may issue other
forward-looking statements. The following factors are among those that could
cause actual results to differ materially from the forward-looking statements:
national or local economic conditions affecting the supply and demand for hotel
space, competition in hotel operations, including additional or improved
services or facilities of competitors, price pressures, continuing availability
of capital to fund growth and improvements and the impact of tax legislation,
the inability to complete a sales transaction by year end as well as other
factors detailed by management's discussion and analysis. The forward-looking
statements should be considered in light of these factors.
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PART II
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT: The following document is filed herewith and made a part of this
report:
Exhibit 27 Financial Data Schedule
(b) REPORT ON FORM 8-K: On January 7, 1998, the Partnership filed a Form 8-K
announcing the execution of the Merger Agreement and other ancillary documents
related thereto.
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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, thereunto duly authorized.
RED LION INNS LIMITED PARTNERSHIP
By: RED LION PROPERTIES, INC.,
a Delaware corporation,
General Partner
Date: May 15, 1998 By: /s/ William L. Perocchi
---------------------------
William L. Perocchi
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
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INDEX OF EXHIBITS
EXHIBIT
NUMBER
- ------
27 Financial Data Schedule
18