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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1999
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 1-11903
MERISTAR HOSPITALITY CORPORATION
(Exact name of issuer as specified in its charter)
MARYLAND 75-2648842
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1010 WISCONSIN AVENUE, N.W., 20007
WASHINGTON, D.C. (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 295-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
-------------------- ------------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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 than 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
- ----------------------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K___.
- -------------------------------
Based on the average sale price at March 13, 2000, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$504,763,294.
The number of shares of the Registrant's common stock outstanding as of
March 13, 2000 was 47,456,455.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Those portions of the Registrant's definitive proxy statement
relating to Registrant's 2000 Annual Meeting of Stockholders which are
incorporated into Items 10, 11, 12, and 13.
PART I
ITEM 1. BUSINESS
THE COMPANY
MeriStar Hospitality Corporation (the "Company") is a comprehensive real
estate investment trust ("REIT"), which owns a portfolio of primarily upscale,
full-service hotels, diversified by franchise and brand affiliations, in the
United States and Canada. As of December 31, 1999, the Company owned 116 hotels
that contain 29,348 rooms (the "Hotels"). The Hotels are located in major
metropolitan areas or rapidly growing secondary markets and are well located
within these markets. A majority of the Hotels are operated under nationally
recognized brand names such as Hilton(R), Sheraton(R), Westin(R), Marriott(R),
Radisson(R), Doubletree(R) and Embassy Suites(R). All of the Hotels and the
Company's other assets are held by, and all of the Company's operations are
conducted by, MeriStar Hospitality Operating Partnership, L.P. (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and controls its operations.
The Company was created on August 3, 1998, when American General Hospitality
Corporation ("AGH"), a Maryland corporation operating as a REIT, and its
affiliated entities merged with CapStar Hotel Company ("CapStar"), a Delaware
corporation, and its affiliated entities pursuant to an Agreement and Plan of
Merger, dated as of March 15, 1998 (the "Merger").
At the Merger, through a series of transactions, CapStar transferred or
caused to be transferred certain assets and liabilities to MeriStar Hotels &
Resorts, Inc. ("OPCO"), a Delaware corporation and a wholly owned subsidiary of
CapStar, so that OPCO would own the hotel management and leasing business
previously operated by CapStar and its subsidiaries, and CapStar then
distributed to its stockholders on a share-for-share basis (the "Spin-Off") all
of the outstanding capital stock of OPCO. Immediately following the Merger, OPCO
acquired 100% of the partnership interests in AGH Leasing, L.P., the third-party
lessee that leased most of the hotels owned by AGH, and substantially all of the
assets and certain liabilities of American General Hospitality, Inc., the third-
party manager that managed most of the hotels owned by AGH. OPCO is the lessee
and manager of 108 of the Hotels as well as properties of other hotel owners.
The eight Hotels not leased by OPCO are leased by affiliates of Prime
Hospitality Corp. ("Prime"). The Company and OPCO share certain key officers and
four board members. An intercompany agreement aligns the Company's interests
with the interests of OPCO (the "Intercompany Agreement"), with the objective of
benefiting both companies' shareholders. See "The Intercompany Agreement."
Each of the Company's leases is a participating lease ("Participating Lease")
designed to allow the Company to achieve substantial participation in any future
growth of revenues generated at the Hotels. Each Participating Lease has an
initial term of twelve years from the inception of the lease, subject to earlier
termination upon the occurrence of certain events. Under each Participating
Lease, the lessee is obligated to pay the Company the greater of fixed base rent
or participating rent based on a percentage of revenues at each of the Hotels.
See "The Participating Leases."
The Company's business strategy is to opportunistically acquire hotel
properties and related businesses with the potential for cash flow growth, and
to renovate and reposition each hotel according to the characteristics of the
hotel and its market. During the year ended December 31, 1999, the Company
spent a total of $160 million on renovations at the Hotels and intends to spend
an additional $40 million during 2000 completing its renovation programs. See
"Special Note Regarding Forward-Looking Statements."
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to own hotels. The upscale,
full-service segment is attractive for several reasons. First, the development
pipeline of upscale, full-service hotels has slowed over the past year compared
to limited service hotels, thereby reducing the rate of supply growth in the
full-service segment. Second, upscale, full-service hotels appeal to a wide
variety of customers, thus reducing the risk of decreasing demand from any
particular customer group. Additionally, such hotels have particular appeal to
both business executives and upscale leisure travelers, customers who are
generally less price sensitive than
2
travelers who use limited-service hotels.
BUSINESS
The Company seeks to increase shareholder value by maintaining its close
relationship with OPCO, a successful hotel operator, to increase the current and
future potential economic returns from its hotel assets.
The Intercompany Agreement
Rights of First Refusal
The Intercompany Agreement provides that OPCO has a right of first refusal to
become the lessee of any real property acquired by the Company if the Company
determines that, consistent with its status as a REIT, the Company is required
to enter into a lease; provided that OPCO or an entity controlled by OPCO is
qualified to be the lessee based on experience in the industry and financial and
legal qualifications.
The Intercompany Agreement provides that the Company must provide OPCO with
written notice of a lessee opportunity. During the 30 days following such
notice, OPCO has a right of first refusal with regard to the offer to become a
lessee and the right to negotiate with the Company on an exclusive basis
regarding the terms and conditions of the lease. If after 30 days, the Company
and OPCO are unable to agree on the terms of a lease or if OPCO indicates that
it is not interested in pursuing the opportunity, the Company may offer the
opportunity to other hotel operators for a period of one year thereafter, at a
price and on terms and conditions that are not more favorable than the price and
terms and conditions proposed to OPCO. After this one-year period, if the
Company has not leased the property, the Company must again offer the
opportunity to OPCO in accordance with the procedures specified above.
Each company has established a leasing committee which reviews all hotel
leases to be entered into between the companies. Both leasing committees consist
of directors that are not directors of the other company.
OPCO has agreed not to acquire or make (i) investments in real estate or (ii)
any other investments that may be made by a REIT under the federal income tax
rules governing REITs unless they have provided written notice to the Company of
the material terms and conditions of the acquisition or investment opportunity,
and the Company has determined not to pursue such acquisitions or investments
either by providing written notice to OPCO rejecting the opportunity within 20
days or by allowing such 20-day period to lapse. OPCO has also agreed to assist
the Company in structuring and consummating any acquisition or investment which
the Company elects to pursue.
The Intercompany Agreement provides the Company and OPCO with a symbiotic
relationship so that investors in both companies may enjoy the economic benefit
of the entire enterprise. Investors should be aware, however, that because of
the independent trading of the shares of the Company and the shares of OPCO,
stockholders of each company may develop divergent interests which could lead to
conflicts of interest. This divergence of interests could also reduce the
anticipated benefits of the relationship between the two companies.
Provision of Services
OPCO provides the Company with certain services as the Company may reasonably
request from time to time, including administrative, renovation supervision,
corporate, accounting, financial, insurance, legal, tax, information technology,
human resources, acquisition identification and due diligence, and operational
services. The Company compensates OPCO for services provided in an amount
determined in good faith by OPCO as the amount an unaffiliated third party would
charge the Company for comparable services.
Equity Offerings
If either the Company or OPCO desires to engage in a securities issuance,
such issuing party will give
3
notice to such other party as promptly as practicable of its desire to engage in
a securities issuance. Any such notice will include the proposed material terms
of such issuance, to the extent determined by the issuing party, including
whether such issuance is proposed to be pursuant to public or private offering,
the amount of securities proposed to be issued and the manner of determining the
offering price and other terms thereof. The non-issuing party will cooperate
with the issuing party in every way to effect any securities issuance of the
issuing party by assisting in the preparation of any registration statement or
other document required in connection with such issuance and, in connection
therewith, providing the issuing party with such information as may be required
to be included in such registration statement or other document.
Term
The Intercompany Agreement will terminate upon the earlier of (a) August 3,
2008, or (b) a change in ownership or control of OPCO.
The Company may lend OPCO up to $75 million for general corporate purposes
pursuant to a revolving credit agreement. Amounts outstanding under the
facility bear interest at the rate of the 30-day London Interbank Offered Rate
("LIBOR") plus 350 basis points. As of December 31, 1999, OPCO had drawn $57
million on the facility at an interest rate of 9.98%.
REIT Modernization Act
In order to maintain its tax status as a 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. In December 1999, the REIT
Modernization Act (the "RMA") became law. The RMA now permits the REIT to
create a taxable REIT subsidiary (the "TRS"), which will be subject to taxation
similar to a C-Corporation. The TRS will be allowed to lease the real property
owned by the REIT.
The RMA does not permit a REIT to establish a TRS until January 1, 2001.
Also, although a TRS can lease real property from a REIT, it will be restricted
from being involved in certain activities prohibited by the RMA. First, a TRS
will not be permitted to 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, the TRS will not be
permitted to lease a property that contains gambling operations. Third, the TRS
will be restricted from owning 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. The Company has established a subcommittee of
independent members of the Board of Directors to negotiate the transfer of its
existing leases with OPCO to the Company's TRS. Since this process is a
significant change from the business structure the Company has maintained as a
REIT, it is not currently possible to predict the outcome of these negotiations.
The amount of consideration, if any, to be exchanged between the Company and
OPCO is subject to completion of these negotiations. The Company is aiming to
conclude these negotiations during 2000 and transfer those leases to its TRS
effective January 1, 2001. Concurrent with the transfer of the leases to the
TRS, the Company expects to enter into management agreements with OPCO to manage
its properties in accordance with the RMA rules described above.
Acquisition Strategy
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its stockholders of at least 95% of its taxable income
(excluding net capital gains). As a result, in order to complete acquisitions,
the Company relies heavily on its ability to raise new capital through debt and
equity offerings; that ability is dependent on the then current status of the
capital markets. Currently, equity capital is not available at prices that make
it beneficial to acquire new assets.
4
Although the Company is not currently pursuing direct acquisition
opportunities due to the lack of available capital, it continues to be aware of
acquisition opportunities in the upscale, full-service hotel market. During
1999, the Company made a $40 million preferred equity investment in Meristar
Investment Partners, a joint venture established to acquire upscale, full-
service hotels. The Company continues to explore additional investments in
hotels through joint ventures with strategic partners or through equity
contributions, sales and leasebacks, or secured loans.
The Company focuses its attention on investments in hotels located in markets
with economic, demographic and supply dynamics favorable to hotel owners.
Through its extensive due diligence process, the Company selects those
acquisition targets where it believes selective capital improvements and well
selected third-party management will increase the hotel's ability to attract key
demand segments, enhance hotel operations and increase long-term value. In order
to evaluate the relative merits of each investment opportunity, senior
management of the Company together with OPCO create detailed plans covering all
areas of renovation and operation. These plans serve as the basis for the
Company's acquisition decisions and guide subsequent renovation and operating
plans which will be carried out by a third-party hotel operator.
Competition
The Company competes primarily in the upscale and mid-priced sectors of the
full-service segment of the lodging industry. In each geographic market in which
the Hotels are located, there are other full- and limited-service hotels that
compete with the Hotels. Competition in the U.S. lodging industry is based
generally on convenience of location, brand affiliation, price, range of
services and guest amenities offered, and quality of customer service and
overall product.
Employees
As of December 31, 1999, the Company employed ten persons. All of the
Company's employees work at the corporate headquarters.
Franchises
The Company employs a flexible branding strategy based on a particular
hotel's market environment and the hotel's unique characteristics. Accordingly,
the Company uses various national trade names pursuant to licensing arrangements
with national franchisors.
Governmental Regulation
Americans with Disability Act - Under the Americans with Disabilities Act
(the "ADA"), all public accommodations are required to meet certain requirements
related to access and use by disabled persons. These requirements became
effective in 1992. Although significant amounts have been and continue to be
invested in ADA required upgrades to the Hotels, a determination that the
Company is not in compliance with the ADA could result in a judicial order
requiring compliance, imposition of fines or an award of damages to private
litigants. The Company is likely to incur additional costs of complying with the
ADA; however, such costs are not expected to have a material adverse effect on
the Company's results of operations or financial condition.
Environmental Laws - Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence
of hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to use the property, sell the
property or borrow by using such real property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. The operation and removal of certain
underground storage tanks are also regulated by federal and state laws. In
connection with the ownership of the Hotels, the Company could be
5
liable for the costs of remedial action with respect to such regulated
substances and storage tanks and claims related thereto. Certain environmental
laws and common law principles could also be used to impose liability for
releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released ACMs or other hazardous materials.
Phase I environmental site assessments ("ESA") have been conducted at all of
the Hotels, and Phase II ESAs have been conducted at some of the Hotels by
qualified independent environmental engineers. The purpose of the ESA is to
identify potential sources of contamination for which the Hotels may be
responsible and to assess the status of environmental regulatory compliance. The
ESAs have not revealed any environmental liability or compliance concerns that
the Company believes would have a material adverse effect on the Company's
business, assets, results of operations or liquidity, nor is the Company aware
of any material environmental liability or concerns. Nevertheless, it is
possible that these ESAs did not reveal all environmental liabilities or
compliance concerns or that material environmental liabilities or compliance
concerns exist of which the Company is currently unaware.
In reliance upon the Phase I and Phase II ESAs, the Company believes the
Hotels are in material compliance with all federal, state and local ordinances
and regulations regarding hazardous or toxic substances and other environmental
matters. The Company has not been notified by any governmental authority of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in any of the Hotels.
6
THE OPERATING PARTNERSHIPS
The following summary information is qualified in its entirety by the
provisions of the MeriStar Hospitality Operating Partnership, L.P. limited
partnership agreement, a copy of which has been filed as an exhibit to this Form
10-K.
Substantially all of the Company's assets are held indirectly by MeriStar
Hospitality Operating Partnership, L.P., the Company's subsidiary operating
partnership. The Company is the sole general partner of the Operating
Partnership, and the Company and approximately 114 independent third parties
are limited partners of the Operating Partnership. The partnership agreement of
the Operating Partnership gives the general partner full control over the
business and affairs of the Operating Partnership. The general partner is also
given the right, in connection with the contribution of property to the
Operating Partnership or otherwise, to issue additional partnership interests in
the Operating Partnership in one or more classes or series, with such
designations, preferences and participating or other special rights and powers
(including rights and powers senior to those of the existing partners) as the
general partner may determine.
The Operating Partnership's partnership agreement provides for four classes
of partnership interests ("OP Units"): Common OP Units, Class B OP Units,
Class C OP Units and Class D OP Units. As of March 13, 2000, the partners of the
Operating Partnership own the following aggregate numbers of OP Units: (i) the
Company and its wholly-owned subsidiaries own a number of Common OP Units equal
to the number of issued and outstanding shares of the Company's common stock,
par value $0.01, (the "Common Stock") and (ii) independent third parties own
4,861,474 OP Units (consisting of 3,437,541 Common OP Units, 1,031,776 Class C
OP Units and 392,157 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
of the Company's Common Shares. 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 Shares 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. All net income and capital proceeds earned by the Operating Partnership,
after payment of the annual preferred return and, if applicable, the liquidation
preference, will be shared by the holders of the Common OP Units in proportion
to the number of Common OP Units in the relevant Operating Partnership owned by
each such holder.
Each OP Unit held by the independent third-parties is redeemable by the
holder for one share of Common Stock (or, at the Company's option, for cash in
an amount equal to the market value of a share of Common Stock). In addition,
the Class D OP Units may be redeemed by the Operating Partnership at a price of
$22.16 per Class D OP Unit (or, at the Company's option, for a number of shares
of Common Stock having a value equal to such redemption price) at any time after
April 1, 2000 or by the holders of the Class D OP Units at a price of $22.16 per
Class D OP Unit (in cash or, at the holder's option, for a number of shares of
Common Stock having a value equal to the redemption price) at any time after
April 1, 2004.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our Company include, but are not limited to, changes in: economic
conditions generally and
7
the real estate market specifically, legislative/regulatory changes (including
changes to laws governing the taxation of real estate investment trusts),
availability of capital, interest rates, competition, supply and demand for
hotel rooms in our current and proposed market areas and general accounting
principles, policies and guidelines applicable to real estate investment trusts.
These risks and uncertainties should be considered in evaluating any forward-
looking statements contained or incorporated by reference herein.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Washington, D.C. and owns
hotel properties throughout the United States and Canada. As of December 31,
1999, the Company owned 116 Hotels. The Company leases land for seven of its
Hotels (Hilton Hotel, Washington, DC; Hilton Hotel, San Pedro, California; Doral
Palm Springs, Palm Springs, California; Jekyll Inn, Jekyll Island, Georgia;
Hilton Hotel, Clearwater, Florida; Courtyard by Marriott, Lake Buena Vista,
Florida; and Radisson Hotel, Rochester, New York). The Company also leases part
of the land for six of the Hotels (Westin Morristown, Morristown, New Jersey;
Courtyard by Marriott Meadowlands, Secaucus, New Jersey; Wyndham Hotel
Albuquerque, Albuquerque, New Mexico; Hilton Hotel Toledo, Toledo, Ohio; Wyndham
Airport Hotel, San Jose, California; and Westin Resort Key Largo, Key Largo,
Florida). No one hotel property is material to the Company's operations. A
typical Hotel has meeting and banquet facilities, food and beverage facilities
and guest rooms and suites.
The Hotels generally feature, or after the Company's renovation programs have
been completed will feature, comfortable, modern guest rooms, extensive meeting
and convention facilities and full-service restaurant and catering facilities
that attract meeting and convention functions from groups and associations,
upscale business and vacation travelers as well as banquets and receptions from
the local community.
The following table sets forth certain information with respect to the Hotels
for the year ended December 31, 1999:
Average
Guest Daily Average
Hotel Location Rooms Rate (2) Occupancy (2)
----- -------- ----- ---- ---------
Sheraton Hotel.................... Mesa, AZ 273 $ 86.26 55.4%
Crowne Plaza Hotel................ Phoenix, AZ 250 77.71 55.4
Embassy Suites.................... Tucson, AZ 204 82.53 78.2
Courtyard by Marriott............. Century City, CA 134 116.07 79.5
Hilton Hotel...................... Irvine, CA 289 110.61 67.9
Marriott Hotel.................... Los Angeles, CA 469 116.40 75.6
Courtyard by Marriott............. Marina Del Rey, CA 276 96.19 91.9
Hilton Hotel...................... Monterey, CA 204 113.38 76.4
Doral Palm Springs................ Palm Springs, CA 285 104.48 59.1
Hilton Hotel...................... Sacramento, CA 331 102.93 69.4
Holiday Inn Select................ San Diego, CA 317 80.92 84.0
Sheraton Hotel.................... San Francisco, CA 525 154.71 83.6
Crowne Plaza Hotel................ San Jose, CA 239 131.66 75.8
Wyndham Hotel..................... San Jose, CA 355 127.52 72.6
Hilton Hotel...................... San Pedro, CA 226 77.06 83.9
Santa Barbara Inn................. Santa Barbara, CA 71 162.43 78.1
Holiday Inn....................... Colorado Springs, CO 200 70.24 68.0
Sheraton Hotel.................... Colorado Springs, CO 500 75.61 67.6
Embassy Suites.................... Englewood, CO 236 104.81 78.6
Hilton Hotel...................... Hartford, CT 388 108.56 72.6
Ramada Hotel...................... Meriden, CT 150 78.96 71.8
8
Ramada Hotel...................... Shelton, CT 155 110.93 61.7
Doubletree Bradley Airport........ Windsor Locks, CT 200 88.14 79.4
Hilton Hotel...................... Washington, DC 193 131.05 76.3
Georgetown Inn.................... Washington, DC 96 143.96 81.1
The Latham Hotel.................. Washington, DC 143 136.29 77.3
South Seas Resort................. Captiva, FL 579 248.77 63.4
Hilton Hotel...................... Clearwater, FL 426 109.59 76.8
Ramada Hotel...................... Clearwater, FL 289 79.31 75.6
Hilton Hotel...................... Cocoa Beach, FL 296 83.08 75.8
Holiday Inn....................... Ft. Lauderdale, FL 240 83.81 81.9
Howard Johnson Resort............. Key Largo, FL 100 87.13 82.5
Westin Hotel...................... Key Largo, FL 200 133.80 79.8
Courtyard by Marriott............. Lake Buena Vista, FL 314 101.36 88.4
Sheraton Hotel.................... Lake Buena Vista, FL 489 81.38 83.5
Radisson Hotel.................... Marco Island, FL 268 147.00 75.9
Holiday Inn....................... Madeira Beach, FL 149 80.81 76.6
Radisson Hotel.................... Orlando, FL 742 92.61 69.5
Best Western Hotel................ Sanibel Island, FL 46 161.10 80.0
Sanibel Inn....................... Sanibel Island, FL 96 172.78 85.8
Seaside Inn....................... Sanibel Island, FL 32 179.56 79.7
Song of the Sea................... Sanibel Island, FL 30 203.81 87.8
Sundial Beach Resort.............. Sanibel Island, FL 243 219.51 72.9
Doubletree Hotel.................. Tampa, FL 496 62.47 67.7
Doubletree Guest Suites........... Atlanta, GA 155 106.94 65.4
Westin Atlanta Airport............ Atlanta, GA 495 90.71 76.8
Jekyll Inn........................ Jekyll Island, GA 262 69.86 56.0
Wyndham Hotel..................... Marietta, GA 218 75.58 63.4
Radisson Hotel.................... Arlington Heights, IL 201 86.41 68.3
Radisson Hotel & Suites........... Chicago, IL 350 150.24 80.2
Holiday Inn....................... Rosemont, IL 507 107.5 72.3
Radisson Hotel.................... Schaumburg, IL 200 89.27 74.3
Doubletree Guest Suites........... Indianapolis, IN 137 91.92 72.7
Radisson Plaza.................... Lexington, KY 367 84.46 59.5
Hilton Hotel...................... Louisville, KY 321 113.78 65.6
Holiday Inn Select................ Kenner, LA 303 80.62 76.3
Hilton & Towers................... Lafayette, LA 327 75.73 70.6
Maison de Ville................... New Orleans, LA 23 286.79 72.8
Radisson Hotel.................... Annapolis, MD 219 91.98 63.1
Radisson Hotel.................... Baltimore, MD 148 111.75 69.0
Sheraton Hotel.................... Columbia, MD 287 108.51 70.5
Holiday Inn Express............... Hanover, MD 159 84.70 82.4
Hampton Inn....................... Ocean City, MD 168 80.41 56.3
Hilton Hotel...................... Detroit, MI 151 98.70 86.5
Hilton Hotel...................... Grand Rapids, MI 224 79.71 75.0
Holiday Inn Sports Complex........ Kansas City, MO 163 77.40 58.1
Sheraton Airport Plaza............ Charlotte, NC 222 91.59 76.3
Hilton Hotel...................... Durham, NC 194 84.17 62.9
Courtyard by Marriott............. Durham, NC 146 80.45 69.5
Four Points Hotel................. Cherry Hill, NJ 213 81.68 63.3
Ramada Hotel...................... Mahwah, NJ 128 98.98 69.1
Sheraton Hotel.................... Mahwah, NJ 225 131.40 75.4
Westin Hotel...................... Morristown, NJ 199 134.76 68.6
Four Points Hotel................. Mt. Arlington, NJ 124 107.68 71.0
Doral Forrestal................... Princeton, NJ 290 173.87 65.0
Courtyard by Marriott............. Secaucus, NJ 165 119.02 89.8
9
Marriott Hotel.................... Somerset, NJ 440 132.40 75.7
Doubletree Hotel.................. Albuquerque, NM 295 73.46 70.6
Wyndham Hotel..................... Albuquerque, NM 276 69.98 76.2
Crowne Plaza Hotel................ Las Vegas, NV 201 88.16 81.9
St. Tropez Suites................. Las Vegas, NV 149 91.06 72.3
Radisson Hotel.................... Rochester, NY 171 72.57 65.5
Radisson Hotel.................... Middleburg Heights, OH 237 76.76 65.7
Hilton Hotel...................... Toledo, OH 213 72.93 63.5
Westin Hotel...................... Oklahoma City, OK 395 71.64 66.3
Crowne Plaza Hotel................ Lake Oswego, OR 161 102.52 55.7
Sheraton Hotel.................... Frazer, PA 198 111.82 75.1
Embassy Suites.................... Philadelphia, PA 288 135.42 76.5
Holiday Inn Select................ Trevose, PA 215 92.60 72.2
Hilton Hotel...................... Arlington, TX 309 85.78 72.9
Doubletree Hotel.................. Austin, TX 350 92.23 72.8
Hilton & Towers................... Austin, TX 320 78.14 65.4
Holiday Inn Select................ Bedford, TX 243 62.87 81.7
Radisson Hotel.................... Dallas, TX 304 64.37 63.4
Renaissance Hotel................. Dallas, TX 289 95.34 62.8
Sheraton Hotel.................... Dallas, TX 348 75.87 54.8
Hilton Hotel...................... Houston, TX 292 68.79 57.3
Marriott Hotel.................... Houston, TX 302 117.45 72.0
Hilton Hotel...................... Houston, TX 295 106.55 74.5
Sheraton Hotel.................... Houston, TX 382 80.11 60.5
Holiday Inn ...................... Irving, TX 409 72.11 83.8
Hilton Hotel...................... Midland, TX 249 66.63 52.3
Hilton Hotel...................... Salt Lake City, UT 287 78.75 76.1
Holiday Inn....................... Alexandria, VA 178 108.18 80.7
Radisson Hotel.................... Alexandria, VA 253 103.34 63.4
Hilton Hotel...................... Arlington, VA 209 127.79 80.4
Hilton Hotel...................... Arlington, VA 386 109.66 75.9
Hampton Inn....................... Richmond, VA 124 62.38 68.5
Richmond Hotel and Conference
Center........................... Richmond, VA 280 57.07 32.3
Hilton Hotel...................... Bellevue, WA 179 119.51 73.5
Crowne Plaza Hotel (1)............ Madison, WI 226 88.44 75.7
Holiday Inn....................... Madison, WI 194 71.67 73.1
Holiday Inn....................... Calgary, Alberta, Canada 170 48.10 82.3
Sheraton Hotel.................... Guildford, B.C., Canada 278 65.95 73.0
Holiday Inn....................... Vancouver, B.C., Canada 100 74.20 85.8
Ramada Hotel...................... Vancouver, B.C., Canada 118 67.81 81.6
------- ------- -------
Total Weighted Average 29,348 $101.14 71.6%
======= ======= =======
(1) Acquired on January 11, 1999.
(2) Average Daily Rate and Average Occupancy include Holiday Inn, St. Louis,
Missouri which was sold on November 30, 1999.
10
THE PARTICIPATING LEASES
Subsidiaries of OPCO (the "Lessee") lease 108 of the 116 Hotels. Each
Participating Lease provides for an initial term of 12 years. Each
Participating Lease provides OPCO with three renewal options of five years each
(except in the case of properties with ground leases having a remaining term of
less than 40 years), provided that (a) the Lessee will not have the right to a
renewal if a change in the tax law has occurred that would permit the Company to
operate the hotel directly; (b) if the Lessee elects not to renew a
Participating Lease for any applicable hotel, then the Company has the right to
reject the exercise of a renewal right on a Participating Lease of a comparable
hotel; and (c) the rent for each renewal term is adjusted to reflect the then
fair market rental value of the hotel. If the Company and the Lessee are unable
to agree upon the then fair market rental value of a hotel, the Participating
Lease terminates upon the expiration of the then current term and the Lessee
then has a right of first refusal to lease the hotel from the Company on such
terms as the Company may have agreed upon with a third-party lessee.
Base Rent; Participating Rent; Additional Charges
Each Participating Lease requires the Lessee to pay (i) fixed monthly base
rent (the "Base Rent"), (ii) participating rent ("Participating Rent") which is
payable monthly and based on certain percentages of room revenue, food and
beverage revenue and telephone and other revenue at each hotel in excess of Base
Rent, and (iii) certain other amounts, including interest accrued on any late
payments or charges ("Additional Charges"). Base Rent and Participating Rent
departmental thresholds (departmental revenue on which the rent percentage is
based) are increased annually by a percentage equal to the percentage increase
in the Consumer Price Index (CPI percentage increase plus 0.75% in the case of
the Participating Rent departmental revenue threshold) compared to the prior
year. In addition, under certain circumstances, a reduced percentage rate will
apply to the revenues attributable to certain "discounted rates" that the Lessee
may offer. Base Rent is payable monthly in arrears. Participating Rent is
payable in arrears based on a monthly schedule adjusted to reflect the seasonal
variations in the hotel's revenue.
Other than real estate and personal property taxes and assessments, rent
payable under ground leases, casualty insurance, including loss of income
insurance, capital impositions and capital replacements and refurbishments
(determined in accordance with generally accepted accounting principles), that
are obligations of the Company, the Participating Leases require the Lessee to
pay rent, liability insurance, all costs and expenses and all utility and other
charges incurred in the operation of the hotels. The Participating Leases also
provide for rent reductions and abatements in the event of damage or destruction
or a partial taking of any hotel.
The Participating Leases also provide for a rental adjustment under certain
circumstances in the event of (a) a major renovation of the hotel, or (b) a
change in the franchisor of the hotel.
Lessee Capitalization
The Participating Leases require OPCO, as guarantor of the Participating
Leases, to maintain a book net worth of not less than $40 million. Further, as
of January 1, 1999, for so long as the tangible net worth of OPCO is less than
17.5% of the aggregate rents payable under the Participating Leases for the
prior calendar year, OPCO is prohibited from paying dividends or making
distributions other than dividends or distributions made for the purpose of
permitting the partners of the Operating Partnership to pay taxes on the taxable
income of the Operating Partnership attributable to its partners plus any
required preferred distributions existing to partners.
Termination
The Company has the right to terminate the applicable Participating Lease
upon the sale of a hotel to a third party or, upon the Company's determination
not to rebuild after a casualty, upon payment to the Lessee of the fair market
value of the leasehold estate (except for properties initially identified by the
Company and OPCO as properties slated to be sold). The fair market value of the
leasehold estate is
11
determined by discounting to present value at a discount rate of 10% per annum
the cash flow for each remaining year of the then current lease term, which cash
flow will be deemed to be the cash flow realized by the Lessee under the
applicable Participating Lease for the 12-month period preceding the termination
date. The Company will receive as a credit against any such termination payments
an amount equal to any outstanding "New Lease Credits," which means the
projected cash flow (determined on the same basis as the termination payment) of
any new Participating Leases entered into between the Company and OPCO after the
effective date for the initial term of such new Participating Lease amortized on
a straight-line basis over the initial term of the new Participating Lease.
Performance Standards
The Company has the right to terminate the applicable Participating Lease if,
in any calendar year, the gross revenues from a hotel are less than 95% of the
projected gross revenues for such year as set forth in the applicable budget
unless (a) the Lessee can reasonably demonstrate that the gross revenue
shortfall was caused by general market conditions beyond the Lessee's control or
(b) the Lessee "cures" the shortfall by paying to the Company the difference
between the rent that would have been paid to the Company had the property
achieved gross revenues of 95% of the budgeted amounts and the rent paid based
on actual gross revenues. The Lessee does not have such a cure right for more
than two consecutive years.
The Participating Leases also require that the Lessee spend in each calendar
year at least 95% of the amounts budgeted for marketing expenses and for repair
and maintenance expenses.
Assignment and Subleasing
The Lessees do not have the right to assign a Participating Lease or sublet a
hotel without the prior written consent of the Company. For purposes of the
Participating Lease, a change in control of OPCO or the Lessees will be deemed
an assignment of the Participating Lease and will require the Company's consent,
which may be granted or withheld in its sole discretion.
REIT Modernization Act
In order to maintain its tax status as a 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. In December 1999, the REIT
Modernization Act (the "RMA") became law. The RMA now permits the REIT to
create a taxable REIT subsidiary (the "TRS"), which will be subject to taxation
similar to a C-Corporation. The TRS will be allowed to lease the real property
owned by the REIT.
The RMA does not permit a REIT to establish a TRS until January 1, 2001.
Also, although a TRS can lease real property from a REIT, it will be restricted
from being involved in certain activities prohibited by the RMA. First, a TRS
will not be permitted to 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, the TRS will not be
permitted to lease a property that contains gambling operations. Third, the TRS
will be restricted from owning 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. The Company has established a subcommittee of
independent members of the Board of Directors to negotiate the transfer of its
existing leases with OPCO to the Company's TRS. Since this process is a
significant change from the business structure the Company has maintained as a
REIT, it is not currently possible to predict the outcome of these negotiations.
The amount of consideration, if any, to be exchanged between the Company and
OPCO is subject to completion of these negotiations. The Company is aiming to
conclude these negotiations during 2000 and transfer those leases to its TRS
effective January 1, 2001. Concurrent with the transfer of the leases to the
TRS, the Company expects to enter into management agreements with OPCO to manage
its properties in accordance with the RMA rules described above.
12
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the
fourth quarter of 1999.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "MHX." The following table sets forth for the periods indicated the high
and low closing sale prices for the Common Stock on the NYSE.
Price
-----
High Low
---- ---
2000:
First Quarter (through March 13, 2000) $17 1/4 $15 1/16
1999:
Fourth Quarter (ended December 31, 1999) 16 3/4 14 3/4
Third Quarter (ended September 30, 1999) 22 5/16 15 1/4
Second Quarter (ended June 30, 1999) 24 1/16 18 7/16
First Quarter (ended March 31, 1999) 19 3/8 16 1/6
1998:
Fourth Quarter (ended December 31, 1998) 20 1/4 12 15/16
Third Quarter (from Merger on August 3, 1998 through September 30, 1998) 21 3/8 14 9/16
Third Quarter (from July 1, 1998 through August 2, 1998) (1) 29 7/8 25 1/16
Second Quarter (ended June 30, 1998) (1) 34 7/16 27 1/8
First Quarter (ended March 31, 1998) (1) 36 1/2 31 1/8
_____________
(1) Represents the share prices of CapStar Hotel Company which, pursuant to
generally accepted accounting principles, is the predecessor of the
Company.
The last reported sale price of the Common Stock on the NYSE on March 13,
2000 was $15 1/16. As of March 13, 2000, there were approximately 353 holders
of record of the Common Stock.
On December 6, 1999, the Company declared a dividend of $0.505 per share
relating to the fourth quarter of 1999 that was paid on January 31, 2000 to
stockholders of record as of December 31, 1999.
The Company intends to make regular quarterly distributions to its
stockholders. Future distributions by the Company will be at the discretion of
the Board of Directors and will depend on the Company's financial condition, its
capital requirements, the annual distribution requirements under the REIT
provisions of the Internal Revenue Code and such other factors as the Board of
Directors deems relevant. There can be no assurance that any such distributions
will be made by the Company.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its stockholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, the Company may be
required to make distributions in excess of cash available for distribution in
order to meet these distribution requirements. In that event, the Company would
seek to borrow the amount to obtain the cash necessary to make distributions to
retain its qualification as a REIT for Federal income tax purposes. The
distributions made in 1999 represent a 0% return of capital.
Recent Sales of Unregistered Securities
CapStar Hotel Company
Each of CapStar's private issuances of shares of common stock and its
operating partnership's private
14
issuances of OP Units has been in reliance on an exemption from registration
under Section 4(2) of the Act in the amounts and for the consideration set forth
below.
On April 1, 1997, CapStar issued 809,523 Common OP Units and 392,157 Class D
OP Units to affiliates of Highgate Hotels, Inc. ("Highgate") in connection with
CapStar's purchase of a portfolio of six hotels from certain affiliates of
Highgate.
On November 17, 1997, CapStar issued 674,236 Common OP Units to affiliates of
Winston Hospitality, Inc. ("Winston") in connection with CapStar's acquisition
of substantially all of the assets of Winston.
American General Hospitality Corporation
Each of AGH's private issuances of shares of common stock and its operating
partnership's private issuances of OP Units has been in reliance on an exemption
from registration under Section 4(2) of the Act in the amounts and for the
consideration set forth below.
On June 27, 1997, AGH privately issued 225,690 Class B OP Units as part of
the purchase of the Hilton Hotel Cocoa Beach. On July 16, 1997 the Class B OP
Units automatically converted into Common OP Units.
On July 14, 1997, as part of the terms of the strategic alliance between
Wyndham International and AGH, an affiliate of Wyndham purchased 95,741 shares
of restricted common stock. The shares were purchased in connection with the
conversion of the LeBaron Airport Hotel to the Wyndham San Jose Airport Hotel.
On October 14, 1997, AGH issued under AGH's Non-Employee Directors' Incentive
Plan, 1,109 shares of common stock to the Board of Directors for compensation in
accordance with their agreement to serve as directors of AGH.
On November 30, 1997, AGH privately issued 11,568 Class B OP Units as part of
the purchase of the Courtyard by Marriott Durham. On December 31, 1997, these
Class B OP Units automatically converted into Common OP Units.
On December 31, 1997, AGH privately sold an additional 1,159,546 shares of
its common stock to certain investment funds and separate accounts advised by
ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Limited
Partnership.
On January 2, 1998, AGH privately sold an additional 420,106 shares of common
stock to certain investment funds and separate accounts advised by ABKB/LaSalle
Securities Limited Partnership and LaSalle Advisors Limited Partnership.
On January 8, 1998, AGH privately issued 439,375 Class B OP Units as part of
the purchase price of a portfolio hotels owned by Prime. On April 16, 1998 the
Class B OP Units converted into Common OP Units.
On January 15, 1998, AGH privately sold the balance of 100,829 shares of its
common stock to certain investment funds and separate accounts advised by
ABKB/LaSalle Securities Limited Partnership and LaSalle Advisors Limited
Partnership.
On February 3, 1998, AGH privately issued 1,108,874 Class C OP Units as part
of the purchase price of the Holiday Inn O'Hare International Hotel. The Class C
OP Units bear a preferred annual distribution rate of $2.23 per Class C OP Unit
until such time as the dividend distribution rate for the Class C OP Units will
equal the distribution rate on the Common Stock. In addition, the holders of the
Class C OP Units received an additional 974,588 Class A OP Units due to the fact
that the fair market value of the common stock (as reported on the New York
Stock Exchange, Inc.) was trading below $35 per share on the first
15
anniversary date of the closing of the acquisition.
The Company
On August 21, 1998, the Company privately issued 46,628 Class B OP Units as
part of the purchase of the land under the Four Points Hotel in Mt. Arlington,
New Jersey. On October 14, 1998 the Class B OP Units automatically converted
into Common OP Units.
On October 1, 1998, the Company privately issued 916,230 Common OP Units as
part of the purchase of a portfolio of assets from South Seas Properties Company
Limited Partnership and its affiliates.
On January 7, 1999, the Company privately issued 65,875 Common OP Units as
part of the purchase of the Holiday Inn Madison, Wisconsin.
16
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial
information for the Company. The selected operating results and balance
sheet data have been extracted from the consolidated financial statements
for each of the periods presented. The following information should be read
in conjunction with the consolidated financial statements and notes thereto
for the Company and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Annual
Report on Form 10-K.
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------ ----------- ------------
(dollars in thousands, except per share amounts and operating data)
Revenue:
Hotel operations:
Participating lease revenue............................... $ 368,012 $ 135,994 $ - $ - $ -
Rooms..................................................... - 275,610 207,736 68,498 14,456
Food, beverage, office rental and other................... 6,892 110,519 103,521 36,949 7,471
Management services and other revenues...................... - 3,174 5,136 4,345 4,436
---------- ---------- ---------- --------- ---------
Total revenues............................................ 374,904 525,297 316,393 109,792 26,363
---------- ---------- ---------- --------- ---------
Operating expenses:
Departmental expenses:
Rooms....................................................... - 65,048 51,075 17,509 4,190
Food, beverage and other.................................... 1,964 80,327 77,373 27,102 5,437
Undistributed operating expenses:
Administrative and general.................................. 5,749 62,350 50,332 20,448 8,078
Property and other operating costs.......................... 47,027 122,963 55,111 17,151 3,934
Depreciation and amortization............................... 103,099 60,703 20,990 8,248 2,097
---------- ---------- ---------- --------- ---------
Total operating expenses.................................. 157,839 391,391 254,881 90,458 23,736
---------- ---------- ---------- --------- ---------
Net operating income......................................... 217,065 133,906 61,512 19,334 2,627
Interest expense, net........................................ 100,398 64,378 21,024 12,346 2,414
Minority interests........................................... 11,069 5,121 1,425 (39) (18)
Provision for income taxes (A)............................... 2,102 15,699 14,911 2,674 -
---------- ---------- ---------- --------- ---------
Income before extraordinary loss............................. 103,496 48,708 24,152 4,353 231
Extraordinary loss, net of tax (B)........................... (4,532) (4,080) (4,092) (1,956) (888)
Cumulative effect of accounting change, net of tax (C)....... - (921) - - -
---------- ---------- ---------- --------- ---------
Net income (loss)......................................... $ 98,964 $ 43,707 $ 20,060 $ 2,397 $ (657)
========== ========== ========== ========= =========
Basic earnings per share before extraordinary loss (D)....... $2.19 $1.45 $1.29 $0.31 $ -
Diluted earnings per share before extraordinary loss (D)..... $2.11 $1.40 $1.27 $0.31 $ -
Dividends per common share (E)............................... $2.02 $0.82 $ - $ - $ -
Number of shares of common stock issued and outstanding (F).. 47,257 46,718 24,867 12,754 -
Other Financial Data:
EBITDA (G)................................................... $ 320,164 $ 194,609 $ 82,502 $ 27,582 $ 4,724
Net cash provided by operating activities.................... 229,193 162,796 59,882 13,373 4,357
Net cash used in investing activities........................ (187,952) (785,505) (586,259) (225,251) (116,573)
Net cash (used in) provided by financing activities.......... (42,812) 543,256 588,428 226,830 119,048
Balance Sheet Data:
Investments in hotel properties, gross....................... $3,118,723 $2,957,543 $ 950,052 $ 343,092 $ 110,883
Total assets................................................. 3,094,201 2,998,460 1,124,642 379,161 132,650
Long term debt............................................... 1,676,771 1,602,352 492,771 200,361 73,574
17
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating Data:
Owned Hotels and Properties:
Number of hotels (F)...................................... 116 117 47 19 6
Number of guest rooms (in thousands) (F).................. 29,348 29,351 12,019 5,166 2,101
Total revenues (in thousands)............................. $374,904 $522,123 $311,257 $105,447 $21,927
Average occupancy (H)..................................... 71.6% 71.5% 72.0% 71.6% 72.3%
ADR (I)................................................... $ 101.14 $ 95.00 $ 86.87 $ 82.84 $ 71.58
RevPAR (J)................................................ $ 72.44 $ 67.90 $ 62.55 $ 59.31 $ 51.75
__________
(A) No provision for federal income taxes was included prior to the August
1996 initial public offering as the Company's predecessor entities
were partnerships and all Federal income tax liabilities were passed
through to the individual partners.
(B) During 1995, 1996, 1997, 1998 and 1999 certain loan facilities were
refinanced and the write-offs of deferred costs associated with the
prior facilities were recorded as extraordinary losses in accordance
with generally accepted accounting principles.
(C) Pursuant to AICPA Statement of Position ("SOP") 98-5, "Reporting on
the Costs of Start-Up Activities" which the Company adopted on July 1,
1998, the effect of this accounting change was a pre-tax charge
against income for the year ended December 31, 1998 of $1,485 ($921
net of tax effect).
(D) Basic and diluted earnings per share before extraordinary item for the
year ended December 31, 1996 is based on earnings for the period from
August 20, 1996 (date of the Company's initial public offering)
through December 31, 1996.
(E) No dividends were declared prior to August 3, 1998 (date of the
merger).
(F) As of December 31 for the periods presented.
(G) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is a
useful measure of operating performance because (i) it is industry
practice to evaluate hotel properties based on operating income before
interest, depreciation and amortization and minority interests of
common and preferred OP Unit holders, which is generally equivalent to
EBITDA, and (ii) EBITDA is unaffected by the debt and equity structure
of the entity. EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP"), is not
necessarily indicative of cash available to fund all cash flow needs,
and should not be considered as an alternative to net income under
GAAP for purposes of evaluating the Company's results of operations
and may not be comparable to other similarly titled measures used by
other companies.
(H) Represents total number of rooms occupied by hotel guests on a paid
basis divided by total available rooms.
(I) Represents total room revenues divided by total number of rooms
occupied by hotel guests on a paid basis.
(J) Represents total room revenues divided by total available rooms.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
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 Hotels & Resorts, Inc.
("OPCO"). As of December 31, 1999, the Company owned 116 hotels (with 29,348
rooms), 108 of which are leased and operated by OPCO.
The Company was formed on August 3, 1998, as a result of the merger (the
"Merger") of CapStar Hotel Company ("CapStar") with and into American General
Hospitality Corporation ("AGH"), a Maryland corporation operating as a real
estate investment trust ("REIT").
The Merger was accounted for as a purchase for financial reporting purposes.
In accordance with the provisions of Accounting Principles Board Opinion No. 16,
"Business Combinations," CapStar was considered the acquiring enterprise for
financial reporting purposes. The Company established a new accounting basis
for AGH's assets and liabilities based on their fair values. For financial
reporting purposes, the results of operations of AGH were included in the
Company's statement of operations from August 3, 1998.
The Company purchased AGH for approximately $1.3 billion through the issuance
of 23.9 million shares of common stock and units of limited partnership interest
("OP Units") in the Company's subsidiary operating partnership, valued at $795
million and assumption of debt and other liabilities of $550 million. The
acquisition has been recorded at the fair value of the net assets acquired.
Prior to August 3, 1998, the Company's consolidated financial statements
included the operating results for its owned and leased hotels as well as
management fees from hotels managed for third-party owners. Subsequent to
August 3, 1998, the Company owns certain hotels that are leased to hotel
operators and no longer manages hotels. Also, the Company has had acquisitions
and dispositions of certain properties during the periods presented. Therefore,
the financial statements for the periods ended December 31, 1999, 1998, and 1997
reflect differing numbers of owned, leased, and managed hotels throughout the
periods. The following table outlines the Company's portfolio of owned, leased
and managed hotels as of December 31:
Owned Leased Managed Total
------------------------ ---------------------- ----------------------- ----------------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ----- ------ ----- ------ ----- ------ -----
1999 116 29,348 - - - - 116 29,348
1998 117 29,351 - - - - 117 29,351
1997 47 12,019 40 5,687 27 4,631 114 22,337
Financial Condition
December 31, 1999 compared with December 31, 1998
Total assets increased by $95.7 million to $3,094.2 million at December 31,
1999 from $2,998.5 million at December 31, 1998. This growth was due mainly to
the Company's investment of $40.0 million in MeriStar Investment Partners, LP
("MIP") and net additional investments in hotel properties including renovations
to hotel properties.
Total liabilities increased by $93.6 million to $1,802.5 million at December
31, 1999 from $1,708.9 million at December 31, 1998 due mainly to an increase in
long-term debt. Long-term debt increased by $74.4 million to $1,676.8 million at
December 31, 1999 from $1,602.4 million at December 31, 1998 as a result of
borrowing $330 million under a new secured credit facility and the issuance of
$55
19
million of subordinated notes, offset by net repayments of $307.5 million on the
Company's credit facilities.
Minority interests decreased $17.4 million to $121.1 million at December 31,
1999 from $138.5 million at December 31, 1998, due to the net redemptions of OP
Units into shares of the Company's common stock. The increase in additional
paid-in capital resulted primarily from the redemption of OP Units.
Results of Operations
Year Ended December 31, 1999 compared with the Year Ended December 31, 1998
Substantially all of the Company's hotels are leased to and operated by OPCO.
Participating lease revenue represents lease payments to the Company from the
lessees pursuant to the Company's participating lease agreements. Total revenue
decreased by $150.4 million to $374.9 million in 1999 compared to $525.3 million
in 1998. This decrease was primarily attributable to the change in the types of
revenues recorded in the Company's financial statements in periods before and
after the Merger.
On a pro forma basis, which reflects the Merger, Spin-Off and other hotel
acquisitions as if they had occurred on January 1, revenue per available room
("RevPAR"), same-store average daily rate ("ADR") and occupancy were as follows:
1999 1998 Change
---------- ---------- ----------
RevPAR $ 74.05 $ 71.80 3.1%
ADR $102.39 $100.96 1.4%
Occupancy 72.3% 71.1% 1.7%
Hotel department operating expenses were $0 in 1999 compared to $145.4
million in 1998. This decrease was the result of the hotel operations being
leased to OPCO after August 2, 1998, in conjunction with the Merger and Spin-
Off.
Undistributed operating expenses decreased significantly in 1999 as a result
of the Merger and Spin-Off. Prior to the Spin-Off, the Company was responsible
for all hotel operating expenses. Subsequent to August 3, 1998, the Company, as
owner, is only responsible for real estate taxes, property insurance and various
other undistributed expenses. Depreciation and amortization increased $42.4
million to $103.1 million in 1999 from $60.7 million in 1998 as a result of the
assets acquired in the Merger.
Net interest expense increased $36.0 million to $100.4 million for the year
ended December 31, 1999, from $64.4 million in 1998. This increase was
attributable to the borrowings made to finance the acquisition of hotels during
1998 and the renovations of hotels during 1998 and 1999. In addition, the new
debt associated with the Merger, higher average interest rates, and 1999
borrowings made to finance real estate ventures increased overall interest
expense.
Minority interests increased $6.0 million to $11.1 million in 1999 from $5.1
million in 1998 due to the issuance of OP Units in conjunction with the Merger
and the acquisition of certain hotels and a higher amount of income before
minority interests in 1999 allocated to minority interest holders. Income taxes
decreased $13.6 million in 1999 to $2.1 million from $15.7 million in 1998. In
1999, the Company's overall effective tax rate decreased to 2% as a result of
the effective elimination of Federal income taxes when the Company became a
REIT. Prior to the Merger, the Company's overall effective tax rate was 38.2%
in 1998.
In 1999, the Company recognized extraordinary losses of $4.5 million (net of
a tax benefit of $0.1 million), due to the write-off of unamortized deferred
financing fees in conjunction with refinancing certain credit facilities.
20
Earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") grew $125.6 million to $320.2 million in 1999 from
$194.6 million in 1998. This growth reflects the Merger, Spin-Off and other
hotel acquisitions which occurred during 1998.
The White Paper on Funds From Operations ("FFO") approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in October 1999 defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")), excluding
gains (or losses) from sales of properties, plus real estate related
depreciation and amortization and after comparable adjustments for the Company's
portion of these items related to unconsolidated partnerships and joint
ventures. The Company believes that FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. FFO does not represent
cash generated from operating activities determined by GAAP and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions. FFO may
include funds that may not be available for management's discretionary use due
to functional requirements to conserve funds for capital expenditures and
property acquisitions, and other commitments and uncertainties.
Pro forma information for the Company for 1998 is presented as if the
Merger, the Spin-Off, and the acquisition of all hotels of CapStar and AGH had
occurred as of the beginning of 1998. The following is a reconciliation between
income before extraordinary item and diluted FFO for the year ended December 31,
1999 and between pro forma income before extraordinary item and cumulative
effect of accounting change and pro forma diluted FFO for the year ended
December 31, 1998 (in thousands):
1999 1998
------------- ------------------
Income before extraordinary item and cumulative effect $103,496 $ 96,232
of accounting change
Minority interest to Common OP Unit Holders 10,504 9,883
Interest on convertible debt 8,303 8,194
Hotel depreciation and amortization 99,955 85,117
------------- ------------------
Diluted FFO $222,258 $199,426
============= ==================
As required by the Emerging Issues Task Force ("EITF") Issue No. 98-9,
"Accounting for Contingent Rent in Interim Financial Periods", the Company
recognized $45,894 of additional contingent rental income for the three months
ended December 31, 1999. There is no year-to-date effect of EITF No. 98-9.
Diluted FFO for the fourth quarter of 1999 before the effect of deferring
contingent rent was $50,549 and was $95,555 after the effect of deferring
contingent rent.
Year Ended December 31, 1998 compared with the Year Ended December 31, 1997
Subsequent to August 3, 1998, the Company earned participating lease
revenue of $136.0 million. Substantially all of the Company's Hotels are leased
to and operated by OPCO. Participating lease revenue represents lease payments
to the Company from the lessees pursuant to the Company's participating lease
agreements. Total revenue increased by $208.9 million or 66% to $525.3 million
in 1998 compared to $316.4 million in 1997. This increase was primarily
attributable to the Merger, the acquisition of new hotels and revenue growth
from hotels in the Company's portfolio that benefited from renovation and
repositioning programs.
Hotel departmental operating expenses increased slightly for the year ended
December 31, 1998 compared to the prior year. Hotel operations for the year are
only reflected through August 3, 1998. Subsequent to that date, in conjunction
with the Merger and Spin-Off, hotel operations were leased to
21
OPCO. The increase in hotel department operating expenses is primarily due to an
increase in the number of owned and leased hotels in 1998 prior to the Merger
and Spin-Off.
Undistributed operating expenses increased significantly in 1998 as a
result of the acquisition of new properties in 1998 and the Merger. Hotel
operations for the year are only reflected through August 3, 1998. Subsequent to
August 3, 1998, the Company is responsible for real estate taxes, property
insurance and various other undistributed expenses that are not included in
hotel operations which are leased to OPCO.
Net interest expense increased $43.4 million to $64.4 million for the year
ended December 31, 1998, from $21.0 million in 1997. This increase was
attributable to the borrowings made to finance the acquisition and renovation of
hotels during 1998 and the debt assumed in connection with the Merger.
Minority interests increased $3.7 million to $5.1 million from $1.4 million
in 1997 due to the issuance of OP Units in conjunction with the Merger and the
acquisition of certain hotels. Income taxes increased $0.8 million in 1998 to
$15.7 million from $14.9 million in 1997. Subsequent to August 3, 1998, the
Company's overall effective tax rate decreased to 3% as a result of the
elimination of federal income taxes when the Company became a REIT. The slight
increase in income taxes compared to prior year is a result of the substantial
increase in pre-tax income in 1998 coupled with an overall effective tax rate of
38.2% through August 2, 1998.
On August 3, 1998, the Company recognized extraordinary losses of $4.1 (net
of a tax benefit of $2.1 million), due to the write-off of unamortized deferred
financing fees in conjunction with refinancing certain credit facilities.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 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
98-5 is effective for financial statements issued for periods beginning after
December 15, 1998. The Company chose to adopt SOP 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 $0.9 million (net of tax benefit of $0.6
million).
Earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") grew $112.1 million to $194.6 million in 1998 from $82.5
million in 1997. This growth reflects both the increases in the number of hotels
owned and improved operating margins on the Company's overall hotel portfolio.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash on hand, cash
generated from operations, and funds from external borrowings and debt and
equity offerings. The Company expects to fund its continuing operations through
cash generated by its participating leases. The Company also expects to finance
hotel acquisitions, hotel renovations and joint venture investments through a
combination of internally generated cash, external borrowings, and the issuance
of OP Units and/or common stock. Additionally, the Company must, in order to
maintain favorable tax treatment accorded to a REIT under the Internal Revenue
Code, distribute to stockholders at least 95% of its REIT taxable income. The
Company expects to fund such distributions through cash generated from
operations, borrowings on the Company's credit facilities or through its
preferred return on its investment in MIP.
Operating activities provided $229.2 million of net cash for the year ended
December 31, 1999 mainly due to higher levels of net income, depreciation and
amortization, minority interests and accrued expenses and other liabilities. The
Company used $188.0 million of cash in investing activities during the year
ended December 31, 1999, primarily for capital expenditures and a preferred
equity investment in MIP, a joint venture established to acquire upscale, full-
service hotels. Net cash used in financing activities of $42.8 million
22
resulted primarily from dividends paid, partially offset by net borrowings under
the Company's credit facilities.
In conjunction with the Merger, CapStar terminated its existing credit
facility effective August 3, 1998, and the Company entered into a $1.0 billion
senior secured credit facility (the "New Credit Facility"). The New Credit
Facility is structured as a $300 million, five-year term loan facility; a $200
million, five-and-a-half year term loan facility; and a $500 million, three-year
revolving credit facility with two one-year optional extensions. The interest
rate on the term loans and revolving facility ranges from 100 to 200 basis
points over 30-day LIBOR, depending on certain financial performance covenants
and long-term senior unsecured debt ratings. The weighted average interest rate
on borrowings outstanding under the New Credit Facility as of December 31, 1999
was 8.4%. The initial proceeds from the New Credit Facility were used to
refinance CapStar's and AGH's existing credit facilities. As of December 31,
1999, the Company had $90.0 million available under the New Credit Facility's
revolving facility.
On March 18, 1999, the Company sold $55.0 million aggregate principal
amount (issue price of $51.9 million, net of discount) of 8.75% senior
subordinated notes due 2007, generating net proceeds of $51.2 million to the
Company. The Company used the net proceeds to repay indebtedness under its New
Credit Facility and to invest in MIP, a joint venture established to acquire
upscale, full-service hotels. The Company's investment is in the form of a
preferred partnership interest.
On August 12, 1999, the Company completed a $330.0 million 10-year non-
recourse financing ("New Secured Facility") secured by a portfolio of 19 hotels.
The loan bears a fixed interest rate 8.01% and matures in 2009. The Company used
the net proceeds to repay its $250 million secured facility ("Secured Facility")
and its $100 million non-recourse facility ("Non-Recourse Facility").
During 1999, the Company acquired one hotel for a purchase price of $10.6
million of cash and $1.5 million of OP Units. The acquisition was funded using
existing cash and borrowings on the New Credit Facility. The Company also sold
two hotels during 1999 for a total price of $8.9 million. The resulting gain on
the sales was not material to the Company's financial statements.
Capital for renovation work has historically been and is expected to
continue to be provided by a combination of internally generated cash and
external borrowings. Once initial renovation programs for a hotel are completed,
the Company expects to spend approximately 4% annually of hotel revenues for
ongoing capital expenditure programs, including room and facilities
refurbishments, renovations, and furniture and equipment replacements. For the
year ended December 31, 1999, the Company spent $160.0 million on initial
renovation and ongoing capital expenditure programs. The Company expects to
spend $40 million in 2000 on renovations and recurring refurbishment projects.
The Company's Board of Directors has authorized the repurchase of up to
five million shares of its common stock from time to time in open market or
privately negotiated transactions. The stock repurchase is subject to prevailing
market conditions and other considerations. The Company expects the program to
be funded primarily through selected asset sales. As of December 31, 1999, the
Company has repurchased a total of 407,400 shares for $6.3 million.
The Company believes cash generated by operations, together with
anticipated borrowing capacity under the New Credit Facility, will be sufficient
to fund its existing working capital distributions, ongoing capital
expenditures, and debt service requirements. The Company believes, however, that
its future capital decisions will also be made in response to specific
acquisition and/or investment opportunities, depending on conditions in the
capital and/or other financial markets. Accordingly, the Company may consider
increasing its borrowing capacity or issuing additional debt or equity
securities, the proceeds of which could be used to finance acquisitions or
investments, refinance existing debt, or repurchase common stock.
Seasonality
Demand in the lodging industry is affected by recurring seasonal patterns.
For non-resort properties, demand is lower in the winter months due to decreased
travel and higher in the spring and summer months
23
during peak travel season. For resort properties, demand is generally higher in
winter and early spring. Since the majority of the Company's hotels are non-
resort properties, the Company's operations generally reflect non-resort
seasonality patterns. Excluding the effect of Emerging Issues Task Force
("EITF") Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial
Periods", the Company has lower revenue, operating income and cash flow in the
first and fourth quarters and higher revenue, operating income and cash flow in
the second and third quarters.
Year 2000 Conversion
The Company has reviewed its computer systems to identify the systems that
could be affected by the "Year 2000" problem and implemented a plan to address
the problem. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. If not corrected, this
could result in a major systems failure or miscalculations.
The Company's hotel properties contain various information technology and
embedded technology systems. Both types of systems contain microprocessors and
microcontrollers that must be assessed for Year 2000 compliance. The Company
identified the following six phases in its Year 2000 remediation programs: (1)
increase awareness of issue; (2) assign responsibility for coordinating response
to issue; (3) information collection; (4) analysis; (5) modification, repair or
replacement and (6) testing. The Company completed all six phases and believes
these systems are Year 2000 compliant.
As an additional part of its implementation plan to address the Year 2000
problem, the Company also initiated communications with third parties with which
it has material relationships to determine the extent of potential Year 2000
problems with these parties' services provided to the Company. The most critical
of these services involve such items as reservations systems for the Company's
hotels. Without such systems, the Company could suffer a material decline in
business at many of its properties. The Company completed its communications and
assessment of these outside parties' services in September 1999. As of March 13,
2000, the Company had encountered no significant Year 2000 problems related to
third parties' services provided to the Company.
The Company incurred costs for outside consultants and capital expenditures
in 1999 and 1998 related to Year 2000 which aggregated approximately $3.6
million. Future consulting and capital acquistion costs are expected to be
insignificant. These costs, which were expensed as incurred, have been funded
from operations. The costs through December 31, 1999 did not have a material
affect on the Company's financial position or results of operations.
As of March 13, 2000, the Company had encountered no significant Year 2000
related problems.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations that impact the fair value of these obligations. The
Company's policy is to manage interest rates through the use of a combination of
fixed and variable rate debt. The Company's interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows and to lower its overall borrowing costs. To achieve its objectives, the
Company borrows at a combination of fixed and variable rates, and may enter into
derivative financial instruments such as interest rate swaps, caps and treasury
locks in order to mitigate its interest rate risk on a related financial
instrument. The Company does not enter into derivative or interest rate
transactions for speculative purposes. The Company has no cash flow exposure due
to general interest rate changes for its fixed long-term debt obligations.
The table below presents the principal amounts (in thousands of dollars),
weighted average interest rates, and fair values by year of expected maturity to
evaluate the expected cash flows and sensitivity to interest rate changes. The
Company considers all of its debt instruments as non-trading.
Long-term Debt
------------------------------------------------------------------------------------
Average Interest Average
Expected Maturity Fixed Rate Rate Variable Rate Interest Rate
- -------------------------- ------------------ ------------------- ---------------- ---------------
2000 $ 8,694 8.0% $ 2,000 7.4%
2001 11,534 8.1% 17,000 7.4%
2002 16,179 8.1% 32,000 7.4%
2003 8,872 7.9% 667,000 8.0%
2004 189,652 5.1% 190,000 7.4%
Thereafter 533,840 8.1% - N/A
------------------ ------------------- ---------------- ---------------
Total $768,771 7.4% $908,000 7.8%
================== =================== ================ ===============
Fair Value at 12/31/99 $717,411 $908,000
================== ================
In anticipation of the August 1999 completion of 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 $5.1
million. 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 New Secured Facility has been reduced to 7.76%.
During September 1999, the Company entered into two separate $100 million
swap agreements with financial institutions in order to hedge against the impact
future interest rate fluctuations may have on the Company's existing floating
rate debt instruments. The swap agreements effectively replaced two $100 million
swap agreements that were to expire in November 1999. The swap agreements
effectively fix 30-day LIBOR at 6.0%. During the period ended December 31, 1999,
the Company made payments totaling $278,000 relating to these hedges. These
amounts are included in interest expense. The hedge agreements terminate in
September 2001.
During 1998, the Company entered into six separate $100 million swap
agreements. The swap agreements effectively fix 30-day LIBOR at between 4.9% and
5.4%. During the periods ended December 31, 1999 and 1998, the Company made
(received ) net payments of $(729,000) and $211,000, respectively, relating to
these hedges. These amounts are included in interest expense. The hedge
agreements terminate at various times between November 1999 and September 2000.
On February 18, 1997, the Company entered into a $40 million swap agreement
and a $40 million collar agreement with Lehman Brothers Special Financing, Inc.
and Canadian Imperial Bank of Commerce, respectively. The swap agreement
effectively fixed 30-day LIBOR at 5.9% while the collar agreement created a 30-
day LIBOR floor of 5.1% and ceiling of 7.5%. During the years ended December 31,
1999
25
and 1998 the Company made payments totaling $246,000 and $56,000, respectively,
relating to these hedges. These amounts are included in interest expense. Both
hedge agreements terminated in September 1999.
Additionally, in anticipation of the August 1997 offering of $150 million
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 $836,000. 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 has
been reduced to 8.69%.
Although the Company conducts business in Canada, the Canadian operations
were not material to the Company's consolidated financial position, results of
operations or cash flows as of December 31, 1999 and 1998. Additionally, foreign
currency transaction gains and losses were not material to the Company's results
of operations for the years ended December 31, 1999 and 1998. Accordingly, the
Company was not subject to material foreign currency exchange rate risk from the
effects that exchange rate movements of foreign currencies would have on the
Company's future costs or on future cash flows it would receive from its foreign
subsidiaries. To date, the Company has not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements, Supplementary Data and
Financial Statement Schedules are filed as part of this Annual Report on
Form 10-K:
MeriStar Hospitality Corporation
Independent Auditors' Report............................................................................................ 28
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................................ 29
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.............................. 30
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997.................... 31
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.............................. 32
Notes to the Consolidated Financial Statements.......................................................................... 33
Schedule III - Real Estate and Accumulated Depreciation................................................................. 48
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.
27
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, 1999
and 1998 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, 1999, and the supplementary schedule. These consolidated financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits 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 and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also in our opinion, the supplementary schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Washington, D.C.
January 28, 2000
28
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(in thousands, except per share amounts)
1999 1998
----------- -----------
ASSETS
Investments in hotel properties $3,118,723 $2,957,543
Accumulated depreciation (182,430) (83,797)
----------- -----------
2,936,293 2,873,746
Cash and cash equivalents 2,556 4,180
Accounts receivable, net 1,328 3,044
Income taxes receivable - 339
Prepaid expenses, inventory and other 9,137 3,877
Note receivable from Lessee 57,110 67,000
Due from Lessee 11,476 7,437
Investments in and advances to affiliates 40,085 8,787
Restricted cash 17,188 11,879
Intangible assets, net of accumulated amortization of $5,742 and $2,666 19,028 18,171
------------ -----------
$3,094,201 $2,998,460
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 886 $ 2,111
Accrued expenses and other liabilities 57,169 45,549
Accrued interest 31,380 24,472
Income taxes payable 730 -
Dividends and distributions payable 26,263 25,988
Deferred income taxes 9,345 8,453
Long-term debt 1,676,771 1,602,352
------------ -----------
Total liabilities 1,802,544 1,708,925
------------ -----------
Minority interests 121,055 138,543
Stockholders' Equity:
Common stock, par value $0.01 per share
Authorized- 250,000 shares
Issued - 47,664 and 46,718 shares 477 467
Additional paid-in capital 1,164,750 1,133,357
Retained earnings 16,874 23,655
Accumulated other comprehensive income (5,247) (6,487)
Less common stock held in treasury - 407 shares (6,252) -
------------ -----------
Total stockholders' equity 1,170,602 1,150,992
------------ -----------
$3,094,201 $2,998,460
============ ===========
See accompanying notes to consolidated financial statements.
29
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except per share amounts)
1999 1998 1997
------------ ------------ -----------
Revenue:
Participating lease revenue $368,012 $135,994 $ -
Hotel operations:
Rooms - 275,610 207,736
Food and beverage - 85,374 86,298
Other operating departments - 19,496 15,049
Office rental, parking and other revenue 6,892 5,649 2,174
Hotel management and other fees - 3,174 5,136
------------ ------------ -----------
Total revenue 374,904 525,297 316,393
------------ ------------ -----------
Hotel operating expenses by department:
Rooms - 65,048 51,075
Food and beverage - 67,493 68,036
Other operating departments - 10,121 8,492
Office rental, parking and other operating expenses 1,964 2,713 845
Undistributed operating expenses:
Administrative and general 5,749 62,350 50,332
Property operating costs - 50,027 38,437
Property taxes, insurance and other 47,027 29,814 12,558
Lease expense - 34,641 4,116
Depreciation and amortization 103,099 60,703 20,990
Spin-off costs - 8,481 -
------------ ----------- -----------
Total operating expenses 157,839 391,391 254,881
------------ ----------- -----------
Net operating income 217,065 133,906 61,512
Interest expense, net 100,398 64,378 21,024
------------ ------------ -------------
Income before minority interests, income taxes, extraordinary
loss and cumulative effect of accounting change 116,667 69,528 40,488
Minority interests 11,069 5,121 1,425
------------ ------------ -------------
Income before income taxes, extraordinary loss and cumulative
effect of accounting change 105,598 64,407 39,063
Income taxes 2,102 15,699 14,911
------------ ------------ -------------
Income before extraordinary loss and cumulative effect of
accounting change 103,496 48,708 24,152
Extraordinary loss on early extinguishment of debt, net of tax
benefit of $93 in 1999, $2,083 in 1998, and $2,508 in 1997 4,532 4,080 4,092
Cumulative effect of accounting change, net of tax benefit of $564 - 921 -
------------ ----------- -----------
Net income $ 98,964 $ 43,707 $ 20,060
============ =========== ===========
Earnings per share:
Basic:
Income before extraordinary loss and cumulative
effect of accounting change $ 2.19 $ 1.45 $ 1.29
Extraordinary loss (0.10) (0.12) (0.22)
Cumulative effect of accounting change - (0.03) -
------------ ----------- -----------
Net income $ 2.09 $ 1.30 $ 1.07
============ =========== ============
Diluted:
Income before extraordinary loss and cumulative
effect of accounting change $ 2.11 $ 1.40 $ 1.27
Extraordinary loss (0.08) (0.11) (0.21)
Cumulative effect of accounting change - (0.03) -
------------ ----------- -----------
Net income $ 2.03 $ 1.26 $ 1.06
============ =========== ============
See accompanying notes to consolidated financial statements.
30
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
Common Stock
---------------------------------------
Issued Treasury
--------------------------------------- Accumlated
Additional Other
Paid In Retained Comprehensive
Shares Amount Shares Amount Capital Earnings Income Total
-------- -------- -------- -------- ------------- ------------ -------------- -----------
Balance, January 1, 1997 12,754 $128 - $ - $ 158,533 $ 2,054 $ - $ 160,715
- - -
Net income for the year - - - - - 20,060 - 20,060
Foreign currency translation
adjustment - - - - - - (2,527) (2,527)
-------- -------- -------- -------- ---------- --------- ------ ----------
Comprehensive income 17,533
-------- -------- -------- -------- ---------- --------- ------ ----------
Issuances of common stock 11,713 117 - - 330,047 - - 330,164
Redemption of OP Units 400 4 - - 10,996 - - 11,000
-------- -------- -------- -------- ---------- --------- ------ ----------
Balance, December 31, 1997 24,867 249 - - 499,576 22,114 (2,527) 519,412
Net income for the year - - - - - 43,707 - 43,707
Foreign currency translation
adjustment - - - - - - (3,960) (3,960)
-------- -------- -------- -------- ---------- --------- ------ ----------
Comprehensive income 39,747
-------- -------- -------- -------- ---------- --------- ------ ----------
Issuances of common stock 20,839 208 - - 654,671 - - 654,879
Distribution to spun-off - - - - (52,310) - - (52,310)
affiliate
Redemption of OP Units 1,012 10 - - 31,420 - - 31,430
Dividends declared - - - - - (42,166) - (42,166)
-------- -------- -------- -------- ---------- --------- ------ ----------
Balance, December 31, 1998 46,718 467 - - 1,133,357 23,655 (6,487) 1,150,992
Net income for the year - - - - - 98,964 - 98,964
Foreign currency translation
adjustment - - - - - - 1,240 1,240
-------- -------- -------- -------- ---------- --------- ------ ----------
Comprehensive income 100,204
-------- -------- -------- -------- ---------- --------- ------ ----------
Issuances of common stock 95 1 - - 1,990 - - 1,991
Share repurchase - - (407) (6,252) - - - (6,252)
Redemption of OP Units 851 9 - - 29,403 - - 29,412
Dividends declared - - - - - (105,745) - (105,745)
-------- -------- -------- -------- ---------- --------- ------- ----------
Balance, December 31, 1999 47,664 $477 407 $(6,252) $1,164,750 $ 16,874 $(5,247) $1,170,602
======== ======== ======== ======== ========== ========= ======= ==========
See accompanying notes to the consolidated financial statements.
31
MERISTAR HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
1999 1998 1997
--------- ----------- ---------
Operating activities:
Net income $ 98,964 $ 43,707 $ 20,060
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 103,099 60,703 20,990
Extraordinary loss on early extinguishment of debt, before tax effect 4,625 6,163 6,600
Cumulative effect of accounting change, before tax effect - 1,485 -
Minority interests 11,069 5,121 1,425
Non-cash spin-off costs - 3,205 -
Deferred income taxes 892 (4,445) 4,917
Changes in operating assets and liabilities:
Accounts receivable, net 1,716 29,673 (17,900)
Deposits, prepaid expenses, inventory and other (5,260) 24,760 (17,449)
Income tax receivable 339 - -
Intangible assets (245) - -
Accounts payable (1,225) (7,100) 12,601
Accrued expenses, accrued interest and other liabilities 18,528 7,865 29,509
Due from lessee (4,039) (7,437) -
Income taxes payable 730 (904) (871)
--------- --------- ---------
Net cash provided by operating activities 229,193 162,796 59,882
--------- --------- ---------
Investing activities:
Investments in hotel properties (170,063) (701,710) (558,265)
Sales of hotel properties 8,900 - -
Purchases of intangible assets - (5,584) (13,476)
Investments in and advances to affiliates (31,298) (2,320) (11,320)
Purchases of minority interests (72) (44) (87)
Repayments (funding) of notes receivable 9,890 (67,000) -
Change in restricted cash (5,309) (8,847) (3,111)
--------- --------- ---------
Net cash used in investing activities (187,952) (785,505) (586,259)
--------- --------- ---------
Financing activities:
Proceeds from issuance of long-term debt 484,924 1,407,261 844,192
Principal payments on long-term debt (410,217) (821,051) (568,828)
Deferred costs (6,899) (4,251) (16,612)
Proceeds from issuances of common stock, net 1,991 1,870 330,164
Purchases of treasury stock (6,252) - -
Spin-off to stockholders - (23,745) -
Dividends paid to stockholders (105,773) (16,178) -
Distributions to minority investors (586) (650) (488)
--------- --------- ---------
Net cash (used in) provided by financing activities (42,812) 543,256 588,428
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents (53) 204 (406)
Net (decrease) increase in cash and cash equivalents (1,624) (79,249) 61,645
Cash and cash equivalents, beginning of year 4,180 83,429 21,784
--------- --------- ----------
Cash and cash equivalents, end of year $ 2,556 $ 4,180 $ 83,429
========= ========= ==========
See accompanying notes to consolidated financial statements.
32
MERISTAR HOSPITALITY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(dollars in thousands, except per share amounts)
1. Organization
MeriStar Hospitality Corporation (the "Company") was formed on August 3,
1998, as a result of the merger (the "Merger") of CapStar Hotel Company
("CapStar") with and into American General Hospitality Corporation ("AGH"), a
Maryland corporation operating as a real estate investment trust ("REIT"). 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
Hotels & Resorts, Inc. ("OPCO"). As of December 31, 1999, the Company owned 116
hotels with 29,348 rooms located in 27 states, the District of Columbia and
Canada.
The following table outlines the Company's portfolio of owned, leased and
managed hotels:
Owned Leased Managed Total
------------------------ ------------------------ ------------------------ ----------------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ----- ------ ----- ------ ----- ------ -----
December 31, 1999 116 29,348 - - - - 116 29,348
December 31, 1998 117 29,351 - - - - 117 29,351
December 31, 1997 47 12,019 40 5,687 27 4,631 114 22,337
On March 15, 1998, CapStar and AGH entered into a definitive agreement (the
"Merger Agreement") pursuant to which the parties agreed, subject to stockholder
approval and other conditions and covenants, to the Merger, with the surviving
entity being named "MeriStar Hospitality Corporation." The Merger was approved
at a special meeting of stockholders of CapStar and the annual meeting of
stockholders of AGH on July 28, 1998. The Merger and related transactions became
effective August 3, 1998.
Pursuant to the Merger Agreement, CapStar also distributed on a pro rata
basis to its stockholders all of the capital stock of OPCO (the "Spin-Off"),
whose assets consisted of CapStar's hotel operations (including leased hotels)
and management business. The Spin-Off occurred on August 3, 1998. On August 3,
1998, the Company's common stock, par value $0.01 per share ("Common Stock"),
and the common stock of OPCO began trading on the New York Stock Exchange.
The Merger was accounted for as a purchase for financial reporting purposes
and, accordingly, the operating results of AGH have been included in the
Company's consolidated financial statements since August 3, 1998, the date of
acquisition. In accordance with the provisions of Accounting Principles Board
Opinion No. 16, "Business Combinations," CapStar was considered the acquiring
enterprise for financial reporting purposes. The Company established a new
accounting basis for AGH's assets and liabilities based on their fair values.
Prior to August 3, 1998, the financial statements of the Company included hotel
operations and operations of OPCO; subsequent to August 3, 1998, the hotel
operations are leased to OPCO following the Spin-Off and are no longer reflected
in the Company's operating results. The Company has included expenditures
related directly to the acquisition of AGH as part of the cost of acquiring AGH
and those expenditures relating to the Spin-Off as expenses as incurred.
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.
33
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, 1999, 1998 and
1997, the Company capitalized interest of $12,540, $5,182, and $442,
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, 1999 and 1998 was $5,742 and $2,666, respectively. In 1999, 1998
and 1997, the Company recognized extraordinary losses of $4,532, $4,080, and
$4,092, (net of tax benefits of $93, $2,083, and $2,508), 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 1999, 1998 or
1997.
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 stockholders' equity as a
cumulative foreign currency translation adjustment.
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.
34
2. Summary of Significant Accounting Policies (Continued)
Participating Lease Agreements- The Company's participating leases have non-
cancelable remaining terms ranging from 9 to 11 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.
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 that are terminated early or that are 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
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.
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.
The following table summarizes geographic information required to be disclosed
under SFAS No. 131:
1999 1998 1997
---------- ---------- ---------
Revenue:
U.S. $ 367,893 $ 510,344 $300,028
Foreign 7,011 14,953 16,365
---------- ---------- --------
$ 374,904 $ 525,297 $316,393
========== ========== ========
Investments in hotel
properties, net:
U.S. $2,876,909 $2,817,974
Foreign 59,384 55,772
---------- ----------
$2,936,293 $2,873,746
========== ==========
35
2. Summary of Significant Accounting Policies (Continued)
Comprehensive Income-SFAS No. 130, "Reporting Comprehensive Income," requires
an enterprise to display comprehensive income and its components in a financial
statement to be included in an enterprise's full set of annual financial
statements or in the notes to financial statements. Comprehensive income
represents a measure of all changes in equity of an enterprise that result from
recognized transactions and other economic events for the period other than
transactions with owners in their capacity as owners. Comprehensive income of
the Company includes net income and other comprehensive income from foreign
currency items. For the year ended December 31, 1999, net income was $98,964,
other comprehensive income, net of tax, was $1,240 and comprehensive income was
$100,204. For the year ended December 31, 1998, net income was $43,707, other
comprehensive income, net of tax, was $ (3,960) and comprehensive income was
$39,747. For the year ended December 31, 1997, net income was $20,060, other
comprehensive income, net of tax, was $ (2,527) and comprehensive income was
$17,533.
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 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. The Company is currently
in the process of evaluating the effect this new standard will have on its
financial statements.
Reclassifications- Certain 1998 and 1997 amounts have been reclassified to
conform to 1999 presentation.
3. Investments in Hotel Properties
Investments in hotel properties consists of the following:
December 31,
---------------------------------
1999 1998
----------- -----------
Land $ 318,360 $ 314,503
Buildings 2,378,318 2,294,130
Furniture, fixtures and equipment 320,787 234,403
Construction-in-progress 101,258 114,507
---------- ----------
Total $3,118,723 $2,957,543
========== ==========
4. Investments in and Advances to Affiliates
The Company has ownership interests in certain unconsolidated corporate joint
ventures and affiliated companies. In 1999, the Company also 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. The Company's ultimate equity investment in this partnership
may be up to $60,000.
As of December 31, 1998, the Company had an investment in one joint venture
in which it had a 50% ownership interest. In 1999, the Company sold its 50%
ownership interest in that joint venture to OPCO at net book value.
36
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
---------------------------
1999 1998
----------- -----------
New Credit Facility................................... $ 908,000 $ 910,000
New Secured Facility.................................. 328,954 -
Secured Facility...................................... - 250,000
Subordinated Notes.................................... 202,041 149,826
Convertible Notes..................................... 172,500 172,500
Non-Recourse Facility................................. - 52,750
Mortgage Debt and Other............................... 65,276 67,276
---------- ----------
$1,676,771 $1,602,352
========== ==========
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 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, 1999 was 8.4%. As
of December 31, 1999, the Company had $90.0 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 Secured Facility and the Non-Recourse
Facility.
Secured Facility - Effective August 3, 1998, the Company entered into an 18-
month, $250,000 secured loan facility ("Secured Facility"), which was expected
to be converted into a commercial mortgage-backed security secured by sixteen
hotels. The interest rate on the Secured Facility was 110 basis points over 30-
day LIBOR. The loan was repaid in 1999 with proceeds from the New Secured
Facility.
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
37
obligations of the Company and provide for semi-annual payments of interest on
April 15 and October 15, commencing on April 15, 1998.
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%.
Non-Recourse Facility- In 1997, the Company entered into a $100,000 non-
recourse facility (the "Non-Recourse Facility"). The Non-Recourse Facility was
secured by three hotels owned by the Company and bore interest at a rate of
between 1.75% and 2.70% over 30-day LIBOR, based upon compliance with certain
ratios. In 1999, the loan was repaid with proceeds from the New Secured
Facility.
Hedge Agreements- In anticipation of the August 1999 completion of 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 $5,142. 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 New Secured Facility has been reduced
to 7.76%.
During September 1999, the Company entered into two separate $100,000 swap
agreements with financial institutions in order to hedge against the impact
future interest rate fluctuations may have on the Company's existing floating
rate debt instruments. These swap agreements effectively replaced two $100,000
swap agreements that were to expire in November 1999. The swap agreements
effectively fix 30-day LIBOR at 6.0%. During the year ended December 31, 1999,
the Company made payments totaling $278 relating to these hedges. These amounts
are included in interest expense. The hedge agreements terminate in September
2001.
During 1998, the Company entered into six separate $100,000 swap agreements.
The swap agreements effectively fixed 30-day LIBOR at between 4.9% and 5.4%.
During the years ended December 31, 1999 and 1998, the Company (received) made
net payments of ($729) and $211, respectively, relating to these hedges. These
amounts are included in interest expense. The hedge agreements terminate at
various times between November 1999 and September 2000.
Future Maturities- Aggregate future maturities of the above obligations are
as follows:
2000............................................................... $ 10,694
2001............................................................... 28,534
2002............................................................... 48,179
2003............................................................... 675,872
2004............................................................... 379,652
Thereafter......................................................... 533,840
----------
$1,676,771
==========
Management has determined that the fair value of the outstanding balance of
the Company's long-term debt approximates $1,625,411 at December 31, 1999.
6. Income Taxes
The Company's income taxes were allocated as follows:
1999 1998 1997
------------ ------------ ------------
Taxes on income before extraordinary loss and
cumulative effect of accounting change................ $2,102 $15,699 $14,911
Tax benefit on extraordinary loss...................... (93) (2,083) (2,508)
Tax benefit on cumulative effect of accounting change.. - (564) -
------------ ------------ ------------
$2,009 $13,052 $12,403
============ ============ ============
38
The Company's effective income tax rate differs from the federal statutory
income tax rate as follows:
1999 1998 1997
------------ ------------ ------------
Statutory tax rate 35.0% 35.0% 35.0%
Effect of REIT dividends paid deduction (35.0) (35.0) -
Effect of federal taxes in pre-REIT period - 17.9 -
State and local taxes 1.7 2.1 2.6
Difference in effective rate on foreign subsidiaries 0.3 2.8 0.6
Other - 0.2 -
------------ ------------ ------------
2.0% 23.0% 38.2%
============ ============ ============
The components of income tax expense related to income before extraordinary
loss and cumulative effect of accounting change are as follows:
1999 1998 1997
-------- -------- --------
Current:
Federal $ - $14,873 $ 7,542
State 1,020 3,771 899
Foreign 190 1,500 1,553
------ ------- -------
1,210 20,144 9,994
Deferred:
Federal - (3,546) 4,243
State 842 (899) 505
Foreign 50 - 169
------ ------- -------
892 (4,445) 4,917
------ ------- -------
$2,102 $15,699 $14,911
====== ======= =======
The tax effects of the principal temporary differences that give rise to the
Company's net deferred tax liability are as follows:
December 31,
------------------------------
1999 1998
---------- -----------
Accelerated depreciation $1,846 $1,111
Fair market value of hotel assets acquired 6,800 6,800
Allowance for doubtful accounts (30) (29)
Accrued vacation (15) (14)
Accrued expenses 482 311
Other 262 274
------ ------
Net deferred tax liability $9,345 $8,453
====== ======
There is no valuation allowance for deferred tax assets as of December 31,
1999 or 1998 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, 1998. These events are summarized below:
. The Spin-Off was treated as a taxable event to the Company and CapStar's
shareholders. As a result, the Company experienced a taxable gain equal to
the excess of the fair market value of the OPCO stock over the Company's tax
basis in that stock. The taxable gain associated with this transaction was
$35,181.
39
. As a result of the Merger, the Company will continue to file as a REIT. REITs
are generally not subject to federal income taxes, provided that they comply
with various requirements necessary to maintain REIT status. Since the
Company expects to maintain its REIT status, the tax effect of cumulative
temporary differences as of August 3, 1998 has been reversed as a credit to
deferred income tax expense and reduction in deferred income taxes payable.
This reversal reduced deferred income taxes payable by approximately $19,290
as of August 3, 1998.
. 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.
. 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.
7. Stockholders' Equity and Minority Interests
Common Stock Transactions- On March 12, 1997, the Company completed an
offering of 5,750,000 shares of Common Stock at a price of $24.75 per share.
After underwriting discounts, commissions and other offering expenses, net
proceeds to the Company were $134,051, and were used to fund certain hotel
acquisitions and repay a portion of the Company's outstanding indebtedness.
On October 9, 1997, the Company completed an additional offering of 5,953,722
shares of common stock at $34.625 per share. Concurrent with the common stock
offering, the Company also completed the Convertible Notes offering. The notes
were initially convertible into shares of the Company's common stock, any time
after 90 days following issuance, at the option of the holders at $43 per share.
After underwriting discounts, commissions and other offering expenses, net
proceeds to the Company from the Convertible Notes offering and the common stock
offering were $167,581 and $195,766, respectively. In conjunction with the
Merger, the conversion price was adjusted to $34 per share.
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.
In May 1997, CapStar 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. In June 1998, the plan was terminated in accordance with the Merger
Agreement.
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, 1999, the
Company has repurchased a total of 407,400 shares for $6,252.
40
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 and are entitled to a liquidation
preference of $22.16 per Class D OP Unit. 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.
Each OP Unit is redeemable by the holder for one share of Common Stock (or,
at the Company's option, for cash in an amount equal to the market value of a
share of Common Stock). In addition, the Class D OP Units may be redeemed by the
Operating Partnership at a price of $22.16 per Class D OP Unit (or, at the
Company's option, for a number of shares of Common Stock having a value equal to
such redemption price) at any time after April 1, 2000 or by the holders of the
Class D OP Units at a price of $22.16 per Class D OP Unit (in cash or, at the
holder's option, for a number of shares of Common Stock having a value equal to
the redemption price) at any time after April 1, 2004.
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.
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.
41
8. 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,
----------------------------------------------------
1999 1998 1997
-------------- --------------- ---------------
Basic EPS Computation:
Net income before extraordinary loss and
cumulative effect of accounting change $ 103,496 $ 48,708 $ 24,152
Weighted average number of shares of Common
Stock outstanding 47,276 33,653 18,785
-------------- --------------- ---------------
Basic EPS $ 2.19 $ 1.45 $ 1.29
============== =============== ===============
Diluted EPS Computation:
Net income before extraordinary loss and
cumulative effect of accounting change $ 103,496 $ 48,708 $ 24,152
Minority interest, net of tax 10,143 2,633 368
Interest on convertible debt, net of tax 8,137 - -
-------------- --------------- ---------------
Adjusted net income $ 121,776 $ 51,341 $ 24,520
-------------- --------------- ---------------
Weighted average number of shares
of Common Stock outstanding 47,276 33,653 18,785
Common Stock equivalents:
Stock options 102 383 189
OP Units 5,205 2,624 380
Convertible debt 5,066 - -
-------------- --------------- ---------------
Total weighted average number of diluted
shares of Common Stock outstanding 57,649 36,660 19,354
-------------- --------------- ---------------
Diluted EPS $ 2.11 $ 1.40 $ 1.27
============== =============== ===============
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.
9. 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 provides 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 an unaffiliated third party for comparable
services. During the years ended December 31, 1999 and 1998, the Company paid
OPCO $1,600 and $781, respectively, for such services.
42
Summarized financial information of the Company's significant lessee, OPCO,
is as follows:
Balance sheet data: 1999 1998
----------------- -----------------
Total assets $ 258,931 $247,529
Total liabilities $ 179,168 $183,102
Operating data:
Revenue $1,292,114 $562,437
Net income $ 6,685 $ 3,950
OPCO has a $75,000 revolving credit facility with the Company. Borrowings
by OPCO bear interest at 30-day LIBOR plus 350 basis points. During 1999 and
1998, the Company earned interest of $4,907 and $1,967, respectively, from this
facility. As of December 31, 1999, $57,000 was outstanding on the facility. The
Company has determined that the fair value of this note receivable approximates
its carrying value.
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, 2001. At December 31, 1999, the balance outstanding on the note was
$110.
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 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 an investment company, one of the principal
stockholders of which is a director of the Company. The Subordinated Notes
purchased are identical to those purchased by third parties, including voting
rights.
10. Stock-Based Compensation
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.
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
43
exercisable in three annual installments and expire ten years from the grant
date. As of December 31, 1999, 80,000 options had been awarded.
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.
In addition, during 1999, the Company has granted a total of 92,500 shares
of restricted stock with a value of $1,775. This restricted stock vests
ratably over a five-year period.
Stock option activity for 1999, 1998 and 1997 is as follows:
Equity Incentive Plan Directors' Plan
--------------------------------------- --------------------------------------
Number of Average Number of Average
Shares Option Price Shares Option Price
--------------- ------------------ --------------- ------------------
Balance, January 1, 1997 764,841 $18.00 - $ -
Granted 855,050 33.11 - -
Exercised (235) 18.00 - -
Forfeited (18,250) 18.00 - -
--------------- ------------------ --------------- ------------------
Balance, December 31, 1997 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 (109,012) 15.64 - -
Forfeited (264,064) 27.87 - -
--------------- ------------------ --------------- ------------------
Balance, December 31, 1999 4,346,053 $23.56 80,000 $22.36
=============== ================== =============== ==================
Shares exercisable at December 31, 1997 291,116 $18.00 - $ -
=============== ================== =============== ==================
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
=============== ================== =============== ==================
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------------------------------------- -----------------------------------
Weighted Weighted
Average Weighted Average
Range of exercise Number Remaining Average Number Exercise
prices outstanding Contractual Life Exercise Price exercisable Price
- ------------------ --------------- --------------------- ------------------- --------------- ---------------
$15.64 to $19.19 1,582,791 8.16 $17.74 617,041 $15.65
$20.53 to $25.31 1,147,502 7.82 21.72 645,904 21.69
$25.80 to $31.42 1,484,780 7.05 29.98 1,252,815 29.96
$31.51 to $32.08 210,980 8.00 32.05 76,860 32.01
--------------- --------------------- ------------------- --------------- ---------------
$15.64 to $32.08 4,426,053 7.69 $23.56 2,592,620 $24.55
=============== ===================== =================== =============== ===============
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 for the Equity
Incentive Plan and therefore no compensation cost has been recognized for the
Equity Incentive Plan.
44
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 1999, 1998 and 1997:
1999 1998 1997
----------------- ------------------ -----------------
Risk-free interest rate 6.70% 5.51% 5.81%
Dividend rate $2.02 $2.02 -
Volatility factor 0.31 0.35 0.26
Weighted average expected life 3.07 years 6.09 years 3.72 years
The Company's pro forma net income and diluted EPS as if the fair value
method had been applied were $98,273 and $2.02 for 1999, $32,402 and $0.96 for
1998, and $18,273 and $0.96 for 1997. 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.
11. 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, 1999 were as follows:
2000 $ 1,773
2001 1,773
2002 1,773
2003 1,773
2004 1,773
Thereafter 67,638
-------
$76,503
=======
The Company leases its hotels to OPCO and one other lessee under
noncancellable participating leases that expire from 2008 to 2011. 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, 1999
were as follows:
2000 $ 228,652
2001 227,647
2002 227,165
2003 226,870
2004 226,430
Thereafter 1,372,800
----------
$2,509,564
==========
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.
45
12. Acquisitions
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
to the Company's financial statements.
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 summary presents information as if the
Merger, the Spin-Off and all 117 hotels owned at December 31, 1998 had been
acquired at the beginning of the periods presented. 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 (UNAUDITED)
1998 1997
---------------------------------
Total revenue................... $332,632 $280,482
Net income...................... $ 96,232 $ 67,487
Diluted EPS..................... $ 2.05 $ 1.48
13. Quarterly Financial Information (Unaudited)
The following is a summary of the Company's quarterly results of operations:
1999 1998
------- --------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- -------- -------- -------- -------- --------- -------
Total revenue................... $64,093 $74,055 $103,214 $133,542 $143,602 $184,145 $104,301 $93,249
Total operating expenses........ 39,521 38,687 37,727 41,904 125,890 147,209 81,827 36,465
Net operating income............ 24,572 35,368 65,487 91,638 17,712 36,936 22,474 56,784
Income before extraordinary
loss and cumulative effect of
accounting change............. 267 7,179 37,709 58,341 4,451 14,905 3,868 25,484
Net income ..................... 267 7,179 33,177 58,341 4,451 14,905 (1,133) 25,484
Diluted earnings per share...... $ - $ 0.15 $ 0.67 $ 1.14 $0.18 $ 0.55 $ (0.03) $ 0.54
46
As required by the Emerging Issues Task Force Issue No. 98-9, Accounting
for Contingent Rent in Interim Financial Periods, the Company recognized $45,894
of additional contingent rental income for the three months ended
December 31, 1999. There is no year-to-date effect of EITF No. 98-9.
The effect of EITF No. 98-9 on the Company's financial statements is as
follows:
Three Months Ended December 31, 1999
------------------------------------
Prior to Effect Effect After Effect
of of of
EITF No. 98-9 EITF No. 98-9 EITF No. 98-9
--------------- ------------- -------------
Net operating income $ 45,744 $45,894 $ 91,638
Interest expense ( 25,777) - (25,777)
Minority interests (1,865) (4,382) ( 6,247)
Income taxes (385) (888) (1,273)
Extraordinary loss, net of tax - - -
--------- ------- --------
Net income $ 17,717 $40,624 $ 58,341
========= ======= ========
14. Supplemental Cash Flow Information
1999 1998 1997
------------ ------------- -------------
Cash paid for interest and income taxes:
Interest, net of capitalized interest of $12,540, $5,182, and $442,
respectively 93,491 $ 48,156 $ 15,734
Income taxes 1,261 18,591 7,606
Non-cash investing and financing activities:
Additions to equipment through capital leases - - $ 40
Long-term debt assumed in purchase of property and equipment - 543 16,478
OP Units issued in purchase of property and equipment 1,488 16,932 32,264
OP Units issued in purchase of intangible assets - - 24,000
Redemption of OP Units 29,412 31,430 11,000
Deferred financing fees not yet paid - - 528
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) -
----------- ------------- -------------
Book value of net assets distributed to spun-off affiliate - $ 28,565 -
=========== ============= =============
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) -
----------- ------------- -------------
Fair value of net assets acquired in Merger - $ 755,907 -
=========== ============= =============
47
MERISTAR HOSPITALITY CORPORATION
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(dollars in thousands)
Costs
subsequent
Initial cost to to
Company acquisition Gross amount at end of year
----------------- -------------- ---------------------------
Building Building Building Accum-
and and and ulated Year of
Encum- Improve- Improve- Improve- Deprecia- Construc- Date
Description brances Land ments Land ments Land ments tion tion Acquired Life
-------------------------------------------------------------------------------------------------------
Hotel Assets:
Salt Lake Airport Hilton, UT - $ 770 $12,828 $ - $2,812 $ 770 $15,640 $1,763 1980 3/3/95 40
Radisson Hotel,
Schaumburg, IL - 1,080 5,131 - 1,881 1,080 7,012 723 1979 6/30/95 40
Sheraton Hotel, Colorado
Springs, CO (1) 1,071 14,592 1 3,642 1,072 18,234 1,906 1974 6/30/95 40
Hilton Hotel, Bellevue, WA 48 5,211 6,766 - 1,516 5,211 8,282 861 1979 8/4/95 40
Marriott Hotel, Somerset, NJ (1) 1,978 23,001 - 3,979 1,978 26,980 2,664 1978 10/3/95 40
Westin Atlanta Airport,
Atlanta, GA - 2,650 15,926 (300) 9,258 2,350 25,184 2,431 1982 11/15/95 40
Sheraton Hotel,
Charlotte, NC (1) 4,700 11,057 - 3,375 4,700 14,432 1,358 1985 2/2/96 40
Radisson Hotel Southwest,
Cleveland, OH - 1,330 6,353 - 4,547 1,330 10,900 906 1978 2/16/96 40
Orange County Airport
Hilton, Irvine, CA (1) 9,990 7,993 - 3,133 9,990 11,126 967 1976 2/22/96 40
The Latham Hotel,
Washington, DC - 6,500 5,320 - 3,566 6,500 8,886 685 1981 3/8/96 40
Hilton Hotel, Arlington, TX (1) 1,836 14,689 79 2,819 1,915 17,508 1,555 1983 4/17/96 40
Hilton Hotel, Arlington, VA - 4,000 15,069 - 323 4,000 15,392 1,315 1990 8/23/96 40
Southwest Hilton,
Houston, TX - 2,300 15,665 - 959 2,300 16,624 1,295 1979 10/31/96 40
Embassy Suites,
Englewood, CO (1) 2,500 20,700 - 2,782 2,500 23,482 1,769 1986 12/12/96 40
Holiday Inn,
Colorado Springs, CO - 1,600 4,232 - 978 1,600 5,210 349 1974 12/17/96 40
Embassy Row Hilton,
Washington, DC - 2,200 13,247 - 2,240 2,200 15,487 1,085 1969 12/17/96 40
Hilton Hotel & Towers,
Lafayette, LA (1) 1,700 16,062 - 1,284 1,700 17,346 1,256 1981 12/17/96 40
Hilton Hotel, Sacramento, CA (1) 4,000 16,013 - 1,658 4,000 17,671 1,296 1983 12/17/96 40
Santa Barbara Inn, Santa
Barbara, CA - 2,600 5,141 - 1,110 2,600 6,251 446 1959 12/17/96 40
San Pedro Hilton,
San Pedro, CA - 640 6,047 - 2,300 640 8,347 545 1989 1/28/97 40
Doubletree Hotel,
Albuquerque, NM (1) 2,700 15,075 - 801 2,700 15,876 1,136 1975 1/31/97 40
Westchase Hilton & Towers,
Houston, TX (1) 3,000 23,991 - 1,364 3,000 25,355 1,827 1980 1/31/97 40
Four Points Hotel,
Cherry Hill, NJ - 1,700 4,178 - 2,040 1,700 6,218 394 1991 3/20/97 40
Sheraton Great Valley Inn,
Frazer, PA - 2,150 11,653 11 2,712 2,161 14,365 831 1971 3/27/97 40
Holiday Inn Calgary Airport,
Calgary, Alberta, Canada - 751 5,011 (7) 1,553 744 6,564 551 1981 4/1/97 40
Sheraton Hotel Dallas,
Dallas, TX - 1,300 17,268 - 2,358 1,300 19,626 1,273 1974 4/1/97 40
Radisson Hotel Dallas,
Dallas, TX - 1,800 17,580 - 1,177 1,800 18,757 1,259 1972 4/1/97 40
Sheraton Hotel Guildford,
Surrey, BC, Canada - 2,366 24,008 (24) 789 2,342 24,797 2,403 1992 4/1/97 40
Doubletree Guest Suites,
Indianapolis, IN 1,000 8,242 - 821 1,000 9,063 595 1987 4/1/97 40
Ramada Vancouver Centre,
Vancouver, BC, Canada - 4,400 7,840 (43) 2,613 4,357 10,453 921 1968 4/1/97 40
Holiday Inn Sports
Complex, Kansas City, MO - 420 4,742 - 1,551 420 6,293 380 1975 4/30/97 40
Hilton Crystal City,
Arlington, VA - 5,800 29,879 - 790 5,800 30,669 1,890 1974 7/1/97 40
Doubletree Resort Hotel,
Cathedral City, CA - 1,604 16,141 - 2,598 1,604 18,739 1,073 1985 7/1/97 40
Radisson Hotel & Suites,
Chicago, IL 4,870 39,175 - 1,793 4,870 40,968 2,485 1971 7/15/97 40
Georgetown Inn,
Washington, DC - 6,100 7,103 - 712 6,100 7,815 454 1962 7/15/97 40
Embassy Suites Center City,
Philadelphia, PA (1) 5,500 26,763 - 1,442 5,500 28,205 1,627 1963 8/12/97 40
Doubletree Hotel Austin,
Austin, TX (1) 2,975 25,678 - 2,501 2,975 28,179 1,569 1984 8/14/97 40
Radisson Plaza Hotel,
Lexington, KY 240 1,100 30,375 - 3,759 1,100 34,134 2,006 1982 8/14/97 40
Jekyll Inn,
Jekyll Island, GA 850 - 7,803 - 2,782 - 10,585 575 1971 8/20/97 40
Holiday Inn Metrotown,
Burnaby, BC, Canada - 1,115 5,303 (11) 1,292 1,104 6,595 502 1989 8/22/97 40
Embassy Suites
International Airport,
Tucson, AZ - 1,640 10,444 - 1,401 1,640 11,845 585 1982 10/23/97 40
Westin Morristown, NJ - 2,500 19,128 100 4,171 2,600 23,299 1,047 1962 11/20/97 40
Doubletree Hotel Bradley
International Airport,
Windsor Locks, CT - 1,013 10,228 87 1,422 1,100 11,650 547 1985 11/24/97 40
Sheraton Hotel, Mesa, AZ - 1,850 16,938 - 1,303 1,850 18,241 897 1985 12/5/97 40
Metro Airport Hilton &
Suites, Detroit, MI - 1,750 12,639 - 1,033 1,750 13,672 647 1989 12/16/97 40
Marriott Hotel,
Los Angeles, CA - 5,900 48,250 - 5,457 5,900 53,707 2,584 1983 12/18/97 40
48
Initial cost to Costs subsequent to
Company acquisition Gross amount at end of year
-----------------------------------------------------------------------------
Building Building Building Accum-
and and and ulated Year of
Encum- Improve- Improve- Improve- Deprecia- Construc- Date
Description brances Land ments Land ments Land ments tion tion Acquired Life
------------------------------------------------------------------------------------------------------
Austin Hilton & Towers, TX - 2,700 15,852 - 2,013 2,700 17,865 822 1974 1/6/98 40
Dallas Renaissance North, TX - 3,400 20,813 - 2,751 3,400 23,564 1,104 1979 1/6/98 40
Houston Sheraton
Brookhollow Hotel, TX - 2,500 17,609 - 2,148 2,500 19,757 953 1980 1/6/98 40
Seelbach Hilton,
Louisville, KY - 1,400 38,462 - 2,096 1,400 40,558 1,940 1905 1/6/98 40
Midland Hilton & Towers, TX - 150 8,487 - 1,416 150 9,903 459 1976 1/6/98 40
Westin Oklahoma, OK - 3,500 27,588 - 1,683 3,500 29,271 1,408 1977 1/6/98 40
Sheraton Hotel, Columbia,
MD - 3,600 21,393 - 1,195 3,600 22,588 939 1972 3/27/98 40
Radisson Cross Keys,
Baltimore, MD - 1,500 5,615 - 446 1,500 6,061 246 1973 3/27/98 40
Sheraton Fisherman's
Wharf, San Francisco, CA (1) 19,708 61,751 - 2,599 19,708 64,350 2,701 1975 4/2/98 40
Hartford Hilton, CT - 4,073 24,458 - 131 4,073 24,589 968 1975 5/21/98 40
Holiday Inn Dallas DFW
Airport South, TX 13,021 3,388 28,847 - (6) 3,388 28,841 1,016 1974 8/3/98 -
Courtyard by Marriott
Meadowlands, NJ 4,529 - 9,649 - 45 - 9,694 338 1993 8/3/98 40
Hampton Inn Richmond
Airport, VA - 534 3,653 - 473 534 4,126 460 1972 8/3/98 -
Hotel Maison de Ville, New
Orleans, LA - 292 3,015 - (2) 292 3,013 106 1778 8/3/98 40
Hilton Hotel Toledo, OH - - 11,708 - 18 - 11,726 414 1987 8/3/98 40
Holiday Inn Select Dallas
DFW Airport West, TX - 947 8,346 - 26 947 8,372 812 1974 8/3/98 40
Holiday Inn Select New
Orleans International
Airport, LA (1) 3,040 25,616 - 76 3,040 25,692 910 1973 8/3/98 40
Hampton Inn Ocean City, MD - 384 4,940 - 40 384 4,980 608 1989 8/3/98 -
Crowne Plaza Madison, WI (1) 2,629 21,634 - 176 2,629 21,810 770 1987 8/3/98 40
Wyndham Albuquerque
Airport Hotel, NM - - 18,889 - 112 - 19,001 669 1972 8/3/98 40
Wyndham San Jose Airport
Hotel, CA - - 35,743 - 997 - 36,740 1,260 1974 8/3/98 40
Holiday Inn Select Mission
Valley, CA 2,410 20,998 - 155 2,410 21,153 745 1970 8/3/98 40
Sheraton Safari Hotel,
Lake Buena Vista, FL - 4,103 35,263 - 8,305 4,103 43,568 1,288 1985 8/3/98 40
Hilton Monterey, CA - 2,141 17,666 - 5,165 2,141 22,831 651 1971 8/3/98 40
Hilton Hotel Durham, NC - 1,586 15,577 - 1,022 1,586 16,599 559 1987 8/3/98 40
Wyndham Garden Hotel
Marietta, GA - 1,900 17,077 - 83 1,900 17,160 597 1985 8/3/98 40
Westin Resort Key Largo, FL - 3,167 29,190 - 260 3,167 29,450 1,038 1985 8/3/98 40
Doubletree Guest Suites
Atlanta, GA 8,915 2,236 18,514 - 3,209 2,236 21,723 744 1985 8/3/98 40
Radisson Hotel Arlington
Heights, IL - 1,540 12,645 - 2,093 1,540 14,738 457 1981 8/3/98 40
Holiday Inn Select Bucks
County, PA - 2,610 21,744 - 324 2,610 22,068 773 1987 8/3/98 40
Hilton Hotel Cocoa Beach, FL - 2,783 23,076 - 1,647 2,783 24,723 863 1986 8/3/98 40
Radisson Twin Towers
Orlando, FL - 9,555 73,486 - 4,578 9,555 78,064 2,633 1972 8/3/98 40
Crowne Plaza Phoenix, AZ - 1,852 15,957 - 3,448 1,852 19,405 654 1981 8/3/98 40
Hilton Airport Hotel Grand
Rapids, MI (1) 2,049 16,657 - 539 2,049 17,196 594 1979 8/3/98 40
Marriott West Loop Houston, TX (1) 2,943 23,934 - 2,603 2,943 26,537 861 1976 8/3/98 40
Courtyard by Marriott
Durham, NC - 1,406 11,001 - 47 1,406 11,048 391 1996 8/3/98 40
Courtyard by Marriott,
Marina Del Rey, CA (1) 3,450 24,534 - 346 3,450 24,880 872 1976 8/3/98 40
Courtyard by Marriott,
Century City, CA - 2,165 16,465 - 20 2,165 16,485 584 1986 8/3/98 40
Courtyard by Marriott,
Lake Buena Vista, FL - - 41,267 - 700 - 41,967 1,464 1972 8/3/98 40
Crowne Plaza, San Jose, CA (1) 2,130 23,404 - 1,500 2,130 24,904 869 1975 8/3/98 40
Doubletree Hotel
Westshore, Tampa, FL - 2,904 23,476 - 87 2,904 23,563 834 1972 8/3/98 40
Howard Johnson Resort Key
Largo, FL - 1,784 12,419 - 477 1,784 12,896 444 1971 8/3/98 40
Radisson Annapolis, MD - 1,711 13,671 - 104 1,711 13,775 486 1975 8/3/98 40
Holiday Inn Fort
Lauderdale, FL - 2,381 19,419 - 75 2,381 19,494 690 1969 8/3/98 40
Holiday Inn Express
Hanover, MD - 821 6,687 - 11 821 6,698 640 1988 8/3/98 -
Holiday Inn Madeira Beach, FL - 1,781 13,349 - 22 1,781 13,371 474 1972 8/3/98 40
Holiday Inn Chicago
O'Hare, IL 20,054 4,290 72,631 - 187 4,290 72,818 2,582 1975 8/3/98 40
Holiday Inn & Suites
Alexandria, VA - 1,769 14,064 - 52 1,769 14,116 499 1985 8/3/98 40
Hilton Clearwater, FL - - 69,285 - 559 - 69,844 2,457 1980 8/3/98 40
Radisson Rochester, NY - - 6,499 - 40 - 6,539 229 1971 8/3/98 40
Radisson Old Towne
Alexandria, VA - 2,241 17,796 - 39 2,241 17,835 632 1975 8/3/98 40
49
Initial cost to Costs subsequent to
Company acquisition Gross amount at end of year
----------------------------------------------------------------
Building Building and Building and Accum-
and Improve- Improve- ulated Year of
Encum- Improve- ments ments Deprecia- Construc- Date
Description brances Land ments Land Land tion tion Acquired Life
-------------------------------------------------------------------------------------------------------
Ramada Inn Clearwater, FL - 1,270 13,453 - 89 1,270 13,542 1,602 1969 8/3/98 -
Richmond Hotel and
Conference Center - 245 3,380 - 20 245 3,400 712 1975 8/3/98 -
Crowne Plaza Las Vegas, NV - 3,006 24,011 - 15 3,006 24,026 855 1989 8/3/98 40
Crowne Plaza Portland, OR 5,064 2,950 23,254 - 55 2,950 23,309 828 1988 8/3/98 40
Four Points Hotel, Mt.
Arlington, NJ 4,724 6,553 6,058 - 39 6,553 6,097 215 1984 8/3/98 40
Ramada Inn Mahwah, NJ - 1,117 8,994 - 120 1,117 9,114 321 1972 8/3/98 40
Ramada Plaza Meriden, CT - 1,247 10,057 - 12 1,247 10,069 357 1985 8/3/98 40
Ramada Plaza Shelton, CT 4,703 2,040 16,235 - 20 2,040 16,255 575 1989 8/3/98 40
Sheraton Crossroads
Mahwah, NJ - 3,258 26,185 - 160 3,258 26,345 932 1986 8/3/98 40
St. Tropez Suites, Las
Vegas, NV - 3,027 24,429 - 10 3,027 24,439 869 1986 8/3/98 40
Doral Forrestal,
Princeton, NJ - 9,578 57,555 - 7,044 9,578 64,599 2,088 1981 8/11/98 40
South Seas Plantation,
Captiva, FL - 3,084 83,573 - 5,024 3,084 88,597 2,607 1975 10/1/98 40
Radisson Suites Beach
Resort, Marco Island, FL - 7,120 35,300 - 1,378 7,120 36,678 1,098 1983 10/1/98 40
Best Western Sanibel
Island, FL - 3,868 3,984 - (25) 3,868 3,959 124 1967 10/1/98 40
The Dunes Golf & Tennis
Club, Sanibel Island, FL - 7,705 3,043 - 81 7,705 3,124 94 1964 10/1/98 40
Sanibel Inn, Sanibel
Island, FL - 8,482 12,045 - (59) 8,482 11,986 373 1964 10/1/98 40
Seaside Inn, Sanibel
Island, FL - 1,702 6,416 - 16 1,702 6,432 200 1964 10/1/98 40
Song of the Sea, Sanibel
Island, FL - 339 3,223 - 62 339 3,285 101 1964 10/1/98 40
Sundial Beach Resort,
Sanibel Island, FL - 320 12,009 - 699 320 12,708 375 1975 10/1/98 40
Holiday Inn, Madison, WI - 4,143 6,692 49 4,143 6,741 168 1965 1/11/99 40
------------------------------------------------------------------
$318,467 $2,202,982 $(107) $175,336 $318,360 $2,378,318 $115,234
==================================================================
(1) These properties secure the New Secured Facility which, as of December 31,
1999, had an outstanding balance of $328,954.
The components of hotel property and equipment are as follows:
Property and Accumulated
Equipment Depreciation
------------- ------------
Land $ 318,360 $ -
Building and Improvements 2,378,318 115,234
Furniture and equipment 320,787 67,196
Construction in progress 101,258 -
------------- ------------
Total property and equipment $ 3,118,723 $ 182,430
============= ============
A reconciliation of the Company's investment in hotel property
and equipment and related accumulated depreciation is as
follows:
1999 1998 1997
------------------------------------------------------
Hotel property and equipment
Balance, beginning of period $ 2,957,543 $ 947,597 $ 342,366
Acquisitions during period 12,081 1,865,142 550,913
Improvements and construction
-in-progress 160,294 144,804 54,318
Cost of real estate sold (11,195) - -
------------- ------------ -----------
Balance, end of period 3,118,723 2,957,543 947,597
------------- ------------ -----------
Accumulated depreciation
Balance, beginning of period 83,797 26,858 8,432
Additions-depreciation expense 99,297 56,939 18,426
Cost of real estate sold (664) - -
------------- ------------ -----------
Balance, end of period 182,430 83,797 26,858
------------- ------------ -----------
Net hotel property and equipment, end of period $ 2,936,293 $ 2,873,746 $ 920,739
============= ============ ===========
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 405 of Regulation S-K with respect to
Directors and Executive Officers of the Company is incorporated herein by
reference to the sections entitled "Management" and "Principal Stockholders" in
the Company's definitive proxy for its 2000 Annual Meeting of Stockholders (the
"2000 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the sections entitled "Executive Compensation," "Compensation of Directors"
and "Stock Option Grants" in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the section entitled "Principal Stockholders" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the section entitled "Certain Relationships and Related Transactions" in the
2000 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Index to Financial Statements and Financial Statement Schedules
1. Financial Statements
The Financial Statements included in the Annual Report on Form 10-K are
listed in Item 8.
2. Financial Statement Schedules
The Financial Statement Schedules included in the Annual Report on Form 10-
K are listed in Item 8.
51
3. Exhibits
All Exhibits listed below are filed with this Annual Report on Form 10-K
unless specifically stated to be incorporated by reference to other documents
previously filed with the Commission.
Exhibit
- -------
No. Description of Document
- -- -----------------------
3.1* Amended and Restated Articles of Incorporation of the Registrant
(Articles of Merger between American General Hospitality Corporation
and CapStar Hotel Company).
3.2* Amended and Restated By-laws of the Registrant.
4.1** Form of Share Certificate.
4.2 Specimen Subordinated Note.
4.3 Specimen Convertible Note (included in Exhibit 4.7).
4.4 Indenture, dated as of August 19, 1997, between CapStar Hotel Company
and IBJ Schroder Bank & Trust Company, as Trustee.
4.5 Second Supplemental Indenture, dated as of August 3, 1998, between
MeriStar Hospitality Corporation and IBJ Schroder Bank & Trust
Company, as Trustee.
4.6 Indenture, dated as of October 16, 1997, between CapStar Hotel Company
and First Trust, National Association, as Trustee, (the "Convertible
Notes Indenture").
4.7 Certificate dated October 16, 1997, pursuant to Section 3.1 of
Convertible Notes Indenture.
4.8 First Supplemental Indenture, dated as of August 3, 1998, between
MeriStar Hospitality Corporation and U.S. Bank Trust, National
Association, as Trustee.
4.9**** Indenture, dated as of March 18, 1999, between MeriStar Hospitality
Corporation and IBJ Whitehall Bank & Trust Company, as Trustee.
4.10**** Specimen Certificate of Outstanding Note (included in Exhibit 4.9 as
Exhibit A).
4.11**** Specimen Certificate of Exchange Note.
10.1*** Second Amended and Restated Agreement of Limited Partnership of
MeriStar Hospitality Operating Partnership, L.P. dated as of August 3,
1998.
10.2*** Second Amended and Restated Senior Secured Credit Agreement dated as
of August 3, 1998.
10.3*** Loan Agreement made as of August 3, 1998 between MeriStar Hospitality
Corporation and its affiliates and Secore Financial Corporation.
10.4* Form of MeriStar Incentive Plan.
10.5* Form of MeriStar Non-Employee Directors' Incentive Plan.
10.6* Form of Employment Agreement between MeriStar Hospitality Corporation
and Paul W. Whetsell.
10.7* Form of Employment Agreement between MeriStar Hospitality Corporation
and Steven D. Jorns.
10.8*** Form of Employment Agreement between MeriStar Hospitality Corporation
and Bruce G. Wiles.
10.9*** Form of Employment Agreement between MeriStar Hospitality Corporation
and John Emery.
10.10* Form of Exchange Rights Agreement, by and among MeriStar Hospitality
Corporation, MeriStar Hospitality Operating Partnership, L.P., and the
Persons set forth therein.
10.11* Operating Partnership, L.P., CMC Operating Company and CMC Operating
Partnership, L.P.
10.12* Form of Operating Lease
10.13 Loan Agreement, dated as of August 12, 1999, between MeriStar
Hospitality Operating Partnership, L.P. and Lehman Brothers Holdings
Inc. D/B/A Lehman Capital, a division of Lehman Brothers Holdings Inc.
12 Schedule Regarding the Computation of Ratios
21 Subsidiaries of the Company
23 Consent of KPMG LLP
24 Power of Attorney (see signature page)
27 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-49611), filed with the Securities and Exchange Commission
on April 7, as amended.
** Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-66229), filed with the Securities and Exchange Commission
on October 28, as amended.
*** Incorporated by reference to the Company's Annual Report on Form 10-K (File
No. 001-11903), filed with the Securities and Exchange Commission on
March 2, 1999.
**** Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-78163) filed with the Securities and Exchange Commission
on May 10, 1999.
B. Reports on Form 8-K
None.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, MeriStar Hospitality Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
MERISTAR HOSPITALITY CORPORATION
By: /s/ Paul W. Whetsell
--------------------------------------
Paul W. Whetsell
Chief Executive Officer and
Chairman of the Board
Dated: March 13, 2000
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul W. Whetsell, Bruce G. Wiles and John Emery,
such person's true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this report filed pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, and to file the same
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and things requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report and the foregoing Power of Attorney have been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chief Executive Officer and Chairman of the Board March 13, 2000
/s/ Paul W. Whetsell of Directors (Principal Executive Officer)
_____________________________
Paul W. Whetsell
/s/ Steven D. Jorns Vice Chairman of the Board of Directors March 13, 2000
_____________________________
Steven D. Jorns
/s/ Bruce G. Wiles President and Director March 13, 2000
_____________________________
Bruce G. Wiles
Chief Financial Officer (Principal Financial and March 13, 2000
/s/ John Emery Accounting Officer)
_____________________________
John Emery
53
/s/ James F. Dannhauser
_____________________________ Director March 13, 2000
James F. Dannhauser
/s/ Daniel L. Doctoroff
_____________________________ Director March 13, 2000
Daniel L. Doctoroff
/s/ William S. Janes
_____________________________ Director March 13, 2000
William S. Janes
/s/ Mahmood Khimji
_____________________________ Director March 13, 2000
Mahmood Khimji
/s/ H. Cabot Lodge III
_____________________________ Director March 13, 2000
H. Cabot Lodge III
/s/ James R. Worms
_____________________________ Director March 13, 2000
James R. Worms
54