Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission File Number 1-9319 Commission File Number 1-9320
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
- -------------------------------------- --------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware 94-0358820 Delaware 94-2878485
- -------------------------------------- --------------------------------------
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification No.) jurisdiction of Identification No.)
incorporation or incorporation or
organization) organization)
1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
- -------------------------------------- --------------------------------------
(Address of principal (Zip Code) (Address of principal (Zip Code)
executive offices) executive offices)
(214) 863-1000 (214) 863-1000
- -------------------------------------- --------------------------------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value New York Common Stock, par value New York
$0.01 per share Stock Exchange $0.01 per share Stock Exchange
- -------------------------------------- --------------------------------------
(Title of (Name of each Exchange (Title of (Name of each Exchange
each class) on which registered) each class) on which registered)
Securities registered pursuant to Section 12(g) of the Act:
none 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 that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
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 of this Form 10-K. [ ]
The aggregate market value of the paired voting stock held by non-
affiliates of Patriot American Hospitality, Inc. and Wyndham International, Inc.
as of March 25, 1998 was $2,488,510,573, based upon a price of $26.3125 per
paired share.
As of March 25, 1998, there were 105,386,253 paired shares of Patriot
American Hospitality, Inc. and Wyndham International, Inc. common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive joint proxy statement for the annual meetings of the stockholders of
Patriot and Wyndham International to be held on May 28, 1998, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1997.
2
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
FORM 10-K ANNUAL REPORT
INDEX
FORM 10-K
REPORT
ITEM NO. PAGE
- -------- ---------
PART I
1. Business.................................................
2. Properties...............................................
3. Legal Proceedings........................................
4. Submission of Matters to a Vote of Security Holders......
PART II
5. Market Price for Registrant's Common Equity and Related
Stockholder Matters......................................
6. Selected Financial Data..................................
7. Managements' Discussion and Analysis of Financial
Condition and Results of Operations......................
8. Financial Statements and Supplementary Data..............
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................
PART III
10. Directors and Executive Officers of the Registrant.......
11. Executive Compensation...................................
12. Security Ownership of Certain Beneficial Owners and
Management...............................................
13. Certain Relationships and Related Transactions...........
PART IV
14. Exhibits, Financial Statements and Schedules, and
Reports on Form 8-K......................................
SIGNATURES...................................................
3
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing agreement. In connection
with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American
Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot
American Hospitality Operating Company" ("Patriot Operating Company"). In
January 1998, as a result of the merger of Wyndham Hotel Corporation ("Old
Wyndham") with and into Patriot as discussed below, Patriot Operating Company
changed its name to Wyndham International, Inc. and is referred to herein,
collectively with its subsidiaries, as "Wyndham International." The term
"Companies" as used herein includes Patriot, Wyndham International and each of
their respective subsidiaries. Patriot and Wyndham International are both
Delaware corporations.
The Cal Jockey Merger was accounted for as a reverse acquisition whereby
Cal Jockey was considered to be the acquired company for accounting purposes.
Consequently, the historical financial information of Old Patriot became the
historical financial information for Patriot. For accounting purposes, Wyndham
International commenced its operations concurrent with the closing of the Cal
Jockey Merger on July 1, 1997.
The shares of common stock of Patriot ("Patriot Common Stock") and the
shares of common stock of Wyndham International ("Wyndham International Common
Stock") are paired on a one-for-one basis and may only be held or transferred in
units consisting of one share of Patriot Common Stock and one share of Wyndham
International Common Stock (the "Paired Shares"). In 1983, the Internal Revenue
Code of 1986, as amended (the "Code"), prohibited the pairing of shares between
a REIT and a management company, however, this rule does not apply to the
Companies because its Paired Share structure existed prior to the change in
regulations and is "grandfathered" under the Code.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in Patriot
American Hospitality Partnership, L.P. (the "REIT Partnership"). In addition,
Patriot, through its wholly owned subsidiary, PAH LP, Inc., owned an approximate
85.3% limited partnership interest in the REIT Partnership as of December 31,
1997. The REIT Partnership was formed in connection with Old Patriot's Initial
Offering. Old Patriot contributed its assets to the partnership in exchange for
units of limited partnership interest ("OP Units") of the REIT Partnership.
Wyndham International owns a 1.0% general partnership interest and an
approximate 83.9% limited partnership interest in Patriot American Hospitality
Operating Partnership, L.P. (the "OpCo Partnership") as of December 31, 1997.
The OpCo Partnership was formed in connection with the Cal Jockey Merger. Bay
Meadows contributed its assets to the OpCo Partnership in exchange for OP Units
of the OpCo Partnership.
Collectively, the REIT Partnership and the OpCo Partnership are referred to
herein as the "Operating Partnerships." Subsequent to completion of the Cal
Jockey Merger and the transactions contemplated by the Cal Jockey Merger
Agreement, substantially all of the operations of Patriot and Wyndham
International have been conducted through the Operating Partnerships and their
subsidiaries.
During 1997, Patriot, either directly or through the REIT Partnership and
its subsidiaries, invested approximately $1.3 billion in the acquisition of 45
hotels with over 12,000 guest rooms. These acquisitions
4
were financed primarily with funds drawn on the Companies' revolving credit
facility (and, prior to the Cal Jockey Merger, Old Patriot's line of credit
facility), a $350 million term loan, new mortgage financing of approximately
$237 million, the issuance of 5,629,172 OP Units of the Operating Partnerships
valued at approximately $130 million, the issuance of 1,719,535 Paired Shares
valued at approximately $38.5 million, and the assumption of mortgage debt in
the amount of approximately $34.3 million. Six of the hotels were acquired
through a like-kind exchange. In addition, Wyndham International acquired Grand
Heritage Hotels, Inc., a hotel management and marketing company, and PAH RSI,
LLC, a limited liability company that owned certain trade names and other hotel
management assets related to four of Patriot's resort properties. Wyndham
International also acquired an approximate 50% ownership interest in GAH-II,
L.P. ("GAH"), an affiliate of CHC International, Inc. and the Gencom American
Hospitality group of companies. The Companies completed a public offering of
10,580,000 Paired Shares in August 1997, two forward sale transactions with a
bank in November 1997 and sold 3,250,000 unregistered Paired Shares to a
financial institution in December 1997 which is subject to a one-year forward
stock purchase agreement. The net proceeds of these transactions were used
primarily to reduce outstanding indebtedness. In addition, the Companies
completed two direct placements of Paired Shares in order to redeem 2,000,033 OP
Units of the Operating Partnerships in November 1997.
RECENT DEVELOPMENTS
Merger with Wyndham Hotel Corporation
On January 5, 1998, pursuant to the Agreement and Plan of Merger dated as
of April 14, 1997, as thereafter amended (the "Wyndham Merger Agreement"),
between Patriot, Wyndham International and Wyndham Hotel Corporation ("Old
Wyndham"), Old Wyndham merged with and into Patriot, with Patriot being the
surviving corporation (the "Wyndham Merger").
As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio
of owned, leased or managed hotels consisting of 98 hotels operated by Old
Wyndham (including 16 Patriot hotels which were managed by Old Wyndham), as well
as eight franchised hotels, which in the aggregate contain approximately 25,900
rooms. The total purchase consideration of approximately $982 million consisted
of 21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible
Preferred Stock of Patriot (which are convertible on a one-for-one basis into
Paired Shares), cash of approximately $339 million to repay debt and pay Wyndham
shareholders who elected to receive cash (which was financed with funds drawn on
the Companies' revolving credit facility (the "Revolving Credit Facility")), and
the assumption of approximately $54 million in debt.
Merger with WHG Casinos & Resorts, Inc.
On January 16, 1998, pursuant to an Agreement and Plan of Merger dated as
of September 30, 1997 (the "WHG Merger Agreement"), between Patriot, Wyndham
International and WHG Casinos & Resorts Inc. ("WHG"), a newly formed subsidiary
of Wyndham International merged with and into WHG with WHG being the surviving
corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham
International acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest
in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room
El Conquistador Resort & Country Club (the "El Conquistador"), all of which are
located in Puerto Rico, as well as a 62% interest in Williams Hospitality Group,
Inc., the management company for the three hotels and the Las Casitas Village at
the El Conquistador. By operation of the WHG Merger, WHG's outstanding equity
securities were exchanged for 5,004,690 Paired Shares. In addition, Wyndham
International assumed approximately $21.3 million of debt.
Other Recent Transactions
Holiday Inn. On January 13, 1998, Patriot, through the REIT Partnership,
acquired the 173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase
price of approximately $14.5 million.
Buena Vista Palace Hotel. On January 14, 1998, Patriot, through the REIT
Partnership, acquired an aggregate 95% equity interest in the joint venture that
owns the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for
approximately $141.6 million, including the assumption of approximately $50.3
million of mortgage debt. Patriot was also granted an option to acquire the
remaining 5% equity interest in the hotel. The hotel is also subject to a ground
lease and Wyndham International holds a participating loan in the amount of
$23.8 million (the "Participating Note").
5
Proposed Acquisitions
CHC International, Inc. The Companies and CHC International, Inc. ("CHCI")
have entered into an Agreement and Plan of Merger dated as of September 30, 1997
(the "CHCI Merger Agreement"), providing, subject to regulatory approvals, for
the merger of the hospitality-related businesses of CHCI with and into Wyndham
International with Wyndham International being the surviving company (the "CHCI
Merger"). Subject to regulatory approvals, CHCI's gaming operations will be
transferred to a new legal entity prior to the CHCI Merger and such operations
will not be a part of the transaction. It is anticipated that the CHCI Merger
will be consummated in the second quarter of 1998. As a result of the CHCI
Merger, Wyndham International, through its subsidiaries, will acquire the
remaining 50% investment interest in GAH, the remaining 17 leases and 16 of the
associated management contracts related to the Patriot hotels leased by CHC
Lease Partners, 12 third-party management contracts, two third-party lease
contracts, the Grand Bay and Registry Hotels & Resorts proprietary brand names
and certain other hospitality management assets. Wyndham has also agreed to
provide CHCI with a $7 million line of credit until such time as the CHCI Merger
is completed. By operation of the CHCI Merger, all issued and outstanding common
stock of CHCI will be exchanged for approximately 4,396,000 shares of Wyndham
International preferred stock, subject to certain adjustments.
Interstate Hotels Company. On December 2, 1997, the Companies and
Interstate Hotels Company ("Interstate") entered into an Agreement and Plan of
Merger (the "Interstate Merger Agreement"), pursuant to which Interstate will
merge with and into Patriot with Patriot being the surviving corporation (the
"Interstate Merger"). Pursuant to the Interstate Merger Agreement, stockholders
of Interstate will have the right to elect to convert each of their shares of
Interstate common stock into the right to receive either (i) $37.50 in cash,
subject to proration in certain circumstances (the "Interstate Cash
Consideration"), or (ii) a number of Paired Shares of Patriot and Wyndham common
stock based on an exchange ratio of 1.341 Paired Shares for each share of
Interstate common stock not exchanged for cash (the "Interstate Exchange
Ratio"). After the elections are made by stockholders of Interstate, proration
will be used to ensure that 40% of the outstanding shares of Interstate common
stock will be converted into the right to receive Interstate Cash Consideration
and that the remaining 60% of the outstanding shares of Interstate common stock
will be converted into the right to receive Paired Shares at the Interstate
Exchange Ratio, subject to adjustment in certain circumstances for the exercise
of dissenters' rights. "The special meetings of the stockholders of Patriot,
Wyndham International and Interstate at which approval of the Interstate Merger
will be sought were originally scheduled for March 30, 1998. On March 30, 1998,
Patriot, Wyndham International and Interstate each adjourned their respective
stockholders' meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham
International and Interstate elected to convene and then adjourn their
respective stockholders' meetings without a formal vote so as to permit
additional time to negotiate with Marriott International, Inc. ("Marriott")
relating to certain issues Marriott has raised concerning Marriott-branded
hotels owned by Interstate. While Patriot and Marriott had entered into a non-
binding letter agreement in December 1997 regarding these matters, on March 30,
1998, Marriott filed a lawsuit in the United States District Court for the
District of Maryland seeking to enjoin the Interstate Merger until Interstate
complies with certain rights of notification and first refusal which Marriott
alleges would be triggered by the Interstate Merger."
As a result of the Interstate Merger, Patriot will acquire all of the
assets and liabilities of Interstate, including Interstate's portfolio of 222
owned, leased or managed hotels located in the United States, Canada, the
Caribbean and Russia. Of Interstate's portfolio, 41 hotels aggregating
approximately 11,928 rooms are owned or controlled by Interstate, 89 hotels
aggregating approximately 10,258 rooms are leased and 92 hotels aggregating
approximately 23,227 rooms are managed or subject to service agreements. Patriot
will also assume or refinance all of Interstate's existing indebtedness, which
totaled approximately $800 million as of December 31, 1997. In addition, Patriot
will buy out or assume certain options to purchase shares of common stock, par
value $0.01 per share, of Interstate ("Interstate Common Stock") and assume
certain severance obligations.
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
Arcadian International PLC. On January 20, 1998, Patriot announced in the
United Kingdom its intention to proceed with a takeover of Arcadian
International PLC ("Arcadian"), a company listed on the London Stock Exchange,
for cash consideration totaling (Pounds)92 million (or approximately $152
million at the exchange rate on February 5, 1998) (the "Arcadian Acquisition").
Arcadian is an owner, developer and operator of hotels in the United Kingdom and
continental Europe. Arcadian's portfolio currently includes 12 hotels with a
total of approximately 724 rooms throughout the United Kingdom, as well as
interests held in joint ventures with third parties. In connection with the
Arcadian Acquisition, Patriot will assume or refinance all of Arcadian's
existing indebtedness, which totaled approximately $77 million as of February 5,
1998.
6
Patriot has also entered into agreements with the shareholders of Malmaison
Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest,
to acquire the remaining interests in Malmaison not currently owned by Arcadian
for an aggregate purchase price of approximately $58.1 million, including the
assumption of approximately $23.6 million of indebtedness (the "Malmaison
Acquisition"). In connection with the Malmaison Acquisition, Patriot expects to
acquire (i) two hotels currently owned by Malmaison and one hotel which
Malmaison has agreed to acquire and (ii) two additional hotels currently under
development by Malmaison.
Golden Door Spa. In February 1998, the Companies signed a purchase contract
to acquire the Golden Door Spa in Escondido, California for a purchase price of
approximately $28 million. The purchase price is to be paid with a combination
of cash, OP Units of the Operating Partnerships and a short-term note.
SF Hotel Company, L.P. On March 23, 1998, the Companies entered into an
agreement to acquire all of the partnership interests in SF Hotel Company, L.P.
("Summerfield") for approximately $170 million. The purchase price is to be paid
with a combination of cash and issuance of a total of approximately 4,590,000 OP
Units of the Operating Partnerships and/or Paired Shares (the "Summerfield
Acquisition"). The final transaction price is subject to adjustment based on (i)
the market price of the Paired Shares through the end of 1998 and (ii)
achievement of certain performance criteria for the Summerfield portfolio
through 2001. As a result of the Summerfield Acquisition, the Companies will
acquire four Summerfield Suites/(R)/ hotels and lease or manage 33 Summerfield
Suites/(R)/ and Sierra Suites hotels/(R)/.
DESCRIPTION OF BUSINESS
As of March 25, 1998, Patriot, either directly or through the REIT
Partnership and other subsidiaries, owned interests in 118 hotels with an
aggregate of over 29,400 rooms (excluding one hotel closed for renovations). In
order for Patriot to qualify for favorable tax status as a real estate
investment trust ("REIT") under the Code, Patriot leases each of its hotels,
except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are
separately owned through special purpose entities, to Wyndham International or
to other third party lessees (the "Lessees") who are responsible for operating
the hotels. Currently, Patriot leases 17 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve years pursuant to separate
participating leases providing for the payment of the greater of base or
participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Twelve of the hotels are leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR
North Canton, Inc. (the "Doubletree Lessee") leases four hotels; and Metro
Hotels Leasing Corporation ("Metro Lease Partners") leases one hotel under
similar Participating Lease agreements. The Lessees, in turn, have entered into
separate agreements with hotel management entities (the "Operators") to manage
the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
acquisitions were structured without lessees and are managed directly by Holiday
Inns, Inc. and Wyndham International, respectively. Wyndham International leases
81 hotels from Patriot pursuant to Participating Lease agreements which are
substantially similar to the Participating Lease agreements of the Lessees.
Wyndham International manages 68 of these hotels through certain of its hotel
management subsidiaries and has entered into separate management agreements with
hotel Operators to manage 13 of the hotels.
Patriot's hotels are diversified by franchise or brand affiliation and
serve primarily major U.S. business centers, including Atlanta, Boston, Chicago,
Cleveland, Dallas, Denver, Houston, Los Angeles, Miami, Minneapolis, San Diego,
San Francisco and Seattle. In addition to hotels catering primarily to business
travelers, Patriot's portfolio includes world-class resort hotels, including The
Boulders near Scottsdale, Arizona; The Lodge at Ventana Canyon in Tucson,
Arizona; The Peaks Resort & Spa in Telluride, Colorado and Carmel Valley Ranch
Resort in Carmel, California (collectively, the "Carefree Resorts"); and
prominent hotels in major tourist destinations. As of March 25, 1998, the owned
hotels include 106 full service hotels, seven resort hotels, four limited
service hotels and an executive conference center. All but six of the 118 hotels
are operated under franchise or brand affiliations with nationally recognized
hotel companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(R)/,
Hilton/(R)/, Hyatt/(R)/, Four Points by Sheraton/(R)/, Holiday Inn/(R)/,
Wyndham/SM/, Wyndham Garden/(R)/, WestCoast/(R)/, Doubletree/(R)/, Embassy
Suites/(R)/, Hampton Inn/(R)/, Carefree/(R)/, Grand Heritage/(R)/,
Marriott/(R)/, Marriott Courtyard/(R)/, Sheraton/(R)/, Grand Bay/(R)/ and
ClubHouse/(R)/. Additionally, the Companies lease 13 hotels from third parties,
manage 58 hotels (excluding one hotel closed for renovations) for independent
owners and franchise eight hotels. Wyndham International currently leases from
Patriot 81 of the 118 hotels owned by Patriot. Patriot expects that
substantially all of its future acquisitions will be leased to Wyndham
International.
7
In addition to leasing and managing hotels, Wyndham International is also
engaged in the business of conducting and offering pari-mutuel wagering on
thoroughbred horse racing, the principal business conducted by Bay Meadows prior
to the Cal Jockey Merger.
Patriot intends to continue to expand and diversity its hotel portfolio
through the acquisition of primarily full service commercial hotels and major
tourist hotels in major metropolitan areas and destination resorts or conference
centers. Patriot believes that market conditions remain favorable for the
acquisition of additional hotels and hotel portfolios and expects to continue
its aggressive acquisition activities. Additionally, Wyndham International
intends to continue to capitalize on opportunities to acquire hotel operators,
owners of hotel franchises or brands and independent hotel management companies.
The Companies generally seek investments in hotels where management believes
that profits can be increased by the introduction of more professional and
efficient management techniques, a change of franchise affiliation or the
injection of capital for market repositioning, renovating, or expanding a
property.
Competition
The hotel industry is highly competitive and the Companies' hotels are
subject to competition from other hotels for guests. Many of the Companies'
competitors may have substantially greater marketing and financial resources
than the Companies. Each of the Companies' hotels compete for guests primarily
with other similar hotels in its immediate vicinity and secondarily with other
similar hotels in its geographic market. Management believes that brand
recognition, location, the quality of the hotel and services provided, and price
are the principal competitive factors affecting the Companies' hotels.
Patriot and Wyndham International may compete for acquisition opportunities
with entities that have greater financial resources than the Companies or which
may accept more risk than the Companies. Competition may generally reduce the
number of suitable investment opportunities and increase the bargaining power of
property owners seeking to sell. Further, the Companies' management believes
that it will face competition for acquisition opportunities from entities
organized for purposes substantially similar to the objectives of Patriot or
Wyndham International.
While the Bay Meadows Racecourse (the "Racecourse"), when it is conducting
live racing, has had little direct competition from other tracks in the San
Francisco Bay Area, the Racecourse competes with off-track wagering facilities
in Northern California and telephone betting accounts being offered by off-track
wagering facilities in various states and foreign countries and other forms of
legalized gambling, particularly Indian gaming and others such as the California
State Lottery and local card clubs. In addition, the San Francisco Bay Area
annually has numerous sporting events, county fairs and other entertainment
attractions which compete with the Racecourse for the sports and entertainment
dollar. It is difficult to evaluate the competitive impact of these other forms
of entertainment and gambling on the operations of the Racecourse, other than to
say that they are significant.
Seasonality
The hotel industry is seasonal in nature. Revenue at certain of the
Companies' hotels are greater in the first and second quarters of a calendar
year and at other hotels in the second and third quarters of a calendar year.
Seasonal variations in revenue at the hotels may cause quarterly fluctuations in
Patriot's lease revenues and in Wyndham International's hotel-related revenues.
The Bay Meadows Racecourse operations are also subject to seasonal
variations. Historically, the Bay Meadows racing meet has commenced in August
each year and has ended in the following January.
Employees
As of March 25, 1998, Patriot employs 19 persons, including Messrs.
Nussbaum, Evans and Jones and Ms. Raymond, the executive officers of Patriot,
and retains appropriate support personnel to manage its operations in lieu of
retaining an advisor. Wyndham International employs approximately 30,000
persons, including Messrs. Carreker, Alibhai and Jones, the executive officers
of Wyndham International, and retains appropriate support personnel to manage
its operations, including operation of the 81 hotels leased from Patriot.
8
Environmental Matters
Neither Patriot, Wyndham International, the REIT Partnership nor the OpCo
Partnership has been identified by the United States Environmental Protection
Agency or any similar state agency as a responsible or potentially responsible
party for, nor have they been the subject of any governmental proceedings with
respect to, any hazardous waste contamination. If Patriot, Wyndham International
or any of their respective subsidiaries were to be identified as a responsible
party, they would in most circumstances be strictly liable, jointly and
severally with other responsible parties, for environmental investigation and
clean-up costs incurred by the government and, to a more limited extent, by
private persons.
Phase I environmental site assessments are performed on all of the Patriot
hotels prior to acquisition. To date, these assessments have not revealed any
environmental liability or compliance concerns that management believes would
have a material adverse effect on the Companies' business, assets, results of
operations or liquidity. Based on the results of these assessments, the
Companies and their outside consultants believe that the Companies' overall
potential for environmental impairment is low.
Based upon the environmental reports described above, the Companies believe
that a substantial number of the hotels incorporate potentially asbestos-
containing materials. Under applicable current federal, state and local laws,
asbestos need not be removed from or encapsulated in a hotel unless and until
the hotel is renovated or remodeled. The Companies have asbestos operation and
maintenance plans for each property testing positive for asbestos.
Based upon the above-described environmental reports and testing, future
remediation costs are not expected to have a material adverse effect on the
results of operations, financial position or cash flows of Patriot or Wyndham
International and compliance with environmental laws has not had and is not
expected to have a material adverse effect on the capital expenditures, earnings
or competitive position of the Companies.
Tax Status
Cal Jockey has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code (the "Code") since 1983. Patriot, as the successor
to Cal Jockey in the Cal Jockey Merger, intends to continue to elect to be taxed
as a REIT. Patriot generally will not be subject to federal income tax on its
taxable net income that is distributed currently to its shareholders. If Patriot
fails to qualify as a REIT in any taxable year, Patriot will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. However, even if Patriot
continues to qualify for taxation as a REIT, Patriot may be subject to certain
state and local taxes on its income and properties and federal income and excise
taxes under certain special circumstances.
Proposed Legislation Affecting The Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section
269B(a)(3) would ordinarily prevent a corporation from qualifying as a REIT if
its stock is paired with the stock of a corporation whose activities are
inconsistent with REIT status, such as Wyndham International. The
"grandfathering" rules governing Section 296B generally provide, however, that
Section 296B(a)(3) does not apply to a paired REIT if the REIT and the paired
operating company were paired on June 30, 1983. Patriot's and Wyndham
International's respective precedessors, Cal Jockey and Bay Meadows, were paired
on June 30, 1983. There are, however, no judicial or administrative authorities
interpreting this "grandfathering" rule in the context of a merger or otherwise.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a result
of future legislation. In this regard, on February 2, 1998, the Department of
Treasury released an explanation of the revenue proposals included in the
Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax
Proposals, among other things, include a freeze on the grandfathered status of
paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham
International would be treated as one entity with respect to properties acquired
on or after the date of the first Congressional committee action with respect to
such proposal and with respect to activities or services relating to such
properties that are undertaken or performed by one of the paired entities on or
after such date. The Tax Proposals would also prohibit REITs from holding stock
of a corporation possessing more than 10% of the vote or value of all classes
of stock of the corporation. This proposal would be effective with respect to
the stock acquired on or after the date of first Congressional committee action
with respect to the proposal; provided that the proposal would not apply to
stock acquired before such effective date if, on or after such date, the
subsidiary corporation engaged in a new trade or business or acquired
substantial new assets.
On March 26, 1998, William Archer, Chairman of the Ways and Means Committee
of the United States House of Representatives and William V. Roth, Jr., Chairman
of the Finance Committee of the United States Senate, introduced identical
legislation (the "Proposed Legislation") in both the House of Representatives
and the Senate to limit this "grandfathering rule." Under the Proposed
Legislation, the anti-pairing rules provided in the Code would apply to real
property interests acquired after March 26, 1998 by Patriot and Wyndham
International, or a subsidiary or partnership in which 10% or greater interest
is owned by Patriot or Wyndham International (collectively, the "REIT Group"),
unless (1) the real property interests are acquired pursuant to a written
agreement which is binding on March 26, 1998 and all times thereafter or (2) the
acquisition of such real property interests were described in a public
announcement or in a filing with the Securities and Exchange Commission on or
before March 26, 1998. In addition, the Proposed Legislation also provides that
a property held by Patriot or Wyndham International that is not subject to the
anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (x) the
undepreciated cost of the property (prior to the improvement) or (y) in the case
of property acquired where there is a substantial basis, the fair market value
of the property on the day it was acquired by Patriot and Wyndham International.
There is an exception for improvements placed in service before January 1, 2004
pursuant to a binding contract in effect as of December 31, 1999 and at all
times thereafter.
The above discussion is based solely on the Tax Proposals and the Proposed
Legislation. The Proposed Legislation will not become effective unless it is
duly passed by Congress and signed by the President. It is impossible at this
time to determine all of the ramifications which could result from enactment of
the Proposed Legislation. However, Patriot believes that the previously
announced and pending acquisitions of Interstate, Arcadian and Summerfield are
unaffected by the Proposed Legislation and expects that such acquisitions will
be completed as currently scheduled.
PENDING ADOPTION OF AUTHORITATIVE STATEMENTS
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Reporting
Comprehensive Income." Statement 130 requires that all components of
comprehensive income and the ending accumulated balances for each item,
classified by their nature, be reported in the financial statements in the
period in which they are recognized. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Companies will be required to adopt
Statement 130 beginning with their interim financial statements for the first
quarter of 1998. Comparative financial statements for prior years presented in
these interim financial statements are required to be reclassified to conform to
the new Statement 130 presentation. Management does not anticipate that adoption
of Statement 130 reporting requirements will have a material impact on the
operating results or financial position of the Companies.
Segment Reporting
In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. SFAS 131 changes current practice by
establishing a new framework on which to base segment reporting, including the
determining of a segment and the financial information to be disclosed for each
segment, referred to as "management" approach. The management approach requires
that management identify "operating segments" based on the way that management
disaggregates the entity for making internal operating decisions. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of information for earlier periods. Management is determining the
segments to be disclosed and intends to adopt the statement for the year ended
December 31, 1998.
ITEM 2. PROPERTIES
MARKET SEGMENTATION
Patriot classifies its hotels into four primary market segments: (i) full
service, (ii) limited service, (iii) resorts, and (iv) conference center.
As of December 31, 1997, Patriot owned 81 full service hotels aggregating
over 21,700 guest rooms, which target both business and leisure travelers,
including meetings and groups, who prefer a full range of facilities, services
and amenities. At year end, all but four of Patriot's full service hotels were
operated under franchise or brand affiliations with nationally recognized hotel
companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(R)/, Hilton/(R)/,
Hyatt/(R)/, Four Points by Sheraton/(R)/, Holiday Inn/(R)/, Wyndham/TM/, Wyndham
Garden/(R)/, WestCoast/(R)/, Doubletree/(R)/, Embassy Suites/(R)/,
Carefree/(R)/, Grand Heritage/(R)/, Marriott/(R)/, Marriott Courtyard/(R)/,
Sheraton/(R)/, and Grand Bay/(R)/. Full service hotels generally offer a full
range of meeting and conference facilities and banquet space. Facilities
generally include restaurants and lounge areas, gift shops and recreational
facilities, including swimming pools. Full service hotels generally provide a
significant array of guest services, including room service, valet services and
laundry. Three of Patriot's hotels, the Bourbon Orleans Hotel in New Orleans the
Fairmount Hotel in San Antonio and the Park Shore Hotel in Honolulu, are luxury
hotels in major U.S. tourist markets.
9
The Tremont House Hotel in Boston, operates as an upscale full service hotel in
a major U.S. market.
Patriot owns four limited service hotels aggregating 447 guest rooms, which
target both business and leisure travelers. Patriot's limited service hotels
consist of four Hampton Inns/(R)/. Limited service hotels generally have limited
or no meeting space. Hotels operating in this market segment generally seek to
minimize operational costs by offering only those basic services required by
travelers. Because they cater to both business and leisure travelers, limited
service hotels generally maintain relatively consistent occupancy on weekdays
and weekends.
As of December 31, 1997, Patriot owned five resort properties aggregating
978 guest rooms, including the Wyndham/TM/ Resort & Spa in Fort Lauderdale,
Florida (formerly the Bonaventure Resort & Spa) and the four Carefree/(R)/
resort properties which were acquired in January 1997. Resorts are designed to
offer unique destinations which appeal to today's sophisticated vacation
traveler and to blend with their environment, enhancing the natural surroundings
with design that fits the locale. Each resort's recreational activities are of
the highest caliber and are designed to capitalize on the natural attractions of
the location. Many offer a combination of golf, tennis, skiing, a health spa,
hiking or other sports.
Patriot owns one conference center with 250 guest rooms, which targets
corporate and other executive groups. Conference centers are distinguishable
from traditional full service hotels in that they are dedicated, designed and
equipped to handle all services for large meetings and conferences. Conference
centers typically offer state-of-the-art meeting and conference rooms, with a
full complement of business support services. Conference centers generally
include banquet and ballroom facilities, and restaurant and bar facilities. In
addition, facilities generally include a fitness center, swimming pool and
tennis courts. Because of the specialized nature of conference centers, there
are relatively few such properties in the U.S.
DESCRIPTION OF PROPERTIES
The following table sets forth certain information for the year ended
December 31, 1997 and 1996 with respect to the hotels Patriot owned as of
December 31, 1997. This information reflects actual operating results of the
hotels both prior and subsequent to acquisition by Patriot.
10
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
FULL SERVICE HOTELS:
Amassador West.................. Chicago, IL................. 219 1924 $ 8,387 $ 8,144 66.3% 66.2%
Bourbon Orleans Hotel (2)....... New Orleans, LA............. 216 1800s/1995 9,409 8,248 83.7 83.3
The Buttes...................... Tempe, AZ................... 353 1986 27,917 27,120 78.5 83.5
Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 495 1986 23,617 24,237 69.9 71.0
Crowne Plaza Toledo............. Toledo, OH.................. 241 1985 7,804 7,224 63.5 63.1
Doubletree Allen Center (2)..... Houston, TX................. 341 1978/1984 14,236 13,207 67.6 67.2
Doubletree Hotel................ Des Plaines (Chicago), IL... 242 1969/1997 5,011 5,100 62.7 81.4
Doubletree Guest Suites (2)..... Glenview, IL................ 252 1988 10,277 8,705 80.3 75.7
Doubletree Hotel................ Minneapolis, MN............. 230 1986 6,177 6,084 61.0 68.7
Doubletree Hotel................ Tallahassee, FL............. 244 1977/1997 4,522 3,946 48.6 59.4
Doubletree Hotel (2)............ Tulsa, OK................... 417 1982 10,630 10,699 63.3 68.7
Doubletree Hotel................ Westminster (Denver), CO.... 180 1980/1992 6,244 5,566 74.1 73.4
Doubletree - Anaheim (2)........ Orange, CA.................. 454 1984 14,627 13,473 67.2 70.3
Doubletree - Miami Airport...... Miami, FL................... 266 1975/1997 4,660 4,499 56.4 53.4
Doubletree - Post Oak (2)....... Houston, TX................. 449 1982 22,598 19,942 75.7 72.2
Doubletree - Corporate Woods (2) Overland Park, KS........... 356 1982 15,734 14,674 73.0 75.5
Doubletree - St Louis (2)....... Chesterfield, MO............ 223 1984 13,404 12,341 73.2 74.1
Doubletree Park Place........... Minneapolis, MN............. 298 1981 9,912 11,049 66.1 73.9
Embassy Suites.................. Hunt Valley, MD............. 223 1985/1995 6,828 6,399 71.9 71.3
Fairmount Hotel................. San Antonio, TX............. 37 1906/1994 2,623 2,838 66.3 77.6
Four Points by Sheraton......... Saginaw, MI................. 156 1984 3,627 3,980 66.6 70.5
Grand Bay Hotel Coconut Grove(2) Miami, FL................... 178 1983 17,460 15,753 75.8 67.9
Del Mar Hilton.................. Del Mar (San Diego), CA..... 245 1989 9,660 8,209 74.9 69.8
Hilton Cleveland South.......... Independence, OH............ 191 1980/1994 9,345 8,117 66.5 69.2
Melbourne Airport Hilton........ Melbourne, FL............... 237 1986 6,595 6,004 70.3 65.8
Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 385 1974 16,254 14,797 72.8 69.3
Holiday Inn..................... San Angelo, TX.............. 148 1984/1994 3,251 3,124 67.6 71.3
Holiday Inn..................... San Francisco, CA........... 224 1964 8,355 7,636 87.7 87.3
Holiday Inn..................... Sebring, FL................. 148 1983/1995 2,806 2,510 56.8 55.2
Holiday Inn Aristocrat.......... Dallas, TX.................. 172 1925/1994 4,929 4,881 66.1 69.7
Holiday Inn Crockett............ San Antonio, TX............. 206 1909/1996 5,185 5,090 65.8 65.3
Holiday Inn Lenox............... Atlanta, GA................. 297 1987/1995 7,003 7,891 63.2 68.2
Holiday Inn Northwest Plaza..... Austin, TX.................. 193 1984/1994 5,808 6,222 72.4 79.6
Holiday Inn Northwest........... Houston, TX................. 193 1982/1994 3,461 3,046 64.4 62.7
Holiday Inn - YO Ranch.......... Kerrville, TX............... 200 1984 3,936 4,051 50.3 57.4
Holiday Inn Redmont Hotel....... Birmingham, AL.............. 112 1925/1991 1,538 1,735 49.5 53.2
Holiday Inn Westlake............ Beachwood, OH............... 266 1980 8,585 8,052 80.3 75.0
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
Full Service Hotels:
Amassador West.................. Chicago, IL................. $110.69 $106.11 $ 73.44 $ 70.28
Bourbon Orleans Hotel (2)....... New Orleans, LA............. 133.69 120.17 111.94 100.16
The Buttes...................... Tempe, AZ................... 140.94 128.11 110.61 106.99
Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 116.44 119.74 81.44 85.05
Crowne Plaza Toledo............. Toledo, OH.................. 83.96 79.08 53.29 49.91
Doubletree Allen Center (2)..... Houston, TX................. 102.58 91.96 69.30 61.80
Doubletree Hotel................ Des Plaines (Chicago), IL... 72.18 56.67 45.23 46.10
Doubletree Guest Suites (2)..... Glenview, IL................ 95.15 85.39 76.41 64.67
Doubletree Hotel................ Minneapolis, MN............. 93.81 77.31 57.21 53.12
Doubletree Hotel................ Tallahassee, FL............. 73.60 47.73 35.76 28.37
Doubletree Hotel (2)............ Tulsa, OK................... 69.39 63.03 43.92 43.29
Doubletree Hotel................ Westminster (Denver), CO.... 82.44 73.99 61.09 54.28
Doubletree - Anaheim (2)........ Orange, CA.................. 80.81 69.54 54.28 48.88
Doubletree - Miami Airport...... Miami, FL................... 67.56 71.71 38.12 38.26
Doubletree - Post Oak (2)....... Houston, TX................. 102.57 94.17 77.68 67.98
Doubletree - Corporate Woods (2) Overland Park, KS........... 97.34 88.01 71.02 66.47
Doubletree - St Louis (2)....... Chesterfield, MO............ 95.45 90.76 69.90 67.28
Doubletree Park Place........... Minneapolis, MN............. 79.24 72.67 52.38 53.67
Embassy Suites.................. Hunt Valley, MD............. 90.47 85.07 65.03 60.63
Fairmount Hotel................. San Antonio, TX............. 158.90 144.71 105.41 112.32
Four Points by Sheraton......... Saginaw, MI................. 59.38 62.95 39.52 44.36
Grand Bay Hotel Coconut Grove(2) Miami, FL................... 226.77 205.24 171.86 139.39
Del Mar Hilton.................. Del Mar (San Diego), CA..... 92.81 84.50 69.55 58.99
Hilton Cleveland South.......... Independence, OH............ 92.96 86.34 61.86 59.74
Melbourne Airport Hilton........ Melbourne, FL............... 66.03 61.56 46.42 40.53
Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 93.99 88.46 68.45 61.31
Holiday Inn..................... San Angelo, TX.............. 63.36 60.54 42.80 43.15
Holiday Inn..................... San Francisco, CA........... 84.98 72.95 74.50 63.72
Holiday Inn..................... Sebring, FL................. 63.14 57.78 35.86 31.91
Holiday Inn Aristocrat.......... Dallas, TX.................. 92.73 88.10 61.33 61.45
Holiday Inn Crockett............ San Antonio, TX............. 86.41 85.25 56.86 55.64
Holiday Inn Lenox............... Atlanta, GA................. 83.84 88.96 53.00 60.63
Holiday Inn Northwest Plaza..... Austin, TX.................. 85.03 83.75 61.59 66.65
Holiday Inn Northwest........... Houston, TX................. 59.61 54.69 38.38 34.31
Holiday Inn - YO Ranch.......... Kerrville, TX............... 75.35 66.18 37.93 38.01
Holiday Inn Redmont Hotel....... Birmingham, AL.............. 58.11 58.45 28.78 31.07
Holiday Inn Westlake............ Beachwood, OH............... 73.49 72.01 59.04 54.04
See notes on page 13.
11
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
FULL SERVICE HOTELS - CONTINUED:
Holiday Inn Select.............. Farmers Branch (Dallas), TX. 374 1979/1994 $ 9,827 $ 10,271 63.0% 69.4%
Hyatt Newporter................. Newport Beach, CA........... 410 1962 22,686 19,940 74.7 74.6
Hyatt Regency................... Lexington, KY............... 365 1977/1992 13,007 12,457 61.3 63.2
Marriott Hotel.................. Troy, MI.................... 350 1990 21,010 18,815 77.8 78.2
Marriott Courtyard.............. Beachwood, OH............... 113 1986 3,591 3,159 79.1 83.8
The Mayfair Hotel............... St. Louis, MO............... 182 1925/1990 4,205 4,316 50.3 56.5
Omni Inner Harbour Hotel........ Baltimore, MD............... 707 1968 24,860 21,161 68.2 64.7
Park Shore Honolulu (4)......... Honolulu, HI................ 227 1968 -- -- -- --
Radisson Suites Town & Country.. Houston, TX................. 173 1986/1992 4,608 4,422 77.0 69.9
Radisson Hotel & Suites......... Dallas, TX.................. 198 1986/1994 5,274 5,278 72.2 72.4
Radisson Northbrook............. Northbrook, IL.............. 310 1976/1994 7,562 6,793 71.7 67.6
Radisson New Orleans Hotel...... New Orleans, LA............. 759 1924/1995 22,771 20,720 67.3 68.1
Radisson Suite Hotel............ Kansas City, KS............. 240 1931/1989 6,135 5,661 61.5 64.5
Radisson Overland Park.......... Overland Park, KS........... 190 1974 4,518 4,506 64.8 67.0
Radisson Hotel (2).............. Beachwood, OH............... 196 1968 5,846 5,634 74.8 80.6
Radisson Hotel.................. Akron, OH................... 130 1989 2,946 2,982 67.3 68.8
Radisson Riverwalk.............. Jacksonville, FL............ 322 1979/1996 10,453 9,507 81.1 77.7
Ramada Inn...................... San Francisco, CA........... 323 1962 7,616 7,419 89.7 90.7
Sheraton City Centre............ Washington, D.C............. 353 1969 13,976 12,604 69.4 64.7
Sheraton Gateway - Miami Airport Miami, FL................... 408 1976/1995 13,380 11,996 74.2 75.3
Sheraton Grand Hotel (2)........ Tampa, FL................... 324 1984 17,333 15,247 71.8 68.2
Tremont House................... Boston, MA.................. 322 1925/* 12,392 10,317 74.0 75.1
The Tutwiler.................... Birmingham, AL.............. 147 1913/1986 3,811 4,084 61.0 67.8
Union Station................... Nashville, TN............... 124 1986 3,749 3,571 53.2 56.1
WestCoast Gateway............... Seattle, WA................. 145 1990 2,970 2,726 84.8 83.4
WestCoast Hotel & Marina........ Long Beach, CA.............. 195 1978/1997 2,657 2,934 32.0 44.7
WestCoast Pickwick Hotel........ San Francisco, CA........... 189 1928/* 3,618 3,431 58.5 65.4
WestCoast Plaza Park Suites..... Seattle, WA................. 193 1928/* 6,813 6,479 76.1 73.3
WestCoast Roosevelt Hotel....... Seattle, WA................. 151 1929/1987 4,372 4,102 74.1 73.8
WestCoast Valley River Inn...... Eugene, OR.................. 257 1973 10,634 9,963 67.1 67.9
WestCoast Wenatchee Center Hotel Wenatchee, WA............... 147 1988/1994 4,136 4,229 57.3 64.1
Wyndham Bel Age Hotel........... Los Angeles, CA............. 200 1984 14,995 15,023 77.0 77.0
Wyndham Emerald Plaza (2)....... San Diego, CA............... 436 1991 19,798 17,980 76.0 74.1
Wyndham Franklin Plaza.......... Philadelphia, PA............ 758 1979 35,842 33,358 72.6 74.0
Wyndham Greenspoint Hotel (2)... Houston, TX................. 472 1985/1995 21,134 19,063 70.2 72.6
Wyndham Northwest Chicago....... Chicago, IL................. 408 1983 24,377 23,252 67.2 67.8
Wyndham Riverfront Hotel........ New Orleans, LA............. 202 1996 -- -- -- --
Wyndham WindWatch (4)........... Long Island, NY............. 360 1989 17,580 18,211 68.4 75.6
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
FULL SERVICE HOTELS - CONTINUED:
Holiday Inn Select.............. Farmers Branch (Dallas), TX. $ 79.09 $ 75.06 $ 49.86 $ 52.08
Hyatt Newporter................. Newport Beach, CA........... 111.28 98.54 83.11 73.50
Hyatt Regency................... Lexington, KY............... 89.47 84.22 54.82 53.23
Marriott Hotel.................. Troy, MI.................... 118.86 109.41 92.51 85.61
Marriott Courtyard.............. Beachwood, OH............... 97.25 80.44 76.89 67.44
The Mayfair Hotel............... St. Louis, MO............... 93.54 89.53 47.08 50.62
Omni Inner Harbour Hotel........ Baltimore, MD............... 99.08 91.38 67.61 59.10
Park Shore Honolulu (4)......... Honolulu, HI................ -- -- -- --
Radisson Suites Town & Country.. Houston, TX................. 87.32 83.09 67.28 58.11
Radisson Hotel & Suites......... Dallas, TX.................. 77.24 76.53 55.76 55.43
Radisson Northbrook............. Northbrook, IL.............. 76.95 68.00 55.16 45.98
Radisson New Orleans Hotel...... New Orleans, LA............. 87.82 81.08 59.06 55.17
Radisson Suite Hotel............ Kansas City, KS............. 81.96 73.37 50.43 47.34
Radisson Overland Park.......... Overland Park, KS........... 74.71 67.64 48.43 45.29
Radisson Hotel (2).............. Beachwood, OH............... 77.62 69.73 58.03 56.19
Radisson Hotel.................. Akron, OH................... 73.66 72.79 49.59 50.11
Radisson Riverwalk.............. Jacksonville, FL............ 71.81 68.28 58.26 53.07
Ramada Inn...................... San Francisco, CA........... 57.39 51.74 51.50 46.91
Sheraton City Centre............ Washington, D.C............. 121.29 115.19 84.16 74.56
Sheraton Gateway - Miami Airport Miami, FL................... 85.80 76.74 63.64 57.77
Sheraton Grand Hotel (2)........ Tampa, FL................... 102.39 93.75 73.54 63.98
Tremont House................... Boston, MA.................. 123.51 102.43 91.35 76.92
The Tutwiler.................... Birmingham, AL.............. 106.56 101.43 64.96 68.77
Union Station................... Nashville, TN............... 100.48 94.44 53.49 52.99
WestCoast Gateway............... Seattle, WA................. 60.37 55.55 51.17 46.31
WestCoast Hotel & Marina........ Long Beach, CA.............. 70.66 58.17 22.61 25.98
WestCoast Pickwick Hotel........ San Francisco, CA........... 79.01 66.82 46.23 43.71
WestCoast Plaza Park Suites..... Seattle, WA................. 116.23 114.38 88.48 83.82
WestCoast Roosevelt Hotel....... Seattle, WA................. 98.16 92.38 72.71 68.19
WestCoast Valley River Inn...... Eugene, OR.................. 92.79 88.76 62.23 60.24
WestCoast Wenatchee Center Hotel Wenatchee, WA............... 63.82 59.19 36.54 37.94
Wyndham Bel Age Hotel........... Los Angeles, CA............. 145.56 140.17 112.10 107.89
Wyndham Emerald Plaza (2)....... San Diego, CA............... 114.96 103.48 87.35 76.66
Wyndham Franklin Plaza.......... Philadelphia, PA............ 104.00 96.28 75.51 71.28
Wyndham Greenspoint Hotel (2)... Houston, TX................. 96.39 85.60 67.63 62.13
Wyndham Northwest Chicago....... Chicago, IL................. 111.39 102.85 74.88 69.74
Wyndham Riverfront Hotel........ New Orleans, LA............. -- -- -- --
Wyndham WindWatch (4)........... Long Island, NY............. 116.74 104.75 79.83 79.21
See notes on the following page.
12
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
FULL SERVICE HOTELS CONTINUED:
Wyndham Garden - Las Colinas.... Dallas, TX.................. 168 1986 $ 5,917 $ 5,744 73.3% 72.6%
Wyndham Garden - Midtown........ Atlanta, GA................. 191 1987/1994 6,439 7,475 71.1 72.8
Wyndham Garden - Novi........... Detroit, MI................. 148 1988 4,671 4,308 76.5 75.9
Wyndham Garden Hotel............ Pleasanton, CA.............. 171 1985 5,748 4,775 82.3 73.5
Wyndham Garden - Wood Dale...... Chicago, IL................. 162 1986 5,578 5,282 71.1 71.4
The Garden at LaGuardia (6)..... New York, NY................ 229 1988 -- -- -- --
------ -------- -------- ---- ----
21,716 $781,250 $733,788 69.6% 70.7%
------ -------- -------- ---- ----
LIMITED SERVICE HOTELS:
Hampton Inn Jacksonville Airport Jacksonville, FL............ 113 1985 $ 2,277 $ 2,165 84.5% 86.1%
Hampton Inn..................... Rochester, NY............... 113 1986 2,348 2,202 75.2 74.2
Hampton Inn Cleveland Airport... North Olmsted, OH........... 113 1986 2,063 1,978 67.7 72.2
Hampton Inn..................... Canton, OH.................. 108 1985 1,597 1,535 68.7 68.5
------ -------- -------- ---- ----
447 $ 8,285 $ 7,880 74.1% 75.3%
------ -------- -------- ---- ----
RESORTS:
The Boulders.................... Scottsdale, AZ.............. 160 1985 $ 34,125 $ 53,444 72.4% 78.7%
Carmel Valley Ranch............. Carmel, CA.................. 100 1987 13,904 15,932 75.9 76.2
The Lodge at Ventana Canyon (2). Tucson, AZ.................. 49 1985/1995 12,952 12,298 68.1 68.0
The Peaks Resort & Spa.......... Telluride, CO............... 177 1992/1993 17,615 19,774 60.0 57.6
Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 492 1981/* 19,633 18,280 49.7 51.2
------ -------- -------- ---- ----
978 $ 98,229 $119,728 58.9% 59.7%
------ -------- -------- ---- ----
CONFERENCE CENTER:
Peachtree Conference Center..... Peachtree City (Atlanta), GA 250 $ 14,996 $ 15,086 58.8% 59.3%
------ -------- -------- ---- ----
Total/Weighted Average 23,391(7) $902,760 $876,482 69.1% 70.2%
====== ======== ======== ==== ====
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
FULL SERVICE HOTELS CONTINUED:
Wyndham Garden - Las Colinas.... Dallas, TX.................. $102.35 $100.47 $ 75.02 $ 72.95
Wyndham Garden - Midtown........ Atlanta, GA................. 98.99 107.94 70.41 78.59
Wyndham Garden - Novi........... Detroit, MI................. 82.43 74.83 63.05 56.77
Wyndham Garden Hotel............ Pleasanton, CA.............. 91.59 82.62 75.39 60.71
Wyndham Garden - Wood Dale...... Chicago, IL................. 93.10 86.76 66.17 61.97
The Garden at LaGuardia (6)..... New York, NY................ -- -- -- --
------- ------- ------- -------
$ 94.82 $ 87.05 $ 65.98 $ 61.54
------- ------- ------- -------
LIMITED SERVICE HOTELS:
Hampton Inn Jacksonville Airport Jacksonville, FL............ $ 62.81 $ 58.53 $ 53.09 $ 50.39
Hampton Inn..................... Rochester, NY............... 72.96 69.31 54.84 51.45
Hampton Inn Cleveland Airport... North Olmsted, OH........... 71.23 64.28 48.25 46.43
Hampton Inn..................... Canton, OH.................. 56.44 54.19 38.79 37.14
------- ------- ------- -------
$ 65.93 $ 61.66 $ 48.85 $ 46.46
------- ------- ------- -------
RESORTS:
The Boulders.................... Scottsdale, AZ.............. $326.91 $333.14 $236.55 $262.33
Carmel Valley Ranch............. Carmel, CA.................. 255.89 235.80 194.22 179.63
The Lodge at Ventana Canyon (2). Tucson, AZ.................. 216.40 184.85 147.26 125.67
The Peaks Resort & Spa.......... Telluride, CO............... 245.58 221.26 147.25 127.36
Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 106.07 92.50 52.76 47.33
------- ------- ------- -------
$201.54 $184.19 $118.63 $110.05
------- ------- ------- -------
CONFERENCE CENTER:
Peachtree Conference Center..... Peachtree City (Atlanta), GA $116.67 $117.28 $ 68.57 $ 69.52
------- ------- ------- -------
Total/Weighted Average $ 98.28 $ 90.22 $ 67.91 $ 63.34
======= ======= ======= =======
______________________
(1) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998.
(3) The Crowne Plaza Ravinia Hotel is owned by PAH Ravinia, Inc., an
unconsolidated subsidiary of Patriot. The hotel acquisition was
structured without a lessee.
(4) The Wyndham WindWatch Hotel is owned by PAH Windwatch, LLC, an
unconsolidated subsidiary of Patriot. The hotel acquisition was
structured without a lessee.
(5) Revenue and revenue statistical information is not available from the prior
owner of this hotel.
(6) Revenue statistical information not available because the hotel was out of
service for renovations or construction.
(7) Subsequent to December 31, 1997, the Companies acquired 27 additional
hotel properties with a total of over 6,000 guest rooms. As a result, as of
March 25, 1998, the Companies owned 118 hotels with an aggregate of over
29,400 guest rooms.
* Renovations are in progress at these hotels.
13
HOTELS ACQUIRED BY PATRIOT SUBSEQUENT TO YEAR END:
Year Ended December 31, 1997
---------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- --------- ------- --------- --- ------
FULL SERVICE HOTELS:
Buena Vista Palace Hotel
Orlando, FL (1)................................. 1,014 1983/1997 $68,633 82.4% $139.84 $115.23
Snavely Holiday Inn
Beachwood, OH (2)............................... 173 1974 5,073 72.0 86.60 62.32
Wyndham Bristol Place Hotel
Toronto, Canada................................. 287 1974/* 10,160 75.2 116.41 87.57
Wyndham Garden Brookfield
Brookfield, IL.................................. 178 1990 5,223 75.7 74.83 56.63
Wyndham Garden - Charlotte
Charlotte, NC................................... 173 1989 5,165 71.6 83.39 59.71
Wyndham Garden - Commerce
Los Angeles, CA (3)............................. 201 1991 6,867 69.8 83.25 58.14
Wyndham Garden - Market Center
Dallas, TX...................................... 230 1968/1997 4,274 64.0 90.90 58.14
Wyndham Garden - Indianapolis
Indianapolis, IN................................ 171 1990 4,789 67.7 77.58 52.53
Wyndham Garden - Overland Park
Overland Park, KS............................... 181 1971/1997 3,649 60.3 78.53 47.34
Wyndham Garden - Schaumburg
Schaumburg, IL.................................. 188 1985 5,448 71.1 86.94 61.85
Wyndham Garden - Vinings
Atlanta, GA (2)................................. 159 1985 5,018 70.2 86.77 60.92
ClubHouse Inn - Albuquerque
Albuquerque, NM................................. 137 1987 2,229 63.8 65.14 41.54
ClubHouse Inn - Atlanta (Norcross)
Atlanta, GA (2)................................. 147 1988 2,222 57.3 68.76 39.39
ClubHouse Inn - Knoxville
Knoxville, TN (2)............................... 137 1989 2,247 63.7 57.29 42.89
ClubHouse Inn - Nashville Airport
Nashville, TN................................... 135 1988 2,401 71.5 65.74 47.01
ClubHouse Inn & Conference Center
Nashville, TN................................... 285 1991/* 6,350 71.5 75.11 53.68
ClubHouse Inn - Overland Park
Overland Park, KS (2)........................... 143 1988 2,916 76.7 70.05 53.74
ClubHouse Inn - Topeka
Topeka, KS...................................... 121 1986 2,100 74.3 61.90 45.99
ClubHouse Inn - Valdosta
Valdosta, GA.................................... 121 1988 2,079 79.0 57.27 45.24
ClubHouse Inn - Wichita
Wichita, KS (2)................................. 120 1985 2,226 76.7 63.69 48.85
ClubHouse Inn - Savannah
Savanna, GA..................................... 138 1989 2,163 69.8 59.98 41.89
ClubHouse Inn - Kansas City Airport
Kansas City, MO................................. 138 1992/* 2,622 71.9 65.37 47.01
ClubHouse Inn - Omaha
Omaha, NE (2)................................... 137 1991 2,686 73.3 70.26 51.49
ClubHouse Inn - Richardson
Richardson, TX.................................. 137 1996 2,198 58.9 71.20 41.91
ClubHouse Inn - St. Louis
St. Louis, MO................................... 142 1997 -- -- -- --
RESORTS:
Wyndham Rose Hall Resort
Montego Bay, Jamaica (3)........................ 489 1972/1997 $18,637 63.2% $ 83.17 $ 52.57
14
The Companies also acquired the following leasehold interests in connection
with the Wyndham Merger. These hotels are leased from unaffiliated third parties
under long-term lease agreements. The leasehold interests are held by special
purpose entities in which Patriot owns a 99% non-controlling ownership interest
and Wyndham International owns a 1% controlling ownership interest.
Year Ended December 31, 1997
---------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- --------- ------- --------- --- ------
LEASED HOTELS:
Wyndham Harbour Island
Tampa, FL (3)................................... 300 1986 $14,269 71.4% $113.86 $ 81.28
Wyndham Garden - Perimeter
Atlanta, GA..................................... 143 1987 3,643 64.7 82.71 53.48
Wyndham Garden - Bloomington
Minneapolis, MN................................. 209 1988 7,348 79.6 82.96 66.00
Wyndham Garden - Bothell
Seattle, WA..................................... 166 1989 5,471 76.9 83.57 64.25
Wyndham Garden - Chandler
Chandler, AZ.................................... 159 1987 5,652 82.5 90.59 74.76
Wyndham Garden - Naperville
Chicago, IL..................................... 143 1986 4,269 76.6 81.98 62.76
Wyndham Garden - Nashville Airport
Nashville, TN................................... 180 1987 5,329 74.2 83.62 62.04
Wyndham Garden - North Phoenix
Phoenix, AZ..................................... 166 1988 4,623 73.8 79.37 58.60
Wyndham Garden - North San Diego
San Diego, CA................................... 180 1989 6,735 85.5 89.18 76.25
Wyndham Garden - Phoenix Airport
Phoenix, AZ..................................... 210 1987 7,455 72.4 100.40 72.70
Wyndham Garden - Salt Lake City
Salt Lake City, UT.............................. 381 1985/* 13,523 70.8 96.35 67.51
Wyndham Garden - Seattle/Tacoma
Seattle, WA (3)................................. 204 1988 6,983 74.7 92.29 68.98
Wyndham Garden - Sunnyvale
San Jose, CA.................................... 180 1987 8,120 85.6 115.43 98.80
(1) Patriot owns a 95% equity interest in the joint venture that owns this
hotel. The hotel is also encumbered by a ground lease, a $50.3 million
first lien mortgage note and a $23.8 million Participating Note held by
Wyndham International.
(2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998.
(3) These hotels (and in the case of the Wyndham Rose Hall Resort, the golf
course adjacent to the hotel property) are subject to ground leases which,
including renewal options, expire between 2018 and 2077.
* Renovations are in progress at these hotels.
In addition, as a result of the Wyndham Merger, Patriot acquired one hotel
that is currently closed for renovation, investment interests in two additional
hotels, 42 hotels under management contracts and eight franchised hotels, which
in the aggregate contain approximately 13,900 guest rooms.
15
HOTELS ACQUIRED BY WYNDHAM INTERNATIONAL SUBSEQUENT TO YEAR END:
Year Ended December 31, 1997
----------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- ----------- -------- --------- --- --------
RESORTS:
Condado Plaza Hotel & Casino
San Juan, Puerto Rico........................... 570 1959/1962 $12,465 82.0% $143.84 $117.97
In addition, Wyndham International acquired a 50% equity interest in the
388-room El San Juan Hotel & Casino in Carolina, Puerto Rico and a 23.3% equity
interest in the 751-room El Conquistador Resort & Country Club in Las Croabas,
Puerto Rico in connection with the WHG Merger.
OPERATION OF THE HOTELS
As described in "Item 1 Description of Business," Patriot leases each of
the hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch
Hotel to Wyndham International or the Lessees pursuant to separate Participating
Leases. The Participating Leases have an average term of approximately five
years, with various expiration dates through 2008, subject to earlier
termination upon the occurrence of certain contingencies described in the
Participating Leases (including, particularly, irreparable damage or destruction
of the hotel, condemnation of the hotel property, failure to meet performance
goals, or disposition of the hotel). The variation of the lease terms is
intended to provide Patriot protection from the risk inherent in simultaneous
lease expirations.
In general, each Participating Lease requires the lessee of each hotel to
pay the greater of (i) Base Rent in a fixed amount or (ii) Participating Rent
based on percentages of room revenue, food and beverage revenue and other
revenue at each hotel leased by it, plus certain additional charges. In general,
Patriot is responsible for paying (i) real estate and personal property taxes on
the hotels (except to the extent that personal property associated with the
hotels is owned by the Lessee), (ii) casualty insurance on the hotels, (iii)
business interruption insurance on the hotels and (iv) ground rent with respect
to certain of the hotels. The lessees (including Wyndham International) are
required to pay for all liability insurance on the hotels it leases, with
extended coverage, including comprehensive general public liability, workers'
compensation and other insurance appropriate and customary for properties
similar to the hotels, with Patriot as an additional named insured.
Patriot carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to all of its hotels, with policy
specifications, insured limited and deductibles customarily carried for similar
properties. Patriot will carry similar insurance with respect to any other
properties developed or acquired in the future. Management of Patriot believes
its hotel investments are adequately insured in accordance with industry
standards.
Generally, the inventory required in the operation of the hotels is
transferred to the Lessee upon acquisition of the hotel. Upon termination of the
Participating Lease, the Lessee is obligated to surrender the related hotel
together with all such inventory to Patriot.
FRANCHISE AND BRAND AFFILIATIONS
As of December 31, 1997, all but four of Patriot's hotels are operated
under franchise or brand affiliations with nationally recognized hotel
companies. Franchisors and brand operators provide a variety of benefits for
hotels which include national advertising, publicity and other marketing
programs designed to increase brand awareness, training of personnel, continuous
review of quality standards and centralized reservation systems. The hotel
lessee is the licensee under the franchise agreement related to such hotel. The
hotel lessee is responsible for making all payments under the franchise
agreements to the franchisors. Franchise royalties and fees generally range from
1% to 10% of room revenue. The duration of the franchise agreements are varied,
but generally may be terminated upon prior notice and/or upon payment of certain
specified fees. However, the hotel lessees are not entitled to terminate the
franchise license for a hotel without prior written consent of Patriot.
16
The franchise licenses generally specify certain management, operational,
record keeping, accounting, reporting and marketing standards and procedures
with which the hotel lessee must comply. The franchise licenses obligate the
hotel lessee to comply with the franchisors' standards and requirements with
respect to training of operational personnel, safety, maintaining specified
insurance, the types of services and products ancillary to guest room services
that may be provided by the lessees, display of signage, and the type, quality
and age of furniture, fixtures and equipment included in guest rooms, lobbies
and other common areas. Compliance with such standards may from time to time
require significant expenditures for capital improvements.
The franchisors have agreed that upon the occurrence of certain events of
default by a lessee under a franchise license, the franchisors will transfer the
franchise license for the hotel to Patriot (or its designee) or make other
arrangements to continue the hotel as part of the franchisor's system.
The lessees' rights related to branded hotels are generally contained in
the management agreements related to such hotels. The lessees do not pay
additional franchise royalties or fees other than those specified in the
management agreements for use of the brands. Generally, the lessees' rights to
use the brands terminate upon any termination of the applicable management
agreement.
MANAGEMENT OF THE HOTELS
The Lessees (including Wyndham International) have entered into management
contracts with the Operators to operate and manage each of the hotels leased
from Patriot. As of December 31, 1997, 31 of Patriot's hotels were managed by
operators affiliated with Wyndham International (as of March 25, 1998, 68 of
Patriot's hotels were managed by operators affiliated with Wyndham
International). The management agreements provide for management fees based upon
a percentage of total revenue at each of the hotels managed by them. The
management fees generally range from 1% to 5% of total revenues. Generally, in
the event of the termination of any of the Participating Leases with the hotel
lessees, the related management agreement also terminates. Generally, the
management agreements also provide for the subordination of certain management
fee payments to the Lessees' obligations pursuant to the Participating Leases.
MAINTENANCE AND IMPROVEMENTS
The Participating Leases obligate Patriot to establish annually a reserve
for capital improvements at the hotels leased to the Lessees (including the
periodic replacement and refurbishment of furniture, fixtures and equipment
("FF&E")). Patriot and the Lessees agree on the use of funds in these reserves,
and Patriot has the right to approve the Lessees' annual and long-term capital
expenditure budgets. The aggregate minimum amount of such reserves average 4.0%
of total revenue for the hotels. Patriot, at its election, may chose to expend
more than 4.0% on any hotel. Any unexpended amounts will remain the property of
Patriot upon termination of the Participating Leases. Otherwise, the Lessees are
required, at their own expense, to make repairs (other than capital repairs)
which may be necessary and appropriate to keep their leased hotels in good order
and repair.
BAY MEADOWS RACECOURSE
The Bay Meadows Racecourse is a horse race track located on approximately
174 acres of land in San Mateo, California which is used for Thoroughbred
racing. The principal Racecourse facilities include (i) the main one-mile dirt
horse race track with six furlongs and one and one-quarter mile chutes, inside
of which is a seven furlong turf course; (ii) the main structure which contains
a grandstand, a clubhouse and a turf club; (iii) a parking area; and (iv) a
barn and stable area situated on the track's infield area.
In connection with the Cal Jockey Merger, Patriot sold substantially all of
the land related to the Racecourse to an affiliate of PaineWebber Incorporated
("Paine Webber") for a purchase price of approximately $80.9 million (the
"PaineWebber Land Sale"). Patriot retained ownership of the improvements located
on the land, including the Racecourse and its related facilities.
Simultaneously with the consummation of the PaineWebber Land Sale, the
PaineWebber affiliate and Patriot entered into a ground lease covering a portion
of the land on which the Racecourse is situated for a term of seven years. The
lease provides for quarterly rental payments (starting at $750,000 and
escalating to $1,250,000 over the term of the lease) Patriot has subleased the
Racecourse land and leased the related improvements to Wyndham International in
order to permit Wyndham International to continue horse racing operations at the
Racecourse through the term of Patriot's lease. The sublease is for a term of
seven years with annual payments due
17
based on percentages of revenue generated. In addition, Patriot has leased
certain land adjacent to the Racecourse to Borders, Inc. for an initial term of
20 years (with fixed net annual rent starting at $279,000 and escalating to
$416,000 over the term of the lease). In connection with the sale, Patriot
assigned all of its rights and benefits under existing leases, contracts,
permits and entitlements related to the land sold (excluding the Borders Lease)
to the PaineWebber affiliate, and the PaineWebber affiliate assumed
substantially all of Patriot's development obligations including, but not
limited to, all obligations for on and off-site improvements and all obligations
under existing lease contracts. The parties have the option to renew such leases
upon their expiration under certain circumstances.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Patriot, Wyndham International and their
respective subsidiaries are currently not subject to any material legal
proceedings or claims nor, to management's knowledge, are any material legal
proceedings or claims currently threatened.
On April 14, 1997, an action styled Kwalbrun v. James D. Carreker, et. al.,
was filed in the Delaware Court of Chancery in and for New Castle County (the
"Wyndham Stockholders' Litigation"), purportedly as a class action on behalf of
the Old Wyndham stockholders, against Old Wyndham, Old Patriot and the members
of the Board of Directors of Old Wyndham. The complaint alleged that the Old
Wyndham Board of Directors breached its fiduciary duties owed to Old Wyndham's
public stockholders in connection with the Board of Directors' approval of the
Wyndham Acquisition. In particular, the complaint alleged that the Wyndham
Merger was negotiated at the expense of Old Wyndham's public stockholders, and
that the Old Wyndham Board of Directors permitted Old Patriot to negotiate on
more favorable terms the acquisition of certain hotels from members and
affiliates of the Trammell Crow family (the "Crow Assets Acquisition"). Old
Patriot is alleged to have knowingly aided and abetted the alleged breach of
fiduciary duties. The complaint sought to enjoin, preliminarily and permanently,
consummation of the Wyndham Merger and the Crow Assets Acquisition under the
terms presently proposed and also sought unspecified damages. The parties to the
Wyndham Stockholders' Litigation have entered into a Memorandum of
Understanding, as amended, which sets forth the principal bases for settlement
which included providing certain additional disclosures to the stockholders of
Old Wyndham, Patriot and Wyndham International related to the Wyndham Merger.
The Memorandum of Understanding, as amended, and the proposed settlement are
contingent upon execution of an appropriate and satisfactory Stipulation of
Settlement (the "Stipulation") and related documents, and the approval of the
Delaware Court of Chancery. It is currently anticipated that the parties to the
Memorandum of Understanding, as amended, will enter into the formal Stipulation
and present such Stipulation to the Delaware Court of Chancery for approval
during the second quarter of 1998.
The Lessees and the Operators have advised Patriot that they currently are
not involved in any material litigation, other than routine litigation arising
in the ordinary course of business, substantially all of which is expected to be
covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 31, 1997, Patriot, Patriot Operating Company and Wyndham held
their stockholder meetings to, among other things, approve the merger of Wyndham
into Patriot. At the Patriot stockholders meeting, the following votes were cast
by stockholders: (i) Approval of Wyndham Merger For 48,244,283; Against
125,578; and Abstain 160,582; (ii) Approval of the amendment to the pairing
agreement between Patriot and Patriot Operating Company For 48,241,349; Against
117,195; and Abstain 171,899; and (iii) Approval of the amendment and
restatement of the Certificate of Incorporation For 48,218,580; Against 120,761
and Abstain 191,102. At the Patriot Operating Company stockholders meeting, the
following votes were cast by stockholders: (i) Approval of Wyndham Merger For
48,240,549; Against 116,674; and Abstain 173,220; (ii) Approval of the amendment
to the pairing agreement between Patriot and Patriot Operating Company For
48,233,413; Against 123,566; and Abstain 173,464; and (iii) Approval of the
amendment and restatement of the Certificate of Incorporation For 48,219,711;
Against 131,904 and Abstain 178,818.
18
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal
Jockey changed its name to Patriot American Hospitality, Inc. The Cal Jockey
Merger was accounted for as a reverse acquisition and, consequently, the
historical financial information of Old Patriot became the historical financial
information of Patriot. The following table sets forth the quarterly high and
low sale prices per share as reported on the New York Stock Exchange ("NYSE") of
Old Patriot Common Stock (symbol "PAH") through July 1, 1997, and the
distributions paid by Old Patriot with respect to each such period. From and
after July 2, 1997, the following table sets forth the quarterly high and low
sale prices per share of the Paired Shares as reported on the NYSE (symbol
"PAH"). The sale prices and distributions in the table through July 1, 1997 have
been adjusted to reflect (i) Old Patriot's 2-for-1 stock split in March 1997,
(ii) the conversion of each share of Old Patriot Common Stock into 0.51895
Paired Shares issued in the Cal Jockey Merger and (iii) the Companies' 1.927-
for-1 stock split in July 1997.
Per Share
High (1) Low (1) Dividend (1)
------------------ ---------------- ------------------
1996:
First Quarter............................................. $14.44 $12.88 $ 0.2400
Second Quarter............................................ $14.81 $13.19 $ 0.2400
Third Quarter............................................. $16.81 $14.00 $ 0.2400
Fourth Quarter............................................ $22.00 $16.25 $ 0.2625
1997:
First Quarter............................................. $26.38 $20.75 $ 0.2625
Second Quarter............................................ $23.75 $18.50 $ 0.3225 (2)
Third Quarter............................................. $32.13 $22.00 $ 0.2625
Fourth Quarter............................................ $34.50 $26.88 $ 0.3200 (3)
- ---------------------
(1) Represents shares of Old Patriot Common Stock for periods through July 1,
1997, and Paired Shares for periods after July 1, 1997, except that
dividends have been paid only on shares of Patriot Common Stock for periods
after July 1, 1997. No dividends have been paid on shares of Wyndham
International Common Stock.
(2) Dividends paid for the second quarter of 1997 include a special dividend of
$0.06 per share paid by Old Patriot on June 30, 1997. To maintain its
qualification as a REIT prior to consummation of the Cal Jockey Merger, Old
Patriot was required to distribute to its stockholders any undistributed
"real estate investment trust taxable income" of Old Patriot for Old
Patriot's short taxable year ending with the consummation of the Cal Jockey
Merger.
(3) On January 5, 1998, Patriot declared a dividend of $0.32 per common share
to holders of record as of January 8, 1998. A portion of this dividend will
be used to reduce 1997 REIT taxable income of Patriot.
HOLDERS
As of March 25, 1998, there were approximately 3,500 record holders of the
Companies' Paired Shares, including shares held in "street name" by nominees who
are record holders, and approximately 26,600 shareholders.
DIVIDENDS
Patriot intends to continue to make regular quarterly distributions to its
shareholders. The Board of Directors, in its sole discretion, determines the
actual distribution rate based on a number of factors, including the amount of
cash available for distribution, Patriot's financial condition, capital
expenditure requirements for Patriot's properties, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code") and such other factors as the Board of Directors deems
relevant. Patriot's actual cash available for distribution is affected by a
number of factors, including changes in occupancy or ADR at its hotels.
19
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
In order to maintain its qualification as a REIT, Patriot must make annual
distributions to its shareholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, Patriot may be
required to make distributions in excess of cash available for distribution in
order to meet such distribution requirements. In such event, Patriot would seek
to borrow the amount of the deficiency or sell assets to obtain the cash
necessary to make distributions to retain its qualification as a REIT for
federal income tax purposes.
RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1997, the Companies have issued equity securities in
private placements in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") in the
amounts and for the consideration set forth below.
In October 1997, the REIT Partnership and the OpCo Partnership each issued
354,951 OP Units (with an aggregate value of approximately $8.3 million) to the
sellers of three hotels owned by affiliates of CHC Lease Partners as partial
consideration for the acquisition of these hotels by the REIT Partnership.
In December 1997, the REIT Partnership and the OpCo Partnership each issued
221,553 OP Units (with an aggregate value of approximately $6.4 million) to the
sellers of Wyndham Emerald Plaza as partial consideration for the acquisition of
that hotel by the REIT Partnership.
In December 1997, the Companies issued 3,250,000 Paired Shares to a
financial institution for aggregate consideration of approximately $93.6 million
in cash. The sale of the Paired Shares is subject to a price adjustment
agreement which matures in December 1998.
In February 1998, the Companies issued 4,900,000 Paired Shares to a
financial institution for aggregate consideration of approximately $121.8
million in cash. The sale of the Paired Shares is subject to a Purchase Price
Adjustment Mechanism which matures in February 1999.
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth selected separate and combined historical
financial information for Patriot and Wyndham International. The following
financial information should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements and notes thereto of
Patriot and Wyndham International included elsewhere in this Annual Report on
Form 10-K.
20
PATRIOT AND WYNDHAM INTERNATIONAL
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
PERIOD
OCTOBER 2, 1995
YEAR ENDED DECEMBER 31, (INCEPTION OF
--------------------------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- --------------------- --------------------
(in thousands, except per share data)
OPERATING DATA:
Total revenue...................................... $ 335,035 $ 76,493 $ 11,095
Income before income tax provision, minority
interests and extraordinary item.................. 4,142 44,813 7,064
Income before extraordinary item................... 362 37,991 6,096
Net (loss) income.................................. $ (2,172) $ 37,991 $ 5,359
PER SHARE DATA (1):
Basic earnings per share:
Income before extraordinary item.................. $ 0.01 $ 1.07 $ 0.21
Extraordinary item, net of minority interests..... (0.05) -- (0.03)
----------- --------- ---------
Net (loss) income per Paired Share................ $ (0.04) $ 1.07 $ 0.18
=========== ========= =========
Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18
=========== ========= =========
Dividends per Paired Share (2)..................... $ 1.1675 $ 0.9825 $ 0.24
=========== ========= =========
CASH FLOW DATA:
Cash provided by operating activities.............. $ 108,110 $ 61,196 $ 7,618
Cash used in investing activities.................. (1,193,079) (419,685) (306,948)
Cash provided by financing activities.............. 1,125,801 360,324 304,099
AS OF DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
(in thousands)
BALANCE SHEET DATA:
Investment in real estate and related improvements
and land held for development, at cost, net....... $ 2,044,649 $ 641,825 $ 265,759
Total assets....................................... 2,507,853 760,931 324,224
Total debt......................................... 1,112,337 214,339 9,500
Minority interest in Operating Partnerships........ 220,177 68,562 41,522
Minority interest in consolidated subsidiaries..... 49,694 11,711 --
Stockholders' equity............................... 989,892 437,039 261,778
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
YEAR ENDED DECEMBER 31, OPERATIONS)
------------------------------------------- THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- --------------------
(in thousands)
OTHER DATA:
Funds from operations (3).......................... $ 111,542 $ 64,463 $ 9,798
Cash available for distribution (4)................ 94,396 55,132 8,603
Weighted average number of common shares and OP
Units outstanding (5)............................. 65,981 42,200 34,001
See accompanying notes on page 23.
21
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD
OCTOBER 2, 1995
YEAR ENDED DECEMBER 31, (INCEPTION OF
-------------------------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- -------------------
OPERATING DATA:
Total revenue...................................... $ 185,554 $ 76,493 $ 11,095
Income before minority interests and extraordinary
item.............................................. 3,769 44,813 7,064
Income before extraordinary item................... 382 37,991 6,096
Net (loss) income.................................. $ (2,152) $ 37,991 $ 5,359
PER SHARE DATA (1):
Basic earnings per share:
Income (loss) before extraordinary item........... $ 0.01 $ 1.07 $ 0.21
Extraordinary item, net of minority interests..... (0.05) -- (0.03)
----------- ---------- ----------
Net income (loss) per common share................ $ (0.04) $ 1.07 $ 0.18
=========== ========== ==========
Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18
=========== ========== ==========
Dividends per common share (2)..................... $ 1.1675 $ 0.9825 $ 0.24
=========== ========== ==========
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS
ENDED
DECEMBER 31,
1997
-----------------
OPERATING DATA:
Total Revenue................................................................................. $ 204,134
Income before income tax provision and minority interests..................................... 373
Net loss...................................................................................... $ (20)
PER SHARE DATA (1):
Basic earnings per share...................................................................... $ --
=================
Diluted earnings per share.................................................................... $ --
=================
Dividends per common share (2)................................................................ $ --
=================
See accompanying notes on following page.
22
NOTES TO PATRIOT AND WYNDHAM INTERNATIONAL SELECTED FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend on March 18, 1997 to
stockholders of record on March 7, 1997. On July 1, 1997, by operation of
the Cal Jockey Merger, each issued and outstanding share of Old Patriot
Common Stock was converted into 0.51895 Paired Shares. In addition, on July
10, 1997, the respective Boards of Directors of Patriot and Wyndham
International declared a 1.927-for-1 stock split on their shares of common
stock effected in the form of a stock dividend distributed on July 25, 1997
to stockholders of record on July 15, 1997. All references herein to the
number of shares, per share amounts and market prices of the Paired Shares
and options to purchase Paired Shares have been restated to reflect the
impact of the Cal Jockey Merger and the above-described stock splits, as
applicable.
In addition, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("Statement 128"). Statement 128 specifies the computation,
presentation and disclosure requirements for basic earnings per share and
diluted earnings per share. The weighted average number of shares and
earnings per share amounts presented herein have been restated to reflect
the impact of Statement 128.
(2) Dividends paid for the year ended December 31, 1997 include a special
dividend of $0.06 per share paid by Old Patriot on June 30, 1997. To
maintain its qualification as a REIT prior to consummation of the Cal
Jockey Merger, Old Patriot was required to distribute to its stockholders
any undistributed "real estate investment trust taxable income" of Old
Patriot for Old Patriot's short taxable year ending with the consummation
of the Cal Jockey Merger. No dividends have been paid by Wyndham
International for the six months ended December 31, 1997.
(3) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations ("FFO") represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
or losses from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships,
joint ventures and corporations. Adjustments for Patriot's unconsolidated
subsidiaries are calculated to reflect FFO on the same basis. Patriot and
Wyndham International have also made certain adjustments to FFO for real
estate related amortization expense and the write off of certain costs of
acquiring leaseholds. FFO should not be considered as an alternative to net
income or other measurements under generally accepted accounting principles
as an indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. FFO does not
reflect working capital changes, cash expenditures for capital improvements
or principal payments on indebtedness. Under the Participating Leases,
Patriot is obligated to establish a reserve for capital improvements at its
hotels (including the replacement or refurbishment of FF&E) and to pay real
estate and personal property taxes and casualty insurance. Management
believes that FFO is helpful to investors as a measure of performance of an
equity REIT, because, along with cash flows from operating activities,
investing activities and financing activities, it provides investors with
an understanding of the ability of Patriot and Wyndham International to
incur and service debt and to make capital expenditures.
(4) Cash available for distributions represents FFO, as adjusted for certain
non-cash items (e.g., non-real estate related depreciation and
amortization), less reserves for capital expenditures.
(5) The number of limited partnership units of the Operating Partnerships ("OP
Units") used in the calculation is based on the equivalent number of Paired
Shares issuable upon redemption (after giving effect to the change in the
OP Unit conversion factor which coincides with the 2-for-1 stock split, the
conversion of shares in the Cal Jockey Merger and the 1.927-for-1 stock
split).
23
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Form 10-K constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act"). The words "believe", "expect", "anticipate",
"intend", "estimate" and other expressions which are predictions of or indicate
future events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements and to note that they speak only as of the date
hereof. Although forward-looking statements reflect management's good faith
beliefs, reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievement of the Companies to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. The Companies undertake
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise. Certain
factors that might cause a difference include, but are not limited to, risks
associated with the Companies' rapid growth and its ability to integrate its
existing operations, departments and systems with those acquired in the Wyndham
Merger and the WHG Merger and those being acquired in the Interstate Merger;
risks associated with the adoption of legislation, regulations or administrative
interpretations which could adversely affect the Companies' paired share
structure; Patriot's dependence upon rental payments from Wyndham International
and the Lessees for substantially all of Patriot's income and the dependence
upon the abilities of Wyndham International, the Lessees and the Operators (as
such terms are defined herein) to manage the hotels; risks associated with the
hotel industry and real estate markets in general; and risks associated with
debt financing.
BACKGROUND
ORGANIZATION
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing agreement. In connection
with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American
Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot
American Hospitality Operating Company" (collectively with its subsidiaries,
"Patriot Operating Company"). Subsequent to year end, as a result of the merger
of Wyndham Hotel Corporation with and into Patriot as discussed below, Patriot
Operating Company changed its name to Wyndham International, Inc. and is
referred to herein, collectively with its subsidiaries, as "Wyndham
International". The term "Companies" as used herein includes Patriot, Wyndham
International and their respective subsidiaries.
The Cal Jockey Merger has been accounted for as a reverse acquisition
whereby Cal Jockey is considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
became the historical financial information for Patriot. For accounting
purposes, Wyndham International commenced its operations concurrent with the
closing of the Cal Jockey Merger on July 1, 1997. The financial statements have
been adjusted for the purchase method of accounting whereby the Bay Meadows
Racecourse ("Racecourse") facilities and related leasehold improvements owned by
Cal Jockey and Bay Meadows have been adjusted to estimated fair market value.
The excess purchase consideration over the estimated fair market value of the
assets acquired and the liabilities assumed was recorded as goodwill.
By operation of the Cal Jockey Merger, each issued and outstanding share of
common stock, no par value per share of Old Patriot ("Old Patriot Common Stock")
was converted into 0.51895 shares of common stock, par value $0.01 per share of
Patriot ("Patriot Common Stock") and 0.51895 shares of common stock, par value
$0.01 per share of Wyndham International ("Wyndham International Common Stock"),
which shares are paired and transferable only as a single unit (collectively,
shares of Patriot Common Stock and shares of Wyndham International Common Stock
are referred to herein as the "Paired Shares"). Each paired share of Cal
Jockey and
24
Bay Meadows common stock remained outstanding and represented the same number of
Paired Shares of Patriot Common Stock and Wyndham International Common Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed an operating
partnership, Patriot American Hospitality Operating Company Partnership, L.P.
(the "OpCo Partnership") into which Bay Meadows contributed its assets in
exchange for units of limited partnership interest ("OP Units") of the OpCo
Partnership, and Cal Jockey contributed certain of its assets to Patriot
American Hospitality Partnership, L.P. (the "REIT Partnership") in exchange for
OP Units of the REIT Partnership (collectively, the OpCo Partnership and the
REIT Partnership are referred to herein as the "Patriot Partnerships").
Subsequent to completion of the Cal Jockey Merger and the transactions
contemplated by the Cal Jockey Merger Agreement, substantially all of the
operations of Patriot and Wyndham International have been conducted through the
Patriot Partnerships and their subsidiaries.
In connection with the Cal Jockey Merger, Patriot and Wyndham International
increased the total number of shares authorized. The amounts of authorized
shares of Patriot and Wyndham International are as follows: (i) 100 million
shares of preferred stock, (ii) 650 million shares of common stock, and (iii)
750 million shares of excess stock (as defined in the amended and restated
charters of Patriot and Wyndham International).
THE COMPANIES
As of December 31, 1997, Patriot, through the REIT Partnership, PAH
Ravinia, Inc. ("PAH Ravinia"), PAH Windwatch, L.L.C. ("PAH Windwatch") and other
subsidiaries, owned interests in 91 hotels with an aggregate of over 23,300
guest rooms. The hotels are diversified by franchise or brand affiliation and
serve primarily major U.S. business centers, including Atlanta, Boston, Chicago,
Cleveland, Dallas, Denver, Houston, Los Angeles, Miami, Minneapolis, New York,
San Diego, San Francisco and Seattle. In addition to hotels catering primarily
to business travelers, Patriot's portfolio includes world-class resort hotels,
including The Boulders, near Scottsdale, Arizona; The Lodge at Ventana Canyon in
Tucson, Arizona; The Peaks Resort & Spa in Telluride, Colorado; and Carmel
Valley Ranch Resort in Carmel, California and prominent hotels in major tourist
destinations. The hotels include 81 full service hotels, five resort hotels,
four limited service hotels and an executive conference center. All but four of
the hotels are operated under franchise or brand affiliations with nationally
recognized hotel companies.
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel
and the Wyndham WindWatch Hotel, which are separately owned through special
purpose entities, to Wyndham International or to third party lessees (the
"Lessees") who are responsible for operating the hotels. As of December 31,
1997, 55 hotels were leased to Wyndham International and its affiliates and 34
hotels were leased to the Lessees. Patriot leased 17 of its hotel investments to
CHC Lease Partners for staggered terms of ten to twelve years pursuant to
separate participating leases providing for the payment of the greater of base
or participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. In
addition, DTR North Canton, Inc. (the "Doubletree Lessee") leased four hotels;
and Metro Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel
under similar Participating Lease agreements. The Lessees, in turn, have entered
into separate agreements with hotel management entities (the "Operators") to
manage the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch
Hotel acquisitions were structured without lessees and are managed directly by
Operators (as of December 31, 1997, Holiday Inns, Inc. and Wyndham Hotel
Corporation, respectively). Wyndham International manages 31 of its hotels
through certain of its hotel management subsidiaries and has entered into
separate management agreements with hotel Operators to manage 24 of its hotels.
In addition to leasing and managing hotels, Wyndham International is also
engaged in the business of conducting and offering pari-mutuel wagering (meaning
that individuals wager against each other and not against the operator of the
facility) on thoroughbred horse racing at the Racecourse. In addition to live
horse racing at the Racecourse, Wyndham International simulcasts its live horse
races to as many as 31 sites in California and as many as 450 sites in the
remainder of the world. The Racecourse also acts as an off-track wagering
facility, allowing patrons to wager on horse races at other tracks even when
live horse racing is not being conducted at the Racecourse, by accepting
simulcasts of horse races conducted throughout the United States, Canada,
Mexico, Australia and Hong Kong.
INVESTMENTS IN PROPERTIES
During the year ended December 31, 1997, Patriot acquired 41 hotels and
four resort properties for approximately $1.3 billion. These acquisitions were
financed primarily with funds drawn on the Companies'
25
revolving credit facility (and, prior to the Cal Jockey Merger, Old Patriot's
line of credit facility), a $350 million term loan, the issuance of 5,629,172 OP
Units valued at approximately $130 million, the issuance of 1,719,535 Paired
Shares valued at approximately $38.5 million, the placement of approximately
$237 million in new mortgage debt and the assumption of other mortgage debt in
the amount of approximately $34.3 million.
In July 1997, Patriot sold approximately 174 acres of land in San Mateo,
California, representing substantially all of the land which was owned by Cal
Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber
Incorporated ("PaineWebber") for a purchase price of approximately $80.9 million
(the "PaineWebber Land Sale"). These funds were placed in a restricted trust
account in order to facilitate a tax-deferred, like-kind exchange through the
acquisition of suitable hotel properties. During 1997, six suitable hotels were
acquired using the proceeds from this restricted account. Patriot retained
ownership of the improvements located on the land, including the Racecourse and
its related facilities.
Simultaneous with the consummation of the PaineWebber Land Sale, the
PaineWebber affiliate and Patriot entered into a ground lease covering a portion
of the land on which the Racecourse is situated for a term of seven years.
Patriot has subleased the Racecourse land and leased the related improvements to
Wyndham International in order to permit Wyndham International to continue
horseracing operations at the Racecourse through the term of Patriot's lease.
The sublease is for a term of seven years with annual payments based on
percentages of revenue generated. In connection with the sale, Patriot assigned
substantially all of its rights and benefits under existing leases, contracts,
permits and entitlements relating to the land sold to the PaineWebber affiliate,
and the PaineWebber affiliate assumed substantially all of Patriot's development
obligations including, but not limited to, all obligations for on and off-site
improvements and all obligations under existing lease and contracts. Pursuant to
the agreement, Patriot is obligated to fund up to $10.25 million of development
costs for new stables ($4 million of which Patriot has funded). The parties
have the option to renew such leases upon their expiration under certain
circumstances.
In August 1997, Wyndham International purchased a participating loan from
National Resort Ventures, L.P., a Delaware limited partnership, related to the
1,014-room Buena Vista Palace Hotel in Orlando, Florida for approximately $23.75
million in cash. The Buena Vista Palace Hotel was owned by a joint venture
between Equitable Life Insurance Company, which owns a 55% interest and Hotel
Venture Partners, Ltd., a Florida limited partnership ("HVP"), which owns a 45%
interest. The loan is subordinated to a ground lease and a $50.3 million first
leasehold mortgage loan. Patriot acquired an aggregate 95% equity interest in
the hotel in January 1998 (see discussion below in "1998 Acquisitions and
Mergers").
In June 1997, Patriot loaned approximately $20.5 million to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot loaned approximately $25.6 million
to another partnership affiliated with members of CHC Lease Partners, relating
to the Sheraton Gateway Hotel in Miami (also known as the Sheraton River House
Hotel). Additionally, Patriot purchased two additional loans from a financial
institution on which partnerships affiliated with the members of CHC Lease
Partners were borrowers for an aggregate purchase price of $57 million. Each of
the four mortgage loans is secured by first priority liens on the respective
hotels. In connection with such loans, Patriot entered into a short-term
financing arrangement (the "Paine Webber Mortgage Financing") with an affiliate
of Paine Webber Real Estate Securities, Inc. ("Paine Webber Real Estate")
whereby such affiliate loaned Patriot $103 million to fund these transactions.
In September and October 1997, Patriot, through the REIT Partnership and certain
other subsidiaries, acquired the partnerships that own these four hotels.
BUSINESSES ACQUIRED
In August 1997, the Companies acquired Grand Heritage Hotels, Inc. a hotel
management and marketing company, and other Grand Heritage subsidiaries
including Grand Heritage Leasing, L.L.C., which leased three hotels from Patriot
(the "Grand Heritage Acquisition"). The total purchase price for the Grand
Heritage Acquisition was approximately $22.5 million which was financed
primarily through the issuance of 931,972 Class A preferred OP Units of the OpCo
Partnership. Grand Heritage Hotels, Inc., directly and through certain of its
subsidiaries, owns 17 management contracts, five of which are related to hotels
leased by Wyndham International.
Effective September 1, 1997, Patriot acquired the leasehold interests
related to seven Patriot hotels which were previously leased by CHC Lease
Partners and re-leased such hotels to Wyndham International. Prior to such
acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate of
CHC International, Inc. ("CHCI") and the Gencom American Hospitality group of
companies ("Gencom"), along with the leaseholds related to the
26
seven hotels were terminated. In a related transaction effective October 1,
1997, Patriot acquired one additional leasehold interest related to a Patriot
hotel previously leased to CHC Lease Partners and re-leased such hotel to
Wyndham International (and the hotel's management contract with CHCI was also
terminated prior to the acquisition). The aggregate purchase price of the eight
leasehold interests was approximately $52.8 million. Concurrently, Wyndham
International purchased an approximate 50% managing, controlling ownership
interest in GAH from affiliates of Gencom for a purchase price of approximately
$13.9 million. These transactions were financed with approximately $644,000 of
cash, and by issuing 2,388,932 paired OP Units of the REIT Partnership and the
OpCo Partnership and 476,682 preferred OP Units of the OpCo Partnership.
GAH, directly and through certain of its subsidiaries, owns 16 third-party
management contracts, and certain other hospitality management assets.
Concurrent with Wyndham International's purchase of its controlling interest in
GAH, Wyndham International also entered into a Hospitality Advisory, Asset
Management and Support Services Agreement with CHCI and GAH whereby Wyndham
International will provide certain hospitality advisory, asset management and
support services to certain CHCI and GAH subsidiaries for base fee aggregating
approximately $750,000 per month plus a percentage of excess cash flows of the
hotels.
STOCK SPLIT
On January 30, 1997, the Board of Directors of Old Patriot declared a
2-for-1 stock split on its shares of common stock effected in the form of a
stock dividend distributed on March 18, 1997 to shareholders of record on March
7, 1997.
On July 10, 1997, the respective Boards of Directors of Patriot and Wyndham
International declared a 1.927-for-1 stock split on its shares of common stock
effected in the form of a stock dividend distributed on July 25, 1997 to
shareholders of record on July 15, 1997.
Unless otherwise indicated, all references herein to the number of shares,
per share amounts, and market prices of the common stock and options to purchase
common stock have been restated to reflect the impact of the conversion of each
share of Old Patriot Common Stock into 0.51895 Paired Shares issued in the Cal
Jockey Merger and to reflect the impact of the 1.927-for-1 stock split. In
addition, all references herein to the number of shares, per share amounts, and
market prices of the common stock and options to purchase common stock related
to periods prior to Old Patriot's 2-for-1 stock split distributed in March 1997
have been restated to reflect the impact of such stock split.
As a result of Old Patriot's 2-for-1 stock split in March 1997, the Cal
Jockey Merger and the 1.927-for-1 stock split in July 1997, the number of OP
Units outstanding and the OP Unit conversion factor has been adjusted to
re-establish a 1-for-1 exchange ratio of OP Units to common shares.
PATRIOT AMERICAN HOSPITALITY, INC.
Results of Operations: Quarter Ended December 31, 1997
Compared with Quarter Ended December 31, 1996
Patriot's Participating Lease revenue from the Lessees (including Wyndham
International) for the three months ended December 31, 1997, increased 159% from
$23,158,000 in 1996 to $59,889,000 in 1997. This increase is primarily due to
the acquisition of 45 hotel properties during 1997. Patriot owns 91 hotel
properties as of December 31, 1997 including two hotels that are separately
owned through special purpose entities. Interest and other income increased from
$188,000 in 1996 to $888,000 in 1997 which is primarily attributable to
additional investments in mortgage notes receivable and interest and dividend
income earned on cash investments. Additionally, for the three months ended
December 31, 1997, Patriot reported $1,469,000 of income related to the lease of
the Racecourse facility and land to Wyndham International.
For the three months ended December 31, 1997 as compared to the same period
for 1996, Patriot experienced similar increases in expenses as a result of the
acquisition of hotels discussed above.
27
General and administrative expenses were $3,575,000 for the three months
ended December 31, 1997, compared to $1,227,000 for 1996. General and
administrative expenses include the amortization of unearned stock compensation
of $1,374,000 for 1997 and $438,000 for 1996. Additionally, Patriot incurred
expenses of $90,000 in 1997 (none in 1996) associated with evaluating properties
and companies to be acquired which were ultimately not purchased.
Ground lease expense increased from $364,000 to $2,124,000 for the three
months ended December 31, 1996 compared to the same period in 1997 as a result
of acquisition of properties subject to existing ground leases.
Real estate and personal property taxes and casualty insurance were
$6,739,000 for the three months ended December 31, 1997, compared to $2,698,000
for the three months ended December 31, 1996.
Interest expense for the three months ended December 31, 1997 was
$19,023,000 compared to $2,899,000 in 1996. Patriot's outstanding debt
obligations as of December 31, 1997 and 1996 were approximately $1,112,337,000
and $214,339,000, respectively. The primary components of interest expense for
the three months ended December 31, 1997 are $10,325,000 of interest related to
the Revolving Credit Facility and Term Loan, $6,419,000 of interest on mortgage
notes and the Old Line of Credit, $1,416,000 of amortization of deferred
financing costs and $863,000 of other interest related to other miscellaneous
notes and commitments payable. Interest expense for the three months ended
December 31, 1996 consists primarily of $2,587,000 of interest on the Old Line
of Credit, $158,000 of amortization of deferred financing costs and $154,000 of
other interest related to other miscellaneous notes and commitments payable.
Additionally, Patriot capitalized interest totaling $1,064,000 and $91,000 for
the three months ended December 31, 1997 and 1996, respectively, associated with
major renovations of certain hotel properties.
In connection with Patriot's acquisition of eight leasehold interests in
1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot
recognized expense of $10,679,000 related to the cost of acquiring these
leasehold interests.
Depreciation and amortization expense was $18,413,000 for the three months
ended December 31, 1997 compared to $5,792,000 for the same period in 1996.
Patriot's share of income from unconsolidated subsidiaries was $1,527,000
for the fourth quarter of 1997 compared to $1,468,000 for the fourth quarter of
1996.
Minority's interest share of income in the REIT Partnership was $519,000
and $1,625,000 for the three months ended December 31, 1997 and 1996,
respectively. Minority's interest share of income in Patriot's other
consolidated subsidiaries was $306,000 for the fourth quarter of 1997 and
$53,000 for the fourth quarter of 1996.
As a result, the net income applicable to common shareholders was
$2,395,000 for the three months ended December 31, 1997 and $10,156,000 for the
three months ended December 31, 1996.
Results of Operations: Year Ended December 31, 1997
Compared with Year Ended December 31, 1996
Patriot's Participating Lease revenue from the Lessees (including Wyndham
International) for the year ended December 31, 1997 increased 134% from
$75,893,000 in 1996 to $177,659,000 in 1997. This increase is primarily due to
the acquisition of 45 hotel properties during 1997. Patriot owns 91 hotel
properties as of December 31, 1997 including two hotels that are separately
owned through special purpose entities. Interest and other income increased
from $600,000 in 1996 to $5,103,000 in 1997 which is primarily attributable to
additional investments in mortgage notes receivable and interest and dividend
income earned on cash investments. Additionally for the year ended December 31,
1997, Patriot reported $2,792,000 of income related to the lease of the
Racecourse facility and land to Wyndham International.
For the year ended December 31, 1997 as compared to the same period for
1996, Patriot experienced similar increases in expenses as a result of the
acquisition of hotels discussed above.
General and administrative expenses were $11,157,000 for the year ended
December 31, 1997, compared to $4,500,000 for 1996. General and administrative
expenses include the amortization of unearned stock
28
compensation of $4,686,000 for 1997 and $1,068,000 for 1996. Additionally,
Patriot incurred expenses of $1,068,000 in 1997 and $173,000 in 1996 associated
with evaluating properties and companies to be acquired which were ultimately
not purchased.
Ground lease expense increased from $1,075,000 to $4,117,000 for the year
ended December 31, 1996 compared to the same period in 1997.
Real estate and personal property taxes and casualty insurance were
$17,958,000 for the year ended December 31, 1997, compared to $7,150,000 for the
year ended December 31, 1996.
Interest expense for the year ended December 31, 1997 was $51,000,000
compared to $7,380,000 in 1996. Patriot's outstanding debt obligations as of
December 31, 1997 and 1996 were approximately $1,112,337,000 and $214,339,000,
respectively. The primary components of interest expense for the year ended
December 31, 1997 are $33,750,000 of interest related to the Revolving Credit
Facility and Term Loan, $12,585,000 of interest on mortgage notes and the Old
Line of Credit, $2,581,000 of amortization of deferred financing costs and
$2,084,000 of other interest related to other miscellaneous notes and
commitments payable. Interest expense for the year ended December 31, 1996
consists primarily of $6,755,000 of interest on the Old Line of Credit, $431,000
of amortization of deferred financing costs and $194,000 of other interest
related to other miscellaneous notes and commitments payable. Additionally,
Patriot capitalized interest totaling $2,562,000 and $91,000 for the year ended
December 31, 1997 and 1996, respectively, associated with major renovations of
certain hotel properties.
In connection with Patriot's acquisition of eight leasehold interests in
1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot
recognized expense of $54,499,000 related to the cost of acquiring these
leasehold interests.
Depreciation and amortization expense was $49,069,000 for the year ended
December 31, 1997, compared to $17,420,000 for the same period in 1996.
Patriot's share of income from unconsolidated subsidiaries was $6,015,000
for the year ended December 31, 1997, compared to $5,845,000 in 1996.
Minority's interest share of income in the REIT Partnership was $1,713,000
and $6,767,000 for the year ended December 31, 1997 and 1996, respectively.
Minority's interest share of income in Patriot's other consolidated subsidiaries
was $1,674,000 in 1997 and $55,000 in 1996.
Concurrent with the repayment of the Old Line of Credit, Patriot wrote off
the remaining balance of unamortized deferred financing costs associated with
the Old Line of Credit in the amount of $2,910,000. This amount, net of
$376,000 of minority interest share of the net loss, has been reported as an
extraordinary item.
As a result, net loss was $2,152,000 for the year ended December 31, 1997,
compared to net income of $37,991,000 for the year ended December 31, 1996.
Results of Operations: Year Ended December 31, 1996
Compared with the Period October 2, 1995 (inception of operations) through
December 31, 1995
Old Patriot completed its initial public offering of common stock on
October 2, 1995 and commenced operations with the acquisition of 20 hotels.
Because 1995 was a short fiscal year for Patriot, the operating results for the
year ended December 31, 1996 are not directly comparable to 1995. For the year
ended December 31, 1996, Patriot's Participating Lease revenue from the Lessees
was $75,893,000, compared $10,582,000 in 1995. Interest and other income was
$600,000 for the year ended December 31, 1996, compared to $513,000 in 1995. In
1995, interest and other income consisted primarily of interest earned on
invested cash balances resulting from the net proceeds of the initial public
offering.
For the year ended December 31, 1996 as compared to the period October 2,
1995 (inception of operations) through December 31, 1995, Patriot experienced
similar increases in expenses as a result of the short fiscal year for Patriot
in 1995, as discussed above.
29
General and administrative expenses were $4,500,000 for the year ended
December 31, 1996, compared to $607,000 for 1995. General and administrative
expenses include the amortization of unearned stock compensation of $1,068,000
for 1996 and $71,000 for 1995.
Ground lease expense totaled $1,075,000 in 1996 (none in 1995). Real
estate and personal property taxes and insurance was $7,150,000 for 1996,
compared to $901,000 for 1995
Patriot reported $7,380,000 of interest expense for the year ended December
31, 1996, compared to $89,000 in 1995. Patriot's outstanding debt obligations as
of December 31, 1996 and 1995 were approximately $214,339,000 and $9,500,000,
respectively. Interest expense in 1996 consisted primarily of $6,755,000 of
interest incurred on the Revolving Credit Facility, the Old Line of Credit and
mortgage note balances outstanding and $431,000 of amortization of deferred
financing costs. Interest expense in 1995 consisted of $62,000 of interest
incurred on the Old Line of Credit balance and $27,000 of amortization of
deferred financing costs.
Depreciation and amortization expense was $17,420,000 for 1996, compared to
$2,590,000 for 1995.
Patriot's share of income from unconsolidated subsidiaries was $5,845,000
in 1996, compared to $156,000 in 1995.
Minority interest's share of income of the REIT Partnership was $6,767,000
for the year ended December 31, 1996, compared to $968,000 in 1995. Minority
interest's share of income of other consolidated Patriot subsidiaries was
$55,000 for 1996 (none in 1995).
Patriot reported extraordinary losses in 1995 totaling $737,000 (net of the
minority interest share of the loss) related to the pay-off of assumed mortgage
debt on hotel properties acquired.
As a result, net income was $37,991,000 for the year ended December 31,
1996, compared to net income of $5,359,000 for the period October 2, 1995
(inception of operations) through December 31, 1995.
WYNDHAM INTERNATIONAL, INC.
As of December 31, 1997, Wyndham International (formerly known as Patriot
Operating Company, or, prior to the Cal Jockey merger, Bay Meadows) leases 55
hotels from Patriot, managing 31 of those hotels, and manages 12 hotels for
third parties. In addition, Wyndham International operates the Bay Meadows
Racecourse. Subsequent to the Cal Jockey Merger in July 1997, the major portion
of the revenues of Wyndham International and Patriot have been derived from the
leasing and operation of hotels.
Results of Operations: Six Months Ended December 31, 1997
Concurrent with the closing of the Cal Jockey Merger, Wyndham International
began leasing four hotels from the REIT Partnership and commenced its hotel
management operations on July 1, 1997. During the remainder of the period
Wyndham International acquired the leases for 51 additional Patriot hotels. In
addition, Wyndham International acquired the hotel management operations of
Grand Heritage Hotels, Inc. and an approximate 50% controlling ownership
interest in GAH.
For the six months ended December 31, 1997, Wyndham International had room
revenues of $95,095,000 from the 55 hotels it leased during the period. Food
and beverage and telephone and other revenues were $72,632,000 for the period.
In addition, Wyndham International reported management fee and service fee
income of $7,088,000 for the six months ended December 31, 1997. Interest and
other income for the period includes $1,103,000 of interest income related to
the Subscription Notes.
Participating Lease payments and hotel operating expenses were $50,626,000
and $121,184,000, respectively. Direct operating costs of the management
company and service department were $1,216,000 for the period.
Total revenues from the Racecourse facility operations (including interest
and other income) were $26,344,000 for the six months ended December 31, 1997.
Total costs and expenses associated with the Racecourse
30
operations (including marketing costs, general and administrative expenses and
depreciation and amortization expenses) were $24,245,000 for the six months
ended December 31, 1997.
Minority interest's share of loss in the OpCo Partnership was $29,000 for
the six months ended December 31, 1997. Minority interest's share of loss in
Wyndham International's other consolidated subsidiaries was $59,000 in 1997.
As a result, the net loss was $20,000 for the six months ended December 31,
1997.
STATISTICAL INFORMATION
During 1997, Patriot's portfolio of 91 owned hotels experienced strong
growth in both average daily rate ("ADR") and revenue per available room
("REVPAR") of approximately 8.9_% and 7.2%, respectively, while occupancy
remained relatively stable. Management attributes this growth to continued
marketing efforts throughout the portfolio on hotels that have been newly
renovated, and repositioned in certain cases, as well as to the current strength
of market conditions in the U.S. lodging industry. The following table sets
forth certain statistical information for Patriot's 91 owned hotels as of
December 31, 1997 and 1996 as if the hotels were owned at the beginning of the
periods presented.
Occupancy ADR REVPAR
---------------------- --------------------------- --------------------------
1997 1996 1997 1996 1997 1996
-------- -------- --------- --------- -------- ---------
Hotels owned and leased to Wyndham
International........................ 69.7% 70.0% $ 103.58 $ 94.61 $ 72.20 $ 66.18
Hotels leased to third party Lessees.. 67.8 70.0 84.68 78.32 57.43 55.15
Unconsolidated subsidiaries........... 69.3 73.0 116.57 113.22 80.76 82.60
-------- -------- --------- --------- -------- ---------
Weighted average..................... 61.9% 70.2% $ 98.28 $ 90.22 $ 67.91 $ 63.34
COMBINED LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
The Companies' principal source of cash to fund operating expenses and
distributions to its shareholders is cash flow provided by operating activities.
Patriot's principal source of revenue is rent payments from the Lessees and
Wyndham International under the Participating Leases. Wyndham International's
principal source of cash flow is from the operation of the hotels it leases. The
Lessees' and Wyndham International's ability to make the rent payments to
Patriot is dependent upon their ability to efficiently manage the hotels and
generate sufficient cash flow from operation of the hotels.
Combined cash and cash equivalents as of December 31, 1997 were $47.4
million, including capital improvement reserves of $5 million. Combined cash
flows from operating activities of the Companies were $108.1 million for the
year ended December 31, 1997, which represent a combination of the collection of
rents under Participating Leases with third party Lessees and cash flows
generated by the hotels operated by Wyndham International.
Cash and cash equivalents for Patriot as of December 31, 1996 was $6.6
million, including capital improvement reserves of $2.5 million. Cash flows
from operating activities of Patriot were $61.2 million for the year ended
December 31, 1996, which primarily represent the collection of rents under
Participating Leases.
31
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
During 1997, the Companies continued to experience rapid growth through the
merger and acquisition of hotel properties and management companies. These
transactions were funded with a combination of issuance and or assumption of
debt as well as sale of registered and unregistered securities.
Combined cash flows used in investing activities of the Companies were $1.2
billion for the year ended December 31, 1997, resulting primarily from the
merger and acquisition of hotel properties and management companies and the
renovation expenditures at certain hotels. Combined cash flows from financing
activities of $1.1 billion for the year ended December 31, 1997 were primarily
related to borrowings on the Revolving Credit Facility, the Term Loan and
mortgage notes and net proceeds from public and private placement of equity
securities, net of payments of dividends and distributions.
Patriot's cash flows used in investing activities were $419.7 million for
the year ended December 31, 1996, resulting primarily from the acquisition of
hotel properties. Cash flows from Patriot's financing activities of $360.3
million for the year ended December 31, 1996 were primarily related to
borrowings on the Old Line of Credit and net proceeds from public and private
placement of equity securities, net of payments of dividends and distributions.
On July 21, 1997, the Companies entered into a revolving credit facility
with Paine Webber Real Estate, The Chase Manhattan Bank ("Chase") and certain
other lenders for a 3-year unsecured revolving line of credit (the "Revolving
Credit Facility"). The original Revolving Credit Facility commitment was in the
amount of $700 million. In December 1997, the credit agreement was amended and
the commitment amount was increased to $900 million. Borrowings have been made
under the Revolving Credit Facility to repay all outstanding amounts under Old
Patriot's secured line of credit with Paine Webber Real Estate (the "Old Line of
Credit"). The Revolving Credit Facility may also be used for acquisition of
additional properties, businesses and other assets, for capital expenditures and
for general working capital purposes. The interest rate for the Revolving Credit
Facility ranges from LIBOR plus 1.0% to 2.0% (depending on the Companies'
leverage ratio or investment grade ratings received from the rating agencies) or
the customary alternate base rate announced from time to time plus 0.0% to 0.5%
(depending on the Companies' leverage ratio). The weighted average interest
rate in effect for the Revolving Credit Facility for the period ended December
31, 1997 was 7.63% per annum.
In December 1997, Patriot entered into a $350 million unsecured term loan
(the "Term Loan") with Paine Webber Real Estate and Chase which matures January
31, 1999. The Term Loan was used to finance payments made in connection with the
acquisition of certain properties and has an interest rate equal to the interest
rate on the Revolving Credit Facility.
The Companies have entered into three interest rate swap arrangements to
swap floating rate LIBOR-based interest rates for fixed rate interest amounts as
a hedge against $375 million of the Revolving Credit Facility and Term Loan.
Each of the interest rate swaps covers $125 million of borrowings under the
Revolving Credit Facility and fixes the LIBOR portion of the Revolving Credit
Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The interest
rate swap arrangements expire November 2002.
In August 1997, the Companies completed a public offering of 10,580,000
Paired Shares of common stock (including 1,380,000 Paired Shares issued upon
exercise of the underwriters' over-allotment option). The net proceeds of this
offering (less the underwriters' discount and expenses) of approximately $209.8
million were used primarily to reduce the outstanding debt under the Revolving
Credit Facility.
On November 7, 1997, Patriot entered into two forward sale transactions
with The Chase Manhattan Bank in the aggregate principal amount of $275 million.
The terms of the transactions provide that on June 2, 1998, either Chase will be
obligated to pay Patriot or Patriot will be obligated to pay Chase a cash
settlement amount based on the then current yield on 10-year U.S. Treasury
Notes. The forward sale transactions cover principal amounts of $175 million
with a forward yield of 6.0% and $100 million with a forward yield of 5.995%.
If the index price of the securities on June 1, 1998 is greater than the
"Forward Price" (which is to be calculated based on the forward yield rate and
the economic variables applicable to 10-year U.S. Treasury Notes), Patriot will
be obligated to pay Chase a cash settlement amount based on the spread between
the index price and the Forward Price times the principal amount. If the index
price is less than the Forward Price, Chase will be obligated to pay Patriot a
cash settlement amount based on the spread between the index price and the
Forward Price times the principal amount.
32
On November 13, 1997, pursuant to a letter agreement dated September 30,
1997, the Companies sold 1,000,033 paired shares to PaineWebber (the
"PaineWebber Direct Placement") for a purchase price per paired share of
$27.6875, or aggregate consideration of $27.7 million. In addition, pursuant to
a letter agreement dated September 30, 1997, the Companies sold 1,000,000 paired
shares to LaSalle Advisors Limited Partnership ("LaSalle"), as agent for certain
clients of LaSalle (the "LaSalle Direct Placement"), at a purchase price per
paired share of $27.625, or aggregate consideration of $27.6 million.
On September 30, 1997, the Companies exercised their right to call
2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P. and certain related entities (the "Morgan Stanley
Call"). The exercise price on the Morgan Stanley Call was $25.875 per pair of
OP Units. The Morgan Stanley Call was funded with the proceeds of the
PaineWebber Direct Placement and the LaSalle Direct Placement.
On December 31, 1997, the Companies sold 3,250,000 unregistered Paired
Shares to UBS Limited, an English corporation, for a purchase price per Paired
Share of $28.8125, or aggregate consideration of approximately $93.6 million. In
connection with this private placement, the Companies also entered into an
agreement with Union Bank of Switzerland, London Branch ("UBS") which provides
for an adjustment of the purchase price of the Paired Shares as of a specific
date. Because the Companies must periodically increase their equity base to
maintain financial flexibility and continue with their growth strategy,
management may utilize private placements of equity, in conjunction with a price
adjustment mechanism, as a means for the Companies to raise capital, while also
retaining the opportunity to adjust the pricing of the equity issuance during
the term of the agreement. The price adjustment agreement with UBS provides that
if the aggregate return on the 3,250,000 Paired Shares issued does not exceed
the calculated forward yield (which is based upon the three-month LIBOR rate
plus 1.40%) as measured from time to time, the Companies will be required to
issue to UBS additional Paired Share with a market value equivalent to the yield
deficiency. Conversely, if the aggregate return on the issued shares is in
excess of the calculated forward yield, a portion of the Paired Shares
originally issued by the Companies will be returned. In addition, the Companies
are required to register Paired Shares with the Securities and Exchange
Commission to settle its obligations under the agreement. Under certain market
conditions, UBS has the right to accelerate the settlement of all or a portion
of the transaction. The final settlement date is December 31, 1998. As of
December 31, 1997, the private placement of Paired Shares is accounted for as
equity and any subsequent adjustments in the share price will be reflected as an
adjustment to equity. Such early settlements may force the Companies to issue
Paired Shares at a depressed price to satisfy their obligation under the Forward
Contract. UBS-LB may also accelerate the settlement of the entire transaction
upon certain events of default under the Companies' indebtedness.
Additionally, in connection with a private placement of 4,900,000 Paired
Shares to NMS Services, Inc. ("NMS"), an affiliate of NationsBanc Montgomery
Securities LLC, the Companies entered into a Purchase Price Adjustment Mechanism
Agreement, dated as of February 26, 1998, with NMS (the "Price Adjustment
Agreement"), pursuant to which the parties agreed to adjust the purchase price
of the 4,900,000 Paired Shares on or prior to February 26, 1999 by the
difference between (i) the market price for the Paired Shares at the time of the
settlement and (ii) a reference price (the "Reference Price") based on the
closing price for the Paired Shares on February 25, 1998 plus a forward
accretion, minus an adjustment to reflect distributions on the Paired Shares
during the transaction period (such difference, the "Price Difference"). If the
Price Difference is positive, NMS agrees to deliver Paired Shares to the
Companies equal in value to the aggregate Price Difference. If the Price
Difference is negative, the Companies agree to deliver cash or additional Paired
Shares equal in value to the aggregate Price Difference to NMS. In the event
that the market price for the Paired Shares at the time of settlement is lower
than the Reference Price, the Companies will have to deliver cash or additional
Paired Shares to NMS, which would have diluting effects on the equity stock of
the Companies. Additionally, under certain adverse market conditions, NMS has
the right to accelerate the settlement of all or a portion of the obligation
under the Price Adjustment Agreement. Such early settlements may force the
Companies to issue Paired Shares at a depressed price, which may heighten the
diluting effects. NMS may also accelerate the settlement of the entire
transaction upon certain events of default under the Companies indebtedness.
Management believes that the Paired Shares have been undervalued in the
public markets since late 1997, primarily because of concerns regarding the
integration of the Companies' various acquisitions and possible legislative
action which may affect the paired share structure. Accordingly, management of
Patriot and Wyndham International has been generally unwilling to publicly issue
common equity at current price levels. Because the Companies must periodically
increase their equity base to maintain financial flexibility and continue their
growth strategy, management has utilized private placements of Paired Shares
coupled with price adjustment mechanisms as a means for the Companies to raise
needed equity capital, while also retaining the opportunity to re-price the
equity issuance during the term of the price adjustment agreement.
As of March 25, 1998, the Companies had approximately $815 million
outstanding under the Revolving Credit Facility and $350 million outstanding on
the Term Loan. As of such date, Patriot also had over $400 million of mortgage
debt outstanding that encumbered 23 hotels, resulting in total indebtedness of
approximately $1.6 billion. As of March 25, 1998, the availability of funds,
under the Revolving Credit Facility is approximately $75 million.
33
The Companies have obtained a commitment to amend the existing Revolving
Credit Facility to, among other things, provide approx. $1.45 billion in
additional financing. In addition, the Companies are evaluating other permanent
sources of capital, including the issuance of equity and long-term debt. It is
expected that additional common or preferred equity offerings will be used both
to acquire hotel properties and to limit the Companies' overall debt to market
capitalization ratio.
1998 ACQUISITIONS AND MERGERS
Wyndham Hotel Corporation
On April 14, 1997, Old Patriot entered into a merger agreement with Wyndham
Hotel Corporation ("Old Wyndham") which was later ratified by Patriot and
Wyndham International, (the "Wyndham Merger Agreement") which provided for the
merger of Old Wyndham with and into Patriot (the "Wyndham Merger"), with Patriot
being the surviving company. Concurrently, Old Patriot and CF Securities, L.P.
("CF Securities"), the principal stockholder of Old Wyndham, entered into a
stock purchase agreement (the "Stock Purchase Agreement"). The Merger Agreement
generally provided for the conversion of each outstanding share of common stock,
par value $0.01 per share, of Old Wyndham (the "Old Wyndham Common Stock"),
other than shares as to which the holder thereof elected to receive cash
(subject to proration), into the right to receive 1.372 Paired Shares (the
"Exchange Ratio"). The Wyndham Merger Agreement provided that, in lieu of
receiving Paired Shares in the Wyndham Merger, stockholders of Old Wyndham could
elect to receive cash (such election being referred to herein as a "Cash
Election" and such cash being referred to herein as "Cash Consideration") for
all or any portion of their shares of Old Wyndham Common Stock in an amount per
share equal to $42.80, subject to an aggregate availability of $100 million of
cash for all Cash Elections (including a Cash Election by CF Securities pursuant
to the Stock Purchase Agreement).
In November 1997, in connection with its merger with Patriot, Old Wyndham
commenced a fixed spread cash tender offer for all $100 million of its
outstanding 10 1/2% Senior Subordinated Notes due 2006 (the "Notes") and
commenced a solicitation of consents of a majority of the holders of the Notes
to eliminate or modify certain covenants and other provisions contained in the
indenture under which the Notes were issued. The purchase price for Notes
validly tendered and accepted for purchase was an amount based on a yield to the
first redemption date equal to a 75 basis point spread over the yield of the 6
1/2% U.S. Treasury Note due May 31, 2001 as of 3:00 p.m., EST, on the second
business day immediately preceding the expiration date of the tender offer, less
a consent payment of $20.00 per $1,000 principal amount. The tender offer
expired at Midnight, EST, on Friday, January 2, 1998.
On January 5, 1998, the Wyndham Merger was consummated. As a result of the
Wyndham Merger, Patriot acquired Old Wyndham's portfolio of owned, leased or
managed hotels consisting of 98 hotels operated by Old Wyndham (including 16
Patriot hotels which were managed by Old Wyndham), as well as eight franchised
hotels, which in the aggregate contain approximately 25,900 rooms. The total
purchase consideration of approximately $982 million consisted of 21,594,188
Paired Shares and 4,860,876 shares of Series A Convertible Preferred Stock of
Patriot (which are convertible on a one-for-one basis into Paired Shares), cash
of approximately $339 million to repay debt and pay Wyndham shareholders who
elected to receive cash (which was financed with funds drawn on the Revolving
Credit Facility), and the assumption of approximately $54 million in debt.
WHG Casinos & Resorts, Inc
On September 30, 1997, Patriot, Wyndham International and WHG Casinos &
Resorts Inc. ("WHG") entered into an Agreement and Plan of Merger (the "WHG
Merger Agreement") providing for the merger of a newly formed subsidiary of
Wyndham International with and into WHG with WHG being the surviving corporation
(the "WHG Merger"). On January 16, 1998, the WHG Merger was consummated. As a
result of the WHG Merger, Wyndham International acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino
and a 23.3% interest in the 751-room El Conquistador Resort & Country Club (the
"El Conquistador"), all of which are located in Puerto Rico, as well as a 62%
interest in Williams Hospitality Group, Inc., the management company for the
three hotels and the Las Casitas Village at the El Conquistador. A total of
5,004,690 Paired Shares were issued in connection with the WHG Merger (valued at
approximately $138 million). In addition, Wyndham International assumed WHG's
outstanding debt of approximately $21.3 million.
34
In January 1998, Patriot, through the REIT Partnership, acquired the
173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase price of
approximately $14.5 million. In addition, Patriot acquired an aggregate 95%
equity interest in the Buena Vista Palace Hotel in Orlando, Florida for a total
purchase price of approximately $141.6 million, including the assumption of
approximately $50.3 million of indebtedness. As part of the agreement, Patriot
was also granted an option to acquire the remaining 5% equity interest in the
hotel.
POTENTIAL ACQUISITIONS
CHC International, Inc.
The Companies and CHC International, Inc. ("CHCI") have entered into an
Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger
Agreement"), providing, subject to regulatory approvals, for the merger of the
hospitality-related businesses of CHCI with and into Wyndham International with
Wyndham International being the surviving company (the "CHCI Merger"). Subject
to regulatory approvals, CHCI's gaming operations will be transferred to a new
legal entity prior to the CHCI Merger and such operations will not be a part of
the transaction. It is anticipated that the CHCI Merger will be consummated in
the second quarter of 1998. As a result of the CHCI Merger, Wyndham
International, through its subsidiaries, will acquire the remaining 50%
investment interest in GAH, the remaining 17 leases and 16 of the associated
management contracts related to the Patriot hotels leased by CHC Lease Partners,
leased by Wyndham International, 12 third-party management contracts, the Grand
Bay and Registry Hotels & Resorts proprietary brand names and certain other
hospitality management assets. Wyndham has also agreed to provide CHCI with a $7
million line of credit until such time as the CHCI Merger is completed. By
operation of the CHCI Merger, all issued and outstanding common stock of CHCI
will be exchanged for approximately 4,396,000 shares of Wyndham International
preferred stock, subject to certain adjustments.
Interstate Hotels Company
On December 2, 1997, Patriot, Wyndham International and Interstate Hotels
Company ("Interstate") entered into an Agreement and Plan of Merger (the
"Interstate Merger Agreement") providing for the merger of Interstate with and
into Patriot (the "Interstate Merger") with Patriot being the surviving company.
Pursuant to the Interstate Merger Agreement, stockholders of Interstate will
have the right to elect to convert each of their shares of Interstate common
stock into the right to receive either (i) $37.50 in cash, subject to proration
in certain circumstances (the "Interstate Cash Consideration"), or (ii) a number
of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio
of 1.341 Paired Shares for each share of Interstate common stock not exchanged
for cash (the "Interstate Exchange Ratio"). After the elections are made by
stockholders of Interstate, proration will be used to ensure that 40% of the
outstanding shares of Interstate common stock will be converted into the right
to receive Interstate Cash Consideration and that the remaining 60% of the
outstanding shares of Interstate common stock will be converted into the right
to receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment
in certain circumstances for the exercise of dissenters' rights. Patriot will
also assume or refinance all of Interstate's existing indebtedness, which
totaled approximately $800 million as of December 31, 1997. In addition,
Patriot will buy out or assume certain options to purchase Interstate common
stock held by certain Interstate employees and directors, and will assume
certain severance obligations in connection with the Interstate Merger. "The
special meetings of the stockholders of Patriot, Wyndham International and
Interstate at which approval of the Interstate Merger will be sought were
originally scheduled for March 30, 1998. On March 30, 1998, Patriot, Wyndham
International and Interstate each adjourned their respective stockholders'
meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham International and
Interstate elected to convene and then adjourn their respective stockholders'
meetings without a formal vote so as to permit additional time to negotiate with
Marriott International, Inc. ("Marriott") relating to certain issues Marriott
has raised concerning Marriott-branded hotels owned by Interstate. While Patriot
and Marriott had entered into a non-binding letter agreement in December 1997
regarding these matters, on March 30, 1998, Marriott filed a lawsuit in the
United States District Court for the District of Maryland seeking to enjoin the
Interstate Merger until Interstate complies with certain rights of notification
and first refusal which Marriott alleges would be triggered by the Interstate
Merger."
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
Arcadian International PLC
On January 20, 1998, Patriot announced in the United Kingdom its intention
to proceed with a takeover of Arcadian International PLC ("Arcadian"), a company
listed on the London Stock Exchange, for cash consideration totaling (Pounds)92
million (or approximately $152 million at the exchange rate on February 5, 1998)
(the "Arcadian Acquisition"). Arcadian is an owner, developer and operator of
hotels in the United Kingdom and continental Europe. Arcadian's portfolio
currently includes 12 hotels with a total of approximately 724 rooms throughout
the United Kingdom, as well as interests held in joint ventures with third
parties. In connection with the Arcadian
35
Acquisition, Patriot will assume or refinance all of Arcadian's existing
indebtedness, which totaled approximately $77 million as of February 5, 1998.
Patriot has also entered into agreements with the shareholders of Malmaison
Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest,
to acquire the remaining interests in Malmaison not currently owned by Arcadian
for an aggregate of approximately $58.1 million, including the assumption of
approximately $23.6 million of indebtedness (the "Malmaison Acquisition"). In
connection with the Malmaison Acquisition, Patriot expects to acquire (i) two
hotels currently owned by Malmaison and one hotel which Malmaison has agreed to
acquire and (ii) two additional hotels currently under development by Malmaison.
Golden Door Spa
In February 1998, the Companies signed a purchase contract to acquire the
Golden Door Spa in Escondido, California for a purchase price of approximately
$28 million. The purchase price is to be paid with a combination of cash, OP
Units of the Operating Partnerships and a short-term note.
SF Hotel Company, L.P.
On March 17, 1998, the Companies entered into an agreement to acquire all
of the partnership interests in SF Hotel Company, L.P. ("Summerfield") for
approximately $170 million. The purchase price is to be paid with a combination
of cash and issuance of a total of approximately 4,590,000 OP Units of the
Operating Partnerships and/or Paired Shares (the "Summerfield Acquisition"). The
final transaction price is subject to adjustment based on (i) the market price
of the Paired Shares through the end of 1998 and (ii) achievement of certain
performance criteria for the Summerfield portfolio through 2001. As a result of
the Summerfield Acquisition, the Companies will acquire four Summerfield
Suites/(R)/ hotels and lease or manage 33 Summerfield Suites/(R)/ and Sierra
Suites hotels/(R)/.
As part of its ongoing business, the Companies continually engage in
discussions with public and private real estate entities, including, without
limitation, current lessees of Patriot's hotels, regarding possible portfolio or
single asset acquisitions, as well as the acquisition of hotel leasing and
management operations. No assurances can be made that the Companies will
acquire any such acquisition opportunities.
RENOVATIONS AND CAPITAL IMPROVEMENTS
During 1997, the Companies completed approximately $82.2 million in total
capital improvements and renovations on various hotel properties. Approximately
$56.9 million of the total capital costs related to significant renovations at
certain of the hotel properties. These major renovations included upgrading the
quality of the furniture and fixtures in guest rooms, public meeting space and
lobby areas as well as adding additional rooms to certain of the hotels. Patriot
completed over $13.5 million of capital improvements during 1996 as well as
commenced and completed renovations at certain of the hotels. During 1996,
approximately $11.1 million of total capital improvement expenditures were
related to significant renovations at certain of the hotel properties which
included upgrading the rooms, public meeting space and lobby areas.
During 1997 for the 91 hotels owned as of December 31, 1997, Patriot has
incurred over $56.9 million related to renovations or completion of renovations
at a number of the hotels. Total renovations include approximately $22.9 million
related to the completion of major additions and renovations begun during 1996
at the Tremont House in Boston, Massachusetts; the Wyndham Resort & Spa in Fort
Lauderdale, Florida; and the WestCoast Long Beach Hotel and Marina in Long
Beach, California. The renovation of the Tremont House in Boston included the
construction of 32 additional guest rooms. Additionally, major renovations of
approximately $12.4 million began in late 1996 and have been completed at the
Holiday Inn - Miami Airport in Miami, Florida and the Holiday Inn in Des
Plaines, Illinois (both of which have now been converted to Doubletree brands);
and the Doubletree Hotel in Tallahassee, Florida. Renovations are in process and
expected to be completed during 1998 on the Doubletree Hotel at Allen Center in
Houston, Texas; the Radisson Hotel in Northbrook, Illinois; the Radisson Hotel
in Overland Park, Kansas; the Doubletree Guest Suites Hotel (formerly Luxeford
Suites Hotel) in Minneapolis, Minnesota, the Peachtree Conference Center in
Atlanta, Georgia and the Pickwick Hotel in San Francisco, California
(approximately $9.5 million was incurred as of December 31, 1997).
During 1998, management has budgeted over $188 million in capital
improvements and renovations of hotel properties to complete renovation of
hotels commenced in 1997 (discussed above), and to continue the enhancement of
existing hotels and hotels recently acquired.
36
Pursuant to the Participating Leases, Patriot is obligated to establish a
reserve for each hotel for capital improvements, including the periodic
replacement or refurbishment of furniture, fixtures and equipment ("F, F & E").
The aggregate amount of such reserves average 4.0% of total revenue, with the
amount of such reserve with respect to each hotel based upon projected capital
requirements of such hotel. Management believes such amounts are sufficient to
fund recurring capital expenditures for the hotels. Capital expenditures,
exclusive of renovations, may exceed 4.0% of total revenues in a single year.
The budgeted capital improvements excluding renovations consist of upgrades
and replacements of soft goods and furniture and fixtures, upgrades of telephone
systems, and other equipment purchases and improvements which management
believes will continue to enhance and maintain the revenue-producing
capabilities of certain of the hotels. The budgeted renovations to certain of
the hotel properties include complete renovation of rooms, lobby, public areas
and meeting space by replacing existing soft and hard goods with a higher
quality of furnishings, with the intention of upgrading the overall quality of
the hotel facility. Management believes these renovations will enhance the
revenue-producing capabilities of these hotels and strengthen the hotels'
position in their respective markets.
The Companies attempt to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to the
hotel's operations. Therefore, management does not believe such renovations and
capital improvements will have a material effect on the results of operations of
the hotels. Capital expenditures will be financed through the capital
expenditure reserves, the Revolving Credit Facility or other financing sources
or with working capital.
PROPOSED LEGISLATION AFFECTING THE PAIRED SHARE STRUCTURE
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Internal
Revenue Code (the "Code"). Section 269B(a)(3) would ordinarily prevent a
corporation from qualifying as a REIT if its stock is paired with the stock of a
corporation whose activities are inconsistent with REIT status, such as Wyndham
International. The "grandfathering" rules governing Section 296B generally
provide, however, that Section 296B(a)(3) does not apply to a paired REIT if the
REIT and the paired operating company were paired on June 30, 1983. Patriot's
and Wyndham International's respective precedessors, Cal Jockey and Bay Meadows,
were paired on June 30, 1983. There are, however, no judicial or administrative
authorities interpreting this "grandfathering" rule in the context of a merger
or otherwise.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a result
of future legislation. In this regard, on February 2, 1998, the Department of
Treasury released an explanation of the revenue proposals included in the
Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax
Proposals, among other things, include a freeze on the grandfathered status of
paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham
International would be treated as one entity with respect to properties acquired
on or after the date of the first Congressional committee action with respect to
such proposal and with respect to activities or services relating to such
properties that are undertaken or performed by one of the paired entities on or
after such date. The Tax Proposals would also prohibit REITs from holding stock
of a corporation possessing more than 10% of the vote or value of all classes
of stock of the corporation. This proposal would be effective with respect to
the stock acquired on or after the date of first Congressional committee action
with respect to the proposal; provided that the proposal would not apply to
stock acquired before such effective date if, on or after such date, the
subsidiary corporation engaged in a new trade or business or acquired
substantial new assets.
On March 26, 1998, William Archer, Chairman of the Ways and Means Committee
of the United States House of Representatives and William V. Roth, Jr., Chairman
of the Finance Committee of the United States Senate, introduced identical
legislation (the "Proposed Legislation") in both the House of Representatives
and the Senate to limit this "grandfathering rule." Under the Proposed
Legislation, the anti-pairing rules provided in the Code would apply to real
property interests acquired after March 26, 1998 by Patriot and Wyndham
International, or a subsidiary or partnership in which 10% or greater interest
is owned by Patriot or Wyndham International (collectively, the "REIT Group"),
unless (1) the real property interests are acquired pursuant to a written
agreement which is binding on March 26, 1998 and all times thereafter or (2) the
acquisition of such real property interests were described in a public
announcement or in a filing with the Securities and Exchange Commission on or
before March 26, 1998. In addition, the Proposed Legislation also provides that
a property held by Patriot or Wyndham International that is not subject to the
anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (x) the
undepreciated cost of the property (prior to the improvement) or (y) in the case
of property acquired where there is a substantial basis, the fair market value
of the property on the day it was acquired by Patriot and Wyndham International.
There is an exception for improvements placed in service before January 1, 2004
pursuant to a binding contract in effect as of December 31, 1999 and at all
times thereafter.
The above discussion is based solely on the Tax Proposals and the Proposed
Legislation. The Proposed Legislation will not become effective unless it is
duly passed by Congress and signed by the President. It is impossible at this
time to determine all of the ramifications which could result from enactment of
the Proposed Legislation. However, Patriot believes that the previously
announced and pending acquisitions of Interstate, Arcadian and Summerfield are
unaffected by the Proposed Legislation and expects that such acquisitions will
be completed as currently scheduled.
YEAR 2000
The approach of the year 2000 has created a challenging problem for many
companies. The problem is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Companies'
computer programs that have time-sensitive software may recognize the "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Companies are conducting comprehensive reviews
of their computer systems to identify the systems that could be affected by the
year 2000 and are developing an implementation plan to resolve the issue.
Required modifications to existing software and conversions to new software are
in progress to correct identified problems. Management anticipates that the year
2000 will not pose significant operations problems for the Companies once these
modifications and conversions are completed.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit Wyndham International's and
the Lessees' ability to raise room rates in the face of inflation.
SEASONALITY
The hotel industry is seasonal in nature. Revenues for certain of Patriot's
hotels are greater in the first and second quarters of a calendar year and at
other hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at the hotels may cause quarterly fluctuations in the
Patriot Companies' revenues.
FUNDS FROM OPERATIONS
Combined Funds from Operations of the Companies (as defined and computed
below) was $33.4 million for the three months ended December 31, 1997 and $18.3
million for the three months ended December 31, 1996. Combined Funds from
Operations of the Companies was $111.5 million for the year ended December 31,
1997 and $64.5 million for the year ended December 31, 1996.
Management considers Funds from Operations to be a key measure of REIT
performance. Funds from Operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation of real
property, amortization of goodwill and amortization of management contracts and
trade names, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Adjustments for Patriot's unconsolidated subsidiaries
37
are calculated to reflect Funds from Operations on the same basis. The Companies
have also made certain adjustments to Funds from Operations for real estate
related amortization and the write off of certain lease costs. Funds from
Operations should not be considered as an alternative to net income or other
measurements under generally accepted accounting principles as an indicator of
operating performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. Funds from Operations does not reflect
working capital changes, cash expenditures for capital improvements or principal
payments on indebtedness.
The following reconciliation of net income to Funds from Operations
illustrates the difference between the two measures of operating performance for
the three months ended December 31, 1997 and 1996:
Three Months Ended
December 31,
-------------------------------
1997 1996
----------- -----------
(in thousands)
Net income.............................................. $ 1,666 $10,156
Add:
Minority interest in the Operating Partnerships....... 375 1,625
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................. 17,155 5,763
Amortization of goodwill.............................. 1,135 --
Amortization of management contracts and trade names.. 1,227 --
Amortization of franchise fees........................ 22 22
Amortization of capitalized lease costs............... -- 40
Cost of acquiring leaseholds.......................... 10,679 --
Adjustment for Funds from Operations of
unconsolidated subsidiaries:
Equity in earnings of unconsolidated subsidiaries..... (1,527) (1,468)
Funds from Operations of unconsolidated subsidiaries.. 2,698 2,196
------- -------
Funds from Operations................................... $33,430 $18,334
======= =======
Weighted average shares and OP Units outstanding:
Basic................................................. 82,030 50,131
======= =======
Diluted............................................... 84,600 51,076
======= =======
The following reconciliation of net income (loss) to Funds from Operations
illustrates the difference between the two measures of operating performance for
the year ended December 31, 1997 and 1996:
Year Ended
December 31,
-------------------------------
1997 1996
----------- -----------
(in thousands)
Net (loss) income....................................... $ (2,172) $37,991
Add:
Extraordinary loss from early extinguishment of debt.. 2,534 --
Minority interest in the Operating Partnerships....... 1,684 6,767
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................. 47,694 17,302
Amortization of goodwill.............................. 1,851 --
Amortization of management contracts and trade names.. 1,696 --
Amortization of franchise fees........................ 88 88
Amortization of capitalized lease costs............... 102 116
Cost of acquiring leaseholds.......................... 54,499 --
Adjustment for Funds from Operations of unconsolidated
subsidiaries:
Equity in earnings of unconsolidated subsidiaries..... (6,015) (5,845)
Funds from Operations of unconsolidated subsidiaries.. 9,581 8,044
-------- -------
Funds from Operations................................... $111,542 $64,463
======== =======
Weighted average shares and OP Units outstanding:
Basic................................................. 64,160 41,662
======== =======
Diluted............................................... 65,981 42,200
======== =======
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' reports, financial statements and financial
statement schedules listed in the accompanying index are filed as part of this
report. See Index to Financial Statements and Financial Statement Schedules on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by this Part III is, in accordance with General
Instruction G(3) to Form 10-K, incorporated herein by reference to the
information contained in the Companies' definitive joint proxy statement for the
annual meeting of stockholders of Patriot and Wyndham International to be held
May 28, 1998, which will be filed with the Securities and Exchange Commission
not later than 120 days after December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a) The index to the audited financial statements and financial statement
schedules is included on page F-1 of this report. The financial statements
are included herein at pages F-1 through F-57. The following financial
statement schedules are included herein at pages F-51 through F-57:
Schedule III - Real Estate and Accumulated Depreciation for Patriot American
Hospitality, Inc.
Schedule IV - Mortgage Loans on Real Estate for Patriot American
Hospitality, Inc.
All other schedules for which provision is made in Regulation S-X are either
not required to be included herein under the related instructions or are
inapplicable or the related information is included in the footnotes to the
applicable financial statement and, therefore, have been omitted.
(b) Reports on Form 8-K for the quarter ended December 31, 1997:
Joint Current Report on Form 8-K, dated September 30, 1997 was filed with
the Securities and Exchange Commission on October 14, 1997 (and amended
October 28, 1997) with respect to Patriot's acquisition of ten hotels from
affiliates of Gencom and CHCI, Patriot's acquisition of eight leasehold
interests from affiliates of CHC Lease Partners, Wyndham International's
acquisition of an approximately 50% ownership interest in GAH and the
execution of the merger agreement between Patriot, Wyndham International and
CHCI.
Joint Current Report on Form 8-K, dated September 30, 1997 was filed with
the Securities and Exchange Commission on November 12, 1997 with respect to
the execution of the merger agreement between Patriot, Wyndham International
and WHG Resorts & Casinos Inc.
Joint Current Report on Form 8-K, dated December 2, 1997 was filed with the
Securities and Exchange Commission on December 4, 1997 with respect to the
execution of the merger agreement between Patriot, Wyndham International and
Interstate Hotels Company.
Joint Current Report on Form 8-K, dated December 10, 1997 was filed with the
Securities and Exchange Commission on December 10, 1997 with respect to
Patriot's acquisition of certain hotels.
39
(c) Exhibits:
Exhibit
No. Description
- -------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc. ("Patriot"), incorporated by reference to Exhibit 3.1
to Patriot's and Wyndham International, Inc.'s Registration Statement
on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
3.2 Amended and Restated Bylaws of Patriot (filed herewith)
3.3 Amended and Restated Certificate of Incorporation of Wyndham
International, Inc. ("Wyndham International"), (formerly known as
Patriot American Hospitality Operating Company) incorporated by
reference to Exhibit 3.3 to Patriot's and Wyndham International's
Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-
44203 and 333-44203-01).
3.4 Amended and Restated Bylaws of Wyndham International (filed herewith).
3.5 Certificate of Designations, Preferences and Rights of Patriot Series A
Convertible Preferred Stock, incorporated by reference to Exhibit 3.5
to Patriot's and Wyndham International's Form S-4/A filed February 13,
1998 (Nos. 333-44203 and 333-44203-01
4.1 Agreement (the "Pairing Agreement"), dated as of February 17, 1983 and
as amended February 18, 1988, between Bay Meadows Operating Company
("Bay Meadows") and California Jockey Club ("Cal Jockey") (formerly
known as Bay Meadows Realty Enterprises, Inc.), as amended,
incorporated by reference to Exhibit 4.3 to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-2, and to Exhibit 4.2 to Cal
Jockey's and Bay Meadows' Annual Report on Form 10-K for the year ended
December 31, 1987 (Nos. 001-09319 and 001-09320).
4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to
Exhibit 4.2 to Patriot's and Patriot American Hospitality Operating
Company's ("Patriot Operating Company") Joint Registration Statement on
Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
4.3 Amendment No. 3 to the Pairing Agreement, incorporated by reference to
Exhibit 4.3 to Patriot's and Wyndham International's Form S-4/A filed
February 13, 1998 (Nos. 333-44203 and 333-44203-01).
4.4 Cooperation Agreement, dated as of December 18, 1997, between Patriot
and Wyndham International, incorporated by reference to Exhibit 4.4 to
Patriot's and Wyndham International's Form S-4/A filed February 13,
1998 (Nos. 333-44203 and 333-44203-01).
10.1 Agreement and Plan of Merger, dated as of February 24, 1997, as amended
and restated as of May 28, 1997, by and among Patriot, Patriot American
Hospitality Partnership, L.P., Cal Jockey and Bay Meadows, incorporated
by reference to Annex A to the Joint Proxy Statement/Prospectus
included in Cal Jockey's and Bay Meadows' Registration Statement on
Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01).
10.2 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot and Wyndham Hotel Corporation (the "Wyndham Merger Agreement"),
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot's and Patriot Operating
Company's Joint Registration Statement on Form S-4 filed November 10,
1997 (Nos. 333-39875 and 333-39875-01).
10.3 Amendment No. 1 to Wyndham Merger Agreement, dated as of November 3,
1997, incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot's and Patriot Operating
Company's Joint Registration Statements on Form S-4 filed November 10,
1997 (Nos. 333-39875 and 333-39875-01).
10.4 Amendment No. 2 to Wyndham Merger Agreement, dated as of December 9,
1997, incorporated by reference to Annex S-A to the Joint Proxy
Statement/Prospectus included in Patriot's and Patriot Operating
Company's Post-Effective Amendment to Form S-4 filed December 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.5 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot Operating Company, Patriot and CHC International, Inc.,
incorporated by reference to Exhibit 10.40 to Patriot's and Patriot
Operating Company's Joint Registration Statement on Form S-4 filed
November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.6 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among WHG Resorts & Casinos Inc., Patriot, Patriot American Hospitality
Operating Company Acquisition Subsidiary and Patriot Operating Company,
incorporated by reference to Exhibit 2.1 to Patriot's and Patriot
Operating Company's Registration Statement on Form S-4 filed November
12, 1997 (Nos. 333-40041 and 333-40041-01).
10.7 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot and Wyndham International,
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot's and Wyndham International's
Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
40
Exhibit
No. Description
- -------------------------------------------------------------------------------
10.8 Second Amended and Restated Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. ("REIT Partnership Agreement"),
incorporated by reference to Exhibit 10.1 (1) to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos.
333-28085 and 333-28085-01).
10.9 First Amendment to the REIT Partnership Agreement, incorporated by
reference to Exhibit 10.1 (2) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085
and 333-28085-01).
10.10 Third Amendment to the REIT Partnership Agreement, dated as of July 1,
1997, incorporated by reference to Exhibit 10.1 (4) to Patriot's and
Patriot Operating Company's Joint Registration Statement on Form S-4
filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.11 Fifth Amendment to the REIT Partnership Agreement (filed herewith).
10.12 Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P. dated as of June 27, 1997, ("Op Co
Partnership Agreement"), incorporated by reference to Exhibit 10.2 (1)
to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.13 First Amendment to the Op Co Partnership Agreement, dated as of August
15, 1997, incorporated by reference to Exhibit 10.2 (2) to Patriot's
and Patriot Operating Company's Joint Registration Statement on Form S-
4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.14 Third Amendment to the Op Co Partnership Agreement (filed herewith).
10.15 Fifth Amendment to the Op Co Partnership Agreement (filed herewith).
10.16 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot, Patriot Operating Company, the shareholders of Interstate
Hotel Company named on the signature pages thereto, and Interstate
Hotels Company, incorporated by reference to Exhibit 10.1 to Patriot's
and Patriot Operating Company's Current Report on Form 8-K dated
December 2, 1997 and filed December 4, 1997 (Nos. 001-09319 and 001-
09320).
10.17 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of CHC
International, Inc., incorporated by reference to Exhibit 10.42 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.18 Amended and Restated Credit Agreement, dated as of December 16, 1997,
among Patriot, Patriot American Hospitality Partnership, L.P., The
Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and
various lenders identified therein, incorporated by reference to
Exhibit 10.2 to Patriot's and Wyndham International's Registration
Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-
44203-01).
10.19 Term Loan Agreement, dated as of December 16, 1997, among Patriot,
Patriot American Hospitality Partnership, L.P., The Chase Manhattan
Bank, PaineWebber Real Estate Securities, Inc. and various lenders
identified therein, incorporated by reference to Exhibit 10.3 to
Patriot's and Wyndham International's Registration Statement on Form S-
4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and James D. Carreker, incorporated by reference to Exhibit
10.20 to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.21 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Anne L. Raymond, incorporated by reference to Exhibit 10.21
to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.22 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Leslie V. Bentley, incorporated by reference to Exhibit
10.22 to Patriot's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.23 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Stanley M. Koonce, Jr., incorporated by reference to
Exhibit 10.23 to Patriot's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
41
Exhibit
No. Description
- -------------------------------------------------------------------------------
10.24 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot and Paul A. Nussbaum (filed herewith).
10.25 Executive Employment Agreement, dated as of February 14, 1997, between
Patriot and William W. Evans III, as supplemented on April 14, 1997
(filed herewith).
10.26 Executive Employment Agreement, dated as of June 1997, between Patriot
and Paul Novak (filed herewith).
10.27 Executive Employment Agreement, dated as of October 1, 1997, between
Patriot Operating Company and Michael Grossman (filed herewith).
10.28 Executive Employment Agreement, dated as of October 1, 1997, between
Patriot Operating Company and Karim Alibhai (filed herewith).
10.29 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
and CF Securities, L.P., incorporated by reference to Exhibit 10.9 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.30 Voting Agreement, dated as of April 14, 1997, by and among Patriot
and CF Securities, L.P., incorporated by reference to Exhibit 10.10 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.31 Voting Agreement, dated as of April 14, 1997, by and among Patriot
and Paul A. Nussbaum, incorporated by reference to Exhibit 10.11 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.32 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
William W. Evans III, incorporated by reference to Exhibit 10.12 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.33 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
Leslie V. Bentley, incorporated by reference to Exhibit 10.13 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.34 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
James D. Carreker, incorporated by reference to Exhibit 10.14 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.35 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.15 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.36 Voting Agreement, dated as of April 14, 1997, by and among Patriot and
Anne L. Raymond, incorporated by reference to Exhibit 10.16 to
Patriot's and Patriot Operating Company's Joint Registration Statement
on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
12.1 Statement regarding computation of ratios (filed herewith).
21.1 Significant Subsidiaries of Patriot and Wyndham International (filed
herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
24.1 Powers of Attorney (included on signature pages).
27.1 Financial Data Schedule of Patriot (filed herewith).
27.2 Financial Data Schedule of Wyndham International (filed herewith).
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 30, 1998
PATRIOT AMERICAN HOSPITALITY, INC.
By:/s/ Paul A. Nussbaum
--------------------------
Paul A. Nussbaum
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Capacities in which signed Date
--------- -------------------------- ----
/s/ Paul A. Nussbaum
- ---------------------------
Paul A. Nussbaum Chairman of the Board of Directors March 30, 1998
and Chief Executive Officer
(Principal Executive Officer)
/s/ William W. Evans III
- ---------------------------
William W. Evans III President, Chief Operating Officer March 30, 1998
and Director
/s/ Anne L. Raymond
- ---------------------------
Anne L. Raymond Executive Vice President and March 30, 1998
Chief Financial Officer
(Principal Financial Officer)
/s/ Lawrence S. Jones
- --------------------------
Lawrence S. Jones Executive Vice President and March 30, 1998
Treasurer (Principal Accounting
Officer)
/s/ John H. Daniels
- --------------------------
John H. Daniels Director March 30, 1998
/s/ John C. Deterding
- --------------------------
John C. Deterding Director March 30, 1998
/s/ Gregory R. Dillon
- --------------------------
Gregory R. Dillon Director March 30, 1998
/s/ Arch K. Jacobson
- --------------------------
Arch K. Jacobson Director March 30, 1998
/s/ James D. Carreker
- --------------------------
James D. Carreker Director March 30, 1998
/s/ Phillip J. Ward
- --------------------------
Phillip J. Ward Director March 30, 1998
/s/ Harlan R. Crow
- --------------------------
Harlan R. Crow Director March 30, 1998
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused the report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 30, 1998
WYNDHAM INTERNATIONAL, INC.
By:/s/ James D. Carreker
--------------------------
James D. Carreker
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Capacities in which signed Date
--------- -------------------------- ----
/s/ James D. Carreker
- -------------------------
James D. Carreker Chairman of the Board and Chief March 30, 1998
Executive Officer (Principal
Executive Officer)
/s/ Karim Alibhai
- -------------------------
Karim Alibhai President, Chief Operating Officer March 30, 1998
and Director
/s/ Lawrence S. Jones
- -------------------------
Lawrence S. Jones Executive Vice President and March 30, 1998
Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Paul A. Nussbaum
- -------------------------
Paul A. Nussbaum Director March 30, 1998
/s/ Arch K. Jacobson
- -------------------------
Arch K. Jacobson Director March 30, 1998
/s/ Leonard Boxer
- -------------------------
Leonard Boxer Director March 30, 1998
/s/ Russ Lyon, Jr.
- -------------------------
Russ Lyon, Jr. Director March 30, 1998
/s/ Burton C. Einspruch
- -------------------------
Burton C. Enspruch Director March 30, 1998
/s/ Sherwood Weiser
- -------------------------
Sherwood Weiser Director March 30, 1998
/s/ James C. Leslie
- -------------------------
James C. Leslie Director March 30, 1998
/s/ Susan T. Groenteman
- -------------------------
Susan T. Groenteman Director March 30, 1998
44
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
HISTORICAL FINANCIAL INFORMATION
COMBINED PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC.:
Report of Independent Auditors - Ernst & Young LLP.......................................................
Combined Balance Sheets as of December 31, 1997 and 1996.................................................
Combined Statements of Operations for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995....................................
Combined Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 and the
period October 2, 1995 (inception of operations) through December 31, 1995.............................
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995....................................
PATRIOT AMERICAN HOSPITALITY, INC. :
Consolidated Balance Sheets as of December 31, 1997 and 1996...........................................
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995..................................
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 and
the period October 2, 1995 (inception of operations) through December 31, 1995.......................
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995..................................
WYNDHAM INTERNATIONAL, INC.
(FORMERLY KNOWN AS PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY):
Consolidated Balance Sheet as of December 31, 1997.....................................................
Consolidated Statement of Operations for the six months ended December 31, 1997........................
Consolidated Statement of Shareholders' Equity for the six months ended December 31, 1997..............
Consolidated Statement of Cash Flows for the six months ended December 31, 1997........................
Notes to Financial Statements............................................................................
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation................................................
Schedule IV - Mortgage Loans on Real Estate............................................................
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Patriot American Hospitality, Inc. and
Wyndham International, Inc.
We have audited (i) the accompanying consolidated balance sheets of
Patriot American Hospitality, Inc. as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1997 and 1996 and the period October 2,
1995 (inception of operations) through December 31, 1995; (ii) the accompanying
consolidated balance sheet of Wyndham International, Inc. (formerly known as
Patriot American Hospitality Operating Company) as of December 31, 1997, and the
related consolidated statement of operations, shareholders' equity and cash
flows for the six months ended December 31, 1997; and (iii) the accompanying
combined balance sheets of Patriot American Hospitality, Inc. and Wyndham
International, Inc. (the "Companies") as of December 31, 1997 and 1996, and the
related combined statements of operations, shareholders' equity, and cash flows
for the years ended December 31, 1997 and 1996 and the period October 2, 1995
(inception of operations) through December 31, 1995. Our audits also included
the financial statement schedules listed in the Index at Item 14(a). These
consolidated financial statements and schedules are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements and schedules 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, (i) the consolidated financial position of
Patriot American Hospitality, Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1997 and 1996 and the period October 2, 1995 (inception of
operations) through December 31, 1995; (ii) the consolidated financial position
of Wyndham International, Inc. at December 31, 1997 and the consolidated results
of its operations and its cash flows for the six months ended December 31, 1997;
and (iii) the combined financial position of the Companies at December 31, 1997
and 1996, and the combined results of their operations and their cash flows for
the years ended December 31, 1997 and 1996 and the period October 2, 1995
(inception of operations) through December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Dallas, Texas
February 9, 1998
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ASSETS
Investment in real estate and related improvements and land held for
development, net of accumulated depreciation of $68,805 in 1997 and
$19,815 in 1996.......................................................... $ 2,044,649 $ 641,825
Cash and cash equivalents, including capital improvement reserves of $5,005
in 1997 and $2,458 in 1996............................................... 47,436 6,604
Accounts receivable......................................................... 54,693 5,351
Investment in unconsolidated subsidiaries................................... 11,802 11,291
Mortgage notes and other receivables from unconsolidated subsidiaries....... 76,419 72,209
Other mortgage notes and other receivables.................................. 12,983 --
Inventories................................................................. 10,450 1,648
Management contracts, net of accumulated amortization of $1,574............. 20,879 --
Trade names and franchise costs, net of accumulated amortization of $122.... 11,166 --
Deferred expenses, net of accumulated amortization of $2,097 in 1997 and
$750 in 1996............................................................. 21,417 3,063
Deferred acquisition costs.................................................. 52,500 15,394
Goodwill, net of accumulated amortization of $1,851......................... 126,007 --
Other assets, net of accumulated depreciation of $70 in 1997 and $18 in 1996 16,463 3,546
Income taxes receivable..................................................... 989 --
----------------- -----------------
Total assets......................................................... $ 2,507,853 $ 760,931
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility, term loan and mortgage notes...... $ 1,112,337 $ 214,339
Accounts payable and accrued expenses....................................... 73,273 10,117
Dividends and distributions payable......................................... 27,636 13,129
Sales taxes payable......................................................... 5,616 --
Deposits.................................................................... 12,423 --
Due to unconsolidated subsidiaries.......................................... 7,255 6,034
Deferred income tax liability............................................... 9,550 --
Minority interest in the Operating Partnerships............................. 220,177 68,562
Minority interest in other consolidated subsidiaries........................ 49,694 11,711
Commitment and contingencies................................................ -- --
Shareholders' Equity:
Preferred stock (paired shares), $0.01 par value, authorized: 100,000,000
shares each; no shares issued and outstanding.......................... -- --
Excess stock (paired shares), $0.01 par value, authorized: 750,000,000
shares each; no shares issued and outstanding.......................... -- --
Common stock (paired shares), $0.01 par value, authorized: 650,000,000
shares each; issued and outstanding: 73,276,716 shares in 1997 and
43,613,496 shares in 1996.............................................. 1,466 436
Additional paid in capital............................................... 1,070,973 442,104
Unearned stock compensation, net of accumulated amortization of $5,825 in
1997 and $1,139 in 1996................................................ (13,116) (5,427)
Distributions in excess of retained earnings............................. (69,431) (74)
------------------ ------------------
Total shareholders' equity........................................... 989,892 437,039
----------------- -----------------
Total liabilities and shareholders' equity........................... $ 2,507,853 $ 760,931
================= =================
See notes to financial statements.
F-3
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
Revenue:
Participating lease revenue.................................. $ 127,033 $ 75,893 $ 10,582
Hotel revenue................................................ 167,727 -- --
Racecourse facility and land lease revenue................... 26,511 -- --
Management fee and service fee income........................ 7,088 -- --
Interest and other income.................................... 6,676 600 513
------------- ------------- ---------------
Total revenue.......................................... 335,035 76,493 11,095
------------- ------------- ---------------
Expenses:
Departmental costs-- hotel operations........................ 84,758 -- --
Racing facility operations................................... 21,620 -- --
Direct operating costs of management company and service
department................................................. 1,216 -- --
General and administrative................................... 17,181 4,500 607
Ground lease expense......................................... 4,117 1,075 --
Repair and maintenance....................................... 7,821 -- --
Utilities.................................................... 7,144 -- --
Interest expense............................................. 50,531 7,380 89
Real estate and personal property taxes and casualty
insurance................................................... 17,958 7,150 901
Marketing.................................................... 15,437 -- --
Management fees.............................................. 1,941 -- --
Cost of acquiring leaseholds................................. 54,499 -- --
Depreciation and amortization................................ 52,685 17,420 2,590
------------- ------------- ---------------
Total expenses......................................... 336,908 37,525 4,187
------------- ------------- ---------------
(Loss) income before equity in earnings of unconsolidated
subsidiaries, income tax provision, minority interests and
extraordinary item........................................... (1,873) 38,968 6,908
Equity in earnings of unconsolidated subsidiaries............ 6,015 5,845 156
------------- ------------- ---------------
Income before income tax provision, minority interests and
extraordinary item........................................... 4,142 44,813 7,064
Income tax provision......................................... (481) -- --
-------------- ------------- ---------------
Income before minority interests and extraordinary item......... 3,661 44,813 7,064
Minority interest in the Operating Partnerships.............. (1,684) (6,767) (968)
Minority interest in consolidated subsidiaries............... (1,615) (55) --
-------------- -------------- ---------------
Income before extraordinary item................................ 362 37,991 6,096
Extraordinary loss from early extinguishment of debt, net of
minority interest.......................................... (2,534) -- (737)
-------------- ------------- ---------------
Net (loss) income............................................... $ (2,172) $ 37,991 $ 5,359
============= ============= ===============
Basic earnings (loss) per common Paired Share:
Income before extraordinary item............................. $ 0.01 $ 1.07 $ 0.21
Extraordinary loss........................................... (0.05) -- (0.03)
------------- ------------- ---------------
Net (loss) income per common Paired Share.................. $ (0.04) $ 1.07 $ 0.18
============= ============= ===============
Diluted earnings (loss) per common Paired Share:
Income before extraordinary item............................. $ 0.01 $ 1.06 $ 0.21
Extraordinary loss........................................... (0.05) $ -- $ (0.03)
------------- ------------- ---------------
Net (loss) income per common Paired Share.................. $ (0.04) $ 1.06 $ 0.18
============= ============= ==============
See notes to financial statements.
F-4
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NUMBER OF SHARES DISTRIBU-
------------------------- UNEARNED TIONS IN
STOCK EXCESS OF
WYNDHAM COMMON PAID-IN COMPEN- RETAINED
PATRIOT INTERNATIONAL STOCK CAPITAL SATION EARNINGS TOTAL
----------- ------------- -------- ------------ --------- ---------- -----------
Issuance of shares, net of 29,210,000
offering expenses............ $ 292 $ 312,878 $ -- $ -- $ 313,170
Acquisition of interests from -- -- -- -- (19,357)
affiliates................... (19,357)
Predecessor basis of interests -- -- -- 1,840
acquired from affiliates..... -- 1,840
Issuance of OP Units to -- -- 9,363
non-affiliates............... 9,363 --
Minority interest at closing -- -- -- (41,670)
of Initial Offering.......... -- (41,670)
Issuance of shares to 121,870 40
employees and directors..... 1 1,461 (1,422) --
Net income..................... -- -- -- -- 5,359 5,359
Amortization of unearned stock -- -- -- -- 71
compensation................. 71
Common stock dividend
declared..................... -- -- -- -- (7,038) (7,038)
----------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1995..... 29,331,870 293 264,515 (1,351) (1,679) 261,778
Issuance of shares, net of
offering expenses............ 13,916,186 139 181,253 -- -- 181,392
Issuance of shares to 365,440 37
employees and directors...... 4 5,177 (5,144) --
Redemption price of OP Units -- -- -- (8,841)
in excess of book value...... (8,841) --
Net income..................... -- -- -- -- 37,991 37,991
Amortization of unearned stock -- -- --
compensation................. -- 1,068 1,068
Common stock dividends
declared..................... -- -- -- -- (36,386) (36,386)
----------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1996..... 43,613,496 436 442,104 (5,427) (74) 437,039
Issuance of shares for
mergers and acquisition of
properties................... 12,824,433 57,135,658 699 231,247 -- -- 231,946
Issuance of shares, net of
offering expenses............ 15,830,033 15,830,033 318 386,417 -- -- 386,735
Issuance of shares to
employees and directors...... 547,867 4,167 5 12,896 (12,839) -- 62
Forfeiture of unvested
employee stock grants........ (42,900) (42,900) -- (464) 464 -- --
Issuance of shares for
exercise of options.......... 314,967 310,938 6 2,301 -- -- 2,307
Issuance of shares to redeem
OP Units..................... 188,820 38,820 2 2,554 -- -- 2,556
Redemption price of OP Units
in excess of book value...... -- -- -- (6,082) -- -- (6,082)
Net loss....................... -- -- -- -- -- (2,172) (2,172)
Amortization of unearned stock
compensation................. -- -- -- -- 4,686 -- 4,686
Common stock dividends
declared..................... -- -- -- -- -- (67,185) (67,185)
----------- ------------ -------- ------------ --------- ---------- -----------
Balance, December 31, 1997..... 73,276,716 73,276,716 $ 1,466 $ 1,070,973 $ (13,116)$ (69,431) $ 989,892
========== ============ ======== ============ ========= ========== ===========
See notes to financial statements.
F-5
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................ $ (2,172) $ 37,991 $ 5,359
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation............................................... 49,022 17,302 2,529
Amortization of unearned stock compensation................ 4,686 1,068 71
Amortization of deferred loan costs........................ 2,630 431 27
Amortization of lease inducement costs..................... 102 116 23
Amortization of management contracts and trade names....... 1,694 -- --
Amortization of goodwill................................... 1,851 -- --
Other amortization......................................... 118 118 61
Cost of acquiring leaseholds............................... 54,499 -- --
Payment of interest on notes receivable from
unconsolidated subsidiaries.............................. 5,001 4,833 --
Accrued interest receivable................................ (1,318) -- --
Issuance of common stock to directors...................... 61 37 --
Equity in earnings of unconsolidated subsidiaries.......... (6,015) (5,845) (156)
Minority interest in income of Operating Partnerships...... 1,684 6,767 968
Minority interest in income of other
consolidated subsidiaries................................ 1,615 55 --
Extraordinary items........................................ 2,534 -- 737
Changes in assets and liabilities:
Accounts receivable...................................... (18,176) -- --
Lease revenue receivable................................. (4,359) (3,091) (2,260)
Deferred expenses........................................ (24) -- (292)
Inventories.............................................. (2,736) -- --
Other assets............................................. (3,205) (1,003) (589)
Accounts payable and other accrued expenses.............. 18,685 2,741 1,140
Deposits................................................. 2,354 -- --
Due to unconsolidated subsidiaries....................... (421) (324) --
------------- ------------- ---------------
Net cash provided by operating activities.............. 108,110 61,196 7,618
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets..................................... (939,234) (353,217) (260,665)
Improvements and additions to hotel properties............... (82,269) (21,889) (609)
Payment of merger related costs.............................. (9,045) -- --
Cash received in acquisition of hotel leases................. 14,192 -- --
Change in other assets....................................... -- 1,219 (150)
Deferred acquisition costs................................... (67,743) (14,797) (598)
Investment in unconsolidated subsidiaries.................... (1,574) -- (4,238)
Investment in mortgage notes and other receivables from
unconsolidated subsidiaries................................ (500) (31,400) (40,587)
Principal payments received on mortgage and other notes
receivable................................................. 139 399 --
Investment in other mortgage and other notes receivable...... (116,090) -- (101)
------------- ------------- ---------------
Net cash used in investing activities.................. (1,202,124) (419,685) (306,948)
------------- ------------- ---------------
F-6
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility
and mortgage notes......................................... 1,865,634 396,302 9,500
Repay borrowings under line of credit facility............... (1,001,880) (191,463) --
Payments to acquire interests of affiliates in the
Initial Hotels............................................. -- -- (18,879)
Payment of deferred loan costs............................... (24,471) (1,189) (361)
Prepayment penalties on assumed mortgage loans............... -- -- (174)
Payments for capital leases.................................. 644 -- --
Proceeds from issuance of common stock....................... 401,945 199,723 314,013
Payment of offering costs.................................... (15,519) (462) --
Proceeds from exercise of options to purchase common stock... 2,195 -- --
Contributions received from minority interest in
consolidated subsidiaries.................................. 35,829 11,656 --
Payments to redeem OP Units.................................. (63,826) (16,584) --
Dividends and distributions paid............................. (65,705) (37,659) --
------------- ------------- ---------------
Net cash provided by financing activities.............. 1,134,846 360,324 304,099
------------- ------------- ---------------
Net increase in cash and cash equivalents....................... 40,832 1,835 4,769
Cash and cash equivalents at beginning of period................ 6,604 4,769 --
------------- ------------- ---------------
Cash and cash equivalents at end of period...................... $ 47,436 $ 6,604 $ 4,769
============= ============= ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................... $ 48,254 $ 6,938 $ --
============= ============= ===============
Cash paid during the period for income taxes................. $ 325 $ -- $ --
============= ============= ===============
See notes to financial statements.
F-7
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-----------------------------------
1997 1996
--------------- ---------------
ASSETS
Investment in real estate and related improvements and land held for
development, net of accumulated depreciation of $67,501 in 1997
and $19,815 in 1996......................................................... $ 2,016,267 $ 641,825
Cash and cash equivalents, including capital improvement reserves of
$5,005 in 1997 and $2,458 in 1996........................................... 20,360 6,604
Lease revenue receivable...................................................... 12,105 5,351
Investment in unconsolidated subsidiaries..................................... 11,802 11,291
Mortgage notes and other receivables from unconsolidated subsidiaries......... 76,419 72,209
Notes and other receivables from Wyndham International........................ 42,946 --
Goodwill, net of accumulated amortization of $1,257........................... 87,999 --
Inventories................................................................... 1,306 1,648
Deferred expenses, net of accumulated amortization of $2,097 in 1997
and $750 in 1996............................................................ 21,417 3,063
Deferred acquisition costs.................................................... 21,374 15,394
Other assets, net of accumulated depreciation of $70 in 1997 and $18 in 1996.. 9,110 3,546
--------------- ---------------
Total assets................................................................ $ 2,321,105 $ 760,931
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility, term loan and mortgage notes........ $ 1,112,337 $ 214,339
Subscription notes payable to Wyndham International........................... 12,875 --
Accounts payable and accrued expenses......................................... 28,572 10,117
Dividends and distributions payable........................................... 27,185 13,129
Due to unconsolidated subsidiaries............................................ 7,255 6,034
Minority interest in REIT Partnership......................................... 174,640 68,562
Minority interest in other consolidated subsidiaries.......................... 49,214 11,711
Commitments and contingencies................................................. -- --
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 100,000,000 shares;
no shares issued and outstanding............................................ -- --
Excess stock, $0.01 par value; authorized: 750,000,000 shares;
no shares issued and outstanding.............................................. -- --
Common stock, $0.01 par value; authorized: 650,000,000 shares;
shares issued and outstanding: 73,276,716 shares in 1997
and 43,613,496 shares in 1996............................................... 733 436
Paid-in capital............................................................... 990,821 442,104
Unearned stock compensation, net of accumulated amortization
of $5,825 in 1997 and $1,139 in 1996........................................ (13,116) (5,427)
Distributions in excess of retained earnings.................................. (69,411) (74)
--------------- ---------------
Total shareholders' equity.................................................... 909,027 437,039
--------------- ---------------
Total liabilities and shareholders' equity.................................... $ 2,321,105 $ 760,931
=============== ===============
See notes to financial statements.
F-8
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
Revenue:
Participating lease revenue.................................. $ 177,659 $ 75,893 $ 10,582
Racecourse facility and land lease revenue................... 2,792 -- --
Interest and other income.................................... 5,103 600 513
------------- ------------- ---------------
Total revenue.......................................... 185,554 76,493 11,095
------------- ------------- ---------------
Expenses:
General and administrative................................... 11,157 4,500 607
Ground lease expense......................................... 4,117 1,075 --
Interest expense............................................. 51,000 7,380 89
Real estate and personal property taxes and casualty
insurance.................................................. 17,958 7,150 901
Cost of acquiring leaseholds................................. 54,499 -- --
Depreciation and amortization................................ 49,069 17,420 2,590
------------- ------------- ---------------
Total expenses......................................... 187,800 37,525 4,187
------------- ------------- ---------------
(Loss) income before equity in earnings of unconsolidated
subsidiaries, minority interests and extraordinary item...... (2,246) 38,968 6,908
Equity in earnings of unconsolidated subsidiaries............ 6,015 5,845 156
------------- ------------- ---------------
Income before minority interests and extraordinary item......... 3,769 44,813 7,064
Minority interest in the REIT Partnership.................... (1,713) (6,767) (968)
Minority interest in consolidated subsidiaries............... (1,674) (55) --
-------------- -------------- ---------------
Income before extraordinary item................................ 382 37,991 6,096
Extraordinary loss from early extinguishment of debt, net of
minority interest.......................................... (2,534) -- (737)
-------------- ------------- ----------------
Net (loss) income............................................... $ (2,152) $ 37,991 $ 5,359
============== ============= ===============
Basic earnings (loss) per common share:
Income before extraordinary item............................. $ 0.01 $ 1.07 $ 0.21
Extraordinary loss........................................... (0.05) -- (0.03)
------------- ------------- ---------------
Net (loss) income per common share......................... $ (0.04) $ 1.07 $ 0.18
============= ============= ==============
Diluted earnings(loss) per common share:
Income before extraordinary item............................. $ 0.01 $ 1.06 $ 0.21
Extraordinary loss........................................... (0.05) -- (0.03)
------------- ------------- --------------
Net (loss) income per common share......................... $ (0.04) $ 1.06 $ 0.18
============= ============= ==============
See notes to financial statements.
F-9
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DISTRIBUTIONS
UNEARNED IN EXCESS OF
NUMBER OF COMMON PAID-IN STOCK RETAINED
SHARES STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------ ----- ------- ------------ -------- -----
Issuance of shares, net of
offering expenses................ 29,210,000 $ 292 $ 312,878 $ -- $ -- $ 313,170
Acquisition of interests from
affiliates....................... -- -- (19,357) -- -- (19,357)
Predecessor basis of interests..... -- 1,840 -- -- 1,840
acquired from affiliates......... --
Issuance of OP Units to
non-affiliates................... -- -- 9,363 -- -- 9,363
Minority interest at closing
of Initial Offering.............. -- -- (41,670) -- -- (41,670)
Issuance of shares to
employees and directors.......... 121,870 1 1,461 (1,422) -- 40
Net income......................... -- -- -- -- 5,359 5,359
Amortization of unearned stock
compensation..................... -- -- -- 71 -- 71
Common stock dividend declared..... -- -- -- -- (7,038) (7,038)
---------- -------- ----------- ---------- ----------- -----------
Balance, December 31, 1995......... 29,331,870 293 264,515 (1,351) (1,679) 261,778
Issuance of shares, net of
offering expenses................ 13,916,186 139 181,253 -- -- 181,392
Issuance of shares to
employees and directors.......... 365,440 4 5,177 (5,144) -- 37
Redemption price of OP Units
in excess of book value.......... -- -- (8,841) -- -- (8,841)
Net income......................... -- -- -- -- 37,991 37,991
Amortization of unearned stock
compensation..................... -- -- -- 1,068 -- 1,068
Common stock dividends declared.... -- -- -- -- (36,386) (36,386)
---------- ----------- ----------- ---------- ----------- -----------
Balance, December 31, 1996......... 43,613,496 436 442,104 (5,427) (74) 437,039
Issuance of shares for mergers
and acquisition of
properties....................... 12,824,433 128 170,222 -- -- 170,350
Issuance of shares, net of
offering expenses................ 15,830,033 159 367,076 -- -- 367,235
Issuance of shares to
employees and directors.......... 547,867 5 12,896 (12,839) -- 62
Forfeiture of unvested
employee stock grants............ (42,900) -- (464) 464 -- --
Issuance of shares for
exercise of options.............. 314,967 3 2,192 -- -- 2,195
Issuance of shares to redeem
OP Units......................... 188,820 2 2,494 -- -- 2,496
Redemption price of OP Units
in excess of book value.......... -- -- (5,699) -- -- (5,699)
Net loss........................... -- -- -- -- (2,152) (2,152)
Amortization of unearned stock
compensation..................... -- -- -- 4,686 -- 4,686
Common stock dividends declared.... -- -- -- -- (67,185) (67,185)
---------- ----------- -------------- ---------- ----------- -----------
Balance, December 31, 1997......... 73,276,716 $ 733 $ 990,821 $ (13,116) $ (69,411) $ 909,027
========== =========== ============== ========== =========== ===========
See notes to financial statements.
F-10
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................ $ (2,152) $ 37,991 $ 5,359
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation............................................... 47,694 17,302 2,529
Amortization of unearned stock compensation................ 4,686 1,068 71
Amortization of deferred loan costs........................ 2,630 431 27
Amortization of lease inducement costs..................... 102 116 23
Amortization of goodwill................................... 1,257 -- --
Other amortization......................................... 118 118 61
Cost of acquiring leaseholds............................... 54,499 -- --
Payment of interest on notes receivable from
unconsolidated subsidiaries.............................. 5,001 4,833 --
Accrued interest receivable................................ (550) -- --
Issuance of common stock to directors...................... 61 37 --
Equity in earnings of unconsolidated subsidiaries.......... (6,015) (5,845) (156)
Minority interest in income of REIT Partnership............ 1,713 6,767 968
Minority interest in income of other
consolidated subsidiaries................................ 1,674 55 --
Extraordinary items........................................ 2,534 -- 737
Changes in assets and liabilities:
Lease revenue receivable................................. (6,754) (3,091) (2,260)
Due from Wyndham International........................... 506 -- --
Deferred expenses........................................ (24) -- (292)
Other assets............................................. (2,383) (1,003) (589)
Accounts payable and other accrued expenses.............. 10,657 2,741 1,140
Due to unconsolidated subsidiaries....................... (421) (324) --
-------------- ------------- ---------------
Net cash provided by operating activities.............. 114,833 61,196 7,618
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets..................................... (937,135) (353,217) (260,665)
Improvements and additions to hotel properties............... (82,269) (21,889) (609)
Changes in due from Wyndham International.................... (39,060) -- --
Changes in other assets...................................... -- 1,219 (150)
Deferred acquisition costs................................... (36,617) (14,797) (598)
Investment in unconsolidated subsidiaries.................... (1,574) -- (4,238)
Investment in mortgage notes and other receivables from
unconsolidated subsidiaries................................ (500) (31,400) (40,587)
Principal payments received on mortgage and other notes
receivable................................................. 139 399 --
Investment in other mortgage and other notes receivable...... (103,875) -- (101)
------------- ------------- ---------------
Net cash used in investing activities.................. (1,200,891) (419,685) (306,948)
-------------- ------------- ---------------
F-11
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
OPERATIONS)
YEARS ENDED THROUGH DECEMBER
DECEMBER 31, 31,
------------------------------ ------------------
1997 1996 1995
--------------- -------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facilities, term loan and
mortgage notes............................................. 1,865,634 396,302 9,500
Repay borrowings under line of credit facility............... (1,001,880) (191,463) --
Principal payments on subscription notes payable to
Wyndham International...................................... (16,070) -- --
Payments to acquire interests of affiliates in the
Initial Hotels............................................. -- -- (18,879)
Payment of deferred loan costs............................... (24,471) (1,189) (361)
Prepayment penalties on assumed mortgage loans............... -- -- (174)
Payments for capital leases.................................. 503 -- --
Proceeds from issuance of common stock....................... 382,754 199,723 314,013
Payment of offering costs.................................... (15,519) (462) --
Proceeds from exercise of options to purchase common stock... 2,195 -- --
Contributions received from minority interest in
consolidated subsidiaries.................................. 35,829 11,656 --
Payments to redeem OP Units.................................. (63,826) (16,584) --
Dividends and distributions paid............................. (65,335) (37,659) --
------------- ------------- ---------------
Net cash provided by financing activities.............. 1,099,814 360,324 304,099
------------- ------------- ---------------
Net increase in cash and cash equivalents....................... 13,756 1,835 4,769
Cash and cash equivalents at beginning of period................ 6,604 4,769 --
------------- ------------- ---------------
Cash and cash equivalents at end of period...................... $ 20,360 $ 6,604 $ 4,769
============= ============= ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................... $ 48,254 $ 6,938 $ --
============= ============= ===============
See notes to financial statements.
F-12
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
1997
-----------------
ASSETS
Current assets:
Cash and cash equivalents................................................................... $ 27,076
Accounts receivable......................................................................... 46,340
Subscription notes receivable from Patriot American Hospitality, Inc........................ 12,875
Inventories................................................................................. 9,144
Prepaid expenses and other current assets................................................... 5,227
---------------
Total current assets.................................................................... 100,662
Investment in furniture, fixtures and equipment, net of accumulated depreciation of $1,304....... 28,382
Mortgage notes and other receivables............................................................. 12,983
Receivables from prior owners.................................................................... 5,767
Management contracts, net of accumulated amortization of $1,574.................................. 20,879
Trade names and franchise costs, net of accumulated amortization of $122......................... 11,166
Deferred acquisition costs....................................................................... 31,126
Goodwill, net of accumulated amortization of $594................................................ 38,008
Other assets..................................................................................... 2,126
Income taxes receivable.......................................................................... 989
---------------
Total assets............................................................................ $ 252,088
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................................................... $ 19,203
Accrued liabilities......................................................................... 22,663
Dividends and distributions payable......................................................... 451
Participating lease payments payable to Patriot American Hospitality, Inc................... 9,519
Sales taxes payable......................................................................... 5,616
Deposits.................................................................................... 12,423
Notes and other amounts payable to Patriot American Hospitality, Inc........................ 42,946
---------------
Total current liabilities............................................................... 112,821
Deferred income tax liability.................................................................... 9,550
Other liabilities................................................................................ 2,835
Minority interest in OpCo Partnership............................................................ 45,537
Minority interest in other consolidated subsidiaries............................................. 480
Commitments and contingencies.................................................................... --
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 100,000,000 shares;
no shares issued and outstanding........................................................ --
Excess stock, $0.01 par value; authorized: 750,000,000 shares;
no shares issued and outstanding........................................................ --
Common stock, $0.01 par value; authorized: 650,000,000 shares;
issued and outstanding: 73,276,716 shares............................................... 733
Paid-in capital............................................................................. 80,152
Retained earnings/(deficit)................................................................. (20)
---------------
Total shareholders' equity.............................................................. 80,865
---------------
Total liabilities and shareholders' equity.............................................. $ 252,088
===============
See notes to financial statements.
F-13
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
DECEMBER 31,
1997
-----------------
Revenue:
Room revenue.................................................................................. $ 95,095
Other hotel revenue........................................................................... 72,632
Racecourse facility revenue................................................................... 26,344
Management fee and service fee income......................................................... 7,088
Interest and other income..................................................................... 2,975
---------------
Total revenue............................................................................. 204,134
---------------
Expenses:
Departmental costs -- hotel operations........................................................ 84,758
Racecourse facility operations................................................................ 24,245
Direct operating costs of management company and service department........................... 1,216
General and administrative.................................................................... 6,024
Repair and maintenance........................................................................ 7,821
Utilities..................................................................................... 7,144
Marketing..................................................................................... 15,437
Management fees............................................................................... 1,941
Depreciation and amortization................................................................. 3,616
Participating lease payments.................................................................. 50,626
Interest expense.............................................................................. 933
--------------
Total expenses ........................................................................... 203,761
---------------
Income before income tax provision and minority interests........................................ 373
Income tax provision.......................................................................... (481)
----------------
Loss before minority interests................................................................... (108)
Minority interest in OpCo Partnership......................................................... 29
Minority interest in other consolidated subsidiaries.......................................... 59
---------------
Net loss......................................................................................... $ (20)
================
Basic earnings per common share.................................................................. $ --
===============
Diluted earnings per common share................................................................ $ --
===============
See notes to financial statements.
F-14
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED
COMMON PAID-IN EARNINGS/
NUMBER OF SHARES STOCK CAPITAL (DEFICIT) TOTAL
Issuance of shares for mergers
and acquisition of properties... 57,135,658 $ 571 $ 61,025 $ -- $ 61,596
Issuance of shares, net of
offering expenses............... 15,830,033 159 19,341 -- 19,500
Issuance of shares to employees --
and directors................... 4,167 -- -- --
Forfeiture of unvested employee --
stock grants.................... (42,900) -- -- --
Issuance of shares for exercise --
of options...................... 310,938 3 109 112
Issuance of shares to redeem OP --
Units........................... 38,820 -- 60 60
Redemption price of OP Units
in excess of book value......... -- -- (383) -- (383)
Net loss.......................... -- -- -- (20) (20)
---------------- ----------- ----------- ----------- ------------
Balance, December 31, 1997........ 73,276,716 $ 733 $ 80,152 $ (20) $ 80,865
================ =========== =========== =========== ============
See notes to financial statements.
F-15
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
1997
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................... $ (20)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation........................................................................... 1,328
Amortization of management contracts and trade names................................... 1,694
Amortization of goodwill............................................................... 594
Accrued interest receivable............................................................ (768)
Minority interest in income of OpCo Partnership........................................ (29)
Minority interest in income of other consolidated subsidiaries......................... (59)
Changes in assets and liabilities:
Accounts receivable.................................................................... (18,176)
Inventories............................................................................ (2,736)
Other assets........................................................................... (822)
Accounts payable and other accrued expenses............................................ 8,028
Deposits............................................................................... 2,354
Participating lease payments payable to Patriot American Hospitality, Inc.............. 2,395
Other amounts payable to Patriot American Hospitality, Inc............................. (506)
-----------------
Net cash used in operating activities......................................... (6,723)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to furniture and fixtures....................................... (2,099)
Payment of merger-related costs............................................................ (9,045)
Cash received upon acquisition of hotel leases............................................. 14,192
Investment in mortgage notes and other receivables......................................... (4,281)
-----------------
Net cash used in investing activities...................................... (1,233)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments received on subscription notes receivable......................................... 16,070
Capital leases............................................................................. 141
Net proceeds from issuance of common stock................................................. 19,191
Distributions paid......................................................................... (370)
-----------------
Net cash provided by financing activities..................................... 35,032
-----------------
Net increase in cash and cash equivalents....................................................... 27,076
Cash and cash equivalents at beginning of period................................................ --
-----------------
Cash and cash equivalents at end of period...................................................... $ 27,076
=================
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes............................................... $ 325
=================
See notes to financial statements.
F-16
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION:
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing arrangement. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot
American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to
"Patriot American Hospitality Operating Company." Subsequent to year end, as a
result of the merger of Wyndham Hotel Corporation with and into Patriot as
discussed in Note 21 (see also Note 12), Patriot American Hospitality Operating
Company changed its name to "Wyndham International, Inc." and is referred to
herein, collectively with its subsidiaries, as "Wyndham International". The term
"Companies" as used herein includes Patriot, Wyndham International and their
respective subsidiaries. Patriot and Wyndham International are both Delaware
corporations.
The Cal Jockey Merger has been accounted for as a reverse acquisition
whereby Cal Jockey is considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
became the historical financial information for Patriot. For accounting
purposes, Wyndham International commenced its operations concurrent with the
closing of the Cal Jockey Merger on July 1, 1997. The financial statements have
been adjusted for the purchase method of accounting whereby the Bay Meadows
Racecourse ("Racecourse") facilities and related leasehold improvements owned by
Cal Jockey and Bay Meadows have been adjusted to estimated fair market value.
The excess purchase consideration over the estimated fair market value of the
assets acquired and the liabilities assumed was recorded as goodwill.
By operation of the Cal Jockey Merger, each issued and outstanding share of
common stock, no par value per share of Old Patriot ("Old Patriot Common Stock")
was converted into 0.51895 shares of common stock, par value $0.01 per share of
Patriot ("Patriot Common Stock") and 0.51895 shares of common stock, par value
$0.01 per share of Wyndham International ("Wyndham International Common Stock"),
which shares are paired and transferable only as a single unit (collectively,
shares of Patriot Common Stock and shares of Wyndham International Common Stock
are referred to herein as the "Paired Shares"). Each paired share of Cal Jockey
and Bay Meadows common stock remained outstanding and represented the same
number of Paired Shares of Patriot Common Stock and Wyndham International Common
Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed an operating
partnership, Patriot American Hospitality Operating Partnership, L.P. (the "OpCo
Partnership") into which Bay Meadows contributed its assets in exchange for
units of limited partnership interest ("OP Units") of the OpCo Partnership, and
Cal Jockey contributed certain of its assets to Patriot American Hospitality
Partnership, L.P. (the "REIT Partnership") in exchange for OP Units of the REIT
Partnership (collectively, the OpCo Partnership and the REIT Partnership are
referred to herein as the "Operating Partnerships"). Subsequent to completion of
the Cal Jockey Merger and the transactions contemplated by the Cal Jockey Merger
Agreement, substantially all of the operations of Patriot and Wyndham
International have been conducted through the Operating Partnerships and their
subsidiaries.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in the
REIT Partnership. In addition, Patriot, through its wholly owned subsidiary, PAH
LP, Inc., owns an approximate 85.3% limited partnership interest in the REIT
Partnership as of December 31, 1997.
Wyndham International owns a 1.0% general partnership interest and an
approximate 83.9% limited partnership interest in the OpCo Partnership as of
December 31, 1997.
F-17
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
At December 31, 1997, Patriot, through the REIT Partnership and other
subsidiaries, owned interests in 91 hotels with an aggregate of over 23,300
guest rooms. Patriot leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through
special purpose entities, to Wyndham International or to other third party
lessees (the "Lessees") who are responsible for operating the hotels. At
December 31, 1997, Patriot leased 17 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve years pursuant to separate
participating leases providing for the payment of the greater of base or
participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR
North Canton, Inc. (the "Doubletree Lessee") leased four hotels; and Metro
Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel under
similar Participating Lease agreements. The Lessees, in turn, have entered into
separate agreements with hotel management entities (the "Operators") to manage
the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
acquisitions were structured without lessees and are managed directly by Holiday
Inns, Inc. and Wyndham Hotel Corporation, respectively. At December 31, 1997,
Wyndham International leased 55 hotels from Patriot pursuant to Participating
Lease agreements which are substantially similar to the Participating Lease
agreements of the Lessees. Wyndham International manages 31 of these hotels
through certain of its hotel management subsidiaries and has entered into
separate management agreements with hotel Operators to manage 24 of the hotels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The separate consolidated financial statements include the accounts of
Patriot and Wyndham International, their respective wholly-owned subsidiaries,
and the partnerships, corporations and limited liability companies in which
Patriot or Wyndham International own at least 50% controlling interest. The
separate consolidated financial statements of Patriot and Wyndham International
have also been combined for purposes of financial statement presentation. All
significant intercompany accounts and transactions have been eliminated.
Investment in Real Estate and Related Improvements
The hotel properties are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of the assets of 35 years
for the hotel buildings and improvements, 7 years for the Racecourse facility
and 5 to 7 years for furniture, fixtures and equipment. These estimated useful
lives are based on management's knowledge of the properties and the industry in
general.
The acquisition of affiliated interests in the 20 hotels acquired in
connection with Old Patriot's Initial Offering (the "Initial Hotels") has been
recorded at predecessor cost. In connection with the Initial Offering, cash
payments to acquire the interests of predecessor owners who were deemed to be
affiliates of Old Patriot have been reflected as a reduction of shareholders'
equity in the accompanying financial statements in 1995.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, Patriot would record impairment losses on long-lived assets used
in operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No such impairment
losses have been recognized to date.
Repairs and maintenance of hotel properties owned by Patriot are paid by
the Lessees (including Wyndham International). Major renewals and betterments
are capitalized. Interest associated with borrowings used to finance substantial
hotel renovations is capitalized and amortized over the estimated useful life of
the assets. Interest of $2,562 and $91 was capitalized in 1997 and 1996,
respectively.
F-18
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.
Investment in Unconsolidated Subsidiaries
Patriot's investments in PAH Ravinia, Inc. ("PAH Ravinia"), the entity
which owns the Crowne Plaza Ravinia Hotel, PAH Windwatch, L.L.C. ("PAH
Windwatch"), the entity which owns the Wyndham WindWatch Hotel, and PAH
Boulders, Inc. (PAH Boulders"), the entity which owns certain assets including
the right to receive certain royalty fees, are accounted for using the equity
method of accounting. Patriot owns an approximate 99% non-voting interest in
each of these entities. The voting interests of PAH Ravinia and PAH Windwatch
are owned by partnerships in which Patriot has a 4% interest. The voting
interests of PAH Boulders are held by the OpCo Partnership. Patriot's share of
the net income of PAH Ravinia, PAH Windwatch and PAH Boulders is included in
Patriot's statement of operations.
Inventories
Inventories consist of food, beverages, china, linen, glassware and
silverware and are stated at cost, which approximates market.
Management contracts, trade names and franchise costs
The costs associated with the acquisition of management contracts, trade
names and franchises have been recorded as deferred costs. Amortization of
management contracts is computed using the straight-line method over the term of
the related management agreements. Amortization of trade names and franchise
costs is computed using the straight-line method over estimated useful lives
ranging from 20 to 35 years.
Deferred Expenses
Deferred expenses consist of the following:
December 31,
-------------------------------
1997 1996
--------------- --------------
Deferred loan costs............................................. $ 22,798 $ 1,550
Leasing costs................................................... -- 1,684
Franchise fees.................................................. 429 429
Organization costs.............................................. 150 150
Other........................................................... 137 --
------------ -------------
23,514 3,813
Less: accumulated amortization.................................. (2,097) (750)
------------ -------------
$ 21,417 $ 3,063
============ =============
Deferred loan costs are amortized to interest expense on a straight-line
basis (which approximates the interest method) over the terms of the related
loans, which range from one to ten years. Deferred loan costs includes $4,132 of
fully-amortized costs associated with Patriot's old line of credit facility
which was repaid in July 1997 (see Note 7). Leasing costs are amortized to
participating lease revenue over the lives of the leases. Pursuant to the
acquisition of certain leaseholds and a merger agreement described in Note 4,
the remaining unamortized balance of leasing costs was written off in 1997.
Franchise costs are amortized using the straight-line method over the terms of
the related franchise agreements. Amortization of organization costs is computed
using the straight-line method over five years.
F-19
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Goodwill
Goodwill recognized in connection with the acquisition of certain
businesses is amortized utilizing the straight-line method over a period of 20
to 40 years. Under generally accepted accounting principles the maximum
amortization period is 40 years for intangible assets.
Other Assets
Leasehold improvements and furniture, fixtures and equipment related to the
Companies' corporate offices are carried at cost and amortized over estimated
useful lives of 5 to 7 years.
Deposits
Deposits represent cash received from guests for future hotel reservations
at the hotels that Wyndham International manages.
Revenue Recognition
The REIT Partnership leases its hotel properties to Wyndham International
and the Lessees pursuant to separate Participating Leases. In addition, the REIT
Partnership leases the Racecourse facilities to Wyndham International pursuant
to a separate lease agreement (see Note 3). Lease income is recognized when
earned under the related leases. Wyndham International operates and manages
hotel properties and the Racecourse facility. Hotel revenue, management fees,
service fees, Racecourse facility revenue and other income are recognized when
earned.
Stock Splits
On January 30, 1997, the Board of Directors declared a 2-for-1 stock split
on Old Patriot Common Stock effected in the form of a stock dividend distributed
on March 18, 1997 to shareholders of record on March 7, 1997.
In addition, on July 10, 1997, the respective Boards of Directors of
Patriot and Wyndham International declared a 1.927-for-1 stock split on its
shares of common stock effected in the form of a stock dividend distributed on
July 25, 1997 to shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the combined and consolidated
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock have been
restated to reflect the impact of the conversion of each share of Old Patriot
Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and the
1.927-for-1 stock split. In addition, all references in the combined and
consolidated financial statements to the number of shares, per share amounts,
and market prices of the common stock and options to purchase common stock
related to periods prior to the 2-for-1 stock split distributed in March 1997
have been restated to reflect the impact of such stock split.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey Merger
and the 1.927-for-1 stock split in July 1997, the number of OP Units outstanding
and the OP Unit conversion factor has been adjusted to re-establish a 1-for-1
exchange ratio of OP Units to common shares.
Earnings per Share
The Companies have adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share" ("Statement 128") for the year ended December 31, 1997.
Statement 128 specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Earnings per share disclosures for all periods presented have been calculated in
accordance with requirements of Statement 128. Basic earnings per share is
computed based upon the weighted average number of shares of common stock
outstanding during the period presented. Shares of common stock granted to
officers and employees of Patriot and Wyndham International
F-20
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
are included in the computation only after the shares become fully vested.
Diluted earnings per share is computed based upon the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
the periods presented. The diluted earnings per share computations also include
options to purchase common stock which were outstanding during the period. The
number of shares outstanding related to the options has been calculated by
application of the "treasury stock" method. See Note 11 for more detailed
disclosures regarding the applicable numerators and denominators used in the
earnings per share calculations.
Dividends
Patriot intends to pay regular quarterly dividends in order to maintain its
REIT status under the Internal Revenue Code. Payment of such dividends is
dependent upon receipt of distributions from the REIT Partnership.
Stock Compensation
The Companies account for their stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and intend to continue to do so. See Note 15 for
a discussion of the Companies' stock compensation arrangements and pro forma
disclosure of the effect on income from operations and earnings per share of
such arrangements pursuant to the requirements of Financial Accounting Standards
Board Statement 123, "Accounting for Stock-Based Compensation" ("Statement
123").
Equity Transactions Subject to Price Adjustment
The Companies have entered into various equity transactions which are
subject to price adjustment agreements based upon the future fair market value
of the Companies' Paired Shares. The agreements generally provide for a
quarterly settlement mechanism involving either cash or the issuance or receipt
of additional Paired Shares. At each settlement date, the Companies will record
an adjustment to equity for the change in fair market value of the Companies'
Paired Shares subject to these price adjustment agreements.
Minority Interest in the Operating Partnerships
Minority interest in the Operating Partnerships includes adjustments for
the minority partners' share of the current period net income and certain other
adjustments for the issuance or redemption of OP Units.
Income Taxes
Patriot intends to continue to qualify to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code. Under the Internal Revenue Code,
if certain requirements are met in a tax year, a corporation that is treated as
a REIT will generally not be subject to federal income tax with respect to
income which it distributes to its shareholders. Patriot has declared dividends
in excess of its taxable income for 1996 and 1995. Accordingly, no provision for
income taxes has been reflected in the statement of operations. For federal
income tax purposes, 1997 dividends amounted to $1.17 per share, none of which
was considered return of capital. In 1996, dividends amounted to $0.98 per
share, none of which was considered return of capital and in 1995, dividends
amounted to $0.24 per share, 26% of which was considered a return of capital.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial reporting purposes
due to differences for federal tax purposes in the estimated useful lives used
to compute depreciation and the carrying value (basis) of the investment in
hotel properties. Additionally, certain costs associated with the Initial
Offering are treated differently for federal tax purposes than for financial
reporting purposes.
Wyndham International records its provision for income taxes in accordance
with Statement of Financial Accounting Standard No. 109 ("Statement 109"). Under
the liability method of Statement 109, deferred taxes are determined based on
the difference between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect in the years the differences are
expected to reverse. See Note 16.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-21
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Concentrations
With the exception of its investment in the Racecourse facility, Patriot
currently invests exclusively in hotel properties. The hotel industry is highly
competitive and Patriot's hotel investments are subject to competition from
other hotels for guests. Each of Patriot's hotels competes for guests primarily
with other similar hotels in its immediate vicinity and other similar hotels in
its geographic market. Patriot believes that brand recognition, location, the
quality of the hotel and services provided, and price are the principal
competitive factors affecting its hotel investments.
In 1997, 1996 and 1995, Patriot earned rents under the Participating Leases
of $177,659, $75,893 and $10,582, respectively (net of leasing cost amortization
of $102, $116 and $23, respectively), of which $52,714, $54,186 and $10,432 was
earned from the Participating Leases with CHC Lease Partners in 1997, 1996 and
1995, respectively. (In addition, Patriot earned rents under the Participating
Leases with Wyndham International of $50,626 in 1997. Such participating lease
revenue and the related expense has been eliminated in the combined statements
of operations.) Patriot must rely on Wyndham International and the Lessees to
generate sufficient cash flow from operation of the hotels to enable the Lessees
to meet rent obligations under the Participating Leases. (See also Note 3 for
discussion of the agreement to acquire certain affiliates of CHC Lease Partners
and, as a result, acquire the remaining 17 leasehold interests held by CHC Lease
Partners).
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other hotels
in the second and third quarters of a calendar year. Seasonal variations in
revenues at Patriot's hotels may cause quarterly fluctuations in Patriot's lease
revenues.
Reclassification
Certain prior year balances have been reclassified to conform to the
current year presentation.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Reporting
Comprehensive Income." Statement 130 requires that all components of
comprehensive income and the ending accumulated balances for each item,
classified by their nature, be reported in the financial statements in the
period in which they are recognized. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Companies will be required to adopt
Statement 130 beginning with their interim financial statements for the first
quarter of 1998. Comparative financial statements for prior years presented in
these interim financial statements are required to be reclassified to conform to
the new Statement 130 presentation. Management does not anticipate that adoption
of Statement 130 reporting requirements will have a material impact on the
operating results or financial position of the Companies.
Segment Reporting
In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 specifies revised
guidelines for determining the entity's operating segments and the type and
level of financial information to be disclosed. SFAS 131 changes current
practice by establishing new framework on which to base segment reporting,
including the determining of a segment and the financial information to be
disclosed for each segment, referred to as "management" approach. The management
approach requires that management identify "operating segments" based on the way
that management disaggregates the entity for making internal operating
decisions. SFAS 131 is effective for the fiscal years beginning after December
15, 1997, and requires restatement of information for earlier periods.
Management is determining the segments to be disclosed and intends to adopt the
statement for the year ended December 31, 1998.
F-22
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. INVESTMENTS IN REAL ESTATE AND RELATED IMPROVEMENTS AND LAND HELD FOR
DEVELOPMENT:
Investment in Real Estate and Related Improvements and Land Held for
Development consists of the following:
As of
December 31,
As of December 31, 1997 1996
---------------------------------------------------------------- ------------
Patriot
---------------------------------------------- Patriot
Hotel Racecourse Wyndham Hotel
Properties Facility Total International Properties
------------- ------------ ------------ ------------- ------------
Land.......................... $ 168,222 $ -- $ 168,222 $ -- $ 56,739
Land held for development..... 17,980 -- 17,980 -- --
Buildings and improvements.... 1,676,551 18,795 1,695,346 -- 540,755
Furniture, fixtures and
equipment.................. 187,705 517 188,222 29,686 64,146
Renovations in progress....... 13,998 -- 13,998 -- --
------------- ------------ ------------ ------------ ------------
2,064,456 19,312 2,083,768 29,686 661,640
Less: accumulated depreciation (66,122) (1,379) (67,501) (1,304) (19,815)
------------- ------------ ------------ ------------ ------------
$ 1,998,334 $ 17,933 $ 2,016,267 $ 28,382 $ 641,825
============= ============ ============ ============ ============
Investments in Hotel Properties
During 1995, Old Patriot, through the REIT Partnership, acquired 21 hotels
for approximately $327,236 (including closing costs). These acquisitions were
financed primarily with net proceeds of the Initial Offering and $47,685 in OP
Units (including $38,322 in OP Units paid to affiliates). In connection with the
assumption and repayment of mortgage and other indebtedness on certain of these
properties, Patriot assumed $680 in unamortized deferred financing costs which
were written off upon repayment of the debt, and paid $174 in mortgage
prepayment penalties. These amounts have been reported as an extraordinary item
in the accompanying financial statements.
During 1996, Old Patriot acquired investments in 23 hotels for
approximately $372,147 (including closing costs and approximately $3,456 related
to the assumption of operating liabilities and acquisition costs). These
acquisitions were financed primarily with funds drawn on Old Patriot's line of
credit facility and the issuance of 600,703 OP Units valued at approximately
$16,391. In addition, the payment of a portion of the purchase price related to
the acquisition of six of the hotels, in the amount of $2,000, was paid in
February 1998. This amount is included in accounts payable and accrued expenses
at December 31, 1997 and 1996.
During 1997, Patriot, through the REIT Partnership and its subsidiaries,
invested approximately $1,331,459 in the acquisition of 45 hotels with a total
of approximately 12,000 guest rooms. These acquisitions were financed primarily
with funds drawn on Patriot's revolving credit facility (and Old Patriot's line
of credit), the $350,000 term loan, new mortgage financing in the amount of
$236,892, the issuance of 5,629,172 OP Units valued at approximately $130,137,
the issuance of 1,719,535 Paired Shares valued at approximately $38,492,
like-kind exchange of properties (see discussion below) and the assumption of
mortgage debt in the amount of approximately $34,263.
Like-Kind Exchange of Properties
On July 14, 1997, Patriot sold approximately 174 acres of land in San
Mateo, California, representing substantially all of the land which was owned by
Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber
Incorporated ("PaineWebber") for a purchase price of approximately $80,864 (the
"PaineWebber
F-23
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Land Sale"). These funds were placed in a restricted trust account in order to
facilitate a tax-deferred, like-kind exchange through the acquisition of
suitable hotel properties. During 1997, six hotels were acquired using the
proceeds from this restricted account. Patriot retained ownership of the
improvements located on the land, including the Racecourse and its related
facilities.
Cal Jockey Merger
At the closing of the Cal Jockey Merger, 11,105,795 paired shares of
Cal Jockey and Bay Meadows were outstanding, resulting in total purchase
consideration for the transaction of approximately $190,188 (of which $130,516
related to Cal Jockey and $59,672 related to Bay Meadows). The estimated value
of the Cal Jockey and Bay Meadows paired shares was $33.00 per paired share
based on a conversion ratio of Old Patriot Common Stock into Paired Shares equal
to 0.51895, and the closing market price of Old Patriot's Common Stock on
October 30, 1996 (the date the Cal Jockey Merger Agreement was executed) of
$17.125.
Land Leases
Simultaneous with the consummation of the PaineWebber Land Sale, the
PaineWebber affiliate and Patriot entered into a ground lease covering a portion
of the land on which the Racecourse is situated for a term of seven years. The
lease provides for quarterly rental payments of $750 through March 1998, $813
through March 1999, $875 through March 2000, $1,000 through March 2002 and
$1,250 through July 2004. Patriot has subleased the Racecourse land and leased
the related improvements to a wholly owned subsidiary of Wyndham International
in order to permit Wyndham International to continue horseracing operations at
the Racecourse through the term of Patriot's lease. The sublease is for a term
of seven years with annual payments based on percentages of revenue generated.
In addition, Patriot has leased certain land adjacent to the Racecourse to
Borders, Inc. (the "Borders Lease") for an initial term of 20 years with a fixed
net annual rent of $279 for years 1 through 10, $362 for years 11 through 15 and
$416 for years 16 through 20. In connection with the sale, Patriot assigned all
of its rights and benefits under existing leases, contracts, permits and
entitlements relating to the land sold (excluding the Borders Lease) to the
PaineWebber affiliate, and the PaineWebber affiliate assumed substantially all
of Patriot's development obligations including, but not limited to, all
obligations for on and off-site improvements and all obligations under existing
lease and contracts. Pursuant to the agreement, Patriot is obligated to fund up
to $10,250 of development costs for new stables ($4,000 of which has been funded
as of December 31, 1997). The parties have the option to renew such leases upon
their expiration under certain circumstances.
Land Held for Development
In connection with the acquisition of four resort properties, Patriot
acquired certain land held for development, including commercial and residential
land and construction in progress of single-family homes. Patriot recorded
proceeds of approximately $8,393 as a result of land sales for the year ended
December 31, 1997 which was recorded as a reduction in the basis of land held
for development. As part of the continued growth of the Companies, Patriot
intends to sell the land held for development to Wyndham International to
further develop.
4. OTHER BUSINESSES ACQUIRED:
Grand Heritage
In August 1997, Wyndham International acquired Grand Heritage Hotels,
Inc. a hotel management and marketing company, and other Grand Heritage
subsidiaries including Grand Heritage Leasing, L.L.C. which leased three hotels
from Patriot (the "Grand Heritage Acquisition"). The total purchase price for
the Grand Heritage Acquisition was approximately $22,500 which was financed
primarily through the issuance of 931,972 Class A preferred OP Units of Wyndham
International.
Grand Heritage Hotels, Inc., directly and through certain of its
subsidiaries, owns 17 management contracts, five of which are related to hotels
leased by Wyndham International.
F-24
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Gencom American Hospitality and CHC International, Inc.
Effective September 1, 1997, Patriot acquired the leasehold interests
related to seven Patriot hotels which were previously leased by CHC Lease
Partners and re-leased such hotels to Wyndham International. Prior to such
acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate of
CHC International, Inc. ("CHCI") and the Gencom American Hospitality group of
companies ("Gencom"), along with the leaseholds related to the seven hotels were
terminated. In a related transaction effective October 1, 1997, Patriot acquired
one additional leasehold interest related to a Patriot hotel previously leased
by CHC Lease Partners and re-leased such hotel to Wyndham International (the
hotel's management contract with CHCI was also terminated prior to the
acquisition). The aggregate purchase price of the eight leasehold interests was
approximately $52,766, which is reflected as a cost of acquiring leaseholds in
the accompanying statements of operations of Patriot. Concurrently, Wyndham
International purchased an approximate 50% managing, controlling ownership
interest in GAH from affiliates of Gencom for a purchase price of approximately
$13,860. These transactions were financed with approximately $644 of cash, and
by issuing 2,388,932 paired OP Units of the REIT Partnership and the OpCo
Partnership and 476,682 preferred OP Units of the OpCo Partnership.
GAH, directly and through certain of its subsidiaries, owns 16 third-
party management contracts, and certain other hospitality management assets.
Concurrent with Wyndham International's purchase of its controlling interest in
GAH, Wyndham International also entered into a Hospitality Advisory, Asset
Management and Support Services Agreement with CHCI and GAH whereby Wyndham
International will provide certain hospitality advisory, asset management and
support services to certain CHCI and GAH subsidiaries for a base fee aggregating
approximately $750 per month plus a percentage of excess cash flows of the
hotels. Wyndham International reported income of $2,944 in 1997 under the
provisions of this agreement (after elimination of $871 of income related to
GAH).
Patriot, Wyndham International and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger
Agreement"), providing, subject to regulatory approvals, for the merger of the
hospitality-related businesses of CHCI with and into Wyndham International with
Wyndham International being the surviving company (the "CHCI Merger"). Subject
to regulatory approvals, CHCI's gaming operations will be transferred to a new
legal entity prior to the CHCI Merger and such operations will not be a part of
the transaction. It is anticipated that the CHCI Merger will be consummated in
the second quarter of 1998. As a result of the CHCI Merger, Wyndham
International, through its subsidiaries, will acquire the remaining 50%
investment interest in GAH, the remaining 17 leases and 16 of the associated
management contracts related to the Patriot hotels leased by CHC Lease Partners,
12 third-party management contracts, 2 third-party lease contracts, the Grand
Bay and Registry Hotels & Resorts proprietary brand names and certain other
hospitality management assets. Wyndham International has also agreed to provide
CHCI with a $7,000 line of credit until such time as the CHCI Merger is
completed. As of December 31, 1997, Wyndham International had advanced a total
of $1,000 to CHCI pursuant to such line of credit arrangement (see Note 6).
By operation of the CHCI Merger, each issued and outstanding share of
common stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain
stock option rights will be converted into the right to receive shares of Series
A Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
International (the "Wyndham International Series A Preferred Stock") and shares
of Series B Redeemable Convertible Preferred Stock, par value $0.01 per share,
of Wyndham International (the "Wyndham International Series B Preferred Stock").
The formula for determining the exchange ratio of CHCI Shares for Wyndham
International Series A Preferred Stock and Wyndham International Series B
Preferred Stock is based on issuing an aggregate of approximately 4,396,000
shares of Wyndham International preferred stock (based on an aggregate purchase
value of approximately $102,200 and a market price per paired share of $23.25),
subject to reduction if certain specified events occur and subject to increase
representing adjustments for dividends paid on paired shares of Patriot and
Wyndham International common stock after September 30, 1997. Generally, the
aggregate number of shares of Wyndham International preferred stock that each
shareholder shall have the right to receive pursuant to the CHCI
F-25
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Merger shall consist of, to the extent possible, an equal number of Wyndham
International Series A Preferred Stock and Wyndham International Series B
Preferred Stock.
In connection with the acquisition of GAH, preferred OP Units of the
OpCo Partnership with a value of approximately $5,000 have been held back and
the CHCI Merger equity consideration is subject to reduction in the amount of
approximately $5,000 if the hotels and leaseholds acquired fail to achieve
certain operating targets over the period prior to the closing of the CHCI
Merger.
In addition, on September 30, 2000 and September 30, 2002, Wyndham
International may be obligated to pay the CHCI stockholders and a subsidiary of
Wyndham International may be obligated to pay a Gencom-related entity additional
consideration, in each case based upon the delivery and performance of certain
specified assets.
5. INVESTMENTS IN AND MORTGAGE NOTES RECEIVABLE FROM UNCONSOLIDATED
SUBSIDIARIES:
In December 1995, Patriot, through the REIT Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Ravinia, a Virginia
corporation, for $4,458 and PAH Ravinia acquired the 495-room Crowne Plaza
Ravinia Hotel in Atlanta, Georgia.
As part of the financing for the acquisition of the Crowne Plaza
Ravinia Hotel, Patriot, through the REIT Partnership, advanced $40,500 to PAH
Ravinia, which is evidenced by two mortgage notes consisting of a $36,000 first
mortgage note and a $4,500 second mortgage note. The principal amount of both
notes is due November 28, 1998. Interest at an annual rate equal to 10.25% and
12.5% on the first and second mortgage notes, respectively, is payable monthly.
All amounts owing under the mortgage notes will become due upon a sale of the
hotel to a third party purchaser. The mortgage notes are collateralized by deeds
of trust on the Crowne Plaza Ravinia Hotel.
In September 1996, Patriot, through the REIT Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Windwatch, a Delaware
limited liability company. Patriot's investment in PAH Windwatch of
approximately $6,217 is evidenced by a promissory note. PAH Windwatch acquired
the 362-room Wyndham WindWatch Hotel (formerly the Marriott WindWatch Hotel) in
Hauppauge (Long Island), New York for approximately $31,102.
As part of the financing for the acquisition of the Wyndham WindWatch
Hotel, Patriot, through the REIT Partnership, advanced PAH Windwatch $31,400
which is evidenced by a first lien mortgage note. The principal amount of the
note is due on August 31, 1999. Interest at an annual rate equal to 9% is
payable monthly. All amounts owed under the mortgage note will become due upon
the sale of the hotel to a third party purchaser. The mortgage note is
collateralized by a deed of trust on the Wyndham WindWatch Hotel.
In January 1997, in connection with the acquisition of four resort
properties, Patriot, through the REIT Partnership, contributed certain assets
associated with these resorts (including the right to receive certain royalty
fees) valued at $1,574 in exchange for an approximate 99% non-voting ownership
interest in PAH Boulders, Inc., a Virginia corporation. The controlling 1%
voting ownership interest in PAH Boulders, Inc. was held by certain executive
officers of Patriot. In October 1997, Wyndham International acquired this 1%
voting ownership interest for nominal consideration.
6. OTHER NOTES RECEIVABLE:
On August 1, 1997, Wyndham International purchased a participating loan
from National Resort Ventures, L.P., a Delaware limited partnership, related to
the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for $23,750 (the
"Participating Note"). The Participating Note has an outstanding principal
balance at December 31, 1997 of $8,664. The difference between the purchase
price of the Participating Note and the principal balance was recorded as
deferred acquisition cost. The Participating Note is subordinated to a ground
lease, a $50,300 first leasehold mortgage loan and a separate $8,500
participating loan and bears interest at a rate of 13% per annum. See Notes 12
and 21.
F-26
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
On November 30, 1997, Wyndham International loaned $3,250 to a
partnership affiliated with certain former owners of Grand Heritage management
company who own the Broadview Hotel in Wichita, Kansas. The promissory note
accrues interest at a rate of 12.5% per annum. Monthly payments of interest at a
rate of 9.5% per annum are required. In addition, monthly interest payments at a
rate of 3.0% per annum are payable from excess cash flow (as defined in the note
agreement). The principal balance and all unpaid accrued interest are due on
November 30, 2000. As of December 31, 1997, the outstanding principal and
accrued interest balance of this note was $3,315.
In connection with the CHCI Merger agreement, Wyndham International has
advanced an aggregate of $1,000 to CHCI as of December 31, 1997. These advances
bear interest at a rate of 1% above the interest rate applicable to base rate
loans under the Companies' unsecured revolving credit facility (as such rate is
defined in the revolving credit facility agreement). Interest payments are
required monthly in arrears. The advances may be prepaid without penalty and are
due upon the closing of the CHCI Merger (see Note 4).
7. LINE OF CREDIT FACILITY, TERM LOAN AND MORTGAGE NOTES:
Outstanding borrowings under Patriot's line of credit facilities, term
loan and various mortgage notes consist of the following:
December 31,
---------------------------
1997 1996
------------- -------------
Line of credit facilities ................................... $ 455,743 $ 192,339
Term Loan ................................................... 350,000 --
Paine Webber Mortgage Financing ............................. 103,000 --
Mortgage notes payable to Metropolitan Life Insurance
Company..................................................... 98,892 --
Other mortgage debt ......................................... 104,702 22,000
---------- ----------
$1,112,337 $ 214,339
========== ==========
Line of Credit Facilities
Unsecured Revolving Credit Facility. On July 21, 1997, the Companies
entered into a revolving credit facility with Paine Webber Real Estate, The
Chase Manhattan Bank ("Chase") and certain other lenders for a 3-year unsecured
Revolving Credit Facility (the "Revolving Credit Facility"). The original
Revolving Credit Facility commitment was in the amount of $700,000, however, in
December 1997, this amount was increased to $900,000. Borrowings have been made
under the Revolving Credit Facility to repay all outstanding amounts under Old
Patriot's secured line of credit with Paine Webber Real Estate (the "Old Line of
Credit"). The Revolving Credit Facility may also be used for acquisition of
additional properties, businesses and other assets, for capital expenditures and
for general working capital purposes. The interest rate for the Revolving Credit
Facility ranges from LIBOR plus 1.0% to 2.0% (depending on the Companies'
leverage ratio or investment grade ratings received from the rating agencies) or
the customary alternate base rate announced from time to time plus 0.0% to 0.5%
(depending on the Companies' leverage ratio). The weighted average interest rate
in effect for the Revolving Credit Facility for the period ended December 31,
1997 was 7.63% per annum. As of December 31, 1997, $455,743 was outstanding
under the Revolving Credit Facility.
The Revolving Credit Facility requires the Companies to maintain
certain financial ratios with respect to liquidity, loan to value and net worth
and imposes certain limitations on acquisitions. The Companies are in compliance
with such covenants at December 31, 1997. The unused commitment under the
Revolving Credit Facility at December 31, 1997 is $444,257, subject to certain
restrictions and provisions of the Revolving Credit Facility Agreement.
F-27
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Companies have entered into three interest rate swap arrangements
to swap floating rate LIBOR-based interest rates for fixed rate interest amounts
as a hedge against $375,000 of the outstanding balance on the Revolving Credit
Facility. Each of the interest rate swaps covers $125,000 of borrowings under
the Revolving Credit Facility and fixes the LIBOR portion of the Revolving
Credit Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The
interest rate swap arrangements expire November 2002. If the actual LIBOR rate
is less than the specified fixed interest rate, Patriot is obligated to pay the
differential interest amount, such amount being recorded as incremental interest
expense. If the LIBOR is greater than the specified fixed interest rate, the
differential interest amount is refunded to Patriot. Patriot paid $587 of net
incremental interest expense related to the interest rate swap arrangements in
1997.
Old Line of Credit. In connection with the Initial Offering, Old
Patriot obtained the Old Line of Credit, a revolving credit facility to fund the
acquisition of hotels, renovations and capital improvements to hotels and for
general working capital purposes. The Old Line of Credit was collateralized by a
first mortgage lien on certain of the hotels. The Old Line of Credit incurred
interest on outstanding balances at a rate per annum equal to the 30-day LIBOR
rate plus 1.90%. LIBOR was 5.56% at December 31, 1996 and 5.69% at December 31,
1995. The weighted average interest rate incurred by Patriot during 1996 and
1995 under this borrowing was 7.38% and 7.71%, respectively. The Old Line of
Credit was repaid with funds drawn on the Revolving Credit Facility in July
1997. In connection with the repayment of the Old Line of Credit, $2,910 of
unamortized deferred loan costs related to the Old Line of Credit were written
off. Such amount (net of the minority interest portion which equals $376) has
been reported as an extraordinary item in Patriot's consolidated statements of
operations.
Term Loan
Patriot has a $350,000 unsecured term loan with Paine Webber Real
Estate and Chase (the "Term Loan"). The Term Loan was used to finance payments
made in connection with the acquisition in December 1997 of certain hotel
properties, has an interest rate per annum equal to the interest rate on the
Revolving Credit Facility (7.96% at December 31, 1997), and matures January 31,
1999.
Paine Webber Mortgage Financing
In July 1997, Patriot entered into a short-term financing arrangement
(the "Paine Webber Mortgage Financing") with an affiliate of Paine Webber Real
Estate Securities, Inc. ("Paine Webber Real Estate") whereby such affiliate
loaned Patriot $103,000 through April 15, 1998 at a rate equal to the greater of
30-day LIBOR plus 1.75% or the borrowing rate on the Revolving Credit Facility.
The weighted average interest rate incurred under this borrowing was 7.6% for
the period ended December 31, 1997. The proceeds of the Paine Webber Mortgage
Financing were used by Patriot to fund or acquire four mortgage loans to certain
partnerships affiliated with members of CHC Lease Partners. The Paine Webber
Mortgage Financing is secured by a collateral assignment of the first lien
mortgage loans encumbering four hotels (which have an aggregate net book value
as of December 31, 1997 of $122,786). In September and October 1997, Patriot,
through the REIT Partnership and certain other subsidiaries, acquired the four
partnerships that own the hotels securing these mortgage notes.
Metropolitan Life Insurance Company Mortgage Notes
In connection with the purchase of four hotels in September 1997,
Patriot obtained $98,892 of mortgage financing with Metropolitan Life Insurance
Company encumbering six hotels (which have an aggregate net book value as of
December 31, 1997 of $197,488). The loans bear interest at 8.08% per annum, and
require monthly payments of interest only until 1999. Thereafter, monthly
payments of principal and interest, in the amount of $755 are required until the
October 1, 2007 maturity date.
Other Mortgage Debt
Patriot, through the REIT Partnership and other subsidiaries, is
obligated under other mortgage notes with various banks and financial
institutions that, as of December 31, 1997, had outstanding balances totaling
$104,702. These notes are collateralized by mortgage liens on the property and
equipment of seven hotels (which have an
F-28
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
aggregate net book value as of December 31, 1997 of $147,711). The notes
bear interest at rates ranging from 6.5% to 9.75% per annum and maturity dates
in 1998 through 2005. The weighted average interest rate incurred by Patriot
under these borrowings during the year ended December 31, 1997 was 7.35%.
Under the terms of the related loan agreements, principal amortization
and balloon payment requirements at December 31, 1997 are as follows for each of
the next five years:
Year Amount
---- ------
1998........................................ $ 160,132
1999........................................ 350,826
2000........................................ 457,521
2001........................................ 1,928
2002........................................ 2,090
2003 and thereafter......................... 139,840
-------------
$ 1,112,337
=============
Forward Sale Transaction
In addition, in November 1997, Patriot entered into two forward sale
transactions with The Chase Manhattan Bank in the aggregate principal amount of
$275,000. The terms of the transactions provide that on June 2, 1998, either
Chase will be obligated to pay Patriot or Patriot will be obligated to pay Chase
a cash settlement amount based on the then current yield on 10-year U.S.
Treasury Notes. The forward sale transactions cover principal amounts of
$175,000 with a forward yield of 6.0% and $100,000 with a forward yield of
5.995%. If the index price of the securities on June 1, 1998 is greater than the
"Forward Price" (which is to be calculated based on the forward yield rate and
the economic variables applicable to 10-year U.S. Treasury Notes), Patriot will
be obligated to pay Chase a cash settlement amount based on the spread between
the index price and the Forward Price times the principal amount. If the index
price is less than the Forward Price, Chase will be obligated to pay Patriot a
cash settlement amount based on the spread between the index price and the
Forward Price times the principal amount.
8. SUBSCRIPTION NOTES:
In order to effect the issuance of the paired shares of common stock
and OP Units which were issued in the Cal Jockey Merger, the REIT Partnership
subscribed for shares of Bay Meadows common stock (which became shares of
Wyndham International Common Stock) in an amount equal to the number of shares
of Patriot Common Stock that were issued to Old Patriot stockholders in the Cal
Jockey Merger. In addition, the REIT Partnership similarly subscribed for OP
Units in the OpCo Partnership in an amount equal to the number of OP Units of
the REIT Partnership that were outstanding subsequent to the Cal Jockey Merger.
These subscriptions were funded through the issuance of promissory notes in the
aggregate amount of $58,901 (the "Subscription Notes") payable to Wyndham
International. The Subscription Notes, as amended, accrue interest at a rate of
8% per annum and mature December 31, 1998. As of December 31, 1997, the
Subscription Notes balance remaining outstanding was $12,875. The combined
statements of operations for the year ended December 31, 1997 reflect the
elimination of $1,103 of interest income and expense related to the Subscription
Notes.
F-29
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. PARTICIPATING LEASES:
The REIT Partnership has leased the hotels under the Participating
Leases to Wyndham International and the Lessees through 2008. Minimum future
rental income under these non-cancelable operating leases for the next five
years and thereafter is as follows:
Rent Amount
------------------------------------
Wyndham
Year Lessees International
---- ------- -------------
1998.................. $ 57,410 $ 117,557
1999.................. 55,588 102,729
2000.................. 55,824 102,904
2001.................. 56,055 103,079
2002.................. 56,289 75,806
2003 and thereafter... 231,682 48,731
------------- -------------
$ 512,848 $ 550,806
============= =============
The Participating Leases obligate Patriot to establish a reserve for
capital improvements for the replacement and refurbishment of furniture,
fixtures and equipment and other capital expenditures. Patriot and the Lessees
(including Wyndham International) agree on the use of funds in these reserves,
and Patriot has the right to approve the Lessees' annual and long-term capital
expenditures budgets. Such reserve amount is to average 4.0% of total revenues
for the hotels. At December 31, 1997 and 1996, $5,005 and $2,458, respectively,
of cash is reserved for capital improvements, net of capital improvements made
to date.
Generally, Patriot is responsible for the payment of (i) real estate
and personal property taxes on its hotel investments (except to the extent that
personal property associated with the hotels is owned by the Lessees), (ii)
casualty insurance on the hotels and (iii) business interruption insurance on
the hotels. The Lessees are required to pay for all liability insurance on
Patriot's hotels, with extended coverage, including comprehensive general public
liability, workers' compensation and other insurance appropriate and customary
for properties similar to Patriot's hotels with Patriot as an additional named
insured.
In connection with the acquisition of its initial 20 hotel investments
in 1995, Patriot acquired the inventories for these hotels with an estimated
fair market value of $2,035. The inventories were transferred to CHC Lease
Partners for its use in the operation of the hotels. Under the Participating
Lease Agreements for these hotels, CHC Lease Partners was obligated to return an
equivalent inventory to Patriot at the end of the respective lease terms, less
$1,000. The $1,000 was considered a lease inducement and was recorded as a
reduction in inventory and an increase in deferred expenses. In connection with
the acquisition of one other hotel in 1996, Patriot recorded an additional lease
inducement of $685. These amounts were being amortized to Participating Lease
revenue on a straight-line basis over the lives of the leases. In connection
with the acquisition of eight leasehold interests from CHC Lease Partners in
September and October 1997, the remaining unamortized lease inducement balance
was written off as a cost of acquiring these leaseholds.
10. MANAGEMENT SERVICES AND RELATED REVENUES:
During 1997, in connection with the Grand Heritage Acquisition, the GAH
Acquisition and other transactions, Wyndham International entered into or
acquired management agreements for 43 hotels. As of December 31, 1997, Wyndham
International manages 31 of Patriot's hotels and 12 hotels owned by third
parties. Management fees earned for hotels owned by Patriot were $3,626 in 1997.
Income and expense for such fees have been eliminated in the accompanying
combined financial statements.
F-30
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMPUTATION OF EARNINGS PER SHARE:
Basic and diluted earnings per share have been computed as follows:
Combined
Period October 2, 1995
(inception of
Year Ended Year Ended operations) through
December 31, 1997 December 31, 1996 December 31, 1995
----------------------- ------------------------ ------------------------
Basic Diluted Basic Diluted Basic Diluted
----------- ----------- ----------- ------------ ----------- ------------
(in thousands, except per share amounts)
Income before extraordinary item....$ 362 $ 362 $ 37,991 $ 37,991 $ 6,096 $ 6,096
Extraordinary loss.................. (2,534) (2,534) -- -- (737) (737)
--------- --------- ---------- --------- ---------- ----------
Net (loss) income...................$ (2,172) $ (2,172) $ 37,991 $ 37,991 $ 5,359 $ 5,359
========= ========= ========== ========= ========== ==========
Weighted average number of Paired
Shares outstanding............... 54,201 54,201 35,400 35,400 29,213 29,213
========= ========= ========== ==========
Dilutive securities:
Effect of unvested stock grants.. 264 119
Dilutive options to purchase
Paired Shares.................. 274 16
--------- ----------
35,938 29,348
========= ==========
Earnings per Paired Share:
Income before extraordinary item.
$ 0.01 $ 0.01 $ 1.07 $ 1.06 $ 0.21 $ 0.21
Extraordinary loss............... (0.05) (0.05) -- -- (0.03) (0.03)
--------- --------- --------- -------- ---------- ----------
Net (loss) income................$ (0.04) $ (0.04) $ 1.07 $ 1.06 $ 0.18 $ 0.18
========= ========= ========= ========= ========== ==========
The dilutive effect of unvested stock grants of 804 and options to
purchase common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
F-31
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Period October 2, 1995
(inception of
Year Ended Year Ended operations) through
December 31, 1997 December 31, 1996 December 31, 1995
---------------------- ----------------------- ------------------------
Basic Diluted Basic Diluted Basic Diluted
----------- ---------- ---------- ----------- ----------- -----------
(in thousands, except per share amounts)
Income before extraordinary item....$ 382 $ 382 $ 37,991 $ 37,991 $ 6,096 $ 6,096
Extraordinary loss.................. (2,534) (2,534) -- -- (737) (737)
--------- --------- ---------- --------- ---------- ----------
Net (loss) income...................$ (2,152) $ (2,152) $ 37,991 $ 37,991 $ 5,359 $ 5,359
========= ========= ========== ========= ========== ==========
Weighted average number of common
shares outstanding............... 54,201 54,201 35,400 35,400 29,213 29,213
========= ========= ========== ==========
Dilutive securities:
Effect of unvested stock grants.. 264 119
Dilutive options to purchase
common stock................... 274 16
--------- ----------
35,938 29,348
========= ==========
Earnings per share:
Income before extraordinary item.
$ 0.01 $ 0.01 $ 1.07 $ 1.06 $ 0.21 $ 0.21
Extraordinary loss............... (0.05) (0.05) -- -- (0.03) (0.03)
--------- --------- --------- -------- ---------- ----------
Net (loss) income................$ (0.04) $ (0.04) $ 1.07 $ 1.06 $ 0.18 $ 0.18
========= ========= ========= ========= ========== ==========
The dilutive effect of unvested stock grants of 804 and options to
purchase common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
Wyndham International
Year Ended
December 31, 1997
-----------------------
Basic Diluted
----------- ----------
(in thousands,
except per share amounts)
Net loss......................................................$ (20) $ (20)
========= =========
Weighted average number of common shares outstanding.......... 54,201 54,201
========= =========
Earnings per share:
Net loss...................................................$ (0.00) $ (0.00)
========= =========
The dilutive effect of unvested stock grants of 804 and options to
purchase common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
See Note 15 for a discussion of the impact of Statement 123
("Accounting for Stock-Based Compensation") on earnings per share.
F-32
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES:
Office Lease
Patriot had an agreement with an affiliate to provide Patriot with
office space and limited support personnel for Patriot's headquarters for an
annual fee of approximately $141 through February 1998. Pursuant to the merger
with Wyndham Hotel Corporation (see discussion below and Note 21), Patriot
terminated its agreement with the affiliate and entered into an agreement with
an affiliate of Wyndham Hotel Corporation to provide the Companies with office
space for the Companies' headquarters. The lease term is for a period of 10
years and requires annual rent payments of $1,197 through 2007.
Employment Agreements
The Companies have entered into employment agreements with each of
their respective executive officers. Generally, the agreements provide for
annual base compensation with any increases during the three-year term of the
agreement to be approved by the Compensation Committees of Patriot's or Wyndham
International's Board of Directors, as applicable.
Business Combinations
Wyndham Hotel Corporation. On April 14, 1997, Old Patriot entered into
a merger agreement with Wyndham Hotel Corporation ("Old Wyndham") which was
later ratified by Patriot and Wyndham International, (the "Wyndham Merger
Agreement") through which Old Wyndham will merge with and into Patriot (the
"Wyndham Merger"), with Patriot being the surviving company. Concurrently, Old
Patriot and CF Securities, L.P. ("CF Securities"), the principal stockholder of
Old Wyndham, entered into a stock purchase agreement (the "Stock Purchase
Agreement"). The Merger Agreement generally provides for the conversion of each
outstanding share of common stock, par value $0.01 per share, of Old Wyndham
(the "Old Wyndham Common Stock"), other than shares as to which the holder
thereof has elected to receive cash (subject to proration), into the right to
receive 1.372 Paired Shares. The 1.372 conversion ratio (the "Exchange Ratio")
was subject to certain adjustments based upon the average trading price of the
Companies' Paired Shares prior to the completion of the Wyndham Merger. The
Wyndham Merger Agreement provides that, in lieu of receiving Paired Shares in
the Wyndham Merger, stockholders of Old Wyndham could elect to receive cash
(such election being referred to herein as a "Cash Election" and such cash being
referred to herein as "Cash Consideration") for all or any portion of their
shares of Old Wyndham Common Stock in an amount per share equal to $42.80,
subject to an aggregate availability of $100,000 of cash for all Cash Elections
(including a Cash Election by CF Securities pursuant to the Stock Purchase
Agreement).
At December 31, 1997, Old Wyndham's portfolio of owned, leased or
managed hotels consisted of 97 hotels operated by Old Wyndham, as well as eight
franchised hotels, which in the aggregate contained over 25,500 rooms. Old
Wyndham's portfolio includes 88 upscale hotel properties and 17 midscale
properties operating under the ClubHouse brand. Pursuant to the Wyndham Merger
Agreement, Old Wyndham will merge with and into Patriot and the companies will
continue their operations within the paired share structure. Following the
Wyndham Merger, the 37 hotels owned or leased by Old Wyndham will be leased or
subleased by Patriot to Patriot Operating Company, whose name changed to Wyndham
International in connection with the Wyndham Merger.
The Wyndham Merger was subject to various closing conditions including
approval of the Wyndham Merger by the stockholders of Patriot, Wyndham
International and Old Wyndham. The stockholder meetings of Old Wyndham, Patriot
and Wyndham International were held on December 31, 1997, at which time the
Wyndham Merger was approved.
See Note 21.
WHG Casinos & Resorts, Inc. On September 30, 1997, Patriot, Wyndham
International and WHG Casinos & Resorts Inc. ("WHG") entered into an Agreement
and Plan of Merger (the "WHG Merger Agreement") providing for the merger of a
newly formed subsidiary of Wyndham International with and into WHG with WHG
being the
F-33
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
surviving corporation (the "WHG Merger"). As a result of the WHG
Merger, Wyndham International will acquire the 570-room Condado Plaza Hotel &
Casino, a 50% interest in the 389-room El San Juan Hotel & Casino and a 23.3%
interest in the 751-room El Conquistador Resort & Country Club (the "El
Conquistador"), all of which are located in Puerto Rico, as well as a 62%
interest in Williams Hospitality Group, Inc., the management company for the
three hotels and the Las Casitas Village at the El Conquistador. Under the terms
of the WHG Merger Agreement, each share of WHG common stock generally will be
converted into the right to receive 0.784 Paired Shares of Patriot and Wyndham
International common stock, subject to certain adjustments related to the timing
of the closing of this transaction and the average closing price of the Paired
Shares over the ten trading days immediately preceding the third business day
prior to the WHG stockholders' meeting at which approval for the WHG Merger is
sought. In addition, each issued and outstanding share of WHG Series B
Convertible Preferred Stock will be converted into the right to receive that
number of Paired Shares that the holder of such share of WHG Series B
Convertible Preferred Stock would have the right to receive assuming conversion
of such share, together with any accrued and unpaid dividends thereon, into
shares of WHG common stock immediately prior to the effective time of the WHG
Merger. The special meeting of stockholders of WHG at which approval of the WHG
Merger will be sought is scheduled for January 16, 1998. See Note 21.
Interstate Hotels Company. On December 2, 1997, Patriot, Wyndham
International and Interstate Hotels Company ("Interstate") entered into an
Agreement and Plan of Merger (the "Interstate Merger Agreement") providing for
the merger of Interstate with and into Patriot (the "Interstate Merger") with
Patriot being the surviving company. Pursuant to the Interstate Merger
Agreement, stockholders of Interstate will have the right to elect to convert
each of their shares of Interstate common stock into the right to receive either
(i) $37.50 in cash, subject to proration in certain circumstances (the
"Interstate Cash Consideration"), or (ii) a number of Paired Shares of Patriot
and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for
each share of Interstate common stock not exchanged for cash (the "Interstate
Exchange Ratio"). After the elections are made by stockholders of Interstate,
proration will be used to ensure that 40% of the outstanding shares of
Interstate common stock will be converted into the right to receive Interstate
Cash Consideration and that the remaining 60% of the outstanding shares of
Interstate common stock will be converted into the right to receive Paired
Shares at the Interstate Exchange Ratio, subject to adjustment in certain
circumstances for the exercise of dissenters' rights. The special meetings of
stockholders of Patriot, Wyndham International and Interstate at which approval
of the Interstate Merger will be sought are scheduled for March 30, 1998. See
Note 21.
Potential Acquisitions
In August 1997, Wyndham International purchased the Participating Note
from National Resort Ventures, L.P., related to the 1,014-room Buena Vista
Palace Hotel in Orlando, Florida for approximately $23,750 in cash (see Notes 6
and 21). The Buena Vista Palace Hotel is owned by a joint venture between
Equitable Life Insurance Company, which owns a 55% interest, and Hotel Venture
Partners, Ltd., which owns a 45% interest. In November 1997, Patriot agreed to
acquire a 95% equity interest in the Buena Vista Palace Hotel for approximately
$141,600 including the assumption of an existing first leasehold mortgage with a
balance of approximately $50,300. As part of the agreement, Patriot also was
granted an option to acquire the remaining 5% equity interest in the hotel.
Contingencies
The Companies are currently not subject to any material legal
proceedings or claims nor, to management's knowledge, are any material legal
proceedings or claims currently threatened.
13. RELATED PARTY TRANSACTIONS:
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
As described in Note 5, Patriot, through the REIT Partnership, loaned
$40,500 in the form of mortgage notes to PAH Ravinia as part of the financing
for PAH Ravinia's acquisition of the Crowne Plaza Ravinia Hotel.
F-34
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Patriot recognized $43 of interest income in both 1997 and 1996 and $3 of
interest income in 1995 related to such mortgage notes (excluding $4,280 of such
interest eliminated for financial reporting purposes in both 1997 and 1996 and
$351 in 1995). Patriot had aggregate receivables (including mortgage notes) of
$41,587 and $40,866 due from PAH Ravinia as of December 31, 1997 and 1996,
respectively.
Patriot through the REIT Partnership, also loaned $31,400 in the form
of a mortgage note to PAH Windwatch (see Note 5), as part of the financing for
PAH Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized
$28 and $8 of interest income in 1997 and 1996, respectively, related to such
mortgage notes (excluding $2,810 and $754 of such interest eliminated for
financial reporting purposes). Patriot had aggregate receivables (including the
mortgage note) of $34,060 and $31,343 due from PAH Windwatch as of December 31,
1997 and 1996, respectively.
Acquisitions of Interests from Officers and Directors
In September and October 1997, in connection with certain transactions
with affiliates of Gencom and CHCI to acquire ten hotels, eight leasehold
interests and an investment interest in GAH (see Note 4), two of the Companies'
Executive Officers and one of the Directors received cash in the aggregate
amount of approximately $3,577 and a total of 2,544,308 OP Units of the
Operating Partnerships and 476,682 preferred OP Units of the OpCo Partnership
(with an aggregate value of approximately $70,238) as consideration for their
ownership interests in such assets acquired.
PAH RSI, L.L.C. and Wyndham International
In connection with the acquisition of four resort properties in January
1997, the REIT Partnership and certain of its subsidiaries acquired certain
assets relating to these resorts and then sold these assets to PAH RSI, L.L.C.
(a limited liability corporation which was owned and controlled by certain
executive officers of Patriot) for approximately $2,000. In addition, PAH RSI,
L.L.C. acquired from the REIT Partnership and certain of its subsidiaries
certain trade names and the right to receive royalty fees through the issuance
of a promissory note for $9,000, due January 17, 2002. Interest at an annual
rate of 13% is payable semi-annually commencing July 1, 1997. As of December 31,
1997, principal and accrued interest of approximately $9,598 was outstanding. In
October 1997, Wyndham International, through certain of its subsidiaries,
acquired the members' interests of PAH RSI, L.L.C. for approximately $143. As a
result, Wyndham International acquired the assets (including leasehold interests
for eight of Patriot's hotels) and assumed the liabilities of PAH RSI, L.L.C.
14. MINORITY INTERESTS:
Minority Interest in the Operating Partnerships
Pursuant to the Operating Partnerships' respective limited partnership
agreements, the common limited partners of the Operating Partnerships, including
certain affiliates of the Companies, received rights (the "Redemption Rights")
that enable them to cause the Operating Partnerships to redeem each pair of OP
Units (consisting of one OP Unit of the REIT Partnership and the one OP Unit of
the OpCo Partnership) in exchange for cash equal to the value of a Paired Share
(or, at the Companies' election, the Companies may purchase each pair of OP
Units offered for redemption for one Paired Share of common stock). In the case
of the OpCo Partnership's Class A preferred OP Units and Class C preferred OP
Units described below, each of these preferred OP Units may be redeemed for cash
equal to the value of a Paired Share (or, at Wyndham International's election,
Wyndham International may purchase each preferred OP unit offered for redemption
for one Paired Share of common stock). The Redemption Rights generally may be
exercised at any time after one year following the issuance of the OP Units. The
number of shares of common stock issuable upon exercise of the Redemption Rights
will be adjusted for share splits, mergers, consolidations or similar pro rata
transactions which would have the effect of diluting the ownership interests of
the limited partners of the Operating Partnerships or the shareholders of the
Companies.
F-35
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey
Merger and the 1.927-for-1 stock split in July 1997, the number of OP Units
outstanding and the OP Unit conversion factor was adjusted to re-establish a
one-for-one exchange ratio of OP Units to common shares.
The REIT Partnership had a total of 49,974,000 OP Units outstanding as
of December 31, 1997, of which 43,613,496 OP Units were held by Patriot and
5,035,700 OP Units and 1,324,804 Preferred OP Units were held by minority
partners, which represent the minority interest in the REIT Partnership.
During 1997, the REIT Partnership issued an additional 20,376 OP Units
valued at approximately $370 in connection with The Tutwiler Hotel acquisition,
and 2,590,197 OP Units valued at approximately $58,662 in connection with the
acquisition of the four resort properties. In accordance with their redemption
rights, during the first six months of 1997 certain partners elected to redeem a
total of 379,606 OP Units for a total of $14,441 in cash (based upon the market
price of Old Patriot Common Stock on the effective dates of the redemptions) and
150,000 shares of Old Patriot Common Stock (such amounts have not been adjusted
to reflect the stock splits and Cal Jockey Merger). As of June 30, 1997, the
REIT Partnership had 6,887,049 OP Units and 1,324,804 preferred OP Units
outstanding.
In connection with the Cal Jockey Merger, the holders of REIT
Partnership OP Units and preferred OP Units received OP Units and Class B
preferred OP Units of the OpCo Partnership in an amount equal to the number of
REIT Partnership units held by them at the closing of the Cal Jockey Merger.
In addition, during 1997, the Operating Partnerships each issued
2,456,172 OP Units in connection with the acquisition of hotel properties, and
2,388,932 OP Units in connection with Patriot's acquisition of eight leasehold
interests from CHC Lease Partners and Wyndham International's acquisition of its
approximate 50% ownership interest in GAH and redeemed 6,298 OP Units. In
addition, the OpCo Partnership issued 931,972 Class A Preferred OP Units in
connection with the Grand Heritage Acquisition and 476,682 Class C Preferred OP
Units in connection with the acquisition of the approximate 50% ownership
interest in GAH.
On September 30, 1997, the Companies exercised their right to call
2,000,033 OP Units in each of the Operating Partnerships held by The Morgan
Stanley Real Estate Fund, L.P. and certain related entities (the "Morgan Stanley
Call"). The exercise price on the Morgan Stanley Call was $25.875 per pair of OP
Units. The Morgan Stanley Call was funded with the proceeds of certain direct
placements of the Companies' Paired Shares (see Note 15).
As of December 31, 1997, the REIT Partnership had a total of 84,868,079
OP Units outstanding of which 73,276,716 OP Units were held by Patriot and
10,266,559 OP Units and 1,324,804 preferred OP Units were held by minority
partners, which represent the minority interest in the REIT Partnership. The
OpCo Partnership had a total of 86,276,733 OP Units outstanding as of December
31, 1997, of which 73,276,716 OP Units were held by Wyndham International and
10,266,559 OP Units, 931,972 Class A Preferred OP Units, 1,324,804 Class B
Preferred OP Units and 476,682 Class C Preferred OP Units were held by minority
partners, which represent the minority interest in the OpCo Partnership.
Minority Interest in Other Subsidiaries
Patriot has entered into a number of partnership agreements with DTR
PAH Holding, Inc. ("DTR"), an affiliate of Doubletree Hotels Corporation,
related to the acquisition of 11 hotels. The REIT Partnership owns an 85% to 90%
general partnership interest in each partnership and DTR owns a 15% to 10%
limited partnership interest in each partnership. The partnerships were formed
for the purpose of acquiring hotel properties. The financial position and
results of operations of each partnership is included in the consolidated
financial statements of Patriot. DTR's interest in the partnerships is included
in minority interest in other subsidiaries in the accompanying consolidated
financial statements.
During 1996, Patriot acquired five hotels through such partnerships
with DTR for approximately $83,300. The acquisitions were financed with a
combination of cash and funds drawn on the Old Line of Credit.
F-36
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
During 1997, Patriot acquired six hotels through such partnerships with
DTR for approximately $182,900. The acquisitions were financed through a
combination of mortgage debt of $98,892, cash contributions to the partnerships
of approximately $58,342 by the REIT Partnership and approximately $10,658 by
DTR, and the issuance of 614,046 paired OP Units of the Operating Partnerships
(valued at approximately $15,000 based on the average market price of the
Companies' common stock for the 20 days prior to the closing of the
acquisition). The REIT Partnership's contributions were financed primarily with
funds drawn on the Revolving Credit Facility.
In addition, in July 1997, Patriot, through the REIT Partnership,
acquired 90% of the equity interests in four separate limited liability
companies which own four hotels with an aggregate of 705 guest rooms for an
aggregate purchase price of approximately $51,066. The REIT Partnership's
contribution was financed primarily with funds drawn on the Revolving Credit
Facility. One of the hotels is subject to a mortgage loan with a financial
institution with a principal balance of approximately $5,714 as of December 31,
1997.
15. SHAREHOLDERS' EQUITY:
Capital Stock
Patriot's and Wyndham International's respective Boards of Directors
have authorized the issuance of up to 100,000,000 shares of preferred stock in
one or more series. The number of shares in each series and the designation,
powers, preferences and rights of each such series and the qualifications,
limitations or restrictions thereof have not been established. As of December
31, 1997, no preferred stock was issued.
Old Patriot was initially capitalized through the issuance of 2,850
shares of no par value common stock to three of Old Patriot's executive officers
for which the executive officers paid nominal consideration. In connection with
the Initial Offering, Patriot declared an approximate 41-to-1 stock split of its
outstanding common shares, resulting in the issuance of an additional 115,900
shares of common stock to such executive officers. The aggregate value of $1,425
(based upon the initial public offering price of $12.00 per share), less cash
received of $3, was recorded as unearned stock compensation and is being
amortized over the three-year vesting period.
On October 2, 1995, Old Patriot completed the Initial Offering of
29,210,000 shares of its common stock (including 3,810,000 shares of common
stock issued upon exercise of the underwriters' over-allotment option). The
offering price of all shares sold was $12.00 per share, resulting in net
proceeds (less the underwriters' discount and other offering expenses) of
approximately $313,170.
In May 1996, Old Patriot sold an aggregate of approximately $40,000 of
equity securities in a private placement to an institutional investor that
purchased the securities on behalf of two owners. The securities consisted of
1,622,786 shares of common stock sold at $13.475 per share and 1,324,804 Class B
Preferred OP Units sold at $13.688 per unit. The common stock is of the same
class as Old Patriot's then-existing common stock and is entitled to the same
voting and dividend rights as all outstanding common stock, subject to certain
restrictions on the resale of the stock. The Class B Preferred OP Units are
entitled to quarterly distributions equal to 103% of the quarterly dividends
paid on the common stock (and, subsequent to the Cal Jockey Merger, Paired
Shares). Generally, three years following issuance, the Class B Preferred OP
Units may be converted into Paired Shares on a one-for-one basis (i.e., one
Paired Share for one Class B Preferred OP Unit), subject to certain limitations.
After 10 years, Patriot will have the right to exchange all the outstanding
Class B Preferred OP Units for Paired Shares on a one-for-one basis.
During the third quarter of 1996, Old Patriot completed a second public
offering of 12,293,400 shares of its common stock (including 1,293,400 shares of
common stock issued upon exercise of the underwriters' over-allotment option).
The offering price of all shares sold in this offering was $14.125 per share,
resulting in net proceeds (less the underwriters' discount and other offering
expenses) of approximately $160,222, of which approximately $151,963 was used to
reduce amounts outstanding under the Old Line of Credit.
F-37
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In August 1997, the Companies completed a public offering of 10,580,000
Paired Shares of common stock (including 1,380,000 Paired Shares issued upon
exercise of the underwriters' over-allotment option). The net proceeds of this
offering (less the underwriters' discount and expenses) of approximately
$209,795 were used primarily to reduce the outstanding debt under the Revolving
Credit Facility.
On November 13, 1997, pursuant to a letter agreement dated September
30, 1997, the Companies sold 1,000,033 Paired Shares to PaineWebber (the
"PaineWebber Direct Placement") for a purchase price per Paired Share of
$27.6875, or aggregate consideration of $27,688. In addition, pursuant to a
letter agreement dated September 30, 1997, the Companies sold 1,000,000 Paired
Shares to LaSalle Advisors Limited Partnership ("LaSalle"), as agent for certain
clients of LaSalle (the "LaSalle Direct Placement"), at a purchase price per
Paired Share of $27.625, or aggregate consideration of $27,625. The proceeds of
the PaineWebber Direct Placement and the LaSalle Direct Placement were used to
fund the Morgan Stanley Call (see Note 14).
On December 31, 1997, the Companies sold 3,250,000 unregistered Paired
Shares to UBS Limited, an English corporation, for a purchase price per Paired
Share of $28.8125, or aggregate consideration of approximately $93,641. In
connection with this private placement of equity, the Companies also entered
into an agreement with Union Bank of Switzerland, London Branch ("UBS") which
provides for an adjustment in the purchase price of the Paired Shares as of a
specific date. Because the Companies must periodically increase their equity
base to maintain financial flexibility and continue with their growth strategy,
management may utilize private placements of equity in conjunction with a price
adjustment mechanism, as a means for the Companies to raise capital, while also
retaining the opportunity to adjust the pricing of the equity issuance during
the term of the agreement. The price adjustment agreement with UBS provides that
if the aggregate return on the 3,250,000 Paired Shares issued does not exceed
the calculated forward yield (which is based upon the three-month LIBOR rate
plus 1.40%) as measured from time to time, the Companies will be required to
issue to UBS additional Paired Shares with a market value equivalent to the
yield deficiency. Conversely, if the aggregate return on the issued shares is in
excess of the calculated forward yield, a portion of the Paired Shares
originally issued by the Companies will be returned. In addition, the Companies
are required to register Paired Shares with the Securities and Exchange
Commission to settle its obligations under the agreement. Under certain market
conditions UBS has the right to accelerate the settlement of all or a portion of
the transaction. The final settlement date is December 31, 1998. As of December
31, 1997, the private placement of Paired Shares is accounted for as equity and
any subsequent adjustments in the share price will be reflected as an adjustment
to equity.
Cash Dividends and Stock Splits
On January 30, 1997, Old Patriot declared a 2-for-1 stock split
effected in the form of a stock dividend, which was distributed on March 18,
1997 to shareholders of record on March 7, 1997.
On December 26, 1997, Patriot declared a $0.32 per common share
dividend to holders of record on January 5, 1998. Patriot paid dividends of
$0.2625 per common share for each of the first three quarters of 1997. In
addition, in connection with the Cal Jockey Merger, Old Patriot also declared a
special dividend of $0.06 per common share payable to holders of record on June
27, 1997, which was paid on June 30, 1997. Concurrent with each of the dividend
declarations, the Operating Partnerships authorized distributions in the same
amount on outstanding OP Units. Old Patriot paid dividends of $0.24 per common
share for the fourth quarter of 1995 (its first quarter of operations) and for
the each of the first three quarters of 1996. Old Patriot paid dividends of
$0.2625 per common share for the fourth quarter of 1996.
Stock Incentive Plans
Old Patriot adopted the 1995 Incentive Plan and the Non-Employee
Directors' Incentive Plan in connection with its initial formation. In
connection with the Cal Jockey Merger, these stock incentive plans were amended
and adopted by the Companies. The 1995 Incentive Plan, as amended (the "1995
Incentive Plan"), and the Non-Employee Directors' Plan, as amended (the
"Directors' Plan"), were adopted for the purpose of (i) attracting and retaining
employees, directors and others, (ii) providing incentives to those deemed
important to the success of the Companies, and (iii) associating the interests
of these individuals with the interests of the Companies and their shareholders
through opportunities for increase stock ownership. As a result of the continued
growth of the Companies, Patriot and Wyndham International each adopted a 1997
Incentive Plan.
The 1995 Incentive Plan. Under the 1995 Incentive Plan, employees of
the Companies are eligible to receive stock options, stock awards or performance
shares, subject to certain restrictions. All awards under the 1995 Incentive
Plan are determined by the Compensation Committees of the respective Boards of
Directors and a
F-38
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
maximum of 5,000,000 shares of common stock may be issued under the 1995
Incentive Plan. As of December 31, 1997, the maximum amount of available shares
under this plan have been issued.
The Directors' Plan. The Directors' Plan provides for the award of
stock options and stock awards to each eligible non-employee director of the
Companies. Each eligible director receives nonqualified options to purchase
15,000 Paired Shares upon their election to the Board of Directors of either
Patriot or Wyndham International. On the date of each annual meeting of the
Companies' shareholders, each non-employee director then in office receives an
additional grant of nonqualified options to purchase 5,000 Paired Shares, with
the maximum aggregate number of Paired Shares subject to options to be granted
to each non-employee director being 35,000. The exercise price of options will
be 100% of the fair market value of a Paired Share on the date of grant. The
exercise price may be paid in cash, cash equivalents acceptable to the
Compensation Committee, common stock or a combination thereof. Options granted
under the Directors' Plan are exercisable for ten years from the date of grant.
The Directors' Plan also provides for the annual award of common stock
to each eligible director in payment of one-half of the annual retainer of $13
payable to each such director. The number of shares awarded will be determined
based upon the fair market value of the stock at the date of the grant. Such
shares vest immediately upon grant and are non-forfeitable.
The 1997 Incentive Plans. The 1997 Incentive Plans provide for the
award of stock options, stock awards or performance shares to each eligible
employee and director of Patriot and Wyndham International. All awards under the
1997 Incentive Plans are determined by the Compensation Committees of the
respective Board of Directors of Patriot and Wyndham International. Under each
1997 Incentive Plan, the aggregate number of Paired Shares available for grants
of awards shall be the sum of (i) 3,000,000 Paired Shares plus (ii) 10% of any
future net increase in the total number of shares of paired common stock.
Under the Companies' 1997 Incentive Plans, each independent director
may elect to take all or a portion of his/her fees in the form of deferred
paired share units. In addition, the independent directors of Patriot and
Wyndham International will automatically be granted a non-qualified stock
option, immediately exercisable in full, to acquire 10,000 Paired Shares at an
exercise price per Paired Share equal to the fair market value of a Paired Share
on the date of grant. Option terms are fixed by the Compensation Committees and
may not exceed ten years from the date of grant.
Stock Grant Awards
During 1996, pursuant to the Directors' Plan and the Incentive Plan,
Old Patriot awarded 48,000 shares of common stock to its non-employee directors
and 314,800 shares of common stock to certain of its officers and employees. In
addition, the directors were granted 2,640 shares of common stock with an
aggregate value of $37 in payment of one-half of the annual retainer payable to
each director. Old Patriot recorded a total of $5,144 (the aggregate value of
Old Patriot's common stock based on the market price at the date of the award)
as unearned stock compensation in 1996, which is being amortized over the
vesting period of four years.
During 1997, pursuant to the Incentive Plans, the Board of Directors
awarded 547,867 Paired Shares of common stock to certain officers of the
Companies. The Companies recorded a total of $12,897 (the aggregate value of the
common stock based on the market price at the date of the award) as unearned
stock compensation in 1997, which is being amortized over the vesting periods of
one to five years. For 1997, 1996 and 1995, $4,686, $1,068 and $71,
respectively, of amortization of stock compensation related to stock grants
awarded to Patriot's directors, officers and certain employees is included in
general and administrative expense in the accompanying consolidated financial
statements.
Stock Option Awards
Upon completion of the Initial Offering in 1995, 1,000,000 options were
granted to the executive officers to purchase shares of Old Patriot common
stock. Each option is exercisable at an amount equal to the initial public
offering price of $12.00 per share. Of the options granted, 55,560 vested
immediately, while the remaining options
F-39
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
become exercisable at various dates through January 1, 2005. In addition, each
eligible director who was a member of Old Patriot's Board as of September 27,
1995, was awarded nonqualified options to purchase 15,000 shares of common stock
on that date (each such director, a "Founding Director"). The options granted to
Founding Directors have an exercise price equal to the initial public offering
price of $12.00 per share and vested immediately.
During 1996, pursuant to the Directors' Plan and the Incentive Plan,
Old Patriot's Board of Directors granted stock options to purchase 30,000 shares
of common stock to Old Patriot's directors and stock options to purchase 355,600
shares of common stock to Old Patriot's officers and certain employees. The
exercise price of the options granted to the directors is $14.188 (the market
price of Old Patriot's common stock on May 23, 1996, the date of the grant). For
the officers and employees employed as of the grant date of April 19, 1996, the
exercise price of the options is $13.438 (the market price of Old Patriot's
common stock on the date of grant). For officers and employees hired subsequent
to April 19, 1996, the exercise price is equal to the market price of Old
Patriot's common stock on the employee's date of hire. The options to purchase
common stock vest annually over a period of seven years.
In connection with the acquisition of four resort properties in January
1997, certain former owners of the resorts who are also employees of Resorts
Services, Inc., the company which manages the resorts, were granted nonqualified
options to purchase an aggregate of 780,008 shares of Old Patriot Common Stock
at an exercise price of $19.125 (based on the market price of Old Patriot's
common stock on the date the purchase contract for the resorts was executed
after giving effect to the March 1997 and July 1997 stock splits and the Cal
Jockey Merger) as additional consideration for entering into the purchase and
sale agreement for the resort properties. The estimated fair value of the
options issued, in the aggregate amount of $3,266, was recorded as additional
purchase consideration for the acquisition of the resort properties. The options
to purchase common stock vest annually over a period of four years.
During the first quarter of 1997, one of the executive officers of
Patriot was granted nonqualified options to purchase an aggregate of 560,009
shares of common stock at an exercise price of $24.13 (based on the market price
of Old Patriot's Common Stock on the date of the grant after giving effect to
the March 1997 and July 1997 stock splits and the Cal Jockey Merger). These
options to purchase common stock vest annually over a period of three years.
During the second quarter of 1997, the Compensation Committee of Old
Patriot's Board of Directors awarded a two-tier option program for Patriot's
chief executive officer which is intended to be his sole equity award for the
next five years. The tier one award is a ten-year option to purchase 1,350,022
shares of common stock with an exercise price equal to $22.375 per share, the
fair market value of Old Patriot's Common Stock on the date of the grant (after
giving effect to the July 1997 stock split and the Cal Jockey Merger). The tier
two award is a ten-year premium priced option to purchase an aggregate of
1,250,020 shares of common stock. This grant has five equal tranches of 250,004
shares each with an increasing exercise price ranging from $24.61 to $36.04.
These options are not exercisable until April 1, 2002.
Additionally, during the second quarter of 1997, another executive
officer of Old Patriot was granted nonqualified options to purchase an aggregate
of 100,002 Paired Shares of common stock at an exercise price of $22.625 (based
on the market price of Old Patriot's common stock on the date of the grant after
giving effect to the July 1997 stock split and the Cal Jockey Merger). These
options to purchase common stock vest annually over a period of seven years.
During the third quarter of 1997, one of the executive officers of
Wyndham International was granted nonqualified options to purchase an aggregate
of 280,000 Paired Shares at an exercise price of $32.063 per Paired Share (based
on the market price of the Paired Shares on the date of the grant). These
options to purchase Paired Shares vest quarterly over a period of three years.
During the fourth quarter of 1997, the independent directors of Patriot
and Wyndham International were granted nonqualified options to purchase an
aggregate of 100,000 Paired Shares at an exercise price of $32.625 per
F-40
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Paired Share (based on the market price of the Paired Shares on the date of
grant). The options to purchase Paired Shares vested on the date of grant.
As of December 31, 1997, pursuant to the Directors' Plan, the 1995
Incentive Plan and the 1997 Incentive Plans, the Companies have authorized the
grant of options for up to 5,115,652 Paired Shares with exercise prices ranging
from $5.51 to $36.04 per Paired Share (1,289,688 of such options were vested).
During 1997, a total of 314,967 Paired Shares were issued pursuant to exercise
of options (at exercise prices ranging from $5.51 to $14.25) resulting in net
proceeds of $2,307.
The Companies have elected to follow APB 25 and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Companies'
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Statement 123
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Companies had accounted for their compensatory employee
stock options under the fair value method of that Statement. 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 1997, 1996 and
1995, respectively: risk-free interest rates of 6.61%, 6.09% and 5.97%; dividend
yields of 6%; volatility factors of the expected market price of the Companies'
common stock of 0.389, 0.173 and 0.173, and a weighted average expected life of
the options of 6 years, 5 years and 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Companies' employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options that have vesting
periods and are non-transferable.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Companies' pro forma information is as follows:
1997 1996 1995
--------------- --------------- ---------------
Pro forma net (loss) income........$ (4,949) $ 37,607 $ 5,193
Pro forma earnings per share:
Basic...........................$ (0.09) $ 1.06 $ 0.18
Diluted.........................$ (0.09) $ 1.04 $ 0.18
F-41
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A summary of the Companies' stock option activity, and related
information for the years ended December 31 is as follows:
1997 1996 1995
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
---------- ----------- ----------- ---------- ---------- -----------
Outstanding, beginning of year... 1,476 $ 12.39 1,090 $ 12.00 -- $ --
Granted.......................... 3,640 26.31 386 13.51 1,090 12.00
Exercised........................ (6) 13.83 -- -- -- --
Forfeited........................ (27) 13.79 -- -- -- --
--------- -------- --------- --------- --------- --------
Outstanding, end of year......... 5,083 $ 22.35 1,476 $ 12.39 1,090 $ 12.00
========= ========= ========= ========= ========= ========
Exercisable at end of year....... 972 $ 15.98 401 $ 12.00 -- $ 12.00
Weighted average fair value of
options granted during year... $ 4.28 $ 1.27 $ 1.19
Exercise prices for compensatory options outstanding as of December 31,
1997 ranged from $12.00 to $36.04. The weighted average remaining contractual
life of those options was nine years. Exercise prices for compensatory options
outstanding as of December 31, 1996 ranged from $12.00 to $15.125. The weighted
average remaining contractual life of those options was nine years.
16. INCOME TAXES:
The income tax provision of Wyndham International for the six months
ended December 31, 1997 consists of the following:
Current:
Federal................................................................. $ 199
State................................................................... 130
---------------
Total current................................................................ 329
---------------
Deferred:
Federal................................................................. 136
State................................................................... 16
---------------
Total deferred............................................................... 152
---------------
Total income tax expense................................... $ 481
===============
The reason for the difference between total tax expense and the amount
computed by applying the statutory Federal income tax rate of 34% to income
before income taxes, is as follows:
Tax at statutory rate........................................................ $ 127
State income taxes........................................................... 118
Non-deductible expenses...................................................... 236
---------------
Total income tax expense................................... $ 481
===============
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of
F-42
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of Wyndham International's deferred
tax assets and liabilities as of December 31, 1997 are as follows:
Deferred tax assets:
Other non-current assets................................................ $ 89
---------------
Total deferred tax assets........................................... 89
Deferred tax liabilities:
Depreciation............................................................ (600)
Trade names............................................................. (959)
Management contracts.................................................... (7,937)
Other non-current liabilities........................................... (143)
---------------
Total deferred tax liabilities...................................... (9,639)
---------------
Net deferred income tax liability.......................... $ (9,550)
===============
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires
disclosures about the fair value for all financial instruments, whether or not
recognized, for financial statement purposes. Disclosures about fair value of
financial instruments is based on pertinent information available to management
as of December 31, 1997. Considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Management estimates the fair value of (i) accounts receivable,
accounts payable and accrued expenses approximate carrying value due to the
relatively short maturity of these instruments; (ii) the notes receivable
approximate carrying value based upon effective borrowing rates for issuance of
debt with similar terms and remaining maturities; and (iii) the borrowings under
the Revolving Credit Facility, Term Loan and various other mortgage notes
approximate carrying value because these borrowings accrue interest at floating
interest rates based on market or accrue interest at fixed rates which
approximate market rates.
F-43
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
18. NON-CASH INVESTING AND FINANCING ACTIVITIES:
Patriot and Wyndham International
In connection with the acquisition of hotel properties, the following
assets were acquired, liabilities assumed and consideration given:
1997 1996 1995
-------------- -------------- --------------
Assets acquired:
Cash received upon acquisition of hotel leases.....$ (14,192) $ -- $ --
Accounts receivable................................ (27,108) 537 --
Inventories........................................ (6,408) 613 --
Goodwill........................................... (112,562) -- --
Other assets....................................... (6,531) 510 313
Trade names and management contracts............... (33,739) -- --
Deferred expenses (net of write-off of deferred
financing costs of $679 in 1995)................ -- 685 127
Liabilities assumed:
Accounts payable and accrued expenses..............$ 49,577 $ 4,195 $ (1,102)
Mortgage notes receivable.......................... 103,673 -- --
Capital lease obligation acquired.................. 503 -- --
Mortgage notes..................................... 34,244 -- --
Deferred income tax liability...................... 9,550 -- --
Consideration given:
Issuance of common stock, stock options and OP
Units...........................................$ 449,415 $ 16,391 $ 13,303
========== ========= ========
Other non-cash investing and financing activities:
Reclassification of deferred acquisition costs to
property costs..................................$ 30,637
==========
Patriot
In connection with the acquisition of hotel properties, the following
assets were acquired, liabilities assumed and consideration given:
1997 1996 1995
-------------- -------------- --------------
Assets acquired:
Account receivable.................................$ (1,507) $ 537 $ --
Inventories........................................ -- 613 --
Goodwill........................................... (89,256) -- --
Other assets....................................... -- 510 313
Deferred expenses (net of write-off of deferred
financing costs of $679 in 1995)................ -- 685 127
Liabilities assumed:
Accounts payable and accrued expenses..............$ 7,517 $ 4,195 $ (1,102)
Mortgage notes receivable.......................... 103,673 -- --
Subscription notes payable, net of $38,461 of
acquisitions funded on behalf of Wyndham
International................................... 21,191 -- --
Capital lease obligation acquired.................. 503 -- --
Mortgage notes..................................... 34,244 -- --
Consideration given:
Issuance of common stock, stock options and OP
Units...........................................$ 340,794 $ 16,391 $ 13,303
========== ========= ========
Other non-cash investing and financing activities:
Reclassification of deferred acquisition costs to
property costs..................................$ 30,637
==========
Note receivable funded on behalf of Wyndham
International...................................$ 7,934
Deferred acquisition costs funded on behalf of
Wyndham International........................... 31,126
Equipment and improvements conveyed to Wyndham
International................................... 32,210
Acquisitions costs funded on behalf of Wyndham
International................................... 6,251
Due from Wyndham International.................... (77,521)
==========
In connection with Old Patriot's investment in an unconsolidated
subsidiary in 1996, Old Patriot issued a promissory note payable to the
unconsolidated subsidiary in the amount of $6,217 which has been included in due
to unconsolidated subsidiaries in the accompanying financial statements.
F-44
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In connection with the Initial Offering and acquisition of the initial
20 hotels in 1995:
Predecessor basis of interests acquired from affiliates................. $ 1,840
Issuance of OP Units to non-affiliates.................................. 9,363
Distribution of note receivable as consideration........................ (479)
Minority interest at closing of the Initial Offering.................... (41,670)
Accrued Initial Offering costs.......................................... (843)
Other non-cash investing and financing activities:
1997 1996 1995
-------------- -------------- --------------
Dividends and distributions declared and payable.....$ 27,572 $ 13,129 $ 8,154
Issuance of shares to employees and directors......... 62 37 37
Accrued acquisition and other costs................... -- 844 28
Wyndham International
In connection with the Cal Jockey Merger, the acquisition of management
companies and the leasing of hotel properties, the following assets were
acquired, liabilities assumed and consideration given:
1997
---------------
Assets acquired:
Accounts receivable.......................................... $ (25,601)
Subscription notes receivable................................ (59,652)
Inventories.................................................. (6,408)
Goodwill..................................................... (29,557)
Other assets................................................. (6,531)
Equipment and improvements................................... (27,611)
Trade names.................................................. (11,287)
Management contracts......................................... (22,452)
Liabilities assumed:
Accounts payable and accrued expenses........................ 46,659
Due to Patriot............................................... 38,461
Deferred income tax liability................................ 9,550
Consideration given:
Issuance of common stock and OP Units........................ 108,621
-------------
Cash received upon acquisition of hotel leases............... $ 14,192
=============
Other non-cash investing and financing activities:
Notes receivable............................................. $ (7,934)
Deferred acquisition costs................................... (31,126)
Due to Patriot............................................... 39,060
=============
F-45
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Wyndham
Combined Patriot International
--------------------------- ---------------------------- ---------------
1997 1996 1997 1996 1997
------------- ------------- ---------------------------- ---------------
(in thousands, except per share amounts)
FIRST QUARTER:
Total revenue........... $ 35,388 $ 12,463 $ 35,388 $ 12,463 $ --
Income before
extraordinary item.... $ 11,348 $ 7,128 $ 11,348 $ 7,128 $ --
Net income.............. $ 11,348 $ 7,128 $ 11,348 $ 7,128 $ --
Net income per
share/Paired Share:
Basic............... $ 0.26 $ 0.24 $ 0.26 $ 0.24 $ --
Diluted............. $ 0.25 $ 0.24 $ 0.25 $ 0.24 $ --
Weighted average
number of shares:
Basic............... 43,189 29,213 43,189 29,213
Diluted............. 44,554 29,469 44,554 29,469
SECOND QUARTER:
Total revenue........... $ 37,730 $ 18,007 $ 37,730 $ 18,007 $ --
Income before
extraordinary item.... $ 11,818 $ 8,683 $ 11,818 $ 8,683 $ --
Net income.............. $ 11,818 $ 8,683 $ 11,818 $ 8,683 $ --
Net income per
share/Paired Share:
Basic............... $ 0.27 $ 0.29 $ 0.27 $ 0.29 $ --
Diluted............. $ 0.26 $ 0.29 $ 0.26 $ 0.29 $ --
Weighted average
number of shares:
Basic............... 43,323 30,052 43,323 30,052
Diluted............. 44,970 30,346 44,970 30,346
THIRD QUARTER:
Total revenue........... $ 81,638 $ 22,677 $ 50,190 $ 22,677 $ 44,184
Income (loss) before
extraordinary item (1) $ (24,470) $ 12,024 $ (25,179) $ 12,024 $ 709
Net income (loss)....... $ (27,004) $ 12,024 $ (27,713) $ 12,024 $ 709
Net income (loss) per
share/Paired Share:
Basic............... $ (0.44) $ 0.31 $ (0.45) $ 0.31 $ 0.01
Diluted............. $ (0.44) $ 0.30 $ (0.45) $ 0.30 $ 0.01
Weighted average
number of shares:
Basic............... 61,647 39,039 61,647 39,039 61,647
Diluted............. 61,647 39,672 61,647 39,672 63,638
F-46
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Wyndham
Combined Patriot International
--------------------------- ---------------------------- ---------------
1997 1996 1997 1996 1997
------------- ------------- ---------------------------- ---------------
(in thousands, except per share amounts)
FOURTH QUARTER:
Total revenue........... $ 180,279 $ 23,346 $ 62,246 $ 23,346 $ 159,950
Income before
extraordinary item (2) $ 1,666 $ 10,156 $ 2,395 $ 10,156 $ (729)
Net income (loss)....... $ 1,666 $ 10,156 $ 2,395 $ 10,156 $ (729)
Net income (loss) per
share/Paired Share:
Basic............... $ 0.02 $ 0.24 $ 0.04 $ 0.24 $ (0.01)
Diluted............. $ 0.02 $ 0.23 $ 0.03 $ 0.23 $ (0.01)
Weighted average
number of shares:
Basic............... 68,287 43,171 68,287 43,171 68,287
Diluted............. 70,856 44,116 70,856 44,116 68,287
- -----------------------------
(1) Income (loss) before extraordinary item for the third quarter of 1997
includes costs to acquire leaseholds, a non-recurring expense, in the
amount of $43,820 that was reported by Patriot.
(2) Income before extraordinary item for the fourth quarter of 1997 includes
costs to acquire leaseholds, a non-recurring expense, in the amount of
$10,679 that was reported by Patriot.
F-47
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
20. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED):
The following unaudited separate and combined pro forma results of
operations of Patriot and Wyndham International are presented as if (i) the
acquisition of the 91 hotels owned by Patriot as of December 31, 1997; (ii) the
Cal Jockey Merger and the related transactions; (iii) the replacement of Old
Line of Credit with the Revolving Credit Facility and the funding of the Term
Loan and other mortgage debt; (iv) the Grand Heritage Acquisition; (v) the
acquisition of eight leasehold interests and the approximate 50% investment
interest in GAH; and (vi) the private placements of equity securities and public
offering of the Companies' common stock which occurred during 1997 and 1996 had
occurred on January 1, 1996, and the hotels (except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel) had been leased to Wyndham International
or the Lessees pursuant to the Participating Leases. The following unaudited pro
forma financial information is not necessarily indicative of what actual results
of operations of Patriot and Wyndham International would have been assuming such
transactions had been completed as of January 1, 1996, nor do they purport to
represent the results of operations for future periods.
PATRIOT AND WYNDHAM INTERNATIONAL
COMBINED PRO FORMA RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue $ 821,758 $ 746,960
Net income.................................................................. 50,341 21,781
Basic earnings per Paired Share............................................. $ 0.70 $ 0.30
================= =================
Diluted earnings per Paired Share........................................... $ 0.68 $ 0.29
================= =================
Weighted average number of Paired Shares.................................... 72,477 72,477
Dilutive securities:
Effect of unvested stock grants........................................ 800 800
Dilutive options to purchase Paired Shares............................. 1,017 273
----------------- -----------------
Weighted average number of Paired Shares
and Paired Share equivalents outstanding.................................. 74,294 73,550
================= =================
F-48
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PATRIOT
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue $ 292,135 $ 263,004
Net income.................................................................. 57,713 45,099
Basic earnings per share.................................................... $ 0.80 $ 0.62
================= =================
Diluted earnings per share.................................................. $ 0.78 $ 0.61
================= =================
Weighted average number of common shares.................................... 72,477 72,477
Dilutive securities:
Effect of unvested stock grants........................................ 800 800
Dilutive options to purchase Paired Shares............................. 1,017 273
----------------- -----------------
Weighted average number of common shares
and common share equivalents outstanding.................................. 74,294 73,550
================= =================
WYNDHAM INTERNATIONAL
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue $ 749,119 $ 678,186
Net loss.................................................................... (7,372) (23,318)
Basic loss per share........................................................ $ (0.10) $ (0.32)
================= =================
Diluted loss per share...................................................... $ (0.10) $ (0.32)
================= =================
Weighted average number of common shares.................................... 72,477 72,477
================= =================
F-49
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
21. SUBSEQUENT EVENTS:
Businesses Acquired
Wyndham Merger. On January 5, 1998, the Wyndham Merger was consummated.
As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio of
owned, leased or managed hotels consisting of 98 hotels operated by Old Wyndham
(including 16 Patriot hotels which were managed by Old Wyndham), as well as
eight franchised hotels, which in the aggregate contain approximately 25,900
rooms. The total purchase consideration of approximately $982,000 consisted of
21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible Preferred
Stock of Patriot (which are convertible on a one-for-one basis into Paired
Shares), cash of approximately $339,000 to repay debt and pay Wyndham
shareholders who elected to receive cash (which was financed with funds drawn on
the Revolving Credit Facility), and the assumption of approximately $54,000 in
mortgage debt.
WHG Merger. On January 16, 1998, the WHG Merger was consummated. As a
result of the WHG Merger, Wyndham International acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino
and a 23.3% interest in the 751-room El Conquistador, as well as a 62% interest
in the management company for the three hotels and the Las Casitas Village at
the El Conquistador. A total of 5,004,690 Paired Shares were issued in
connection with the WHG Merger and approximately $21,327 of debt was assumed,
resulting in total purchase consideration of approximately $159,363.
Hotel Acquired
On January 14, 1998, Patriot, through the REIT Partnership, acquired an
aggregate 95% equity interest in the Buena Vista Palace Hotel in Orlando,
Florida for an aggregate purchase price of approximately $141,600, including the
assumption of approximately $50,300 of indebtedness. As part of the agreement,
Patriot was also granted an option to acquire the remaining 5% equity interest
in the hotel. In addition, the Participating Note held by Wyndham International
(see Note 6) was modified to reflect an outstanding principal balance of $23,750
(Wyndham International's acquisition price). The REIT Partnership leased the
hotel to Wyndham International pursuant to a three-year Participating Lease
agreement. The hotel is being managed by a third party Operator.
F-50
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------- ------------- ---- ------------- ---- ------------
FULL SERVICE HOTELS:
AMASSADOR WEST
Chicago, Illinois................ $ -- $ 2,059 $ 11,856 $ -- $ 4
BOURBON ORLEANS HOTEL
New Orleans, Louisiana........... 13,500 1,942 14,209 171 984
THE BUTTES
Tempe, Arizona................... -- -- 55,297 1
CROWNE PLAZA TOLEDO
Toledo, Ohio..................... -- -- 16,082 177
DOUBLETREE ALLEN CENTER
Houston, Texas................... 11,156 2,280 24,707 -- 785
DOUBLETREE HOTEL
Des Plaines (Chicago), Illinois.. -- 1,903 5,555 -- 3,148
DOUBLETREE GUEST SUITES
Glenview, Illinois............... 20,500 3,237 19,709 -- 216
DOUBLETREE HOTEL
Minneapolis, Minnesota........... -- 1,650 15,895 -- 553
DOUBLETREE HOTEL
Tallahassee, Florida............. -- 2,127 7,779 -- 2,585
DOUBLETREE HOTEL
Tulsa, Oklahoma.................. 9,246 1,428 18,596 -- 31
DOUBLETREE HOTEL
Westminster (Denver), Colorado... -- 1,454 9,973 15 798
DOUBLETREE - ANAHEIM
Orange, California............... 13,467 2,464 23,297 -- 3
DOUBLETREE - MIAMI AIRPORT
Miami, Florida................... -- 3,808 7,052 -- 2,063
DOUBLETREE - POST OAK
Houston, Texas................... 29,748 4,441 43,672 -- 70
DOUBLETREE - CORPORATE WOODS
Overland Park, Kansas............ 21,909 3,317 38,088 -- 11
DOUBLETREE - ST. LOUIS
Chesterfield, Missouri........... 13,366 2,160 18,300 -- 3
DOUBLETREE PARK PLACE
Minneapolis, Minnesota........... -- 2,188 13,531 -- 918
EMBASSY SUITES
Hunt Valley, Maryland............ -- 529 13,872 6 301
FAIRMOUNT HOTEL
San Antonio, Texas............... -- 2,957 -- (20)
FOUR POINTS BY SHERATON
Saginaw, Michigan................ -- 773 6,451 8 248
GRAND BAY HOTEL COCONUT GROVE
Miami, Florida................... 25,200 3,066 28,442 -- --
DEL MAR HILTON
Del Mar (San Diego), California.. -- 1,900 11,435 20 532
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
FULL SERVICE HOTELS:
AMASSADOR WEST
Chicago, Illinois................ $ 2,059 $ 11,860 $ 13,919 $ 143 1924 1997
BOURBON ORLEANS HOTEL
New Orleans, Louisiana........... 2,113 15,193 17,306 941 1800s 1995
THE BUTTES
Tempe, Arizona................... -- 55,298 55,298 350 1986 1997
CROWNE PLAZA TOLEDO
Toledo, Ohio..................... -- 16,259 16,259 153 1985 1997
DOUBLETREE ALLEN CENTER
Houston, Texas................... 2,280 25,492 27,772 774 1978 1996
DOUBLETREE HOTEL
Des Plaines (Chicago), Illinois.. 1,903 8,703 10,606 262 1969 1996
DOUBLETREE GUEST SUITES
Glenview, Illinois............... 3,237 19,925 23,162 188 1988 1997
DOUBLETREE HOTEL
Minneapolis, Minnesota........... 1,650 16,448 18,098 375 1986 1997
DOUBLETREE HOTEL
Tallahassee, Florida............. 2,127 10,364 12,491 322 1977 1996
DOUBLETREE HOTEL
Tulsa, Oklahoma.................. 1,428 18,627 20,055 539 1982 1996
DOUBLETREE HOTEL
Westminster (Denver), Colorado... 1,469 10,771 12,240 455 1980 1996
DOUBLETREE - ANAHEIM
Orange, California............... 2,464 23,300 25,764 223 1984 1997
DOUBLETREE - MIAMI AIRPORT
Miami, Florida................... 3,808 9,115 12,923 290 1975 1996
DOUBLETREE - POST OAK
Houston, Texas................... 4,441 43,742 48,183 417 1982 1997
DOUBLETREE - CORPORATE WOODS
Overland Park, Kansas............ 3,317 38,099 41,416 364 1982 1997
DOUBLETREE - ST. LOUIS
Chesterfield, Missouri........... 2,160 18,303 20,463 175 1984 1997
DOUBLETREE PARK PLACE
Minneapolis, Minnesota........... 2,188 14,449 16,637 279 1981 1997
EMBASSY SUITES
Hunt Valley, Maryland............ 535 14,173 14,708 851 1985 1995
FAIRMOUNT HOTEL
San Antonio, Texas............... -- 2,937 2,937 191 1906 1995
FOUR POINTS BY SHERATON
Saginaw, Michigan................ 781 6,699 7,480 423 1984 1995
GRAND BAY HOTEL COCONUT GROVE
Miami, Florida................... 3,066 28,442 31,508 196 1983 1997
DEL MAR HILTON
Del Mar (San Diego), California.. 1,920 11,967 13,887 588 1989 1996
See accompanying notes to this schedule on page F-56.
F-51
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------------- ------------- ---- ------------- ---- ------------
HILTON CLEVELAND SOUTH
Independence, Ohio................ -- 2,760 12,264 29 1,013
MELBOURNE AIRPORT HILTON
Melbourne, Florida................ -- 1,502 6,391 -- 171
HILTON INN MYRTLE BEACH
Myrtle Beach, South Carolina...... -- 5,644 26,470 61 445
HOLIDAY INN
San Angelo, Texas................. -- 428 3,982 4 182
HOLIDAY INN
San Francisco, California......... -- -- 18,807 -- 3
HOLIDAY INN
Sebring, Florida.................. -- 626 2,387 7 336
HOLIDAY INN ARISTOCRAT
Dallas, Texas..................... -- 144 7,806 2 199
HOLIDAY INN CROCKETT
San Antonio, Texas................ -- 1,936 12,130 21 1,170
HOLIDAY INN LENOX
Atlanta, Georgia.................. -- -- 10,090 -- 298
HOLIDAY INN NORTHWEST PLAZA
Austin, Texas..................... -- 1,424 9,323 15 168
HOLIDAY INN NORTHWEST
Houston, Texas.................... -- 333 2,324 4 343
HOLIDAY INN - YO RANCH
Kerrville, Texas.................. -- 410 6,099 -- 134
HOLIDAY INN REDMONT
Birmingham, Alabama............... -- 227 2,151 2 48
HOLIDAY INN WESTLAKE
Beachwood, Ohio................... -- 2,843 14,218 -- 387
HOLIDAY INN SELECT
Farmers Branch (Dallas), Texas.... -- 3,045 15,786 33 1,379
HYATT NEWPORTER
Newport Beach, California......... -- -- 15,611 -- 1,254
HYATT REGENCY
Lexington, Kentucky............... -- -- 11,958 -- 1,169
MARRIOTT HOTEL
Troy, Michigan.................... -- 1,790 29,220 19 1,770
MARRIOTT COURTYARD
Beachwood, Ohio................... -- 1,510 7,553 -- 118
THE MAYFAIR HOTEL
St. Louis, Missouri............... -- 250 7,559 3 952
OMNI INNER HARBOUR HOTEL
Baltimore, Maryland............... -- 1,129 49,491 -- 341
PARK SHORE HONOLULU
Honolulu, Hawaii.................. -- -- 24,339 -- 45
RADISSON SUITES TOWN & COUNTRY
Houston, Texas.................... -- 655 9,725 7 317
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
HILTON CLEVELAND SOUTH
Independence, Ohio................ 2,789 13,277 16,066 823 1980 1995
MELBOURNE AIRPORT HILTON
Melbourne, Florida................ 1,502 6,562 8,064 45 1986 1997
HILTON INN MYRTLE BEACH
Myrtle Beach, South Carolina...... 5,705 26,915 32,620 446 1974 1997
HOLIDAY INN
San Angelo, Texas................. 432 4,164 4,596 263 1984 1995
HOLIDAY INN
San Francisco, California......... -- 18,810 18,810 224 1964 1997
HOLIDAY INN
Sebring, Florida.................. 633 2,723 3,356 162 1983 1995
HOLIDAY INN ARISTOCRAT
Dallas, Texas..................... 146 8,005 8,151 504 1925 1995
HOLIDAY INN CROCKETT
San Antonio, Texas................ 1,957 13,300 15,257 830 1909 1995
HOLIDAY INN LENOX
Atlanta, Georgia.................. -- 10,388 10,388 534 1987 1996
HOLIDAY INN NORTHWEST PLAZA
Austin, Texas..................... 1,439 9,491 10,930 604 1984 1995
HOLIDAY INN NORTHWEST
Houston, Texas.................... 337 2,667 3,004 157 1982 1995
HOLIDAY INN - YO RANCH
Kerrville, Texas.................. 410 6,233 6,643 58 1984 1997
HOLIDAY INN REDMONT
Birmingham, Alabama............... 229 2,199 2,428 52 1925 1997
HOLIDAY INN WESTLAKE
Beachwood, Ohio................... 2,843 14,605 17,448 194 1980 1997
HOLIDAY INN SELECT
Farmers Branch (Dallas), Texas.... 3,078 17,165 20,243 1,049 1979 1995
HYATT NEWPORTER
Newport Beach, California......... -- 16,865 16,865 802 1962 1996
HYATT REGENCY
Lexington, Kentucky............... -- 13,127 13,127 586 1977 1996
MARRIOTT HOTEL
Troy, Michigan.................... 1,809 30,990 32,799 1,925 1990 1995
MARRIOTT COURTYARD
Beachwood, Ohio................... 1,510 7,671 9,181 103 1986 1997
THE MAYFAIR HOTEL
St. Louis, Missouri............... 253 8,511 8,764 290 1925 1996
OMNI INNER HARBOUR HOTEL
Baltimore, Maryland............... 1,129 49,832 50,961 656 1968 1997
PARK SHORE HONOLULU
Honolulu, Hawaii.................. -- 24,384 24,384 231 1968 1997
RADISSON SUITES TOWN & COUNTRY
Houston, Texas.................... 662 10,042 10,704 631 1986 1995
See accompanying notes to this schedule on page F-56.
F-52
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------- ------------- ---- ------------- ---- ------------
RADISSON HOTEL & SUITES
Dallas, Texas.................... -- 1,011 8,276 10 258
RADISSON NORTHBROOK
Northbrook, Illinois............. -- 1,437 10,968 16 211
RADISSON NEW ORLEANS HOTEL
New Orleans, Louisiana........... -- 2,463 23,630 26 714
RADISSON SUITE HOTEL
Kansas, Kansas................... -- 914 10,341 -- 331
RADISSON OVERLAND PARK
Overland Park, Kansas............ -- 1,296 5,377 14 249
RADISSON HOTEL
Beachwood, Ohio.................. 5,713 2,226 11,129 -- 124
RADISSON HOTEL
Akron, Ohio...................... -- 1,136 5,678 -- 121
RADISSON RIVERWALK
Jacksonville, Florida............ -- 2,400 16,965 -- 180
RAMADA INN
San Francisco, California........ -- -- 15,853 -- 97
SHERATON CITY CENTRE
Washington, D.C.................. -- -- 34,244 -- 4
SHERATON GATEWAY - MIAMI AIRPORT
Miami, Florida................... 25,625 2,561 23,009 -- --
SHERATON GRAND HOTEL
Tampa, Florida................... 31,675 1,448 31,565 -- 164
TREMONT HOUSE
Boston, MA....................... -- 1,776 14,066 18 3,580
THE TUTWILER
Birmingham, Alabama.............. -- 1,444 8,124 16 282
UNION STATION
Nashville, Tennessee............. -- -- 7,512 -- 488
WESTCOAST GATEWAY
Seattle, Washington.............. -- 1,139 10,370 12 232
WESTCOAST HOTEL & MARINA
Long Beach, California........... -- -- 3,145 -- 1,487
WESTCOAST PICKWICK HOTEL
San Francisco, California........ -- 2,000 11,922 22 1,220
WESTCOAST PLAZA PARK SUITES
Seattle, Washington.............. -- 1,515 24,276 16 508
WESTCOAST ROOSEVELT HOTEL
Seattle, Washington.............. -- 882 14,870 9 439
WESTCOAST VALLEY RIVER INN
Eugene, Oregon................... -- 1,754 15,839 19 637
WESTCOAST WENATCHEE CENTER HOTEL
Wenatchee, Washington............ -- 650 6,736 7 196
WYNDHAM BEL AGE HOTEL
Los Angeles, California.......... -- 5,653 32,212 -- --
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
RADISSON HOTEL & SUITES
Dallas, Texas.................... 1,021 8,534 9,555 537 1986 1995
RADISSON NORTHBROOK
Northbrook, Illinois............. 1,453 11,179 12,632 304 1976 1997
RADISSON NEW ORLEANS HOTEL
New Orleans, Louisiana........... 2,489 24,344 26,833 1,495 1924 1995
RADISSON SUITE HOTEL
Kansas, Kansas................... 914 10,672 11,586 99 1931 1997
RADISSON OVERLAND PARK
Overland Park, Kansas............ 1,310 5,626 6,936 143 1974 1997
RADISSON HOTEL
Beachwood, Ohio.................. 2,226 11,253 13,479 152 1968 1997
RADISSON HOTEL
Akron, Ohio...................... 1,136 5,799 6,935 78 1989 1997
RADISSON RIVERWALK
Jacksonville, Florida............ 2,400 17,145 19,545 162 1979 1997
RAMADA INN
San Francisco, California........ -- 15,950 15,950 189 1962 1997
SHERATON CITY CENTRE
Washington, D.C.................. -- 34,248 34,248 120 1969 1997
SHERATON GATEWAY - MIAMI AIRPORT
Miami, Florida................... 2,561 23,009 25,570 163 1976 1997
SHERATON GRAND HOTEL
Tampa, Florida................... 1,448 31,729 33,177 222 1984 1997
TREMONT HOUSE
Boston, MA....................... 1,794 17,646 19,440 859 1925 1996
THE TUTWILER
Birmingham, Alabama.............. 1,460 8,406 9,866 257 1913 1996
UNION STATION
Nashville, Tennessee............. -- 8,000 8,000 93 1986 1997
WESTCOAST GATEWAY
Seattle, Washington.............. 1,151 10,602 11,753 525 1990 1996
WESTCOAST HOTEL & MARINA
Long Beach, California........... -- 4,632 4,632 193 1978 1996
WESTCOAST PICKWICK HOTEL
San Francisco, California........ 2,022 13,142 15,164 388 1928 1996
WESTCOAST PLAZA PARK SUITES
Seattle, Washington.............. 1,531 24,784 26,315 1,227 1985 1996
WESTCOAST ROOSEVELT HOTEL
Seattle, Washington.............. 891 15,309 16,200 756 1928 1996
WESTCOAST VALLEY RIVER INN
Eugene, Oregon................... 1,773 16,476 18,249 619 1973 1996
WESTCOAST WENATCHEE CENTER HOTEL
Wenatchee, Washington............ 657 6,932 7,589 342 1988 1996
WYNDHAM BEL AGE HOTEL
Los Angeles, California.......... 5,653 32,212 37,865 39 1984 1997
See accompanying notes to this schedule on page F-56.
F-53
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------------------- ------------- ---- ------------- ---- ------------
WYNDHAM EMERALD PLAZA
San Diego, California.............. 35,000 5,551 60,462 -- --
WYNDHAM FRANKLIN PLAZA
Philadelphia, Pennsylvania......... -- -- 67,671 -- --
WYNDHAM GREENSPOINT HOTEL
Houston, Texas..................... 22,000 1,930 39,815 20 941
WYNDHAM NORTHWEST CHICAGO
Chicago, Illinois.................. -- 1,212 52,025 -- --
WYNDHAM RIVERFRONT HOTEL
New Orleans, Louisiana............. -- 2,774 28,023 -- --
WYNDHAM GARDEN - LAS COLINAS
Dallas, Texas...................... -- 1,884 16,963 -- --
WYNDHAM GARDEN HOTEL - MIDTOWN
Atlanta, Georgia................... -- 2,323 13,785 25 716
WYNDHAM GARDEN - NOVI
Detroit, Michigan.................. -- 555 10,401 -- --
WYNDHAM GARDEN HOTEL
Pleasanton, California............. -- 1,568 12,845 -- --
WYNDHAM GARDEN - WOODDALE
Chicago, Illinois.................. -- 2,266 12,939 -- --
THE GARDEN AT LAGUARDIA
New York, New York................. -- 1,800 16,443 -- --
LIMITED SERVICE HOTELS:
HAMPTON INN JACKSONVILLE AIRPORT
Jacksonville, Florida.............. -- 285 4,355 4 164
HAMPTON INN
Rochester, New York................ -- 104 7,829 2 348
HAMPTON INN CLEVELAND AIRPORT
North Olmsted, Ohio................ -- 236 5,483 2 389
HAMPTON INN
Canton, Ohio....................... -- 350 4,315 3 357
CONFERENCE CENTER:
PEACHTREE CONFERENCE CENTER
Peachtree City (Atlanta), Georgia.. -- 3,059 21,915 33 3,109
RESORTS:
THE BOULDERS
Scottsdale, Arizona................ -- 13,188 121,700 -- 844
CARMEL VALLEY RANCH
Carmel, California................. -- 4,764 14,704 -- 647
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
WYNDHAM EMERALD PLAZA
San Diego, California.............. 5,551 60,462 66,013 -- 1991 1997
WYNDHAM FRANKLIN PLAZA
Philadelphia, Pennsylvania......... -- 67,671 67,671 80 1979 1997
WYNDHAM GREENSPOINT HOTEL
Houston, Texas..................... 1,950 40,756 42,706 1,696 1985 1996
WYNDHAM NORTHWEST CHICAGO
Chicago, Illinois.................. 1,212 52,025 53,237 62 1983 1997
WYNDHAM RIVERFRONT HOTEL
New Orleans, Louisiana............. 2,774 28,023 30,797 34 1996 1997
WYNDHAM GARDEN - LAS COLINAS
Dallas, Texas...................... 1,884 16,963 18,847 20 1986 1997
WYNDHAM GARDEN HOTEL - MIDTOWN
Atlanta, Georgia................... 2,348 14,501 16,849 594 1987 1996
WYNDHAM GARDEN - NOVI
Detroit, Michigan.................. 555 10,401 10,956 12 1988 1997
WYNDHAM GARDEN HOTEL
Pleasanton, California............. 1,568 12,845 14,413 2 1985 1997
WYNDHAM GARDEN - WOODDALE
Chicago, Illinois.................. 2,266 12,939 15,205 18 1986 1997
THE GARDEN AT LAGUARDIA
New York, New York................. 1,800 16,443 18,243 20 1988 1997
LIMITED SERVICE HOTELS:
HAMPTON INN JACKSONVILLE AIRPORT
Jacksonville, Florida.............. 289 4,519 4,808 284 1985 1995
HAMPTON INN
Rochester, New York................ 106 8,177 8,283 510 1986 1995
HAMPTON INN CLEVELAND AIRPORT
North Olmsted, Ohio................ 238 5,872 6,110 361 1986 1995
HAMPTON INN
Canton, Ohio....................... 353 4,672 5,025 287 1985 1995
CONFERENCE CENTER:
PEACHTREE CONFERENCE CENTER
Peachtree City (Atlanta), Georgia.. 3,092 25,024 28,116 1,425 1984 1995
RESORTS:
THE BOULDERS
Scottsdale, Arizona................ 13,188 122,544 135,732 3,340 1985 1997
CARMEL VALLEY RANCH
Carmel, California................. 4,764 15,351 20,115 418 1987 1997
See accompanying notes to this schedule on page F-56.
F-54
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
COST CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
--------------------- -------------------------
BUILDINGS AND
DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------- ------------- ---- ------------- ---- ------------
THE LODGE AT VENTANA CANYON
Tucson, Arizona, ................ 28,489 13,287 23,332 -- 235
THE PEAKS RESORT & SPA
Telluride, Colorado.............. -- 5,141 13,997 -- 467
WYNDHAM RESORT & SPA
Ft. Lauderdale, Florida.......... -- 2,134 16,448 23 7,163
RACECOURSE FACILITY:
BAY MEADOWS RACECOURSE
San Mateo, California............ -- -- 15,052 -- 3,743
------------ --------- ----------- -------- ----------
$ 306,594 $ 167,498 $ 1,639,048 $ 724 $ 56,298
============ ========= =========== ======== ==========
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD (a)
------------------------------
BUILDINGS AND ACCUMULATED YEAR DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION
---- ------------ ----- ------------- ----- -----------
THE LODGE AT VENTANA CANYON
Tucson, Arizona, ................ 13,287 23,567 36,854 639 1985 1997
THE PEAKS RESORT & SPA
Telluride, Colorado.............. 5,141 14,464 19,605 451 1992 1997
WYNDHAM RESORT & SPA
Ft. Lauderdale, Florida.......... 2,157 23,611 25,768 779 1961 1996
RACECOURSE FACILITY:
BAY MEADOWS RACECOURSE
San Mateo, California............ -- 18,795 18,795 1,379 1934 1997
--------- ----------- ---------- -------
$ 168,222 $ 1,695,346 $1,863,568 $41,041
========= =========== ========== =======
See accompanying notes to this schedule on following page.
F-55
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO SCHEDULE III
(IN THOUSANDS)
PERIOD
OCTOBER 2,
1995
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(a) Reconciliation of Real Estate: 1997 1996 1995
------------ ------------ ------------
Balance at beginning of period $ 597,494 $ 242,132 $ --
Additions during period:
Acquisitions ................... 1,209,052 342,557 242,132
Improvements ................... 56,298 12,805 --
---------- ---------- ----------
Balance at end of period $1,863,568 $ 597,494 $ 242,132
========== ========== ==========
(b) Reconciliation of Accumulated
Depreciation:
Balance at beginning of period $ 12,048 $ 1,508 $ --
Depreciation for period 28,993 10,540 1,508
---------- ---------- ----------
Balance at end of period ........... $ 41,041 $ 12,048 $ 1,508
========== ========== ==========
(c) Depreciation is computed on buildings
and improvements based upon a useful
life of 35 years.
F-56
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
PERIODIC
INTEREST MATURITY PAYMENT
DESCRIPTION RATE DATE TERMS
- -------------------------------- -------- ----------------- ---------------------
Promissory note, collateralized by 10.25% November 28, 1998 Monthly payments of
a first lien deed of trust on the interest only are
Crowne Plaza Ravinia Hotel. required. Principal
payable in full at
maturity.
Promissory note, collateralized by 12.5% November 28, 1998 Monthly payments of
a second lien deed of trust on the interest only are
Crowne Plaza Ravinia Hotel. required. Principal
payable in full at
maturity.
Promissory note, collateralized by 9.0% August 31, 1999 Monthly payments of
a first lien deed of trust on the interest only are
Wyndham WindWatch Hotel. required. Principal
payable in full at
maturity.
PRINCIPAL
AMOUNT OF
LOANS
SUBJECT TO
FACE CARRYING DELINQUENT
PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION LIENS MORTGAGES MORTGAGES (A) INTEREST
- -------------------------------- ------------- ------------- ------------- ------------
Promissory note, collateralized by None $ 36,000 $ 36,000 None
a first lien deed of trust on the
Crowne Plaza Ravinia Hotel.
Promissory note, collateralized by $ 36,000 4,500 4,500 None
a second lien deed of trust on the
Crowne Plaza Ravinia Hotel.
Promissory note, collateralized by None 31,400 31,102 None
a first lien deed of trust on the ------------- -------------
Wyndham WindWatch Hotel.
$ 71,900 $ 71,602
============= =============
(a) Reconciliation of Mortgage Loans on Real Estate:
Period
Year Year October 2, 1995
Ended Ended Through
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ --------------
Balance at beginning of period........... $ 71,602 $ 40,500 $ --
New mortgage loans....................... -- 31,400 40,500
Principal payments received.............. -- (298) --
------------ ------------ --------------
Balance at end of period................. $ 71,602 $ 71,602 $ 40,500
============ ============ ==============
For federal income tax purposes, the aggregate cost of investments in mortgage
loans on real estate is the carrying amount as disclosed in the schedule.
F-57
PATRIOT EXHIBIT INDEX FOR 10-K FOR YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc. ("Patriot REIT"), incorporated by reference to Exhibit
3.1 to Patriot REIT's and Wyndham International, Inc.'s Registration
Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-
01).
3.2 AMENDED AND RESTATED BYLAWS OF PATRIOT REIT (FILED HEREWITH).
3.3 Amended and Restated Certificate of Incorporation of Wyndham International,
Inc. ("Wyndham") (formerly known as Patriot American Hospitality Operating
Company), incorporated by reference to Exhibit 3.3 to Patriot REIT's and
Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos.
333-44203 and 333-44203-01).
3.4 AMENDED AND RESTATED BYLAWS OF WYNDHAM (FILED HEREWITH).
3.5 Certificate of Designations, Preferences and Rights of Patriot REIT Series
A Convertible Preferred Stock, incorporated by reference to Exhibit 3.5 to
Patriot REIT's and Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333-
44203 and 333-44203-01).
4.1 Agreement (the "Pairing Agreement"), dated as of February 17, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company ("Bay
Meadows") and California Jockey Club ("Cal Jockey") (formerly known as Bay
Meadows Realty Enterprises, Inc.), as amended, incorporated by reference to
Exhibit 4.3 to Cal Jockey's and Bay Meadows' Registration Statement on Form
S-2, and to Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual Report on
Form 10-K for the year ended December 31, 1987 (Nos. 001-09319 and 001-
09320).
4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to
Exhibit 4.2 to Patriot REIT's and Patriot American Hospitality Operating
Company's ("Patriot Operating Company") Joint Registration Statement on
Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
4.3 Amendment No. 3 to the Pairing Agreement, incorporated by reference to
Exhibit 4.3 to Patriot REIT's and Wyndham's Form S-4/A filed February 13,
1998 (Nos. 333-44203 and 333-44203-01).
4.4 Cooperation Agreement, dated as of December 18, 1997, between Patriot REIT
and Wyndham, incorporated by reference to Exhibit 4.4 to Patriot REIT's and
Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203-
01).
1
10.1 Agreement and Plan of Merger, dated as of February 24, 1997, as amended
and restated as of May 28, 1997, by and among Patriot REIT, Patriot
American Hospitality Partnership, L.P., Cal Jockey and Bay Meadows,
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and
333-28085-01).
10.2 Agreement and Plan of Merger, dated as of April 14, 1997, between Patriot
REIT and Wyndham Hotel Corporation (the "Wyndham Merger Agreement"),
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot REIT's and Patriot Operating
Company's Joint Registration Statement on Form S-4 filed November 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.3 Amendment No. 1 to Wyndham Merger Agreement, dated as of November 3, 1997,
incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus included in Patriot REIT's and Patriot Operating
Company's Joint Registration Statement on Form S-4 filed November 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.4 Amendment No. 2 to Wyndham Merger Agreement, dated as of December 9, 1997,
incorporated by reference to Annex S-A to the Joint Proxy
Statement/Prospectus included in Patriot REIT's and Patriot Operating
Company's Post-Effective Amendment to Form S-4 filed December 10, 1997
(Nos. 333-39875 and 333-39875-01).
10.5 Agreement and Plan of Merger, dated as of September 30, 1997, by and among
Patriot Operating Company, Patriot REIT and CHC International, Inc.,
incorporated by reference to Exhibit 10.40 to Patriot REIT's and Patriot
Operating Company's Joint Registration Statement on Form S-4 filed
November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.6 Agreement and Plan of Merger, dated as of September 30, 1997 by and among
WHG Resorts & Casinos Inc., Patriot REIT, Patriot American Hospitality
Operating Company Acquisition Subsidiary and Patriot Operating Company,
incorporated by reference to Exhibit 2.1 to Patriot REIT's and Patriot
Operating Company's Registration Statement on Form S-4 filed November 12,
1997 (Nos. 333-40041 and 333-40041-01).
10.7 Agreement and Plan of Merger, dated as of December 2, 1997, by and among
Interstate Hotels Company, Patriot REIT and Wyndham, incorporated by
reference to Annex A to the Joint Proxy Statement/Prospectus included in
Patriot REIT's and Wyndham's Form S-4 filed January 13, 1998 (Nos. 333-
44203 and 333-44203-01).
10.8 Second Amended and Restated Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. ("Realty Partnership Agreement"),
incorporated by reference to Exhibit 10.1(1) to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-
28085 and 333-28085-01).
2
10.9 First Amendment to the Realty Partnership Agreement, incorporated by
reference to Exhibit 10.1(2) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and
333-28085-01).
10.10 Third Amendment to Realty Partnership Agreement, dated as of July 1,
1997, incorporated by reference to Exhibit 10.1(4) to Patriot REIT's and
Patriot Operating Company's Joint Registration Statement on Form S-4
filed November 10, 1997 (Nos. 333-39875 and 333-39875-01).
10.11 FIFTH AMENDMENT TO REALTY PARTNERSHIP AGREEMENT (FILED HEREWITH)
10.12 Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P., dated as of June 27, 1997, ("Operating
Partnership Agreement"), incorporated by reference to Exhibit 10.2(1) to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.13 First Amendment to Operating Partnership Agreement, dated as of August
15, 1997, incorporated by reference to Exhibit 10.2(2) to Patriot REIT's
and Patriot Operating Company's Joint Registration Statement on Form S-4
filed November 10, 1997 (No. 333-39875 and 333-39875-01).
10.14 THIRD AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT (FILED HEREWITH)
10.15 FIFTH AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT (FILED HEREWITH)
10.16 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot REIT, Patriot Operating Company, the shareholders of Interstate
Hotels Company named on the signature pages thereto, and Interstate
Hotels Company, incorporated by reference to Exhibit 10.1 to Patriot
REIT's and Patriot Operating Company's Current Report on Form 8-K dated
December 2, 1997 and filed December 4, 1997 (Nos. 001-09319 and 001-
09320).
10.17 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American Hospitality
Operating Partnership, L.P. and certain subsidiaries of CHC
International, Inc., incorporated by reference to Exhibit 10.42 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.18 Amended and Restated Credit Agreement, dated as of December 16, 1997,
among Patriot REIT, Patriot American Hospitality Partnership, L.P., The
Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and
various lenders identified therein incorporated by reference to Exhibit
10.2 to Patriot REIT's and Wyndham's Registration Statement on Form S-4
filed January 13, 1998 (Nos. 333-44203 and 333-44203-01).
10.19 Term Loan Agreement, dated as of December 16, 1997, among Patriot REIT,
Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank,
PaineWebber Real Estate Securities, Inc. and various lenders identified
therein incorporated by reference to Exhibit 10.3 to Patriot REIT's and
Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos.
333-44203 and 333-44203-01).
3
10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and James D. Carreker, incorporated by reference to Exhibit
10.20 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.21 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and Anne L. Raymond, incorporated by reference to Exhibit
10.21 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.22 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and Leslie V. Bentley, incorporated by reference to Exhibit
10.22 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.23 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot REIT and Stanley M. Koonce, Jr., incorporated by reference to
Exhibit 10.23 to Patriot REIT's and Patriot Operating Company's Joint
Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-
39875 and 333-39875-01).
10.24 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF APRIL 14, 1997, BETWEEN
PATRIOT REIT AND PAUL A. NUSSBAUM (FILED HEREWITH).
10.25 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF FEBRUARY 14, 1997, BETWEEN
PATRIOT REIT AND WILLIAM W. EVANS III, AS SUPPLEMENTED ON APRIL 14, 1997
(FILED HEREWITH).
10.26 EXECUTIVE EMPLOYMENT AGREEMENT DATED AS OF JUNE 1997, BETWEEN PATRIOT
REIT AND PAUL NOVAK (FILED HEREWITH).
10.27 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 1, 1997, BETWEEN
PATRIOT OPERATING COMPANY AND MICHAEL GROSSMAN (FILED HEREWITH).
10.28 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 1, 1997 BETWEEN
PATRIOT OPERATING COMPANY AND KARIM ALIBHAI (FILED HEREWITH).
10.29 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
REIT and CF Securities, L.P., incorporated by reference to Exhibit 10.9
to Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.30 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and CF Securities, L.P., incorporated by reference to Exhibit 10.10 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.31 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Paul A. Nussbaum, incorporated by reference to Exhibit 10.11 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.32 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and William W. Evans III, incorporated by reference to Exhibit 10.12 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.33 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Leslie V. Bentley, incorporated by reference to Exhibit 10.13 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.34 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and James D. Carreker, incorporated by reference to Exhibit 10.14 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.35 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.15 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
10.36 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT
and Anne L. Raymond, incorporated by reference to Exhibit 10.16 to
Patriot REIT's and Patriot Operating Company's Joint Registration
Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-
39875-01).
12.1 STATEMENT REGARDING COMPUTATION OF RATIOS (FILED HEREWITH).
21.1 SIGNIFICANT SUBSIDIARIES OF PATRIOT REIT AND WYNDHAM (FILED HEREWITH).
23.1 CONSENT OF ERNST & YOUNG LLP (FILED HEREWITH).
24.1 POWERS OF ATTORNEY (INCLUDED ON SIGNATURE PAGES)
27.1 FINANCIAL DATA SCHEDULE OF PATRIOT REIT (FILED HEREWITH).
27.2 FINANCIAL DATE SCHEDULE OF WYNDHAM (FILED HEREWITH).
4