-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MM7yG9QfnoE5Oac1jZlLimPJcmR9LVSD6d8B2dp9t311D1rXFaa+7BQR5B01I6Vw tIZ3Or4nNAcl+9hsWGmtTw== 0001032210-98-000272.txt : 19980330 0001032210-98-000272.hdr.sgml : 19980330 ACCESSION NUMBER: 0001032210-98-000272 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTIN HOTELS LTD PARTNERSHIP CENTRAL INDEX KEY: 0000790549 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 911328985 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15097 FILM NUMBER: 98576320 BUSINESS ADDRESS: STREET 1: WESTIN BLDG STREET 2: 2001 SIXTH AVE CITY: SEATTLE STATE: WA ZIP: 98121 BUSINESS PHONE: 2064435000 MAIL ADDRESS: STREET 1: 2001 SIXTH AVENUE CITY: SEATTLE STATE: WA ZIP: 98121 10-K405 1 FORM 10-K FOR FISCAL YEAR ENDED 12/31/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10K (Mark one) X 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 For the transition period from to -------------- --------------- Commission file number 0-15097. ------- WESTIN HOTELS LIMITED PARTNERSHIP - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charters) Delaware 91-1328985 ----------------------------------------------------------- ----------------------------------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 2001 Sixth Avenue, Seattle, Washington 98121 - ----------------------------------------------------------- ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (206) 443-5000 -----------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of limited partnership interests - -------------------------------------------------------------------------------- (Title of Class) There is no public market for Units of limited partnership interests in the Westin Hotels Limited Partnership. 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 Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or X any amendment to this Form 10-K. X ----- 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 the number of shares (Units) outstanding of each of the issuer's classes of common stock (Units), as of the latest practicable date (applicable only to corporate issuers). 135,600 limited partnership Units issued and outstanding DOCUMENTS INCORPORATED BY REFERENCE None. PART I ITEM 1. BUSINESS. - ----------------- GENERAL DEVELOPMENT OF BUSINESS Westin Hotels Limited Partnership (the "Partnership") and its subsidiary limited partnerships, The Westin St. Francis Limited Partnership (the "St. Francis Partnership") and The Westin Chicago Limited Partnership (the "Chicago Partnership"), each a Delaware limited partnership (collectively the "Hotel Partnerships"), were formed on April 25, 1986, for the purpose of acquiring two hotels, The Westin St. Francis in San Francisco, California and The Westin Hotel, Chicago in downtown Chicago, Illinois (individually a "Hotel", collectively the "Hotels"). In January 1997 The Westin Hotel, Chicago was renamed The Westin Michigan Avenue, Chicago to distinguish it from The Westin River North, Chicago also located in downtown Chicago. (See the discussion under Item 2 - "Properties"). The Westin St. Francis and The Westin Michigan Avenue, Chicago had been owned by subsidiaries of Westin Hotel Company ("Westin") and have been managed by Westin as part of Westin's international hotel system since 1945 and 1964, respectively. Westin Realty Corp. ("Westin Realty") is the sole general partner of the Partnership, St. Francis Hotel Corporation ("St. Francis Corp.") is the sole general partner of the St. Francis Partnership, and 909 North Michigan Avenue Corporation ("909 Corp.") is the sole general partner of the Chicago Partnership. As of January 2, 1998, each general partner (individually a "General Partner," collectively the "General Partners") is a subsidiary of Starwood Hotels & Resorts Worldwide, Inc. (See "Description of Business" below). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Partnerships, which commenced operations on August 28, 1986, are engaged solely in the business of owning and operating the Hotels. Therefore, the Partnerships are engaged in only one industry segment. DESCRIPTION OF BUSINESS The Hotels are operated as part of the full-service, upscale Westin hotel chain which manages and franchises hotels throughout the world. The inclusion of hotels within a global system provides the benefits of name recognition, centralized reservations and advertising, system-wide marketing programs, centralized purchasing, and training and support services. The hotel business in general is highly competitive. To the extent hotel capacity expands or demand for hotel accommodations decreases in San Francisco and Chicago, where the Partnerships operate the Hotels, competition will increase. The demand for particular accommodations and related services are subject to various factors including, but not limited to, seasonal variance, changes in economic conditions, and changes in travel patterns and preferences (which may be affected by airline schedules, weather conditions or availability). Specific information regarding competitive conditions at each of the Hotels is set forth in Item 2 - "Properties" below. On January 2, 1998, Starwood Hotels & Resorts Trust (the "Trust"), a real estate investment trust, whose shares are paired and trade together as a unit with Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation"), a hotel management and operating company, completed the merger of Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"). Effective upon closing of the Westin Worldwide merger, the Trust's and Corporation's names were changed to Starwood Hotels & Resorts Trust and Starwood Hotels & Resorts Worldwide, Inc., respectively. The Trust was renamed Starwood Hotels & Resorts on February 24, 1998. The Trust and Corporation together are referred to as "Starwood". This transaction was pursuant to the Transaction Agreement, dated as of September 8, 1997, among WHWE L.L.C., a Delaware limited liability company, Woodstar Investor Partnership, a Delaware general partnership, Nomura Asset Capital Corporation, a Delaware corporation, Juergen Bartels, W&S Hotel L.L.C., a Delaware limited liability company, Westin Hotels & Resorts Worldwide, Inc., a Delaware corporation, W&S Lauderdale Corp., a Delaware corporation, W&S Seattle Corp., a Delaware corporation, Westin St. John Hotel Company, Inc., a United States Virgin Islands corporation, W&S Denver Corp., a Delaware corporation, W&S Atlanta Corp., a Delaware corporation, Starwood Lodging Trust, a Maryland real estate investment trust, SLT Realty Limited Partnership, a Delaware limited partnership, Starwood Lodging Corporation, a Maryland corporation and SLC Operating Limited Partnership, a Delaware limited partnership ("Transaction Agreement"). Pursuant to the Transaction Agreement, Westin Worldwide, including its wholly owned subsidiary Westin Hotel Company, were merged with and into the Trust and the separate corporate existence of Westin Worldwide and Westin Hotel Company thereupon ceased. Westin Realty, St. Francis Corp., and 909 Corp., each formerly wholly owned subsidiaries of Westin Hotel Company, are now wholly owned subsidiaries of the Corporation. The merger does not change the structure of the General Partners' and limited partners' ownership interest in either the Partnership or the Hotel Partnerships. Moreover, none of the owners of Starwood have any beneficial ownership in the Partnership as a limited partner. -2- In conjunction with the merger, Westin Hotel Company assigned the management agreements for The Westin St. Francis Hotel to St. Francis Corp. and for The Westin Michigan Avenue, Chicago to 909 Corp. The Hotels continue to be managed as full-service Westin hotels and operated as part of the Westin international hotel system. On February 24, 1998, the Corporation acquired ITT Corporation, creating a preeminent global hotel company with 650 hotels in 70 countries. This transaction was pursuant to the Amended and Restated Agreement and Plan of Merger dated as of November 12, 1997, among Starwood Lodging Corporation, a Maryland corporation ("Parent"), Chess Acquisition Corp., a Nevada corporation and a controlled subsidiary of Parent, Starwood Lodging Trust, a Maryland real estate investment trust and ITT Corporation, a Nevada corporation. Because the Corporation and its affiliates own and/or operate hotels other than those owned by the Partnership, potential conflicts of interest exist. While the Corporation and its officers have the right to compete with the Hotels, including the right to own, operate and develop competing hotels, the General Partners are under a fiduciary duty to conduct the affairs of the Partnership and consequently must exercise good faith and integrity in handling Partnership affairs. Neither the Partnership nor the Hotel Partnerships have any employees. Administrative and Hotel personnel are employees of either the Corporation or the Hotels' respective General Partners. The Partnerships reimburse the Corporation and the General Partners for the costs of such employees. However, neither the Partnership nor the Hotel Partnerships are directly responsible for the payment of executive compensation to the officers of the General Partners. Statements contained in this report which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the General Partner believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the General Partner's expectations include performance of hotel operations, financial performance, changes in local or national economic conditions and other risks. ITEM 2. PROPERTIES. - ------------------- The Partnerships' properties consist of The Westin St. Francis in San Francisco, California, and The Westin Michigan Avenue, Chicago (formerly The Westin Hotel, Chicago) in Chicago, Illinois. Each is a first-class hotel bearing the Westin name and located in a premier central urban location, providing guests with convenient access to business districts, shopping areas and convention facilities. THE WESTIN ST. FRANCIS Description. The Westin St. Francis has 1,189 guest rooms, including ----------- 83 suites, with 610 rooms in the main building and 579 rooms in the 32-story tower, and 31 meeting and banquet rooms. The Hotel has a full service restaurant - - The St. Francis Cafe, a lounge - the Compass Rose, a pub - Dewey's, and a night club - Club Oz. The Hotel offers concierge services and has a business center and complimentary health and fitness center. Jewelry and gift boutiques, clothing shops, specialty stores, an art gallery, a florist and a hair salon are all available within the Hotel, as well as an underground valet parking garage with 250 spaces. Location. The Westin St. Francis is located on historic Union Square, -------- a premier shopping district, in downtown San Francisco, approximately 12 miles north of the San Francisco International Airport and within easy walking distance of the George R. Moscone Convention Center, Chinatown, numerous theaters and restaurants, and the central business and financial district of San Francisco. The world-famous San Francisco cable cars stop directly in front of the Hotel. Capital Improvements. During 1997 the Hotel completed the major -------------------- renovation program it embarked on in 1995. The Hotel spent $5.1 million on capital improvements in 1997. Of this amount, $2.5 million was spent on the main building facade restoration, $0.6 million on renovations to food and beverage facilities, $0.5 million on guest room renovations, and the remaining $1.5 million on other projects, such as EDP equipment and ADA compliance. The Hotel has budgeted $7.0 million for capital improvements in 1998, of which $2.0 million is to be spent on guest room renovations, $2.4 million on food and beverage facilities, $1.1 million on other areas, such as lobby carpet and stone work, and $1.5 million on the facade project. For further discussion regarding -3- the funding of these capital expenditures, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources." Competitive Conditions. The competition in San Francisco's hospitality ---------------------- industry remained strong during 1997. No new hotels have been added to this competitive segment since 1991, although two new hotels, one 423-rooms and the other 360-rooms, are planned and due to open in early 2000. Most competing hotels have completed renovations or are in the process of renovating their facilities. Since strong demand is expected to continue, the Hotel plans to take advantage of the upswings in business by effectively managing the market mix. There is another Westin hotel at the San Francisco International Airport, but it is not in direct competition with The Westin St. Francis. The Corporation will own the new 423-room hotel scheduled to be completed in early 2000. Due to its location near the convention center, the General Partner does not consider the hotel to be a direct competitor. While another Corporation managed hotel, The Sheraton Palace, is a direct competitor, the General Partner believes that as affiliates of the Corporation, both The Westin St. Francis and The Sheraton Palace can sustain their market share due to the strength of the market in San Francisco. In addition, both hotels will benefit from cross selling and cross marketing. THE WESTIN MICHIGAN AVENUE, CHICAGO Description. The Westin Michigan Avenue, Chicago has 739 guest rooms, ----------- including 26 suites, and 19 meeting rooms. The Hotel operates the Chelsea Restaurant and Bar, an all-purpose food and beverage facility, and Cafe A La Carte, a free-standing quick-service coffee and snack kiosk. The Hotel has a fitness center and a business center, provides retail space for several specialty stores and a gift shop, and has an underground parking garage with 209 spaces. Location. The Westin Michigan Avenue, Chicago is located on a prime -------- site in downtown Chicago at the north end of the famous "Magnificent Mile", known for its first-class retail shopping, fine restaurants and cultural attractions. The Hancock Center is situated directly south of The Westin Michigan Avenue, Chicago, as is the Water Tower Place, offering a variety of shopping and entertainment possibilities. The Hotel is 18 miles from O'Hare International Airport and 12 miles from the Midway Airport. Capital Improvements. In 1997 the Hotel spent $4.9 million for capital -------------------- expenditures. Of this amount, $0.6 million was spent on sidewalks and planters, $1.0 million on food and beverage facilities, $1.0 million on various other projects, such as EDP and engineering equipment, and $2.3 million on rooms renovations, as the Hotel commenced extensive renovation of the tower rooms. The Hotel has budgeted $8.3 million for capital improvements during 1998. The Hotel is expecting to spend $7.3 million on room renovations, including completion of the extensive renovation to the tower rooms. In addition, $0.3 million will be spent on roof repair, $0.4 million on updating EDP and engineering systems, and $0.3 million on food and beverage equipment. For discussion regarding the funding of these capital expenditures see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Competitive Conditions. Chicago's hospitality industry continued to ---------------------- experience strong competition during 1997. Several new hotel projects are expected to enter the market in the near future. Two new hotels, one 800-rooms and the other 418-rooms, are expected to open in late 1998 and another new 192- room hotel is expected to open in late 1999. A number of the competing hotels have just completed renovations. For 1998 the Hotel believes that it can maintain its share of the market by emphasizing its premier "Magnificent Mile" location and its new and improved rooms product. There is another Westin hotel located at the O'Hare International Airport near Chicago and another in the financial district of downtown Chicago. The General Partner believes that neither is in direct competition with The Westin Michigan Avenue, Chicago, and that their close proximity allows for efficiencies in both staffing and productivity. There is a Sheraton Chicago Hotel and Towers in downtown Chicago and the Corporation owns three hotels in downtown Chicago. The Sheraton Chicago Hotel and Towers is not considered to be primarily competitive and the Corporation's hotels are not considered to be competitive due to differences in their locations, orientations or facilities. -4- MORTGAGE LOANS On August 21, 1986, mortgage loans in the amount of $83,325,000 with respect to The Westin St. Francis and $32,825,000 with respect to The Westin Michigan Avenue, Chicago (collectively the "Mortgage Loans") were refinanced by Teacher Retirement System of Texas ("Lender"). The Hotels were acquired subject to the Mortgage Loans. The Mortgage Loans require that the Hotel Partnerships not further encumber the Hotels without prior consent of the Lender. On June 2, 1994, the General Partner, on behalf of Westin Hotels Limited Partnership, successfully completed a restructuring of the Mortgage Loans and entered into a restructuring agreement ("Restructuring Agreement") with the Lender. On May 27, 1997 a second restructuring agreement modifying the existing mortgage loans on the Partnership's Hotels (The Westin St. Francis and The Westin Michigan Avenue, Chicago) was completed. The modifications to the Mortgage Loans consist primarily of a reduction of the effective interest rates, an extension of the maturity dates, and revisions of prepayment penalties. See Note (5) to the Consolidated Financial Statements. INSURANCE Each Hotel is covered by comprehensive general liability insurance, fire and extended property insurance (including earthquake coverage), business interruption, workers' compensation, employer's liability insurance, and such other insurance as is customarily obtained for similar properties. The Hotels currently participate in the Corporation's insurance program whereby general liability and workers' compensation insurance coverage premiums are paid through the Corporation to Aetna Casualty and Surety Company and Westel Insurance Company, the latter being a wholly owned subsidiary of the Corporation. ITEM 3. LEGAL PROCEEDINGS. - -------------------------- On January 15, 1997, Equity Resources Group, Inc., a limited partner of the Partnership ("Claimant"), filed a demand for arbitration with the American Arbitration Association in Seattle, Washington, claiming that the Partnership and its General Partner, Westin Realty Corp., unlawfully refused to provide Claimant with a list of, and other information concerning, the limited partners in order to enable Claimant to make offers to acquire Units, thereby damaging Claimant in an unspecified amount. The Partnership and Westin Realty Corp. settled this matter for an immaterial amount in February 1998. Because of the nature of the hotel business, the Hotel Partnerships are subject to various claims and legal actions incidental to the ordinary course of their operations, including such matters as contract and lease disputes and complaints alleging personal injury, property damage and employment discrimination. The General Partner believes that the outcome of any such pending claims or proceedings, individually or in the aggregate, will not have a material adverse effect upon the business, financial condition, or results of operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------ None. -5- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER MATTERS. - ----------------------------------------------------------------------------- As of March 25, 1998, there were 8,248 holders of record of the 135,600 Units. There is no public market for the Units, and it is not anticipated that a public market for the Units will develop. The transfer of Units, or any interest therein, is subject to a variety of restrictions. Limited Partners may not transfer their interests in the Partnership if, in the opinion of the Partnership's counsel, such transfers might violate the registration requirements of the Securities Act of 1933, as amended, or the laws of any other jurisdiction or agency applicable to the transfers, cause the Partnership to be regarded as an association taxable as a corporation, result in the dissolution or termination of the Partnership or result in a Hotel Partnership's not being able to obtain or continue in effect any license permitting the service or sale of alcoholic beverages in its Hotel. The assignee must also meet certain other requirements set forth in the Amended and Restated Agreement of Limited Partnership of Westin Hotels Limited Partnership before it may be recognized as a substituted Limited Partner, including the payment of all reasonable expenses connected with the transfer of any interest. The limited partners or their representatives must furnish, as to voluntary transfers, sufficient information to counsel to permit the foregoing determination to be made. The General Partner is aware of certain transfers of Units between unrelated parties, some of which do occur through certain secondary markets that specialize in trading limited partnership interests ("Limited Partnership Exchanges"). Initially, because these transactions were limited and sporadic in number and volume, it had been the General Partner's policy not to disclose the prices at which Units were transferred. Around July 1996, in response to direct requests for Unit sales price and value estimates, the General Partner began advising individuals that Unit exchange sales were occurring on Limited Partnership Exchanges and providing those individuals with the names of Limited Partnership Exchanges and other sources to contact for exchange trading price information. In 1996, 1997, and more recently, in 1998, the General Partner became aware of offers to purchase Units, which were mailed to limited partners, that have ranged from $185 to $700 per Unit. The General Partner responded, without recommending either an acceptance or rejection of any offer, by providing the limited partners with certain information concerning reported Unit sales. The following information reflects the Partnership's records of the average and range of Unit sale prices to date:
Average per Unit Range of per Unit Sale Sales Price Sales Price ---------------- ---------------------- 1996: First Quarter $201.63 $120.00 to $215.34 Second Quarter $242.32 $150.12 to $269.00 Third Quarter $315.81 $204.50 to $347.00 Fourth Quarter $363.84 $340.00 to $387.60 1997: First Quarter $505.93 $320.00 to $624.75 Second Quarter $530.37 $400.00 to $590.00 (through April 21, 1997, when sales were suspended) 1998: First Quarter $733.01 $545.00 to $890.00 (through March 21, 1998)
In October 1996 the General Partner determined it to be in the best interest of the Partnership to implement a Unit transfer policy that relies on the protections of the 5% safe harbor, promulgated by the Internal Revenue Service, to prevent the Partnership from being deemed a "publicly traded partnership" pursuant to Section 7704 of the Internal Revenue Code. The 5% safe harbor applies if the sum of the percentage interests in partnership capital or profits represented by Units traded during any calendar year does not exceed 5% of the total Partnership interests. On April 21, 1997, upon reaching 1997 Unit sales -6- aggregating 6,848, the General Partner suspended its approval of any Unit sales transfer requests in order to comply with the 5% safe harbor. The Partnership has already received transfer requests for 6,514 Unit sales for the first quarter of 1998. When the Partnership reaches 1998 Unit sales aggregating 6,848, the General Partner will suspend its approval of any Unit sales transfer requests for the remainder of 1998. A cash distribution in the amount of $47.50 per Unit was paid to the limited partners on September 15, 1997 and another in the amount of $47.50 per Unit was paid on December 15, 1997, from Net Cash Flow. Based on the expectation that the Hotels' strong operating results will continue, the General Partner believes that the Partnership will be in a position to continue cash distributions at an annual rate of $95 per Unit to the limited partners in 1998. These and any other future distributions of Net Cash Flow will be determined in accordance with Section 7.02 of the Partnership agreement. A cash distribution of $23.75 per Unit was paid to the limited partners on March 13, 1998. The General Partner currently anticipates total cash distributions to the limited partners of $95.00 per Unit in 1998. ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------- The following table sets forth selected financial information for the Partnership.
Years Ended December 31, ------------------------ 1997 1996 1995 1994 1993 --------- --------- --------------- -------------- --------------- (In Thousands of Dollars Except per Unit Amounts) Operating Revenues: Rooms $ 83,600 $ 73,375 $ 60,963 $ 60,251 $ 58,373 Food and beverage 32,793 27,477 27,124 30,611 27,954 Other operating departments 10,660 10,098 9,157 8,526 7,899 -------- -------- -------- -------- -------- Total Operating Revenues 127,053 110,950 97,244 99,388 94,226 -------- -------- -------- -------- -------- Operating Expenses: Rooms 22,162 19,631 17,931 18,511 17,693 Food and beverage 24,866 21,963 22,842 25,637 24,410 Administrative, general and marketing 18,022 16,265 15,079 15,082 15,305 Management fees 8,554 5,672 2,188 5,309 4,992 Other 30,990 27,520 25,210 22,393 27,467 -------- -------- -------- -------- -------- Total Operating Expenses 104,594 91,051 83,250 86,932 89,867 -------- -------- -------- -------- -------- Operating Profit $ 22,459 $ 19,899 $ 13,994 $ 12,456 $ 4,359 -------- -------- -------- -------- -------- Net Income (Loss) $ 9,691 $ 6,978 $ 1,713 $ 1,444 $ (8,675) -------- -------- -------- -------- -------- Net Income (Loss) per Unit $ 71.47 $ 51.46 $ 12.63 $ 10.65 $ (63.97) Total Assets $269,785 $263,148 $246,698 $234,293 $214,217 Long-term Obligations $162,989 $157,880 $153,760 $141,659 $125,855 Deferred Incentive Management Fees $ 22,281 $ 19,425 $ 16,249 $ 16,249 $ 13,089 Distributions Paid per Unit $ 95.00 $ - $ - $ - $ -
-7- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS. -------------- GENERAL The Hotels' primary market focus is on business travelers, conventions and other groups and, in the case of The Westin St. Francis, tourism. The Hotels' business activities generally follow national economic trends. The level of tourist business is influenced by the general global economic environment and political climate and, to a lesser extent, by the strength of the US dollar in relation to foreign currencies. Current trends in the hotel industry indicate that the outlook for the lodging industry remains positive due to the increase in demand, limited growth of full-service hotels and an improved economic environment. Both The Westin St. Francis and The Westin Michigan Avenue, Chicago continue to experience seasonal trends, with the lowest occupancy levels occurring during the first quarter, followed by higher occupancies during the last three quarters of the year. See Note (9) of the Notes to Consolidated Financial Statements, included under Item 8 - "Financial Statements and Supplementary Data" below, for additional quarterly information. RESULTS OF OPERATIONS This section analyzes significant fluctuations in items affecting the consolidated statements of operations for the years ended December 31, 1997, 1996 and 1995. The table below presents key statistics used in the analysis:
Years Ended December 31, Consolidated 1997 1996 1995 ------------ ---- ---- ---- REVPAR (Revenue per Available Room) $118.74 $103.77 $ 86.26 Operating Profit as a Percentage of Revenues: Rooms 73.5% 73.2% 70.6% Food and beverage 24.2% 20.1% 15.8% EBITDA (In Thousands) $32,776 $28,689 $21,747
EBITDA is net earnings before interest expense, depreciation and amortization, and minority interests. The General Partner considers EBITDA to be a measure of the Partnership's operating performance due to the significance of the Partnership's long-lived assets and because such data can be used to measure the Partnership's ability to service debt, fund capital expenditures and pay cash distributions. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and such information should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by generally accepted accounting principles. 1997 Compared with 1996. ------------------------ The Partnership had net income of $9.7 million for the year ended December 31, 1997, a 38.9%, or $2.7 million, increase over 1996. EBITDA for the year of $32.8 million represents a 14.2% increase over 1996. Rooms and food and beverage revenues grew at a faster rate than expenses, resulting in increased profitability. This can be attributed to both a strong national economy and the high quality, improved rooms product and food and beverage facilities that are a result of recent renovations at both Hotels, along with effective operating efficiencies. Consolidated rooms revenues for the year ended December 31, 1997 were $83.6 million which is a $10.2 million or 13.9% improvement over the prior year. 1997 consolidated REVPAR increased 14.4% to $118.74. The Westin St. Francis reported rooms revenues of $55.9 million for the year ended December 31, 1997, a 14.6% increase over the prior year. The average room rate increased 12.6% to $164.71 and the occupancy rate increased 1.8 percentage points to 78.2% for a REVPAR gain of 15.2% to $128.88. The Westin Michigan Avenue, Chicago, reported a 12.6% increase in rooms revenues for 1997 over 1996 for a total of $27.7 million, in spite of some rooms being out of service for renovations the last two weeks of December. Its average room rate increased 8.2% to $140.85 and its occupancy rate improved 3.0 percentage points to 72.7% for a 1997 REVPAR gain of 12.9% over 1996 to $102.45. Both Hotels -8- experienced increases in both the occupancy levels and the average rate for the group segment, resulting in significantly increased rooms revenues. Both Hotels achieved higher average rate in the individual segment which more than offset the decline in individual segment occupancy resulting in a positive gain to rooms revenues. The strength in demand allowed management to pursue higher-rated business and to displace lower-rated business. Consolidated rooms costs for 1997 were 12.9% higher than in 1996 due to the greater business levels. The resulting consolidated rooms profit margin increased slightly (less than one percentage point) to 73.5% with a less than one percentage point gain at The Westin St. Francis offsetting a less than one percentage point decline at The Westin Michigan Avenue, Chicago. The consolidated rooms profit of $61.4 million for the year ended December 31, 1997 is $7.7 million or 14.3% greater than that of the prior year. Consolidated food and beverage revenues for 1997 of $32.8 million was $5.3 million, or 19.3%, better than 1996. A major portion of this increase was due to increased banquet revenues which are directly attributable to an increase in the group meeting market mix. The Westin St. Francis reported $4.3 million higher food and beverage revenues in 1997 than in 1996. This 22.6% gain resulted in total food and beverage revenues of $23.3 million. All of its outlets, with the exception of the Compass Rose, reported greater revenues for 1997 compared to 1996; however, the most substantial portion of the increase, $3.7 million, came from banquets. The Westin Michigan Avenue, Chicago's 1997 food and beverage revenues of $9.5 million represents a 12.5% or $1.0 million improvement over 1996. The Westin Michigan Avenue, Chicago also experienced a strong increase in banquet revenues, $0.6 million, offsetting a slight decline in outlet revenues for 1997 compared to 1996. The numerous dining options in the downtown Chicago area places substantial competitive pressure on the Hotel's main restaurant. The 1997 consolidated food and beverage costs increased $2.9 million over 1996 which, when subtracted from the $5.3 million increase in food and beverage revenues, leaves a $2.4 million improvement in consolidated food and beverage profits. The Westin St. Francis' portion of these profits was $5.1 million and The Westin Michigan Avenue, Chicago's portion was $2.8 million. The Westin St. Francis attributes this to savings realized by converting the St. Francis Grill and Victor's from restaurants to banquet rooms in mid-1996. The Westin St. Francis also credits the success of ongoing cost containment efforts, as does The Westin Michigan Avenue, Chicago. Other operating departments had consolidated revenues for the year ended December 31, 1997 of $10.7 million, a $0.6 million increase over 1996. The greatest contribution, $0.3 million, to this increase was telephone usage revenue, followed by a $0.2 million increase in sub-rentals. The major increases in other operating expenses for 1997 compared to 1996 are as follows: management fees, $2.9 million, the majority of which was attributable to incentive management fees which increased as a result of improved Net Operating Cash Flow, as defined in the Partnership agreement; local taxes and insurance, $1.7 million, of which $0.9 million is attributed to an additional assessment in property taxes upon re-appraisal of The Westin St. Francis for the tax years 1995 through 1997, payable over five years (see Note (5) of the Notes to Consolidated Financial Statements included under Item 8 - "Financial Statements and Supplementary Data" below); $1.2 million in depreciation and amortization due to the increase in property and equipment; and $1.1 million for advertising and business promotion due primarily to increased national advertising expenses and marketing fees. 1996 Compared with 1995. ------------------------ For the year ended December 31, 1996, the Partnership had net income of $7.0 million, an increase of $5.3 million over 1995. This improvement is primarily the result of a 14.1% increase in operating revenues offset by a 9.4% increase in operating expenses over the year ended December 31, 1995. Consolidated rooms revenues for the year 1996 increased to $73.4 million compared to $61.0 million for 1995, a 20.4% improvement. Each Hotel increased both their occupancy rates and their average room rates over the prior year. REVPAR, revenue per available room, on a combined basis, increased 20.3% to $103.77 for 1996 from $86.26 for 1995. The Westin St. Francis reported an increase in occupancy of 5.2 percentage points to 76.4% and The Westin Michigan Avenue, Chicago reported a 4.4 percentage point increase to -9- 69.7%. The Westin Michigan Avenue, Chicago achieved a percentage increase in average room rate of 13.5%; The Westin St. Francis, 11.7%. The average room rate at The Westin St. Francis in 1996 was $146.33 compared to $131.06 in 1995. At The Westin St. Francis, the occupancy percentage and average room rate was up for both the group and individual segments. These improvements can be directly attributed to an improved product and to strong occupancies and room rate increases buoyed by the robust demand in the San Francisco market. The Westin Michigan Avenue, Chicago increased its average room rate to $130.11 in 1996 from $114.62 in 1995. At this Hotel, both the occupancy rate and the average room rate improved for the group segment. However, its occupancy rate for the individual segment was down but was offset by an increase in the group rate resulting in an overall increase. The Westin Michigan Avenue, Chicago also benefited from the improved room product. In 1996 both Hotels controlled increases in room costs. Specifically, at The Westin St. Francis, the cost per occupied room increased only $1.01 to $42.18 in 1996 or 2.5% over 1995. The Westin Michigan Avenue, Chicago reported a slight increase of 1.3% in cost per occupied room over 1995 to $29.09. As a result, the consolidated rooms profit margin increased to 73.2% for 1996 compared to 70.6% for 1995. Consolidated food and beverage profits for the year 1996 increased 28.8% over 1995 to $5.5 million. The most significant difference in food and beverage profit over 1995 was reported by The Westin Michigan Avenue, Chicago. The Westin Michigan Avenue, Chicago, on total food and beverage revenues of $8.5 million, achieved an 11.8% improvement over 1995, or $0.9 million. By keeping cost increases to less than 1.0%, this resulted in a net contribution to profits of $2.2 million. This result was due to increases in prices, higher business levels and the negative impact in 1995 of the renovations to banquet space. Food and beverage profits at The Westin St. Francis increased $0.4 million. This was the result of a $0.5 million decline in food and beverage revenues offset by a $0.9 million decrease in food and beverage costs. Both differences in revenues and costs at The Westin St. Francis were due primarily to the temporary closures in 1996 of food and beverage outlets for renovating or reconfiguring the banquet rooms. The 1996 consolidated food and beverage profit margin increased 4.3 percentage points over 1995. Other operating departments were responsible for $0.9 million of the increase in operating revenues with only a small (5.4%) increase in costs. In 1996 management implemented a policy to charge for cancellations, early departure, late arrivals and no shows. This resulted in additional revenues of $0.7 million over 1995. The rest of the increase is primarily the result of the increased occupancies and an increase in rates in other departments, such as telephone and garage, at both Hotels. Management fees increased $3.5 million primarily because incentive management fees were earned in 1996. These fees, which are calculated based on a percentage of Net Operating Cash Flow, were not earned in 1995. The $1.2 million increase in depreciation is due to the addition of depreciable assets in 1996. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, the Partnership had cash and cash equivalents of $15.8 million, a $1.0 million increase from December 31, 1996. During 1997 total net cash provided by operating activities equaled $26.0 million. In 1997 a total of $10.8 million was deposited into the FF&E Reserve Accounts as required by the Restructuring Agreement. This amount, plus interest, less $9.3 million expended in capital expenditures is included in Restricted Cash on the Consolidated Balance Sheets. In 1997 a total of $5.4 million was deposited into the Tax Escrow Accounts for payment of real and personal property taxes as required by the Restructuring Agreement. This amount, plus interest, less payments of $5.4 million for real and personal property taxes is included in Restricted Cash on the Consolidated Balance Sheets. A total of $10.0 million was spent for capital improvements in 1997 for both Hotels. The Westin St. Francis spent $5.1 million in 1997 for capital improvements, of which $2.5 million was spent on the main building facade restoration, $0.6 million on renovations to food and beverage facilities, $0.5 million on guest rooms, and the remaining $1.5 million in other areas including EDP equipment and ADA compliance. The Westin Michigan Avenue, Chicago spent $4.9 million for capital improvements in 1997. Of this amount, $2.3 million was spent on rooms (the Hotel commenced its extensive renovations of the tower rooms in mid- -10- December), $1.0 million on food and beverage facilities and renovating public areas, $0.6 million on sidewalks and planters to improve the curb appeal of the Hotel, and the remaining $1.0 million on various other projects including EDP equipment, elevator modernization and updating engineering equipment. As stipulated by the Restructuring Agreement, variances from the original estimated amounts reflect timing adjustments and were either approved by the Lender or were within the limits required by the Restructuring Agreement. Expenditures in 1998 will total approximately $15.3 million. The Westin St. Francis will spend approximately $7.0 million on capital improvements in 1998. Approximately $2.0 million is to be spent on guest room renovations, particularly the main building bathrooms; $2.4 million on food and beverage facilities, particularly the conversion of Club Oz to a banquet room; $1.1 million on other areas, such as lobby carpet and stone work, the men's room, and engineering equipment repairs, and $1.5 million on the facade project. The facade restoration is now scheduled to be completed in 1999. The Westin Michigan Avenue, Chicago expects to spend $8.3 million for capital improvements during 1998. In 1998 the Hotel is scheduled to complete the extensive renovations to the tower rooms, started in mid-December 1997, which is intended to completely update and raise the caliber of the rooms. During 1998, the Hotels will commence the conversion of 18 parlor suites into rentable guest rooms, which will increase the guest room inventory, and replace all carpet, vinyl, paint and light fixtures in all hallways, for a total cost of $7.3 million. In addition, $0.3 million will be spent on partial roof replacement, $0.4 million on other areas, such as updating EDP and engineering systems, and $0.3 million for minibars and other food and beverage equipment. All capital projects have been approved by the Lender. The Mortgage Loans, as restructured, provide for the suspension of principal payments through December 1, 1999. Under the terms of the Mortgage Loans, the Partnership made scheduled interest payments of $9.2 million in 1997 and is scheduled to make interest payments of $10.8 million in 1998. Per the terms of the Restructuring Agreement, the Partnership was prohibited from making cash distributions to the limited partners in 1994 and 1995. Distributions in 1996 were contingent upon satisfying certain conditions as outlined in the Restructuring Agreement. After that, cash distributions from Net Cash Flow could be resumed. Due to improved Net Cash Flow, cash distributions in the amount of $47.50 per Unit each were paid to the limited partners on September 15, 1997, and December 15, 1997, resulting in total 1997 distributions of $95.00 per Unit. The distributions were paid to the limited partners of record as of each quarter end date. As discussed in Note (8) to the Consolidated Financial Statements, 1997 incentive management fees totaling $2.8 million were paid to Westin. At this time, the General Partner anticipates that the cash flow from operations and the contributions to the FF&E Reserve Accounts will provide adequate funding for 1998 capital expenditures and interest payments on the Mortgage Loans. In addition, barring any unforeseen adverse occurrence, the General Partner anticipates that the Partnership will be in a position to continue distributions to the limited partners at an annual level of $95.00 per Unit in 1998 and thereafter. Future distributions will be based on available Net Cash Flow and are dependent upon the Net Cash Flow generated by the Hotels and the adequacy of cash reserves. The amount of each distribution will be determined by the General Partner at the end of each calendar quarter according to the terms of the Partnership agreement and will be distributed to the limited partners within 75 days of the end of the quarter. When the Partnership was formed in 1986, it was anticipated that a sale or refinancing of the Hotels would be explored after eight years of Partnership operations. Beginning with 1994, the Partnership agreement directed the General Partner to actively review opportunities to sell or refinance the Hotel properties on behalf of the Partnership. During 1994 the General Partner emphasized restructuring the debt to stabilize both Hotels and to allow them to remain competitive in their respective markets. The General Partner will review the opportunities to sell or refinance the Hotel properties when it reasonably believes that such action is in the best interest of the Partnership. As the real estate market for upscale hotel properties continues to improve, the General Partner will monitor the market conditions for appropriate opportunities to sell or refinance the properties. By the end of 2001, the General Partner must use its best efforts to sell or refinance the Hotel properties. -11- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ---------------------------------------------------- The following documents are filed as part of this report: Report of Independent Public Accountants................ 14 Consolidated Balance Sheets............................. 15 - 16 Consolidated Statements of Operations................... 17 Consolidated Statements of Partners' Equity (Deficit)... 18 Consolidated Statements of Cash Flows................... 19 Notes to Consolidated Financial Statements.............. 20 - 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ----------------------------------------------------------------------- FINANCIAL DISCLOSURE. - --------------------- None. -12- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Westin Hotels Limited Partnership: We have audited the accompanying consolidated balance sheets of Westin Hotels Limited Partnership and subsidiaries (a Delaware limited partnership) as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' equity (deficit) and cash flows for the years ended December 31, 1997, 1996 and 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements 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, the financial position of Westin Hotels Limited Partnership and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997, 1996 and 1995 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Seattle, Washington, March 11, 1998 -13- WESTIN HOTELS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (In Thousands) ASSETS
1997 1996 ---- ---- CURRENT ASSETS: Cash and cash equivalents, including restricted cash of $561 in 1997 and $540 in 1996 $ 15,750 $ 14,752 Guest and trade accounts receivable, less allowance for doubtful accounts of $278 in 1997 and $232 in 1996 8,408 6,511 Other receivables 745 450 Inventories 641 516 Prepaid expenses and other current assets 1,640 1,281 -------- -------- TOTAL CURRENT ASSETS 27,184 23,510 PROPERTY AND EQUIPMENT, at cost: Buildings and improvements 177,438 173,392 Furniture, fixtures and equipment 95,648 91,214 Expendable supplies 2,031 2,031 -------- -------- 275,117 266,637 Less accumulated depreciation and amortization 106,092 97,355 -------- -------- 169,025 169,282 Construction in progress 2,330 1,376 Land 62,599 62,599 -------- -------- PROPERTY AND EQUIPMENT, net 233,954 233,257 RESTRICTED CASH 7,960 6,018 OTHER ASSETS 687 363 -------- -------- TOTAL ASSETS $269,785 $263,148 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. -14- WESTIN HOTELS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (In Thousands) LIABILITIES AND PARTNERS' EQUITY
1997 1996 ---- ---- CURRENT LIABILITIES: Accounts payable: Trade and other $ 2,147 $ 1,937 Westin and affiliates 1,998 1,171 --------- --------- Total accounts payable 4,145 3,108 Accrued expenses 9,587 9,274 Current maturities of long-term obligations 564 159 Other current liabilities 1,296 1,353 --------- --------- TOTAL CURRENT LIABILITIES 15,592 13,894 LONG-TERM OBLIGATIONS 129,180 127,085 LONG-TERM OBLIGATION TO GENERAL PARTNER 33,809 30,795 DEFERRED INCENTIVE MANAGEMENT FEES PAYABLE TO WESTIN 22,281 19,425 --------- --------- TOTAL LIABILITIES 200,862 191,199 COMMITMENTS AND CONTINGENCIES MINORITY INTERESTS 3,733 3,568 PARTNERS' EQUITY (DEFICIT): General Partner (2,307) (2,026) Limited Partners (135,600 Units issued and outstanding) 67,497 70,407 --------- --------- TOTAL PARTNERS' EQUITY 65,190 68,381 --------- --------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 269,785 $ 263,148 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -15-
WESTIN HOTELS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (In Thousands Except Units and per Unit Data) 1997 1996 1995 -------- -------- -------- OPERATING REVENUES: Rooms $ 83,600 $ 73,375 $ 60,963 Food and beverage 32,793 27,477 27,124 Other operating 10,660 10,098 9,157 departments -------- -------- -------- TOTAL OPERATING REVENUES 127,053 110,950 97,244 -------- -------- -------- OPERATING EXPENSES: Rooms 22,162 19,631 17,931 Food and beverage 24,866 21,963 22,842 Other operating departments 3,241 2,933 2,782 Administrative and general 9,509 8,840 8,260 Management fees 8,554 5,672 2,188 Advertising and business promotion 8,513 7,425 6,819 Property maintenance and energy 8,495 8,273 7,994 Local taxes and insurance 9,170 7,466 6,809 Rent 802 778 789 Depreciation and amortization 9,282 8,070 6,836 -------- -------- -------- TOTAL OPERATING EXPENSES 104,594 91,051 83,250 -------- -------- -------- OPERATING PROFIT 22,459 19,899 13,994 -------- -------- -------- OTHER INCOME (EXPENSE): Interest income 1,103 787 919 Interest expense (10,624) (10,812) (10,665) Interest expense on long-term obligation to General Partner (3,014) (2,697) (2,456) Other, net (68) (67) (2) -------- -------- -------- NET OTHER EXPENSE (12,603) (12,789) (12,204) -------- -------- -------- INCOME BEFORE MINORITY INTERESTS 9,856 7,110 1,790 MINORITY INTERESTS (165) (132) (77) -------- -------- -------- NET INCOME $ 9,691 $ 6,978 $ 1,713 ======== ======== ======== NET INCOME PER UNIT $ 71.47 $ 51.46 $ 12.63 ======== ======== ======== (135,600 Units issued and outstanding)
The accompanying notes are an integral part of these consolidated financial statements. -16-
WESTIN HOTELS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (In Thousands) General Limited Partner Partners --------- -------- BALANCE AT DECEMBER 31, 1994 $(1,590) $ 61,280 Net income (loss) (205) 1,918 --------- -------- BALANCE AT DECEMBER 31, 1995 (1,795) 63,198 Net income (loss) (231) 7,209 --------- -------- BALANCE AT DECEMBER 31, 1996 (2,026) 70,407 Cash distribution - (12,882) Net income (loss) (281) 9,972 --------- -------- BALANCE AT DECEMBER 31, 1997 $(2,307) $ 67,497 ========= ========
The accompanying notes are an integral part of these consolidated financial statements. -17- WESTIN HOTELS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (In Thousands)
1997 1996 1995 --------- -------- --------- OPERATING ACTIVITIES: Net income $ 9,691 $ 6,978 $ 1,713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 9,282 8,070 6,836 Amortization of loan fees 90 - - Interest on long-term obligations not currently payable 4,436 4,277 4,498 Interest earned on restricted cash (382) (220) (512) (Increase) decrease in receivables (2,192) (2,107) 745 (Increase) decrease in inventories (125) - 123 (Increase) decrease in prepaid expenses and other current assets (359) 396 (124) Increase (decrease) in accounts payable 1,037 4 (543) Increase (decrease) in accrued expenses and other current liabilities 256 2,053 (954) Increase in other long-term obligations 1,238 - - Incentive management fees 2,856 3,176 - Minority interests 165 132 77 Other 15 13 23 -------- -------- -------- Net cash provided by operating activities 26,008 22,772 11,882 -------- -------- -------- INVESTING ACTIVITIES: Proceeds from sales of equipment 14 13 83 Acquisition of property and equipment (9,993) (15,985) (27,393) Increase in restricted cash (10,836) (17,927) (16,234) Decrease in restricted cash to fund acquisition of property and equipment 9,261 15,671 27,520 (Increase) decrease in other assets (120) 33 (366) -------- -------- -------- Net cash used in investing activities (11,674) (18,195) (16,390) -------- -------- -------- FINANCING ACTIVITIES: Dividends paid (12,882) - - Loan restructuring costs (294) - - Increase in long-term obligation to General Partner - - 7,500 Repayment of long-term obligations (160) (170) (249) -------- -------- -------- Net cash (used in) provided by financing activities (13,336) (170) 7,251 -------- -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 998 4,407 2,743 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,752 10,345 7,602 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15,750 $ 14,752 $ 10,345 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. -18- WESTIN HOTELS LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ (A) BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Westin Hotels Limited Partnership, a Delaware limited partnership (the "Partnership"), and its subsidiary limited partnerships, The Westin St. Francis Limited Partnership and The Westin Chicago Limited Partnership (the "Hotel Partnerships"). The Westin St. Francis Limited Partnership owns and operates The Westin St. Francis in downtown San Francisco, California, and The Westin Chicago Limited Partnership owns and operates The Westin Michigan Avenue, Chicago (formerly The Westin Hotel, Chicago) in downtown Chicago, Illinois (individually a "Hotel", collectively the "Hotels"). All significant intercompany transactions and accounts have been eliminated. Certain of the prior years' amounts have been reclassified to conform with the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (B) CASH EQUIVALENTS AND RESTRICTED CASH Cash equivalents consist of highly liquid debt instruments bearing floating interest rates and other short-term investments purchased with original maturities of three months or less. Restricted cash consists of amounts deposited in interest-bearing money market accounts. The Partnership's carrying amount approximates the fair value of cash equivalents and restricted cash. (C) INVENTORIES Inventories, principally food and beverage and supplies, are valued at the lower of cost (first-in, first-out) or replacement market. (D) PROPERTY AND EQUIPMENT Depreciation of property and equipment is provided principally on the straight-line method over the assets' estimated useful lives as follows:
Buildings 40 years Building improvements Remaining life of building Furniture, fixtures and equipment 7 to 12 years Expendable supplies 5 years
An annual group method of depreciation is used, under which individual assets are not specifically identified for purposes of determining retirements, and fully depreciated asset groups are written off when evidence indicates they are no longer in use. Proceeds from miscellaneous sales of property and equipment are credited to accumulated depreciation. Expendable supplies (linens, china, silverware and glassware) have been depreciated to 50% of the cost of initial stock. Replacements are expensed when purchased. Amortization of capitalized lease property and equipment is provided on the straight-line method over the shorter of the assets' estimated useful lives or the lease terms. -19- Maintenance and repairs, including the cost of minor replacements, are charged to property maintenance expense accounts. Costs of additions and betterment of property are capitalized in property and equipment accounts. (E) ADVERTISING COSTS The Partnership expenses the production costs of advertising the first time the advertising takes place. (F) INCOME TAXES The Partnership does not record any provision for Federal and state income taxes in its consolidated financial statements. All items of income, gain, loss, deduction or credit for Federal and state income tax purposes are allocated to the partners of the Partnership for inclusion in their individual income tax returns. The reported amounts of the Partnership's net assets and liabilities exceeded the related tax bases by approximately $53,061,000 and $50,141,000 at December 31, 1997 and 1996, respectively. (2) ORGANIZATION ------------ The Partnership was formed on April 25, 1986, to invest in hotel properties by acquiring limited partnership interests in the Hotel Partnerships. The Partnership will continue until December 31, 2036, unless terminated sooner under the provisions of the Partnership agreement. Westin Realty Corp. ("Westin Realty"), formerly a wholly owned subsidiary of Westin Hotel Company ("Westin"), now a wholly owned subsidiary of Starwood Hotels & Resorts Worldwide, Inc., is the sole General Partner of the Partnership. On August 28, 1986, Westin Realty acquired all of the limited partnership interests in the Hotel Partnerships (which represented 91.62% of the fair value of the Hotel Partnerships' net assets) and contributed these interests, valued at $135,600,000, to the Partnership in exchange for all of the limited partnership interests in the Partnership. Westin Realty then sold these limited partnership interests in a public offering. The remaining 8.38% interest in the Hotel Partnerships was retained by the predecessor owners, subsidiaries of Westin. See Note (7) for an update due to a Subsequent Event. In January 1997 The Westin Hotel, Chicago was renamed The Westin Michigan Avenue, Chicago to distinguish it from The Westin River North, Chicago, also located in downtown Chicago. The Hotel Partnerships' profits and losses are generally allocated 99% to the Hotel Partnership and 1% to minority interests. Partnership profits and losses are further allocated 99% to the limited partners and 1% to the General Partner, with the exception of depreciation expense, which is allocated 92.55% to the limited partners and 7.45% to the General Partner. Because of the allocation of depreciation expense, the General Partner's share of profits and losses since inception is a net loss, resulting in a deficit balance in the General Partner equity account. The Partnership agreement specifies that if a deficit balance exists after liquidation of the Hotel Partnerships' assets, the General Partner would be obligated to contribute cash to the Partnership equal to the lesser of (i) the deficit balance in such capital account, or (ii) 1.01% of the capital contributions of the limited partners reduced by all capital contributions of the General Partner to, but not including, such specified time. Except for the following restrictions outlined in the restructuring of the Mortgage Loans in June 1994 ("Restructuring Agreement"), Net Cash Flow of the Partnership as defined in the Partnership agreement is distributed first to the limited partners until certain preferential distributions are achieved and then allocated to both the General Partners and limited partners depending on factors related to the source of the Net Cash Flow and cash distributions as specified in the Partnership agreement. The Restructuring Agreement permitted cash distributions to the limited partners in 1996 subject to the Hotels achieving certain performance levels in the two years prior to 1996. However, the Hotels did not achieve these performance levels. Distributions were permitted in 1997 subject to the Hotels achieving certain performance levels in the three years prior to 1997. The Hotels achieved these performance levels and a distribution of $12,882,000 was made to the limited partners. Distributions at an annual rate of $95 per Unit are anticipated for 1998. -20- (3) RESTRICTED CASH --------------- Deposits to the Furniture, Fixture and Equipment ("FF&E") Reserve Accounts for 1997 totaled $10,836,000. As defined in the Restructuring Agreement, this total consists of a $6,200,000 million deposit of Available Net Cash Flow from operations for the fourth quarter of 1996, and quarterly deposits for 1997, totaling $4,636,000. On February 14, 1998, $1,736,000 was deposited into the FF&E Reserve Accounts for the fourth quarter of 1997. In 1996, $17,927,000 of Available Net Cash Flow from operations was deposited in the FF&E Reserve Accounts. During 1995 the remaining $7,500,000 of the $25,000,000 subordinated loan from Westin Realty was funded to the Partnership. In 1995 these proceeds, along with $8,734,000 of Available Net Cash Flow from operations was deposited to the FF&E Reserve Accounts. As required by the Restructuring Agreement $5,424,000 and $540,000 were deposited to the Tax Escrow Accounts in 1997 and 1996 respectively. This account is used to pay real and personal property taxes as they become due. (4) ACCRUED EXPENSES ---------------- Accrued expenses include the following at December 31:
1997 1996 -------- -------- (In Thousands of Dollars) Salaries and wages $3,851 $3,670 Estimated property and other taxes 4,209 4,072 Accrued interest 893 901 Other 634 631 ------ ------ Total $9,587 $9,274 ====== ======
(5) LONG-TERM OBLIGATIONS --------------------- Long-term obligations include the following at December 31:
1997 1996 -------- -------- (In Thousands of Dollars) Mortgage loans, plus accrued interest of $5,960,000 in 1997 and $4,538,000 in 1996, bearing effective interest at 8.06% and 8.55%, respectively $128,442 $127,020 Capital lease obligations 64 224 Other 1,238 - -------- -------- 129,744 127,244 Less current maturities 564 159 -------- -------- Total $129,180 $127,085 ======== ======== Subordinated note, payable to the General Partner, bearing interest at prime plus 1% (9.5% at December 31, 1997 and 9.25% at December 31, 1996) $ 33,809 $ 30,795 ======== ========
On May 27, 1997 an agreement to restructure the existing mortgage loans on The Westin St. Francis and The Westin Michigan Avenue, Chicago was completed. The parties to this restructuring agreement are The Teacher Retirement System of Texas (the lender), The Westin St. Francis Limited Partnership, The Westin Chicago Limited Partnership, Westin Hotels Limited Partnership, St. Francis Hotel Corporation (general partner of The Westin St. Francis Limited Partnership), 909 North Michigan Avenue Hotel Corporation (general partner of The Westin Chicago Limited Partnership), Westin Realty Corp. (general partner of Westin Hotels Limited Partnership) and Westin Hotel Company (the management company). The agreement provides for an extension of the maturity date for each of the Hotel's existing mortgage loans from August 31, 2001 to November 30, 2006. The interest rates on the principal balances of the original mortgage loans will be reduced to 8.85% per annum from 10.0% per annum for the period from December 1, -21- 1997 through November 30, 1998 and to 8.85% per annum from 10.25% per annum from December 1, 1998 through maturity. The restructuring resulted in a decrease in the effective interest rate on the mortgage loans from 8.55% per annum to 8.06% per annum from the date of the agreement through maturity. Through November 30, 1999, the restructured loans require the payment of interest only each quarter in arrears. From December 1, 1999 to November 30, 2006 the loans require blended payments of principal and interest each quarter in arrears in such amount necessary to repay the principal balance of each note (together with interest at the fixed interest rate) on the basis of a 25 year amortization schedule. On the maturity date, the entire principal balance plus all accrued and unpaid interest will be due and payable. The prepayment provisions of the Mortgage loans have been amended. Under the terms and conditions of this restructuring, the prepayment penalty for The Westin Michigan Avenue, Chicago loan has been reinstated except in the case of a repayment resulting from a sale to a third party. The termination date for the prepayment penalty for The Westin St. Francis loan generally has been extended to the year 2006 from the year 2001. With respect to a hotel sale to a third party, however, there will be no prepayment penalty if the sale occurs after August 31, 2001. Aggregate quarterly payments on the Mortgage Loans are as follows $10,840,000 for 1998 and 1999, and $12,208,000 through December 1, 2006, at which time the remaining outstanding principal balance is due. In July 1997, The Westin St. Francis received notification of a property tax assessment totaling $1,189,000 for the tax years ended June 30, 1997 and 1996. The assessment qualifies for a five year payment plan, which the Partnership has elected, and is as follows: principal and interest payments of $285,000 for 1999 through 2002, with no payment required in 1998. Interest is calculated at 8.55% per annum. Payment in 1997 totaled $285,000. Scheduled principal payments on long-term obligations are $564,000 in 1998, $1,058,000 in 1999, $2,218,000 in 2000, $2,404,000 in 2001, $2,604,000 in 2002 and $154,705,000 thereafter. Interest paid by the Partnership totaled $9,210,000 in 1997, $9,216,000 in 1996 and $8,615,000 in 1995. No new capital lease agreements were entered into in 1997. The carrying values of the Partnership's Mortgage Loans and subordinated note approximate fair values. (6) OPERATING LEASES ---------------- Minimum annual rental expense for operating leases in effect at December 31, 1997, are as follows (in thousands of dollars): 1998 $ 608 1999 373 2000 314 2001 253 2002 190 Thereafter - ------- $ 1,738 =======
(7) CONTINGENCIES AND SUBSEQUENT EVENTS ----------------------------------- On January 15, 1997, Equity Resources Group, Inc., a limited partner of the Partnership ("Claimant"), filed a demand for arbitration with the American Arbitration Association in Seattle, Washington, claiming that the Partnership and its General Partner, Westin Realty Corp., unlawfully refused to provide Claimant with a list of, and other information concerning, the limited partners in order to enable Claimant to make offers to acquire Units, thereby damaging Claimant in an unspecified amount. The Partnership and Westin Realty Corp. settled this matter for an immaterial amount in February, 1998. On January 2, 1998, Starwood Hotels & Resorts Trust (the "Trust"), a real estate investment trust, whose shares are paired and trade together as a unit with Starwood Hotels & Resorts Worldwide, Inc. (the -22- "Corporation"), a hotel management and operating company, completed the merger of Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"). Effective upon closing of the Westin Worldwide merger, the Trust's and Corporation's names were changed to Starwood Hotels & Resorts Trust and Starwood Hotels & Resorts Worldwide, Inc., respectively. The Trust was renamed Starwood Hotels & Resorts on February 24, 1998. The Trust and Corporation together are referred to as "Starwood". Pursuant to the Transaction Agreement, Westin Worldwide, including its wholly owned subsidiary Westin Hotel Company, were merged with and into the Trust and the separate corporate existence of Westin Worldwide and Westin Hotel Company thereupon ceased. Westin Realty, St. Francis Corp., and 909 Corp., each formerly wholly owned subsidiaries of Westin Hotel Company, are now wholly owned subsidiaries of the Corporation. The merger does not change the structure of the General Partners' and limited partners' ownership interest in either the Partnership or the Hotel Partnerships. Moreover, none of the owners of Starwood have any beneficial ownership in the Partnership as a limited partner. Because of the nature of the hotel business, the Hotel Partnerships are subject to various claims and legal actions incidental to the ordinary course of their operations, including such matters as contract and lease disputes and complaints alleging personal injury, property damage and employment discrimination. The General Partner believes that the outcome of any such pending claims for proceedings, individually or in the aggregate, will not have a material adverse effect upon the business, financial condition, or results of operations of the Partnership. (8) RELATED PARTY TRANSACTIONS -------------------------- Westin Realty is responsible for the management and administration of the Partnership. In accordance with the Partnership agreement, the Partnership reimburses Westin Realty for expenses in connection with such services, which totaled $607,000 in 1997, $583,000 in 1996 and $482,000 in 1995. Prior to the merger of Westin and Starwood discussed in Note (7), Westin, as manager of the Hotels, received a base management fee equal to 2.25% of Hotel gross operating revenues. In conjunction with the Restructuring Agreement, Westin agreed to reduce its base management fee from 3.5% to 2.25% of the Hotels' gross revenues through December 31, 1998. Base management fees totaled $2,859,000 in 1997, $2,496,000 in 1996 and $2,188,000 in 1995. Westin also earned an incentive management fee of 20% of annual Net Operating Cash Flow. Incentive management fees totaled $5,695,000 in 1997 and $3,176,000 in 1996. Incentive management fee payments are subordinate to the limited partners receiving certain preferential returns. As a result, incentive management fees totaling approximately $2,800,000 were paid to Westin in 1997. No incentive management fee was earned in 1995. Any incentive management fee not currently payable bears no interest and is deferred and subsequently payable from the proceeds of a sale or refinancing of the Hotels or Net Cash Flow after 1997. Therefore, determining the fair value of the liability is not practicable due to uncertainty as to when the liability will be paid. In any event, the fair value of the liability does not exceed the carrying amount. Prior to the merger of Westin and Starwood discussed in Note (7), Westin and an affiliate also received marketing fees, representing the Partnership's share of the aggregate costs and expenses incurred by Westin in providing advertising, public relations, sales and reservation services to all Westin hotels. The marketing fee totaled $2,414,000 in 1997, $2,108,000 in 1996 and $1,848,000 in 1995. The Partnership also reimbursed Westin for the services of certain full-time Hotel employees. All costs incurred for services provided to the Hotel Partnerships by Hotel employees have been recognized as an expense of the Partnership. As disclosed in Note (5), at December 31, 1997, the subordinated loan from Westin Realty to the Partnership totals $33,809,000, which includes $8,809,000 of accrued interest. At December 31, 1996, the balance was $30,795,000 and included $5,795,000 of accrued interest. -23- (9) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) ---------------------------------------------- Summarized quarterly financial data is as follows:
First Second Third Fourth Total ----- ------ ----- ------ ----- (In Thousands of Dollars Except per Unit Amounts) 1997 Quarters: Operating revenue $26,394 $32,184 $33,757 $34,718 $127,053 Operating profit $ 1,863 $ 6,578 $ 7,536 $ 6,482 $ 22,459 Net income (loss) $(1,363) $ 3,388 $ 4,431 $ 3,235 $ 9,691 Net income (loss) per Unit $(10.05) $ 24.99 $ 32.68 $ 23.85 $ 71.47 1996 Quarters: Operating revenue $21,754 $28,377 $28,799 $32,020 $110,950 Operating profit $ 1,116 $ 6,366 $ 6,013 $ 6,404 $ 19,899 Net income (loss) $(2,050) $ 3,022 $ 2,781 $ 3,225 $ 6,978 Net income (loss) per Unit $(15.12) $ 22.29 $ 20.51 $ 23.78 $ 51.46
-24- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - ------------------------------------------------------------ The Partnerships have no directors or officers. Business policy-making functions of the Partnerships are carried out through the directors and officers of the General Partners. Westin Realty's directors and officers and their current positions are: Frederick Kleisner Chairman, Chief Executive Officer and President Richard Mahoney Director, Vice President, Chief Financial Officer and Treasurer Douglas C. Sutten Director and Vice President Marc Pujalet Director Hud Hinton Vice President Kevin Hylton Vice President and Assistant Treasurer Calder Mackay Vice President and Secretary Ruth E. Valine Assistant Secretary
Douglas C. Sutten, currently Vice President, and Marc Pujalet became Directors in January 1998, replacing Merrick Kleeman and Stuart Rothenberg. Hud Hinton and Calder Mackay became Officers in February 1998, replacing John Ceriale and Catherine Walker, respectively. Other Officers assumed their current offices at the following times: Mr. Mahoney, October 1995; Mr. Kleisner, September, 1995; Mr. Sutten, May 1986; Mr. Hylton, February 1988; and Ms. Valine, May 1989. Frederick Kleisner, 53, joined Westin in August 1995 and currently serves as President and Chief Operating Officer. Prior to joining Westin, Mr. Kleisner served as Group President, Operations, for Interstate Hotels Corporation, North America's largest franchisee of hotels, from 1990 to 1995. Richard Mahoney, 46, joined Westin in September 1995 and served as Executive Vice President and Chief Financial Officer until February 1998. In February 1998 he became the President and Chief Operation Officer of Caesars World Inc., a wholly owned subsidiary of the Corporation. Prior to joining Westin, Mr. Mahoney was Senior Vice President and Chief Financial Officer of Premier Cruise Lines from 1993 to 1995. From 1989 to 1993, he served as Senior Vice President and Controller of The Continental Companies. Marc Pujalet, 42, was named Director of Westin Realty in February 1998. He joined Westin in 1977 and was named Senior Vice President of Sales and Marketing of Westin in 1993. He came to the corporate offices in 1989 as Regional Director of Sales and Marketing and was Vice President of Sales and Marketing from 1991 to 1993. Hud Hinton, 44, was named Vice President of Westin Realty in February 1998. He joined Westin in 1983 and was named Senior Vice President of Operations in 1993. Calder Mackay, 44, was named Vice President and Secretary of Westin Realty in February 1998. He is Associate General Counsel of Westin Hotel Company and joined Westin in 1990. Douglas C. Sutten, 44, was named Director of Westin Realty in February 1998. He was named Vice President of Finance of Westin in 1989. From 1985, when he joined Westin, until 1989, Mr. Sutten was Westin's Director of Taxation. Kevin Hylton, 41, has been Vice President and Corporate Controller of Westin since 1988. From 1984, when he joined Westin, until 1988, Mr. Hylton was Financial Reporting Controller of Westin. Ruth E. Valine, 47, was named Legal Administrator of Westin in February 1989. Upon joining Westin in 1979 until February 1989, she held the title of Legal Assistant. -25- The following persons are directors and/or officers of both Hotel General Partners, as indicated: Frederick Kleisner President, Director Richard Mahoney Vice President, Treasurer and Director Douglas C. Sutten Director and Vice President Marc Pujalet Director Hud Hinton Vice President Kevin Hylton Vice President and Assistant Treasurer Calder Mackay Vice President and Secretary Ruth E. Valine Assistant Secretary
ITEM 11. EXECUTIVE COMPENSATION. - -------------------------------- As noted in Item 10 above, the Partnerships have no directors, officers or other employees. However, under the respective Agreements of Limited Partnership for the Partnerships, Westin Realty, as General Partner of the Partnership, is responsible for the administration and management of the Partnership, and St. Francis Corp. and 909 Corp., as General Partners of the Hotel Partnerships, are responsible for the administration and management of the Hotel Partnerships. The General Partners, however, receive no fees for providing these services to the Partnership. Moreover, neither the Partnership nor the Hotel Partnerships are directly responsible for the payment of any executive compensation to the officers of the General Partners. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------------------------------------------------------------------------ As of December 31, 1997, no person owned of record, or to the Partnership's knowledge owned beneficially, more than 5% of the total number of Units. The officers and directors of the General Partners, as a group, beneficially own no Units. Two affiliates of Westin Realty own a total of 279 limited partnership Units, representing less than a 1% ownership interest. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------- All of the directors and principal officers of Westin Realty, except Ms. Valine, were directors and/or principal officers of Westin prior to the merger of Westin and Starwood on January 2, 1998. See Note (7) of the Notes to Consolidated Financial Statements included under Item 8 - "Financial Statements and Supplementary Data." The Partnership has engaged various subsidiaries of Westin to provide services to the Hotels. See Note (8) of the Notes to Consolidated Financial Statements included under Item 8 - "Financial Statements and Supplementary Data." -26- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. - ------------------------------------------------------------------------ (a) 1. FINANCIAL STATEMENTS. The following documents are filed as part of this report: Report of Independent Public Accountant................... 14 Consolidated Balance Sheets............................... 15 - 16 Consolidated Statements of Operations..................... 17 Consolidated Statements of Partners' Equity (Deficit)..... 18 Consolidated Statements of Cash Flows..................... 19 Notes to Consolidated Financial Statements................ 20 - 25 (a) 2. FINANCIAL STATEMENT SCHEDULES. Financial statement schedules are omitted for the reason that they are not required, or because the required information is shown in the consolidated financial statements or notes thereto. (a) 3. EXHIBITS. 4. Instruments defining the rights of security holders. 4.1 Amended and Restated Agreement of Limited Partnership of Westin Hotels Limited Partnership. (1) 4.2 Amended and Restated Agreement of Limited Partnership of The Westin St. Francis Limited Partnership. (1) 4.3 First Amendment to Amended and Restated Agreement of Limited Partnership of TheWestin St. Francis Limited Partnership. (3) 4.4 Amended and Restated Agreement of Limited Partnership of The Westin Chicago Limited Partnership. (1) 4.5 First Amendment to Amended and Restated Agreement of Limited Partnership of The Westin Chicago Limited Partnership. (3) 10. Material contracts. 10.1 Restructuring Agreement dated as of June 2, 1994. (3) 10.2 Second Restructuring Agreement dated as of May 27, 1997. (4) 10.3 Amended and Restated Management Agreements between The Westin St. Francis Limited Partnership and Westin Hotel Company, and between The Westin Chicago Limited Partnership and Westin Hotel Company, for property management services. (2) 10.4 First Amendments to Amended and Restated Management Agreements of The Westin St. Francis Limited Partnership and of The Westin Chicago Limited Partnership. (3) 10.5 Assignment and Assumption of Agreements between Westin Hotel Company and St. Francis Hotel Corporation. 10.6 Assignment and Assumption of Agreements between Westin Hotel Company and North Michigan Avenue Corporation 10.7 Contribution Agreement between St. Francis Hotel Corporation and The Westin St. Francis Limited Partnership, and between 909 North Michigan Avenue Corporation and The Westin Chicago Limited Partnership, for contribution of Hotel assets and the transfer of limited partnership interests. (2) 10.8 Promissory Note of St. Francis Hotel Corporation dated August 21, 1986 to TeacherRetirement System of Texas. (1) -27- 10.9 First Amendment to Promissory Note of St. Francis Hotel Corporation dated as of June 2,1994. (3) 10.10 Second Amendment to Promissory Note of St. Francis Hotel Corporation dated as of May 27, 1997. (5) 10.11 Deed of Trust, Financing Statement, Security Agreement and Fixture filing dated August 21, 1986 respecting The Westin St. Francis. (1) 10.12 First Amendment to Deed of Trust, Financing Statement, Security Agreement and Fixture Filing dated as of June 2, 1994. (3) 10.13 Second Amendment to Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (With Assignment of Rents and Leases) dated as of May 27, 1997. (5) 10.14 Promissory Note of 909 North Michigan Avenue Corporation dated August 21, 1986 to Teacher Retirement System of Texas. (1) 10.15 First Amendment to Promissory Note of 909 North Michigan Avenue Corporation dated as of June 2, 1994. (3) 10.16 Second Amendment to Promissory Note of 909 North Michigan Avenue Corporation dated as of May 27, 1997. (5) 10.17 Mortgage and Security Agreement dated August 21, 1986 for The Westin Hotel, Chicago. (1) 10.18 First Amendment to Mortgage and Security Agreement dated as of June 2, 1994. (3) 10.19 Second Amendment to Mortgage and Security Agreement dated as of May 27, 1997. (5) 10.20 St. Francis FF&E Escrow Agreement dated as of June 2, 1994. (3) 10.21 Chicago FF&E Escrow Agreement dated as of June 2, 1994. (3) 10.22 Promissory Note dated June 2, 1994 in favor of Westin Realty Corp. by Westin Hotels Limited Partnership. (3) 10.23 Loan Agreement dated as of June 2, 1994 between Westin Hotels Limited Partnership and Westin Realty Corp. (3) 27. Financial Data Schedule. ____________________ (1) Incorporated by reference to Exhibits 4.1, 4.2, 4.3, 10.3, 10.4, 10.5 and 10.6, respectively, to the Partnership's 1986 Annual Report on Form 10-K. (2) Incorporated by reference to Exhibits 10.1 and 10.2, respectively, of the Partnership's Registration Statement on Form S-11 (No. 33-3918). (3) Incorporated by reference to Exhibits 4.3, 4.5, 10.1, 10.3, 10.6, 10.8, 10.10, 10.12, 10.13, 10.14, 10.15 and 10.16, respectively, to the Partnership's Form 10-Q for the period ending June 30, 1994. (4) Incorporated by reference to Exhibit 10. to the Partnership's Form 8-K dated May 27, 1997. (5) Incorporated by reference to Exhibits 10.8, 10.11, 10.14 and 10.17, respectively, to the Partnership's Form 10-Q for the period ending June 30, 1997. (b) REPORTS ON FORM 8-K. None. -28- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 25, 1998. WESTIN HOTELS LIMITED PARTNERSHIP (a Delaware limited partnership) By: WESTIN REALTY CORP., Its sole General Partner By: /s/ Richard Mahoney ---------------------------------- Richard Mahoney, Director, Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signatures Title Date ---------- ----- ---- /s/ Frederick Kleisner - ---------------------------- Chairman, Chief Executive March 25, 1998 Frederick Kleisner Officer and President /s/ Richard Mahoney - ---------------------------- Director, Vice President, March 25, 1998 Richard Mahoney Chief Financial Officer and Treasurer (Chief Accounting Officer) /s/ Douglas C. Sutten - ---------------------------- Director and Vice President March 25, 1998 Douglas C. Sutten /s/ Marc Pujalet - ---------------------------- Director March 25, 1998 Marc Pujalet
-29- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 25, 1998. THE WESTIN ST. FRANCIS LIMITED PARTNERSHIP (a Delaware limited partnership) By: ST. FRANCIS HOTEL CORPORATION, Its sole General Partner By: /s/ Richard Mahoney ------------------------------------ Richard Mahoney, Director, Vice President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signatures Title Date ---------- ----- ---- /s/ Frederick Kleisner - --------------------------- President and Director March 25, 1998 Frederick Kleisner /s/ Richard Mahoney - --------------------------- Director, Vice President March 25, 1998 Richard Mahoney and Treasurer /s/ Douglas C. Sutten - --------------------------- Director and Vice President March 25, 1998 Douglas C. Sutten /s/ Marc Pujalet - --------------------------- Director March 25, 1998 Marc Pujalet
-30- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 25, 1998. THE WESTIN CHICAGO LIMITED PARTNERSHIP (a Delaware limited partnership) By: 909 NORTH MICHIGAN AVENUE CORPORATION, Its sole General Partner By: /s/ Richard Mahoney ----------------------------------- Richard Mahoney, Director, Vice President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signatures Title Date ---------- ----- ---- /s/ Frederick Kleisner - ---------------------------------- President and Director March 25, 1998 Frederick Kleisner /s/ Richard Mahoney - ---------------------------------- Director, Vice President March 25, 1998 Richard Mahoney and Treasurer /s/ Douglas C. Sutten - ---------------------------------- Director and Vice President March 25, 1998 Douglas C. Sutten /s/ Marc Pujalet - ---------------------------------- Director March 25, 1997 Marc Pujalet
-31- EXHIBIT INDEX 4. Instruments defining the rights of security holders. 4.1 Amended and Restated Agreement of Limited Partnership of Westin Hotels Limited Partnership. (1) 4.2 Amended and Restated Agreement of Limited Partnership of The Westin St. Francis Limited Partnership. (1) 4.3 First Amendment to Amended and Restated Agreement of Limited Partnership of TheWestin St. Francis Limited Partnership. (3) 4.4 Amended and Restated Agreement of Limited Partnership of The Westin Chicago Limited Partnership. (1) 4.5 First Amendment to Amended and Restated Agreement of Limited Partnership of The Westin Chicago Limited Partnership. (3) 10. Material contracts. 10.1 Restructuring Agreement dated as of June 2, 1994. (3) 10.2 Second Restructuring Agreement dated as of May 27, 1997. (4) 10.3 Amended and Restated Management Agreements between The Westin St. Francis Limited Partnership and Westin Hotel Company, and between The Westin Chicago Limited Partnership and Westin Hotel Company, for property management services. (2) 10.4 First Amendments to Amended and Restated Management Agreements of The Westin St. Francis Limited Partnership and of The Westin Chicago Limited Partnership. (3) 10.5 Assignment and Assumption of Agreements between Westin Hotel Company and St. Francis Hotel Corporation . 10.6 Assignment and Assumption of Agreements between Westin Hotel Company and North Michigan Avenue Corporation 10.7 Contribution Agreement between St. Francis Hotel Corporation and The Westin St. Francis Limited Partnership, and between 909 North Michigan Avenue Corporation and The Westin Chicago Limited Partnership, for contribution of Hotel assets and the transfer of limited partnership interests. (2) 10.8 Promissory Note of St. Francis Hotel Corporation dated August 21, 1986 to TeacherRetirement System of Texas. (1) 10.9 First Amendment to Promissory Note of St. Francis Hotel Corporation dated as of June 2,1994. (3) 10.10 Second Amendment to Promissory Note of St. Francis Hotel Corporation dated as of May 27, 1997. (5) 10.11 Deed of Trust, Financing Statement, Security Agreement and Fixture filing dated August 21, 1986 respecting The Westin St. Francis. (1) 10.12 First Amendment to Deed of Trust, Financing Statement, Security Agreement and Fixture Filing dated as of June 2, 1994. (3) 10.13 Second Amendment to Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (With Assignment of Rents and Leases) dated as of May 27, 1997. (5) 10.14 Promissory Note of 909 North Michigan Avenue Corporation dated August 21, 1986 to Teacher Retirement System of Texas. (1) 10.15 First Amendment to Promissory Note of 909 North Michigan Avenue Corporation dated as of June 2, 1994. (3) 10.16 Second Amendment to Promissory Note of 909 North Michigan Avenue Corporation dated as of May 27, 1997. (5) 10.17 Mortgage and Security Agreement dated August 21, 1986 for The Westin Hotel, Chicago. (1) 10.18 First Amendment to Mortgage and Security Agreement dated as of June 2, 1994. (3) 10.19 Second Amendment to Mortgage and Security Agreement dated as of May 27, 1997. (5) 10.20 St. Francis FF&E Escrow Agreement dated as of June 2, 1994. (3) 10.21 Chicago FF&E Escrow Agreement dated as of June 2, 1994. (3) 10.22 Promissory Note dated June 2, 1994 in favor of Westin Realty Corp. by Westin Hotels Limited Partnership. (3) 10.23 Loan Agreement dated as of June 2, 1994 between Westin Hotels Limited Partnership and Westin Realty Corp. (3) 27. Financial Data Schedule. ____________________ (1) Incorporated by reference to Exhibits 4.1, 4.2, 4.3, 10.3, 10.4, 10.5 and 10.6, respectively, to the Partnership's 1986 Annual Report on Form 10-K. (2) Incorporated by reference to Exhibits 10.1 and 10.2, respectively, of the Partnership's Registration Statement on Form S-11 (No. 33-3918). (3) Incorporated by reference to Exhibits 4.3, 4.5, 10.1, 10.3, 10.6, 10.8, 10.10, 10.12, 10.13, 10.14, 10.15 and 10.16, respectively, to the Partnership's Form 10-Q for the period ending June 30, 1994. (4) Incorporated by reference to Exhibit 10. to the Partnership's Form 8-K dated May 27, 1997. (5) Incorporated by reference to Exhibits 10.8, 10.11, 10.14 and 10.17 respectively to the Partnership's Form 10Q for the period ending June 30, 1997. EX-10.5 2 ASSIGNMENT AND ASSUMPTION OF AGMT WITH ST. FRANCIS EXHIBIT 10.5 A48-St. Francis ASSIGNMENT AND ASSUMPTION OF AGREEMENTS This ASSIGNMENT AND ASSUMPTION OF AGREEMENTS ("Assignment"), is made as of the 31st day of December, 1997 ("Effective Date"), by and between WESTIN HOTEL COMPANY, a Delaware corporation, as assignor ("Assignor"), and ST. FRANCIS HOTEL CORPORATION, a Delaware corporation, as assignee ("Assignee"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Assignor heretofore entered into, or is the current holder of certain interests by assignment, by operation of law, or otherwise under, each of the agreements, documents and instruments set forth on EXHIBIT A attached hereto and, by this reference, made a part hereof (all of such agreements, documents and instruments, as the same may have been amended, restated, exchanged, substituted, extended or otherwise modified from time to time (together with any miscellaneous papers, documents, letter agreements or other instruments anywise relating or incidental thereto or to the management or operation of the hotel referred to herein) hereinafter sometimes are referred to collectively as, the "Assigned Agreements"), in connection with that certain hotel and related facilities commonly known as the Westin St. Francis Hotel; WHEREAS, Assignor desires to sell, assign, transfer and convey unto Assignee all of Assignor's right, title, and interest in, to, and under the Assigned Agreements; and WHEREAS, subject to, and in accordance with, the terms, provisions and conditions of this Assignment, Assignee has agreed to accept such assignment and transfer, and assume all of Assignor's right, title and interest, in, to, and under the Assigned Agreements; NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. RECITALS. The foregoing recitals shall constitute an integral part of this Assignment, and this Assignment shall be construed in consideration thereof. 2. ASSIGNMENT. As of the Effective Date, subject to the terms, provisions and conditions of this Assignment, Assignor hereby ASSIGNS, CONVEYS, TRANSFERS, AND -1- A48-St. Francis DELIVERS unto Assignee, all of Assignor's right, title and interest in, to and under each and all of the Assigned Agreements. 3. ASSUMPTION. As of the Effective Date, subject to the terms, provisions and conditions of this Assignment, (a) Assignee hereby accepts the assignment of Assignor's right, title and interest in, to and under each and all of the Assigned Agreements, and (b) Assignee hereby assumes all obligations and liabilities of Assignor imposed under the terms of each and all of the Assigned Agreements. 4. SUCCESSORS. This Assignment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 5. GOVERNING LAW. This Assignment shall be governed by, and construed in accordance with, the internal laws of the State of New York. 6. ENTIRE AGREEMENT. This Assignment embodies the complete agreement of the parties hereto with respect to the subject matter hereof, and cannot be altered, amended, or modified except by their written agreement. 7. COUNTERPARTS. This Assignment may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken and construed together, shall constitute one and the same instrument. 8. HEADINGS. Section headings contained herein are for the convenience of reference only, and shall not govern the interpretation of any of the provisions contained herein. -2- A48-St. Francis IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be executed as of the day and year first above written. ASSIGNOR: WESTIN HOTEL COMPANY, a Delaware corporation By: /s/ Catherine L. Walker ---------------------------- Name: Catherine L. Walker ---------------------------- Its: Sr. Vice President ---------------------------- ASSIGNEE: ST. FRANCIS HOTEL CORPORATION, a Delaware corporation By: /s/ Catherine L. Walker ---------------------------- Name: Catherine L. Walker ---------------------------- Its: Vice President ---------------------------- -3- A48-St. Francis EXHIBIT A ASSIGNED AGREEMENTS ------------------- 1. Amended and Restated Management Agreement, dated as of August 21, 1986, by and among Assignor, Assignee, The Westin Hotel Limited Partnership and Westin Hotels Limited Partnership. EX-10.6 3 ASSIGNMENT AND ASSUMPTION AGMT WITH NORTH MICHIGAN EXHIBIT 10.6 A25-Westin Chicago ASSIGNMENT AND ASSUMPTION OF AGREEMENTS This ASSIGNMENT AND ASSUMPTION OF AGREEMENTS ("Assignment"), is made as of the 31st day of December, 1997 ("Effective Date"), by and between WESTIN HOTEL COMPANY, a Delaware corporation, as assignor ("Assignor"), and 909 NORTH MICHIGAN AVENUE CORPORATION, a Delaware corporation, as assignee ("Assignee"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Assignor heretofore entered into, or is the current holder of certain interests by assignment, by operation of law, or otherwise under, each of the agreements, documents and instruments set forth on EXHIBIT A attached hereto and, by this reference, made a part hereof (all of such agreements, documents and instruments, as the same may have been amended, restated, exchanged, substituted, extended or otherwise modified from time to time (together with any miscellaneous papers, documents, letter agreements or other instruments anywise relating or incidental thereto or to the management or operation of the hotel referred to herein) hereinafter sometimes are referred to collectively as, the "Assigned Agreements"), in connection with that certain hotel and related facilities commonly known as the Westin Chicago Hotel; WHEREAS, Assignor desires to sell, assign, transfer and convey unto Assignee all of Assignor's right, title, and interest in, to, and under the Assigned Agreements; and WHEREAS, subject to, and in accordance with, the terms, provisions and conditions of this Assignment, Assignee has agreed to accept such assignment and transfer, and assume all of Assignor's right, title and interest, in, to, and under the Assigned Agreements; NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. RECITALS. The foregoing recitals shall constitute an integral part of this Assignment, and this Assignment shall be construed in consideration thereof. 2. ASSIGNMENT. As of the Effective Date, subject to the terms, provisions and conditions of this Assignment, Assignor hereby ASSIGNS, CONVEYS, TRANSFERS, AND -1- A25-Westin Chicago DELIVERS unto Assignee, all of Assignor's right, title and interest in, to and under each and all of the Assigned Agreements. 3. ASSUMPTION. As of the Effective Date, subject to the terms, provisions and conditions of this Assignment, (a) Assignee hereby accepts the assignment of Assignor's right, title and interest in, to and under each and all of the Assigned Agreements, and (b) Assignee hereby assumes all obligations and liabilities of Assignor imposed under the terms of each and all of the Assigned Agreements. 4. SUCCESSORS. This Assignment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 5. GOVERNING LAW. This Assignment shall be governed by, and construed in accordance with, the internal laws of the State of New York. 6. ENTIRE AGREEMENT. This Assignment embodies the complete agreement of the parties hereto with respect to the subject matter hereof, and cannot be altered, amended, or modified except by their written agreement. 7. COUNTERPARTS. This Assignment may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken and construed together, shall constitute one and the same instrument. 8. HEADINGS. Section headings contained herein are for the convenience of reference only, and shall not govern the interpretation of any of the provisions contained herein. -2- A25-Westin Chicago IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be executed as of the day and year first above written. ASSIGNOR: WESTIN HOTEL COMPANY, a Delaware corporation By: /s/ Catherine L. Walker ---------------------------- Name: Catherine L. Walker ---------------------------- Its: Sr. Vice President ---------------------------- ASSIGNEE: 909 NORTH MICHIGAN AVENUE CORPORATION, a Delaware corporation By: /s/ Catherine L. Walker ---------------------------- Name: Catherine L. Walker ---------------------------- Its: Vice President ---------------------------- -3- A25-Westin Chicago EXHIBIT A ASSIGNED AGREEMENTS ------------------- 1. Amended and Restated Management Agreement, dated as of August 21, 1986, by and among Assignor, Assignee, The Westin Chicago Limited Partnership and Westin Hotels Limited Partnership. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 15,750 0 9,431 278 641 27,184 340,046 106,092 269,785 15,592 129,180 0 0 0 65,190 269,785 0 127,053 0 104,594 12,603 0 13,638 9,856 0 0 0 0 0 9,691 71.47 0
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