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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission File Number 1-9319 Commission File Number 1-9320
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
- -------------------------------------- --------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware 94-0358820 Delaware 94-2878485
- -------------------------------------- --------------------------------------
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification No.) jurisdiction of Identification No.)
incorporation or incorporation or
organization) organization)
1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
- -------------------------------------- --------------------------------------
(Address of principal (Zip Code) (Address of principal (Zip Code)
executive offices) executive offices)
(214) 863-1000 (214) 863-1000
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value New York Common Stock, par value New York
$0.01 per share Stock Exchange $0.01 per share Stock Exchange
- -------------------------------------- --------------------------------------
(Title of (Name of each Exchange (Title of (Name of each Exchange
each class) on which registered) each class) on which registered)
Securities registered pursuant to Section 12(g) of the Act:
none none
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the paired voting stock held by non-
affiliates of Patriot American Hospitality, Inc. and Wyndham International, Inc.
as of March 25, 1998 was $2,488,510,573, based upon a price of $26.3125 per
paired share.
As of March 25, 1998, there were 105,386,253 paired shares of Patriot
American Hospitality, Inc. and Wyndham International, Inc. common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive joint proxy statement for the annual meetings of the stockholders of
Patriot and Wyndham International to be held on May 28, 1998, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1997.
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
FORM 10-K ANNUAL REPORT
INDEX
FORM 10-K
REPORT
ITEM NO. PAGE
- -------- ---------
PART I
1. Business.................................................
2. Properties...............................................
3. Legal Proceedings........................................
4. Submission of Matters to a Vote of Security Holders......
PART II
5. Market Price for Registrant's Common Equity and Related
Stockholder Matters......................................
6. Selected Financial Data..................................
7. Managements' Discussion and Analysis of Financial
Condition and Results of Operations......................
8. Financial Statements and Supplementary Data..............
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................
PART III
10. Directors and Executive Officers of the Registrant.......
11. Executive Compensation...................................
12. Security Ownership of Certain Beneficial Owners and
Management...............................................
13. Certain Relationships and Related Transactions...........
PART IV
14. Exhibits, Financial Statements and Schedules, and
Reports on Form 8-K......................................
SIGNATURES...................................................
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering (the "Initial
Offering") of 29,210,000 shares of its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing agreement. In connection
with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American
Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot
American Hospitality Operating Company" ("Patriot Operating Company"). In
January 1998, as a result of the merger of Wyndham Hotel Corporation ("Old
Wyndham") with and into Patriot as discussed below, Patriot Operating Company
changed its name to Wyndham International, Inc. and is referred to herein,
collectively with its subsidiaries, as "Wyndham International." The term
"Companies" as used herein includes Patriot, Wyndham International and each of
their respective subsidiaries. Patriot and Wyndham International are both
Delaware corporations.
The Cal Jockey Merger was accounted for as a reverse acquisition whereby
Cal Jockey was considered to be the acquired company for accounting purposes.
Consequently, the historical financial information of Old Patriot became the
historical financial information for Patriot. For accounting purposes, Wyndham
International commenced its operations concurrent with the closing of the Cal
Jockey Merger on July 1, 1997.
The shares of common stock of Patriot ("Patriot Common Stock") and the
shares of common stock of Wyndham International ("Wyndham International Common
Stock") are paired on a one-for-one basis and may only be held or transferred in
units consisting of one share of Patriot Common Stock and one share of Wyndham
International Common Stock (the "Paired Shares"). In 1983, the Internal Revenue
Code of 1986, as amended (the "Code"), prohibited the pairing of shares between
a REIT and a management company, however, this rule does not apply to the
Companies because its Paired Share structure existed prior to the change in
regulations and is "grandfathered" under the Code.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in Patriot
American Hospitality Partnership, L.P. (the "REIT Partnership"). In addition,
Patriot, through its wholly owned subsidiary, PAH LP, Inc., owned an approximate
85.3% limited partnership interest in the REIT Partnership as of December 31,
1997. The REIT Partnership was formed in connection with Old Patriot's Initial
Offering. Old Patriot contributed its assets to the partnership in exchange for
units of limited partnership interest ("OP Units") of the REIT Partnership.
Wyndham International owns a 1.0% general partnership interest and an
approximate 83.9% limited partnership interest in Patriot American Hospitality
Operating Partnership, L.P. (the "OpCo Partnership") as of December 31, 1997.
The OpCo Partnership was formed in connection with the Cal Jockey Merger. Bay
Meadows contributed its assets to the OpCo Partnership in exchange for OP Units
of the OpCo Partnership.
Collectively, the REIT Partnership and the OpCo Partnership are referred to
herein as the "Operating Partnerships." Subsequent to completion of the Cal
Jockey Merger and the transactions contemplated by the Cal Jockey Merger
Agreement, substantially all of the operations of Patriot and Wyndham
International have been conducted through the Operating Partnerships and their
subsidiaries.
During 1997, Patriot, either directly or through the REIT Partnership and
its subsidiaries, invested approximately $1.3 billion in the acquisition of 45
hotels with over 12,000 guest rooms. These acquisitions
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were financed primarily with funds drawn on the Companies' revolving credit
facility (and, prior to the Cal Jockey Merger, Old Patriot's line of credit
facility), a $350 million term loan, new mortgage financing of approximately
$237 million, the issuance of 5,629,172 OP Units of the Operating Partnerships
valued at approximately $130 million, the issuance of 1,719,535 Paired Shares
valued at approximately $38.5 million, and the assumption of mortgage debt in
the amount of approximately $34.3 million. Six of the hotels were acquired
through a like-kind exchange. In addition, Wyndham International acquired Grand
Heritage Hotels, Inc., a hotel management and marketing company, and PAH RSI,
LLC, a limited liability company that owned certain trade names and other hotel
management assets related to four of Patriot's resort properties. Wyndham
International also acquired an approximate 50% ownership interest in GAH-II,
L.P. ("GAH"), an affiliate of CHC International, Inc. and the Gencom American
Hospitality group of companies. The Companies completed a public offering of
10,580,000 Paired Shares in August 1997, two forward sale transactions with a
bank in November 1997 and sold 3,250,000 unregistered Paired Shares to a
financial institution in December 1997 which is subject to a one-year forward
stock purchase agreement. The net proceeds of these transactions were used
primarily to reduce outstanding indebtedness. In addition, the Companies
completed two direct placements of Paired Shares in order to redeem 2,000,033 OP
Units of the Operating Partnerships in November 1997.
RECENT DEVELOPMENTS
Merger with Wyndham Hotel Corporation
On January 5, 1998, pursuant to the Agreement and Plan of Merger dated as
of April 14, 1997, as thereafter amended (the "Wyndham Merger Agreement"),
between Patriot, Wyndham International and Wyndham Hotel Corporation ("Old
Wyndham"), Old Wyndham merged with and into Patriot, with Patriot being the
surviving corporation (the "Wyndham Merger").
As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio
of owned, leased or managed hotels consisting of 98 hotels operated by Old
Wyndham (including 16 Patriot hotels which were managed by Old Wyndham), as well
as eight franchised hotels, which in the aggregate contain approximately 25,900
rooms. The total purchase consideration of approximately $982 million consisted
of 21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible
Preferred Stock of Patriot (which are convertible on a one-for-one basis into
Paired Shares), cash of approximately $339 million to repay debt and pay Wyndham
shareholders who elected to receive cash (which was financed with funds drawn on
the Companies' revolving credit facility (the "Revolving Credit Facility")), and
the assumption of approximately $54 million in debt.
Merger with WHG Casinos & Resorts, Inc.
On January 16, 1998, pursuant to an Agreement and Plan of Merger dated as
of September 30, 1997 (the "WHG Merger Agreement"), between Patriot, Wyndham
International and WHG Casinos & Resorts Inc. ("WHG"), a newly formed subsidiary
of Wyndham International merged with and into WHG with WHG being the surviving
corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham
International acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest
in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room
El Conquistador Resort & Country Club (the "El Conquistador"), all of which are
located in Puerto Rico, as well as a 62% interest in Williams Hospitality Group,
Inc., the management company for the three hotels and the Las Casitas Village at
the El Conquistador. By operation of the WHG Merger, WHG's outstanding equity
securities were exchanged for 5,004,690 Paired Shares. In addition, Wyndham
International assumed approximately $21.3 million of debt.
Other Recent Transactions
Holiday Inn. On January 13, 1998, Patriot, through the REIT Partnership,
acquired the 173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase
price of approximately $14.5 million.
Buena Vista Palace Hotel. On January 14, 1998, Patriot, through the REIT
Partnership, acquired an aggregate 95% equity interest in the joint venture that
owns the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for
approximately $141.6 million, including the assumption of approximately $50.3
million of mortgage debt. Patriot was also granted an option to acquire the
remaining 5% equity interest in the hotel. The hotel is also subject to a ground
lease and Wyndham International holds a participating loan in the amount of
$23.8 million (the "Participating Note").
5
Proposed Acquisitions
CHC International, Inc. The Companies and CHC International, Inc. ("CHCI")
have entered into an Agreement and Plan of Merger dated as of September 30, 1997
(the "CHCI Merger Agreement"), providing, subject to regulatory approvals, for
the merger of the hospitality-related businesses of CHCI with and into Wyndham
International with Wyndham International being the surviving company (the "CHCI
Merger"). Subject to regulatory approvals, CHCI's gaming operations will be
transferred to a new legal entity prior to the CHCI Merger and such operations
will not be a part of the transaction. It is anticipated that the CHCI Merger
will be consummated in the second quarter of 1998. As a result of the CHCI
Merger, Wyndham International, through its subsidiaries, will acquire the
remaining 50% investment interest in GAH, the remaining 17 leases and 16 of the
associated management contracts related to the Patriot hotels leased by CHC
Lease Partners, 12 third-party management contracts, two third-party lease
contracts, the Grand Bay and Registry Hotels & Resorts proprietary brand names
and certain other hospitality management assets. Wyndham has also agreed to
provide CHCI with a $7 million line of credit until such time as the CHCI Merger
is completed. By operation of the CHCI Merger, all issued and outstanding common
stock of CHCI will be exchanged for approximately 4,396,000 shares of Wyndham
International preferred stock, subject to certain adjustments.
Interstate Hotels Company. On December 2, 1997, the Companies and
Interstate Hotels Company ("Interstate") entered into an Agreement and Plan of
Merger (the "Interstate Merger Agreement"), pursuant to which Interstate will
merge with and into Patriot with Patriot being the surviving corporation (the
"Interstate Merger"). Pursuant to the Interstate Merger Agreement, stockholders
of Interstate will have the right to elect to convert each of their shares of
Interstate common stock into the right to receive either (i) $37.50 in cash,
subject to proration in certain circumstances (the "Interstate Cash
Consideration"), or (ii) a number of Paired Shares of Patriot and Wyndham common
stock based on an exchange ratio of 1.341 Paired Shares for each share of
Interstate common stock not exchanged for cash (the "Interstate Exchange
Ratio"). After the elections are made by stockholders of Interstate, proration
will be used to ensure that 40% of the outstanding shares of Interstate common
stock will be converted into the right to receive Interstate Cash Consideration
and that the remaining 60% of the outstanding shares of Interstate common stock
will be converted into the right to receive Paired Shares at the Interstate
Exchange Ratio, subject to adjustment in certain circumstances for the exercise
of dissenters' rights. "The special meetings of the stockholders of Patriot,
Wyndham International and Interstate at which approval of the Interstate Merger
will be sought were originally scheduled for March 30, 1998. On March 30, 1998,
Patriot, Wyndham International and Interstate each adjourned their respective
stockholders' meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham
International and Interstate elected to convene and then adjourn their
respective stockholders' meetings without a formal vote so as to permit
additional time to negotiate with Marriott International, Inc. ("Marriott")
relating to certain issues Marriott has raised concerning Marriott-branded
hotels owned by Interstate. While Patriot and Marriott had entered into a non-
binding letter agreement in December 1997 regarding these matters, on March 30,
1998, Marriott filed a lawsuit in the United States District Court for the
District of Maryland seeking to enjoin the Interstate Merger until Interstate
complies with certain rights of notification and first refusal which Marriott
alleges would be triggered by the Interstate Merger."
As a result of the Interstate Merger, Patriot will acquire all of the
assets and liabilities of Interstate, including Interstate's portfolio of 222
owned, leased or managed hotels located in the United States, Canada, the
Caribbean and Russia. Of Interstate's portfolio, 41 hotels aggregating
approximately 11,928 rooms are owned or controlled by Interstate, 89 hotels
aggregating approximately 10,258 rooms are leased and 92 hotels aggregating
approximately 23,227 rooms are managed or subject to service agreements. Patriot
will also assume or refinance all of Interstate's existing indebtedness, which
totaled approximately $800 million as of December 31, 1997. In addition, Patriot
will buy out or assume certain options to purchase shares of common stock, par
value $0.01 per share, of Interstate ("Interstate Common Stock") and assume
certain severance obligations.
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
Arcadian International PLC. On January 20, 1998, Patriot announced in the
United Kingdom its intention to proceed with a takeover of Arcadian
International PLC ("Arcadian"), a company listed on the London Stock Exchange,
for cash consideration totaling (Pounds)92 million (or approximately $152
million at the exchange rate on February 5, 1998) (the "Arcadian Acquisition").
Arcadian is an owner, developer and operator of hotels in the United Kingdom and
continental Europe. Arcadian's portfolio currently includes 12 hotels with a
total of approximately 724 rooms throughout the United Kingdom, as well as
interests held in joint ventures with third parties. In connection with the
Arcadian Acquisition, Patriot will assume or refinance all of Arcadian's
existing indebtedness, which totaled approximately $77 million as of February 5,
1998.
6
Patriot has also entered into agreements with the shareholders of Malmaison
Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest,
to acquire the remaining interests in Malmaison not currently owned by Arcadian
for an aggregate purchase price of approximately $58.1 million, including the
assumption of approximately $23.6 million of indebtedness (the "Malmaison
Acquisition"). In connection with the Malmaison Acquisition, Patriot expects to
acquire (i) two hotels currently owned by Malmaison and one hotel which
Malmaison has agreed to acquire and (ii) two additional hotels currently under
development by Malmaison.
Golden Door Spa. In February 1998, the Companies signed a purchase contract
to acquire the Golden Door Spa in Escondido, California for a purchase price of
approximately $28 million. The purchase price is to be paid with a combination
of cash, OP Units of the Operating Partnerships and a short-term note.
SF Hotel Company, L.P. On March 23, 1998, the Companies entered into an
agreement to acquire all of the partnership interests in SF Hotel Company, L.P.
("Summerfield") for approximately $170 million. The purchase price is to be paid
with a combination of cash and issuance of a total of approximately 4,590,000 OP
Units of the Operating Partnerships and/or Paired Shares (the "Summerfield
Acquisition"). The final transaction price is subject to adjustment based on (i)
the market price of the Paired Shares through the end of 1998 and (ii)
achievement of certain performance criteria for the Summerfield portfolio
through 2001. As a result of the Summerfield Acquisition, the Companies will
acquire four Summerfield Suites/(R)/ hotels and lease or manage 33 Summerfield
Suites/(R)/ and Sierra Suites hotels/(R)/.
DESCRIPTION OF BUSINESS
As of March 25, 1998, Patriot, either directly or through the REIT
Partnership and other subsidiaries, owned interests in 118 hotels with an
aggregate of over 29,400 rooms (excluding one hotel closed for renovations). In
order for Patriot to qualify for favorable tax status as a real estate
investment trust ("REIT") under the Code, Patriot leases each of its hotels,
except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are
separately owned through special purpose entities, to Wyndham International or
to other third party lessees (the "Lessees") who are responsible for operating
the hotels. Currently, Patriot leases 17 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve years pursuant to separate
participating leases providing for the payment of the greater of base or
participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Twelve of the hotels are leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR
North Canton, Inc. (the "Doubletree Lessee") leases four hotels; and Metro
Hotels Leasing Corporation ("Metro Lease Partners") leases one hotel under
similar Participating Lease agreements. The Lessees, in turn, have entered into
separate agreements with hotel management entities (the "Operators") to manage
the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
acquisitions were structured without lessees and are managed directly by Holiday
Inns, Inc. and Wyndham International, respectively. Wyndham International leases
81 hotels from Patriot pursuant to Participating Lease agreements which are
substantially similar to the Participating Lease agreements of the Lessees.
Wyndham International manages 68 of these hotels through certain of its hotel
management subsidiaries and has entered into separate management agreements with
hotel Operators to manage 13 of the hotels.
Patriot's hotels are diversified by franchise or brand affiliation and
serve primarily major U.S. business centers, including Atlanta, Boston, Chicago,
Cleveland, Dallas, Denver, Houston, Los Angeles, Miami, Minneapolis, San Diego,
San Francisco and Seattle. In addition to hotels catering primarily to business
travelers, Patriot's portfolio includes world-class resort hotels, including The
Boulders near Scottsdale, Arizona; The Lodge at Ventana Canyon in Tucson,
Arizona; The Peaks Resort & Spa in Telluride, Colorado and Carmel Valley Ranch
Resort in Carmel, California (collectively, the "Carefree Resorts"); and
prominent hotels in major tourist destinations. As of March 25, 1998, the owned
hotels include 106 full service hotels, seven resort hotels, four limited
service hotels and an executive conference center. All but six of the 118 hotels
are operated under franchise or brand affiliations with nationally recognized
hotel companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(R)/,
Hilton/(R)/, Hyatt/(R)/, Four Points by Sheraton/(R)/, Holiday Inn/(R)/,
Wyndham/SM/, Wyndham Garden/(R)/, WestCoast/(R)/, Doubletree/(R)/, Embassy
Suites/(R)/, Hampton Inn/(R)/, Carefree/(R)/, Grand Heritage/(R)/,
Marriott/(R)/, Marriott Courtyard/(R)/, Sheraton/(R)/, Grand Bay/(R)/ and
ClubHouse/(R)/. Additionally, the Companies lease 13 hotels from third parties,
manage 58 hotels (excluding one hotel closed for renovations) for independent
owners and franchise eight hotels. Wyndham International currently leases from
Patriot 81 of the 118 hotels owned by Patriot. Patriot expects that
substantially all of its future acquisitions will be leased to Wyndham
International.
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In addition to leasing and managing hotels, Wyndham International is also
engaged in the business of conducting and offering pari-mutuel wagering on
thoroughbred horse racing, the principal business conducted by Bay Meadows prior
to the Cal Jockey Merger.
Patriot intends to continue to expand and diversity its hotel portfolio
through the acquisition of primarily full service commercial hotels and major
tourist hotels in major metropolitan areas and destination resorts or conference
centers. Patriot believes that market conditions remain favorable for the
acquisition of additional hotels and hotel portfolios and expects to continue
its aggressive acquisition activities. Additionally, Wyndham International
intends to continue to capitalize on opportunities to acquire hotel operators,
owners of hotel franchises or brands and independent hotel management companies.
The Companies generally seek investments in hotels where management believes
that profits can be increased by the introduction of more professional and
efficient management techniques, a change of franchise affiliation or the
injection of capital for market repositioning, renovating, or expanding a
property.
Competition
The hotel industry is highly competitive and the Companies' hotels are
subject to competition from other hotels for guests. Many of the Companies'
competitors may have substantially greater marketing and financial resources
than the Companies. Each of the Companies' hotels compete for guests primarily
with other similar hotels in its immediate vicinity and secondarily with other
similar hotels in its geographic market. Management believes that brand
recognition, location, the quality of the hotel and services provided, and price
are the principal competitive factors affecting the Companies' hotels.
Patriot and Wyndham International may compete for acquisition opportunities
with entities that have greater financial resources than the Companies or which
may accept more risk than the Companies. Competition may generally reduce the
number of suitable investment opportunities and increase the bargaining power of
property owners seeking to sell. Further, the Companies' management believes
that it will face competition for acquisition opportunities from entities
organized for purposes substantially similar to the objectives of Patriot or
Wyndham International.
While the Bay Meadows Racecourse (the "Racecourse"), when it is conducting
live racing, has had little direct competition from other tracks in the San
Francisco Bay Area, the Racecourse competes with off-track wagering facilities
in Northern California and telephone betting accounts being offered by off-track
wagering facilities in various states and foreign countries and other forms of
legalized gambling, particularly Indian gaming and others such as the California
State Lottery and local card clubs. In addition, the San Francisco Bay Area
annually has numerous sporting events, county fairs and other entertainment
attractions which compete with the Racecourse for the sports and entertainment
dollar. It is difficult to evaluate the competitive impact of these other forms
of entertainment and gambling on the operations of the Racecourse, other than to
say that they are significant.
Seasonality
The hotel industry is seasonal in nature. Revenue at certain of the
Companies' hotels are greater in the first and second quarters of a calendar
year and at other hotels in the second and third quarters of a calendar year.
Seasonal variations in revenue at the hotels may cause quarterly fluctuations in
Patriot's lease revenues and in Wyndham International's hotel-related revenues.
The Bay Meadows Racecourse operations are also subject to seasonal
variations. Historically, the Bay Meadows racing meet has commenced in August
each year and has ended in the following January.
Employees
As of March 25, 1998, Patriot employs 19 persons, including Messrs.
Nussbaum, Evans and Jones and Ms. Raymond, the executive officers of Patriot,
and retains appropriate support personnel to manage its operations in lieu of
retaining an advisor. Wyndham International employs approximately 30,000
persons, including Messrs. Carreker, Alibhai and Jones, the executive officers
of Wyndham International, and retains appropriate support personnel to manage
its operations, including operation of the 81 hotels leased from Patriot.
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Environmental Matters
Neither Patriot, Wyndham International, the REIT Partnership nor the OpCo
Partnership has been identified by the United States Environmental Protection
Agency or any similar state agency as a responsible or potentially responsible
party for, nor have they been the subject of any governmental proceedings with
respect to, any hazardous waste contamination. If Patriot, Wyndham International
or any of their respective subsidiaries were to be identified as a responsible
party, they would in most circumstances be strictly liable, jointly and
severally with other responsible parties, for environmental investigation and
clean-up costs incurred by the government and, to a more limited extent, by
private persons.
Phase I environmental site assessments are performed on all of the Patriot
hotels prior to acquisition. To date, these assessments have not revealed any
environmental liability or compliance concerns that management believes would
have a material adverse effect on the Companies' business, assets, results of
operations or liquidity. Based on the results of these assessments, the
Companies and their outside consultants believe that the Companies' overall
potential for environmental impairment is low.
Based upon the environmental reports described above, the Companies believe
that a substantial number of the hotels incorporate potentially asbestos-
containing materials. Under applicable current federal, state and local laws,
asbestos need not be removed from or encapsulated in a hotel unless and until
the hotel is renovated or remodeled. The Companies have asbestos operation and
maintenance plans for each property testing positive for asbestos.
Based upon the above-described environmental reports and testing, future
remediation costs are not expected to have a material adverse effect on the
results of operations, financial position or cash flows of Patriot or Wyndham
International and compliance with environmental laws has not had and is not
expected to have a material adverse effect on the capital expenditures, earnings
or competitive position of the Companies.
Tax Status
Cal Jockey has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code (the "Code") since 1983. Patriot, as the successor
to Cal Jockey in the Cal Jockey Merger, intends to continue to elect to be taxed
as a REIT. Patriot generally will not be subject to federal income tax on its
taxable net income that is distributed currently to its shareholders. If Patriot
fails to qualify as a REIT in any taxable year, Patriot will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. However, even if Patriot
continues to qualify for taxation as a REIT, Patriot may be subject to certain
state and local taxes on its income and properties and federal income and excise
taxes under certain special circumstances.
Proposed Legislation Affecting The Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section
269B(a)(3) would ordinarily prevent a corporation from qualifying as a REIT if
its stock is paired with the stock of a corporation whose activities are
inconsistent with REIT status, such as Wyndham International. The
"grandfathering" rules governing Section 296B generally provide, however, that
Section 296B(a)(3) does not apply to a paired REIT if the REIT and the paired
operating company were paired on June 30, 1983. Patriot's and Wyndham
International's respective precedessors, Cal Jockey and Bay Meadows, were paired
on June 30, 1983. There are, however, no judicial or administrative authorities
interpreting this "grandfathering" rule in the context of a merger or otherwise.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a result
of future legislation. In this regard, on February 2, 1998, the Department of
Treasury released an explanation of the revenue proposals included in the
Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax
Proposals, among other things, include a freeze on the grandfathered status of
paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham
International would be treated as one entity with respect to properties acquired
on or after the date of the first Congressional committee action with respect to
such proposal and with respect to activities or services relating to such
properties that are undertaken or performed by one of the paired entities on or
after such date. The Tax Proposals would also prohibit REITs from holding stock
of a corporation possessing more than 10% of the vote or value of all classes
of stock of the corporation. This proposal would be effective with respect to
the stock acquired on or after the date of first Congressional committee action
with respect to the proposal; provided that the proposal would not apply to
stock acquired before such effective date if, on or after such date, the
subsidiary corporation engaged in a new trade or business or acquired
substantial new assets.
On March 26, 1998, William Archer, Chairman of the Ways and Means Committee
of the United States House of Representatives and William V. Roth, Jr., Chairman
of the Finance Committee of the United States Senate, introduced identical
legislation (the "Proposed Legislation") in both the House of Representatives
and the Senate to limit this "grandfathering rule." Under the Proposed
Legislation, the anti-pairing rules provided in the Code would apply to real
property interests acquired after March 26, 1998 by Patriot and Wyndham
International, or a subsidiary or partnership in which 10% or greater interest
is owned by Patriot or Wyndham International (collectively, the "REIT Group"),
unless (1) the real property interests are acquired pursuant to a written
agreement which is binding on March 26, 1998 and all times thereafter or (2) the
acquisition of such real property interests were described in a public
announcement or in a filing with the Securities and Exchange Commission on or
before March 26, 1998. In addition, the Proposed Legislation also provides that
a property held by Patriot or Wyndham International that is not subject to the
anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (x) the
undepreciated cost of the property (prior to the improvement) or (y) in the case
of property acquired where there is a substantial basis, the fair market value
of the property on the day it was acquired by Patriot and Wyndham International.
There is an exception for improvements placed in service before January 1, 2004
pursuant to a binding contract in effect as of December 31, 1999 and at all
times thereafter.
The above discussion is based solely on the Tax Proposals and the Proposed
Legislation. The Proposed Legislation will not become effective unless it is
duly passed by Congress and signed by the President. It is impossible at this
time to determine all of the ramifications which could result from enactment of
the Proposed Legislation. However, Patriot believes that the previously
announced and pending acquisitions of Interstate, Arcadian and Summerfield are
unaffected by the Proposed Legislation and expects that such acquisitions will
be completed as currently scheduled.
PENDING ADOPTION OF AUTHORITATIVE STATEMENTS
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement 130"), "Reporting
Comprehensive Income." Statement 130 requires that all components of
comprehensive income and the ending accumulated balances for each item,
classified by their nature, be reported in the financial statements in the
period in which they are recognized. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Companies will be required to adopt
Statement 130 beginning with their interim financial statements for the first
quarter of 1998. Comparative financial statements for prior years presented in
these interim financial statements are required to be reclassified to conform to
the new Statement 130 presentation. Management does not anticipate that adoption
of Statement 130 reporting requirements will have a material impact on the
operating results or financial position of the Companies.
Segment Reporting
In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. SFAS 131 changes current practice by
establishing a new framework on which to base segment reporting, including the
determining of a segment and the financial information to be disclosed for each
segment, referred to as "management" approach. The management approach requires
that management identify "operating segments" based on the way that management
disaggregates the entity for making internal operating decisions. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of information for earlier periods. Management is determining the
segments to be disclosed and intends to adopt the statement for the year ended
December 31, 1998.
ITEM 2. PROPERTIES
MARKET SEGMENTATION
Patriot classifies its hotels into four primary market segments: (i) full
service, (ii) limited service, (iii) resorts, and (iv) conference center.
As of December 31, 1997, Patriot owned 81 full service hotels aggregating
over 21,700 guest rooms, which target both business and leisure travelers,
including meetings and groups, who prefer a full range of facilities, services
and amenities. At year end, all but four of Patriot's full service hotels were
operated under franchise or brand affiliations with nationally recognized hotel
companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(R)/, Hilton/(R)/,
Hyatt/(R)/, Four Points by Sheraton/(R)/, Holiday Inn/(R)/, Wyndham/TM/, Wyndham
Garden/(R)/, WestCoast/(R)/, Doubletree/(R)/, Embassy Suites/(R)/,
Carefree/(R)/, Grand Heritage/(R)/, Marriott/(R)/, Marriott Courtyard/(R)/,
Sheraton/(R)/, and Grand Bay/(R)/. Full service hotels generally offer a full
range of meeting and conference facilities and banquet space. Facilities
generally include restaurants and lounge areas, gift shops and recreational
facilities, including swimming pools. Full service hotels generally provide a
significant array of guest services, including room service, valet services and
laundry. Three of Patriot's hotels, the Bourbon Orleans Hotel in New Orleans the
Fairmount Hotel in San Antonio and the Park Shore Hotel in Honolulu, are luxury
hotels in major U.S. tourist markets.
9
The Tremont House Hotel in Boston, operates as an upscale full service hotel in
a major U.S. market.
Patriot owns four limited service hotels aggregating 447 guest rooms, which
target both business and leisure travelers. Patriot's limited service hotels
consist of four Hampton Inns/(R)/. Limited service hotels generally have limited
or no meeting space. Hotels operating in this market segment generally seek to
minimize operational costs by offering only those basic services required by
travelers. Because they cater to both business and leisure travelers, limited
service hotels generally maintain relatively consistent occupancy on weekdays
and weekends.
As of December 31, 1997, Patriot owned five resort properties aggregating
978 guest rooms, including the Wyndham/TM/ Resort & Spa in Fort Lauderdale,
Florida (formerly the Bonaventure Resort & Spa) and the four Carefree/(R)/
resort properties which were acquired in January 1997. Resorts are designed to
offer unique destinations which appeal to today's sophisticated vacation
traveler and to blend with their environment, enhancing the natural surroundings
with design that fits the locale. Each resort's recreational activities are of
the highest caliber and are designed to capitalize on the natural attractions of
the location. Many offer a combination of golf, tennis, skiing, a health spa,
hiking or other sports.
Patriot owns one conference center with 250 guest rooms, which targets
corporate and other executive groups. Conference centers are distinguishable
from traditional full service hotels in that they are dedicated, designed and
equipped to handle all services for large meetings and conferences. Conference
centers typically offer state-of-the-art meeting and conference rooms, with a
full complement of business support services. Conference centers generally
include banquet and ballroom facilities, and restaurant and bar facilities. In
addition, facilities generally include a fitness center, swimming pool and
tennis courts. Because of the specialized nature of conference centers, there
are relatively few such properties in the U.S.
DESCRIPTION OF PROPERTIES
The following table sets forth certain information for the year ended
December 31, 1997 and 1996 with respect to the hotels Patriot owned as of
December 31, 1997. This information reflects actual operating results of the
hotels both prior and subsequent to acquisition by Patriot.
10
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
FULL SERVICE HOTELS:
Amassador West.................. Chicago, IL................. 219 1924 $ 8,387 $ 8,144 66.3% 66.2%
Bourbon Orleans Hotel (2)....... New Orleans, LA............. 216 1800s/1995 9,409 8,248 83.7 83.3
The Buttes...................... Tempe, AZ................... 353 1986 27,917 27,120 78.5 83.5
Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 495 1986 23,617 24,237 69.9 71.0
Crowne Plaza Toledo............. Toledo, OH.................. 241 1985 7,804 7,224 63.5 63.1
Doubletree Allen Center (2)..... Houston, TX................. 341 1978/1984 14,236 13,207 67.6 67.2
Doubletree Hotel................ Des Plaines (Chicago), IL... 242 1969/1997 5,011 5,100 62.7 81.4
Doubletree Guest Suites (2)..... Glenview, IL................ 252 1988 10,277 8,705 80.3 75.7
Doubletree Hotel................ Minneapolis, MN............. 230 1986 6,177 6,084 61.0 68.7
Doubletree Hotel................ Tallahassee, FL............. 244 1977/1997 4,522 3,946 48.6 59.4
Doubletree Hotel (2)............ Tulsa, OK................... 417 1982 10,630 10,699 63.3 68.7
Doubletree Hotel................ Westminster (Denver), CO.... 180 1980/1992 6,244 5,566 74.1 73.4
Doubletree - Anaheim (2)........ Orange, CA.................. 454 1984 14,627 13,473 67.2 70.3
Doubletree - Miami Airport...... Miami, FL................... 266 1975/1997 4,660 4,499 56.4 53.4
Doubletree - Post Oak (2)....... Houston, TX................. 449 1982 22,598 19,942 75.7 72.2
Doubletree - Corporate Woods (2) Overland Park, KS........... 356 1982 15,734 14,674 73.0 75.5
Doubletree - St Louis (2)....... Chesterfield, MO............ 223 1984 13,404 12,341 73.2 74.1
Doubletree Park Place........... Minneapolis, MN............. 298 1981 9,912 11,049 66.1 73.9
Embassy Suites.................. Hunt Valley, MD............. 223 1985/1995 6,828 6,399 71.9 71.3
Fairmount Hotel................. San Antonio, TX............. 37 1906/1994 2,623 2,838 66.3 77.6
Four Points by Sheraton......... Saginaw, MI................. 156 1984 3,627 3,980 66.6 70.5
Grand Bay Hotel Coconut Grove(2) Miami, FL................... 178 1983 17,460 15,753 75.8 67.9
Del Mar Hilton.................. Del Mar (San Diego), CA..... 245 1989 9,660 8,209 74.9 69.8
Hilton Cleveland South.......... Independence, OH............ 191 1980/1994 9,345 8,117 66.5 69.2
Melbourne Airport Hilton........ Melbourne, FL............... 237 1986 6,595 6,004 70.3 65.8
Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 385 1974 16,254 14,797 72.8 69.3
Holiday Inn..................... San Angelo, TX.............. 148 1984/1994 3,251 3,124 67.6 71.3
Holiday Inn..................... San Francisco, CA........... 224 1964 8,355 7,636 87.7 87.3
Holiday Inn..................... Sebring, FL................. 148 1983/1995 2,806 2,510 56.8 55.2
Holiday Inn Aristocrat.......... Dallas, TX.................. 172 1925/1994 4,929 4,881 66.1 69.7
Holiday Inn Crockett............ San Antonio, TX............. 206 1909/1996 5,185 5,090 65.8 65.3
Holiday Inn Lenox............... Atlanta, GA................. 297 1987/1995 7,003 7,891 63.2 68.2
Holiday Inn Northwest Plaza..... Austin, TX.................. 193 1984/1994 5,808 6,222 72.4 79.6
Holiday Inn Northwest........... Houston, TX................. 193 1982/1994 3,461 3,046 64.4 62.7
Holiday Inn - YO Ranch.......... Kerrville, TX............... 200 1984 3,936 4,051 50.3 57.4
Holiday Inn Redmont Hotel....... Birmingham, AL.............. 112 1925/1991 1,538 1,735 49.5 53.2
Holiday Inn Westlake............ Beachwood, OH............... 266 1980 8,585 8,052 80.3 75.0
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
Full Service Hotels:
Amassador West.................. Chicago, IL................. $110.69 $106.11 $ 73.44 $ 70.28
Bourbon Orleans Hotel (2)....... New Orleans, LA............. 133.69 120.17 111.94 100.16
The Buttes...................... Tempe, AZ................... 140.94 128.11 110.61 106.99
Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 116.44 119.74 81.44 85.05
Crowne Plaza Toledo............. Toledo, OH.................. 83.96 79.08 53.29 49.91
Doubletree Allen Center (2)..... Houston, TX................. 102.58 91.96 69.30 61.80
Doubletree Hotel................ Des Plaines (Chicago), IL... 72.18 56.67 45.23 46.10
Doubletree Guest Suites (2)..... Glenview, IL................ 95.15 85.39 76.41 64.67
Doubletree Hotel................ Minneapolis, MN............. 93.81 77.31 57.21 53.12
Doubletree Hotel................ Tallahassee, FL............. 73.60 47.73 35.76 28.37
Doubletree Hotel (2)............ Tulsa, OK................... 69.39 63.03 43.92 43.29
Doubletree Hotel................ Westminster (Denver), CO.... 82.44 73.99 61.09 54.28
Doubletree - Anaheim (2)........ Orange, CA.................. 80.81 69.54 54.28 48.88
Doubletree - Miami Airport...... Miami, FL................... 67.56 71.71 38.12 38.26
Doubletree - Post Oak (2)....... Houston, TX................. 102.57 94.17 77.68 67.98
Doubletree - Corporate Woods (2) Overland Park, KS........... 97.34 88.01 71.02 66.47
Doubletree - St Louis (2)....... Chesterfield, MO............ 95.45 90.76 69.90 67.28
Doubletree Park Place........... Minneapolis, MN............. 79.24 72.67 52.38 53.67
Embassy Suites.................. Hunt Valley, MD............. 90.47 85.07 65.03 60.63
Fairmount Hotel................. San Antonio, TX............. 158.90 144.71 105.41 112.32
Four Points by Sheraton......... Saginaw, MI................. 59.38 62.95 39.52 44.36
Grand Bay Hotel Coconut Grove(2) Miami, FL................... 226.77 205.24 171.86 139.39
Del Mar Hilton.................. Del Mar (San Diego), CA..... 92.81 84.50 69.55 58.99
Hilton Cleveland South.......... Independence, OH............ 92.96 86.34 61.86 59.74
Melbourne Airport Hilton........ Melbourne, FL............... 66.03 61.56 46.42 40.53
Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 93.99 88.46 68.45 61.31
Holiday Inn..................... San Angelo, TX.............. 63.36 60.54 42.80 43.15
Holiday Inn..................... San Francisco, CA........... 84.98 72.95 74.50 63.72
Holiday Inn..................... Sebring, FL................. 63.14 57.78 35.86 31.91
Holiday Inn Aristocrat.......... Dallas, TX.................. 92.73 88.10 61.33 61.45
Holiday Inn Crockett............ San Antonio, TX............. 86.41 85.25 56.86 55.64
Holiday Inn Lenox............... Atlanta, GA................. 83.84 88.96 53.00 60.63
Holiday Inn Northwest Plaza..... Austin, TX.................. 85.03 83.75 61.59 66.65
Holiday Inn Northwest........... Houston, TX................. 59.61 54.69 38.38 34.31
Holiday Inn - YO Ranch.......... Kerrville, TX............... 75.35 66.18 37.93 38.01
Holiday Inn Redmont Hotel....... Birmingham, AL.............. 58.11 58.45 28.78 31.07
Holiday Inn Westlake............ Beachwood, OH............... 73.49 72.01 59.04 54.04
See notes on page 13.
11
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
FULL SERVICE HOTELS - CONTINUED:
Holiday Inn Select.............. Farmers Branch (Dallas), TX. 374 1979/1994 $ 9,827 $ 10,271 63.0% 69.4%
Hyatt Newporter................. Newport Beach, CA........... 410 1962 22,686 19,940 74.7 74.6
Hyatt Regency................... Lexington, KY............... 365 1977/1992 13,007 12,457 61.3 63.2
Marriott Hotel.................. Troy, MI.................... 350 1990 21,010 18,815 77.8 78.2
Marriott Courtyard.............. Beachwood, OH............... 113 1986 3,591 3,159 79.1 83.8
The Mayfair Hotel............... St. Louis, MO............... 182 1925/1990 4,205 4,316 50.3 56.5
Omni Inner Harbour Hotel........ Baltimore, MD............... 707 1968 24,860 21,161 68.2 64.7
Park Shore Honolulu (4)......... Honolulu, HI................ 227 1968 -- -- -- --
Radisson Suites Town & Country.. Houston, TX................. 173 1986/1992 4,608 4,422 77.0 69.9
Radisson Hotel & Suites......... Dallas, TX.................. 198 1986/1994 5,274 5,278 72.2 72.4
Radisson Northbrook............. Northbrook, IL.............. 310 1976/1994 7,562 6,793 71.7 67.6
Radisson New Orleans Hotel...... New Orleans, LA............. 759 1924/1995 22,771 20,720 67.3 68.1
Radisson Suite Hotel............ Kansas City, KS............. 240 1931/1989 6,135 5,661 61.5 64.5
Radisson Overland Park.......... Overland Park, KS........... 190 1974 4,518 4,506 64.8 67.0
Radisson Hotel (2).............. Beachwood, OH............... 196 1968 5,846 5,634 74.8 80.6
Radisson Hotel.................. Akron, OH................... 130 1989 2,946 2,982 67.3 68.8
Radisson Riverwalk.............. Jacksonville, FL............ 322 1979/1996 10,453 9,507 81.1 77.7
Ramada Inn...................... San Francisco, CA........... 323 1962 7,616 7,419 89.7 90.7
Sheraton City Centre............ Washington, D.C............. 353 1969 13,976 12,604 69.4 64.7
Sheraton Gateway - Miami Airport Miami, FL................... 408 1976/1995 13,380 11,996 74.2 75.3
Sheraton Grand Hotel (2)........ Tampa, FL................... 324 1984 17,333 15,247 71.8 68.2
Tremont House................... Boston, MA.................. 322 1925/* 12,392 10,317 74.0 75.1
The Tutwiler.................... Birmingham, AL.............. 147 1913/1986 3,811 4,084 61.0 67.8
Union Station................... Nashville, TN............... 124 1986 3,749 3,571 53.2 56.1
WestCoast Gateway............... Seattle, WA................. 145 1990 2,970 2,726 84.8 83.4
WestCoast Hotel & Marina........ Long Beach, CA.............. 195 1978/1997 2,657 2,934 32.0 44.7
WestCoast Pickwick Hotel........ San Francisco, CA........... 189 1928/* 3,618 3,431 58.5 65.4
WestCoast Plaza Park Suites..... Seattle, WA................. 193 1928/* 6,813 6,479 76.1 73.3
WestCoast Roosevelt Hotel....... Seattle, WA................. 151 1929/1987 4,372 4,102 74.1 73.8
WestCoast Valley River Inn...... Eugene, OR.................. 257 1973 10,634 9,963 67.1 67.9
WestCoast Wenatchee Center Hotel Wenatchee, WA............... 147 1988/1994 4,136 4,229 57.3 64.1
Wyndham Bel Age Hotel........... Los Angeles, CA............. 200 1984 14,995 15,023 77.0 77.0
Wyndham Emerald Plaza (2)....... San Diego, CA............... 436 1991 19,798 17,980 76.0 74.1
Wyndham Franklin Plaza.......... Philadelphia, PA............ 758 1979 35,842 33,358 72.6 74.0
Wyndham Greenspoint Hotel (2)... Houston, TX................. 472 1985/1995 21,134 19,063 70.2 72.6
Wyndham Northwest Chicago....... Chicago, IL................. 408 1983 24,377 23,252 67.2 67.8
Wyndham Riverfront Hotel........ New Orleans, LA............. 202 1996 -- -- -- --
Wyndham WindWatch (4)........... Long Island, NY............. 360 1989 17,580 18,211 68.4 75.6
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
FULL SERVICE HOTELS - CONTINUED:
Holiday Inn Select.............. Farmers Branch (Dallas), TX. $ 79.09 $ 75.06 $ 49.86 $ 52.08
Hyatt Newporter................. Newport Beach, CA........... 111.28 98.54 83.11 73.50
Hyatt Regency................... Lexington, KY............... 89.47 84.22 54.82 53.23
Marriott Hotel.................. Troy, MI.................... 118.86 109.41 92.51 85.61
Marriott Courtyard.............. Beachwood, OH............... 97.25 80.44 76.89 67.44
The Mayfair Hotel............... St. Louis, MO............... 93.54 89.53 47.08 50.62
Omni Inner Harbour Hotel........ Baltimore, MD............... 99.08 91.38 67.61 59.10
Park Shore Honolulu (4)......... Honolulu, HI................ -- -- -- --
Radisson Suites Town & Country.. Houston, TX................. 87.32 83.09 67.28 58.11
Radisson Hotel & Suites......... Dallas, TX.................. 77.24 76.53 55.76 55.43
Radisson Northbrook............. Northbrook, IL.............. 76.95 68.00 55.16 45.98
Radisson New Orleans Hotel...... New Orleans, LA............. 87.82 81.08 59.06 55.17
Radisson Suite Hotel............ Kansas City, KS............. 81.96 73.37 50.43 47.34
Radisson Overland Park.......... Overland Park, KS........... 74.71 67.64 48.43 45.29
Radisson Hotel (2).............. Beachwood, OH............... 77.62 69.73 58.03 56.19
Radisson Hotel.................. Akron, OH................... 73.66 72.79 49.59 50.11
Radisson Riverwalk.............. Jacksonville, FL............ 71.81 68.28 58.26 53.07
Ramada Inn...................... San Francisco, CA........... 57.39 51.74 51.50 46.91
Sheraton City Centre............ Washington, D.C............. 121.29 115.19 84.16 74.56
Sheraton Gateway - Miami Airport Miami, FL................... 85.80 76.74 63.64 57.77
Sheraton Grand Hotel (2)........ Tampa, FL................... 102.39 93.75 73.54 63.98
Tremont House................... Boston, MA.................. 123.51 102.43 91.35 76.92
The Tutwiler.................... Birmingham, AL.............. 106.56 101.43 64.96 68.77
Union Station................... Nashville, TN............... 100.48 94.44 53.49 52.99
WestCoast Gateway............... Seattle, WA................. 60.37 55.55 51.17 46.31
WestCoast Hotel & Marina........ Long Beach, CA.............. 70.66 58.17 22.61 25.98
WestCoast Pickwick Hotel........ San Francisco, CA........... 79.01 66.82 46.23 43.71
WestCoast Plaza Park Suites..... Seattle, WA................. 116.23 114.38 88.48 83.82
WestCoast Roosevelt Hotel....... Seattle, WA................. 98.16 92.38 72.71 68.19
WestCoast Valley River Inn...... Eugene, OR.................. 92.79 88.76 62.23 60.24
WestCoast Wenatchee Center Hotel Wenatchee, WA............... 63.82 59.19 36.54 37.94
Wyndham Bel Age Hotel........... Los Angeles, CA............. 145.56 140.17 112.10 107.89
Wyndham Emerald Plaza (2)....... San Diego, CA............... 114.96 103.48 87.35 76.66
Wyndham Franklin Plaza.......... Philadelphia, PA............ 104.00 96.28 75.51 71.28
Wyndham Greenspoint Hotel (2)... Houston, TX................. 96.39 85.60 67.63 62.13
Wyndham Northwest Chicago....... Chicago, IL................. 111.39 102.85 74.88 69.74
Wyndham Riverfront Hotel........ New Orleans, LA............. -- -- -- --
Wyndham WindWatch (4)........... Long Island, NY............. 116.74 104.75 79.83 79.21
See notes on the following page.
12
Total Revenue Average Occupancy
---------------------- -----------------
Number of Year Built/
Property Name Location Rooms Renovated 1997 1996 1997 1996
- ------------- -------- ----- --------- ---- ---- ---- ----
FULL SERVICE HOTELS CONTINUED:
Wyndham Garden - Las Colinas.... Dallas, TX.................. 168 1986 $ 5,917 $ 5,744 73.3% 72.6%
Wyndham Garden - Midtown........ Atlanta, GA................. 191 1987/1994 6,439 7,475 71.1 72.8
Wyndham Garden - Novi........... Detroit, MI................. 148 1988 4,671 4,308 76.5 75.9
Wyndham Garden Hotel............ Pleasanton, CA.............. 171 1985 5,748 4,775 82.3 73.5
Wyndham Garden - Wood Dale...... Chicago, IL................. 162 1986 5,578 5,282 71.1 71.4
The Garden at LaGuardia (6)..... New York, NY................ 229 1988 -- -- -- --
------ -------- -------- ---- ----
21,716 $781,250 $733,788 69.6% 70.7%
------ -------- -------- ---- ----
LIMITED SERVICE HOTELS:
Hampton Inn Jacksonville Airport Jacksonville, FL............ 113 1985 $ 2,277 $ 2,165 84.5% 86.1%
Hampton Inn..................... Rochester, NY............... 113 1986 2,348 2,202 75.2 74.2
Hampton Inn Cleveland Airport... North Olmsted, OH........... 113 1986 2,063 1,978 67.7 72.2
Hampton Inn..................... Canton, OH.................. 108 1985 1,597 1,535 68.7 68.5
------ -------- -------- ---- ----
447 $ 8,285 $ 7,880 74.1% 75.3%
------ -------- -------- ---- ----
RESORTS:
The Boulders.................... Scottsdale, AZ.............. 160 1985 $ 34,125 $ 53,444 72.4% 78.7%
Carmel Valley Ranch............. Carmel, CA.................. 100 1987 13,904 15,932 75.9 76.2
The Lodge at Ventana Canyon (2). Tucson, AZ.................. 49 1985/1995 12,952 12,298 68.1 68.0
The Peaks Resort & Spa.......... Telluride, CO............... 177 1992/1993 17,615 19,774 60.0 57.6
Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 492 1981/* 19,633 18,280 49.7 51.2
------ -------- -------- ---- ----
978 $ 98,229 $119,728 58.9% 59.7%
------ -------- -------- ---- ----
CONFERENCE CENTER:
Peachtree Conference Center..... Peachtree City (Atlanta), GA 250 $ 14,996 $ 15,086 58.8% 59.3%
------ -------- -------- ---- ----
Total/Weighted Average 23,391(7) $902,760 $876,482 69.1% 70.2%
====== ======== ======== ==== ====
Average Daily Rate Revenue Per Available
(ADR) Room (REVPAR)(1)
------------------ ---------------------
Property Name Location 1997 1996 1997 1996
- ------------- -------- ---- ---- ---- ----
FULL SERVICE HOTELS CONTINUED:
Wyndham Garden - Las Colinas.... Dallas, TX.................. $102.35 $100.47 $ 75.02 $ 72.95
Wyndham Garden - Midtown........ Atlanta, GA................. 98.99 107.94 70.41 78.59
Wyndham Garden - Novi........... Detroit, MI................. 82.43 74.83 63.05 56.77
Wyndham Garden Hotel............ Pleasanton, CA.............. 91.59 82.62 75.39 60.71
Wyndham Garden - Wood Dale...... Chicago, IL................. 93.10 86.76 66.17 61.97
The Garden at LaGuardia (6)..... New York, NY................ -- -- -- --
------- ------- ------- -------
$ 94.82 $ 87.05 $ 65.98 $ 61.54
------- ------- ------- -------
LIMITED SERVICE HOTELS:
Hampton Inn Jacksonville Airport Jacksonville, FL............ $ 62.81 $ 58.53 $ 53.09 $ 50.39
Hampton Inn..................... Rochester, NY............... 72.96 69.31 54.84 51.45
Hampton Inn Cleveland Airport... North Olmsted, OH........... 71.23 64.28 48.25 46.43
Hampton Inn..................... Canton, OH.................. 56.44 54.19 38.79 37.14
------- ------- ------- -------
$ 65.93 $ 61.66 $ 48.85 $ 46.46
------- ------- ------- -------
RESORTS:
The Boulders.................... Scottsdale, AZ.............. $326.91 $333.14 $236.55 $262.33
Carmel Valley Ranch............. Carmel, CA.................. 255.89 235.80 194.22 179.63
The Lodge at Ventana Canyon (2). Tucson, AZ.................. 216.40 184.85 147.26 125.67
The Peaks Resort & Spa.......... Telluride, CO............... 245.58 221.26 147.25 127.36
Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 106.07 92.50 52.76 47.33
------- ------- ------- -------
$201.54 $184.19 $118.63 $110.05
------- ------- ------- -------
CONFERENCE CENTER:
Peachtree Conference Center..... Peachtree City (Atlanta), GA $116.67 $117.28 $ 68.57 $ 69.52
------- ------- ------- -------
Total/Weighted Average $ 98.28 $ 90.22 $ 67.91 $ 63.34
======= ======= ======= =======
______________________
(1) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998.
(3) The Crowne Plaza Ravinia Hotel is owned by PAH Ravinia, Inc., an
unconsolidated subsidiary of Patriot. The hotel acquisition was
structured without a lessee.
(4) The Wyndham WindWatch Hotel is owned by PAH Windwatch, LLC, an
unconsolidated subsidiary of Patriot. The hotel acquisition was
structured without a lessee.
(5) Revenue and revenue statistical information is not available from the prior
owner of this hotel.
(6) Revenue statistical information not available because the hotel was out of
service for renovations or construction.
(7) Subsequent to December 31, 1997, the Companies acquired 27 additional
hotel properties with a total of over 6,000 guest rooms. As a result, as of
March 25, 1998, the Companies owned 118 hotels with an aggregate of over
29,400 guest rooms.
* Renovations are in progress at these hotels.
13
HOTELS ACQUIRED BY PATRIOT SUBSEQUENT TO YEAR END:
Year Ended December 31, 1997
---------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- --------- ------- --------- --- ------
FULL SERVICE HOTELS:
Buena Vista Palace Hotel
Orlando, FL (1)................................. 1,014 1983/1997 $68,633 82.4% $139.84 $115.23
Snavely Holiday Inn
Beachwood, OH (2)............................... 173 1974 5,073 72.0 86.60 62.32
Wyndham Bristol Place Hotel
Toronto, Canada................................. 287 1974/* 10,160 75.2 116.41 87.57
Wyndham Garden Brookfield
Brookfield, IL.................................. 178 1990 5,223 75.7 74.83 56.63
Wyndham Garden - Charlotte
Charlotte, NC................................... 173 1989 5,165 71.6 83.39 59.71
Wyndham Garden - Commerce
Los Angeles, CA (3)............................. 201 1991 6,867 69.8 83.25 58.14
Wyndham Garden - Market Center
Dallas, TX...................................... 230 1968/1997 4,274 64.0 90.90 58.14
Wyndham Garden - Indianapolis
Indianapolis, IN................................ 171 1990 4,789 67.7 77.58 52.53
Wyndham Garden - Overland Park
Overland Park, KS............................... 181 1971/1997 3,649 60.3 78.53 47.34
Wyndham Garden - Schaumburg
Schaumburg, IL.................................. 188 1985 5,448 71.1 86.94 61.85
Wyndham Garden - Vinings
Atlanta, GA (2)................................. 159 1985 5,018 70.2 86.77 60.92
ClubHouse Inn - Albuquerque
Albuquerque, NM................................. 137 1987 2,229 63.8 65.14 41.54
ClubHouse Inn - Atlanta (Norcross)
Atlanta, GA (2)................................. 147 1988 2,222 57.3 68.76 39.39
ClubHouse Inn - Knoxville
Knoxville, TN (2)............................... 137 1989 2,247 63.7 57.29 42.89
ClubHouse Inn - Nashville Airport
Nashville, TN................................... 135 1988 2,401 71.5 65.74 47.01
ClubHouse Inn & Conference Center
Nashville, TN................................... 285 1991/* 6,350 71.5 75.11 53.68
ClubHouse Inn - Overland Park
Overland Park, KS (2)........................... 143 1988 2,916 76.7 70.05 53.74
ClubHouse Inn - Topeka
Topeka, KS...................................... 121 1986 2,100 74.3 61.90 45.99
ClubHouse Inn - Valdosta
Valdosta, GA.................................... 121 1988 2,079 79.0 57.27 45.24
ClubHouse Inn - Wichita
Wichita, KS (2)................................. 120 1985 2,226 76.7 63.69 48.85
ClubHouse Inn - Savannah
Savanna, GA..................................... 138 1989 2,163 69.8 59.98 41.89
ClubHouse Inn - Kansas City Airport
Kansas City, MO................................. 138 1992/* 2,622 71.9 65.37 47.01
ClubHouse Inn - Omaha
Omaha, NE (2)................................... 137 1991 2,686 73.3 70.26 51.49
ClubHouse Inn - Richardson
Richardson, TX.................................. 137 1996 2,198 58.9 71.20 41.91
ClubHouse Inn - St. Louis
St. Louis, MO................................... 142 1997 -- -- -- --
RESORTS:
Wyndham Rose Hall Resort
Montego Bay, Jamaica (3)........................ 489 1972/1997 $18,637 63.2% $ 83.17 $ 52.57
14
The Companies also acquired the following leasehold interests in connection
with the Wyndham Merger. These hotels are leased from unaffiliated third parties
under long-term lease agreements. The leasehold interests are held by special
purpose entities in which Patriot owns a 99% non-controlling ownership interest
and Wyndham International owns a 1% controlling ownership interest.
Year Ended December 31, 1997
---------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- --------- ------- --------- --- ------
LEASED HOTELS:
Wyndham Harbour Island
Tampa, FL (3)................................... 300 1986 $14,269 71.4% $113.86 $ 81.28
Wyndham Garden - Perimeter
Atlanta, GA..................................... 143 1987 3,643 64.7 82.71 53.48
Wyndham Garden - Bloomington
Minneapolis, MN................................. 209 1988 7,348 79.6 82.96 66.00
Wyndham Garden - Bothell
Seattle, WA..................................... 166 1989 5,471 76.9 83.57 64.25
Wyndham Garden - Chandler
Chandler, AZ.................................... 159 1987 5,652 82.5 90.59 74.76
Wyndham Garden - Naperville
Chicago, IL..................................... 143 1986 4,269 76.6 81.98 62.76
Wyndham Garden - Nashville Airport
Nashville, TN................................... 180 1987 5,329 74.2 83.62 62.04
Wyndham Garden - North Phoenix
Phoenix, AZ..................................... 166 1988 4,623 73.8 79.37 58.60
Wyndham Garden - North San Diego
San Diego, CA................................... 180 1989 6,735 85.5 89.18 76.25
Wyndham Garden - Phoenix Airport
Phoenix, AZ..................................... 210 1987 7,455 72.4 100.40 72.70
Wyndham Garden - Salt Lake City
Salt Lake City, UT.............................. 381 1985/* 13,523 70.8 96.35 67.51
Wyndham Garden - Seattle/Tacoma
Seattle, WA (3)................................. 204 1988 6,983 74.7 92.29 68.98
Wyndham Garden - Sunnyvale
San Jose, CA.................................... 180 1987 8,120 85.6 115.43 98.80
(1) Patriot owns a 95% equity interest in the joint venture that owns this
hotel. The hotel is also encumbered by a ground lease, a $50.3 million
first lien mortgage note and a $23.8 million Participating Note held by
Wyndham International.
(2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998.
(3) These hotels (and in the case of the Wyndham Rose Hall Resort, the golf
course adjacent to the hotel property) are subject to ground leases which,
including renewal options, expire between 2018 and 2077.
* Renovations are in progress at these hotels.
In addition, as a result of the Wyndham Merger, Patriot acquired one hotel
that is currently closed for renovation, investment interests in two additional
hotels, 42 hotels under management contracts and eight franchised hotels, which
in the aggregate contain approximately 13,900 guest rooms.
15
HOTELS ACQUIRED BY WYNDHAM INTERNATIONAL SUBSEQUENT TO YEAR END:
Year Ended December 31, 1997
----------------------------------------
Number Year Built/ Total Average
Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR
- ---------------------- -------- ----------- -------- --------- --- --------
RESORTS:
Condado Plaza Hotel & Casino
San Juan, Puerto Rico........................... 570 1959/1962 $12,465 82.0% $143.84 $117.97
In addition, Wyndham International acquired a 50% equity interest in the
388-room El San Juan Hotel & Casino in Carolina, Puerto Rico and a 23.3% equity
interest in the 751-room El Conquistador Resort & Country Club in Las Croabas,
Puerto Rico in connection with the WHG Merger.
OPERATION OF THE HOTELS
As described in "Item 1 Description of Business," Patriot leases each of
the hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch
Hotel to Wyndham International or the Lessees pursuant to separate Participating
Leases. The Participating Leases have an average term of approximately five
years, with various expiration dates through 2008, subject to earlier
termination upon the occurrence of certain contingencies described in the
Participating Leases (including, particularly, irreparable damage or destruction
of the hotel, condemnation of the hotel property, failure to meet performance
goals, or disposition of the hotel). The variation of the lease terms is
intended to provide Patriot protection from the risk inherent in simultaneous
lease expirations.
In general, each Participating Lease requires the lessee of each hotel to
pay the greater of (i) Base Rent in a fixed amount or (ii) Participating Rent
based on percentages of room revenue, food and beverage revenue and other
revenue at each hotel leased by it, plus certain additional charges. In general,
Patriot is responsible for paying (i) real estate and personal property taxes on
the hotels (except to the extent that personal property associated with the
hotels is owned by the Lessee), (ii) casualty insurance on the hotels, (iii)
business interruption insurance on the hotels and (iv) ground rent with respect
to certain of the hotels. The lessees (including Wyndham International) are
required to pay for all liability insurance on the hotels it leases, with
extended coverage, including comprehensive general public liability, workers'
compensation and other insurance appropriate and customary for properties
similar to the hotels, with Patriot as an additional named insured.
Patriot carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to all of its hotels, with policy
specifications, insured limited and deductibles customarily carried for similar
properties. Patriot will carry similar insurance with respect to any other
properties developed or acquired in the future. Management of Patriot believes
its hotel investments are adequately insured in accordance with industry
standards.
Generally, the inventory required in the operation of the hotels is
transferred to the Lessee upon acquisition of the hotel. Upon termination of the
Participating Lease, the Lessee is obligated to surrender the related hotel
together with all such inventory to Patriot.
FRANCHISE AND BRAND AFFILIATIONS
As of December 31, 1997, all but four of Patriot's hotels are operated
under franchise or brand affiliations with nationally recognized hotel
companies. Franchisors and brand operators provide a variety of benefits for
hotels which include national advertising, publicity and other marketing
programs designed to increase brand awareness, training of personnel, continuous
review of quality standards and centralized reservation systems. The hotel
lessee is the licensee under the franchise agreement related to such hotel. The
hotel lessee is responsible for making all payments under the franchise
agreements to the franchisors. Franchise royalties and fees generally range from
1% to 10% of room revenue. The duration of the franchise agreements are varied,
but generally may be terminated upon prior notice and/or upon payment of certain
specified fees. However, the hotel lessees are not entitled to terminate the
franchise license for a hotel without prior written consent of Patriot.
16
The franchise licenses generally specify certain management, operational,
record keeping, accounting, reporting and marketing standards and procedures
with which the hotel lessee must comply. The franchise licenses obligate the
hotel lessee to comply with the franchisors' standards and requirements with
respect to training of operational personnel, safety, maintaining specified
insurance, the types of services and products ancillary to guest room services
that may be provided by the lessees, display of signage, and the type, quality
and age of furniture, fixtures and equipment included in guest rooms, lobbies
and other common areas. Compliance with such standards may from time to time
require significant expenditures for capital improvements.
The franchisors have agreed that upon the occurrence of certain events of
default by a lessee under a franchise license, the franchisors will transfer the
franchise license for the hotel to Patriot (or its designee) or make other
arrangements to continue the hotel as part of the franchisor's system.
The lessees' rights related to branded hotels are generally contained in
the management agreements related to such hotels. The lessees do not pay
additional franchise royalties or fees other than those specified in the
management agreements for use of the brands. Generally, the lessees' rights to
use the brands terminate upon any termination of the applicable management
agreement.
MANAGEMENT OF THE HOTELS
The Lessees (including Wyndham International) have entered into management
contracts with the Operators to operate and manage each of the hotels leased
from Patriot. As of December 31, 1997, 31 of Patriot's hotels were managed by
operators affiliated with Wyndham International (as of March 25, 1998, 68 of
Patriot's hotels were managed by operators affiliated with Wyndham
International). The management agreements provide for management fees based upon
a percentage of total revenue at each of the hotels managed by them. The
management fees generally range from 1% to 5% of total revenues. Generally, in
the event of the termination of any of the Participating Leases with the hotel
lessees, the related management agreement also terminates. Generally, the
management agreements also provide for the subordination of certain management
fee payments to the Lessees' obligations pursuant to the Participating Leases.
MAINTENANCE AND IMPROVEMENTS
The Participating Leases obligate Patriot to establish annually a reserve
for capital improvements at the hotels leased to the Lessees (including the
periodic replacement and refurbishment of furniture, fixtures and equipment
("FF&E")). Patriot and the Lessees agree on the use of funds in these reserves,
and Patriot has the right to approve the Lessees' annual and long-term capital
expenditure budgets. The aggregate minimum amount of such reserves average 4.0%
of total revenue for the hotels. Patriot, at its election, may chose to expend
more than 4.0% on any hotel. Any unexpended amounts will remain the property of
Patriot upon termination of the Participating Leases. Otherwise, the Lessees are
required, at their own expense, to make repairs (other than capital repairs)
which may be necessary and appropriate to keep their leased hotels in good order
and repair.
BAY MEADOWS RACECOURSE
The Bay Meadows Racecourse is a horse race track located on approximately
174 acres of land in San Mateo, California which is used for Thoroughbred
racing. The principal Racecourse facilities include (i) the main one-mile dirt
horse race track with six furlongs and one and one-quarter mile chutes, inside
of which is a seven furlong turf course; (ii) the main structure which contains
a grandstand, a clubhouse and a turf club; (iii) a parking area; and (iv) a
barn and stable area situated on the track's infield area.
In connection with the Cal Jockey Merger, Patriot sold substantially all of
the land related to the Racecourse to an affiliate of PaineWebber Incorporated
("Paine Webber") for a purchase price of approximately $80.9 million (the
"PaineWebber Land Sale"). Patriot retained ownership of the improvements located
on the land, including the Racecourse and its related facilities.
Simultaneously with the consummation of the PaineWebber Land Sale, the
PaineWebber affiliate and Patriot entered into a ground lease covering a portion
of the land on which the Racecourse is situated for a term of seven years. The
lease provides for quarterly rental payments (starting at $750,000 and
escalating to $1,250,000 over the term of the lease) Patriot has subleased the
Racecourse land and leased the related improvements to Wyndham International in
order to permit Wyndham International to continue horse racing operations at the
Racecourse through the term of Patriot's lease. The sublease is for a term of
seven years with annual payments due
17
based on percentages of revenue generated. In addition, Patriot has leased
certain land adjacent to the Racecourse to Borders, Inc. for an initial term of
20 years (with fixed net annual rent starting at $279,000 and escalating to
$416,000 over the term of the lease). In connection with the sale, Patriot
assigned all of its rights and benefits under existing leases, contracts,
permits and entitlements related to the land sold (excluding the Borders Lease)
to the PaineWebber affiliate, and the PaineWebber affiliate assumed
substantially all of Patriot's development obligations including, but not
limited to, all obligations for on and off-site improvements and all obligations
under existing lease contracts. The parties have the option to renew such leases
upon their expiration under certain circumstances.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Patriot, Wyndham International and their
respective subsidiaries are currently not subject to any material legal
proceedings or claims nor, to management's knowledge, are any material legal
proceedings or claims currently threatened.
On April 14, 1997, an action styled Kwalbrun v. James D. Carreker, et. al.,
was filed in the Delaware Court of Chancery in and for New Castle County (the
"Wyndham Stockholders' Litigation"), purportedly as a class action on behalf of
the Old Wyndham stockholders, against Old Wyndham, Old Patriot and the members
of the Board of Directors of Old Wyndham. The complaint alleged that the Old
Wyndham Board of Directors breached its fiduciary duties owed to Old Wyndham's
public stockholders in connection with the Board of Directors' approval of the
Wyndham Acquisition. In particular, the complaint alleged that the Wyndham
Merger was negotiated at the expense of Old Wyndham's public stockholders, and
that the Old Wyndham Board of Directors permitted Old Patriot to negotiate on
more favorable terms the acquisition of certain hotels from members and
affiliates of the Trammell Crow family (the "Crow Assets Acquisition"). Old
Patriot is alleged to have knowingly aided and abetted the alleged breach of
fiduciary duties. The complaint sought to enjoin, preliminarily and permanently,
consummation of the Wyndham Merger and the Crow Assets Acquisition under the
terms presently proposed and also sought unspecified damages. The parties to the
Wyndham Stockholders' Litigation have entered into a Memorandum of
Understanding, as amended, which sets forth the principal bases for settlement
which included providing certain additional disclosures to the stockholders of
Old Wyndham, Patriot and Wyndham International related to the Wyndham Merger.
The Memorandum of Understanding, as amended, and the proposed settlement are
contingent upon execution of an appropriate and satisfactory Stipulation of
Settlement (the "Stipulation") and related documents, and the approval of the
Delaware Court of Chancery. It is currently anticipated that the parties to the
Memorandum of Understanding, as amended, will enter into the formal Stipulation
and present such Stipulation to the Delaware Court of Chancery for approval
during the second quarter of 1998.
The Lessees and the Operators have advised Patriot that they currently are
not involved in any material litigation, other than routine litigation arising
in the ordinary course of business, substantially all of which is expected to be
covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 31, 1997, Patriot, Patriot Operating Company and Wyndham held
their stockholder meetings to, among other things, approve the merger of Wyndham
into Patriot. At the Patriot stockholders meeting, the following votes were cast
by stockholders: (i) Approval of Wyndham Merger For 48,244,283; Against
125,578; and Abstain 160,582; (ii) Approval of the amendment to the pairing
agreement between Patriot and Patriot Operating Company For 48,241,349; Against
117,195; and Abstain 171,899; and (iii) Approval of the amendment and
restatement of the Certificate of Incorporation For 48,218,580; Against 120,761
and Abstain 191,102. At the Patriot Operating Company stockholders meeting, the
following votes were cast by stockholders: (i) Approval of Wyndham Merger For
48,240,549; Against 116,674; and Abstain 173,220; (ii) Approval of the amendment
to the pairing agreement between Patriot and Patriot Operating Company For
48,233,413; Against 123,566; and Abstain 173,464; and (iii) Approval of the
amendment and restatement of the Certificate of Incorporation For 48,219,711;
Against 131,904 and Abstain 178,818.
18
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal
Jockey changed its name to Patriot American Hospitality, Inc. The Cal Jockey
Merger was accounted for as a reverse acquisition and, consequently, the
historical financial information of Old Patriot became the historical financial
information of Patriot. The following table sets forth the quarterly high and
low sale prices per share as reported on the New York Stock Exchange ("NYSE") of
Old Patriot Common Stock (symbol "PAH") through July 1, 1997, and the
distributions paid by Old Patriot with respect to each such period. From and
after July 2, 1997, the following table sets forth the quarterly high and low
sale prices per share of the Paired Shares as reported on the NYSE (symbol
"PAH"). The sale prices and distributions in the table through July 1, 1997 have
been adjusted to reflect (i) Old Patriot's 2-for-1 stock split in March 1997,
(ii) the conversion of each share of Old Patriot Common Stock into 0.51895
Paired Shares issued in the Cal Jockey Merger and (iii) the Companies' 1.927-
for-1 stock split in July 1997.
Per Share
High (1) Low (1) Dividend (1)
------------------ ---------------- ------------------
1996:
First Quarter............................................. $14.44 $12.88 $ 0.2400
Second Quarter............................................ $14.81 $13.19 $ 0.2400
Third Quarter............................................. $16.81 $14.00 $ 0.2400
Fourth Quarter............................................ $22.00 $16.25 $ 0.2625
1997:
First Quarter............................................. $26.38 $20.75 $ 0.2625
Second Quarter............................................ $23.75 $18.50 $ 0.3225 (2)
Third Quarter............................................. $32.13 $22.00 $ 0.2625
Fourth Quarter............................................ $34.50 $26.88 $ 0.3200 (3)
- ---------------------
(1) Represents shares of Old Patriot Common Stock for periods through July 1,
1997, and Paired Shares for periods after July 1, 1997, except that
dividends have been paid only on shares of Patriot Common Stock for periods
after July 1, 1997. No dividends have been paid on shares of Wyndham
International Common Stock.
(2) Dividends paid for the second quarter of 1997 include a special dividend of
$0.06 per share paid by Old Patriot on June 30, 1997. To maintain its
qualification as a REIT prior to consummation of the Cal Jockey Merger, Old
Patriot was required to distribute to its stockholders any undistributed
"real estate investment trust taxable income" of Old Patriot for Old
Patriot's short taxable year ending with the consummation of the Cal Jockey
Merger.
(3) On January 5, 1998, Patriot declared a dividend of $0.32 per common share
to holders of record as of January 8, 1998. A portion of this dividend will
be used to reduce 1997 REIT taxable income of Patriot.
HOLDERS
As of March 25, 1998, there were approximately 3,500 record holders of the
Companies' Paired Shares, including shares held in "street name" by nominees who
are record holders, and approximately 26,600 shareholders.
DIVIDENDS
Patriot intends to continue to make regular quarterly distributions to its
shareholders. The Board of Directors, in its sole discretion, determines the
actual distribution rate based on a number of factors, including the amount of
cash available for distribution, Patriot's financial condition, capital
expenditure requirements for Patriot's properties, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code") and such other factors as the Board of Directors deems
relevant. Patriot's actual cash available for distribution is affected by a
number of factors, including changes in occupancy or ADR at its hotels.
19
On March 23, 1998, the Companies announced that Interstate shareholders
receiving Paired Shares in the Interstate Merger will be entitled to receive
Patriot's regular quarterly dividend of $0.32 per share for the first quarter of
1998 and will be entitled to participate with all other Patriot shareholders in
a special distribution of accumulated earnings and profits from Patriot's
acquisition of Old Wyndham.
In order to maintain its qualification as a REIT, Patriot must make annual
distributions to its shareholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, Patriot may be
required to make distributions in excess of cash available for distribution in
order to meet such distribution requirements. In such event, Patriot would seek
to borrow the amount of the deficiency or sell assets to obtain the cash
necessary to make distributions to retain its qualification as a REIT for
federal income tax purposes.
RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1997, the Companies have issued equity securities in
private placements in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") in the
amounts and for the consideration set forth below.
In October 1997, the REIT Partnership and the OpCo Partnership each issued
354,951 OP Units (with an aggregate value of approximately $8.3 million) to the
sellers of three hotels owned by affiliates of CHC Lease Partners as partial
consideration for the acquisition of these hotels by the REIT Partnership.
In December 1997, the REIT Partnership and the OpCo Partnership each issued
221,553 OP Units (with an aggregate value of approximately $6.4 million) to the
sellers of Wyndham Emerald Plaza as partial consideration for the acquisition of
that hotel by the REIT Partnership.
In December 1997, the Companies issued 3,250,000 Paired Shares to a
financial institution for aggregate consideration of approximately $93.6 million
in cash. The sale of the Paired Shares is subject to a price adjustment
agreement which matures in December 1998.
In February 1998, the Companies issued 4,900,000 Paired Shares to a
financial institution for aggregate consideration of approximately $121.8
million in cash. The sale of the Paired Shares is subject to a Purchase Price
Adjustment Mechanism which matures in February 1999.
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth selected separate and combined historical
financial information for Patriot and Wyndham International. The following
financial information should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements and notes thereto of
Patriot and Wyndham International included elsewhere in this Annual Report on
Form 10-K.
20
PATRIOT AND WYNDHAM INTERNATIONAL
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
PERIOD
OCTOBER 2, 1995
YEAR ENDED DECEMBER 31, (INCEPTION OF
--------------------------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- --------------------- --------------------
(in thousands, except per share data)
OPERATING DATA:
Total revenue...................................... $ 335,035 $ 76,493 $ 11,095
Income before income tax provision, minority
interests and extraordinary item.................. 4,142 44,813 7,064
Income before extraordinary item................... 362 37,991 6,096
Net (loss) income.................................. $ (2,172) $ 37,991 $ 5,359
PER SHARE DATA (1):
Basic earnings per share:
Income before extraordinary item.................. $ 0.01 $ 1.07 $ 0.21
Extraordinary item, net of minority interests..... (0.05) -- (0.03)
----------- --------- ---------
Net (loss) income per Paired Share................ $ (0.04) $ 1.07 $ 0.18
=========== ========= =========
Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18
=========== ========= =========
Dividends per Paired Share (2)..................... $ 1.1675 $ 0.9825 $ 0.24
=========== ========= =========
CASH FLOW DATA:
Cash provided by operating activities.............. $ 108,110 $ 61,196 $ 7,618
Cash used in investing activities.................. (1,193,079) (419,685) (306,948)
Cash provided by financing activities.............. 1,125,801 360,324 304,099
AS OF DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
(in thousands)
BALANCE SHEET DATA:
Investment in real estate and related improvements
and land held for development, at cost, net....... $ 2,044,649 $ 641,825 $ 265,759
Total assets....................................... 2,507,853 760,931 324,224
Total debt......................................... 1,112,337 214,339 9,500
Minority interest in Operating Partnerships........ 220,177 68,562 41,522
Minority interest in consolidated subsidiaries..... 49,694 11,711 --
Stockholders' equity............................... 989,892 437,039 261,778
PERIOD
OCTOBER 2, 1995
(INCEPTION OF
YEAR ENDED DECEMBER 31, OPERATIONS)
------------------------------------------- THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- --------------------
(in thousands)
OTHER DATA:
Funds from operations (3).......................... $ 111,542 $ 64,463 $ 9,798
Cash available for distribution (4)................ 94,396 55,132 8,603
Weighted average number of common shares and OP
Units outstanding (5)............................. 65,981 42,200 34,001
See accompanying notes on page 23.
21
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD
OCTOBER 2, 1995
YEAR ENDED DECEMBER 31, (INCEPTION OF
-------------------------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- -------------------
OPERATING DATA:
Total revenue...................................... $ 185,554 $ 76,493 $ 11,095
Income before minority interests and extraordinary
item.............................................. 3,769 44,813 7,064
Income before extraordinary item................... 382 37,991 6,096
Net (loss) income.................................. $ (2,152) $ 37,991 $ 5,359
PER SHARE DATA (1):
Basic earnings per share:
Income (loss) before extraordinary item........... $ 0.01 $ 1.07 $ 0.21
Extraordinary item, net of minority interests..... (0.05) -- (0.03)
----------- ---------- ----------
Net income (loss) per common share................ $ (0.04) $ 1.07 $ 0.18
=========== ========== ==========
Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18
=========== ========== ==========
Dividends per common share (2)..................... $ 1.1675 $ 0.9825 $ 0.24
=========== ========== ==========
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS
ENDED
DECEMBER 31,
1997
-----------------
OPERATING DATA:
Total Revenue................................................................................. $ 204,134
Income before income tax provision and minority interests..................................... 373
Net loss...................................................................................... $ (20)
PER SHARE DATA (1):
Basic earnings per share...................................................................... $ --
=================
Diluted earnings per share.................................................................... $ --
=================
Dividends per common share (2)................................................................ $ --
=================
See accompanying notes on following page.
22
NOTES TO PATRIOT AND WYNDHAM INTERNATIONAL SELECTED FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend on March 18, 1997 to
stockholders of record on March 7, 1997. On July 1, 1997, by operation of
the Cal Jockey Merger, each issued and outstanding share of Old Patriot
Common Stock was converted into 0.51895 Paired Shares. In addition, on July
10, 1997, the respective Boards of Directors of Patriot and Wyndham
International declared a 1.927-for-1 stock split on their shares of common
stock effected in the form of a stock dividend distributed on July 25, 1997
to stockholders of record on July 15, 1997. All references herein to the
number of shares, per share amounts and market prices of the Paired Shares
and options to purchase Paired Shares have been restated to reflect the
impact of the Cal Jockey Merger and the above-described stock splits, as
applicable.
In addition, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("Statement 128"). Statement 128 specifies the computation,
presentation and disclosure requirements for basic earnings per share and
diluted earnings per share. The weighted average number of shares and
earnings per share amounts presented herein have been restated to reflect
the impact of Statement 128.
(2) Dividends paid for the year ended December 31, 1997 include a special
dividend of $0.06 per share paid by Old Patriot on June 30, 1997. To
maintain its qualification as a REIT prior to consummation of the Cal
Jockey Merger, Old Patriot was required to distribute to its stockholders
any undistributed "real estate investment trust taxable income" of Old
Patriot for Old Patriot's short taxable year ending with the consummation
of the Cal Jockey Merger. No dividends have been paid by Wyndham
International for the six months ended December 31, 1997.
(3) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations ("FFO") represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
or losses from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships,
joint ventures and corporations. Adjustments for Patriot's unconsolidated
subsidiaries are calculated to reflect FFO on the same basis. Patriot and
Wyndham International have also made certain adjustments to FFO for real
estate related amortization expense and the write off of certain costs of
acquiring l