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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2004
 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period from to
 Commission file number 001-11975 Boykin Lodging Company  Ohio
    
    34-1824586(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)Guildhall Building, Suite 1500, 45 W. Prospect Avenue,Cleveland, Ohio
    
    44115(Address of Principal Executive Office)
    
    (Zip Code)
 (216) 430-1200   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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [  ] The number of common shares, without par value, outstanding as of July 30,
2004 was 17,441,658.




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PART I ITEM 1. FINANCIAL STATEMENTS BOYKIN LODGING COMPANY
INDEX TO FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
    
    
    3Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
    
    
    4Consolidated Statement of Shareholders Equity for the Six Months Ended June 30, 2004 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)
    
    
    6Notes to Consolidated Financial Statements June 30, 2004 (unaudited)
    
    
    7EX-31.1 CERTIFICATIONEX-31.2 CERTIFICATIONEX-32.1 CERTIFICATIONEX-32.2 CERTIFICATION




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BOYKIN LODGING COMPANY 
 CONSOLIDATED BALANCE SHEETS
 AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
 (dollar amounts in thousands)
 (Unaudited)June 30,
    
    December 31,2004
    
    2003ASSETSInvestment in hotel properties
    
    $
    628,904
    
    
    $
    616,363Accumulated depreciation
    
    
    (155,516
    )
    
    
    (146,072
    )Investment in hotel properties, net
    
    
    473,388
    
    
    
    470,291Cash and cash equivalents
    
    
    18,121
    
    
    
    14,013Restricted cash
    
    
    13,171
    
    
    
    15,365Accounts receivable, net of allowance for doubtful accounts of $145
and $151 as of June 30, 2004 and December 31, 2003
    
    
    5,819
    
    
    
    40,650Rent receivable from lessee
    
    
    17
    
    
    
    254Inventories
    
    
    1,896
    
    
    
    1,782Deferred financing costs and other, net
    
    
    2,667
    
    
    
    3,018Investment in unconsolidated joint ventures
    
    
    15,898
    
    
    
    16,158Other assets
    
    
    9,219
    
    
    
    8,718Assets related to discontinued operations, net
    
    
    
    
    
    
    21,043$
    540,196
    
    
    $
    591,292LIABILITIES AND SHAREHOLDERS EQUITYBorrowings against credit facility
    
    $
    64,946
    
    
    $
    71,945Term notes payable
    
    
    195,373
    
    
    
    210,074Accounts payable and accrued expenses
    
    
    38,914
    
    
    
    45,200Accounts payable to related party
    
    
    945
    
    
    
    945Dividends/distributions payable
    
    
    1,188
    
    
    
    1,188Due to lessees
    
    
    
    
    
    
    164Deferred lease revenue
    
    
    318
    
    
    
    Minority interest in joint ventures
    
    
    1,115
    
    
    
    1,177Minority interest in operating partnership
    
    
    10,350
    
    
    
    11,495Liabilities related to discontinued operations
    
    
    
    
    
    
    17,563SHAREHOLDERS EQUITY:Preferred shares, without par value; 10,000,000 shares authorized;
181,000 shares issued and outstanding as of June 30, 2004 and
December 31, 2003 (liquidation preference of $45,250)
    
    
    
    
    
    
    Common shares, without par value; 40,000,000 shares authorized;
17,441,658 and 17,344,380 shares outstanding as of June 30,
2004 and December 31, 2003, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    358,723
    
    
    
    357,290Distributions and losses in excess of income
    
    
    (129,198
    )
    
    
    (124,321
    )Unearned compensation  restricted shares
    
    
    (2,478
    )
    
    
    (1,428
    )Total shareholders equity
    
    
    227,047
    
    
    
    231,541$
    540,196
    
    
    $
    591,292
 See notes to consolidated financial statements. 3




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BOYKIN LODGING COMPANY 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 and 2003
 (unaudited, amounts in thousands, except for per-share data)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Revenues:Hotel revenuesRooms
    
    $
    40,219
    
    
    $
    37,931
    
    
    $
    77,979
    
    
    $
    71,804Food and beverage
    
    
    19,587
    
    
    
    18,525
    
    
    
    37,115
    
    
    
    34,259Other
    
    
    3,644
    
    
    
    3,337
    
    
    
    6,381
    
    
    
    6,002Total hotel revenues
    
    
    63,450
    
    
    
    59,793
    
    
    
    121,475
    
    
    
    112,065Lease revenue
    
    
    343
    
    
    
    336
    
    
    
    686
    
    
    
    673Other operating revenue
    
    
    135
    
    
    
    90
    
    
    
    230
    
    
    
    173Revenues from condominium development and unit sales
    
    
    1,181
    
    
    
    7,286
    
    
    
    4,274
    
    
    
    17,096Total revenues
    
    
    65,109
    
    
    
    67,505
    
    
    
    126,665
    
    
    
    130,007Expenses:Hotel operating expensesRooms
    
    
    9,995
    
    
    
    9,256
    
    
    
    19,300
    
    
    
    17,833Food and beverage
    
    
    13,534
    
    
    
    12,851
    
    
    
    25,860
    
    
    
    24,547Other direct
    
    
    2,463
    
    
    
    2,192
    
    
    
    4,411
    
    
    
    3,843Indirect
    
    
    19,700
    
    
    
    17,426
    
    
    
    38,794
    
    
    
    34,297Management fees to related party
    
    
    1,391
    
    
    
    1,195
    
    
    
    3,077
    
    
    
    2,133Management fees  other
    
    
    112
    
    
    
    426
    
    
    
    206
    
    
    
    1,051Total hotel operating expenses
    
    
    47,195
    
    
    
    43,346
    
    
    
    91,648
    
    
    
    83,704Property taxes, insurance and other
    
    
    4,203
    
    
    
    3,582
    
    
    
    8,465
    
    
    
    7,682Cost of condominium development and unit sales
    
    
    482
    
    
    
    5,353
    
    
    
    3,481
    
    
    
    11,685Real estate related depreciation and amortization
    
    
    6,829
    
    
    
    8,495
    
    
    
    13,623
    
    
    
    15,103Corporate general and administrative
    
    
    2,027
    
    
    
    2,268
    
    
    
    4,052
    
    
    
    3,948Impairment of real estate
    
    
    
    
    
    
    
    
    
    
    4,300
    
    
    
    Total operating expenses
    
    
    60,736
    
    
    
    63,044
    
    
    
    125,569
    
    
    
    122,122Operating income
    
    
    4,373
    
    
    
    4,461
    
    
    
    1,096
    
    
    
    7,885Interest income
    
    
    30
    
    
    
    224
    
    
    
    176
    
    
    
    254Other income
    
    
    
    
    
    
    11
    
    
    
    8
    
    
    
    18Interest expense
    
    
    (3,595
    )
    
    
    (4,081
    )
    
    
    (7,175
    )
    
    
    (8,106
    )Amortization of deferred financing costs
    
    
    (338
    )
    
    
    (720
    )
    
    
    (668
    )
    
    
    (1,399
    )Minority interest in earnings of joint ventures
    
    
    (6
    )
    
    
    (19
    )
    
    
    (39
    )
    
    
    (39
    )Minority interest in loss of operating partnership
    
    
    206
    
    
    
    246
    
    
    
    1,298
    
    
    
    1,027Equity in earnings (loss) of unconsolidated joint ventures
    
    
    143
    
    
    
    135
    
    
    
    (588
    )
    
    
    (709
    )Income (loss) before gain on sale/disposal of assets and discontinued operations
    
    
    813
    
    
    
    257
    
    
    
    (5,892
    )
    
    
    (1,069
    )Gain on sale/disposal of assets
    
    
    8
    
    
    
    343
    
    
    
    2,523
    
    
    
    376Income (loss) before discontinued operations
    
    
    821
    
    
    
    600
    
    
    
    (3,369
    )
    
    
    (693
    )Discontinued operations:Operating loss from discontinued operations, net of minority interest income of
$84 for the six months ended June 30, 2004 and $119 and $371 for the three and
six months ended June 30, 2003, respectively
    
    
    
    
    
    
    (669
    )
    
    
    (476
    )
    
    
    (2,089
    )Gain (loss) on sale of assets, net of minority interest income (expense) of
$(237) for the six months ended June 30, 2004 and $66 and $(142) for the three
and six months ended June 30, 2003, respectively
    
    
    
    
    
    
    (373
    )
    
    
    1,344
    
    
    
    802Net income (loss)
    
    
    821
    
    
    
    (442
    )
    
    
    (2,501
    )
    
    
    (1,980
    )Preferred dividends
    
    
    (1,188
    )
    
    
    (1,188
    )
    
    
    (2,376
    )
    
    
    (2,376
    )Net loss attributable to common shareholders
    
    $
    (367
    )
    
    $
    (1,630
    )
    
    $
    (4,877
    )
    
    $
    (4,356
    )Net loss attributable to common shareholders before discontinued operations per shareBasic
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.33
    )
    
    $
    (0.18
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.33
    )
    
    $
    (0.18
    )Discontinued operations per shareBasic
    
    $
    0.00
    
    
    $
    (0.06
    )
    
    $
    0.05
    
    
    $
    (0.07
    )Diluted
    
    $
    0.00
    
    
    $
    (0.06
    )
    
    $
    0.05
    
    
    $
    (0.07
    )Net loss attributable to common shareholders per shareBasic
    
    $
    (0.02
    )
    
    $
    (0.09
    )
    
    $
    (0.28
    )
    
    $
    (0.25
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.09
    )
    
    $
    (0.28
    )
    
    $
    (0.25
    )Weighted average number of common shares outstandingBasic
    
    
    17,412
    
    
    
    17,339
    
    
    
    17,404
    
    
    
    17,328Diluted
    
    
    17,446
    
    
    
    17,420
    
    
    
    17,495
    
    
    
    17,418
 See notes to consolidated financial statements. 4




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BOYKIN LODGING COMPANY 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 FOR THE SIX MONTHS ENDED JUNE 30, 2004
 (unaudited, dollar amounts in thousands except for per-share data)
 DistributionsAdditional
    
    and LossesPreferred
    
    Common
    
    Paid-In
    
    In Excess of
    
    UnearnedShares
    
    Shares
    
    Capital
    
    Income
    
    Compensation
    
    TotalBalance at December 31, 2003
    
    
    181,000
    
    
    
    17,344,380
    
    
    $
    357,290
    
    
    $
    (124,321
    )
    
    $
    (1,428
    )
    
    $
    231,541Issuance of common shares
    
    
    
    
    
    
    116,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted common share
grants
    
    
    
    
    
    
    
    
    
    
    1,589
    
    
    
    
    
    
    
    (1,589
    )
    
    
    Common share purchases for
treasury
    
    
    
    
    
    
    (18,740
    )
    
    
    (156
    )
    
    
    
    
    
    
    
    
    
    
    (156
    )Dividends declared
 $13.125 per Class A
preferred share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,376
    )
    
    
    
    
    
    
    (2,376
    )Amortization of unearned
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    539
    
    
    
    539Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,501
    )
    
    
    
    
    
    
    (2,501
    )Balance at June 30, 2004
    
    
    181,000
    
    
    
    17,441,658
    
    
    $
    358,723
    
    
    $
    (129,198
    )
    
    $
    (2,478
    )
    
    $
    227,047
 See notes to consolidated financial statements. 5




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BOYKIN LODGING COMPANY 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
 (unaudited, amounts in thousands)
 2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (2,501
    )
    
    $
    (1,980
    )Adjustments to reconcile net loss to net cash flow provided
by operating activities -Gain on sale/disposal of assets
    
    
    (4,104
    )
    
    
    (1,320
    )Impairment of real estate
    
    
    4,300
    
    
    
    Depreciation and amortization
    
    
    14,555
    
    
    
    17,845Amortization of unearned compensation
    
    
    539
    
    
    
    410Equity in loss of unconsolidated joint ventures
    
    
    588
    
    
    
    709Deferred lease revenue
    
    
    318
    
    
    
    284Minority interests
    
    
    (1,106
    )
    
    
    (1,217
    )Changes in assets and liabilities -Accounts receivable and inventories
    
    
    34,972
    
    
    
    853Restricted cash
    
    
    2,194
    
    
    
    (2,621
    )Accounts payable and accrued expenses
    
    
    (6,929
    )
    
    
    650Amounts due to/from lessees
    
    
    73
    
    
    
    (340
    )Other
    
    
    (366
    )
    
    
    (8,467
    )Net cash flow provided by operating activities
    
    
    42,533
    
    
    
    4,806Cash flows from investing activities:Investment in unconsolidated joint ventures
    
    
    (428
    )
    
    
    (481
    )Distributions received from unconsolidated joint ventures
    
    
    91
    
    
    
    209Improvements and additions to hotel properties, net
    
    
    (20,950
    )
    
    
    (8,895
    )Net proceeds from sale of assets
    
    
    24,375
    
    
    
    17,408Net cash flow provided by investing activities
    
    
    3,088
    
    
    
    8,241Cash flows from financing activities:Payments of dividends and distributions
    
    
    (2,376
    )
    
    
    (9,598
    )Net (repayments) borrowings against credit facility
    
    
    (6,999
    )
    
    
    4,000Term note borrowings
    
    
    14,133
    
    
    
    3,004Repayment of term notes
    
    
    (45,704
    )
    
    
    (17,999
    )Payment of deferred financing costs
    
    
    (309
    )
    
    
    (619
    )Net proceeds from issuance of common shares
    
    
    
    
    
    
    155Cash payment for common share purchases
    
    
    (156
    )
    
    
    (75
    )Distributions to joint venture minority interest partners
    
    
    (102
    )
    
    
    (55
    )Net cash flow used in financing activities
    
    
    (41,513
    )
    
    
    (21,187
    )Net change in cash and cash equivalents
    
    $
    4,108
    
    
    $
    (8,140
    )Cash and cash equivalents, beginning of period
    
    
    14,013
    
    
    
    25,453Cash and cash equivalents, end of period
    
    $
    18,121
    
    
    $
    17,313
 See notes to consolidated financial statements. 6




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BOYKIN LODGING COMPANY 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2004
 (unaudited, dollar amounts in thousands except per share data)
 1. BACKGROUND: Boykin Lodging Company, an Ohio corporation (together with its
subsidiaries Boykin), is a real estate investment trust (REIT) that owns
hotels throughout the United States of America. As of June 30, 2004, Boykin
owned interests in 28 hotels containing a total of 8,288 guest rooms located in
18 states. Formation and Significant Events Boykin was formed and completed an initial public offering (IPO) in 1996
to continue and expand the nearly 40-year history of hotel ownership,
acquisition, redevelopment and repositioning activities of its predecessors,
Boykin Management Company and its affiliates. Boykin Hotel Properties, L.P.,
an Ohio limited partnership (the Partnership), is the operating partnership
that transacts business and holds the direct and indirect ownership interests
in Boykins hotels. As of June 30, 2004, Boykin had an 85.3% ownership
interest in and was the sole general partner of the Partnership. Since the IPO, Boykin has expanded its hotel portfolio by using capital
raised through a combination of common share issuances, debt financings,
capital from strategic joint venture partners and cash flow generated from
operations. Consolidated Joint Ventures As of June 30, 2004, Boykin owned three hotels through joint venture
structures with hotel operators. The following table sets forth these joint
ventures: Boykin
    
    JV PartnerOwnership
    
    Ownership
    
    
    
    Date of HotelName of Joint Venture
    
    JV Partner
    
    Percentage
    
    Percentage
    
    Hotel Owned Under Joint Venture
    
    PurchaseBoyStar Ventures, L.P.
    
    Interstate Hotels and
Resorts
    
    
    91
    %
    
    
    9
    %
    
    Holiday Inn Minneapolis West
    
    July 1997Shawan Road Hotel L.P.
    
    Davidson Hotel Company
    
    
    91
    %
    
    
    9
    %
    
    Marriotts Hunt Valley Inn
    
    July 1997Boykin San Diego LLC
    
    Outrigger Lodging
Services
    
    
    91
    %
    
    
    9
    %
    
    Hampton Inn San Diego
Airport/Sea World
    
    November 1997
 Unconsolidated Joint Ventures Boykin has a 25% ownership interest in a joint venture with AEW Partners
III, L.P. (AEW), an investment partnership managed by AEW Capital Management,
L.P., a Boston-based real estate investment firm. The Boykin/AEW venture has a
75% ownership interest in Boykin Chicago, L.L.C., which owns Hotel 71, located
in downtown Chicago. Boykin directly owns the remaining 25% ownership interest
in Boykin Chicago, L.L.C. thereby resulting in Boykins total ownership
percentage in the hotel of 43.75%. Boykin Chicago L.L.C. has entered into a
management agreement with a wholly-owned subsidiary of Boykin Management
Company Limited Liability Company (BMC) to manage Hotel 71. Management and
other fees earned by the subsidiary for the three and six months ended June 30,
2004 totaled $142 and $216, respectively. An additional $1 was paid for other
services provided pursuant to the management agreement. For the six months
ended June 30, 2004, fees of $1 were paid to a wholly-owned subsidiary of BMC
for design services related to capital improvements at the hotel. Boykin has a 50% ownership interest in BoyCon, L.L.C. (BoyCon), a joint
venture with an affiliate of Concord Hospitality Enterprises (Concord), a
privately owned hotel investment and management company based in Raleigh, North
Carolina. BoyCon owns a 227-room Courtyard by Marriott® in Lyndhurst, New
Jersey, which is managed by Concord. Because of the non-controlling nature of Boykins ownership interests in
these joint ventures, Boykin accounts for these investments using the equity
method. 7




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Boykins carrying value of its investment in the joint ventures differs
from its share of the partnership equity reported in the balance sheets of the
unconsolidated joint ventures due to Boykins cost of its investment in excess
of the historical net book values related to the direct investment in Boykin
Chicago, L.L.C. Boykins additional basis is allocated to depreciable assets
and depreciation is recognized on a straight-line basis over 30 years. The following table sets forth the total assets, liabilities, equity and
components of net income (loss), including Boykins share, related to the
unconsolidated joint ventures discussed above as of June 30, 2004 and December
31, 2003 and for the three and six month periods ended June 30, 2004 and 2003: Boykin/AEW
    
    Boykin/ConcordJune 30,
    
    December 31,
    
    June 30,
    
    December 31,2004
    
    2003
    
    2004
    
    2003Total assets
    
    $
    68,245
    
    
    $
    68,601
    
    
    $
    22,104
    
    
    $
    22,272Accrued expenses
    
    
    3,347
    
    
    
    2,884
    
    
    
    502
    
    
    
    469Outstanding debt
    
    
    36,705
    
    
    
    37,236
    
    
    
    16,561
    
    
    
    16,728Total liabilities
    
    
    40,052
    
    
    
    40,120
    
    
    
    17,063
    
    
    
    17,197Minority interest
    
    
    7,011
    
    
    
    7,081
    
    
    
    
    
    
    
    Equity
    
    
    21,182
    
    
    
    21,400
    
    
    
    5,041
    
    
    
    5,075Boykins share of equity and minority interest
    
    
    12,403
    
    
    
    12,627
    
    
    
    2,520
    
    
    
    2,537Boykins additional basis in Boykin Chicago, L.L.C.
    
    
    975
    
    
    
    994
    
    
    
    
    
    
    
    Investment in unconsolidated joint venture
    
    $
    13,378
    
    
    $
    13,621
    
    
    $
    2,520
    
    
    $
    2,537
 Boykin/AEW
    
    Boykin/ConcordThree Months
    
    Six Months
    
    Three Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    4,762
    
    
    $
    4,240
    
    
    $
    7,220
    
    
    $
    6,635
    
    
    $
    1,924
    
    
    $
    1,782
    
    
    $
    3,558
    
    
    $
    3,167Hotel operating expenses
    
    
    (3,036
    )
    
    
    (2,476
    )
    
    
    (5,333
    )
    
    
    (4,752
    )
    
    
    (1,072
    )
    
    
    (916
    )
    
    
    (2,055
    )
    
    
    (1,793
    )Real estate related depreciation
    
    
    (777
    )
    
    
    (778
    )
    
    
    (1,551
    )
    
    
    (1,549
    )
    
    
    (278
    )
    
    
    (282
    )
    
    
    (555
    )
    
    
    (586
    )Property taxes, insurance and other
    
    
    (347
    )
    
    
    (436
    )
    
    
    (694
    )
    
    
    (566
    )
    
    
    (132
    )
    
    
    (134
    )
    
    
    (268
    )
    
    
    (276
    )Operating income (loss)
    
    
    602
    
    
    
    550
    
    
    
    (358
    )
    
    
    (232
    )
    
    
    442
    
    
    
    450
    
    
    
    680
    
    
    
    512Interest and other income
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2Amortization
    
    
    (40
    )
    
    
    (69
    )
    
    
    (115
    )
    
    
    (138
    )
    
    
    (22
    )
    
    
    (22
    )
    
    
    (44
    )
    
    
    (44
    )Interest expense
    
    
    (406
    )
    
    
    (438
    )
    
    
    (818
    )
    
    
    (877
    )
    
    
    (189
    )
    
    
    (202
    )
    
    
    (379
    )
    
    
    (407
    )Other
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (6
    )
    
    
    (84
    )
    
    
    7
    
    
    
    (109
    )
    
    
    (395
    )Net income (loss) before minority
interest
    
    
    157
    
    
    
    34
    
    
    
    (1,289
    )
    
    
    (1,252
    )
    
    
    147
    
    
    
    234
    
    
    
    149
    
    
    
    (332
    )Boykins share of net income (loss)
    
    
    69
    
    
    
    18
    
    
    
    (663
    )
    
    
    (543
    )
    
    
    74
    
    
    
    117
    
    
    
    75
    
    
    
    (166
    )
 Taxable REIT Subsidiaries Bellboy, Inc. (Bellboy) is a wholly-owned taxable REIT subsidiary
(TRS) of Boykin which, through its subsidiaries, leased 24 of Boykins
properties as of June 30, 2004. Boykin Chicago, L.L.C. and the Boykin/Concord
joint venture each also have TRS entities, 71 E. Wacker Leasing, Inc. and
BoyCon Leasing, Inc., respectively, that leased their properties. The joint
venture with Davidson Hotel Company (Davidson) also formed a TRS, Hunt Valley
Leasing, Inc. (Hunt Valley), which leased the Marriotts Hunt Valley Inn as
of June 30, 2004. 8




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##### Table of Contents



As of June 30, 2004, all hotels Boykin had an ownership interest in,
other than the Hampton Inn San Diego Airport/Sea World, were operated under the
TRS structure. The consolidated financial statements include the operating results of the
consolidated hotels under the TRS structure. For the one consolidated hotel
not operated under the TRS structure, lease revenues are recorded within the
consolidated financial statements. Hilton Modification Agreement In connection with the terms of an agreement which Boykin entered into
with Hilton Hotels Corporation (Hilton) during 2003, Hilton ceased management
of Boykins hotel in Yakima, Washington, in February 2004. Simultaneously, the
hotel changed from a Doubletree to a Clarion. At that time, Boykin entered into
an agreement with a regional management company, Chambers Group, to take over
operations of the hotel. The new management agreement has an indefinite life
but is cancelable by Boykin without penalty upon providing 30 days notice. Doubletree Portland Downtown Hotel On March 2, 2004, the City of Portland, through the Portland Development
Commission (PDC), acquired Boykins Doubletree Portland Downtown Hotel in
Portland, Oregon, through its power of eminent domain. The PDC acquired the
property for $19,700. Approximately $16,870 of the proceeds were applied to the
outstanding balance of Boykins $130,000 term loan, for which the property
served as collateral. The remainder of the net proceeds was available for
general corporate purposes. Additionally, Boykin sold the related furniture,
fixtures and equipment contained within the property to Portland State
University for $2,272. The proceeds from the sale of the related furniture,
fixtures and equipment were deposited into the furniture, fixtures and
equipment reserve fund of the $130,000 term loan. Boykin recorded a gain on
sale/disposal of assets of $1,581 as a result of these transactions. Hotel Managers As of June 30, 2004, BMC and certain of its subsidiaries managed 24 of the
28 hotels in which Boykin had ownership interests. BMC is owned by Robert W.
Boykin, Chairman and Chief Executive Officer of Boykin (53.8%), and his
brother, John E. Boykin (46.2%). Chambers Group, Concord, Davidson and
Outrigger Lodging Services each managed one property as of such date. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The separate financial statements of Boykin, the Partnership, Bellboy,
Hunt Valley and the consolidated joint ventures discussed above are
consolidated because Boykin exercises unilateral control over these entities.
All significant intercompany transactions and balances have been eliminated.
Boykin believes that the results of operations contained within the financial
statements reflect all costs of Boykin doing business. These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Boykin
believes that all adjustments, consisting of normal recurring adjustments and
accruals, considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. The operations of the hotels have historically been
seasonal. The five hotels located in Florida have historically experienced
their highest occupancy in the first quarter, while the remaining hotels have
historically maintained higher occupancy rates during the second and third
quarters. For further information, refer to the consolidated financial
statements and footnotes thereto included in Boykins annual report on Form
10-K for the year ended December 31, 2003. Certain prior period amounts have
been reclassified to conform to the current period presentation. 9




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##### Table of Contents



Condominium Units Condominium project revenue and expenses for units under construction are
recognized on the percentage of completion method upon satisfaction of the
following criteria: (a) construction is determined to be beyond a preliminary
stage, (b) the buyer is not entitled to a refund except for nondelivery of the
unit, (c) sufficient units are under binding contract to assure the entire
property will not revert to rental property, (d) sales prices have been
determined to be collectible, and (e) aggregate sales proceeds and costs can be
reasonably estimated. Beginning in 2003, revenue was recognized under
percentage of completion accounting for the White Sand Villas project at the
Pink Shell Beach Resort as the project had satisfied the criteria outlined
above. Percentage of completion accounting involves the use of estimates for
the relation of revenues on sold units to total revenues of the project and for
total cost of the project. The profit margin realized on the White Sand Villas
could change if estimated costs change due to a change in scope or scheduling
of the project or other factors. Boykin reported revenues of $4,274 and
$12,916 and costs of $3,481 and $8,988 under the percentage of completion
method of accounting for the six month periods ended June 30, 2004 and 2003,
respectively. Boykin began closing on the sales of the units during the first quarter of
2004. As of June 30, 2004, all of the 91 available units had closed and all
sales proceeds had been collected. However, the contractors for the project
are still required to fulfill certain obligations under the contract for the
building. Therefore, a portion of revenues and related costs are yet to be
recognized. The amount of costs in excess of the revenue recognized on the White Sand
Villas project were $344 and $518 as of June 30, 2004 and December 31, 2003,
respectively, and are reflected in other assets within the consolidated balance
sheets. The outstanding accounts receivable related to the recognition of
revenue for the White Sand Villas units totaled $32,173 as of December 31,
2003. At June 30, 2004, the revenues collected from the sale of the units
exceeded the revenues recognized on the units by $3,261. Investment in Hotel Properties Boykin reviews the hotel properties for impairment whenever events or
changes in circumstances indicate the carrying value of the hotel properties
may not be recoverable. Events or circumstances that may cause a review
include, but are not limited to, adverse changes in the demand for lodging at
the properties due to declining national or local economic conditions, new
hotel construction in markets where the hotels are located or changes in the
expected holding period of the property. When such conditions exist,
management performs an analysis to determine if the estimated undiscounted
future cash flows from operations and the proceeds from the ultimate
disposition of a hotel property exceed its carrying value. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount to the related hotel propertys
estimated fair market value is recorded and an impairment loss recognized. In the first quarter of 2004, Boykin identified changes in circumstances,
namely the intended holding period of the property, which indicated that the
carrying value of one of its non-core west coast properties was impaired and
accordingly recorded an impairment charge of $4,300. Boykin does not believe
that there are any factors or circumstances indicating impairment of any other
investments in hotel properties at this time. Fair market values of hotel properties are estimated through a combination
of comparable property sales, replacement cost and a discounted cash flow
analysis taking into account each propertys expected cash flow generated from
operations, holding period and ultimate proceeds from disposition. In
projecting the expected cash flows from operations of the asset, the estimates
are based on future projected earnings before interest expense, income taxes,
depreciation and amortization, or EBITDA, and deduct expected capital
expenditure requirements. Growth assumptions are applied to project these
amounts over the expected holding period of the asset. The growth assumptions
are based on estimated inflationary increases in room rates and expenses and
the demand for lodging at the properties, as impacted by local and national
economic conditions and estimated or known future new hotel supply. The
estimated proceeds from disposition are judgmentally determined based on a
combination of anticipated cash flow in the year of disposition, capitalization
rate, ratio of selling price to gross hotel revenues and selling price per
room. If actual conditions differ from the assumptions, the actual results of
each assets future operations and fair market value could be significantly
different from the estimated results and value used in the analysis. There were no properties held for sale as of June 30, 2004 and December
31, 2003, as defined within the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets. Boykin considers assets to be held for sale when they
are under contract, significant non-refundable deposits have been made by the
potential buyer and the assets are immediately available to be sold. Property Insurance Recoveries In 2003, Boykin disposed of certain assets due to water infiltration
remediation activities. Insurance proceeds received in 2004 totaled $2,500 and
are recorded as gain on sale/disposal of assets within the consolidated
financial statements. 10




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##### Table of Contents



Stock-based Compensation At June 30, 2004, Boykin had a Long-Term Incentive Plan (LTIP). Boykin
has adopted the disclosure only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, and applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its employee share option
plan. If Boykin had elected to recognize compensation costs for the LTIP based
on the fair value at the grant dates for option awards consistent with the
method prescribed by SFAS No. 123, reported amounts of net loss and net loss
per share would have been changed to the pro forma amounts indicated below. Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    2004
    
    2003Pro Forma
    
    Pro Forma
    
    Pro Forma
    
    Pro FormaNet loss attributable to common shareholders
    
    $
    (367
    )
    
    $
    (1,630
    )
    
    $
    (4,877
    )
    
    $
    (4,356
    )Stock-based employee compensation expense
    
    
    (31
    )
    
    
    (32
    )
    
    
    (63
    )
    
    
    (63
    )Pro forma net loss attributable to common shareholders
    
    
    (398
    )
    
    
    (1,662
    )
    
    
    (4,940
    )
    
    
    (4,419
    )Pro forma net loss attributable to common
shareholders per share:Basic
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.28
    )
    
    $
    (0.26
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.28
    )
    
    $
    (0.26
    )
 New Accounting Pronouncements In May 2003, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability. The effective date of a portion of the Statement has
been indefinitely postponed by the FASB. Boykin did not enter into new
financial instruments subsequent to May 2003 which would fall within the scope
of this statement. Boykin has identified a consolidated joint venture which
had a minority interest amount totaling $210 at June 30, 2004 that appeared to
meet the criteria for liability recognition in accordance with paragraphs 9 and
10 under SFAS 150 due to the finite life of the joint venture arrangement.
Accordingly, if and when the measurements and classification provision of these
paragraphs are adopted, Boykin may be required to reclassify the liquidation
amounts of such minority interest to liabilities with the resulting income
statement effect being classified as a cumulative effect of an accounting
change and subsequent fluctuations in current liquidation amounts recorded
through interest expense. 3. EARNINGS PER SHARE: Basic earnings per share is based on the weighted average number of common
shares outstanding during the period whereas diluted earnings per share adjusts
the weighted average shares outstanding for the effect of all dilutive
securities. For the three and six months ended June 30, 2004 and 2003, the
weighted average basic and diluted common shares outstanding were as follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Basic
    
    
    17,411,551
    
    
    
    17,339,179
    
    
    
    17,404,147
    
    
    
    17,328,002Effective of dilutive securities:Common stock options
    
    
    8,258
    
    
    
    11,487
    
    
    
    32,416
    
    
    
    15,248Restricted share grants
    
    
    26,616
    
    
    
    69,415
    
    
    
    58,781
    
    
    
    74,957Diluted
    
    
    17,446,425
    
    
    
    17,420,081
    
    
    
    17,495,344
    
    
    
    17,418,207
 4. PARTNERSHIP UNITS/MINORITY INTERESTS: A total of 2,718,256 limited partnership units of the Partnership were
issued and outstanding at June 30, 2004 and 2003. The weighted average number
of limited partnership units outstanding for each of the three and six month
periods ended June 30, 2004 and 2003 was 2,718,256. The minority interest liability is affected by the limited partnership
units outstanding as well as the existence of preferred partnership units which
are owned by Boykin. The preferred partnership units mirror the terms of the
preferred depositary shares outstanding. 11




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##### Table of Contents



5. DISCONTINUED OPERATIONS: The provisions of SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, require that hotels sold or held for sale be treated as
discontinued operations. As discussed in Note 1, on March 2, 2004, Boykins Doubletree Portland
Downtown Hotel in Portland, Oregon, was acquired by the City of Portland
through its power of eminent domain. During 2003, Boykin sold the Knoxville
Hilton, the Hampton Inn Lake Norman, the Holiday Inn Lake Norman, a hotel in
Springfield, Oregon and the Doubletree Spokane Valley. The assets and liabilities of the Doubletree Portland Downtown Hotel as of
December 31, 2003, and the results of operations of the property through the
2004 disposal date and for the three and six months ended June 30, 2003, have
been reclassified as discontinued operations in the accompanying financial
statements. The operating results of the five properties sold during 2003 have
also been reclassified as discontinued operations in the accompanying financial
statements for the three and six months ending June 30, 2003. Interest expense
and deferred loan costs have been attributed to the properties, as applicable,
based upon the term loan amounts that were repaid with the proceeds of the
dispositions. The results of operations and the financial position of the applicable
properties were as follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    
    
    
    
    $
    4,850
    
    
    $
    721
    
    
    $
    9,288Hotel operating expenses
    
    
    
    
    
    
    (3,885
    )
    
    
    (748
    )
    
    
    (8,285
    )Management fees to related party
    
    
    
    
    
    
    (29
    )
    
    
    (12
    )
    
    
    (60
    )Management fees  other
    
    
    
    
    
    
    (101
    )
    
    
    
    
    
    
    (203
    )Property taxes, insurance and other
    
    
    
    
    
    
    (752
    )
    
    
    (59
    )
    
    
    (1,113
    )Other expenses
    
    
    
    
    
    
    (8
    )
    
    
    (1
    )
    
    
    (18
    )Interest expense
    
    
    
    
    
    
    (324
    )
    
    
    (197
    )
    
    
    (726
    )Real estate related depreciation and amortization
    
    
    
    
    
    
    (513
    )
    
    
    (177
    )
    
    
    (1,154
    )Amortization of deferred financing costs
    
    
    
    
    
    
    (26
    )
    
    
    (87
    )
    
    
    (189
    )Loss from discontinued operations
    
    
    
    
    
    $
    (788
    )
    
    $
    (560
    )
    
    $
    (2,460
    )
 December 31,2003Accounts receivable, net
    
    $
    217Inventories
    
    
    38Other assets
    
    
    266Deferred financing costs, net
    
    
    88Investment in hotel properties, net
    
    
    20,434Total assets
    
    $
    21,043Accounts payable and accrued expenses
    
    $
    647Accounts payable to related party
    
    
    46Term notes payable
    
    
    16,870Total liabilities
    
    $
    17,563
 12




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##### Table of Contents



6. CREDIT FACILITY: As of June 30, 2004, Boykin had a secured, revolving credit facility with
a financial institution which enabled Boykin to borrow up to $78,000 subject to
borrowing base and loan-to-value limitations. Boykin had borrowed $64,946 and
$71,945 at June 30, 2004 and December 31, 2003, respectively. The facility
expires in October 2006 and currently bears interest at a floating rate of
LIBOR plus 3.75% (4.88% at June 30, 2004). Boykin is required to pay a fee of
0.375% on the unused portion of the credit facility. The facility was secured
by eight hotel properties with a net carrying value of $102,120 at June 30,
2004 and seven hotels with a net carrying value of $90,518 at December 31,
2003. The credit facility requires Boykin, among other things, to maintain a
minimum net worth, a coverage ratio of EBITDA to debt service, a coverage of
EBITDA to debt service and fixed charges and a maximum leverage ratio. Further,
Boykin is required to maintain the franchise agreement at each hotel and to
maintain its REIT status. The terms of the agreement provide certain
restrictions on common share dividends; however, Boykin is entitled to
distribute sufficient dividends to maintain its REIT status. Boykin was in
compliance with its covenants at June 30, 2004. 7. TERM NOTES PAYABLE: Red Lion Inns Operating L.P. (OLP), a wholly-owned subsidiary of the
Partnership, has a $130,000 term loan agreement that expires in June 2023 and
may be prepaid without penalty after May 21, 2008. The outstanding balance as
of June 30, 2004 and December 31, 2003 was $104,248 and $122,597, respectively.
The loan bears interest at a fixed rate of 6.9% until May 2008, and at a new
fixed rate to be determined thereafter. The loan requires principal repayment
based on a 25-year amortization schedule. As of June 30, 2004, the loan was
secured by six Doubletree hotels with a net carrying value of $191,309 and, as
of December 31, 2003, was secured by seven Doubletree hotels with a net
carrying value of $209,123. Under covenants in the loan agreement, assets of
OLP are not available to pay the creditors of any other Boykin entity, except
to the extent of permitted cash distributions from OLP to Boykin. Likewise,
the assets of other Boykin entities are not available to pay the creditors of
OLP. The loan agreement also requires OLP to hold funds in escrow for the
payment of capital expenditures, insurance, interest and real estate taxes and
requires OLP to maintain certain financial reporting requirements. OLP was in
compliance with these requirements at June 30, 2004 and December 31, 2003. Boykin Holding, LLC (BHC), a wholly-owned subsidiary of the Partnership,
has a $108,000 term loan agreement. The outstanding balance as of June 30, 2004
and December 31, 2003 was $91,125. During the second quarter, Boykin exercised
an option to extend the maturity of this loan for one year, to July 2005. The
loan was secured by six hotel properties with a net carrying value of $61,143
and $61,273 at June 30, 2004 and December 31, 2003, respectively. The term
loan bears interest at a rate that fluctuates at LIBOR plus 2.35% (3.46% at
June 30, 2004). Under covenants in the loan agreement, assets of BHC are not
available to pay the creditors of any other Boykin entity, except to the extent
of permitted cash distributions from BHC to Boykin. Likewise, the assets of
other Boykin entities are not available to pay the creditors of BHC. The loan
agreement also requires BHC to hold funds in escrow for the payment of capital
expenditures, insurance and real estate taxes and requires BHC to maintain
certain financial reporting requirements. BHC was in compliance with these
requirements at June 30, 2004 and December 31, 2003. Subject to the terms of the loan agreement, BHC has purchased interest
rate protection on the entire outstanding balance of $91,125, to cap the
interest rate at no more than 10.25% through July 2005. The cap had no value
at June 30, 2004. In 2003, White Sand Villas Development LLC, a wholly-owned subsidiary of
Bellboy, closed on a $23,300 construction loan with a bank. The loan, which
had an outstanding balance of $13,222 at December 31, 2003, required principal
payments based upon the closing of White Sand Villas unit sales and was repaid
during the first quarter of 2004. The loan bore interest at a rate that
fluctuated at LIBOR plus 2.50%. As a part of normal business activities, Boykin has issued letters of
credit through major banking institutions as required by certain debt and
insurance agreements. As of June 30, 2004, there were no outstanding letters
of credit. As of June 30, 2004, Boykin had not entered into any other
significant off-balance sheet financing arrangements. Maturities of long-term debt at June 30, 2004 were as follows: 2004
    
    $
    1,8332005
    
    
    95,0102006
    
    
    4,1662007
    
    
    4,4482008
    
    
    4,7882009 and thereafter
    
    
    85,128$
    195,373
 13




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##### Table of Contents



8. RELATED PARTY TRANSACTIONS: Management and other fees earned by BMC for the continuing operations of
the consolidated hotels related to provisions within the hotel management
contracts totaled $1,391 and $3,077 for the three and six months ended June 30,
2004 and $1,195 and $2,133 for the three and six months ended June 30, 2003,
respectively. Management fees earned by BMC related to discontinued operations
totaled $12 for the six month period ended June 30, 2004 and $29 and $60 for
the three and six month periods ending June 30, 2003, respectively. An
additional $25 was paid during 2004 for other services provided pursuant to the
management agreements. The management agreements between Boykin and BMC were
approved by the independent members of the Board of Directors. With respect to
the consolidated hotels, Boykin had related party payables to BMC of $945 as of
both June 30, 2004 and December 31, 2003, primarily related to management fees
and reimbursements of expenses on behalf of the hotel properties. For the three and six months ended June 30, 2004, Boykin paid a
wholly-owned subsidiary of BMC $89 and $181, respectively, for design services
related to capital improvements at its consolidated hotels. During 2001, a
subsidiary of BMC sold a portion of its business to an unrelated third party.
A portion of the sales price is contingent upon the revenues the business
receives from Boykin. For the three and six months ended June 30, 2004, an
additional $12 and $33, respectively, of sales proceeds was provided to BMC as
a result of purchases made by Boykin. Fees paid to BMC and its subsidiaries for services which are not subject
to management agreements are at market prices as determined by the independent
members of the Board of Directors. The Boards market price determinations are
based on market checks performed by management and outside consultants from
time to time, comparative information provided by BMC, and industry
publications. Boykin believes that the methodologies used for determining the amounts to
be paid to BMC and its subsidiaries for management and other services are
reasonable. 9. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES: As of June 30, 2004 and December 31, 2003, there were $1,188 of preferred
share dividends which were declared but not paid. Interest paid during the six month periods ended June 30, 2004 and 2003
was $8,171 and $8,959, respectively. In the first six months of 2004, Boykin granted 174,789 restricted common
shares, valued at $1,589, under its LongTerm Incentive Plan. 10. INCOME TAXES: Boykin qualifies as a REIT under Sections 856-860 of the Internal Revenue
Code. As a REIT, Boykin generally will not be subject to federal corporate
income tax on that portion of its net income that does not relate to its TRS
subsidiaries. Accordingly, no provision for income taxes has been reflected in
the accompanying consolidated financial statements for the corporate level
entities. Upon the effective date of the establishment of Boykins TRSs, Bellboy and
Hunt Valley, the subsidiaries became subject to federal and state income taxes.
Boykins TRSs account for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. As of June 30, 2004, Boykin has a
deferred tax asset of approximately $7,319, prior to any valuation allowance,
related to the assumption of the retained deficit of certain leases upon the
formation of the TRSs as well as the cumulative operating losses of the TRSs
and their subsidiaries since their formation. Boykin has recorded a 100%
valuation allowance against this asset due to the uncertainty of realization
and therefore, no provision or benefit from income taxes is reflected in the
accompanying consolidated statements of operations. As of June 30, 2004, the
net operating loss carry-forwards have remaining lives of approximately 18 to
19 years. 14




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##### Table of Contents



11. SUBSEQUENT EVENTS: In July 2004, Shawan Road Hotel L.P., one of Boykins consolidated joint
ventures, closed on the sale of its Marriotts Hunt Valley Inn property in Hunt
Valley, Maryland for a price of $31,000. Net proceeds from the sale were
distributed to the joint venture partners in accordance with the joint venture
agreement with certain funds being retained to fund potential future expenses
of the partnership. Boykins share of the net proceeds of the sale of the
property distributed from the joint venture approximated $29,200, and were
applied to the outstanding balance of the credit facility for which the
property served as collateral. In connection with this sale, the commitment
amount of the credit facility was reduced to $60,000. In July 2004, BoyCon entered into a new $18,500 mortgage and repaid the
balance of its previously existing mortgage loan. The mortgage has a term of 5
years and bears interest at a rate of 5.99%. The loan requires principal
repayment based on a 25-year amortization schedule and is non-recourse to the
members of BoyCon except with respect to losses incurred by the lender which
result from fraudulent or intentional actions or misrepresentation of the
members. In August 2004, BoyStar Ventures, L.P., another of Boykins consolidated
joint ventures, closed on the sale of its Holiday Inn Minneapolis West hotel in
Minneapolis, Minnesota for a price of $9,325. As a result of the terms of the
joint venture agreement, Boykin received the net proceeds from the sale of
approximately $9,000. The net proceeds were applied to the outstanding balance
of the credit facility for which the property served as collateral. In August 2004, the due diligence period on an agreement that Boykin
entered into to sell its Radisson Hotel Mount Laurel expired. The sale is
expected to close in late August and is subject to customary closing
conditions. 15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Boykin Lodging Company, an Ohio corporation, (Boykin) is a real estate
investment trust (REIT) that currently owns interests in 26 hotels throughout
the United States. Boykin was formed and completed an initial public offering
in 1996 to continue and expand the nearly 40-year history of hotel ownership,
acquisition, redevelopment and repositioning activities of its predecessors,
Boykin Management Company and its affiliates. Boykin Hotel Properties, L.P.,
an Ohio limited partnership (the Partnership), is the operating partnership
entity that transacts business and holds the direct and indirect ownership
interests in our hotels. As of June 30, 2004, Boykin had an 85.3% ownership
interest in, is the sole general partner of and does all its business through
the Partnership. Our primary business objectives are to maximize current returns to our
shareholders by increasing cash flow available for distribution and long-term
total returns to shareholders through appreciation in value of our common
shares. SECOND QUARTER HIGHLIGHTS AND OUTLOOK FOR THE REMAINDER OF 2004 Refer to the Results of Operations section below for discussion of our
second quarter and year to date 2004 results compared to 2003 results. We are nearing completion of the architecture and design stage of the
final component to the Pink Shell redevelopment project, which involves tearing
down two low-rise buildings and replacing them with a new 43-unit building,
Captiva Villas. Similar to White Sand Villas, the units in the new building
will be sold as condominiums, with the prospect that the owners will put their
unused room nights back to the resort by contract. Zoning for the new
building, which will contain a full-service fine dining restaurant with a view
of the Gulf of Mexico, has been approved. We began the marketing efforts and
pre-sales of this new building during the first quarter of 2004. We expect to
commence demolition of the existing buildings and construction of the new
building once we have non-cancelable contracts for approximately two-thirds of
the available units and have secured construction financing for the project. In April 2004, the ancillary conference center project at our Doubletree
Portland Lloyd Center hotel was completed and became operational. The physical
characteristics and the service standards within the facility were designed to
meet criteria established by the International Association of Conference
Centers (IACC). Upon completion of the project, the facilities were
inspected by, and awarded membership to, IACC. Earlier in 2004, the Indiana Gaming Commission (the Commission) began to
solicit proposals from interested parties to develop and operate a casino in
Orange County, Indiana, where our French Lick Springs Resort and Spa is
located. In July, the Commission selected Trump Hotels & Casino Resorts to
develop and operate the casino. The site and plans selected by the Commission
include the casino being located adjacent to and connected with the French Lick
Springs Resort and Spa. We anticipate that the casino opening will increase
tourism in the county, leading to greater demand for rooms at our French Lick
Springs Resort and Spa. The opening of a casino remains subject to many items,
including the operators ability to raise financing to fund construction of a
casino. The outlook for the remainder of 2004 has improved, and based upon our
year to date results and our current booking trends, we are anticipating that
the third quarter RevPAR for our entire portfolio will be 4.5% to 6.5% above
the same period last year with the full year 2004 RevPAR up 1.5% to 3.5% from
2003. Net income attributable to common shareholders per share is expected to
range between $0.27 and $0.33 for the third quarter with net losses ranging
from $0.29 and $0.17 for the full year. With that assumption, we expect that
our funds from operations attributable to common shareholders (FFO) could
range between $0.23 and $0.29 per fully-diluted share for the third quarter and
$0.73 and $0.85 per share for the full year. For a definition of FFO, a
reconciliation of net loss to FFO and why we believe FFO is an important
measure to investors of a REITs financial performance, see Results of
Operations section below. During the quarter our Board of Directors declared a dividend on our
preferred shares of $6.5625 per preferred share. The dividends were payable to
shareholders of record as of June 30, 2004 and were paid on July 15, 2004. The
Board did not declare a common share dividend for the second quarter. We will
continue to evaluate the status of a common share dividend; management will
recommend to the Board of Directors resumption of the dividend when and at a
level that we believe our RevPAR and cash flow can support. We will make
distributions necessary, if any, to meet REIT requirements. 16




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES Investment in Hotel Properties We review our hotel properties for impairment whenever events or changes
in circumstances indicate the carrying value of the hotel properties may not be
recoverable. Events or circumstances that may cause a review include, but are
not limited to, adverse changes in the demand for lodging at the properties due
to declining national or local economic conditions, new hotel construction in
markets where the hotels are located or changes in the expected holding period
of the property. When such conditions exist, management performs an analysis
to determine if the estimated undiscounted future cash flows from operations
and the proceeds from the ultimate disposition of a hotel property are equal to
or exceed its carrying value. If the estimated undiscounted future cash flows
are less than the carrying amount of the asset, an adjustment to reduce the
carrying amount to the related hotel propertys estimated fair market value is
recorded and an impairment loss recognized. We did not believe that there were
any factors or circumstances indicating impairment in the second quarter of
2004. We estimate the fair market values of our properties through a combination
of comparable property sales, replacement cost and cash flow analysis taking
into account each propertys expected cash flow generated from operations,
holding period and ultimate proceeds from disposition. In projecting the
expected cash flows from operations of the asset, we base our estimates on
future projected earnings before interest expense, income taxes, depreciation
and amortization, or EBITDA, and deduct expected capital expenditure
requirements. We then apply growth assumptions to project these amounts over
the expected holding period of the asset. Our growth assumptions are based on
estimated changes in room rates and expenses and the demand for lodging at our
properties, as impacted by local and national economic conditions and estimated
or known future new hotel supply. The estimated proceeds from disposition are
judgmentally determined based on a combination of anticipated cash flow in the
year of disposition, terminal capitalization rate, ratio of selling price to
gross hotel revenues and selling price per room. If actual conditions differ from those in our assumptions, the actual
results of each assets future operations and fair market value could be
significantly different from the estimated results and value used in our
analysis. Our operating results are also subject to the risks discussed within
this Quarterly Report on Form 10-Q. Revenue recognition  Percentage of Completion In 2003, we began recognizing revenue related to the White Sand Villas
project under the percentage of completion method. Condominium project revenue
and expenses are recognized on the percentage of completion method upon
satisfaction of the following criteria: (a) construction is determined to be
beyond a preliminary stage, (b) the buyer is not entitled to a refund except
for nondelivery of the unit, (c) sufficient units are under binding contract to
assure the entire property will not revert to rental property, (d) sales prices
have been determined to be collectible, and (e) aggregate sales proceeds and
costs can be reasonably estimated. Starting in 2003 and during 2004, revenue
was recognized under percentage of completion accounting as the project had
satisfied the criteria outlined above. Percentage of completion accounting
involves the use of estimates for the relation of revenues on sold units to
total revenues of the project and for total cost of the project. The profit
realized on the White Sand Villas changes if actual sales prices differ from
estimates and if estimated costs change due to a change in scope or scheduling
of the project or other factors. FINANCIAL CONDITION June 30, 2004 Compared to December 31, 2003 As a result of the progress made towards completion of the White Sand
Villas and the closing of the sale of the 91 available units during 2004,
outstanding accounts receivable related to the recognition of revenue for the
units based upon the percentage of completion method decreased in excess of
$35.5 million. Release of restricted cash related to deposits made on the
pre-sales (approximately $4.7 million at December 31, 2003) and the remaining
proceeds from the closing of the sale of the 91 units were used to repay the
construction loan related to the project ($13.2 million outstanding as of
December 31, 2003) as well as to provide cash for general corporate purposes.
Additionally, approximately $7.8 million of payables related to deposits
received for pre-sales (whether or not used to fund construction) were released
upon closing of the units. In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the assets and liabilities of the Doubletree Portland
Downtown Hotel as of December 31, 2003 have been classified as discontinued
operations in the accompanying financial statements. As such, the only
material changes in our financial condition as a result of the disposal of the
hotel in 2004 has been the removal of these segregated assets and liabilities
and the receipt of the cash in excess of the paydown of the related $130.0
million loan, of which a portion was used to fund restricted cash balances
required under the loan. 17




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##### Table of Contents



RESULTS OF OPERATIONS Quarter Ended June 30, 2004 Compared to Quarter Ended June 30, 2003 Total revenues from continuing operations decreased 3.5% to $65.1 million
for the second quarter 2004 versus $67.5 million for the same period in 2003.
The overall decrease is primarily due to the $6.1 million decrease in revenues
from condominium development and unit sales as a result of the near completion
of the White Sand Villas development project in 2004 and the completion of
sales of Sanibel View Villas units during 2003. Hotel revenues for the three
months ended June 30, 2004 were $63.5 million, a 6.1% increase from $59.8
million in hotel revenues for the same period in 2003. This net increase is
primarily a result of the inclusion of $3.5 million of revenues related to our
Marco Island property, which was purchased in the third quarter of 2003. For
further information, see the table below which illustrates the key operating
statistics of the hotels within our portfolio, including RevPAR. Hotel operating profit margins of the 25 consolidated hotels under the TRS
structure for the second quarter was 25.6%, a decrease from the 27.5% hotel
operating profit margin for the 24 consolidated hotels under the TRS structure
for the second quarter of 2003. The decrease was primarily due to the
continuing industry-wide trend of increasing employee expenses such as workers
compensation insurance and employment taxes accompanied by company-specific
events including opening costs related the White Sand Villas, increasing
franchise fees as a result of new agreements and scheduled increases to
existing agreements, and increases in preventative maintenance at our
properties. Partially offsetting these increased costs was the addition of the
Marco Island property which experienced higher than portfolio average margins for the
second quarter of 2004. Property taxes, insurance and other increased over $0.6 million to $4.2
million for the second quarter of 2004 versus the second quarter of 2003. The
main reason for this change is increased contractual payments to owners of the
condominiums at the Pink Shell Beach Resort for use of their units as hotel
rooms as a result of the sellout of the Sanibel View Villas during 2003 and the
completion and sales of the White Sand Villas tower in 2004. All unit owners
in each building have contractually put their units back to the resort for use
as hotel rooms. The addition of the Marco Island property also resulted in
increases in these expenses. Cost of condominium development and unit sales decreased from $5.4 million
for the second quarter of 2003 to $0.5 million for the second quarter of 2004
as a result of the near completion of the White Sand Villas project as well as
the completion of the sales of the Sanibel View Villas units at our Pink Shell
Beach Resort in 2003. Real estate related depreciation and amortization decreased $1.7 million
from the second quarter of 2003 primarily because during 2003 we recorded a
$1.7 million acceleration of depreciation related to the pending demolition and
removal of two existing buildings at the Pink Shell Beach Resort to make way
for the planned Captiva Villas building. There was no similar activity during
the second quarter of 2004. Interest expense from continuing operations decreased from $4.1 million to
$3.6 million from second quarter 2003 to 2004 due to our weighted average
interest rate of 5.2% at June 30, 2004 being significantly lower than the 6.5%
rate as of the second quarter of 2003. The decline in rate was primarily due
to the expiration of our previously existing swap which fixed $83.0 million of
our debt at 7.32% during the second quarter of 2003. The swap expired in July
2003 at which time we did not renew the swap or purchase a replacement
instrument. Partially offsetting this decrease was an increase in our weighted
average outstanding debt during 2004 of approximately 9%. The second quarter 2004 experienced a significant decrease in amortization
of deferred financing costs as a result of the replacement of the previously
existing credit facility and $45.0 million term loan with a new credit facility
in October 2003 which has approximately $2 million less of deferred costs to be
amortized. Gain on sale/disposals of assets during the second quarter of 2003 totaled
$0.3 million due to eminent domain action taken by the local county related to
our hotel in Bellevue, Washington, whereby a portion of the hotels land was
surrendered for funds of approximately $0.3 million. The surrender of the
land did not have an impact on the operations of the hotel. There was no
similar transaction during the second quarter of 2004. As a result of the above, the second quarter 2004 resulted in net income
before discontinued operations of $0.8 million compared to the same period last
year when we experienced net income of $0.6 million. In accordance with SFAS No. 144, the results of operations of the
Doubletree Portland Downtown Hotel through the disposal date and for the three
months ended June 30, 2003, have been classified as discontinued operations in
the accompanying financial statements. Additionally, the second quarter 2003
results of operations of the properties sold during the second quarter of 2003
or later have also been reclassified as discontinued operations in the
accompanying financial statements. Please refer to note 5 of our Notes to
Consolidated Financial Statements included within this Quarterly Report on Form
10-Q for a summary of such operations. 18




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##### Table of Contents



Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 Total revenues from continuing operations decreased 2.6% to $126.7 million
for the first six months of 2004 versus $130.0 million for the same period in
2003. The overall decrease is primarily due to the $12.8 million decrease in
revenues from condominium development and unit sales as a result of the near
completion of the White Sand Villas development project in 2004 and the
completion of sales of Sanibel View Villas units during 2003. Hotel revenues
for the six months ended June 30, 2004 were $121.5 million, an 8.4% increase
from $112.1 million in hotel revenues for the same period in 2003. This net
increase is primarily a result of the inclusion of $8.3 million of revenues
related to our Marco Island property, which was purchased in the third quarter
of 2003. For further information, see the table below which illustrates the
key operating statistics of the hotels within our portfolio, including RevPAR. Hotel operating profit margins of the 25 consolidated hotels under the TRS
structure for the first six months of 2004 was 24.6%, a decrease from the 25.3%
hotel operating profit margin for the 24 consolidated hotels under the TRS
structure for the first six months of 2003. Similar to the quarter over
quarter results, the decrease was primarily due to the continuing industry-wide
trend of increasing employee expenses such as workers compensation insurance
and employment taxes accompanied by company-specific events including
increasing franchise fees as a result of new agreements and scheduled increases
to existing agreements, and increases in preventative maintenance at our
properties. Partially offsetting these increased costs was the addition of the
Marco Island property which experienced higher margins than the portfolio
average. Property taxes, insurance and other increased approximately $0.8 million
to $8.5 million for the first six months of 2004 versus the first six months of
2003. The increase is primarily due to increased contractual payments to
owners of the condominiums at the Pink Shell Beach Resort for use of their
units as hotel rooms as a result of the sellout of Sanibel View Villas in 2003
and the completion and sales of the White Sand Villas tower in 2004. All unit
owners in each building contractually put their units back to the resort for
use as hotel rooms. The addition of the Marco Island property also resulted in
increases in these expenses. Cost of condominium development and unit sales decreased from $11.7
million for the first six months of 2003 to $3.5 million for the first six
months of 2004 as a result of the near completion of the White Sand Villas
project as well as the completion of the sales of the Sanibel View Villas units
at our Pink Shell Beach Resort in 2003. Real estate related depreciation and amortization decreased $1.5 million
from the first six months of 2003 primarily due to the recording of a $1.7
million acceleration of depreciation related to the pending demolition and
removal of two existing buildings at the Pink Shell Beach Resort to make way
for the planned Captiva Villas building in 2003. There was no similar activity
which occurred during 2004. In 2004, Boykin recorded an impairment charge of $4.3 million on one of
its non-core west coast properties due to a change in the intended holding
period. Interest expense from continuing operations decreased from $8.1 million to
$7.2 million from the first six months of 2003 to 2004 as our weighted average
interest rate during 2004 was significantly lower than the rate throughout the
first six months of 2003. The decline in rate was primarily due to the
expiration of our previously existing swap which fixed $83.0 million of our
debt at 7.32% during the first six months of 2003. Partially offsetting this
decrease is an increase in our weighted average outstanding debt during 2004 of
approximately 6%. Year-to-date 2004 experienced a significant decrease in amortization of
deferred financing costs as a result of the replacement of the previously
existing credit facility and $45.0 million term loan with a new credit facility
in October 2003 which has approximately $2 million less of deferred costs to be
amortized. In the second half of 2003, we disposed of certain assets due to water
infiltration remediation activities. Insurance proceeds received in 2004
totaled $2.5 million and are recorded as gain on sale/disposal of assets within
the consolidated financial statements. As mentioned above, in the first half
of 2003, gain on sale/disposal of assets related primarily to eminent domain
action taken by the local county related to our hotel in Bellevue, Washington,
whereby a portion of the hotels land was surrendered for funds of
approximately $0.3 million. As a result of the above, the first six months 2004 resulted in net loss
before discontinued operations of $3.4 million compared to the same period last
year when we experienced net loss of $0.7 million. In accordance with SFAS No. 144, the results of operations of the
Doubletree Portland Downtown Hotel through the disposal date and for the six
months ended June 30, 2003, have been reclassified as discontinued operations
in the accompanying financial statements. Additionally, the first half 2003
results of operations of the five properties sold during 2003 have also been
reclassified as discontinued operations in the accompanying financial
statements. Please refer to Note 5 of our Notes to Consolidated Financial
Statements included within this Quarterly Report on Form 10-Q for a summary of
such operations. 19




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##### Table of Contents



FFO The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
(NAREIT) in April 2002 defines FFO as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from sales of properties and
extraordinary items, plus real estate related depreciation and amortization,
and after comparable adjustments for our portion of these items related to
unconsolidated entities and joint ventures. We believe that FFO is helpful as
a measure of the performance of an equity REIT because it provides investors
and management with another indication of the Companys performance prior to
deduction of real estate related depreciation and amortization. We compute FFO in accordance with our interpretation of standards
established by NAREIT which may not be comparable to FFO reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the NAREIT definition differently than us. FFO
does not represent cash generated from operating activities as determined by
GAAP and should not be considered as an alternative to GAAP net income as an
indication of our financial performance or to cash flow from operating
activities as determined by GAAP as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our ability to
make cash distributions. FFO may include funds that may not be available for
the Companys discretionary use due to functional requirements to conserve
funds for capital expenditures and property acquisitions, and other commitments
and uncertainties. The following is a reconciliation between net income (loss) and FFO for the three
and six months ended June 30, 2004 and 2003, respectively (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    821
    
    
    $
    (442
    )
    
    $
    (2,501
    )
    
    $
    (1,980
    )Minority interest
    
    
    (200
    )
    
    
    (412
    )
    
    
    (1,106
    )
    
    
    (1,217
    )(Gain) loss on sale/disposal of assets
    
    
    (8
    )
    
    
    96
    
    
    
    (4,104
    )
    
    
    (1,320
    )Real estate related depreciation and amortization
    
    
    6,829
    
    
    
    8,495
    
    
    
    13,623
    
    
    
    15,103Real estate related depreciation and amortization
included in discontinued operations
    
    
    
    
    
    
    513
    
    
    
    177
    
    
    
    1,154Equity in (income) loss of unconsolidated joint ventures
    
    
    (143
    )
    
    
    (135
    )
    
    
    588
    
    
    
    709FFO adjustment related to joint ventures
    
    
    603
    
    
    
    584
    
    
    
    406
    
    
    
    400Preferred dividends declared
    
    
    (1,188
    )
    
    
    (1,188
    )
    
    
    (2,376
    )
    
    
    (2,376
    )Funds from operations after preferred dividends
    
    $
    6,714
    
    
    $
    7,511
    
    
    $
    4,707
    
    
    $
    10,473Less: Funds from operations related to minority interest
    
    
    907
    
    
    
    1,018
    
    
    
    636
    
    
    
    1,420Funds from operations attributable to common shareholders
    
    $
    5,807
    
    
    $
    6,493
    
    
    $
    4,071
    
    
    $
    9,053
 FFO was negatively impacted by the $4.3 million impairment charge recorded
during the six months ended June 30, 2004. EBITDA We believe that EBITDA is helpful to investors and management as a measure
of the performance of the Company because it provides an indication of the
operating performance of the properties within the portfolio and is not
impacted by the capital structure of the REIT. EBITDA does not represent cash
generated from operating activities as determined by GAAP and should not be
considered as an alternative to GAAP net income as an indication of our
financial performance or to cash flow from operating activities as determined
by GAAP as a measure of our liquidity, nor is it indicative of funds available
to fund our cash needs, including our ability to make cash distributions.
EBITDA may include funds that may not be available for the Companys
discretionary use due to functional requirements to conserve funds for capital
expenditures and property acquisitions, and other commitments and
uncertainties. 20




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##### Table of Contents



The following is a reconciliation between operating income and
EBITDA for the three and six months ended June 30, 2004 and 2003, respectively
(in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Operating income
    
    $
    4,373
    
    
    $
    4,461
    
    
    $
    1,096
    
    
    $
    7,885Interest income
    
    
    30
    
    
    
    224
    
    
    
    176
    
    
    
    254Other income
    
    
    
    
    
    
    11
    
    
    
    8
    
    
    
    18Real estate related depreciation and amortization
    
    
    6,829
    
    
    
    8,495
    
    
    
    13,623
    
    
    
    15,103EBITDA attributable to discontinued operations
    
    
    
    
    
    
    75
    
    
    
    (99
    )
    
    
    (391
    )Companys share of EBITDA of unconsolidated joint
ventures
    
    
    963
    
    
    
    948
    
    
    
    1,141
    
    
    
    1,127EBITDA applicable to joint venture
minority interest
    
    
    (18
    )
    
    
    (31
    )
    
    
    (61
    )
    
    
    (61
    )EBITDA
    
    $
    12,177
    
    
    $
    14,183
    
    
    $
    15,884
    
    
    $
    23,935
 EBITDA was negatively impacted by the $4.3 million impairment charge
recorded during the six months ended June 30, 2004. Key Hotel Operating Statistics The following table illustrates key operating statistics of our portfolio
for the three and six months ended June 30, 2004 and 2003: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003All Hotels (28 hotels) (a) (b)Hotel revenues (in thousands)
    
    $
    71,374
    
    
    $
    70,307
    
    
    $
    134,687
    
    
    $
    132,129RevPAR
    
    $
    62.39
    
    
    $
    62.31
    
    
    $
    59.47
    
    
    $
    59.35Occupancy
    
    
    62.8
    %
    
    
    63.4
    %
    
    
    60.0
    %
    
    
    60.5
    %Average daily rate
    
    $
    99.32
    
    
    $
    98.28
    
    
    $
    99.09
    
    
    $
    98.04Comparable Hotels (24 hotels) (c)Hotel revenues (in thousands)
    
    $
    59,910
    
    
    $
    59,817
    
    
    $
    113,150
    
    
    $
    112,084RevPAR
    
    $
    57.68
    
    
    $
    58.96
    
    
    $
    55.20
    
    
    $
    56.08Occupancy
    
    
    61.7
    %
    
    
    63.2
    %
    
    
    59.3
    %
    
    
    60.5
    %Average daily rate
    
    $
    93.42
    
    
    $
    93.21
    
    
    $
    93.09
    
    
    $
    92.67
  (a)
    
    Includes all hotels owned or partially owned by Boykin as of June 30,
2004.(b)
    
    Results calculated including 35 lock-out rooms at the Radisson Suite
Beach Resort on Marco Island.(c)
    
    Includes all consolidated hotels operated under the TRS structure for all
periods presented and owned or partially owned by Boykin as of June 30,
2004. 21




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES: Our principal source of cash to meet our cash requirements, including
dividends to shareholders, is our share of the Partnerships cash flow from the
operations of the hotels and condominium sales. Cash flow from hotel
operations is subject to all operating risks common to the hotel industry,
including, but not limited to:  
    
    Competition for guests from other hotels;
    
    Adverse effects of general and local economic conditions;
    
    Dependence on demand from business and leisure travelers, which may
be seasonal and which may be adversely impacted by health and
safety-related concerns;
    
    Increases in energy costs, airline fares, and other expenses related to travel, which may deter traveling;
    
    Impact of the financial difficulties of the airline industry;
    
    Increases in operating costs related to inflation and other factors, including wages, benefits, insurance and energy;
    
    Overbuilding in the hotel industry, especially in particular markets; and
    
    Actual or threatened acts of terrorism and actions taken against terrorists that cause public concern about travel safety. The cash flow from condominium development is subject to risk factors common to real estate sales and development,
including, but not limited to:  
    
    Competition from other condominium projects;
    
    Construction delays;
    
    Reliance on contractors and subcontractors;
    
    Construction cost overruns; and
    
    The ability of the condominium purchasers to secure financing. As of June 30, 2004, we had $18.1 million of unrestricted cash and cash
equivalents and $13.2 million of restricted cash for the payment of capital
expenditures, real estate taxes, interest and insurance. There were
outstanding borrowings at quarter end totaling $64.9 million against our credit
facility and $195.4 million against our two term notes payable. We have a $60.0 million credit facility to fund acquisitions of additional
hotels, renovations and capital expenditures, and for our working capital
needs, subject to limitations contained in the credit agreement. During the
first quarter of 2004, we added a previously uncollateralized property with a
net carrying value of $13.0 million as security for the facility. The addition
of the collateral increased the availability under the facility. Subsequent to
June 30, 2004, two properties which previously secured the facility were sold,
reducing availability under the facility. For information relating to the terms of our credit facility and our term
notes please see Notes 6 and 7, respectively, of the Notes to Consolidated
Financial Statements of Boykin Lodging Company included in this Quarterly
Report on Form 10-Q. Our $130.0 million and $108.0 million term notes payable are
property-specific mortgages and have only financial reporting covenants. The
credit facility contains covenants regarding overall leverage and debt service
coverage. As of June 30, 2004, we are in compliance with such covenants. We may seek to negotiate additional credit facilities, replacement credit
facilities, or we may issue debt instruments. Any debt incurred or issued by us
may be secured or unsecured, long-term, medium-term or short-term, bear
interest at a fixed or variable rate, and be subject to such other terms as the
Board of Directors considers prudent. The availability of borrowings under the
credit facility is restrained by borrowing base and loan-to-value limits, as
well as other financial performance covenants contained in the agreement.
There can be no assurance that funds will be available in anticipated amounts
from the credit facility. Due to the continued uncertainty of the hotel industry and its impact on
the results of our operations, the Board of Directors did not declare a
dividend with respect to our common shares for the second quarter of 2004.
Pursuant to the terms of our credit facility, we are limited to distributing
not more than 75% of FFO attributable to common shareholders. The credit
facility does not limit distributions to preferred shareholders or
distributions required for us to maintain our REIT status. Currently, we
expect to continue to pay a regular quarterly dividend on our preferred shares
and anticipate that such dividends will be sufficient for us to maintain our
REIT status. The resumption of a common dividend will depend upon the
improving performance of our hotels and other factors that our Board of
Directors considers relevant. 22




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We have considered our short-term (defined as one-year or less) liquidity
needs and the adequacy of our estimated cash flow from operations and other
expected liquidity sources to meet these needs. We expect our principal
short-term liquidity needs will be to fund normal recurring expenses, debt
service requirements, scheduled debt maturities, distributions on the preferred
shares and any minimum distribution required to maintain our REIT status. We
anticipate that these needs will be met with cash flows provided by operating
activities, using availability under the credit facility, proceeds from
dispositions of non-core assets and proceeds from additional financings. We
also consider capital improvements, construction, and property acquisitions as
short-term needs that can be funded either with cash flows provided by
operating activities, by utilizing availability under our credit facility, or
from proceeds from additional financings. We expect to meet long-term (defined as greater than one year) liquidity
requirements such as property acquisitions, scheduled debt maturities, major
renovations, development projects and other nonrecurring capital improvements
utilizing cash flow from operations, proceeds from dispositions of non-core
assets, additional debt financings and preferred or common equity offerings.
We expect to acquire or develop additional hotel properties only as suitable
opportunities arise, and we will not undertake acquisition or development of
properties unless stringent criteria have been met. Capital Projects For the six months ended June 30, 2004, we spent approximately $21.0
million for capital improvements at our hotels and for technology improvements.
This amount included planned refurbishments and replacements at selected
existing hotels as well as revenue generating projects, such as the development
of an ancillary conference center within our Doubletree Portland Lloyd Center
hotel. We anticipate spending an additional $10 to $12 million related to
capital expenditures for the remainder of 2004. We expect to use cash
available from operations and restricted capital expenditure reserves, as well
as borrowings under our line of credit, to fund these costs. With regard to the planned Captiva Villas project, similar to Sanibel View
Villas and White Sand Villas, the units in the tower will be sold as
condominiums, with the prospect that the owners will put their unused room
nights back to the resort by contract, which will provide us with continuing
income. Subject to achieving a sufficient level of pre-sales, the project is
currently expected to commence in late 2004 or early 2005. We are currently
talking to various lenders regarding our financing options for the construction
of Captiva Villas. Off Balance Sheet Arrangements We believe that neither Boykin nor its unconsolidated entities have
entered into any off balance sheet arrangements which would have a current or
future impact on our financial condition, changes in financial condition,
results of operations, liquidity or capital resources in ways which would be
considered material to our investors. INFLATION Operators of hotels in general can change room rates quickly, but
competitive pressures may limit the operators ability to raise rates to keep
pace with inflation. Our general and administrative costs as well as real estate and personal
property taxes, property and casualty insurance and ground rent are subject to
inflation. SEASONALITY Our hotels operations historically have been seasonal. The five hotels
located in Florida experience their highest occupancy in the first quarter,
while the remaining hotels maintain high occupancy rates during the second and
third quarters. This seasonality pattern can be expected to cause fluctuations
in our quarterly operating results and cash flow received from hotel
operations. COMPETITION AND OTHER ECONOMIC FACTORS Our hotels are located in developed areas that contain other hotel
properties. The future occupancy, average daily rate and RevPAR of any hotel
could be materially and adversely affected by an increase in the number of or
quality of the competitive hotel properties in its market area. Competition
could also affect the quality and quantity of future investment opportunities,
and our ability to sell existing properties. As a portion of the lodging industrys sales are based upon business,
commercial and leisure travel, changes in general economic conditions,
demographics, or local business economics could affect business, commercial and
leisure travel. As a portion of the lodging industrys sales are based upon
travel, a change in travel may affect demand for rooms, which would affect
hotel revenues. 23




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our primary market risk exposure consists of changes in interest rates on
borrowings under our debt instruments that bear interest at variable rates that
fluctuate with market interest rates. These debt instruments include the
secured credit facility, the $108.0 million secured term loan and our share of
floating rate debt under our unconsolidated joint ventures of $24.3 million at
June 30, 2004. We have entered into both variable and fixed rate debt arrangements to
allow us to optimize the balance of using variable rate debt versus fixed rate
debt. Our variable rate debt allows us to maximize financial flexibility when
selling properties and minimize potential prepayment penalties typical of fixed
rate loans. Our $130.0 million, 6.9% fixed rate term note allows us to
minimize our interest rate risk exposure. Approximately 40% of our outstanding
debt at June 30, 2004, was fixed-rate in nature, compared with 41% at December
31, 2003. The weighted average interest rate of our variable rate debt and
total debt as of June 30, 2004 was 4.1% and 5.2%, respectively. We review interest rate exposure continuously in an effort to minimize the
risk of interest rate fluctuations. It is our policy to manage our exposure to
fluctuations in market interest rates on our borrowings through the use of
fixed rate debt instruments, to the extent that reasonably favorable rates are
obtainable with such arrangements, and after considering the need for financial
flexibility related to our debt arrangements. We may enter into forward
interest rate agreements, or similar agreements, to hedge our variable rate
debt instruments where we believe the risk of adverse changes in market rates
is significant. Under a forward interest rate agreement, if the referenced
interest rate increases, we would be entitled to a receipt in settlement of the
agreement that economically would offset the higher financing cost of the debt
issued. If the referenced interest rate decreases, we would make payments in
settlement of the agreement, creating an expense that economically would offset
the reduced financing cost of the debt issued. As of June 30, 2004, we do not
have any material market-sensitive financial instruments. We do not believe that changes in market interest rates will have a
material impact on the performance or fair value of our hotel portfolio because
the value of our hotel portfolio is based primarily on the operating cash flow
of the hotels, before interest expense charges. However, a change of
1⁄4% in
the index rate to which our variable rate debt is tied would change our annual
interest incurred by $0.4 million, based upon the balances outstanding on our
variable rate instruments at June 30, 2004. Using sensitivity analysis to measure the potential change in fair value
of financial instruments based on changes in interest rates, we have determined
that a hypothetical increase of 1% in the interest rates for instruments with
similar maturities would decrease the fair market value of our fixed rate debt
by $3.4 million as compared with the fair market value at June 30, 2004, which
was approximately $3.7 million higher than the carrying value. ITEM 4. CONTROLS AND PROCEDURES As of June 30, 2004, an evaluation was performed under the supervision and
with the participation of the principal executive and financial officers with
regards to the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e)). Based upon the evaluation, they
concluded that our disclosure controls and procedures were effective in
ensuring that material information required to be disclosed in this Quarterly
Report was recorded, processed, summarized and reported on a timely basis. There were no changes in our internal control over financial reporting
during the quarter ended June 30, 2004 that materially affected or are
reasonably likely to materially affect our internal control over financial
reporting. 24




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##### Table of Contents



PART II ITEM 1. LEGAL PROCEEDINGS We are subject to various legal proceedings and claims that arise in the
ordinary course of business. In our opinion, the amount of any ultimate
liability with respect to these actions will not materially affect our
financial position, results of operations or liquidity. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES ISSUER PURCHASES OF EQUITY SECURITIES Total Number of
    
    Maximum Number (orShares (or Units)
    
    Approximate Dollar Value) ofTotal Number of
    
    Average
    
    Purchased as Part of
    
    Shares (or Units) that MayShares (or Units)
    
    Price Paid
    
    Publicly Announced
    
    Yet Be Purchased UnderPeriod
    
    Purchased
    
    per Share (or Unit)
    
    Plans or Programs
    
    the Plans or ProgramsApril 1, 2004 - April 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1, 2004 - May 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2004 - June 30, 2004
    
    
    9,477
    
    
    $
    7.375
    
    
    
    
    
    
    
    Total
    
    
    9,477
    
    
    $
    7.375
    
    
    
    
    
    
    
    
 Commencing June 1, 2001, participants in Boykins Long-Term Incentive Plan
have the option to exchange shares of Boykin that have not been subject to
restriction, vesting or forfeiture in the previous six months to satisfy
minimum tax withholding requirements for shares that are currently vesting.
The price at which Boykin purchases the shares from the participant is based
upon the average of the high and low trading price of the shares on the
previous trading day. Such election is effective unless and until the earlier of termination by
the participant or the Long-Term Incentive Plan Committee of Boykins Board of
Directors. The activity for those who have elected such option is shown above. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Boykin held its annual meeting of shareholders on May 20, 2004 at the
Cleveland Airport Marriott in Cleveland, Ohio. At the meeting, the
shareholders voted to elect the Board of Directors for the term ending in 2005.
The individuals listed below were elected to Boykins Board of Directors, each
to hold office until the annual meeting next succeeding his election and until
his successor is elected and qualified, or until his earlier resignation. The
table below indicates the votes for, votes against, as well as the abstentions
and shares not voted for each nominee. Name
    
    Votes For
    
    Votes Against
    
    Abstention
    
    Shares not VotedAlbert T. Adams
    
    
    9,844,670
    
    
    
    0
    
    
    
    6,541,490
    
    
    
    1,391,697Robert W. Boykin
    
    
    15,942,309
    
    
    
    0
    
    
    
    443,851
    
    
    
    1,391,697Lee C. Howley, Jr.
    
    
    14,959,919
    
    
    
    0
    
    
    
    1,426,241
    
    
    
    1,391,697James B. Meathe
    
    
    15,072,869
    
    
    
    0
    
    
    
    1,313,291
    
    
    
    1,391,697Mark J. Nasca
    
    
    15,680,900
    
    
    
    0
    
    
    
    705,260
    
    
    
    1,391,697William H. Schecter
    
    
    15,129,847
    
    
    
    0
    
    
    
    1,256,313
    
    
    
    1,391,697Ivan J. Winfield
    
    
    14,939,222
    
    
    
    0
    
    
    
    1,446,938
    
    
    
    1,391,697
 ITEM 5. OTHER INFORMATION None. 25




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##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits 3.1
    
    (a)
    
    Amended and Restated Articles of Incorporation, as amended3.2
    
    (b)
    
    Code of Regulations3.3
    
    (c)
    
    Amendment to the Companys Articles of Incorporation for the
10-1/2% Class A Cumulative Preferred shares, Series 2002-A4.1
    
    (b)
    
    Specimen Share Certificate4.2
    
    (a)
    
    Dividend Reinvestment and Optional Share Purchase Plan4.3
    
    (d)
    
    Shareholder Rights Agreement, dated as of May 25,
1999, between Boykin Lodging Company and National City Bank, as
rights agent4.3a
    
    (e)
    
    Amendment to Shareholder Rights Agreement dated
as of December 31, 2001, between Boykin Lodging Company and
National City Bank4.4
    
    (c)
    
    Form of Preferred Share Certificate4.5
    
    (c)
    
    Form of Depositary Receipt31.1
    
    
    
    Certification Pursuant to Rule 13a-14(a)31.2
    
    
    
    Certification Pursuant to Rule 13a-14(a)32.1
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(a)
    
    Incorporated by reference from Boykins Form 10-Q for the
quarter ended June 30, 1999.(b)
    
    Incorporated by reference from Amendment
No. 3 to Boykins Registration Statement on Form S-11
(Registration No. 333-6341) (the Form S-11) filed on
October 24, 1996. Each of the above exhibits has the same
exhibit number in the Form S-11.(c)
    
    Incorporated by reference from Boykins
Registration Statement on Form 8-A filed on October 3, 2002(d)
    
    Incorporated by reference as Exhibit 1 from
Boykins Registration Statement on Form 8-A filed on June
10, 1999.(e)
    
    Incorporated by reference from Boykins Form 8-K filed on
January 14, 2002.
  (b)
    
    Reports on Form 8-K During the quarter ended June 30, 2004, Boykin filed two Current
Reports on Form 8-K as follows: Date
    
    Items Reported OnApril 20, 2004
    
    Item 4  Changes in Registrants Certifying AccountantItem 7  Financial Statements and ExhibitsAnnounced the engagement of Grant Thornton LLP as the
Companys independent auditor for the fiscal year ending
December 31, 2004May 6, 2004
    
    Item 7  Financial Statements and ExhibitsItem 12  Results of Operations and Financial Condition
Furnished the Companys first quarter ended March 31, 2004
earnings release
 26




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FORWARD LOOKING STATEMENTS This Form 10-Q contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Form 10-Q
and the documents incorporated by reference herein and include statements
regarding our intent, belief or current expectations or those of our directors
or officers with respect to:  
    
    Leasing, management or performance of the hotels;
    
    Our plans for expansion, conversion or renovation of the hotels;
    
    Adequacy of reserves for renovation and refurbishment;
    
    Our financing plans;
    
    Our continued qualification as a REIT under applicable tax laws;
    
    Our policies and activities regarding investments,
acquisitions, dispositions, financings, conflicts of interest and
other matters;
    
    National and international economic, political or market conditions; and
    
    Trends affecting us or any hotels financial condition or results of operations. You can identify the forward-looking statements by their use of
forward-looking words, such as believes, expects, may, will, should,
seeks, intends, plans, estimates, or anticipates, or the negative of
those words or similar words. You are cautioned that any such forward-looking
statement is not a guarantee of future performance and involves risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statement as a result of various factors. The factors that
could cause actual results to differ materially from those expressed in a
forward-looking statement include, among other factors, financial performance,
real estate conditions, execution of hotel acquisition or disposition programs,
changes in local or national economic conditions and their impact on the
occupancy of our hotels, military action, terrorism, hurricanes, changes in
interest rates, changes in local or national supply and construction of new
hotels, changes in profitability and margins and the financial condition of our
operators and lessee and other similar variables. The information contained in this Form 10-Q and in the documents
incorporated by reference herein and in Boykins periodic filings with the
Securities and Exchange Commission also identifies important factors that could
cause such differences. With respect to any such forward-looking statement that includes a
statement of its underlying assumptions or bases, we caution that, while we
believe such assumptions or bases to be reasonable and have formed them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, we or
our management express an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. August 5, 2004
    
    /s/ Robert W. BoykinRobert W. BoykinChairman of the Board and Chief Executive Officer(Principal Executive Officer)August 5, 2004
    
    /s/ Shereen P. JonesShereen P. JonesExecutive Vice President, Chief Financial and Investment Officer(Principal Accounting Officer)




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EXHIBIT INDEX 3.1
    
    (a)
    
    Amended and Restated Articles of Incorporation, as amended3.2
    
    (b)
    
    Code of Regulations3.3
    
    (c)
    
    Amendment to the Companys Articles of Incorporation for the
10-1/2% Class A Cumulative Preferred shares, Series 2002-A4.1
    
    (b)
    
    Specimen Share Certificate4.2
    
    (a)
    
    Dividend Reinvestment and Optional Share Purchase Plan4.3
    
    (d)
    
    Shareholder Rights Agreement, dated as of May 25,
1999, between Boykin Lodging Company and National City Bank, as
rights agent4.3a
    
    (e)
    
    Amendment to Shareholder Rights Agreement dated
as of December 31, 2001, between Boykin Lodging Company and
National City Bank4.4
    
    (c)
    
    Form of Preferred Share Certificate4.5
    
    (c)
    
    Form of Depositary Receipt31.1
    
    
    
    Certification Pursuant to Rule 13a-14(a)31.2
    
    
    
    Certification Pursuant to Rule 13a-14(a)32.1
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(a)
    
    Incorporated by reference from Boykins Form 10-Q for the
quarter ended June 30, 1999.(b)
    
    Incorporated by reference from Amendment
No. 3 to Boykins Registration Statement on Form S-11
(Registration No. 333-6341) (the Form S-11) filed on
October 24, 1996. Each of the above exhibits has the same
exhibit number in the Form S-11.(c)
    
    Incorporated by reference from Boykins
Registration Statement on Form 8-A filed on October 3,
2002.(d)
    
    Incorporated by reference as Exhibit 1 from
Boykins Registration Statement on Form 8-A filed on June
10, 1999.(e)
    
    Incorporated by reference from Boykins Form 8-K filed on
January 14, 2002.