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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number: 0-15097

WESTIN HOTELS LIMITED PARTNERSHIP

Delaware

91-1328985

1111 Westchester Avenue

1-800-323-5888

     There is no public market for Units of limited partnership interests in the Westin Hotels Limited Partnership.

      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 þ          No o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

      Indicate the number of shares (units) outstanding of each of the issuer’s classes of common stock (units), as of the latest practicable date (applicable only to corporate issuers).

135,600 limited partnership Units issued and outstanding as of August 6, 2004.

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PART I. FINANCIAL INFORMATION

WESTIN HOTELS LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

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WESTIN HOTELS LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

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WESTIN HOTELS LIMITED PARTNERSHIP

The accompanying notes are an integral part of this consolidated financial statement.

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WESTIN HOTELS LIMITED PARTNERSHIP

The accompanying notes are an integral part of these consolidated financial statements.

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WESTIN HOTELS LIMITED PARTNERSHIP

      The accompanying consolidated financial statements include the accounts of Westin Hotels Limited Partnership, a Delaware limited partnership (the “Partnership”), and its subsidiary limited partnership, The Westin Chicago Limited Partnership (the “Chicago Partnership”). The Chicago Partnership owns and operates The Westin Michigan Avenue, Chicago (formerly The Westin Hotel, Chicago) in downtown Chicago, Illinois (the “Michigan Avenue” or the “Hotel”). All significant intercompany transactions and accounts have been eliminated.

      The consolidated financial statements and related information for the periods ended June 30, 2004 and 2003 are unaudited. In the opinion of the general partner of the Partnership (“General Partner”), all adjustments necessary for a fair statement of the results of these interim periods have been included. All such interim adjustments are of a normal recurring nature. The results of operations for the periods ended June 30, 2004 and 2003 should not be regarded as indicative of the results that may be expected for the full fiscal year ending December 31, 2004.

      Recently Issued Accounting Standards. There were various accounting standards and interpretations issued during 2003 and 2004, none of which are expected to have a material impact on the Partnership’s consolidated financial position, operations or cash flows.

      Reference is made to “Notes to Consolidated Financial Statements” contained in the Partnership’s Form 10-K filed for the year ended December 31, 2003 for information regarding significant accounting policies, Partnership organization, accrued expenses, long-term obligations, the employee benefit plan, operating leases, commitments and contingencies and related party transactions. The consolidated financial statements should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein.

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Forward-Looking Statements

      This report includes “forward-looking” statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission (the “SEC”) in its rules, regulations and releases. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, and those disclosed as risks in other reports filed by us with the SEC, including those described in Part I of our most recently filed Annual Report on Form 10-K. We caution readers that any such statements are based on currently available operational, financial and competitive information, and they should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

General

      Our primary market focus is on business travelers, conventions and other groups. Our business activities generally follow national economic trends. The level of tourist business is influenced by the general global economic environment and political climate and, to a lesser extent, by the strength of the U.S. dollar in relation to foreign currencies. We believe that the Chicago real estate market is currently beginning to experience a recovery, although the timing and extent of any such recovery is uncertain. We believe that the Hotel will not experience significant revenue and income growth in calendar year 2004 due in part to a reduced number of conventions in the Chicago area. Although the hotel real estate market in the United States has recently shown signs of improvement, there can be no assurance that this improvement will be sustained. We continue to experience seasonal trends, with the lowest occupancy levels occurring during the first quarter, followed by higher occupancies during the last three quarters of the year.

      Westin Realty Corp. is the sole General Partner of the Partnership. 909 North Michigan Avenue Corporation is the general partner of the subsidiary limited partnership, the Chicago Partnership, which directly owns and operates the Hotel. Since January 2, 1998, the General Partner has been a subsidiary of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”).

      The Partnership Agreement obligated us to review opportunities to sell the Michigan Avenue or to refinance indebtedness secured by the Michigan Avenue, beginning in 1994, and to use our best efforts to complete a sale or refinancing transaction by the end of 2001.

      In February 2001, after the completion of significant renovations of the Michigan Avenue, we, on behalf of the Partnership, retained Jones Lang LaSalle Hotels (“JLL”), a nationally recognized broker, to market the Michigan Avenue for sale. After the terrorist attacks in New York City, Washington, D.C. and Pennsylvania on September 11, 2001 (the “September 11 Attacks”), however, bidders on the Michigan Avenue indicated they would only be willing to purchase the Hotel at a significant discount to the value they had placed on the Hotel prior to the September 11 Attacks. Based on the unstable and depressed hotel real estate market resulting from the September 11 Attacks and weakened general worldwide economic environment, we did not believe that it was in the best interest of the limited partners to sell the Michigan Avenue in late 2001 or 2002.

      In mid-2002, we also engaged JLL to assist in exploring a refinancing of our debt and directed JLL to focus its efforts towards pursuing refinancing alternatives. After a several month process it was determined that the debt could not be refinanced on an economical basis.

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      From July 2003 until January 2004, several parties (including an affiliate of ours) made tender offers for varying numbers of units of our limited partnership interest (the “Units”). The tender offers ranged from a low price of $525 per Unit to a high price of $735 per Unit. We expressed no opinion, made no recommendation and remained neutral with respect to each tender offer.

      On June 7, 2004, the General Partner announced that it had commenced a process of marketing the Michigan Avenue for sale. The marketing process is continuing. There can be no assurance that the General Partner will be able to sell the Hotel in the near future or the price at which the Hotel may be sold. Furthermore, if the Hotel is sold, there is no assurance that limited partners will receive a prompt distribution of funds or the size of any distribution.

Results of Operations

      Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those relating to revenue recognition, bad debts, inventories, property and equipment, financing operations, commitments, contingencies and litigation.

      We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.

      We believe the following to be our critical accounting policies:

      Revenue Recognition. The Michigan Avenue’s revenues are derived from its operations and include revenues from the rental of rooms, food and beverage sales, telephone usage and other service revenue. Revenue is recognized when rooms are occupied and services have been performed.

      Inventories. Inventories consist of food and beverage stock items as well as linens, china, glass, silver, utensils and guest room items (“Par Inventories”). The food and beverage inventory items are recorded at the lower of cost (first in, first out) or market. Significant purchases of Par Inventories are recorded at purchased cost and amortized to 50% of their cost over 36 months. Normal replacement purchases are expensed as incurred. Par Inventories are classified as a component of property and equipment.

      Property and Equipment. We continually evaluate the carrying value of our plant and equipment for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. We evaluate the carrying value of our plant and equipment based on our plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected incremental income from renovations. Changes to our plans, including a decision to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

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      The results of operations and key statistics presented and discussed below are for the Michigan Avenue only and do not include the costs related to Partnership administration.

(1)	REVPAR is calculated by dividing room revenue which is derived from rooms and suites rented or leased, by total room nights available for a given period. We consider REVPAR to be a leading indicator for the performance of the Hotel since REVPAR measures the period-over-period growth in rooms revenue. REVPAR may not be comparable to similarly titled measures such as revenues.

      Three Months Ended June 30, 2004 Compared with Three Months Ended June 30, 2003. The Michigan Avenue had net income of approximately $2,757,000 for the three months ended June 30, 2004, compared to $2,089,000 in the same period of 2003, which represents the majority of the results of the Partnership. Operating profit for the three months ended June 30, 2004, was $3,140,000 an increase of 22.4% when compared to $2,566,000 in the same period 2003.

      The Michigan Avenue’s rooms revenue for the three months ended June 30, 2004 were $9,272,000, which represents a 3.8% or $337,000 increase from the same period of 2003. REVPAR for the three months ended June 30, 2004, was $135.68, a 3.8% increase from the same period of 2003. These increases are attributable to the increase in the transient segment when compared to the same period of 2003 as mentioned above and slight increases in group business and negotiated contracts with the airline industry. The Michigan Avenue reported a slight decrease in average daily room rate (“ADR”) of 0.9% to $156.39 for the three months ended June 30, 2004 as compared to the same period in 2003, primarily due to the re-negotiations of several airline contracts; however, its occupancy rate for the same period increased 4 percentage points to 86.8% over the prior year. The Michigan Avenue’s rooms department profit margin for the three months ended June 30, 2004 decreased half a percentage point to 77.1% from the same period of 2003 due to the ADR decreases discussed above and increases in union wages and benefits.

      The Michigan Avenue’s food and beverage revenue of $3,218,000 for the three months ended June 30, 2004 increased approximately $562,000 as compared to the same period of 2003. This increase primarily resulted from additional banquet and catering revenue associated with the higher group bookings previously discussed. The decrease in food and beverage department profit margins of approximately 1.4 percentage points to 30.9% over the same period of 2003, is primarily the result of the increased union wages and benefits previously discussed.

      Other operating departments had revenue of approximately $1,064,000 for the three months ended June 30, 2004, an approximate $109,000 increase over the same period of 2003, primarily due to increases in telephone revenues generated by Broadband installation in all of the guest rooms, increased collection of cancellation and attrition fees, and increased rental revenue from tenants at our various outlets.

      The Michigan Avenue’s operating expenses for the three months ended June 30, 2004 increased 4.3% or $434,000 to $10,414,000. The increase was primarily due to higher room and food costs associated with increased occupancy as well as increased salaries and benefits costs noted above. In addition, prior year expenses include a $414,000 tax refund. No such refunds were received in 2004. Management fees for the three months ended June 30, 2004 decreased approximately $89,000 from the same period of 2003 to $984,000 due to decreased Partnership Net Operating Cash Flow, as defined in the Partnership Agreement.

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      Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003. The Michigan Avenue had net income of $1,067,000 for the six months ended June 30, 2004, compared to net income of $267,000 in the same period of 2003. Operating profit for the six months ended June 30, 2004 was $1,845,000 as compared to an operating profit of $1,362,000 in the same period of prior year.

      The Michigan Avenue’s rooms revenue for the six months ended June 30, 2004 were $14,253,000 which represents a 1.9% or $269,000 decrease when compared to the same period of 2003. REVPAR for the six months ended June 30, 2004 decreased 2.4% to $104.28 compared to $106.83 in the same period of 2003. This REVPAR decrease is attributed to a 4.1% reduction in ADR over prior year to $139.52, slightly offset by a 1.2 percentage point increase in occupancy to 74.7% for the six months ended June 30, 2004 as compared to 73.5% for the same period in 2003. The ADR decrease is due to lower negotiated group rates and lower ADR from internet channel bookings, primarily during the first quarter of 2004. The occupancy increase is primarily the result of increased airline, transient, and group business as previously discussed. The Michigan Avenue’s rooms department profit margin for the six months ended June 30, 2004 was 73.8%, 1.4% lower than the same period of 2003, primarily due to the increased wage costs previously discussed.

      The Michigan Avenue’s food and beverage revenues of $4,550,000 for the six months ended June 30, 2004 represents a $114,000 or 2.6% increase compared to the same period of 2003. This increase is due primarily to banquet and catering revenues generated by the increased group business noted above. Despite the increase in banquet and catering revenues for the six months ended June 30, 2004, food and beverage department profit margins decreased 4.4 percentage points to 23.1% over the same period of 2003, due to increases in union wages and benefits expenses as previously discussed.

      Other operating departments had revenues of $1,887,000 for the six months ended June 30, 2004, a $107,000 increase over the same period of 2003, primarily resulting from increased ancillary revenues.

      The Michigan Avenue’s operating expenses for the six months ended June 30, 2004, decreased 2.7% to $18,845,000. The decrease was primarily attributed to decreased management fees and depreciation expenses offset by higher room and food and beverage costs associated with increased occupancies. Management fees for the six months ended June 30, 2004 decreased $168,000 over the same period of 2003 to $1,806,000 due to decreased Partnership Net Operating Cash Flow, as defined in the Partnership Agreement.

Liquidity and Capital Resources

      As of June 30, 2004, we had cash and cash equivalents of approximately $34,233,000, a $875,000 increase from December 31, 2003. The increase in cash during the six months ended June 30, 2004 was due primarily to the improved operational results over prior year and timing of management fee payments offset by quarterly dividend payments of $911,000 made on March 15, 2004 and June 14, 2004.

      Pursuant to the mortgage loan restructuring agreement (the “Restructuring Agreement”), we are required to make quarterly deposits to a furniture, fixtures and equipment reserve account (the “FF&E” Reserve Account), in accordance with the Restructuring Agreement, based upon 5.0% of gross revenues through the maturity of the mortgage loan in 2006. The Michigan Avenue’s FF&E Reserve Account balance of approximately $2,567,000 is included in other assets in the accompanying consolidated balance sheet as of June 30, 2004.

      The Restructuring Agreement also requires that we make deposits into a tax escrow account for payment of real and personal property taxes. As of June 30, 2004, the balance of this tax escrow account of $3,221,000 is included in cash and cash equivalents in the accompanying consolidated balance sheets.

      We spent $177,000 on capital expenditures during the six months ended June 30, 2004 primarily related to upgrades to telecommunications equipment. All capital projects have been approved by the mortgage loan lender, as required by the Restructuring Agreement.

      Principal payments of $737,000 and interest payments of $810,000 were made on the mortgage loan during the six months ended June 30, 2004. Scheduled principal and interest payments for the remainder of 2004 total approximately $1,546,000.

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      At this time, we anticipate that cash on hand and cash flow from operations will provide adequate funding for 2004 capital expenditures and principal and interest payments on the mortgage loan. A cash distribution of $6.72 per Unit was paid on March 15, 2004 and June 14, 2004. Future distributions will be based on Available Net Cash Flow, as defined in the Partnership Agreement, and are dependent upon the Net Cash Flow, as defined, generated by the Hotel and the adequacy of cash reserves. The amount of each distribution will be determined by us at the end of each calendar quarter according to economic conditions and the terms of the Partnership Agreement and will be distributed to our limited partners within 75 days of the end of the quarter.

      There were no material changes to the information provided in Item 7A in our Annual Report on Form 10-K regarding the Partnership’s market risk.

      We conducted an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2004. Based on this evaluation, the Principal Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in our SEC reports. There have been no significant changes in our internal controls over financial reporting that have occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

      Because of the nature of the hotel business, the Chicago Partnership is subject to various claims and legal actions incidental to the ordinary course of their operations, including such matters as contract and lease disputes and complaints alleging personal injury, property damage and employment discrimination. We believe that the outcome of any such pending claims or proceedings, individually or in the aggregate, will not have a material adverse effect upon our business, financial condition or results of operations.

      On or about November 18, 2003, Warren Heller and Ralph Silver, two limited partners of the Partnership, filed a six count complaint in the United States District Court for the Southern District of New York against Starwood and its wholly owned subsidiary, WHLP Acquisition LLC (collectively the “Starwood Defendants”), the General Partner, and Theodore W. Darnall and Alan M. Schnaid (together “General Partner Officers and Directors”). Three counts of the complaint, purportedly brought on behalf of all limited partners of the Partnership, alleged violations of the federal securities laws by the Starwood Defendants and the General Partner Officers and Directors in connection with the Starwood Defendants’ tender offer dated November 4, 2003, which sought to acquire a majority of our outstanding interests. The other counts of the complaint, also purportedly brought on behalf of all of the limited partners of the Partnership, alleged (i) breach of fiduciary duties against each of the defendants in connection with the tender offer, and their actions with respect thereto; and (ii) breach of contract (and intentional interference with contractual relations) relating to various matters of Partnership management. The complaint sought compensatory and punitive damages in an amount unspecified.

      On or about January 26, 2004, defendants filed motions to dismiss the complaint. On or about February 17, 2004, plaintiffs’ counsel filed an application for attorneys’ fees and reimbursement of expenses in the amount of $101,803. The application contends that certain actions taken by defendants subsequent to the filing of the complaint, namely the Starwood Defendants’ decision to increase its offer price to $735 per Unit and to eliminate the condition that a majority of limited partners consent to a subsequent merger between the Partnership and a Starwood affiliate, benefited the class by providing much of the relief sought in the complaint and rendered plaintiffs’ claims substantially moot. On or about February 25, 2004, plaintiffs filed a

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Affiliate Transactions

      We reimbursed the General Partner for third-party general and administrative expenses incurred on our behalf totaling approximately $343,000 during the second quarter of 2004 primarily for investor relations expenses and costs incurred in connection with the various tender offers discussed previously. Affiliates of the General Partner, including Starwood, as manager of the Hotel (“Hotel Manager”), received base management fees of approximately $474,000 in the second quarter of 2004. We accrued incentive management fees, payable to the Hotel Manager, of approximately $510,000 for the second quarter of 2004. Marketing fees of approximately $203,000 were paid by the Partnership to the Hotel Manager for the second quarter of 2004.

      An entity in which the Chairman and Chief Executive Officer of Starwood had an indirect ownership interest held 259 Units. The Units were acquired in 1995 and 1996. The entity tendered all of its Units to Starwood in connection with Starwood’s tender offer. Starwood purchased all shares tendered to it and the entity will receive approximately $190,000 for its Units.

      On February 23, 2004, Starwood announced that its tender offer to purchase Units of the Partnership expired at 5:00 p.m., Eastern Standard Time on February 20, 2004. It is anticipated that after all the paperwork is reviewed and approved, 33,877 Units will be tendered to Starwood pursuant to its tender offer. As of June 30, 2004, 33,248 of these Units have been transferred.

      In June 2000, the Michigan Avenue transferred the operations of its restaurant, The Grill on the Alley, to Grill Concepts of California (“Grill Concepts”). Starwood made an equity investment in Grill Concepts in the third quarter of 2001 and currently owns approximately 12% of the outstanding common stock of Grill Concepts and has rights to acquire additional shares of Grill Concepts pursuant to a subscription agreement. An employee of Starwood also serves on the Board of Directors of Grill Concepts. Grill Concepts operates The Grill on the Alley pursuant to a ten-year operating lease which expires in 2008. Rental revenues to us from Grill Concepts under the operating lease for the restaurant were $66,000 in the three months ended June 30, 2004, and $59,000 in the three months ended June 30, 2003.

Investor Relations

      The Partnership’s investor relations function is handled by Phoenix American Financial Services, Inc. at 2401 Kerner Boulevard, San Rafael, CA 94901-5529. The toll-free number for Phoenix American Financial Services, Inc. is 1-800-323-5888.

Unit Sales

      Through August 2, 2004, the General Partner has processed requests for the transfer of 54,756 Units. Sales requests processed through the date of this filing for 53,710 units for tender offers were at a price range of $550 to $802.50. The remaining 1,046 Unit sale requests were completed through limited partnership exchanges at a range in price of $425 to $750 per Unit. The per Unit sales prices are the actual contracted price agreed upon by the respective limited partner and new purchaser. This price does not reflect any reductions in the sales price due to distributions made to the limited partner, as specified by some of the mini-tender offers.

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      (a) Exhibits.

(1)	Filed herewith.

      (b) Reports on Form 8-K

      During the second quarter of 2004, the Partnership filed the following Current Report on Form 8-K:

	•	June 7, 2004 reporting under Items 5 and 7 its press release announcing the commencement of marketing for the sale of the Michigan Avenue Hotel in Chicago, Illinois.

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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.

	WESTIN HOTELS LIMITED PARTNERSHIP
	(a Delaware limited partnership)

	By:	WESTIN REALTY CORP.,

	Its sole General Partner

	By:	/s/ THEODORE W. DARNALL

	Theodore W. Darnall
	President, Principal Executive Officer

	By:	/s/ ALAN M. SCHNAID

	Alan M. Schnaid
	Vice President, Principal Accounting Officer

Date: August 6, 2004

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EXHIBIT INDEX

(1)	Filed herewith.