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Changes in Net PositionSummary of changes in net position (in thousands):2014Operating revenuesInvestment incomeContributionsTotal revenues 53,8873412,70466,625Operating expensesTrustee feesInterest on capital debtLoss on disposal of capital assetsGain on extinguishment of debtTotal expensesChanges in net positionEnding net position 2013 50,6476812,70763,4222012 ,535)(63,303) (66,332) (64,145)Operating revenues increased by 3.2 million, or 6.4%, during 2014. This is primarily due tohigher room revenues driven by a 6.5% increase in room occupancy.Operating revenues decreased by 3.9 million, or 7.2%, during 2013. This is primarily due tolower room revenues driven by a 5.0% reduction in both room occupancy and average daily rate.Operating expenses increased by 0.9 million, or 1.8%, during 2014. The increase is primarilydue to an increase in room expenses driven by a 6.5% increase in room occupancy.Operating expenses remained relatively stable, decreasing by less than 1.0% during 2013.Loss on disposal of capital assets during 2014 was related to the disposition of the Ramada landsale.Gain on extinguishment of debt during 2014 was related to the elimination of accrued and unpaidsubordinate management and centralized services fees per the Amended Operating Agreement.The increase in ending net position as of December 31, 2014 is primarily due to higher roomrevenues driven by an increase in room occupancy and the elimination of accrued and unpaidsubordinate management and centralized services fees.The decrease in ending net position as of December 31, 2013 is primarily due to interest expenseon long-term debt offset by contributions to the Subordinate Bonds City Lease Payment SubAccount.Requests for Financial InformationThis financial report is designed to provide a general overview of the Downtown Phoenix HotelCorporation’s finances. Questions concerning any of the information provided in this report orrequests for additional financial information should be addressed to the Office of the ChiefFinancial Officer, City of Phoenix, Calvin C. Goode Municipal Building, Ninth Floor, 251 WestWashington, Phoenix, Arizona, 85003.8

Downtown Phoenix Hotel CorporationStatements Of Net PositionDecember 31, 2014 and 2013(in thousands)2014ASSETSCurrent AssetsCash and Cash EquivalentsAccounts Receivable, Net of Allowance forDoubtful Accounts (2014, 1 and 2013, 3)InventoriesPrepaid ExpensesTotal Current Assets Current Restricted AssetsDebt ServiceCash and Cash EquivalentsInvestmentsReceivablesAccrued InterestOperating ReserveCash and Cash EquivalentsInvestmentsReceivablesAccrued InterestCapital ProjectsCash and Cash EquivalentsTotal Current Restricted Assets20133,562 517,45222,6045610,924-2,8048,005-Noncurrent AssetsOtherCapital AssetsLandBuildingsImprovements Other Than BuildingsEquipmentIntangibleConstruction in ProgressLess: Accumulated DepreciationTotal Capital Assets, NetTotal Noncurrent AssetsTotal 77321(45,444)236,056236,356303,059DEFERRED OUTFLOWS OF RESOURCESTotal Deferred Outflows of Resources-The accompanying notes are an integral part of these financial 058244,162306,418-

2014LIABILITIESCurrent Liabilities Payable from Current AssetsAccounts PayableAccrued ExpensesAdvance DepositsTotal Current Liabilities Payable from Current AssetsCurrent Liabilities Payable from Restricted AssetsDebt ServiceBonds PayableInterest PayableOperating ReserveAccounts PayableDeposits in TrustTotal Current Liabilities Payable fromRestricted AssetsNoncurrent LiabilitiesBonds PayableUnamortized PremiumTotal Noncurrent LiabilitiesTotal LiabilitiesDEFERRED INFLOWS OF RESOURCESTotal Deferred Inflows of ResourcesNET POSITIONNet Investment in Capital AssetsRestricted for Debt ServiceRestricted for Capital ProjectsUnrestrictedTotal Net Position (64,048)(66,332)

Downtown Phoenix Hotel CorporationStatements of Revenues, Expensesand Changes in Net PositionFor the Fiscal Years Ended December 31, 2014 and 2013(in thousands)2014Operating RevenuesRoomsFood and BeverageOtherTotal Operating Revenues Operating ExpensesRoomsFood and BeverageGeneral and Administrative CostsDepreciationTrustee FeesOtherTotal Operating ExpensesOperating IncomeNon-Operating Revenues (Expenses)Investment IncomeNet Increase (Decrease) in Fair Value of InvestmentsInterestContributionsInterest on Capital DebtLoss on Disposal of Capital AssetsGain on Extinguishment of DebtTotal Non-Operating ExpensesChanges in Net PositionNet Position, January 1Net Position, December 31 The accompanying notes are an integral part of these financial statements.1130,84620,0283,01353,8872013 7(16,766)(3,991)(2,187)(66,332)(63,303) (64,145)(66,332)

Downtown Phoenix Hotel CorporationStatements of Cash FlowsFor the Fiscal Years Ended December 31, 2014 and 2013(in thousands)2014Cash Flows from Operating ActivitiesCash Received from CustomersPayments to SuppliersPayment of Staff and Administrative ExpensesNet Cash Provided by Operating Activities Cash Flows from Noncapital Financing ActivitiesContribution from City of PhoenixNet Cash Provided by Noncapital Financing ActivitiesCash Flows from Capital and Related Financing ActivitiesPrincipal Paid on Capital DebtInterest Paid on Capital DebtReceipt of Deposits Held in TrustReturn of Deposits Held in TrustAcquisition and Construction of Capital AssetsProceeds from Sales of Capital AssetsNet Cash Used by Capital and RelatedFinancing ActivitiesCash Flows from Investing ActivitiesPurchases of Investment SecuritiesProceeds from Sales and Maturities of Investment SecuritiesInterest on InvestmentsNet Cash Provided (Used) by Investing ActivitiesNet Increase in Cash and Cash EquivalentsCash and Cash Equivalents, January 1Cash and Cash Equivalents, December 31Reconciliation of Operating Income toNet Cash Provided by Operating ActivitiesOperating IncomeAdjustmentsDepreciation(Increase) Decrease in AssetsAccounts ReceivableInventoriesPrepaid ExpensesOther Non-Current AssetsIncrease (Decrease) in LiabilitiesAccounts PayableAccrued ExpensesAdvance DepositsNet Cash Provided by Operating Activities52,703(21,801)(18,139)12,7632013 315)18,300418,02611,485(18,318)17,30060(958)223 29,03740,522 28,81429,037 4,194 1,8047,3737,326(1,210)(14)255(195) Noncash Transactions Affecting Financial PositionIncrease (Decrease) in Fair Value of InvestmentsGain on Extinguishment of DebtTotal Noncash Transactions Affecting Financial PositionThe accompanying notes are an integral part of these financial statements.1251,450(21,383)(19,116)10,951 1,5887462612,763(4)(3,100)(3,104)552(229)- 1,545(298)25110,951 9- 9

DOWNTOWN PHOENIX HOTEL CORPORATIONAn Arizona Nonprofit Corporation(A Component Unit of the City of Phoenix, Arizona)NOTES TO THE FINANCIAL STATEMENTSFor the Fiscal Years Ended December 31, 2014 and 2013The Downtown Phoenix Hotel Corporation (the Corporation) is a non-profit corporationestablished in January 2005 to facilitate the financing, development, construction, and operationof a full-service hotel in downtown Phoenix (Hotel). The Hotel began operations in October 2008.The Hotel is operated by Starwood Hotels & Resorts Management Company, Inc. (HotelOperator), a direct subsidiary of Starwood Hotels & Resorts Worldwide, Inc., (Starwood).1. Summary of Significant Accounting PoliciesThe accompanying financial statements of the Corporation have been prepared in conformitywith accounting principles generally accepted in the United States of America (“GAAP”) asapplied to governmental units. The following is a summary of the significant accountingpolicies:a. Reporting EntityThe City Council of the City of Phoenix (the City) appoints the Corporation’s Board ofDirectors, approves the annual budget, provides financial support, and approvesamendments to the Articles of Incorporation and Bylaws. Upon future dissolution of theCorporation, remaining assets will revert to the City. Accordingly, the Corporation isconsidered to be a governmental unit for financial reporting purposes. Although theCorporation is legally separate from the City, governmental accounting standards requirethe Corporation to be reported as a discretely presented component unit of the City forfinancial reporting purposes because of the City Council’s relationship to the Corporation.The Corporation prepares financial statements for use by the Board of Directors andother interested parties.b. Basic Financial StatementsThe basic financial statements constitute the core of the financial section of theCorporation’s Annual Financial Report. The basic financial statements include thefinancial statements and the accompanying notes to these financial statements.The financial statements (Statements of Net Position; Statements of Revenues,Expenses and Changes in Net Position; and Statements of Cash Flows) report on theCorporation as a whole. All activities are reported in the financial statements using theeconomic resources measurement focus and the accrual basis of accounting, whichincludes long-term assets and receivables and deferred outflows of resources, as well aslong-term debt, obligations, and deferred inflows of resources. The financial statementsfocus more on the sustainability of the Corporation as an entity and the change inaggregate financial position resulting from the activities of the fiscal period.The Statements of Net Position report all financial resources of the entity and aredisplayed in a format of assets plus deferred outflows of resources less liabilities plusdeferred inflows of resources equals net position, with the assets and liabilities shown inorder of their relative liquidity. Net position is displayed in three components: 1) netinvestment in capital assets, 2) restricted and 3) unrestricted. Net investment in capitalassets, are capital assets net of accumulated depreciation and reduced by outstandingbalances of any bonds, mortgages, notes or other borrowings that are attributable to theacquisition, construction, or improvement of those assets. Restricted components of netposition are those with constraints placed on their use. Those constraints are either 1)externally imposed by creditors (such as through debt covenants), grantors, contributors,or laws or regulations of other governments, or 2) imposed by law through constitutional13

DOWNTOWN PHOENIX HOTEL CORPORATIONAn Arizona Nonprofit Corporation(A Component Unit of the City of Phoenix, Arizona)NOTES TO THE FINANCIAL STATEMENTSFor the Fiscal Years Ended December 31, 2014 and 2013provisions or enabling legislation. All components of net position not otherwise classifiedas restricted are shown as unrestricted. Generally, the Corporation would first applyrestricted resources when an expense is incurred for purposes for which both restrictedand unrestricted net position is available. Reservations or designations of net positionimposed by the reporting entity, whether by administrative policy or legislative actions ofthe reporting entity, are not shown on the accompanying financial statements.The Statements of Revenues, Expenses and Changes in Net Position presentinformation showing how the Corporation’s net position changed during the most recentfiscal year. All changes in net position are reported as soon as the underlying eventgiving rise to the change occurs, regardless of the timing of related cash flows. Thus,revenues and expenses are reported in this statement for some items that will only resultin cash flows in future periods e.g., accounts payable. This is the accrual method ofaccounting.The Statements of Cash Flows provide information about the receipts and payments ofthe Corporation that result in changes to cash and cash equivalents. The cash flows areclassified as operating activities, noncapital financing activities, capital and relatedfinancing activities, or investing activities.c.Basis of AccountingThe Corporation’s activities are accounted for as an enterprise fund and the accountingrecords are maintained on the accrual basis of accounting. Revenues are recognizedwhen earned and expenses are recognized when incurred. The Corporation applies allGovernmental Accounting Standards Board pronouncements in accounting and reportingfor its proprietary operations.The Corporation distinguishes operating revenues and expenses from non-operatingitems. Operating revenues are primarily derived from hotel operations including therental of rooms and food and beverage sales. Revenue is recognized when rooms areoccupied and services have been rendered. Operating expenses for the Corporationinclude the cost of sales and services, administrative expenses, and depreciation oncapital assets. All revenues and expenses not meeting this definition are reported asnon-operating revenues and expenses.Restricted assets on the Statements of Net Position primarily consist of investments fordebt service. Cash with fiscal agent/trustee and accrued interest receivables arerestricted for debt service, operating reserve, and capital projects.d.Cash and Cash EquivalentsCash and cash equivalents are defined as highly liquid investments (including restrictedcash and investments) with a maturity of three months or less from the date of purchase.e.InvestmentsThe Corporation’s investments are governed by the underlying bond documents. Thecorporation reports all investments, deposits and associated risks in accordance withGovernmental Accounting Standards Board Statements No. 31, “Accounting andFinancial Reporting for Certain Investments and for External Investment Pools” and No.40, “Deposit and Investment Risk Disclosures.”14

DOWNTOWN PHOENIX HOTEL CORPORATIONAn Arizona Nonprofit Corporation(A Component Unit of the City of Phoenix, Arizona)NOTES TO THE FINANCIAL STATEMENTSFor the Fiscal Years Ended December 31, 2014 and 2013f.Accounts ReceivableAccounts receivable are reported net of an allowance for doubtful accounts. Theallowance for doubtful accounts is based on management’s assessment of the potentialfor losses, taking into account historical experience and currently available information.g.InventoriesInventories include food and beverage inventory items which are generally valued at thelower of FIFO cost (first-in, first-out) or market.h.Capital AssetsCapital assets are defined as assets with an initial, individual cost of more than 5,000and an estimated useful life greater than two years. Capital assets are recorded at cost ifpurchased or constructed.Major outlays for capital assets and improvements are capitalized as the projects areconstructed. Interest incurred during the construction phase of projects is reflected in thecapitalized value of the asset constructed. The cost of normal maintenance and repairsthat do not add to the value of the asset or materially extend assets lives are notcapitalized. Major improvements are capitalized and depreciated over the remaininguseful lives of the related capital assets.Depreciable capital assets are depreciated or amortized using the straight-line methodand the following estimated useful lives:Buildings and improvementsEquipmentIntangible assets5 to 40 years5 to 25 years5 to 20 yearsGain or loss is recognized when assets are retired from service or are otherwisedisposed of.i.Noncurrent LiabilitiesIn the financial statements, long-term debt and other long-term obligations are reportedas liabilities in the statements of net position. Bond premiums and discounts are deferredand amortized over the life of the bonds using the interest method.j.ReclassificationsCertain amounts in the 2013 financial statements have been reclassified to conform tothe 2014 basic financial statement presentation with no effect on previously reported2013 net position or changes in net position.k.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make a number ofestimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statements and15

DOWNTOWN PHOENIX HOTEL CORPORATIONAn Arizona Nonprofit Corporation(A Component Unit of the City of Phoenix, Arizona)NOTES TO THE FINANCIAL STATEMENTSFor the Fiscal Years Ended December 31, 2014 and 2013reported amounts of revenues and expenditures during the reporting period.results could differ from those estimates.l.ActualAdvertising CostsAdvertising costs are expensed when incurred.m. Income TaxesThe Corporation is an Arizona nonprofit corporation and a component unit of the City ofPhoenix, a governmental agency, and is exempt from federal and state income taxes.2. Cash and InvestmentsOperating cash is maintained in a separate bank account. All other cash and investments ofthe Corporation are held by the trustee. The contract with the trustee calls for these depositsto be fully covered by collateral held in the trustee’s trust department but not in theCorporation’s name. The trust department pledges a pool of collateral against all trustdeposits.Cash and cash equivalents at December 31, was comprised of the following (in thousands):2014CashShort-term money market accountsTotal cash and cash equivalents 20133,56236,96040,522 1,52227,51529,037At December 31, 2014 and 2013, the Hotel’s reported cash deposits were 3,512,048 and 1,472,260, respectively. The bank balances related to these deposits were 4,029,854 and 1,664,802, respectively.Investments at December 31, was comprised of the following (in thousands):2014U.S. Treasury SecuritiesCreditQualityRatingFair ValueWeighted AverageMaturity (Years)N/A (1) 22,6050.395N/A (1) 30,6090.8092013U.S. Treasury Securities(1)U.S. Government GuaranteedInterest Rate RiskThe Corporation manages its exposure to interest rate risk by attempting to match investmentmaturities with anticipated expenses, and by limiting maturities in reserve funds to five yearsor less.16

DOWNTOWN PHOENIX HOTEL CORPORATIONAn Arizona Nonprofit Corporation(A Component Unit of the City of Phoenix, Arizona)NOTES TO THE FINANCIAL STATEMENTSFor the Fiscal Years Ended December 31, 2014 and 2013Credit RiskThe Corporation limits its investments to the top ratings issued by nationally recognizedstatistical rating organizations such as Standard & Poor’s (“S&P”) and Moody’s InvestorsService (“Moody’s”). The portfolio is invested in U.S. Treasury Securities.Concentration of Credit RiskThere were no investments in any one issuer that represented 5% or more of totalCorporation investments at fair value as of December 31, 2014 and 2013.3. Capital AssetsA summary of changes in capital assets for the years ended December 31, is as follows dingBalance2014Non-depreciable assets:Land 1,150Construction in progress 21Intangible assets95Total non-depreciable assets- 300-(1,150) -321-951,266300(1,150)416276,48864-Depreciable gible assets82Total depreciable 43,184)Less accumulated depreciation for:BuildingsImprovementsEquipmentIntangible assetsTotal accumulated depreciationTotal depreciable assets, netCapital assets, at cost, net 1)-235,640244,05817 (6,851) (1,150) 236,056

DOWNTOWN PHOENIX HOTEL CORPORATIONAn Arizona Nonprofit Corporation(A Component Unit of the City of Phoenix, Arizona)NOTES TO THE FINANCIAL STATEMENTSFor the Fiscal Years Ended December 31, 2014 and 2013Begin

The Corporation issued both Senior and Subordinate Revenue Bonds. The Senior Bonds in the amount of 156,710,000 are payable solely from gross revenues, while the Subordinate Bonds in the amount of 193,290,000 are also secured by a portion of non-general fund City hotel e