<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
_________________
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999
Commission File Number 1-7062
INNSUITES HOSPITALITY TRUST
(Exact name of registrant as specified in its charter)
Ohio 34-6647590
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
InnSuites Hotels Centre
1625 E. Northern Ave., Suite 201
Phoenix, AZ 85020
(Address of principal executive offices)
Registrant's telephone number, including area code (602) 944-1500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or l5(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 [ ]
Number of outstanding Shares of Beneficial Interest, without par value, as of
December 1, 1999: 2,562,138
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INNSUITES HOSPITALITY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, 1999 JANUARY 31, 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Hotel properties, net............................................................ $65,129,440 $65,509,187
Cash and cash equivalents........................................................ 102,928 420,935
Percentage rent receivable from affiliate........................................ 989,732 788,179
Interest receivable and other assets............................................. 1,624,948 1,086,469
----------- -----------
$67,847,048 $67,804,770
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable........................................................... $23,834,874 $23,161,052
Notes payable to banks........................................................... 11,300,000 11,300,000
Other notes payable.............................................................. 225,000 450,000
Notes payable to related parties................................................. 2,850,000 2,013,782
Accounts payable and accrued expenses............................................ 969,790 2,188,709
Minority interest in partnership................................................. 20,117,877 20,621,900
SHAREHOLDERS' EQUITY:
Shares of beneficial interest, without par value; unlimited authorization;
2,591,538 shares outstanding at October 31, 1999 and 2,286,951 shares
outstanding at January 31, 1999 8,549,507 8,069,327
----------- -----------
$67,847,048 $67,804,770
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 31,
REVENUES 1999 1998
----------- -----------
<S> <C> <C>
Rent revenue from affiliate......................................... $7,389,428 $7,667,996
Interest income..................................................... 20,863 19,780
Other income........................................................ 15,210 --
---------- ----------
7,425,501 7,687,776
---------- ----------
EXPENSES
Real estate depreciation............................................ 1,894,303 1,854,155
Real estate and personal property taxes, insurance and ground rent.. 1,065,453 833,575
General and administrative.......................................... 1,327,456 1,023,915
Interest on mortgage notes payable.................................. 1,544,610 1,537,454
Interest on notes payable to banks.................................. 684,168 387,238
Interest on note payable to related party........................... 135,692 --
Advisory fee paid to related party.................................. -- 488,436
Amortization of loan fees........................................... 48,998 19,334
---------- ----------
6,700,680 6,144,107
---------- ----------
INCOME BEFORE MINORITY INTEREST.......................................... 724,821 1,543,669
MINORITY INTEREST........................................................ 459,886 1,423,162
---------- ----------
NET INCOME ATTRIBUTABLE TO SHARES OF BENEFICIAL INTEREST................. $ 264,935 $ 120,507
========== ==========
EARNINGS PER SHARE - basic............................................... $ .11 $ .07
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - basic.................... 2,330,349 1,813,563
========== ==========
EARNINGS PER SHARE - diluted............................................. $ .09 $ .07
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - diluted.................. 4,777,356 1,813,563
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 31,
REVENUES 1999 1998
------------ -----------
<S> <C> <C>
Rent revenue from affiliate.......................................... $ 2,030,934 $ 2,936,504
Interest income...................................................... 987 --
Other income......................................................... 5,619 --
------------ ------------
2,037,540 2,936,504
------------ ------------
EXPENSES
Real estate depreciation............................................. 617,083 743,881
Real estate and personal property taxes, insurance and ground rent... 421,523 279,896
General and administrative........................................... 419,852 210,330
Interest on mortgage notes payable................................... 504,578 453,245
Interest on notes payable to banks................................... 199,955 205,443
Interest on note payable to related party............................ 50,301 --
Advisory fee paid to related party................................... -- 184,467
Amortization of loan fees............................................ 4,564 19,334
------------ ------------
2,217,856 2,096,596
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST.................................... (180,316) 839,908
MINORITY INTEREST......................................................... (103,067) 794,483
------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO SHARES OF BENEFICIAL INTEREST........... $ (77,249) $ 45,425
============ ============
EARNINGS (LOSS) PER SHARE - basic and diluted............................. $ (.03) $ .02
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - basic and diluted......... 2,368,656 2,100,301
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 264,935 $ 120,507
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest 459,886 1,423,162
Depreciation and amortization 1,943,301 1,873,489
Decrease in amounts due lessee -- (944,234)
Increase in percentage rent receivable (201,553) (430,397)
Increase in interest receivable and other assets (558,778) (823,600)
Increase (decrease) in accounts payable and accrued expenses (1,318,881) 718,785
----------- -----------
Net cash provided by operating activities 588,910 1,937,712
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties -- (1,448,000)
Improvements and additions to hotel properties (1,514,556) (1,164,414)
----------- -----------
Net cash used in investing activities (1,514,556) (2,612,414)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings -- 10,750,323
Payments of mortgage notes payable (1,078,098) (7,435,201)
Payment of cash dividends and distributions -- (948,772)
Refinancing of mortgage notes payable 1,751,920 --
Payments of other notes payable (225,000) (218,063)
Purchase of treasury stock (224,074) --
Repurchase of partnership units (453,327) --
Notes payable and advances (to) from related parties 836,218 (3,042,780)
----------- -----------
Net cash provided by (used in) financing activities 607,639 (894,493)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (318,007) (1,569,195)
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 420,935 2,378,398
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 102,928 $ 809,203
=========== ===========
</TABLE>
5
<PAGE>
INNSUITES HOSPITALITY TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
Prior to fiscal 1999, InnSuites Hospitality Trust, formerly known as
Realty ReFund Trust, (the "Trust" or the "Company") specialized in mortgage
financing as its investment vehicle, refinancing existing income producing
commercial, industrial and multi-unit residential real property by supplementing
or replacing existing financing. The primary refinancing technique which the
Trust employed was wrap-around mortgage lending.
On January 31, 1998, the Trust contributed $2,081,000 to RRF Limited
Partnership (the "Partnership"), a Delaware limited partnership, in exchange for
a 13.6% general partnership interest therein. The Trust is the sole general
partner of the Partnership. The Partnership issued limited partnership interests
representing 86.4% of the Partnership to acquire six hotel properties from
various entities. In addition, in order to acquire a seventh hotel property
through a wholly-owned subsidiary, the Trust issued 647,231 shares of beneficial
interest in exchange for all of the outstanding shares of Buenaventura
Properties, Inc. ("BPI"), which owned a hotel located in Scottsdale, Arizona.
These hotels, together with the hotels described in Note 4, are referred to
herein as the Hotels. The Hotels are leased to InnSuites Hotels, Inc., formerly
known as Realty Hotel Lessee Corp. (the "Lessee") pursuant to leases which
contain provisions for rent based on the revenues of the Hotels (the "Percentage
Leases"). Each Percentage Lease obligates the Lessee to pay rent equal to the
greater of the minimum rent or a percentage rent based on the gross revenues of
each Hotel. The Lessee holds the franchise agreement for each Hotel. The Lessee
is owned 9.8% by InnSuites Innternational Hotels, Inc., an entity owned by James
F. Wirth, Chairman, President and Chief Executive Officer of the Trust ("Wirth")
and his spouse.
As of October 31, 1999, the Trust, which is the sole general partner of
the Partnership, has a 44% general partner interest in the Partnership.
Partnership Agreement
The Partnership Agreement provides for the issuance of two classes of
limited partnership units, Class A and Class B. Such classes are identical in
all respects, except that each Class A limited partnership unit in the
Partnership shall be convertible into a like number of shares of beneficial
interest of the Trust, at any time at the option of the particular limited
partner, if the Trust determines that such conversion would not cause the Trust
to fail to qualify as a REIT. As of October 31, 1999, a total of 2,178,903 Class
A limited partnership units were issued and outstanding. Additionally, a total
of 5,246,364 Class B limited partnership units were outstanding at October 31,
1999 to Wirth and his affiliates, in lieu of the issuance of Class A limited
partnership units. If all of the Class A limited partnership units were to be
converted, the limited partners in the Partnership would hold 2,178,903 shares
of beneficial interest of the Trust. The Class B limited partnership units may
only become convertible with the approval of the Board of Trustees, in its sole
discretion.
Basis of Presentation
As sole general partner, the Trust exercises unilateral control over
the Partnership. Therefore, the financial statements of the Partnership and its
wholly owned subsidiary (see note 7) are consolidated with the Trust. All
significant intercompany transactions and balances have been eliminated.
6
<PAGE>
These consolidated 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 consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended October 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended January 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K/A as of and for the year ended January 31, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. REVENUE RECOGNITION:
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force issued EITF number 98-9 "Accounting for Contingent Rent in Interim
Periods" ("EITF 98-9"). EITF 98-9 provides that a lessor shall defer recognition
of contingent rental income in interim periods until specified targets that
trigger the contingent income are met. In October 1998, the Task Force issued
transition guidance stating that the consensus could be applied on a prospective
basis or in a manner similar to a change in accounting principle. Effective
August 1, 1998, the Company amended its Percentage Lease agreements to eliminate
the annualization of interim hotel revenue. During the third quarter of fiscal
1999, accounting for contingent rent under EITF 98-9 was rescinded; however, the
Company believes that eliminating annualization of hotel revenue will provide
for recognition of percentage rent more consistently with the generation of
revenue from the Hotels and continues to apply EITF 98-9.
3. EARNINGS PER SHARE
Basic earnings (loss) per share is computed based on weighted average
shares outstanding during the respective period and excludes any potential
dilution from stock options and other common stock equivalents. Diluted earnings
(loss) per share reflects potential dilution from the exercise or conversion of
securities into common stock or from other contracts to issue common stock.
A reconciliation from basic earnings (loss) per share to diluted
earnings (loss) per share for the three-month and nine-month periods ended
October 31, 1999 and October 31, 1998 follows:
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income (Loss) Attributable to Shares
of Beneficial Interest $ (77,249) $ 45,425 $ 264,935 $ 120,507
============ ============ ============ ============
Basic EPS - Weighted Average Shares
Outstanding 2,368,656 2,100,301 2,330,349 1,813,563
============ ============ ============ ============
Basic Earnings (Loss) Per Share $ (0.03) $ 0.02 $ 0.11 $ 0.07
============ ============ ============ ============
Net Income (Loss) Attributable to Shares
of Beneficial Interest $ (77,249) $ 45,425 $ 264,935 $ 120,507
Additional Net Income (Loss) Attributable to Shares
of Beneficial Interest - Effect of Assumed
Conversion of Class A Partnership Units $ - $ - $ 151,497 $ -
------------ ------------ ------------ ------------
Net Income (Loss) Attributable to Shares of
Beneficial Interest - Diluted $ (77,249) $ 45,425 $ 416,432 $ 120,507
============ ============ ============ ============
Basic EPS - Weighted Average Shares
Outstanding 2,368,656 2,100,301 2,330,349 1,813,563
Effect of Diluted Securities
Stock Options - - 5,539 -
Convertible Class A Partnership Units - - 2,441,468 -
------------ ------------ ------------ ------------
Dilutive EPS - Weighted Average Shares
Outstanding 2,368,656 2,100,301 4,777,356 1,813,563
============ ============ ============ ============
Diluted Earnings (Loss) Per Share $ (0.03) $ 0.02 $ 0.09 $ 0.07
============ ============ ============ ============
Stock Options Not Included in Diluted EPS
Since Antidilutive 394,700 398,500 - 398,500
============ ============ ============ ============
Convertible Class A Partnership Units Not
Included Since Antidilutive 2,344,160 2,712,399 - 2,478,851
============ ============ ============ ============
</TABLE>
4. ACQUISITIONS:
Effective February 1, 1998, the Partnership acquired 100% of the
ownership interests in the Tucson St. Mary's Hotel and Resort for $10,820,000.
The Partnership issued 699,933 Class B limited partnership units to Wirth and
his spouse who each held a 50% equity ownership interest in the Tucson St.
Mary's hotel.
Effective April 29, 1998, the Trust acquired a hotel property located
in San Diego, California for an aggregate consideration of $5,148,000, which was
funded with cash, proceeds from the Trust's credit facility and two promissory
notes secured by mortgage trust deeds on the property.
Effective June 1, 1998, the Partnership acquired 100% of the ownership
of the InnSuites Hotel Buena Park for $7,100,000. The Partnership assumed
$4,116,754 in mortgage debt and other obligations and issued 628,052 limited
partnership units to Wirth and Steven S. Robson (of which 13,034 units were
subsequently paid to a third party as an advisory fee), who each held a 50%
7
<PAGE>
equity ownership interest in the Buena Park hotel. Mr. Robson was subsequently
elected a Trustee of the Trust. Wirth and his affiliates also received an
additional 53,681 Class B limited partnership units as payment for a debt owed
to Wirth and his affiliates at the time of the acquisition.
All of the aforementioned acquisitions were accounted for as purchases.
5. CREDIT FACILITY:
In April 1998, the Trust established a $12,000,000 secured revolving
line of credit with Pacific Century Bank. The credit facility requires, among
other things, the Trust to maintain a minimum net worth, a specified coverage
ratio of EBITDA to debt service, and a specified coverage ratio of EBITDA to
debt service and fixed charges. Further, the Trust is required to maintain its
franchise agreement at each of the hotel properties and to maintain its REIT
status.
6. PERCENTAGE LEASE AGREEMENTS:
As previously stated, effective August 1, 1998, the Company amended its
Percentage Leases modifying the interim calculations of percentage rent and the
expiration dates of the agreements. The Percentage Leases have non-cancelable
terms, which expire on January 31, 2008, subject to earlier termination on the
occurrence of certain contingencies, as defined. The rent due under each
Percentage Lease is the greater of minimum rent, as defined, or percentage rent.
Percentage rent applicable to room and other hotel revenue varies by lease and
is calculated on a quarterly basis by multiplying fixed percentages by the
actual quarterly amounts of such gross revenues in excess of specified threshold
amounts. Both the minimum rent and the revenue thresholds used in computing
percentage rents have been subject to annual adjustments since January 1, 1999,
based on increases in the United States Consumer Price Index. Percentage rent
applicable to food and beverage revenues is calculated as 5% of such revenue
over a minimum threshold.
Future minimum rentals (ignoring CPI increases) to be received by the
Trust from the Lessee pursuant to the Percentage Leases for the Hotels for each
of the next five fiscal years and in total thereafter are as follows:
Fiscal 2000......................................... $1,712,500
Fiscal 2001......................................... 6,850,000
Fiscal 2002......................................... 6,850,000
Fiscal 2003......................................... 6,850,000
Fiscal 2004......................................... 6,850,000
Thereafter.......................................... 27,400,000
-----------
$56,512,500
7. RELATED PARTY TRANSACTIONS:
Effective April 2, 1999, the Trust transferred its interest in the
Scottsdale property to the Partnership in exchange for 1,600,000 general
partnership units. There was no gain or loss resulting from the transfer as the
transaction involved entities under common control.
Wirth beneficially owns 9.8% of the common stock of the Lessee. The
Lessee was the sole source of the Trust's Percentage Lease revenue during the
nine-month period ended October 31, 1999.
Wirth made an unsecured loan to the Trust of $2 million, bearing
interest at 7% per year effective March 15, 1999. Interest only payments are due
annually beginning March 15, 2000. The unpaid principal balance and accrued
interest is due on March 15, 2004. The Trust used the proceeds to purchase
general partner units in the Partnership.
8
<PAGE>
On April 2, 1999, the Partnership made an unsecured loan to the Trust
of $2.615 million. Annual interest only payments are due on March 1 of each year
and are based on a 7% interest rate. The unpaid principal balance is due at
maturity on April 2, 2006. The Trust used the proceeds of that loan to purchase
1.3 million general partner units in the Partnership.
Wirth made an unsecured loan to the Trust of $200,000, bearing interest
at 7% per year effective June 14, 1999. The unpaid principal balance and accrued
interest is due on June 14, 2000. The Trust used the proceeds to fund
operations.
Wirth made an unsecured loan to the Trust of $120,000, bearing interest
at 7% per year effective July 27, 1999. The unpaid principal balance and accrued
interest is due on July 27, 2000. The Trust used the proceeds to fund
operations.
Wirth made an unsecured loan to the Trust of $30,000, bearing interest
at 7% per year effective August 17, 1999. The unpaid principal balance and
accrued interest is due on August 17, 2000. The Trust used the proceeds to pay
down the outstanding loan from the Partnership.
Wirth made an unsecured loan to the Trust of $250,000, bearing interest
at 7% per year effective October 12, 1999. The unpaid principal balance and
accrued interest is due on June 1, 2000. The Trust used the proceeds to pay
dividends declared on October 12, 1999 and to pay down the outstanding loan from
the Partnership.
Wirth made an unsecured loan to the Trust of $250,000, bearing interest
at 7% per year effective October 14, 1999. The unpaid principal balance and
accrued interest is due on March 1, 2000. The Trust used the proceeds to pay
down the outstanding loan from the Partnership, which then was used by the
Partnership to pay deposits and other fees related to the pending refinancing of
the San Diego Hotel.
8. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
The Trust issued 304,587 and 184,560 shares of beneficial interest
valued at $913,708 and $848,652 in exchange for Class A partnership units during
the nine months ended October 31, 1999 and 1998, respectively.
On October 8, 1999, the Trust declared dividends of $0.01 per share to
shareholders of record at October 18, 1999. The Trust paid dividends totalling
$99,962 on November 1, 1999. These dividends are accrued at October 31, 1999.
9
<PAGE>
9. STATEMENTS OF OPERATIONS OF INNSUITES HOTELS, INC. (LESSEE)
Certain condensed financial information, related to the Lessee's
operations is as follows:
INNSUITES HOTELS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For The Nine-Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Revenues from hotel operations:
Room revenue as defined by lease....................................... $ 19,576 $ 18,208
Other revenue.......................................................... 2,141 2,124
-------- --------
Total revenues.................................................... 21,717 20,332
Expenses:
Operating expenses..................................................... 10,419 7,169
Percentage lease expense............................................... 7,449 6,808
Advertising............................................................ 1,596 1,503
Other expenses......................................................... 3,010 6,457
-------- --------
Total expenses.................................................... 22,474 21,937
-------- --------
Net loss.................................................................... $ (757) $ (1,605)
======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with the
Innsuites Hospitality Trust condensed consolidated financial statements, the
10
<PAGE>
Innsuites Hotels, Inc. (the "Lessee") results of operations, and notes thereto
appearing elsewhere in this quarterly report, respectively.
InnSuites Hospitality Trust (the "Trust") is a real estate investment
trust which owns the sole general partner interest in RRF Limited Partnership
(the "Partnership") and 100% of RRF Sub Corp. (Unless the context indicates
otherwise, all references to the Partnership shall include RRF Sub Corp.)
In order for the Trust to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (a "REIT"), neither the Trust nor the
Partnership can operate the hotels. Therefore, each of the hotels is leased to,
and operated by, the Lessee (formerly known as Realty Hotel Lessee Corp.)
pursuant to a Percentage Lease. Each Percentage Lease obligates the Lessee to
pay rent equal to the greater of a minimum rent or a percentage rent based on
the gross revenues of each hotel. The Lessee also holds the franchise agreement
for each hotel. The Lessee is owned 9.8% by InnSuites Innternational Hotels,
Inc., an entity owned by James F. Wirth and his wife. The Trust's principal
source of cash flows is distributions from the Partnership, which are dependent
upon lease payments from the Lessee pursuant to the Percentage Leases. The
Lessee's ability to make payments to the Partnership pursuant to the Percentage
Leases is dependent primarily upon the operations of the hotels.
At October 31, 1999, the Company owned a 44% interest in the ten hotels
(the "Hotels") through its sole general partner's interest in the Partnership.
This change in ownership resulted from the following transactions:
On March 15, 1999, the Trust purchased 1 million additional general partner
units in the Partnership for $2 million. This transaction was funded by Mr.
Wirth who provided an unsecured loan to the Trust of $2 million at 7%
interest payable annually beginning March 15, 2000. The unpaid principal
balance and accrued interest is due on March 15, 2004.
On April 2, 1999, the Partnership made an unsecured loan to the Trust of
$2.615 million. Annual interest only payments are due on March 1 of each
year and are based on a 7% interest rate. The unpaid principal balance is
due at maturity on April 2, 2006. The Trust used the proceeds of that loan
to purchase 1.3 million general partner units in the Partnership. The money
lent by the Partnership was generated by refinancing the Northern Phoenix
hotel and borrowing an additional $1.75 million that was secured by a
mortgage on that property. The original mortgage note was restructured to
match the terms of the refinanced note, which bears interest at 8.25% and
matures on April 1, 2014. Monthly principal and interest payments began on
April 1, 1999.
As of April 2, 1999, the Trust transferred its interest in the Scottsdale
property to the Partnership for its appraised value of approximately $7
million in exchange for 1.6 million general partner units.
The Trust's primary source of revenue is rent payments by the Lessee under
Percentage Leases covering all the Hotels in operation. The expenses of the
Trust consist of property taxes, insurance, corporate overhead, interest on
mortgage debt and depreciation of the Hotels. The Percentage Leases provide for
the payment of base rent and percentage rent. For the nine-month period ended
October 31, 1999, base rent and percentage rent in the aggregate amount of $7.4
million was earned by the Trust. The principal determinant of percentage rent is
the Lessee's room revenues at the Hotels, as defined by the Percentage Leases.
Therefore, management believes that a review of the historical performance of
the operations of the operating Hotels, particularly with respect to occupancy,
average daily rate ("ADR"), calculated as total room revenue divided by number
of rooms sold, and revenue per available room, calculated as total room revenue
divided by number of rooms available (known as "REVPAR"), is appropriate for
understanding revenue from the Percentage Leases. ADR improved due to the
acquisitions in the prior year and the successful repositioning of those hotels
as studio and two room suite hotels that contribute more revenue per available
room. While ADR increased $1.24 to $67.58 in 1999 from $66.34 in 1998, occupancy
declined 1.3% in 1999 from 63.4% to 62.1% due to increased supply which exceeded
demand growth. This resulted in a slight decline in REVPAR of $0.10 for the nine
months ended October 31, 1999.
11
<PAGE>
The following table shows certain historical financial and other information for
the periods indicated.
For the Nine Month Period Ended
October 31,
-------------------------------
1999 1998
--------- ---------
Occupancy 62.1% 63.4%
Average Daily Rate (ADR) $ 67.58 $ 66.34
Revenue Per Available Room (REVPAR) $ 41.96 $ 42.06
No assurance can be given that the trends reflected in this data will
continue or that Occupancy, ADR and REVPAR will not decrease as a result of
changes in national or local economic or hospitality industry conditions.
RESULTS OF OPERATIONS
ACTUAL RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY
Comparison of the nine months ended October 31, 1999 with 1998 (InnSuites
Hospitality Trust)
For the nine months ended October 31, 1999, the Trust had total revenues of
$7.4 million compared to $7.7 million for the nine months ended October 31,
1998, a decrease of $300,000 due to increased supply exceeding demand growth.
Total expenses of $6.7 million for the nine months ended October 31, 1999 was a
$600,000 increase over expenses of $6.1 million for the nine months ended
October 31, 1998.
General and administrative expenses include overhead charges for
management, accounting, shareholder and legal services for the Trust. In
comparing general and administrative expenses for the nine months ended October
31, 1999 and 1998, general and administrative expenses increased $304,000 from
$1.0 million primarily due to an increase in promotional programs, such as
offering complimentary rooms.
Total interest expense increased by $440,000 in comparing the nine months
ended October 31, 1999 and 1998 due to a combination of renegotiating lower
interest rates and the addition of $2.6 million in fixed mortgages and related
party notes. The proceeds of those borrowings were used for capital
improvements, dividends and additional operational needs.
Real estate and personal property taxes, insurance and ground rent
increased $232,000 in comparing the nine months ended October 31, 1999 and 1998.
A majority of the increase relates to the acquisition of the Buena Park and
San Diego properties. Additionally, the Trust incurred charges for directors and
officers insurance in 1999.
In comparing depreciation for the nine months ended October 31, 1999 and
1998, depreciation increased $40,000 primarily due to the Trust's acquisitions
of the Buena Park and San Diego properties. The remainder of the increase
resulted from an increase in capitalized refurbishment costs.
When comparing other expenses for the nine months ended October 31, 1999
and 1998, the Trust experienced a decrease of $488,000 in advisory fees due to
the termination of Advisory Agreements with Mid-America ReaFund Advisors, Inc.
("MARA") in 1999. MARA was formerly the Trust's advisory company.
The Trust had net income before minority interest of $725,000 in the
12
<PAGE>
nine months ended October 31, 1999, which represented a $819,000 decrease from
net income of $1.5 million earned in the nine months ended October 31, 1998.
After deducting minority interest of $460,000, the Trust had net income
attributable to shares of beneficial interest of $265,000 and diluted earnings
per share of $.09 for the nine months ended October 31, 1999. This represented
an increase of $144,000 in net income compared to net income of $121,000 for the
nine months ended October 31, 1998.
Comparison of the quarter ended October 31, 1999 with 1998 (InnSuites
Hospitality Trust)
For the quarter ended October 31, 1999, the Trust had total revenues of
$2.0 million compared to $2.9 million for the quarter ended October 31, 1998, a
decrease of approximately $900,000, primarily due to the modification of the
rent calculation, which resulted from the adoption of EITF 98-9 effective August
1, 1998. Total expenses increased approximately $121,000 to $2.2 million for the
quarter ended October 31, 1999 from $2.1 million for the quarter ended October
31, 1998.
General and administrative expenses include overhead charges for
management, accounting, shareholder and legal services for the Trust. In
comparing general and administrative expenses for the quarters ended October 31,
1999 and 1998, general and administrative expenses increased $210,000 from
$210,000 for the quarter ended October 31, 1998 to $420,000 for the quarter
ended October 31, 1999, primarily due to an increase in promotional programs,
such as offering complimentary rooms.
Total interest expense increased by $96,000 comparing the quarters ended
October 31, 1999 and 1998, due to the addition of $2.6 million in fixed
mortgages and related party notes. The proceeds of those borrowings were used
for capital improvements, dividends and additional operational needs.
Real estate and personal property taxes, insurance and ground rent
increased $142,000 in comparing the quarters ended October 31, 1999 and 1998. A
majority of the increase is attributable to the Trust's acquisitions of the
Buena Park and San Diego properties.
In comparing depreciation for the quarter ended October 31, 1999 and 1998,
depreciation decreased $127,000 primarily due to the timing of acquisitions.
When comparing other expenses for the quarters ended October 31, 1999 and
1998, the Trust experienced a decrease of $185,000 in advisory fees due to the
termination of Advisory Agreements with MARA in fiscal year 1999.
Considering all of the changes and acquisitions mentioned above, the Trust
had a net loss before minority interest of $180,000 in the quarter ended October
31, 1999, compared to $840,000 net income reported in the quarter ended October
31, 1998. After deducting minority interest of $103,000, the Trust had a net
loss attributable to shares of beneficial interest of $77,000 and a diluted loss
per share of $.03 for the quarter ended October 31, 1999, compared with net
income attributable to shares of beneficial interest of $45,000 and diluted
earnings per share of $.02 for the quarter ended October 31, 1998. The loss
experienced for the quarter ended October 31, 1999 is attributable to the
decreased revenues for the quarter.
Funds from Operations (FFO)
The Trust notes that industry analysts and investors use Funds From
Operations ("FFO") as another tool to evaluate and compare equity REITs. The
Trust also believes it is meaningful as an indicator of net income excluding
most non-cash items and provides information about the Trust's cash available
for distributions, debt service and capital expenditures. The Trust follows the
March 1995 interpretation of the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO which is calculated (in the Trust's case) as
net income plus depreciation and amortization, and loss on disposals and
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<PAGE>
extraordinary items, if applicable. Other non-cash expenses such as stock option
expense have not been added back in FFO. FFO does not represent cash flow from
operating activities in accordance with generally accepted accounting principles
("GAAP") and is not indicative of cash available to fund all of the Trust's cash
needs. FFO should not be considered as an alternative to net income or any other
GAAP measure as an indicator of performance and should not be considered as an
alternative to cash flows as a measure of liquidity. In addition, the Trust's
FFO may not be comparable to other companies' FFO due to differing methods of
calculating FFO and varying interpretations of the NAREIT definition.
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS (FFO)
For the Nine-Month Period
Ended October 31
(unaudited)
-----------------------------
(amounts in thousands, except
per share data)
1999 1998
------ ------
<S> <C> <C>
Net Income attributable to shares of beneficial interest $ 265 $ 121
Depreciation and Amortization (Trust's portion) 729 172
------ ------
Funds from Operations (FFO) $ 994 $ 293
</TABLE>
FFO increased from $293,000 in the period ended October 31, 1998 to
$994,000 for the period ended October 31, 1999. As noted above, FFO is a common
tool used to measure the ability of a REIT to provide funds for various
operating, investing, and capital improvement activities. The increase in FFO
attributable to the nine months ended October 31, 1999 over the nine months
ended October 31, 1998 is primarily due to the increase in the Trust's ownership
interest in the Partnership.
Comparison of the nine months ended September 30, 1999 with 1998 (InnSuites
Hotels, Inc.- Lessee)
For the nine months ended September 30, 1999, the Lessee had total revenues
of $21.7 million compared to $20.3 million for the nine months ended September
30, 1998. This 6.8% increase was due to the acquisitions of the San Diego and
Buena Park properties made on April 29, 1998, and June 1, 1998, respectively,
and improvements in ADR from $66.34 to $67.58, which increased room revenue by
$1.4 million despite a decline in occupancy of 1.3% from 63.4% for the nine
month period ended September 30, 1998 to 62.1% for the nine month period ended
September 30, 1999. Total expenses increased from $21.9 million to $22.5
million.
Room revenues at the Hotels increased $1.4 million, or 7.5%, comparing the
nine-months ended September 30, 1998 to the nine-months ended September 30,
1999. The increase in revenues reflects the continued growth of the repositioned
hotels at Tucson St. Mary, Arizona and Buena Park and San Diego, California and
the influence of tourism in the southern Arizona hotels during the winter
months. Continuing efforts to enhance the properties through refurbishment
programs continues to show a positive effect on guests and referrals.
Operating, advertising and other expenses decreased by $104,000 or 0.7%,
between the periods due to the repairs and repositioning costs incurred in
1998. These costs decreased as a percentage of revenues from 74.4% in 1998 to
69.2% in 1999. Percentage lease expense, as a percentage of total revenue,
remained fairly constant.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Trust, through its ownership interest in the Partnership, will have
its proportionate share of the benefits and obligations of the Partnership's
ownership interests in the Hotels. The Trust's principal sources of cash to meet
its cash requirements, including distributions to its shareholders, will be its
share of the Partnership's cash flow. The Partnership's principal source of
revenue will be rent payments under the Percentage Leases. The Lessee's
obligations under the Percentage Leases are unsecured and its ability to make
rent payments to the Partnership under the Percentages Leases, and the Trust's
liquidity, including its ability to make distributions to the Trust's
shareholders, will depend upon the ability of the Lessee to generate sufficient
cash flow from hotel operations. Cash collections on rent receivables exceeded
$1.6 million dollars during the third quarter.
Beyond the 4% reserve for refurbishment and replacements set aside
annually, approximately $140,000 was spent in this quarter for the Nova Front
Desk systems in response to potential computer systems problems associated with
the Year 2000. Expenditures totaling $200,000 for ongoing refurbishment at the
San Diego hotel will also be incurred in the fourth quarter.
The Trust intends to acquire and develop additional hotels and expects to
incur indebtedness to fund those acquisitions and developments. The Trust may
also incur indebtedness to meet distribution requirements imposed on a REIT
under the Internal Revenue Code to the extent that working capital and cash flow
from the Trust's investments are insufficient to make the required
distributions. The terms of the Credit Facility discussed below permit
borrowings for that purpose, but impose certain limitations on the Trust's
ability to engage in other borrowings.
The Trust maintains a Credit Facility with Pacific Century Bank to
assist it in its funding of the acquisition and development of additional hotels
and for certain other business purposes. Borrowings under the Credit Facility
are secured by first mortgages on three of the Hotels. The Trust has drawn $11.3
million from its line of credit, which bears interest at a variable interest
rate. By its terms, the Credit Facility will expire in approximately two years,
subject to renewal. The terms of the Credit Facility require the Partnership to
maintain a net worth of not less than $15 million and, as of the end each fiscal
quarter, maintain a debt to net worth ratio of not greater than 1.5 to 1.0, and
a net operating income to debt service relating to encumbered properties ratio
of not less than 1.25 to 1.0. The Trust may prepay the Credit Facility, subject
to a prepayment penalty of $250 plus a yield-maintenance penalty. During the
term of the Credit Facility, the Trust may not further encumber its collateral,
sell its collateral, change the nature of its business, or unreasonably suspend
its business.
The Trust may seek to increase the amount of its Credit Facility,
negotiate additional credit facilities, or issue debt instruments. Any debt
incurred or issued by the Trust 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 Trust considers prudent.
The Trust will acquire or develop additional hotels only as suitable
opportunities arise, and the Trust will not undertake the acquisition or
redevelopment of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Credit Facility or other
borrowings or from the proceeds of additional issuances of shares of beneficial
interest or other securities. There is not an agreement or understanding to
invest in any other properties, and there can be no assurance that the Trust
will successfully acquire or develop additional hotels.
The Partnership will contribute to a Capital Expenditures Fund on a
continuing basis, from the rent paid under the Percentage Leases, an amount
equal to 4% of the Lessee's revenues from operation of the Hotels. The Capital
Expenditures Fund is intended to be used for capital improvements to the Hotels
and refurbishment and replacement of furniture, fixtures and equipment, in
addition to other uses of amounts in the Fund considered appropriate from time
15
<PAGE>
to time. The Partnership anticipates making similar arrangements with respect to
future hotels that it may acquire or develop. During the nine-month period ended
October 31, 1999, the Hotels spent approximately $1.5 million for capital
expenditures. The Trust considers these improvements to be revenue producing and
therefore these amounts have been capitalized and are being depreciated over
their estimated useful lives. The Hotels also spent $1.2 million during the nine
month period ended October 31, 1999 on repairs and maintenance and these amounts
have been charged to expense as incurred.
Outstanding mortgage debt increased from $23.2 million at January 31,
1999 to $23.8 million at October 31, 1999 due to an increase in mortgage debt
and the refinancing of the Northern Phoenix property.
INFLATION
The Trust's revenues initially will be based on the Percentage Leases
which will result in changes in the Trust's revenues based on changes in the
underlying Hotel revenues. Therefore, the Trust initially will be relying
entirely on the performance of the Hotels and the Lessee's ability to increase
revenues to keep pace with inflation. Operators of hotels in general, and the
Lessee in particular, can change room rates quickly, but competitive pressures
may limit the Lessee's ability to raise rates faster than inflation.
SEASONALITY
The Hotels' operations historically have been seasonal. The six southern
Arizona hotels experience their highest occupancy rates in the first fiscal
quarter and, to a lesser extent, the fourth fiscal quarter. The second fiscal
quarter tends to be the lowest occupancy period at those six southern Arizona
hotels. The Flagstaff, Arizona and San Diego and Buena Park, California hotels
experience their highest occupancy rates in the second and third fiscal
quarters. This seasonality pattern can be expected to cause fluctuations in the
Trust's quarterly lease revenues under the Percentage Leases. To the extent that
cash flow from operations is insufficient during any quarter, because of
temporary or seasonal fluctuations in Percentage Lease revenue, the Trust may
utilize other cash on hand or borrowings to make distributions to its
shareholders. The extent of the fluctuation of earnings related to seasonality
of the Hotels is anticipated to be leveled by the fact that the Trust's
ownership of the Scottsdale hotel (which shows one of the highest seasonal
fluctuations) has been reduced to 44% from 100%. At the same time, the Trust's
ownership of the other Hotels, including the California properties (which are
less seasonal and have a different high season) increased from an average of
14.4% to 44% as of October 31, 1999.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs having been
written using two digits instead of four digits to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the Year 1900 rather than the Year 2000. This
could potentially result in a system failure or miscalculations, causing
disruptions of operations and normal business activity.
The Trust and the Lessee have upgraded their computer accounting
programs and the installation of new property management systems along with
necessary hardware. These new systems have been warranted to be Year 2000
compliant. The Trust has estimated the total cost to be incurred in connection
with these installations is approximately $400,000, which will be capitalized
and amortized over seven years. The installations of the Year 2000 compliant
property management systems were completed during the third quarter. The
upgrading and installation of a new reservation center system will commence in
late November and will be completed by the end of December, 1999.
While these new systems represent virtually all of the Trust's computer
systems, the Trust and the Lessee cannot predict the effect of the Year 2000
16
<PAGE>
problem on vendors, customers and other entities with which the Trust and the
Lessee transact business, and there can be no assurance that the effect of the
Year 2000 problem on such entities will not adversely affect the Trust's
operations.
Although the Trust is not aware of any threatened claims related to the
Year 2000, the Trust may become subject to litigation arising from such claims,
and depending on the outcome, such litigation could have a material adverse
effect on the Trust. It is not clear whether the Trust's insurance coverage
would be adequate to offset these and other business risks related to the Year
2000.
In the event of any failure of any of the computer systems, the Trust
and the Lessee intend to perform necessary functions without the aid of
the affected computer systems until any Year 2000 problems are resolved.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Trust intends that such
forward-looking statements be subject to the safe harbors created by such Acts.
Those forward-looking statements include statements regarding the intent, belief
or current expectations of the Trust, its Trustees or its officers in respect of
(i) the declaration or payment of dividends; (ii) the leasing, management or
operation of the Hotels; (iii) the adequacy of reserves for renovation and
refurbishment; (iv) the Trust's financing plans; (v) the Trust's position
regarding investments, acquisitions, financings, conflicts of interest and other
matters; (vi) the Trust's continued qualification as a REIT; and (vii) trends
affecting the Trust's or any Hotel's financial condition or results of
operations. The words and phrases "looking ahead", "we are confident", "should
be", "will be", "predicted", "believe", expect", "anticipate" and similar
expressions identify forward-looking statements.
These forward-looking statements reflect the Trust's current views in
respect of future events and financial performance, but are subject to many
uncertainties and factors relating to the operations and business environment of
the Hotels that may cause the actual results of the Trust to differ materially
from any future results expressed or implied by such forward-looking statements.
Examples of such uncertainties include, but are not limited to: fluctuations in
hotel occupancy rates; changes in room rental rates which may be charged by the
Lessee in response to market rental rate changes or otherwise; interest rate
fluctuations; changes in federal income tax laws and regulations; competition;
any changes in the Trust's financial condition or operating results due to
acquisitions or dispositions of hotel properties; real estate and hospitality
market conditions; hospitality industry factors; and local or national economic
and business conditions, including, without limitation, conditions which may
affect public securities markets generally, the hospitality industry, or the
markets in which the Trust operates or will operate. The Trust does not
undertake any obligation to update publicly or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of 1934, the
qualifications set forth hereinabove are inapplicable to any forward-looking
statements in this Form 10-Q relating to the operations of the Partnership.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Trust is exposed to interest rate risk primarily as a result of its
mortgage notes payable, notes payable to banks and notes payable to related
parties. The proceeds from these loans were used to maintain liquidity, fund
capital expenditures and expand the Trust's real estate investment portfolio and
operations. The Trust's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives, the Trust borrows using
fixed rate debt, when possible. The Trust could enter into derivative financial
17
<PAGE>
instruments such as interest rate swaps, caps and treasury locks in order to
mitigate its interest rate risk on a related financial instrument. To date, the
Trust has not entered into any such derivative transactions. The Trust's
interest rate risk is monitored using a variety of techniques. There have been
no significant changes in the Trust's debt structure during the three and
nine-month periods ended October 31, 1999.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Second Amended and Restated Declaration of Trust, as further
amended on July 12, 1999 (incorporated by reference to
Exhibit 3.1 of the Registrant's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission
on September 14, 1999).
10.1 Promissory Note dated August 17, 1999 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.2 Promissory Note dated October 12, 1999 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.3 Promissory Note dated October 14, 1999 by InnSuites
Hospitality Trust in favor of James F. Wirth.
27.1 Financial Data Schedule. (1)
(1) Filed only in electronic format pursuant to Item 601(c) of Regulation S-K.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed on behalf of the Trust during
the quarter ended October 31, 1999.
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.
Dated: December 15, 1999 INNSUITES HOSPITALITY TRUST (Registrant)
By: /s/ Marc E. Berg
-----------------------------------------
Marc E. Berg, Executive Vice President,
Treasurer and Secretary
18
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
---------------
$30,000 Phoenix, Arizona
- -------
August 17, 1999
FOR VALUED RECEIVED, and intending to be legally bound hereby, INNSUITES
HOSPITALITY TRUST, AN Ohio real estate investment trust, having an office at
1625 East Northern Avenue, Suite 201, Phoenix, Arizona 85020 ("Maker") hereby
promises to pay to the order of James Wirth, 5700 east glen Drive, paradise
Valley, Arizona 85253 or a such other place as the holder hereof may from time
to time designate in writing, the principal sum of THIRTY THOUSAND AND 00/100
DOLLARS ($30,000), with interest on the unpaid principal balance thereon from
time to time outstanding, at the rate of seven percent (7.00%) per annum,
computed on a three hundred sixty (360)-day year, to be due and payable in
installments of principal and interest as follows:
(A) Commencing on August 17, 2000, one annual payment of accrued but
unpaid interest on the outstanding principal balance hereunder; and
(B) On August 17, 2000 (the "Maturity date"), one payment in the amount of
the then unpaid principal balance hereunder, accrued but unpaid
interest hereunder and all sums and charges due and unpaid by Maker
(collectively, the "Indebtedness").
Payments shall be applied first to any charges or sums (other than
principal and interest) due and payable by Maker, second to accrued and unpaid
interest on the principal balance hereof, and then to further reduce the
principal balance of this Note.
Maker shall gave the right any time during the term of this Note to repay
all or part of the unpaid principal amount of the Indebtedness, together with
any accrued and unpaid interest thereon any other sums or charges due hereunder
without any prepayment premium or penalty.
Maker hereby waives for itself and, to the fullest extent not prohibited by
applicable law, for any subsequent lienor, any right Maker may now or hereafter
have under the doctrine of marshaling of assets or otherwise which would require
Payee to proceed against certain property before proceeding against any other
property.
Maker hereby agrees that in the event part of principal or interest is not
paid when due or the entire Indebtedness is not paid when due, then the rate of
interest on this Note shall, at the election on Payee upon ten (10) days prior
written notice, each of which is hereby expressly waived, be increased to nine
and 00/100 percent (9.00%) per annum or the highest rate for which the parties
may agree under applicable law, whichever is less (the "Default Rate"). Maker
shall be obligated thereafter to pay interest on the then
<PAGE>
unpaid principal balance of the Indebtedness at the Default Rate, both before
and after judgment, to be computed from the due date through and including the
date of actual receipt of the overdue payment, whether a payment of interest or
the entire Indebtedness. Nothing herein shall be construed as an agreement or
privilege to extend the date of the payment or any installment of or the entire
Indebtedness, or as a wavier of any other right or remedy accruing to Payee.
In the event that any regular payment of interest herein provided shall not
be received by Payee on the date such payment is due, Payee shall have the right
to assess Maker a late payment charge in the amount of two percent (2.0%) of
such overdue quarterly installment, which shall become immediately due to Payee
for the additional cost agreed compensation to Payee for the additional costs
and expenses reasonable expected to be incurred by Payee by reason of such
nonpayment. Maker acknowledges that the exact amount of such cost and expenses
may be difficult, if not impossible, to determine with certainly, and further
acknowledges and confesses the amount of such charge to be a consciously
considered, good faith estimate the actual damage to Payee by reason of such
default. The Default Rate will only accrue for periods of delinquent
installments except for such when Payee accepts late payments of installments
accompanied by a late payment charge as specified above.
Upon any of the following events ("Event(s) of Default"), at the election
of Payee, the entire unpaid principle balance of the Indebtedness, together with
all accrued but unpaid interest thereon at the Default Rate and all other sums
or changes due hereunder, shall become due and payable:
(a) Maker's failure to pay when due any installment required to be
paid hereunder, on or before the tenth (10th) day following the
applicable due date;
(b) Maker's failure to pay when due any other payment required to be
under this Note, subject to any notice and applicable grace
period, if any;
(c) Maker's breach of any other covenant or agreement herein and such
breach remains uncorrected at the expiration of any applicable
grace period expressly provided for herein;
(d) if n any creditor's proceeding Maker consents to the appointment
or a receiver or trustee for any of its property;
<PAGE>
(e) if any order, judgment or decree shall be entered, without the
consent of Maker, upon an application of a creditor approving the
appointment of a receiver or trustee for any of its property, and
such order, judgment, decree, or appointment is not dismissed or
stayed with appropriate appeal bond within sixty (60) days
following the entry or rendition thereof; or
(f) if Maker (i) makes a general assignment for the benefit of
creditors, (ii) fails to pay its debts generally as such debts
become due, (iii) is found to be insolvent by a court of
competent jurisdiction, (iv) voluntarily files a petition in
bankruptcy or a petition or answer seeking readjustment of debts
under any state or federal bankruptcy or like law, or (v) any
such petition is filed against Maker and is not vacated or
dismissed within sixty (60) days after filling thereof.
Notice of such election by Payee is hereby expressly waived as part of the
consideration for this loan. Nothing contained herein shall be construed to
restrict the exercise of any other rights or remedies granted to Payee hereunder
upon the failure of Maker to perform any provision hereof.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker promises to pay all costs incurred by Payee, including
without limitation reasonable attorney's fees to the fullest extent not
prohibited by law, and all expenses incurred in connection with the protection
or realization of any collateral, whether or not suit is filed hereon or on any
instrument granted a security interest.
Maker hereby expressly acknowledges and represents that the indebtedness is
for a business purpose and not consumer or household purposes.
Maker hereby waves demand, presentment for payment, protest, notice of
protest, notice of non-payments and any and all lack of diligence or delays in
collection or enforcement of this Note, and expressly consents to any extension
of time of payment hereof, release of any party primarily or secondarily liable
hereunder or any of the security for this Note, acceptance of other parties to
be liable for any of the Indebtedness or of other security therefore, or any
other indulgence or forbearance which may be made, without notice to any party
and without in any way affecting the liability of any party.
No failure by Payee to exercise any right hereunder shall be construed as a
waiver of the right to exercise the same or any other right any time or from
time to time thereafter.
<PAGE>
This Note shall be construed and enforced according to, and governed by the
laws of the State of Arizona.
Any notice required hereunder shall be in writing, and shall be given to the
party to receive the notice by personal delivery or be certified mail, postage
prepaid, return receipt requested, as follows:
if to Payee, then addressed to Payee at 5700 east Glen drive, Paradise
Valley, Arizona 85253, (Tel.(602) 596-0224, Fax (602) 596-0225), with a copy to
James W. Reynolds, Esq., Dillingham Cross, P.L.C., 5080 North 40/th/ Street,
Suite 335, Phoenix, Arizona 85018, (Tel.(602) 468-1811, Fax (602) 468-0442);
if to Maker, then addressed to maker at 1625 East Northern Avenue, Suite
201, Phoenix, Arizona 85020, Attn: President, with a copy to James B. Aronoff,
Esq., Thompson Hine & Flory, LLP, 3900 Key center, 127 Public Square, Cleveland,
Ohio 44114 (Tel.(216) 566-5500, Fax (216) 566-5800).
Any party may, be notice in writing designate another address as a place for
service of notice. Such notices shall be deemed to be received when delivered,
if delivered in person, or seven (7) business days after deposited in the United
States mails, if mailed as herein above provided.
By acceptance of this Note, payee covenants and agrees that, upon payment
in full of the then unpaid principal balance of this Note, together with all
unpaid interest and other sums payable to Payee under this Note, (a) Note shall
be fully satisfied, (b) Payee shall promptly mark this Note as being paid in
full, satisfied and discharged and shall return the same to maker.
INNSUITES HOSPITALITY TRUST,
an Ohio real estate investment trust
By: /s/ Marc E. Berg
------------------------------------
Name: Marc E. Berg
Title: Executive Vice-President
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
---------------
$250,000 Phoenix, Arizona
- -------- October 12, 1999
FOR VALUED RECEIVED, and intending to be legally bound hereby, INNSUITES
HOSPITALITY TRUST, AN Ohio real estate investment trust, having an office at
1625 East Northern Avenue, Suite 201, Phoenix, Arizona 85020 ("Maker") hereby
promises to pay to the order of James Wirth, 5700 east glen Drive, Paradise
Valley, Arizona 85253 or a such other place as the holder hereof may from time
to time designate in writing, the principal sum of TWO HUNDRED FIFTY THOUSAND
AND 00/100 DOLLARS ($250,000), with interest on the unpaid principal balance
thereon from time to time outstanding, at the rate of seven percent (7.00%) per
annum, computed on a three hundred sixty (360)-day year, to be due and payable
in installments of principal and interest as follows:
(A) Commencing on June 1, 2000, one annual payment of accrued but unpaid
interest on the outstanding principal balance hereunder; and
(B) On June 1, 2000 (the "Maturity date"), one payment in the amount of
the then unpaid principal balance hereunder, accrued but unpaid
interest hereunder and all sums and charges due and unpaid by Maker
(collectively, the "Indebtedness").
Payments shall be applied first to any charges or sums (other than
principal and interest) due and payable by Maker, second to accrued and unpaid
interest on the principal balance hereof, and then to further reduce the
principal balance of this Note.
Maker shall gave the right any time during the term of this Note to repay
all or part of the unpaid principal amount of the Indebtedness, together with
any accrued and unpaid interest thereon any other sums or charges due hereunder
without any prepayment premium or penalty.
Maker hereby waives for itself and, to the fullest extent not prohibited by
applicable law, for any subsequent lienor, any right Maker may now or hereafter
have under the doctrine of marshaling of assets or otherwise which would require
Payee to proceed against certain property before proceeding against any other
property.
Maker hereby agrees that in the event part of principal or interest is not
paid when due or the entire Indebtedness is not paid when due, then the rate of
interest on this Note shall, at the election on Payee upon ten (10) days prior
written notice, each of which is hereby expressly waived, be increased to nine
and 00/100 percent (9.00%) per annum or the highest rate for which the parties
may agree under applicable law, whichever is less (the "Default Rate"). Maker
shall be obligated thereafter to pay interest on the then
<PAGE>
unpaid principal balance of the Indebtedness at the Default Rate, both before
and after judgment, to be computed from the due date through and including the
date of actual receipt of the overdue payment, whether a payment of interest or
the entire Indebtedness. Nothing herein shall be construed as an agreement or
privilege to extend the date of the payment or any installment of or the entire
Indebtedness, or as a wavier of any other right or remedy accruing to Payee.
In the event that any regular payment of interest herein provided shall not
be received by Payee on the date such payment is due, Payee shall have the right
to assess Maker a late payment charge in the amount of two percent (2.0%) of
such overdue quarterly installment, which shall become immediately due to Payee
for the additional cost agreed compensation to Payee for the additional costs
and expenses reasonable expected to be incurred by Payee by reason of such
nonpayment. Maker acknowledges that the exact amount of such cost and expenses
may be difficult, if not impossible, to determine with certainly, and further
acknowledges and confesses the amount of such charge to be a consciously
considered, good faith estimate the actual damage to Payee by reason of such
default. The Default Rate will only accrue for periods of delinquent
installments except for such when Payee accepts late payments of installments
accompanied by a late payment charge as specified above.
Upon any of the following events ("Event(s) of Default"), at the election
of Payee, the entire unpaid principle balance of the Indebtedness, together with
all accrued but unpaid interest thereon at the Default Rate and all other sums
or changes due hereunder, shall become due and payable:
(a) Maker's failure to pay when due any installment required to be
paid hereunder, on or before the tenth (10th) day following the
applicable due date;
(b) Maker's failure to pay when due any other payment required to be
under this Note, subject to any notice and applicable grace
period, if any;
(c) Maker's breach of any other covenant or agreement herein and such
breach remains uncorrected at the expiration of any applicable
grace period expressly provided for herein;
(d) if n any creditor's proceeding Maker consents to the appointment
or a receiver or trustee for any of its property;
<PAGE>
(e) if any order, judgment or decree shall be entered, without the
consent of Maker, upon an application of a creditor approving the
appointment of a receiver or trustee for any of its property, and
such order, judgment, decree, or appointment is not dismissed or
stayed with appropriate appeal bond within sixty (60) days
following the entry or rendition thereof; or
(f) if Maker (i) makes a general assignment for the benefit of
creditors, (ii) fails to pay its debts generally as such debts
become due, (iii) is found to be insolvent by a court of
competent jurisdiction, (iv) voluntarily files a petition in
bankruptcy or a petition or answer seeking readjustment of debts
under any state or federal bankruptcy or like law, or (v) any
such petition is filed against Maker and is not vacated or
dismissed within sixty (60) days after filling thereof.
Notice of such election by Payee is hereby expressly waived as part of the
consideration for this loan. Nothing contained herein shall be construed to
restrict the exercise of any other rights or remedies granted to Payee hereunder
upon the failure of Maker to perform any provision hereof.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker promises to pay all costs incurred by Payee, including
without limitation reasonable attorney's fees to the fullest extent not
prohibited by law, and all expenses incurred in connection with the protection
or realization of any collateral, whether or not suit is filed hereon or on any
instrument granted a security interest.
Maker hereby expressly acknowledges and represents that the indebtedness is
for a business purpose and not consumer or household purposes.
Maker hereby waves demand, presentment for payment, protest, notice of
protest, notice of non-payments and any and all lack of diligence or delays in
collection or enforcement of this Note, and expressly consents to any extension
of time of payment hereof, release of any party primarily or secondarily liable
hereunder or any of the security for this Note, acceptance of other parties to
be liable for any of the Indebtedness or of other security therefore, or any
other indulgence or forbearance which may be made, without notice to any party
and without in any way affecting the liability of any party.
No failure by Payee to exercise any right hereunder shall be construed as a
waiver of the right to exercise the same or any other right any time or from
time to time thereafter.
<PAGE>
This Note shall be construed and enforced according to, and governed by the
laws of the State of Arizona.
Any notice required hereunder shall be in writing, and shall be given to the
party to receive the notice by personal delivery or be certified mail, postage
prepaid, return receipt requested, as follows:
if to Payee, then addressed to Payee at 5700 east Glen drive, Paradise
Valley, Arizona 85253, (Tel.(602) 596-0224, Fax (602) 596-0225), with a copy to
James W. Reynolds, Esq., Dillingham Cross, P.L.C., 5080 North 40/th/ Street,
Suite 335, Phoenix, Arizona 85018, (Tel.(602) 468-1811, Fax (602) 468-0442);
if to Maker, then addressed to maker at 1625 East Northern Avenue, Suite
201, Phoenix, Arizona 85020, Attn: President, with a copy to James B. Aronoff,
Esq., Thompson Hine & Flory, LLP, 3900 Key center, 127 Public Square, Cleveland,
Ohio 44114 (Tel.(216) 566-5500, Fax (216) 566-5800).
Any party may, be notice in writing designate another address as a place for
service of notice. Such notices shall be deemed to be received when delivered,
if delivered in person, or seven (7) business days after deposited in the United
States mails, if mailed as herein above provided.
By acceptance of this Note, payee covenants and agrees that, upon payment
in full of the then unpaid principal balance of this Note, together with all
unpaid interest and other sums payable to Payee under this Note, (a) Note shall
be fully satisfied, (b) Payee shall promptly mark this Note as being paid in
full, satisfied and discharged and shall return the same to maker.
INNSUITES HOSPITALITY TRUST,
an Ohio real estate investment trust
By: /s/ Marc E. Berg
-------------------------------
Name: Marc E. Berg
Title: Executive Vice-President
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
---------------
$250,000 Phoenix, Arizona
- --------
October 14, 1999
FOR VALUED RECEIVED, and intending to be legally bound hereby, INNSUITES
HOSPITALITY TRUST, AN Ohio real estate investment trust, having an office at
1625 East Northern Avenue, Suite 201, Phoenix, Arizona 85020 ("Maker") hereby
promises to pay to the order of James Wirth, 5700 east glen Drive, Paradise
Valley, Arizona 85253 or a such other place as the holder hereof may from time
to time designate in writing, the principal sum of TWO HUNDRED FIFTY THOUSAND
AND 00/100 DOLLARS ($250,000), with interest on the unpaid principal balance
thereon from time to time outstanding, at the rate of seven percent (7.00%) per
annum, computed on a three hundred sixty (360)-day year, to be due and payable
in installments of principal and interest as follows:
(A) On or about November 1, 1999 one payment of accrued interest and the
principal balance contingent on the successful refinance of the San
Diego Hotel property; or
(B) On March 1, 2000 (the "Maturity date"), one payment in the amount of
the then unpaid principal balance hereunder, accrued but unpaid
interest hereunder and all sums and charges due and unpaid by Maker
(collectively, the "Indebtedness"), if the refinance of the San Diego
Hotel property is unsuccessful.
Payments shall be applied first to any charges or sums (other than
principal and interest) due and payable by Maker, second to accrued and unpaid
interest on the principal balance hereof, and then to further reduce the
principal balance of this Note.
Maker shall gave the right any time during the term of this Note to repay
all or part of the unpaid principal amount of the Indebtedness, together with
any accrued and unpaid interest thereon any other sums or charges due hereunder
without any prepayment premium or penalty.
Maker hereby waives for itself and, to the fullest extent not prohibited by
applicable law, for any subsequent lienor, any right Maker may now or hereafter
have under the doctrine of marshaling of assets or otherwise which would require
Payee to proceed against certain property before proceeding against any other
property.
Maker hereby agrees that in the event part of principal or interest is not
paid when due or the entire Indebtedness is not paid when due, then the rate of
interest on this Note shall, at the election on Payee upon ten (10) days prior
written notice, each of which is hereby expressly waived, be increased to nine
and 00/100 percent (9.00%) per annum or
<PAGE>
the highest rate for which the parties may agree under applicable law, whichever
is less (the "Default Rate"). Maker shall be obligated thereafter to pay
interest on the then unpaid principal balance of the Indebtedness at the Default
Rate, both before and after judgment, to be computed from the due date through
and including the date of actual receipt of the overdue payment, whether a
payment of interest or the entire Indebtedness. Nothing herein shall be
construed as an agreement or privilege to extend the date of the payment or any
installment of or the entire Indebtedness, or as a wavier of any other right or
remedy accruing to Payee.
In the event that any regular payment of interest herein provided shall not
be received by Payee on the date such payment is due, Payee shall have the right
to assess Maker a late payment charge in the amount of two percent (2.0%) of
such overdue quarterly installment, which shall become immediately due to Payee
for the additional cost agreed compensation to Payee for the additional costs
and expenses reasonable expected to be incurred by Payee by reason of such
nonpayment. Maker acknowledges that the exact amount of such cost and expenses
may be difficult, if not impossible, to determine with certainly, and further
acknowledges and confesses the amount of such charge to be a consciously
considered, good faith estimate the actual damage to Payee by reason of such
default. The Default Rate will only accrue for periods of delinquent
installments except for such when Payee accepts late payments of installments
accompanied by a late payment charge as specified above.
Upon any of the following events ("Event(s) of Default"), at the election
of Payee, the entire unpaid principle balance of the Indebtedness, together with
all accrued but unpaid interest thereon at the Default Rate and all other sums
or changes due hereunder, shall become due and payable:
(a) Maker's failure to pay when due any installment required to be
paid hereunder, on or before the tenth (10th) day following the
applicable due date;
(b) Maker's failure to pay when due any other payment required to be
under this Note, subject to any notice and applicable grace
period, if any;
(c) Maker's breach of any other covenant or agreement herein and such
breach remains uncorrected at the expiration of any applicable
grace period expressly provided for herein;
(d) if n any creditor's proceeding Maker consents to the appointment
or a receiver or trustee for any of its property;
<PAGE>
(e) if any order, judgment or decree shall be entered, without the
consent of Maker, upon an application of a creditor approving the
appointment of a receiver or trustee for any of its property, and
such order, judgment, decree, or appointment is not dismissed or
stayed with appropriate appeal bond within sixty (60) days
following the entry or rendition thereof; or
(f) if Maker (i) makes a general assignment for the benefit of
creditors, (ii) fails to pay its debts generally as such debts
become due, (iii) is found to be insolvent by a court of
competent jurisdiction, (iv) voluntarily files a petition in
bankruptcy or a petition or answer seeking readjustment of debts
under any state or federal bankruptcy or like law, or (v) any
such petition is filed against Maker and is not vacated or
dismissed within sixty (60) days after filling thereof.
Notice of such election by Payee is hereby expressly waived as part of the
consideration for this loan. Nothing contained herein shall be construed to
restrict the exercise of any other rights or remedies granted to Payee hereunder
upon the failure of Maker to perform any provision hereof.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker promises to pay all costs incurred by Payee, including
without limitation reasonable attorney's fees to the fullest extent not
prohibited by law, and all expenses incurred in connection with the protection
or realization of any collateral, whether or not suit is filed hereon or on any
instrument granted a security interest.
Maker hereby expressly acknowledges and represents that the indebtedness is
for a business purpose and not consumer or household purposes.
Maker hereby waves demand, presentment for payment, protest, notice of
protest, notice of non-payments and any and all lack of diligence or delays in
collection or enforcement of this Note, and expressly consents to any extension
of time of payment hereof, release of any party primarily or secondarily liable
hereunder or any of the security for this Note, acceptance of other parties to
be liable for any of the Indebtedness or of other security therefore, or any
other indulgence or forbearance which may be made, without notice to any party
and without in any way affecting the liability of any party.
No failure by Payee to exercise any right hereunder shall be construed as a
waiver of the right to exercise the same or any other right any time or from
time to time thereafter.
<PAGE>
This Note shall be construed and enforced according to, and governed by the
laws of the State of Arizona.
Any notice required hereunder shall be in writing, and shall be given to the
party to receive the notice by personal delivery or be certified mail, postage
prepaid, return receipt requested, as follows:
if to Payee, then addressed to Payee at 5700 east Glen drive, Paradise
Valley, Arizona 85253, (Tel.(602) 596-0224, Fax (602) 596-0225), with a copy to
James W. Reynolds, Esq., Dillingham Cross, P.L.C., 5080 North 40/th/ Street,
Suite 335, Phoenix, Arizona 85018, (Tel.(602) 468-1811, Fax (602) 468-0442);
if to Maker, then addressed to maker at 1625 East Northern Avenue, Suite
201, Phoenix, Arizona 85020, Attn: President, with a copy to James B. Aronoff,
Esq., Thompson Hine & Flory, LLP, 3900 Key center, 127 Public Square, Cleveland,
Ohio 44114 (Tel.(216) 566-5500, Fax (216) 566-5800).
Any party may, be notice in writing designate another address as a place for
service of notice. Such notices shall be deemed to be received when delivered,
if delivered in person, or seven (7) business days after deposited in the United
States mails, if mailed as herein above provided.
By acceptance of this Note, payee covenants and agrees that, upon payment
in full of the then unpaid principal balance of this Note, together with all
unpaid interest and other sums payable to Payee under this Note, (a) Note shall
be fully satisfied, (b) Payee shall promptly mark this Note as being paid in
full, satisfied and discharged and shall return the same to maker.
INNSUITES HOSPITALITY TRUST,
an Ohio real estate investment trust
By: /s/ Marc E. Berg
-------------------------------------
Name: Marc E. Berg
Title: Executive Vice-President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF THE REGISTRANT AS OF OCTOBER 31, 1999 AND JANUARY 31, 1999 AND THE
STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1999
AND 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 102,928
<SECURITIES> 0
<RECEIVABLES> 2,614,680
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 65,129,440
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,847,048
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 55,221,932
0
0
<COMMON> 0
<OTHER-SE> 12,625,116
<TOTAL-LIABILITY-AND-EQUITY> 67,847,048
<SALES> 0
<TOTAL-REVENUES> 7,425,501
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,336,210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,364,470
<INCOME-PRETAX> 264,935
<INCOME-TAX> 0
<INCOME-CONTINUING> 264,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,935
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.09
<FN>
<F1>The Registrant utilizes an unclassified Balance Sheet. Therefore, the
captions "TOTAL CURRENT ASSETS" and "TOTAL CURRENT LIABILITIES" are not
applicable.
</FN>
</TABLE>
