<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 2000.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________.
Commission File No. 1-7062
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InnSuites Hospitality Trust
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(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-6647590
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
InnSuites Hotels Centre, 1625 E. Northern Avenue,
Suite 201, Phoenix, Arizona 85020
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's Telephone Number, including area code (602) 944-1500
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
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Shares of Beneficial American Stock Exchange
Interest, without
par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
[Cover Continued on Following Page]
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[Cover Continued From Previous Page]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of May 10, 2000: $3,248,304.
Number of shares of voting stock outstanding as of May 10, 2000: 2,511,157.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the July 17, 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
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PART I
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Item 1. BUSINESS.
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Introduction to Our Business
InnSuites Hospitality Trust, formerly known as Realty ReFund Trust (the
"Trust"), was organized in 1971 and operates as an unincorporated Ohio real
estate investment trust. On January 31, 2000, the Trust owned a 44.9% sole
general partner interest in RRF Limited Partnership, a Delaware limited
partnership (the "Partnership"). On January 31, 2000, the Partnership owned,
directly or indirectly, ten InnSuites(R) hotels located in Arizona and southern
California (all ten InnSuites(R) hotels are hereinafter referred to as the
"Hotels"). The Trust employs five people.
The Hotels feature 1,665 hotel suites and operate as moderate- and full-
service hotels which apply an operating philosophy formulated in 1980 by James
F. Wirth, current Chairman, President and Chief Executive Officer of the Trust.
Initially, the Trust attempts to acquire under-performing hotel properties below
replacement cost. Through intensive refurbishment and management programs, the
Trust repositions the acquired hotels as studio and two-room suite hotels that
offer services such as free breakfast buffets and complementary afternoon social
hours plus amenities, such as microwave ovens, refrigerators and coffee makers
in each studio or two-room suite.
The Trust has elected to be taxed as a real estate investment trust
("REIT"), as that term is defined and used in Sections 856-860 of the Internal
Revenue Code of 1986, and the Regulations thereunder (all as amended, the
"Code"). In order to maintain its REIT tax status, the Trust has affiliated with
certain other hotel hospitality companies. The Partnership leases the Hotels to
InnSuites Hotels, Inc.(the "Lessee"). The Lessee pays rent to the Partnership
pursuant to percentage lease agreements (the "Percentage Leases") providing for
periodic rental payments based primarily upon the revenues of the Hotels. The
Trust obtains income from cash distributions made by the Partnership and those
distributions largely depend upon the Partnership's earnings under the
Percentage Leases.
Further affiliations involve managing the Hotels and licensing the
InnSuites brand. The Lessee currently operates and manages all of the Hotels,
with the assistance of InnSuites Innternational Hotels, Inc., (the "Management
Company"). Pursuant to management contracts, the Lessee pays the Management
Company an annual management fee of 2.5% of gross room and other revenues for
property management services. The Lessee pays InnSuites Licensing Corp. an
annual licensing fee of 2.5% of gross room and other revenues (1.25% for those
hotel properties which also carry a third-party franchise, such as Best
Western(R) or Holiday Inn(R)) for trademark and licensing services relating to
the use of the InnSuites(R) name and marks.
Effective October 12, 1999, the Partnership, the Lessee and the Management
Company entered into an Intercompany Agreement whereby, subject to certain terms
and conditions, the Partnership will grant the Lessee a right of first refusal
to lease, and the Management Company a right of first refusal to operate, any
real property acquired by the Partnership. In return, the Partnership will be
granted a right of first refusal to pursue opportunities presented to the Lessee
or the Management Company to purchase investments in real estate, hotel
properties, real estate mortgages, real estate derivatives or entities that
invest in the foregoing.
Historical Operations and the Formation Transactions
Until January 31, 1998, the Trust specialized in wrap-around mortgage
lending, whereby the Trust offered borrowers a total mortgage loan (the wrap-
around loan), the principal amount of which equaled the balance outstanding on
an existing prior mortgage loan on the borrower's property, plus an additional
amount supplied by the Trust, on existing income-producing commercial,
industrial and multi-unit
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residential real property. The Trust originated no new mortgage loans since the
fiscal year ended January 31, 1995 and the final two outstanding mortgage loans
receivable matured and were fully paid and canceled during the fiscal year ended
January 31, 1998.
In August 1996, the Trust began to evaluate a combination with Hospitality
Corporation International ("HCI"), an Arizona corporation owned by James F.
Wirth and his wife, which controlled seven all-suite hotel properties,
comprising 1,036 hotel studio and two-room suites, in Tucson, Phoenix,
Scottsdale, Tempe, Flagstaff and Yuma, Arizona and in Ontario, California (the
"Initial Hotels"). HCI proposed a series of transactions resulting in a
combination of the Initial Hotels with the Trust.
In late October 1996, the Trust and HCI reached a preliminary agreement as
to the framework of the proposed transactions, culminating in the execution of a
definitive Formation Agreement on December 27, 1996 (the "Formation Agreement").
The execution of the Formation Agreement was ratified and approved by the
Trustees and by HCI's Board of Directors on February 14, 1997, at which time the
Trust announced the proposed transaction to the public. At the 1997 annual
shareholders' meeting held on January 28, 1998, the shareholders of the Trust
approved the terms and execution of the Formation Agreement.
The Formation Agreement provided for the organization of the Partnership,
of which the Trust would be the sole general partner, initially holding a 13.6%
interest, with the former partners in the Initial Hotels investing as limited
partners, receiving a collective 86.4% interest, and for restructuring the Trust
into an "umbrella partnership REIT", or "UPREIT". The Partnership acquired
substantial interests in six of the Initial Hotels. The seventh hotel, located
in Scottsdale, Arizona, was acquired directly by RRF Sub Corp., a then newly-
formed Nevada corporation and wholly-owned subsidiary of the Trust. RRF Sub
Corp. subsequently contributed the Scottsdale, Arizona hotel to the Partnership
in exchange for general partnership interests therein. The Trust contributed
$2,081,000 in cash to the Partnership to obtain its initial 13.6% sole general
partner interest.
In accordance with the terms of the Formation Agreement, the previous
Trustees and executive officers of the Trust resigned, and new Trustees and
executive officers were appointed, effective January 30, 1998.
The Partnership has two outstanding classes of limited partnership
interests, Class A and Class B, identical in all respects except that each Class
A limited partnership unit is convertible, at the option of the Class A holder,
into one newly-issued Share of Beneficial Interest of the Trust. No particular
conversion will be allowed, however, if a determination is made that such
conversion would cause the Trust to no longer qualify as a REIT under the Code.
A total of 2,174,931 Class A limited partnership units were issued to the former
partners in the Initial Hotels. Class B limited partnership units may be
converted only upon the approval of the Board of Trustees, provided that such
conversion would not cause the Trust to fail to qualify as a REIT. A total of
4,017,361 Class B limited partnership units were issued to Mr. Wirth and certain
of his affiliates in order to satisfy ownership concentration limitations placed
upon REITs by the Code. The Partnership Agreement of the Partnership subjects
both general and limited partner units to restrictions on transfer.
In addition to the restructuring, the Trust's investment advisor, Mid-
America ReaFund Advisors, Inc. ("MARA"), which was owned by the Trusts former
Co-Chief Executive Officers, Messrs. Krause and Berick, was acquired by Mr.
Wirth and his wife. MARA provided investment advisory and consulting services to
and administered the day-to-day investment operations of the Partnership and the
Trust under the supervision of the Trustees pursuant to an Advisory Agreement
executed between the Partnership and MARA. The Advisory Agreement was terminated
as of January 1, 1999. See "Advisory Agreement and MARA" below.
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Hotel Acquisitions following the Formation Transactions
Following the Formation Transactions, the Partnership acquired three
additional all-suite hotels. First, effective as of February 1, 1998, the
Partnership acquired the InnSuites Hotels Tucson St. Mary's located in Tucson,
Arizona. The total consideration for the acquisition was $10,820,000 and was
based upon an appraisal conducted by an independent third party. Mr. Wirth and
his wife indirectly owned the Tucson St. Mary's hotel property. Second, on April
29, 1998, the Partnership acquired the Lafayette Hotel Ramada Inn & Conference
Center located in San Diego, California. The Partnership paid $5,148,000 for
this hotel property based on arms-length negotiations with the owners of that
property. Third, the Partnership acquired the InnSuites Hotel located in Buena
Park, California, effective June 1, 1998. The total consideration for the
acquisition was $7,100,000 and was based upon an appraisal conducted by an
independent third party. James F. Wirth and Steven S. Robson indirectly owned
the Buena Park hotel property. Subsequent to this acquisition, Mr. Robson was
elected as a Trustee of the Trust by the shareholders of the Trust.
The Trust believes that the greatest opportunities for revenue growth and
profitability will arise from the skillful management and repositioning of
current and future acquired hotel properties. The Trust's primary business
objectives are to maximize current returns to its shareholders through increases
in cash flow available for distribution and to increase long-term total returns
to shareholders. The Trust will seek to achieve these objectives through (i)
participation in increased revenues from the Hotels pursuant to the Percentage
Leases by intensive management and marketing, and (ii) selective acquisitions
and expansion of the InnSuites Hotels in California and in the southwestern
United States.
Competition in the Hotel Industry
The hotel industry is highly competitive. Each of the Hotels experiences
competition primarily from other mid-market hotels in its immediate vicinity,
but also competes with other hotel properties in other geographic markets. While
none of the Hotels' competitors dominate any of the Trust's geographic markets,
some of those competitors have substantially greater marketing and financial
resources than the Trust and the Partnership.
A number of additional hotel property developments have been announced or
have recently been completed by competitors in a number of the Hotels' markets,
and additional hotel property developments may be built in the future. Such
hotel developments have had, and could continue to have, an adverse effect on
the revenues of the Hotels in such competitive markets.
The Trust has chosen to focus its hotel investments in Arizona and southern
California. Particularly, the Trust has a concentration of assets in the
metropolitan Phoenix, Arizona market. In the Phoenix, Arizona market, hotel room
supply is increasing faster than the rate of demand. Supply rates are also
generally increasing faster than demand rates in the Flagstaff, Tucson and Yuma,
Arizona and Ontario, California markets. The Buena Park and San Diego,
California markets continue to support balanced supply and demand.
The Trust and the Partnership may also compete for investment opportunities
with other entities that have substantially greater financial resources. These
entities also may generally accept more risk than the Trust and the Partnership
can prudently manage. Competition may generally reduce the number of suitable
future investment opportunities available to the Trust and the Partnership and
increase the bargaining power of owners seeking to sell their properties.
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Seasonality of the Hotel Business
The hotel business is seasonal in nature. The six southern Arizona hotels
experience their highest occupancy 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. This seasonality
pattern can be expected to cause significant fluctuations in the Trust's
quarterly lease revenue under the Percentage Leases. Despite this seasonality in
revenues, all revenue is recorded as earned. The hotels located in northern
Arizona and California historically experience their most profitable periods
during the second and third fiscal quarters (the summer season), providing some
balance to the general seasonality of the hotel business.
Advisory Agreement and MARA
The Partnership was a party to an Advisory Agreement with MARA pursuant to
which the Partnership received certain investment advisory and administrative
services regarding the day-to-day investment operations of the Hotels and
pursuant to which MARA was responsible for providing the Partnership and the
Trust with a continuing and suitable investment program. The Advisory Agreement
was terminated as of January 1, 1999.
To terminate the Advisory Agreement the Partnership paid $256,500 in
February 1999 ($225,000 repayment of principal plus $31,500 of accrued interest)
and on February 1, 2000 was obligated to pay $240,750 ($225,000 repayment of
principal plus $15,750 of accrued interest) to satisfy two promissory notes
which were originally issued by Mr. Wirth and his wife when they acquired MARA
in January 1998. Additionally, in fiscal 1999, the Partnership issued 67,000
Class B limited partnership units to MARA and MARA forgave $85,331 in net
liabilities in exchange for the termination of the Advisory Agreement.
Pursuant to the Advisory Agreement, MARA received, subject to certain
limitations, (a) a monthly fee equal to 1/12th of 1% of the appraised value of
the total assets of the Partnership during the next preceding month; (b) 15% of
the commitment fees received by the Partnership for any stand-by or gap
commitment relating to a mortgage loan which is not closed; and (c) an incentive
fee equal to 10% of the amount, if any, by which the net profits of the
Partnership exceed 8% of the monthly average net worth of the Partnership for
the year, plus 10% of the net realized capital gains of the Partnership for such
year less accumulated net realized capital loss. MARA was required to refund to
the Partnership the amount, if any, by which the operating expenses of the
Partnership in any fiscal year exceed the lesser of (x) 1 1/2% of the appraised
value of the total assets of the Partnership for such fiscal year or (y) 25% of
the net income of the Partnership for such fiscal year. For the twelve months
ended January 31, 1999, the Partnership paid MARA $364,041 for advisory and
management services pursuant to the Advisory Agreement.
Financial Information
See "Item 6 -- Selected Financial Data" herein for information regarding
the Trust's revenues, net (loss) and total assets.
Item 2. PROPERTIES.
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The Trust maintains its administrative offices at the InnSuites Hotels
Centre in Phoenix, Arizona. The Trust directly owns no real property. At January
31, 2000, the Partnership owned, directly or indirectly, ten hotels. All of the
Hotels are operated as InnSuites(R) Hotels, while three are also marketed as
Best Western(R) Hotels and one is also marketed as a Holiday Inn(R) Hotel and
Suites. All of the Hotels are managed by the Management Company and operate in
the following locations:
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<TABLE>
<CAPTION>
NUMBER YEAR OF CONSTRUCTION/ MOST RECENT
PROPERTY OF SUITES ADDITION RENOVATION
- -------- ---------- --------------------- -----------
<S> <C> <C> <C>
InnSuites Hotels
Phoenix Best Western............................. 123 1980 1996
InnSuites Hotels Tempe/
Phoenix Airport/South Mountain................... 170 1982/1985 1996
InnSuites Hotels Tucson,
Catalina Foothills Best Western ................. 159 1981/1983 1996
InnSuites Hotels
Yuma Best Western................................ 166 1982/1984 1996
Holiday Inn Airport Hotel and
Suites/Ontario(an InnSuites Hotel) .............. 150 1990 1996
InnSuites Hotels Flagstaff/
Grand Canyon..................................... 134 1966/1972 1997
InnSuites Hotels Scottsdale/
El Dorado Park Resort ........................... 134 1980 1996
InnSuites Hotels Tucson St. Mary's............... 297 1960/1971 1997
InnSuites Hotels San Diego....................... 147 1946/1989 1998
InnSuites Hotels Buena Park...................... 185 1972/1980 1998
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Total suites 1,665
=====
</TABLE>
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" herein for a discussion of occupancy rates at the Hotels.
See "Item 8 - Financial Statements and Supplementary Data" herein for a
discussion of mortgages encumbering the Hotels.
Item 3. LEGAL PROCEEDINGS.
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The Trust is not a party, nor are its properties subject to, any material
litigation or environmental regulatory proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth fiscal quarter ended January 31, 2000.
PART II
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Item 5. MARKET FOR THE TRUST'S SHARES AND RELATED SECURITY HOLDER MATTERS.
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Until February 23, 1999, the Trust's Shares of Beneficial Interest were
traded on the New York Stock Exchange under the symbol "IHT". Since April 7,
1999, the Trust's Shares of Beneficial Interest have been traded on the American
Stock Exchange under the symbol "IHT". On May 10, 2000, the Trust had 2,511,157
shares outstanding and 579 holders of record.
The following table sets forth, for the periods indicated, the high and low
sales prices of the Trust's Shares of Beneficial Interest, as quoted by the
American or New York Stock Exchange, as well as dividends declared thereon:
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Fiscal Year 2000 High Low Dividends
---------------- ---- --- ---------
First Quarter 3 1/16 2 1/4 --
Second Quarter 3 1/8 2 5/16 --
Third Quarter 2 15/16 2 .01
Fourth Quarter 2 7/8 1 3/4 .01
Fiscal Year 1999 High Low Dividends
---------------- ---- --- ---------
First Quarter 4 3/8 4 1/16 --
Second Quarter 5 3/8 4 1/4 --
Third Quarter 5 1/2 3 13/16 .10
Fourth Quarter 3 15/16 2 15/16 --
The Trust intends to maintain a conservative dividend policy to facilitate
internal growth. In fiscal 2000, the Trust paid dividends of $.01 in the third
and fourth quarters. In fiscal 1999, the Trust paid a dividend in the third
quarter of $.10 and in fiscal 1998, the Trust paid dividends of $.10 and $.05 in
the first and second quarters, respectively. Since its organization in 1971, the
Trust has paid a dividend or dividends each year.
Item 6. SELECTED FINANCIAL DATA.
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The following selected financial data of the Trust for the five fiscal
years ended January 31, 2000, has been derived from the audited consolidated
financial statements of the Trust. The consolidated financial statements of the
Trust for the three fiscal years ended January 31, 1998 were audited by Arthur
Andersen LLP, independent public accountants. The consolidated financial
statements of the Trust for the two fiscal years ended January 31, 2000 were
audited by KPMG LLP, independent public accountants. All of the data should be
read in conjunction with the respective consolidated financial statements and
related notes included herein.
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Total revenues $ 9,546,181 $ 9,909,758 $ 1,421,979 $3,915,506 $ 5,430,006
Net loss $ (951,811) $ (193,071) $ (573,509) $ (888,365) $(7,554,351)
Loss
per share-basic
and diluted $ (.40) $ (.10) $ (.56) $ (.87) $ (7.40)
Cash dividends
paid and declared
per share $ .02 $ .10 $ .15 $ .40 $ .50
Total assets $65,305,519 $67,804,770 $43,619,639 $6,416,123 $24,555,330
Bank and other
borrowings $38,746,662 $36,924,834 $22,428,880 $2,300,000 $10,795,000
</TABLE>
See "Item 1 - Business - Historical Operations and the Formation Transactions"
herein for a discussion of the change in the nature of the business of the
Trust.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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GENERAL
The following discussion should be read in conjunction with the InnSuites
Hospitality Trust consolidated financial statements and notes thereto and the
InnSuites Hotels, Inc. financial statements and notes thereto appearing
elsewhere in this annual report.
The Trust is a real estate investment trust which owns the sole general
partner interest in the Partnership. In order for the Trust to qualify as a REIT
under the Code, neither the Trust nor the Partnership can operate the Hotels.
Therefore, each of the hotels is leased to, and operated by, the Lessee 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.
The Trust's Management intends to restructure and acquire the Lessee in
January 2001 following the guidelines of the REIT Modernization Act.
At January 31, 2000, the Trust owned a 44.9% interest in the Hotels
through its sole general partner's interest in the Partnership. This change in
ownership resulted primarily from the following transactions occuring between
February 1, 1999 and April 2, 1999:
On March 15, 1999, the Trust purchased 1 million additional general partner
units in the Partnership for $2 million. This transaction was fully funded
by Mr. Wirth who provided an unsecured loan to the Trust 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 in
the amount of $2.6 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 $1.8 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, at historical cost, its
interest in the Scottsdale property to the Partnership (approximately $7
million) in exchange for 1.6 million general partner units.
As a result of the aforementioned transactions, the Trust increased its
ownership interest in the Partnership from approximately 18% to
approximately 42% as of April 2, 1999.
The expenses of the Trust consist primarily of property taxes, insurance,
corporate overhead, interest on mortgage debt and depreciation of the Hotels.
Under the terms of its Partnership Agreement, the Partnership is required to
reimburse the Trust for all such expenses. The Percentage Leases provide for the
payment of base rent and percentage rent. For the year ended January 31, 2000,
base rent and percentage rent in the aggregate amount of $9.5 million was earned
by the Trust. The
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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 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 increased $0.81 to $67.70 in fiscal year 2000 from $66.89
in fiscal 1999 due to an overall market increase in room rates. Occupancy
decreased 1.0% to 59.8% in fiscal 2000 from 60.8% in fiscal year 1999 due to
increased supply exceeding demand growth. This resulted in a decrease in REVPAR
of $0.19 to $40.46 in fiscal 2000 from $40.65 in fiscal 1999. ADR improved in
fiscal 1999 due to acquisitions in fiscal 1999 and the successful repositioning
of those hotels as studio and two room suite hotels that contribute more revenue
per available room. While ADR increased $1.22 to $66.89 in 1999 from $65.67 in
1998, occupancy increased 1.9% in 1999 to 60.8% from 58.9% due to increased
occupancy rates in our California properties complimenting slight declines in
occupancy at our Arizona properties. This resulted in an increase in REVPAR of
$1.95 for the twelve months ended January 31, 1999.
The following table shows certain historical financial and other
information for the periods indicated.
For the Year Ended
January 31,
--------------------------
2000 1999 1998
------ ------ ------
Occupancy 59.80% 60.80% 58.90%
Average Daily Rate (ADR) $67.70 $66.89 $65.67
Revenue Per Available Room (REVPAR) $40.46 $40.65 $38.70
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 of the Trust for the year ended January 31, 2000 compared
to the year ended January 31, 1999
Results of operations for the Trust for the fiscal year ended January 31,
2000 reflect a full-year of operations of the Hotels and the fiscal year ended
January 31, 1999 reflects a full-year of operations of the Initial Hotels as
well as a partial-year of operations for the Tucson St. Mary's, Buena Park and
San Diego hotels.
For the twelve months ended January 31, 2000, the Trust had total revenues
of $9.5 million compared to $9.9 million for the twelve months ended January 31,
1999, a decrease of approximately $400,000 or 3.7% due primarily to the change
in rent formulas effective August 1, 1999. Total expenses of $11.6 million for
the twelve months ended January 31, 2000 increased $1.5 million compared to
total expenses of $10.1 million for the twelve months ended January 31, 1999.
The 14.3% increase in total expenses was primarily due to charges to expense of
approximately $575,000 for deferred expenses related to a withdrawn public
offering and a $1.9 million provision for uncollected rents receivable which was
partially offset by a $780,000 loss on the termination of the Advisory Agreement
in fiscal 1999.
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 twelve months ended
January 31, 2000 and 1999, these expenses increased $1.5 million to $4.2 million
in fiscal 2000 from $2.7 million in fiscal 1999. This 54.5% increase was
primarily due to charges to expense of approximately $575,000 for deferred
expenses relating to a withdrawn public offering and a $1.9 million provision
for uncollected rents receivable from the Lessee. These were offset by decreases
primarily relating to MARA fees of approximately $364,000 and the loss of
approximately $499,000 for the termination of the MARA agreement in fiscal year
1999.
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Total interest expense increased by $544,000 or 19.5% to $3.3 million from
$2.8 million in comparing the twelve months ended January 31, 2000 and January
31, 1999, respectively. Interest on mortgage notes payable increased
approximately $200,000 or 10% to $2.1 million from $1.9 million due to increased
mortgage debt related to the acquisition of the Buena Park and San Diego
properties during fiscal 1999 and net additional borrowings of approximately
$2.3 million during fiscal 2000 for the loan modification relating to the
Northern Phoenix property and the refinancing of the San Diego property.
Interest on notes payable to banks increased by 52.8% or approximately $338,000
to $977,000 from $639,000 due to a full years interest in fiscal 2000 on the $12
million credit facility obtained in fiscal 1999, which bears a variable interest
rate. Interest on notes payable to related parties increased 4.6% or
approximately $10,000 to $214,000 from $204,000 due to additional loans of
$956,000 (net of payments) from James F. Wirth, current Chairman, President and
Chief Executive Officer of the Trust.
Real estate and personal property taxes, insurance and ground rent
increased approximately $200,000 or 16.4% to $1.4 million from $1.2 million in
comparing the twelve months ended January 31, 2000 and 1999, respectively. Real
estate and personal property taxes and property insurance increased $145,000
primarily due to the acquisition of the Buena Park and San Diego properties
during fiscal 1999 resulting in a full year of expenses in fiscal 2000 compared
to 9 months of expense for San Diego and 8 months of expense for Buena Park in
fiscal 1999.
Real estate depreciation for the twelve months ended January 31, 2000
compared to 1999 increased approximately $350,000 or 15.9% to $2.5 million from
$2.2 million, respectively. Of the $350,000 increase, approximately $184,000 was
due to the Trust's acquisitions of the Buena Park and San Diego properties
resulting in a full year of depreciation in fiscal year 2000. The remaining
$166,000, resulted primarily from an increase in capitalized refurbishment costs
in the current year.
The Trust had a loss before minority interest of $2.0 million for the
twelve months ended January 31, 2000, a $1.8 million increase from the loss
of $200,000 in the prior year. After deducting the loss allocated to the
minority interest of $1.1 million, the Trust had a net loss attributable to
shares of beneficial interest of approximately $952,000. This represented an
increase in net loss of $759,000 attributable to shares of beneficial interest
comparing the twelve months ended January 31, 2000 and 1999. The results for the
fiscal year ended January 31, 2000 included the recognition of a provision for
uncollectible receivables of $1.9 million, and a charge of approximately
$575,000 resulting from withdrawing a public offering. Basic and diluted net
loss per share was $(0.40) for the twelve months ended January 31, 2000 compared
to $(0.10) for 1999. Without considering the effect of the aforementioned
charges, the Trust would have reported net income of approximately $23,000 and
basic earnings per share of $0.01.
Results of Operations of the Trust for the year ended January 31, 1999 compared
to January 31, 1998
During the fiscal year ended January 31, 1998, the Trust terminated its
previous wrap-around mortgage business and disposed of its final real estate
asset, an office building in Chicago which was sold in the third quarter of
fiscal 1998. As a result of a change in investment focus, the Trust indirectly
acquired the seven Initial Hotels on January 31, 1998.
Results of operations for the Trust for the fiscal year ended January 31,
1999 reflected one full-year of operations of the Initial Hotels, plus
additional full- or partial-year operations of the three hotels acquired during
fiscal 1999.
Total revenues of the Trust for the twelve months ended January 31, 1999
was $9.9 million in its first full-year of operations. Of this revenue, rent
revenue from the Hotels represented 99% of total revenue. Included in this
amount was rent revenue attributable to the Scottsdale hotel of $699,997.
Interest income for the period was $23,750.
-11-
<PAGE>
For the fiscal year ended January 31, 1999, the Trust reported a net loss
of approximately $193,000 or $(0.10) per share. For the fiscal year ended
January 31, 1998, the Trust reported a net loss of approximately $574,000 or
$(0.56) per share.
While the revenues of the Trust increased significantly to $9.9 million for
the fiscal year ended January 31, 1999 from $1.4 million for the fiscal year
ended January 31, 1998 the Trust reported a net loss of approximately $193,000.
That total net loss, however, was reduced from a net loss of approximately
$574,000 in fiscal 1998. The results for the fiscal year ended January 31, 1999
included multiple fourth quarter charges, resulting from the recognition of a
provision for uncollectible receivables ($900,000), a net charge recognized upon
the termination of the Advisory Agreement between the Partnership and MARA
($499,000), and the recognition of expenses relating to stock options
($184,000). In addition, unusual legal and professional fees are included in
fiscal 1999 expenses. Without the aforementioned fourth quarter charges, the
Trust's earnings per share for the fiscal year ended January 31, 1999 would have
improved by $0.16 per share to a net income of $0.06 per share (basic) for the
year.
-12-
<PAGE>
Results of Operations of the Lessee
Comparison of actual results for the year ended January 31, 2000 compared to
1999
Results of operations for the Lessee for the fiscal year ended January 31,
2000 reflect a full-year of operations of the Hotels and the fiscal year ended
January 31, 1999 reflects a full-year of operations of the Initial Hotels as
well as a partial-year of operations for the Tucson St. Mary's, Buena Park and
San Diego hotels.
Total revenues for the Lessee increased 2.4% or approximately $630,000 to
$27.3 million from $26.7 million for the twelve months ended January 31, 2000
and 1999, respectively. Room revenues increased 3.3% or approximately $805,000
to $25.1 million from $24.3 million due to the addition of the California
properties and from sharp increases in room revenues at the Tucson St Mary's
Arizona property due to increased occupancy and ADR for the year ended January
31, 2000, which was partially offset by the other six Arizona properties' room
revenues slightly declining due to decreased occupancy rates. Food and beverage
revenues increased 6.9% or approximately $112,000 to $1.7 million from $1.6
million primarily due to increased occupancy rates at the Ontario, California
and Tucson St. Mary's Arizona properties, which feature full service
restaurants. Telecommunications revenue declined 24.9% or approximately $115,000
to $346,000 from $461,000 for the twelve months ended January 31, 2000 and 1999,
respectively, primarily due to decreased long-distance rates charged by the
various long distance carriers. Other revenue decreased 57.4% or approximately
$167,000 to $124,000 from $291,000 for the 12 months ended January 31, 2000
compared with the period ended January 31, 1999, respectively, primarily due to
an increase in amenities that were previously charged to guests in the prior
year.
Total expenses decreased 2.0% or approximately $592,000 to $29.5 million
from $30.0 million for the twelve months ended January 31, 2000 compared to the
twelve months ended January 31, 1999, respectively.
Guest room expense decreased by 13.9% or approximately $1.1 million to $6.7
million from $7.8 million for the 12 months ended January 31, 2000 and 1999,
respectively, primarily due to management's programs to increase efficiency and
reduce costs associated with housekeeping.
Food and beverage expense increased 15.4% or approximately $218,000 to $1.6
million from $1.4 million for the 12 months ended January 31, 2000 compared to
the twelve months ended January 31, 1999. The increase is attributable to the
increased room revenue and the addition of room service at all 10 of the Hotel
properties.
Telecommunications expenses, which are primarily long-distance service
charges, decreased due to decreased long-distance rates charged by the various
long distance carriers. They decreased by 21.4% or approximately $106,000 for
the twelve months ended January 31, 2000 compared to the twelve months ended
January 31, 1999, respectively.
Other expense increased greater than 100.0% or approximately $739,000 to
$878,000 from $138,000 for the twelve months ended January 31, 2000 compared to
the twelve months ended January 31, 1999, respectively, primarily due to the
write-off of certain assets that management identified as having no future
value.
General and administrative expense decreased by 27.9% or approximately $1.1
million to $2.9 million from $4.0 million for the twelve months ended January
31, 2000 compared to the twelve months ended January 31, 1999, respectively. The
decrease is primarily attributable to large accounting and legal expenses
incurred
-13-
<PAGE>
in fiscal 1999 related to the formation of the Lessee in conjunction with the
formation of the Trust.
Sales and marketing expense was consistent with the prior year.
Repairs and maintenance increased 50.6% or approximately $681,000 to $2.0
million from $1.3 million for the twelve months ended January 31, 2000 compared
with the twelve months ended January 31, 1999, respectively. The increase is due
to a focused effort by management to maintain the quality of the Hotels and
increase repeat business as a result of guest satisfaction.
Hospitality expenses increased 28.7% or approximately $345,000 to $1.6
million from $1.2 million for the twelve months ended January 31, 2000 compared
with the twelve months ended January 31, 1999, respectively, primarily due to
increased hospitality programs in fiscal year 2000 over fiscal year 1999.
Percentage rent decreased 4.6% or approximately $461,000 to $9.5 million
from $10.0 million for the twelve months ended January 31, 2000 compared with
the twelve months ended January 31, 1999, respectively, primarily due to an
amendment of the calculation of rent payable under the Percentage Leases
effective August 1, 1999.
While total revenues increased 2.4% in fiscal 2000 compared to fiscal 1999,
total expenses decreased by 2.3% or approximately $681,000 for the twelve months
ended January 31, 2000 compared with the twelve months ended January 31, 1999,
respectively, reflecting management's effort to reduce costs and maintain a high
ADR.
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, is its share
of the Partnership's cash flow. The Partnership's principal source of revenue is
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 Percentage Leases, and the Trust's liquidity, including
its ability to make distributions to its shareholders, will depend upon the
ability of the Lessee to generate sufficient cash flow from hotel operations.
During fiscal 2000 and 1999, the Trust recorded $1.9 million and $900,000,
respectively, as provisions for uncollectible receivables. These charges reflect
the Trust's assessment of the collectability of its receivables which primarily
consists of rent receivable from the Lessee, based on an evaluation of the
Lessee's future cash flows. The Trust's management may restructure and acquire
the Lessee in January 2001 following the guidelines of the REIT Modernization
Act.
As of January 31, 2000, the Trust has no commitments for capital
expenditures beyond a 4% reserve for refurbishment and replacements set aside
annually, described below.
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 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 line of credit discussed below permit borrowings for that purpose, but
impose certain limitations on the Trust's ability to engage in other borrowings.
On April 16, 1998, the Trust obtained a $12 million Credit Facility (the
"Credit Facility") from 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 charges interest at a variable interest rate. By its terms, the Credit
Facility will expire in approximately one year on April 16, 2001, subject to
renewal. The terms of the Credit Facility require the Trust to maintain a net
worth (combined with minority interest) of not less than $15 million and, as of
the end of each fiscal quarter, maintain a debt to net worth ratio of not
greater than 1.50
-14-
<PAGE>
to 1.0, a net operating income to debt service relating to encumbered properties
ratio of not less than 1.30 to 1.0, and a net operating income to debt service
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. At January 31, 2000, the Trust was not in
compliance with certain covenant requirements associated with the Credit
Facility; however, the Trust obtained a waiver from the lender indicating that
the debt would not be called as a result of defaults occurring through January
31, 2000. Subsequent to January 31, 2000, the Trust negotiated a change in the
covenant covering "Debt to Tangible Net Worth" from 1.5 to 1.75. As a result,
the Trust is in compliance with all covenants subsequent to January 31, 2000.
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 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 no 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 (the "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 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 to time. The Partnership
anticipates making similar arrangements with respect to future hotels that it
may acquire or develop. During fiscal years ended January 31, 2000 and 1999, the
Hotels spent approximately $1.5 million and $2.3 million, respectively, for
capital expenditures, excluding hotel acquisitions. The Trust considers the
majority of these improvements to be revenue-producing. Therefore, these amounts
have been capitalized and are being depreciated over their estimated useful
lives. The Hotels also spent $2.0 million and $1.3 million, respectively, during
fiscal years 2000 and 1999 on repairs and maintenance and these amounts have
been charged to expense as incurred.
Inflation
The Trust's revenues are 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 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.
The Trust's largest fixed expense is the depreciation of the investment in
hotel properties. The Trust's variable expenses, which are subject to inflation,
represented approximately 59.4% of total revenues in fiscal 2000. These variable
expenses (general and administrative costs, as well as real estate and personal
property taxes, property and casualty insurance and ground rent) are expected to
grow with the general rate of inflation.
-15-
<PAGE>
Seasonality
The Hotels' operations historically have been seasonal. The six southern
Arizona hotels experience their highest occupancy 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.
This seasonality pattern can be expected to cause fluctuations in the Trust's
quarterly lease revenue under the Percentage Leases. The hotels located in
northern Arizona and California historically experience their most profitable
periods during the second and third fiscal quarters (the summer season),
providing some balance to the general seasonality of the hotel business. To the
extent that cash flow from operations is insufficient during any quarter,
because of temporary or seasonal fluctuations in lease revenue, the Trust may
utilize other cash on hand or borrowings to make distributions to its
shareholders. No assurance can be given that the Trust will make distributions
in the future.
Year 2000 Compliance
The Trust and the Lessee have upgraded their computer accounting programs
and the Lessee upgraded its computerized property management system along with
necessary hardware. The new systems have been warranted to be Year 2000
compliant. The Trust incurred total costs to date of approximately $140,000
to upgrade these systems.
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
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 or the
Lessee'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.
As of May 10, 2000, no computer or software problems relating to the year
2000 have been discovered. However, problems relating to the Year 2000 could
still arise.
Forward-Looking Statements
Certain statements in this Annual Report 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 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 which 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
-16-
<PAGE>
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. 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
Exchange Act, the qualifications set forth hereinabove are inapplicable to any
forward-looking statements in this Annual Report relating to the operations of
the Partnership.
Item 7a. 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 other notes payable. 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
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.
The table below presents the principal amounts, weighted average interest rates,
fair value and other terms required, by year of expected maturity, in order to
evaluate the expected cash flows and sensitivity to interest rate changes.
<TABLE>
<CAPTION>
Fiscal
--------------------------------------------------
Debt Type 2001 2002 2003 2004 2005 Thereafter Total(1) Fair Value
--------- ---- ---- ---- ---- ---- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt(2) $ 550,802 810,984 775,719 846,363 6,016,948 10,081,103 19,081,919 17,285,132
Average interest rate 8.49% 8.49% 8.49% 8.49% 8.49% 8.49% 8.49% 9.25%
Variable rate debt(2) $ 75,677 15,138,878 40,158 44,536 3,170,492 - 18,469,741 18,538,285
Interest rate available
on January 31, 2000 9.04% - - - - - 9.04% 9.04%
</TABLE>
- -----------------------------
(1) Approximately $345,000 of debt was repaid by February 11, 2000 and is not
included in the aforementioned summary.
(2) The fair value of fixed rate debt and variable rate debt were determined
based on current rates offered for fixed rate debt and variable rate LIBOR
debt with similar risks and maturities.
The table incorporates only those exposures that exist as of January 31,
2000 and does not consider those exposures or positions which would arise after
that date. Moreover, because firm commitments are not represented in the table
above, the information presented therein has limited predictive value. As a
result, the Trust's interest rate fluctuations will depend on the exposures that
arise during the period and future interest rates.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
INNSUITES HOSPITALITY TRUST
LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The following consolidated financial statements of InnSuites Hospitality Trust,
formerly Realty ReFund Trust, are included in Item 8:
-17-
<PAGE>
KPMG LLP Independent Auditors' Report;
Arthur Andersen LLP Report of Independent Public Accountants;
Consolidated Balance Sheets - January 31, 2000 and 1999;
Consolidated Statements of Operations - For the Years Ended January 31,
2000, 1999 and 1998;
Consolidated Statements of Shareholders' Equity - For the Years Ended
January 31, 2000, 1999 and 1998;
Consolidated Statements of Cash Flows - For the Years Ended January 31,
2000, 1999 and 1998; and
Notes to the Consolidated Financial Statements - January 31, 2000, 1999 and
1998.
The following financial statement schedule of InnSuites Hospitality Trust is
included in Item 14(a)1:
Schedule III - Real Estate and Accumulated Depreciation.
All other schedules are omitted, as the information is not required or is
otherwise furnished.
INNSUITES HOTELS, INC.
LIST OF FINANCIAL STATEMENTS AND SCHEDULE
The following financial statements of InnSuites Hotels, Inc.:
KPMG LLP Independent Auditors' Report;
Michael Maastricht, CPA Report of Independent Public Accountants;
Balance Sheets - January 31, 2000 and 1999;
Statements of Operations - For the Years Ended January 31, 2000 and 1999;
Statements of Shareholders' Deficit - For the Years Ended January 31, 2000
and 1999;
Statements of Cash Flows - For the Years Ended January 31, 2000 and 1999;
and
Notes to the Financial Statements - January 31, 2000 and 1999.
All other schedules are omitted, as the information is not required or is
otherwise furnished.
-18-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Trustees
InnSuites Hospitality Trust:
We have audited the accompanying consolidated balance sheets of InnSuites
Hospitality Trust (an Ohio real estate investment trust) and subsidiaries (the
"Trust") as of January 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the two-year period ended January 31, 2000. In connection with our
audits of the consolidated financial statements, we also audited the
accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InnSuites
Hospitality Trust as of January 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the two-year period
ended January 31, 2000 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Phoenix, Arizona
May 5, 2000
-19-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees,
InnSuites Hospitality Trust
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of InnSuites Hospitality Trust (formerly
Realty ReFund Trust) (an Ohio unincorporated business trust) and subsidiaries
for the year ended January 31, 1998. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The statements of operations, shareholders' equity and cash flows of InnSuites
Hospitality Trust (formerly Realty Refund Trust) were prepared for the purpose
of complying with the Rules and Regulations of the Securities and Exchange
Commission.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the operations and cash flows of InnSuites Hospitality
Trust (formerly Realty ReFund Trust) for the year ended January 31, 1998 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 13, 1998.
-20-
<PAGE>
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Hotel Properties, net $64,479,347 65,509,187
Cash and Cash Equivalents 208,109 420,935
Rent Receivable from Affiliate,
net of $2,845,732 and $900,000 allowance, respectively - 788,179
Interest Receivable and Other Assets 618,063 1,086,469
----------- ----------
TOTAL ASSETS $65,305,519 67,804,770
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage Notes Payable $24,251,662 23,161,052
Notes Payable to Banks 11,300,000 11,300,000
Other Notes Payable 225,000 450,000
Loans Payable to Related Parties 2,970,000 2,013,782
Accounts Payable and Accrued Expenses 1,138,168 2,188,709
----------- ----------
TOTAL LIABILITIES 39,884,830 39,113,543
MINORITY INTEREST IN PARTNERSHIP 16,789,423 21,111,192
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value; unlimited
authorization; 2,507,949 and 2,286,951 shares issued
and outstanding in 2000 and 1999, respectively 9,093,020 7,580,035
Treasury Stock (461,754) -
----------- ----------
TOTAL SHAREHOLDER'S EQUITY 8,631,266 7,580,035
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $65,305,519 67,804,770
=========== ==========
</TABLE>
Commitments and Contingencies (notes 14, 18 and 19)
See accompanying notes to
consolidated financial statements
-21-
<PAGE>
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rent revenue from affiliate $ 9,503,041 9,886,008 -
Rental revenue from real estate held for sale - - 1,367,366
Interest and other income 43,140 23,750 54,613
----------- ----------- ---------
TOTAL REVENUES: $ 9,546,181 9,909,758 1,421,979
----------- ----------- ---------
EXPENSES:
Real estate depreciation $ 2,546,381 2,196,797 -
Real estate, personal property taxes, insurance
and ground rent 1,421,646 1,221,255 -
General and administrative 4,247,063 2,748,623 -
Loss on sale of real estate - - 35,620
Loss on termination of advisory agreement - 780,746 -
Interest on mortgage notes payable 2,150,144 1,952,661 -
Interest on notes payable to bank 976,861 639,278 -
Interest on note payable to related party 213,563 204,145 118,082
Fees to related party investment advisor - 364,041 -
Legal expense to related party - 2,400 84,000
Operating expenses of real estate held for sale - - 1,379,389
Amortization of tenant improvements and
deferred leasing commissions - - 21,724
Other operating expenses - - 356,673
----------- ----------- ---------
TOTAL EXPENSES: 11,555,658 10,109,946 1,995,488
----------- ----------- ---------
LOSS BEFORE MINORITY INTEREST (2,009,477) (200,188) (573,509)
----------- ----------- ---------
LESS: MINORITY INTEREST (1,057,666) (7,117) -
----------- ----------- ---------
NET LOSS $ (951,811) (193,071) (573,509)
=========== =========== =========
NET LOSS PER SHARE - (Basic and diluted) $ (.40) (.10) (.56)
=========== =========== =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - (Basic and diluted) 2,376,770 1,921,902 1,022,359
CASH DIVIDENDS PER SHARE $ .02 $ .10 $ .15
=========== =========== =========
</TABLE>
See accompanying notes to
consolidated financial statements
-22-
<PAGE>
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
BALANCE, JANUARY 31, 1997 $3,251,220
Net loss (573,509)
Issuance of shares 3,074,348
Dividends (153,088)
----------
BALANCE, JANUARY 31, 1998 5,598,971
Debt converted to equity 2,646,690
Stock option plan 183,518
Net loss (193,071)
Dividends (166,781)
Reallocation of minority interest (489,292)
----------
BALANCE, JANUARY 31, 1999 7,580,035
Stock option plan 57,400
Net loss (951,811)
Dividends (52,889)
Purchase of treasury stock (461,754)
Reallocation of minority interest 2,460,285
----------
BALANCE, JANUARY 31, 2000 $8,631,266
==========
See accompanying notes to
consolidated financial statements
-23-
<PAGE>
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
2000 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (951,811) (193,071) (573,509)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Stock compensation expense 57,400 183,518 -
Non-cash portion of loss on termination of advisory agreement - 498,669 -
Provision for uncollectible rent receivable from affiliate 1,945,732 900,000
Minority interest (1,057,666) (7,117) -
Real estate depreciation 2,546,381 2,196,797 -
Amortization of tenant improvements and deferred
leasing commissions - - 21,724
Amortization of deferred loan fees 53,937 39,346
(Increase) in rent receivable from affiliate (1,157,553) (1,473,539) -
Decrease (increase) in interest receivable and other assets 414,469 (905,613) 263,280
(Decrease) in due to Lessee - (944,234) -
(Decrease) in accounts payable and accrued expenses (1,050,540) (1,136,115) (676,274)
------------ ----------- ----------
Net cash provided by (used in) operating activities 800,348 (841,359) (964,779)
------------ ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to hotel properties (1,516,543) (2,277,890) -
Acquisition of hotel - (1,448,000) -
Payment of transaction costs - - (334,854)
Proceeds from sale of real estate, net - - 5,599,122
------------ ----------- ----------
Net cash provided by (used in) investing activities (1,516,543) (3,725,890) 5,264,268
------------ ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (4,159,391) (19,388,537) -
Borrowings on mortgage notes payable 5,250,000 11,705,374 -
Payments on other notes payable (225,000) (218,000) -
Bank borrowings - 11,300,000 -
Bank repayments - (155,000) -
Payment of dividends (52,889) (166,781) (153,088)
Distributions to minority interest holders (264,969) (781,451) -
Repurchase of Partnership units (538,847) - -
Repurchase of treasury stock (461,754) - -
Advances from related parties 956,218 1,235,628 -
Principal payments on advances payable to related parties - (921,447) (2,300,000)
------------ ----------- ----------
Net cash provided by (used in) financing activities 503,368 2,609,786 (2,453,088)
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (212,826) (1,957,463) 1,846,401
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 420,935 2,378,398 531,997
------------ ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 208,109 420,935 2,378,398
============ =========== ==========
</TABLE>
See accompanying notes to
consolidated financial statements
-24-
<PAGE>
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the years ended JANUARY 31, 2000, 1999 AND 1998
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
InnSuites Hospitality Trust (the "Trust") is a Real Estate Investment Trust
("REIT"), which owns directly or indirectly, ten hotels with 1,665 suites in
Arizona and southern California. The hotels operate as InnSuites Hotels.
Until January 31, 1998, the Trust, formerly known as Realty ReFund Trust,
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, RRF Sub Corp., 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 (InnSuites Hotels Scottsdale). These seven hotels are collectively
referred to as the Initial Hotels. The Initial 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 (Base
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 and for the year ended January 31, 2000, the Trust's general partnership
interest in the Partnership was 44.9% and 39.4% (weighted average),
respectively.
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 January 31, 2000, a total of 2,072,392 Class A limited partnership
units were issued and outstanding. As of January 31, 2000, a total of 5,226,364
Class B limited partnership units were outstanding 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 outstanding at January 31, 2000 were to be
converted to shares of beneficial interest, the limited partners in the
Partnership would hold 2,072,392 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.
-25-
<PAGE>
BASIS OF PRESENTATION
As sole general partner of the Partnership, the Trust exercises unilateral
control over the Partnership. Therefore, the financial statements of the
Partnership are consolidated with the Trust. All significant intercompany
transactions and balances have been eliminated.
RECLASSIFICATIONS
Certain prior period amounts in the consolidated financial statements and notes
thereon have been reclassified to conform with current year presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
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
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
HOTEL PROPERTIES
Hotel properties are stated at cost and are depreciated using the straight-line
method over estimated lives ranging from 5 to 40 years for buildings and
improvements and 3 to 15 years for furniture and equipment.
The Trust applies Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" in accounting for its hotel properties.
In accounting for the acquisitions of the Hotels discussed in Note 1, purchase
accounting was applied. The historical carrying values of the assets and
liabilities of BPI were adjusted to their respective fair values based upon the
aggregate fair market value of shares of beneficial interest issued to acquire
the outstanding shares of BPI. The Trust's purchase of its 13.6% general
partnership interest in the Partnership and the Partnership's acquisition of
interests in the Hotels from third parties resulted in adjustments to the
historical net carrying values of such hotel properties in amounts equal to 34%
of the difference between the fair values and the historical net carrying values
of the respective hotel properties. The Partnership's acquisition of interests
in the Hotels other than BPI held by Wirth and his affiliates did not result in
purchase accounting adjustments to historical net carrying values as such
transactions were between entities under common control. Hotels purchased
subsequent to January 31, 1998 have been recorded at fair value.
CASH AND CASH EQUIVALENTS
The Trust considers all highly liquid short term investments with original
maturities of three months or less to be cash equivalents.
ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
Financial instruments, which potentially subject the Trust to credit risk,
primarily consist of rent receivable from the Lessee. The Trust periodically
assesses the collectibility of its receivables based on its evaluation of the
Lessee's estimated future cash flow available for payment. As a result, during
the fourth quarters of fiscal 2000 and 1999, the Trust recorded a $1.9 million
and a $900,000 charge to operations, respectively, as a provision for
uncollectible receivables which is reflected in the accompanying consolidated
statements of operations as a component of general and administrative expenses.
-26-
<PAGE>
REVENUE RECOGNITION
In May 1998, the Financial Accounting Standards Board's Emerging Issues Task
Force ("EITF") 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 July 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 Trust 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;
the Trust believes that eliminating annualization of hotel revenue will provide
for recognition of Percentage Rent more consistently with the generation of
revenue from the Hotels.
DIVIDEND AND DISTRIBUTIONS
The Trust expects to pay dividends which are largely dependent upon the receipt
of distributions from the Partnership.
STOCK-BASED COMPENSATION
The Trust accounts for its stock option plan in accordance with the provisions
of SFAS No. 123, "Accounting for Stock-based Compensation" (SFAS No. 123) which
permits entities to recognize as expense over the vesting period, the fair value
of all stock based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to apply the provision of APB Opinion No. 25 "Accounting for
Stock Issued to Employees and Related Operations" (APB 25) and provide pro-forma
net income and pro-forma earnings per share disclosures for employee stock
option grants as if the fair-value based method defined in SFAS No. 123 had been
applied. The Trust has elected to apply the provisions of APB 25.
INCOME TAXES
The Trust has elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code. If the Trust qualifies for taxation as a REIT, the
Trust generally will not be subject to Federal corporate income tax on that
portion of its net income that is currently distributed to shareholders.
Accordingly, no provision for income taxes has been included in the accompanying
consolidated financial statements. For federal income tax purposes, the cash
distributions paid to shareholders may be characterized as ordinary income,
return of capital or capital gains.
MINORITY INTEREST
The Trust accounts for Minority Interest in accordance with EITF number 94-2
"Treatment of Minority Interests in Certain Real Estate Investments" and EITF
number 95-7 "Implementation Issues Related to the Treatment of Minority Interest
in Certain Real Estate Investment Trusts."
Minority interest in the Partnership represents the limited partners'
proportionate share of the equity in the Partnership. Income or loss is
allocated to minority interest based on the weighted average limited partnership
percentage ownership throughout the period and equity is allocated based on the
ownership percentage at year-end. Any difference is recorded as a reallocation
of minority interest in Shareholder's Equity.
-27-
<PAGE>
LOSS PER SHARE
SFAS No. 128, "Earnings per Share" eliminates the concept of common stock
equivalents and replaces "primary" and "fully diluted" earnings per share with
"basic" and "diluted" earnings per share. Basic and diluted earnings per share
have been computed based on the weighted-average number of shares outstanding
during the periods.
For the fiscal year ended January 31, 2000 and 1999, there were Class A and
Class B partnership units outstanding, which are convertible to shares of
beneficial interest of the Trust. Assuming conversion, the aggregated weighted-
average of these shares of beneficial interest would be 7,604,166 in fiscal 2000
and 7,822,562 in fiscal 1999. These shares are anti-dilutive due to the loss for
fiscal years 2000 and 1999. For fiscal 1998 there were no dilutive or anti-
dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For disclosure purposes, fair value is determined by using available market
information and appropriate valuation methodologies. Due to their short
maturities, cash and cash equivalents and rent receivable from affiliate are
carried at amounts that reasonably approximate fair value.
The fair value mortgage notes payable, notes payable to banks, other note
payables and advances to related parties is estimated by discounting the future
cash flows using the current rates which would be available for similar loans
having the same remaining maturities.
3. HOTEL PROPERTIES
Hotel properties as of January 31, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Land $ 5,685,590 5,685,590
Building and improvements 55,027,116 54,331,878
Furniture and equipment 8,457,257 7,688,516
----------- -----------
Total hotel properties 69,169,963 67,705,984
Less accumulated depreciation 4,736,061 2,196,797
----------- -----------
Hotel properties (net) $64,433,902 65,509,187
=========== ===========
Seven of the hotels are located in Arizona and three of the hotels are located
in California. All hotels are subject to Percentage Leases as described in Note
12.
4. ACQUISITIONS
There were no hotel acquisitions during fiscal 2000.
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 Hotels Buena Park for $7,100,000. The Partnership assumed $4,116,754
in mortgage debt and other obligations and issued 627,377 limited partnership
units to Wirth and Steve S. Robson (of which 13,034 units were subsequently paid
to a third
-28-
<PAGE>
party as an advisory fee), who each held a 50% equity ownership interest in the
Buena Park hotel. Mr. Robson is a Trustee of the Trust. Wirth and his affiliates
also received an additional 53,681 Class B limited partnership units as payment
for debt owed to Wirth and his affiliates at time of acquisition.
All of the aforementioned acquisitions have been accounted for as purchases.
5. ALLOWANCE FOR UNCOLLECTIBLE RENT RECEIVABLE
At January 31, 2000, the Trust had an accumulated allowance for uncollectible
rents receivable from the Lessee totaling approximately $2.8 million. After
review of the estimated cash flow projections for fiscal year 2001 and actual
fiscal year 2000 cash flows, management recorded a provision for uncollectible
rent receivable in the amounts of approximately $1.9 million and $900,000 for
the twelve months ended January 31, 2000 and 1999, respectively. The following
reconciles the allowance account for uncollectible rent receivable from the
Lessee:
As of and for the years ended January 31, 2000, 1999 and 1998
Allowance for Uncollectible Rent Receivable
--------------------------------------------
Balance as of January 31, 1998 $ -
Provision 900,000
----------
Balance as of January 31, 1999 900,000
Provision 1,945,732
----------
Balance as of January 31, 2000 $2,845,732
==========
6. MORTGAGE NOTES PAYABLE
At January 31, 2000, the Trust had mortgage notes payable outstanding with
respect to seven of the Hotels. The mortgage notes payable have various
repayment terms and have scheduled maturity dates ranging from April 28, 2001 to
April 1, 2014. Weighted average interest rates on the mortgage notes for the
years ended January 31, 2000 and 1999 was 8.49% and 8.9%, respectively. At
January 31, 2000, all of the Hotels were in compliance with their respective
debt covenants.
On November 3, 1999, The Trust refinanced its mortgage note on the San Diego
property. The principal amount of the new loan is $4,000,000 with an interest
rate of 9.0%. The loan matures on November 4, 2004. A special condition limits
the initial amount to be funded at closing to $3,500,000. The Partnership must
submit a 12-month trailing operating statement for the San Diego property no
earlier than May 1, 2000 and no later than June 1, 2000. Financial covenants
require (as defined in the agreement) debt coverage ratio of no less than 1.2.
In the event of noncompliance, the lenders commitment to fund the additional
$500,000 will become null and void. As of January 31, 2000, the Trust was in
compliance with its financial covenants. Subsequently, on May 2, 2000, the
lender funded the additional $500,000.
On March 30, 1999, the Trust modified and extended the mortgage agreement on its
Northern Phoenix property. The Partnership borrowed an additional $1,750,000 at
8.25% that matures on April 1, 2014. The original note was restructured to match
the terms of the new note. The maturity date of the original note was extended
from April 1, 2007 to April 1, 2014.
-29-
<PAGE>
A portion of the mortgage notes payable are guaranteed by Wirth and certain of
his affiliates. The net book value of properties securing the mortgage notes
payable at January 31, 2000 and 1999 was $48,581,869 and $49,258,778
respectively. See footnote 10 for scheduled minimum payments.
7. NOTES PAYABLE TO BANKS
During the first quarter of fiscal 1999, the Trust established a $12,000,000
revolving line of credit with Pacific Century Bank. The credit facility
requires the Trust, among other things, to maintain a minimum net worth, a
specified coverage ratio of earnings before interest, taxes, depreciation, and
amortization (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. At January 31, 2000, the Trust was not in compliance with certain debt
covenant requirements associated with the line of credit; however, the Trust
obtained a waiver from the lender indicating that the debt would not be called
as a result of defaults occurring through January 31, 2000. Subsequent to
January 31, 2000, the Trust negotiated a change in the covenant covering "Debt
to Tangible Net Worth" from 1.5 to 1.75. As a result, the Trust is in compliance
with all covenants subsequent to January 31, 2000.
In accordance with the line of credit agreement, the Trust may choose interest
rates based on: 1) Base Rate, as defined plus .5 basis points; 2) Treasury Bill
Rate plus 2.75 basis points; or 3) London Interbank Offering Rate ("LIBOR") plus
2.75 basis points and requires quarterly interest-only payments. The line of
credit is secured by the Scottsdale, Flagstaff, and Tucson Oracle hotel
properties. The net book value of properties securing the line of credit totaled
approximately $15.9 million at January 31, 2000 and approximately $16.3 million
at January 31, 1999. Borrowings under this line of credit at January 31, 2000
amounted to $11,300,000. Interest is based on LIBOR plus 2.75 basis points
(9.04% and 7.59% at January 31, 2000 and 1999 respectively). The total principal
balance is due April 16, 2001.
8. OTHER NOTES PAYABLE
In connection with the termination of an advisory agreement between the
Partnership and Mid-America ReaFund Advisors, Inc. (the "Advisor"), as further
described at Note 14, the Trust assumed the Advisor's outstanding debt totaling
$450,000. The note bears interest at 7% and matures January 30, 2000. The Trust
paid the final principal payment and all interest due on February 11, 2000.
9. LOANS PAYABLE TO RELATED PARTIES
Loans payable to related parties consists of funds provided by James F. Wirth
to repurchase Partnership units and to fund working capital and capital
improvement needs. The aggregate amounts outstanding were approximately $3.0
million and $2.0 million as of January 31, 2000 and 1999, respectively. The
loans payable to related party are as follows:
Wirth made an unsecured loan to the Trust in the amount 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.
-30-
<PAGE>
Wirth made an unsecured loan to the Trust in the amount 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 in the amount 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 in the amount 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 in the amount 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 in the amount 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.
InnSuites Innternational Hotels made an unsecured loan in the amount of
$120,000 to the Trust bearing no stated interest rate or maturity date on
January 12, 2000. Subsequently on March 8, 2000, the loan was paid in full.
10. MINIMUM DEBT PAYMENTS
Scheduled minimum payments of debt as of January 31, 2000 are as follows:
FISCAL YEAR ENDED AMOUNT(1)
----------------- ---------
2001 $ 1,476,479
2002 15,949,862
2003 815,877
2004 890,899
2005 9,187,440
Thereafter 10,081,103
-----------
$38,401,660
===========
(1) Approximately $345,000 of debt was repaid by February 11, 2000 and is not
included in the aforementioned summary.
11. DESCRIPTION OF CAPITAL STOCK
Holders of the Trust's shares of beneficial interest are entitled to receive
dividends when, and if declared by the Board of Trustees of the Trust out of
funds legally available therefore. The holders of shares of beneficial interest,
upon any liquidation, dissolution or winding-up of the Trust, are entitled to
share ratably in any assets remaining after payment in full of all liabilities
of the Trust. The shares of beneficial interest possess ordinary voting rights,
each share entitling the holder thereof to one vote. Holders of shares of
beneficial interest do not have cumulative voting rights in the election of
directors and do not have preemptive rights.
For the year ended January 31, 2000, the Trust repurchased 189,500 shares of
beneficial interest at an average price of $2.44 per share. Repurchase of these
shares are accounted for on the Treasury Stock Method and are reported as such
in the Statement of Shareholder's Equity.
-31-
<PAGE>
12. PERCENTAGE LEASE AGREEMENTS
Effective August 1, 1998, the Trust 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
are subject to annual adjustments beginning 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 each of the next five years and
in total thereafter are as follows:
2001 $ 6,850,000
2002 6,850,000
2003 6,850,000
2004 6,850,000
2005 6,850,000
Thereafter 20,550,000
-----------
$54,800,000
===========
The Trust earned approximately $9.5 million and $9.9 million in rent revenue
during fiscal 2000 and 1999, respectively, of which approximately $2.7 million
and $3.3 million respectively, was in excess of base rent. No percentage rent
was earned in fiscal 1998 from the Hotels.
13. FEDERAL INCOME TAXES
No provision for current or deferred income taxes has been made by the Trust.
The Trust has elected to be a REIT and is therefore subject to the requirements
of Sections 856 to 860 of the Internal Revenue Code, all of the requirements of
which management believes have been met for the years ended January 31, 2000 and
1999. As a REIT, the Trust normally distributes 95% of its taxable income to its
shareholders. For the years ended January 31, 2000 and 1999, the Trust had a
taxable income (loss) of approximately ($850,000) and ($1,164,000),
respectively, before consideration of net operating loss carry forwards. In
fiscal years 2000 and 1999, the primary difference between book loss and taxable
income relates to excess book depreciation over tax depreciation.
The total dividends per share applicable to operating results for the years
ended January 31, 2000, 1999 and 1998, amounted to $0.02 per share, $0.10 per
share and $0.15 per share, respectively.
The Trust has an income tax net operating loss of approximately $15.4 million.
Net operating loss carryforwards expire beginning in fiscal 2008 and ending in
fiscal 2020. The quarterly allocation of cash dividends paid per share and the
characterization of dividends as either ordinary income or return of capital for
individual shareholders' income tax purposes were as follows:
-32-
<PAGE>
<TABLE>
<CAPTION>
CALENDAR 1999 CALENDAR 1998 CALENDAR 1997
------------- ------------- -------------
Ordinary Return Total Ordinary Return Total Ordinary Return Total
Month Paid Income of Capital Paid Income of Capital Paid Income of Capital Paid
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March - - - - .10 .10
June - - - - .05 .05
September - .10 .10 - - -
October $.01 .01 - - - - - -
--- --- --- --- --- --- --- --- ---
$.01 .01 - .10 .10 - .15 .15
=== === === === === === === === ===
</TABLE>
The tax status of distributions to shareholders in calendar 2000 will be
dependent on the level of the Trust's earnings in that year. If current and
accumulated earnings and profits of the Trust exceed dividends paid in calendar
2000, such dividends will represent ordinary income to the recipients
irrespective of the net operating loss carryforward. If certain changes in the
Trust's ownership should occur, there could be an annual limitation on the
amount of carryforwards that can be utilized, which could potentially impair the
ability to utilize the full amount of the carryforwards.
14. ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS
On January 31, 1998, Wirth and his spouse purchased the stock of the Advisor
which provided the administration of the day-to-day investment operations of the
Trust and the Partnership. The Advisor was formerly owned by the former Chairman
and President of the Trust. Under the terms of an advisory agreement between the
Partnership and the Advisor, the Advisor received, subject to certain
limitations, a monthly fee equal to 1/12 of 1% of invested assets, as defined in
the advisory agreement, and an annual incentive fee equal to (a) 10% of the
amount by which the net income of the Partnership exceeded 8% of the average net
worth for the year and (b) 10% of any net realized capital gains less
accumulated net realized capital losses, as defined. For any fiscal year in
which operating expenses of the Partnership exceeded certain thresholds
specified in the advisory agreement, the Advisor was required to refund to the
Partnership the amount of such excess. There was no fee to the Advisor during
fiscal year 1998 due to the reduction in the Trust's investment in mortgage
loans. During fiscal 1999, the Advisor received approximately $364,000 in fees.
Effective January 1, 1999, the Partnership terminated its agreement with the
Advisor in exchange for the Trust's assumption of $450,000 of outstanding notes,
the issuance of 67,000 Class B limited partnership units valued at $2 per unit
and the forgiveness of $85,331 in net liabilities. As a result, the Trust
recorded a net $498,669 charge to operations resulting from $780,746 loss on
termination of advisory agreement offset by $282,077 of forgiven fees to related
party investment advisor.
Wirth has an employment agreement with the Trust which expires in December 2007.
The employment agreement provides that Wirth received no compensation from the
Trust as long as the advisory agreement was in effect. However, pursuant to the
terms of the employment agreement, since the Advisor no longer provides services
to the Partnership or the Trust, Wirth will be compensated at an amount up to
the same annual basis as the Advisor would have been compensated under the terms
of the advisory agreement had it remained in effect. Wirth is currently being
compensated, however, at a lesser rate of $130,000 a year.
Certain employment agreements with the former Chairman and President of the
Trust were terminated at January 30, 1998.
15. OTHER RELATED PARTY TRANSACTIONS
The Partnership is responsible for all expenses incurred by the Trust in
accordance with the Partnership Agreement.
-33-
<PAGE>
Wirth is a 9.8% indirect shareholder of the Lessee. At January 31, 2000 the
Trust had a $155,000 receivable from the Lessee.
The Initial Hotels were acquired by the Partnership from entities in which Wirth
and his affiliates had substantial ownership interests. Wirth and his affiliates
received 4,017,361 Class B limited partnership units and 647,231 shares of
beneficial interest in the Trust in exchange for their interests in the Initial
Hotels. As of January 31, 2000 and 1999 Wirth and his affiliates held 5,226,364
and 5,246,364 Class B limited partnership units, respectively. As of January 31,
2000 and 1999 Wirth and his affiliates held 834,613 and 777,663, respectively,
shares of beneficial interest in the Trust.
At January 31, 2000, the Trust owned a 44.9% interest in the ten hotels (the
"Hotels") through its sole general partner's interest in the Partnership. This
change in ownership resulted primarily 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 fully funded
by Mr. Wirth who provided an unsecured loan to the Trust 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 in
the amount of $2.6 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 $1.8 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, at historical cost of
approximately $7 million, its interest in the Scottsdale property to the
Partnership in exchange for 1.6 million general partner units.
The Trust repurchased 131,493 of the Partnership's Class A units in fiscal
2000 at a weighted average price per unit of $4.10. The units were then
retired. No Partnership units were repurchased in fiscal 1999.
The Trust recorded expenses of approximately $17,000, $2,400, and $84,000 in
fiscal years 2000, 1999 and 1998, respectively, for legal services provided by a
law firm of which the former President of the Trust and another former Trustee
are principals.
The Trust paid interest on related party notes to James Wirth in the amounts of
$14,000 and $135,000 for the twelve months ended January 31, 2000 and 1999,
respectively.
The expenses of the Trust consist primarily of property taxes, insurance,
corporate overhead, interest on mortgage debt and depreciation of the Hotels.
Under the terms of the Partnership agreement, the Partnership is required to
reimburse the Trust for all such expenses.
-34-
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Trust's significant financial
instruments at January 31, 2000, 1999 and 1998 are as follows:
2000 1999
----------- ----------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------- ---------- ----------
Mortgage notes payable $24,251,662 22,523,421 23,161,052 23,279,651
Notes payable to banks 11,300,000 11,300,000 11,300,000 11,300,000
Other notes payable 225,000 225,000 450,000 450,000
Loans payable to
related parties $ 2,970,000 * 2,013,782 2,013,782
* It is not practical to estimate the fair value of related party payables.
17. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid amounted to approximately $3.4 million, $2.4 million, and $118,000
for fiscal years 2000, 1999 and 1998, respectively.
The Trust satisfied its approximately $2.6 million participating mortgage
obligation related to the Ontario hotel through the issuance of 423,687 shares
of beneficial interest to former partners of Ontario Hospitality Properties
Limited Partnership and 133,492 Class B limited partnership units in the
Partnership to Wirth and his affiliates for their respective interests in fiscal
1999.
During the second quarter of fiscal 1999, several non-exchanging partners from
the formation exchange offer exchanged their interests in the hotels for
interests in the Partnership. The fair value in excess of the historical net
carrying values of the respective hotels resulted in a write-up of approximately
$1.0 million.
In connection with the acquisition of the Buena Park hotel during the second
quarter of fiscal 1999, approximately $4.5 million of historical net book value
in hotel properties was contributed to the Partnership in exchange for
partnership units and the Partnership assumed approximately $4.1 million of debt
and other obligations.
In connection with the acquisition of the San Diego hotel, approximately
$3.7 million of the purchase price was satisfied through promissory notes
payable to the sellers.
As of January 31, 1998, the Trust acquired all of the outstanding shares of BPI
in exchange for 647,231 shares of beneficial interest having an aggregate value
of approximately $3.1 million.
In connection with the formation of the Partnership as of January 31, 1998,
approximately $24.9 million of historical net book value in hotel properties was
contributed to the Partnership in exchange for Partnership units and the
Partnership assumed approximately $16.8 million of debt.
18. COMMITMENTS AND CONTINGENCIES
One of the Hotels is subject to a non-cancelable ground lease expiring December
31, 2051. Total expense for the fiscal years ended January 31, 2000 and 1999 was
$70,000 each year plus a variable component that totaled approximately $67,000,
and $77,000 respectively.
-35-
<PAGE>
Future minimum lease payments are as follows:
Fiscal Year Ended
2001 75,000
2002 75,000
2003 75,000
2004 75,000
2005 75,000
Thereafter 3,680,000
----------
$4,055,000
==========
The Trust is obligated to make funds available to the Hotels for capital
expenditures (the Reserve Funds), as determined in accordance with the
Percentage Leases. The Reserve Funds have not been recorded on the books and
records of the Trust as such amounts are capitalized as incurred. The amount
obligated under the Reserve Funds are 4% of the individual Hotel's total
revenues.
The nature of the operations of the Hotels exposes them to risks of claims and
litigation in the normal course of their business. Although the outcome of these
matters cannot be determined, management does not expect that the ultimate
resolution of these matters will have a material adverse effect on the financial
position, operations or liquidity of the Hotels.
The Trust is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Trust's consolidated financial position, results of operations or liquidity.
19. STOCK OPTION PLAN
During fiscal 1999, the shareholders of the Trust adopted the 1997 Stock
Incentive and Option Plan (the "Plan") at the annual shareholder meeting.
Pursuant to the Plan, the Compensation Committee may grant options to the
Trustees, Trust Officers, other key employees, consultants, advisors, and
similar employees of the Trust's subsidiaries and affiliates. The number of
options that may be granted is limited to 10% of the total Common Stock and
Units (Class A and Class B) as of the first day of such year.
Generally, options granted expire in 10 years, are exercisable during the
optionee's lifetime only by the recipient and are non-transferable. Unexercised
options held by employees of the Trust generally terminate on the date the
individual ceases to an employee of the Trust.
The per share weighted average fair value of stock options granted under the
Plan for the years ended January 31, 2000 and 1999 was $1.12 and $1.26,
respectively, using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2000 and 1999:
Years ended January 31,
2000 1999
---- ----
Dividend yield 2.5% -
Expected volatility 34.0% 37.5%
Risk-free interest rate 5.7% 5.0%
Expected lives 3 years 2.5 years
-36-
<PAGE>
At January 31, 2000, the exercise price and weighted average remaining
contractual life of options was $2.50 and 9 years, respectively.
The following table summarizes the stock option activity during the 2000 and
1999 fiscal years and provides information about the stock options outstanding
at January 31, 2000:
Weighted-
Average
Number Of Options Exercise Price
----------------- --------------
Stock Option Activity
Outstanding, January 31, 1998 - $ -
Granted 405,000 4.31
Forfeited (15,300) 4.31
Exercised - -
----------------- --------------
Outstanding, January 31, 1999 390,100 $ 4.31
Granted 88,200 2.50
Forfeited (102,300) 3.83
Exercised - -
----------------- --------------
Outstanding, January 31, 2000 375,600 $ 2.50
================= ==============
Stock Option Information January 31, 2000
- --------------------------------------------------------------------------------
Options exercisable 97,000
Weighted Average Exercise Price $ 2.50
For stock options granted to non-employees of the Trust, compensation is
recognized over the respective vesting period based upon the fair value of the
options as calculated using the Black-Scholes pricing model. During the years
ended January 31, 2000 and 1999, the Trust granted 28,200 and 214,100 stock
options to non-employees, respectively, resulting in the recognition of
compensation expense of approximately $57,000 and $184,000 during the respective
years.
The Trust applies APB Opinion No. 25 in accounting for stock options granted its
employees under the plan and, accordingly, no compensation cost has been
recognized for these stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro-forma amount indicated below:
Years ended January 31,
-----------------------
2000 1999
---- ----
Net loss:
As reported $ (951,811) $(193,071)
=========== =========
Pro forma $(1,058,408) $(293,468)
=========== =========
Net loss per share - basic and diluted:
As reported $ (0.40) $ (0.10)
=========== =========
Pro forma $ (0.45) $ (0.15)
=========== =========
Effective September 14, 1999, the Trust modified all outstanding stock options,
reducing the exercise price from the existing exercise price per share to $2.50,
to be consistent with the trading value of underlying beneficial interest as of
this date. As a result of the modification of exercise price, the Trust
recognized approximately $10,000 compensation expense for the year ended
January 31, 2000.
-37-
<PAGE>
20. NET LOSS PER SHARE
The Trust calculates basic and diluted net income (loss) per share in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." Basic net income (loss) per share is computed using the
weighted average number of common shares outstanding during each period
(2,376,770, 1,921,902 and 1,022,359 shares for the years ended January 31, 2000,
1999, and 1998, respectively). Diluted net loss per share is the same as basic
net loss per share for the years ended January 31, 2000, 1999 and 1998 due to
the antidilutive effect of potentially dilutive securities on loss from
continuing operations.
Potentially dilutive securities excluded from diluted loss per share totaled
7,608,321, 7,753,890 and 0 for the years ended January 31, 2000, 1999 and 1998,
respectively. Had these securities been dilutive, loss per share would have been
$(0.20), $(0.05) and no effect, respectively.
21. QUARTERLY RESULTS (UNAUDITED)
The following is an unaudited summary of the results of operations, by quarter,
for the fiscal years ended January 31, 2000 and 1999. Management believes
that all adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of such interim results have been included. The results of
operations for any interim period are not necessarily indicative of those for
the entire fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
FISCAL 2000 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
- ----------- -------- ------- ---------- ----------
(As restated) (As restated)
<S> <C> <C> <C> <C>
Total revenues $3,284,978 2,102,983 2,037,540 2,120,679
========== ========= ========= =========
Total revenues less interest
expense on mortgage loans
and operating expenses,
and amortization expense of
real estate held for sale $2,527,452 653,656 1,278,142 1,769,061
========== ========= ========= =========
Net income (loss) $ 379,307 (295,821) (98,975) (936,322)
========== ========= ========= =========
Income (loss) per share - basic $ .16 (.13) (.04) (.39)
========== ========= ========= =========
Income (loss) per share - diluted $ .10 (.13) (.04) (.39)
========== ========= ========= =========
Dividends declared per share $ - - .01 .01
========== ========= ========= =========
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
FISCAL 1999 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
- ----------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues $3,782,584 2,021,597 2,936,504 1,169,073
========== ========= ========= =========
Total revenues less interest
expense on mortgage loans
and operating expenses,
and amortization expense of
real estate held for sale $3,154,072 1,565,900 2,483,259 761,986
========== ========= ========= =========
Net income (loss) $ 435,169 (99,816) 45,425 (573,849)
========== ========= ========= =========
Income (loss) per share -
basic and diluted $ .26 (.06) .02 (.27)
========== ========= ========= =========
Dividends declared per share $ - - .10 -
========== ========= ========= =========
</TABLE>
-39-
<PAGE>
SCHEDULE III
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
Cost
Initial Capitalized Gross Amounts at
Cost Subsequent to Which Carried at
to Trust Acquisition Close of Period
--------------------------- ------------------------ ---------------------------
Buildings and Building and Buildings and
Encumbrances Land Improvements Land Improvements Land Improvements
------------ ------------ ------------- ---------- ------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
InnSuites Hotels
Phoenix Best Western
Phoenix, Arizona $ 4,270,812 $ 418,219 $ 2,922,884 $ - $ 106,958 $ 418,219 $ 3,029,842
InnSuites Hotels
Tempe/Phoenix
Airport/South
Mountain
Tempe, Arizona 2,359,386 686,806 6,548,348 - 151,099 686,806 6,699,447
InnSuites Hotels Tucson,
Catalina Foothills Best
Western Tucson, Arizona (B) - - 4,220,820 - 1,754,059 - 5,974,879
InnSuites Hotels Yuma Best
Western
Yuma, Arizona 3,489,758 251,649 4,983,292 - 677,202 251,649 5,660,494
Holiday Inn Airport
Ontario Hotel and Suites
Ontario, California 3,472,198 1,633,064 5,450,872 - 209,116 1,633,064 5,659,988
InnSuites Hotels
Flagstaff/Grand Canyon
Flagstaff, Arizona (B) - 100,000 1,194,691 - 1,013,802 100,000 2,208,493
InnSuites Hotels
Tucson St. Mary's
Tucson, Arizona 3,846,625 900,000 9,166,549 - 308,843 900,000 9,475,392
Buena Park Suite
Hospitality
Buena Park Suites
Buena Park, California 3,323,115 645,852 4,336,476 - 1,658,768 645,852 5,995,244
InnSuites Hotels
San Diego Hospitality
San Diego, California 3,489,768 700,000 3,972,785 - 151,053 700,000 4,123,838
InnSuites Hotels
Scottsdale/
El Dorado Park Resort
Scottsdale, Arizona (B) - 350,000 6,074,400 - 125,099 350,000 6,199,499
----------- ------------ ----------- ----------- ------------ ------------- ------------
$24,251,662 $ 5,685,590 $48,871,117 $ - $ 6,155,999 $ 5,685,590 $ 55,027,116
=========== ============ =========== =========== ============ ============= ============
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III (continued)
Net
Book Value
Land and Depreciation
Buildings in Income
Total Accumulated and Date of Date of Statement is
(A) Depreciation Improvements Construction Acquisition Computed
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
InnSuites Hotels
Phoenix Best Western
Phoenix, Arizona $ 3,448,061 $ 150,293 $ 3,297,768 1980 1998 5-40 years
InnSuites Hotels
Tempe/Phoenix
Airport/South
Mountain
Tempe, Arizona 7,386,253 333,466 7,052,787 1982 1998 5-40 years
InnSuites Hotels Tucson,
Catalina Foothills Best
Western Tucson, Arizona (B) 5,974,879 297,526 5,677,353 1981 1998 5-40 years
InnSuites Hotels Yuma Best
Western
Yuma, Arizona 5,912,143 277,932 5,634,211 1982 1998 5-40 years
Holiday Inn Airport
Ontario Hotel and Suites
Ontario, California 7,293,052 276,828 7,016,224 1990 1998 5-40 years
InnSuites Hotels
Flagstaff/Grand Canyon
Flagstaff, Arizona (B) 2,308,493 104,725 2,203,768 1966 1998 5-40 years
InnSuites Hotels
Tucson St. Mary's
Tucson, Arizona 10,375,392 458,840 9,916,552 1960 1998 5-40 years
Buena Park Suite Hospitality
Buena Park Suites
Buena Park, California 6,641,096 239,677 6,401,419 1972 1998 5-40 years
InnSuites Hotels
San Diego Hospitality
San Diego, California 4,823,838 178,891 4,644,947 1946 1998 5-40 years
InnSuites Hotels Scottsdale/
El Dorado Park Resort
Scottsdale, Arizona (B) 6,549,499 307,396 6,242,103 1980 1998 5-40 years
-------------------------------------------
$60,712,706 $2,625,574 $58,087,132
=========== ========== ===========
</TABLE>
(See accompanying independent auditors report.)
(A) Aggregate cost for federal income tax purposes at January 31, 2000 is as
follows:
Land $ 5,566,892
Buildings and improvements 21,980,332
-----------
$27,547,224
===========
(B) These properties secure the $12 million Trust and Partnership line of
credit.
Reconciliation of Real Estate:
Balance at January 31, 1998 $ 34,835,043
Acquisition of hotel properties 23,923,131
Improvement to hotel properties 1,259,294
--------------
Balance at January 31, 1999 $ 60,017,468
Improvement to Hotel Properties 695,238
--------------
Balance at January 31, 2000 $ 60,712,706
==============
All acquisitions of hotel properties, other than approximately $1,448,000 in
cash paid in connection with the purchase of the Buena Park Property, were
acquired through the exchange of limited partnership units in the Partnership.
-41-
<PAGE>
Reconciliation of Accumulated Depreciation:
Balance at January 31, 1998 $ -
Depreciation 1,306,786
----------
Balance at January 31, 1999 $1,306,786
Depreciation 1,368,788
----------
Balance at January 31, 2000 $2,675,574
==========
-42-
<PAGE>
Independent Auditors' Report
The Board of Directors
InnSuites Hotels, Inc.:
We have audited the accompanying balance sheet of InnSuites Hotels, Inc. (the
"Company") as of January 31, 2000, and the related statement of operations,
stockholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InnSuites Hotels, Inc. as of
January 31, 2000, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Phoenix, Arizona
May 5, 2000
-43-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
The Board of Directors
InnSuites Hotels, Inc:
We have audited the accompanying balance sheet of InnSuites Hotels, Inc., as of
January 31, 1999, and the related statements of operations and stockholders'
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InnSuites Hotels, Inc., as of
January 31, 1999, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Phoenix, Arizona MICHAEL MAASTRICHT, CPA
April 14, 2000
-44-
<PAGE>
INNSUITES HOTELS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
As of January 31,
-------------------
2000 1999
----------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 203,166 436,179
Accounts receivable 790,323 667,081
Prepaid and other assets 41,938 120,555
----------- ----------
Total Assets $1,035,427 1,223,815
=========== ==========
Liabilities and Stockholders' Deficit
Liabilities
Accounts payable $1,418,469 1,199,245
Loans from affiliates 375,000 136,448
Percentage rent payable 2,845,732 1,688,178
Accrued expenses and other liabilities 865,953 805,903
----------- ----------
Total Liabilities 5,505,154 3,829,774
Stockholders' Deficit
Preferred stock, $1 par value, 100 shares authorized,
100 shares issued and outstanding as of January 31, 2000 and 1999 100 100
Additional paid-in capital 249,900 249,900
Common stock, no par value, 100,000 shares authorized,
76,555 shares issued and outstanding as of January 31, 2000 and 1999 2,431 2,431
Accumulated Deficit (4,722,158) (2,858,390)
----------- ----------
Total Stockholders' Deficit (4,469,727) (2,605,959)
----------- ----------
Total Liabilities and Stockholders' Deficit $ 1,035,427 1,223,815
=========== ==========
</TABLE>
See accompanying notes to financial statements.
-45-
<PAGE>
INNSUITES HOTELS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the twelve months ended January 31,
2000 1999
----------- ----------
<S> <C> <C>
Revenue from hotel operations:
Room $25,146,035 24,341,384
Food and beverage 1,725,730 1,613,766
Telecommunications 346,091 460,770
Other 124,079 291,281
----------- -----------
Total revenues $27,341,935 26,707,201
----------- -----------
Department expenses:
Rooms $ 6,706,503 7,787,234
Food and beverage 1,626,532 1,409,010
Telecommunications 389,664 495,566
Other 877,676 138,468
General and administrative 2,867,806 3,975,266
Sales and marketing 2,149,781 2,082,812
Repairs and maintenance 2,025,576 1,344,715
Hospitality 1,546,766 1,202,005
Utilities 1,643,788 1,572,819
Insurance 105,573 62,437
Percentage rent 9,516,038 9,976,880
----------- -----------
Total expenses $29,455,703 30,047,212
----------- -----------
Net loss $(2,113,768) (3,340,011)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-46-
<PAGE>
INNSUITES HOTELS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the years ended January 31, 2000 and 1999
<TABLE>
<CAPTION>
RETAINED COMBINED
PREFERRED COMMON EARNINGS EQUITY
STOCK STOCK (ACCUMULATED DEFICIT) (ACCUMULATED DEFICIT)
--------- ------ --------------------- ---------------------
<S> <C> <C> <C> <C>
BALANCE, January 31, 1998 $250,000 $2,431 $ 1,621 $ 254,052
Contributions -- -- 480,000 480,000
Net loss -- -- (3,340,011) (3,340,011)
-------- ------ ----------- -----------
BALANCE, January 31, 1999 $250,000 $2,431 $(2,858,390) $(2,605,959)
-------- ------ ----------- -----------
Contributions -- -- 250,000 250,000
Net loss -- -- (2,133,768) (2,113,768)
-------- ----- ---------- ----------
BALANCE, January 31, 2000 $250,000 $2,431 $(4,722,158) $(4,469,727)
======== ====== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-47-
<PAGE>
INNSUITES HOTELS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the twelve months ended January 31,
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,113,768) (3,340,011)
Adjustments to reconcile net loss to net cash
used in operating activities:
(Increase) decrease in Accounts receivable (123,242) 142,978
Decrease in Inventories - 493,648
Decrease in Due from affiliates 599,520
Decrease in Other assets 78,617 39,760
Increase in Accounts payable 219,224 229,067
Increase (decrease) in Accrued expenses
and other liabilities 60,050 (6,936)
Increase in Percentage rent payable 1,157,554 1,688,178
----------- ----------
Net cash (used in) operating activities $ (721,565) (153,796)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of loans from affiliates 238,552 (212,120)
Contributions 250,000 480,000
----------- ----------
Net cash provided by financing activities $ 488,552 267,880
----------- ----------
Net change in cash and cash equivalents (233,013) 114,084
Cash and cash equivalents at beginning of year 436,179 322,095
----------- ----------
Cash and cash equivalents at end of year $ 203,166 436,179
=========== ==========
</TABLE>
See accompanying notes to financial statements.
-48-
<PAGE>
INNSUITES HOTELS, INC.
Notes to Financial Statements
As of and for the years-ended
January 31, 2000 and 1999
1. Organization & Basis of Presentation:
InnSuites Hotels, Inc., (the "Company") leases and operates hotels owned by
RRF Limited Partnership (the "Partnership"). The Partnership is owned by
several Limited Partners and a General Partner, InnSuites Hospitality
Trust(the "Trust"). The Trust is an unincorporated Ohio real estate investment
trust (the "REIT") which agreed to acquire equity interests in several
existing hotel properties on January 31, 1998 and to consider selectively the
purchase or development of additional hotels in the expansion of its business.
The Trust acquired its General Partner interest, representing a 13.6% equity
interest in the Partnership as of January 31, 1998. The partners and
shareholders of the original InnSuites Hotels, contributed their respective
partnership and corporate interests to the Partnership in exchange for cash,
partnership interests or REIT Common stock on January 31, 1998.
The following full-service hotels are leased and operated by the Company:
Property Location Number of Suites
------------------------------------- -------------- ----------------
InnSuites Tempe/Airport Tempe, AZ 170
InnSuites Scottsdale Scottsdale, AZ 134
InnSuites Flagstaff Grand Canyon Flagstaff, AZ 134
InnSuites Phoenix Best Western Phoenix, AZ 123
InnSuites Tucson Best Western Tucson, AZ 159
InnSuites Yuma Best Western Yuma, AZ 166
Holiday Inn Airport InnSuites Ontario Ontario, CA 150
InnSuites Tucson St. Mary's Tucson, AZ 297
InnSuites San Diego San Diego, CA 147
InnSuites Buena Park Buena Park, CA 185
-----
Total Suites 1,665
=====
The Company leases these 10 hotels pursuant to individual operating leases
which are structured on a hotel-by-hotel basis. The lessors of these leases
are subsidiaries of the Partnership (the "Lessors"). In accordance with the
lessor/lessee relationship, the operating hotels are required to make
percentage lease payments to the Lessors based on a percentage of hotel room
revenues. The amount of the lease payments is calculated on an individual
hotel basis and is governed by an executed lease agreement which details the
method of lease payment calculation. The calculation to determine each hotel
percentage lease payment is based on quarterly hotel revenues.
All of the hotels offer studio and two-room suites with a variety of room
upgrades available, such as the two-room "Executive/Family Suite", the
"Boardroom Meeting Suite" or a "Presidential Jacuzzi Suite." In addition, the
hotels operate as moderate and full-service hotels near premier vacation areas
such as the Grand Canyon and DisneyLand along with other attractions and
business centers.
In the current year, the Company changed its accounting period from a calendar
year basis to a fiscal year-ended January 31. Therefore, the financial
statements presented for comparative purposes are presented as of and for the
12 month periods ending January 31, 2000 and 1999. The Company did not exist
prior to February 1, 1998.
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<PAGE>
2. Summary of Significant Accounting Policies
a) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities at the
balance sheet date and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
b) Basis of Presentation
The financial statements include the accounts of InnSuites Hotels, Inc. and
the results of operations of the 10 leased hotels.
c) Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
d) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Differences between income for financial and tax reporting
purposes arise primarily from accrued expenses not deducted for tax.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
e) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally trade accounts receivable.
The Company's receivables are unsecured.
f) Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided, if needed,
against the portion of accounts receivable which is estimated to be
uncollectible. Such losses have been minimal and within management's
expectations.
g) Repairs and Maintenance
Repairs and maintenance are charged to operations as incurred by the
Company. Costs incurred for major renovations and fixed asset purchases
are reimbursed and capitalized by the Lessors.
h) Advertising and Promotion
The costs of advertising and promotional events are expensed as incurred.
i) Fair Value of Financial Instruments
Fair value is determined by using available market information and
valuation methodologies. Financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses and
other liabilities, which due to their short maturities, are carried at
amounts, which reasonably approximate fair value.
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<PAGE>
3. Percentage Lease Agreements
Percentage Leases exist between the Company's individual lessee hotels and the
Lessors. The Percentage Leases have noncancellable lease terms which expire on
January 31, 2008, and are subject to earlier termination on the occurrence of
certain contingencies, as defined in the lease agreements. The rent due under
each Percentage Lease agreement is the greater of the minimum rent, also
defined by the lease agreement, or percentage rent. Percentage rent applicable
to room and other hotel revenue is calculated by multiplying fixed percentages
by the total amounts of such gross revenues in excess of specified threshold
amounts. Both the minimum rent and the revenue thresholds used in computing
percentage rents are subject to annual adjustments based on the United States
Consumer Price Index ("CPI"). Percentage rent applicable to food and beverage
revenues is calculated as 5% of such revenues over a minimum threshold.
Percentage rent expense for the years ended January 31, 2000 and 1999 was $9.5
million and $10.0 million, respectively, of which $2.6 million and $3.1
million, respectively was in excess of minimum rent.
Future minimal rentals (without reflecting future CPI increases) to be paid by
the Company pursuant to the Percentage Lease agreements for fiscal years 2001
to 2005 and in total thereafter are as follows:
2001 $ 6,850,000
2002 6,850,000
2003 6,850,000
2004 6,850,000
2005 6,850,000
Thereafter 20,550,000
-----------
$54,800,000
===========
Other than real estate and personal property taxes, casualty insurance and
capital improvements which are obligations of the Lessor, the Percentage
Leases require the Company to pay rent, liability insurance premiums, and all
costs, expenses, utilities and other charges incurred in the operation of the
leased hotels. Property insurance premiums are allocated 50% to the Lessor and
50% to the Company. In addition, at January 31, 2000 and 1999, outstanding
receivables due the Company from the Lessor for the reimbursement of capital
improvements, which were paid for by the Company, were netted with Percentage
rent payable to the Lessor. The amounts netted against Percentage rent payable
were approximately $731,000 and $645,000 at January 31, 2000 and 1999,
respectively.
The Company is required to indemnify the Lessor against all liabilities, costs
and expenses incurred by or asserted against the Lessor in the normal course
of operating the hotels.
4. Income Taxes
The components of the income tax expense (benefit) were as follows:
For the year ended, January 31
2000 1999
-------------------
Federal:
Current $ - -
Deferred - -
State and local:
Current - -
Deferred - -
--------- --------
$ - $ -
========= ========
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<PAGE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pretax income as a result of the following differences:
For the year ended,
January 31
2000 1999
---------- ----------
Computed "expected" tax
Expense (benefit) $ (688,313) (954,818)
State income taxes, net
of federal income tax effect (106,469) (147,894)
Change in valuation allowance 792,062 1,100,240
Other, net 2,720 2,472
---------- ----------
Income tax expense (benefit) $ - -
========== ==========
The components of the Company's deferred tax assets as of January 31 were as
follows:
2000 1999
----------- ----------
Deferred tax assets:
Operating loss carryforward $ 774,000 550,000
Accrued expenses 1,118,000 550,000
----------- ----------
Gross deferred tax assets 1,892,000 1,100,000
Less: valuation allowance (1,892,000) (1,100,000)
----------- ----------
Deferred tax assets, net $ - -
=========== ==========
The deferred tax assets consist of differences resulting from accrued expenses
not deductible for tax purposes and net operating loss carryforwards of
approximately $2.8 million, which expire at various dates through January 31,
2020.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the projections in future
taxable income over the periods in which the deferred tax assets are
deductible, management believes it is prudent to fully reserve the Company's
net deferred tax assets.
5. Related Party Transactions
Loans from Affiliates primarily represents $170,000 and $155,000 due to
InnSuites Innternational Hotels, Inc. ("InnSuites") and the Partnership,
respectively, primarily for working capital advances. InnSuites is owned by
James F. Wirth, Chairman of the Company, who is also Chairman, President and
CEO of the Trust. There are no terms or covenants governing these advances.
Amounts are repaid by the Company when cash flows are adequate to cover
current expenses as well as amounts advanced.
InnSuites holds a management agreement with the Company whereby the Company
incurs fees of 2.5% of hotel revenues for management, administrative and
accounting related services. InnSuites Licensing Corporation, which is owned
by James F. Wirth, holds a trademark license agreement with the Company
whereby the Company incurs fees from 1.25% to 2.5% of hotel revenues for the
use of certain brand names. The Company also pays advertising fees to
InnSuites in the amount of 1.5% of hotel revenues for purposes of centralized
advertising programs. Amounts paid under these agreements are as follows:
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<PAGE>
For the Year-ended January 31,
2000 1999
---- ----
Management fees $ 694,736 768,501
Trademark license fees 533,865 300,144
Advertising fees 413,079 429,225
---------- ---------
Total $1,641,680 1,497,870
========== =========
James F. Wirth contributed $250,000 and $480,000 for the years ended January
31, 2000 and 1999 for working capital needs of certain hotels. These amounts
are recorded as capital contributions.
6. Commitments and Contingencies
Claims and Legal Matters
The nature of the operations of the Company and its hotels exposes them to the
risk of claims and litigation in the normal course of business. Although the
outcome of these matters cannot be determined, management believes the
aggregate potential losses, if any, would not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Franchise Agreements
The Company has franchise agreements with Best Western(R) and Holiday Inn(R)
hotels in which fees generally approximate 3% of monthly revenues for Best
Western(R) and 9% of monthly revenues for Holiday Inn(R).
7. 401(k) Benefit Plan
All employees of the Company who have attained the age of twenty-one and have
completed one year's service are eligible to participate in a contributory
defined contribution 401(k) benefit plan. Under the plan, participants may
contribute up to 6% of their salary. The Company matches 25% of the employee
contribution. Benefit expense under the plan amounted to $25,022 and $17,822
for the years ended January 31, 2000 and 1999, respectively.
8. Liquidity
The financial statements of the Trust disclose that a provision was recorded
for all percentage rent receivables from the Company as of January 31, 2000.
The Company has the ability to obtain funds for working capital needs from
third parties or affiliates to fund short-term working capital needs. Based on
the structure of the Company and its relationship with the Trust as the
exclusive lessee, all payments of percentage rent expense are not called.
Excluding percentage rent expense, all of the Hotels are cash flow positive
and generated net income for the year ended January 31, 2000. The Trust may
restructure and acquire the Company in January 2001 following the guidelines
of the REIT Modernization Act. Therefore, Management believes the Company will
continue as a going concern over the next twelve months.
-53-
<PAGE>
PART III
--------
Item 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST.
---------------------------------------------
Trustees of the Trust
The Trust incorporates herein by reference the information appearing under
the caption "Election of Trustees" in the Trust's definitive Proxy Statement to
be filed with the Securities and Exchange Commission on or about May 30, 2000.
Executive Officers of the Trust
The name, age (as of January 31, 2000), business experience during the past
five years, and offices presently held by each of the Trust's executive officers
are reported below. The Trust's By-Laws provide that officers shall hold office
until their successors are duly elected and qualified and that any officer may
be removed from office at any time by the Trust's Trustees.
JAMES F. WIRTH: Age 53; Chairman, President and Chief Executive Officer of
the Trust since January 30, 1998. Chairman of InnSuites Innternational Hotels,
Inc., Hospitality Corporation International and affiliated entities, owners and
operators of hotels, since 1980. Chairman and President of Rare Earth
Development Company, a real estate investment company, since 1973.
MARC E. BERG: Age 47; Executive Vice President, Secretary and Treasurer of
the Trust since February 10, 1999. Vice President - Acquisitions for the Trust
from December 16, 1998 to February 10, 1999. Trustee since January 30, 1998.
Consultant to InnSuites Hotels system and self-employed as a registered
investment advisor since 1985.
ANTHONY B. WATERS: Age 53; Chief Financial Officer of the Trust since
February 29, 2000. Controller for the Trust since June 17, 1999. Accountant and
auditor for Michael Maastricht, CPA from June 16, 1998 to June 15, 1999
performing audits for InnSuites Hotels, Inc. Self-employed, concentrating in
computerized accounting and information systems since 1990.
Section 16(a) Beneficial Ownership Reporting Compliance
The Trust incorporates herein by reference the information appearing under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Trust's definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about May 30, 2000.
Item 11. EXECUTIVE COMPENSATION.
----------------------
The Trust incorporates herein by reference the information appearing under
the caption "Compensation of Trustees and Executive Officers" in the Trust's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about May 30, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The Trust incorporates herein by reference the information appearing under
the caption "Ownership of Common Shares" in the Trust's definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or about
May 30, 2000.
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<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The Trust incorporates herein by reference the information appearing under
the caption "Certain Transactions" in the Trust's definitive Proxy Statement to
be filed with the Securities and Exchange Commission on or about May 30, 2000.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
-------------------------------------------------------------
Exhibits
- --------
3(a) Second Amended and Restated Declaration of Trust dated June 16, 1999,
as further amended on July 12, 1999 (incorporated by reference to
Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the
quarter year ended July 31, 1999, filed with the Securities and
Exchange Commission on September 14, 1999).
10(a) First Amended and Restated Agreement of Limited Partnership of RRF
Limited Partnership dated January 31, 1998 (incorporated by reference
to Exhibit 10.1 of the Registrant's Registration Statement on Form
S-2, filed with the Securities and Exchange Commission on September 8,
1998).
10(b)* Employment Agreement dated as of January 31, 1998, between the Trust
and James F. Wirth. (incorporated by reference to Exhibit 10(b) of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998, filed with the Securities and Exchange Commission on
May 18, 1998).
10(c) Formation Agreement among the Trust; MARA; Alan M. Krause; James H.
Berick; Hospitality Corporation International; InnSuites Hotels,
L.L.C.; James F. Wirth; Tucson Hospitality Properties, Ltd.; Yuma
Hospitality Properties, Ltd.; Baseline Hospitality Properties, Ltd.;
Northern Phoenix Investment Limited Partnership; Ontario Hospitality
Properties Limited Partnership; Hulsey Hotels Corporation; and
Buenaventura Properties, Inc. (incorporated by reference to Exhibit
2.1 of the Registrant's Current Report on Form 8-K, dated and filed
with the Securities and Exchange Commission on February 17, 1998).
10(d) Contribution Agreement dated as of February 1, 1998, among James F.
Wirth, Gail J. Wirth and RRF Limited Partnership (incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K, dated and filed with the Securities and Exchange Commission on
March 16, 1998).
10(e) Agreement of Purchase and Sale and Joint Escrow Instructions dated
March 20, 1998, between Lafayette Hotel, LLC and RRF Limited
Partnership (incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K, dated and filed with the
Securities and Exchange Commission on May 14, 1998).
10(f) Contribution Agreement dated as of June 1, 1998, among James F. Wirth,
Steven S. Robson and RRF Limited Partnership (incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-
K, filed with the Securities and Exchange Commission on September 2,
1998).
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<PAGE>
10(g) Consent Agreement dated as of January 31, 1999, among RRF Limited
Partnership, James F. Wirth, Gail J. Wirth, Alan M. Krause and James
H. Berick (incorporated by reference to Exhibit 10(g) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
January 31, 1999, filed with the Securities and Exchange Commission on
May 27, 1999).
10(h) Continuing Guaranty dated as of January 31, 1999, by RRF Limited
Partnership (incorporated by reference to Exhibit 10(h) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
January 31, 1999, filed with the Securities and Exchange Commission on
May 27, 1999).
10(i) Promissory Note dated March 15, 1999 by InnSuites Hospitality Trust in
favor of James F. Wirth (incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended April 30, 1999, filed with the Securities and Exchange
Commission on June 14, 1999).
10(j) Promissory Note dated June 14, 1999 by InnSuites Hospitality Trust in
favor of James F. Wirth (incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended July 31, 1999, filed with the Securities and Exchange Commission
on September 14, 1999).
10(k) Promissory Note dated July 27, 1999 by InnSuites Hospitality Trust in
favor of James F. Wirth (incorporated by reference to Exhibit 10.2 of
the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended July 31, 1999, filed with the Securities and Exchange
Commission on September 14, 1999).
10(l) Promissory Note dated August 17, 1999 by InnSuites Hospitality Trust
in favor of James F. Wirth (incorporated by reference to Exhibit 10.1
of the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended October 31, 1999, filed with the Securities and Exchange
Commission on December 15, 1999).
10(m) Promissory Note dated October 12, 1999 by InnSuites Hospitality Trust
in favor of James F. Wirth (incorporated by reference to Exhibit 10.2
of the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended October 31, 1999, filed with the Securities and Exchange
Commission on December 15, 1999).
10(n) Promissory Note dated October 14, 1999 by InnSuites Hospitality Trust
in favor of James F. Wirth (incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended October 31, 1999, filed with the Securities and Exchange
Commission on December 15, 1999).
10(o) Intercompany Agreement dated October 12, 1999, among RRF Limited
Partnership, InnSuites Hotels, Inc., and InnSuites Innternational
Hotels, Inc.
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 of the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, filed with the Securities and Exchange
Commission on May 18, 1998).
27** Financial Data Schedule.
99.1 Form of Percentage Lease (incorporated by reference to Exhibit 99.1 of
the Registrant's Registration Statement on Form S-2 filed with the
Securities and Exchange Commission on September 8, 1998).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
** Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
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<PAGE>
Forms 8-K
- ---------
No Current Reports on Form 8-K were filed by the Trust during the fourth
fiscal quarter ended January 31, 2000.
-57-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of Securities
Exchange Act of 1934, the Trust has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INNSUITES HOSPITALITY TRUST
Dated: May 16, 2000 By: /s/ James F. Wirth
-----------------------------
James F. Wirth, Chairman,
President and Chief Executive
Officer (Principal Executive
Officer)
Dated: May 16, 2000 By: /s/ Anthony B. Waters
-----------------------------
Anthony B. Waters,
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Trust and in the capacities and on the dates indicated.
/s/ James F. Wirth
Dated: May 16, 2000 -----------------------------
James F. Wirth, Trustee, Chairman,
President and Chief Executive
Officer
/s/ Anthony B. Waters
Dated: May 16, 2000 -----------------------------
Anthony B. Waters,
Chief Financial Officer
/s/ Marc E. Berg
Dated: May 16, 2000 -----------------------------
Marc E. Berg, Trustee
/s/ Steven S. Robson
Dated: May 16, 2000 -----------------------------
Steven S. Robson, Trustee
/s/ Lee J. Flory
Dated: May 16, 2000 -----------------------------
Lee J. Flory
-58-
<PAGE>
Index of Exhibits
- -----------------
Exhibit Number
3(a) Second Amended and Restated Declaration of Trust dated June 16, 1999,
as further amended on July 12, 1999 (incorporated by reference to
Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the
quarter year ended July 31, 1999, filed with the Securities and
Exchange Commission on September 14, 1999).
10(a) First Amended and Restated Agreement of Limited Partnership of RRF
Limited Partnership dated January 31, 1998 (incorporated by reference
to Exhibit 10.1 of the Registrant's Registration Statement on
Form S-2, filed with the Securities and Exchange Commission on
September 8, 1998).
10(b)* Employment Agreement dated as of January 31, 1998, between the Trust
and James F. Wirth. (incorporated by reference to Exhibit 10(b) of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998, filed with the Securities and Exchange Commission on
May 18, 1998).
10(c) Formation Agreement among the Trust; MARA; Alan M. Krause; James H.
Berick; Hospitality Corporation International; InnSuites Hotels,
L.L.C.; James F. Wirth; Tucson Hospitality Properties, Ltd.; Yuma
Hospitality Properties, Ltd.; Baseline Hospitality Properties, Ltd.;
Northern Phoenix Investment Limited Partnership; Ontario Hospitality
Properties Limited Partnership; Hulsey Hotels Corporation; and
Buenaventura Properties, Inc. (incorporated by reference to Exhibit
2.1 of the Registrant's Current Report on Form 8-K, dated and filed
with the Securities and Exchange Commission on February 17, 1998).
10(d) Contribution Agreement dated as of February 1, 1998, among James F.
Wirth, Gail J. Wirth and RRF Limited Partnership (incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-
K, dated and filed with the Securities and Exchange Commission on
March 16, 1998).
10(e) Agreement of Purchase and Sale and Joint Escrow Instructions dated
March 20, 1998, between Lafayette Hotel, LLC and RRF Limited
Partnership (incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K, dated and filed with the
Securities and Exchange Commission on May 14, 1998).
10(f) Contribution Agreement dated as of June 1, 1998, among James F. Wirth,
Steven S. Robson and RRF Limited Partnership (incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-
K, filed with the Securities and Exchange Commission on September 2,
1998).
10(g) Consent Agreement dated as of January 31, 1999, among RRF Limited
Partnership, James F. Wirth, Gail J. Wirth, Alan M. Krause and James
H. Berick (incorporated by reference to Exhibit 10(g) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
January 31, 1999, filed with the Securities and Exchange Commission on
May 27, 1999).
10(h) Continuing Guaranty dated as of January 31, 1999, by RRF Limited
Partnership (incorporated by reference to Exhibit 10(h) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
January 31, 1999, filed with the Securities and Exchange Commission on
May 27, 1999).
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<PAGE>
10(i) Promissory Note dated March 15, 1999 by InnSuites Hospitality Trust in
favor of James F. Wirth (incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended April 30, 1999, filed with the Securities and Exchange
Commission on June 14, 1999).
10(j) Promissory Note dated June 14, 1999 by InnSuites Hospitality Trust in
favor of James F. Wirth (incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended July 31, 1999, filed with the Securities and Exchange Commission
on September 14, 1999).
10(k) Promissory Note dated July 27, 1999 by InnSuites Hospitality Trust in
favor of James F. Wirth (incorporated by reference to Exhibit 10.2 of
the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended July 31, 1999, filed with the Securities and Exchange
Commission on September 14, 1999).
10(l) Promissory Note dated August 17, 1999 by InnSuites Hospitality Trust
in favor of James F. Wirth (incorporated by reference to Exhibit 10.1
of the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended October 31, 1999, filed with the Securities and Exchange
Commission on December 15, 1999).
10(m) Promissory Note dated October 12, 1999 by InnSuites Hospitality Trust
in favor of James F. Wirth (incorporated by reference to Exhibit 10.2
of the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended October 31, 1999, filed with the Securities and Exchange
Commission on December 15, 1999).
10(n) Promissory Note dated October 14, 1999 by InnSuites Hospitality Trust
in favor of James F. Wirth (incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Form 10-Q for the quarter year
ended October 31, 1999, filed with the Securities and Exchange
Commission on December 15, 1999).
10(o) Intercompany Agreement dated October 12, 1999, among RRF Limited
Partnership, InnSuites Hotels, Inc., and InnSuites Innternational
Hotels, Inc.
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 of the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, filed with the Securities and Exchange
Commission on May 18, 1998).
27** Financial Data Schedule.
99.1 Form of Percentage Lease (incorporated by reference to Exhibit 99.1 of
the Registrant's Registration Statement on Form S-2 filed with the
Securities and Exchange Commission on September 8, 1998).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
** Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
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<PAGE>
EXHIBIT 10(o)
INTERCOMPANY AGREEMENT
THIS INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into as
of the 12th day of October, 1999, among RRF Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"), InnSuites Hotels, Inc., a
Nevada corporation ("InnSuites Lessee"), and InnSuites Innternational Hotels,
Inc., a Nevada corporation ("InnSuites Management") (InnSuites Lessee and
InnSuites Management sometimes being collectively referred to herein as the
"Tenants").
W I T N E S S E T H:
-------------------
WHEREAS, InnSuites Hospitality Trust, an Ohio real estate investment trust
("InnSuites Trust"), owns, directly or indirectly, an approximate 42.5 percent
general partnership in the Operating Partnership;
WHEREAS, the Operating Partnership may in certain circumstances determine
that it is precluded from pursuing, or is limited in the manner in which it
pursues, various business opportunities due to the status of InnSuites Trust as
a real estate investment trust ("REIT") under sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, InnSuites Lessee is a corporation formed for the purposes of,
among other things, to be a lessee of real estate owned by the Operating
Partnership;
WHEREAS, InnSuites Management is a recently created corporation that
operates the real estate leased by InnSuites Lessee from the Operating
Partnership, and was formed for the purposes of, among other things, becoming a
lessee and/or operator of various types of assets, including real estate owned
by the Operating Partnership and others; and
WHEREAS, in light of the current operations of InnSuites Lessee and the
purposes for which InnSuites Management was formed, the Operating Partnership,
InnSuites Lessee, and InnSuites Management desire to enter into this Agreement
in order to provide to each other a right of first opportunity and notification
right with respect to certain investment opportunities available to each of
them.
NOW, THEREFORE, in consideration of the premises and mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
undersigned parties hereby agree as follows:
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1. Definitions. Except as may be otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
(a) "Company Affiliate" means any entity in which a majority of the
beneficial ownership interests are owned by the Operating Partnership or by
any entity controlled by, controlling or under common control with the
Operating Partnership.
(b) "Insider" means James F. Wirth or any senior officer or director
of the Operating Partnership or of any entity controlled by, controlling or
under common control with the Operating Partnership.
(c) "REIT Opportunity" means a direct or indirect opportunity to
invest in (i) real estate (including without limitation the opportunity to
provide services related to real estate or to invest in a hotel property),
real estate mortgages, real estate derivatives, or entities that invest
primarily in or have a substantial portion of their assets in the
aforementioned types of real estate assets, or (ii) any other investments
which may be structured in a manner so as to be REIT-Qualified Investments
(as hereinafter defined), as determined by the Operating Partnership in its
sole discretion. The Operating Partnership shall have the right from time
to time to provide written notice to InnSuites Management and InnSuites
Lessee specifying certain criteria for a REIT Opportunity in addition to
the criteria specified above in this definition of REIT Opportunity. Any
such written notice from the Operating Partnership may be modified or
canceled by written notice given by the Operating Partnership at any time.
The definition of REIT Opportunity shall be modified as appropriate from
time to time in accordance with any such written notices sent by the
Operating Partnership.
(d) "Tenant Opportunity" means the opportunity for InnSuites Lessee to
become the lessee under a "master" lease arrangement of a property owned or
subsequently acquired by the Operating Partnership if the Operating
Partnership, in its sole discretion, determines that, consistent with the
status of InnSuites Trust as a REIT, the Operating Partnership is required
to enter into such a "master" lease arrangement for such property,
including without limitation a hotel or similar type of facility, so long
as the Operating Partnership determines, in its sole discretion, that
InnSuites Lessee, or an entity controlled by InnSuites Lessee, is qualified
to be the lessee based on experience in the industry and financial and
legal qualifications, provided that all determinations relating to both (i)
the ability or inability of the Operating Partnership to pursue an
opportunity or acquire assets and (ii) the necessity for the Operating
Partnership to enter into a "master" lease arrangement for a property,
shall be made by the Operating Partnership in its sole discretion. A Tenant
Opportunity shall not include (1) a property which already has an existing
"master" lessee as of the date of this Agreement (or, with respect to a
property acquired subsequent to the date of this Agreement, which has an
existing binding "master" lessee arrangement that predates the acquisition
of the property by the Operating Partnership, provided that the Operating
Partnership shall offer any such "master" lessee interest to InnSuites
Lessee if the lessee interest subsequently becomes available), or (2) an
opportunity in which the seller of the property (or any affiliate or
designee of the seller) desires to enter into a "master" lease agreement
with the Operating
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Partnership. InnSuites Lessee shall have the right from time to time to
provide written notice to the Operating Partnership specifying certain
criteria for a Tenant Opportunity in addition to the criteria specified
above in this definition of Tenant Opportunity. Any such written notice
from InnSuites Lessee may be modified or canceled by written notice given
by InnSuites Lessee at any time. The definition of Tenant Opportunity shall
be modified as appropriate from time to time in accordance with any such
written notices sent by InnSuites Lessee.
(e) "Operating Opportunity" means the opportunity for InnSuites
Management to become the operator under an operating arrangement for any
and all properties which are the subject of a "master" lease arrangement
between the Operating Partnership and InnSuites Lessee pursuant to this
Agreement. An Operating Opportunity shall not include a property which
already has an existing operating arrangement as of the date of this
Agreement (or, with respect to a property acquired subsequent to the date
of this Agreement, which has an existing binding operating arrangement that
predates the lease of the property by InnSuites Lessee, provided that
InnSuites Lessee shall offer any such operating interest to InnSuites
Management if the operating interest subsequently becomes available).
InnSuites Management shall have the right from time to time to provide
written notice to InnSuites Lessee specifying certain criteria for an
Operating Opportunity in addition to the criteria specified above in this
definition of Operating Opportunity. Any such written notice from InnSuites
Management may be modified or canceled by written notice given by InnSuites
Management at any time. The definition of Operating Opportunity shall be
modified as appropriate from time to time in accordance with any such
written notices sent by InnSuites Management.
2. Operating Partnership Right of First Opportunity; Notification Right.
(a) Right of First Opportunity.
(i) During the term of this Agreement, if either of the Tenants
develops a REIT Opportunity, or if any REIT Opportunity otherwise
becomes available to them, such Tenant shall first offer such REIT
Opportunity to the Operating Partnership. The offer shall be made by
written notice from the appropriate Tenant to the Operating
Partnership (the "REIT Opportunity Notice"), which REIT Opportunity
Notice shall contain a detailed description of the material terms and
conditions of the REIT Opportunity. The Operating Partnership shall
have ten (10) days (the "REIT Opportunity Period") from the date of
its receipt of the REIT Opportunity Notice to notify the appropriate
Tenant in writing that it has accepted or rejected the REIT
Opportunity. If the Operating Partnership does not so respond by the
end of the REIT Opportunity Period, the Operating Partnership shall be
deemed to have rejected the REIT Opportunity. If the Operating
Partnership accepts a REIT Opportunity, but subsequently decides not
to pursue such opportunity, or for any other reason fails to
consummate the REIT Opportunity, the Operating Partnership shall
immediately provide written notice that it is no longer pursuing such
REIT Opportunity to both Tenants.
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(ii) If the Operating Partnership rejects a REIT Opportunity, or
accepts such REIT Opportunity but thereafter provides, or is required
by the provisions hereof to provide, written notice to both Tenants
that it is no longer pursuing such REIT Opportunity, InnSuites
Management shall, for a period of one year after the Operating
Partnership Withdrawal Date (as hereinafter defined) (the "One-Year
Period"), be entitled to acquire the REIT Opportunity (A) at a price
and on terms and conditions that are not more favorable to InnSuites
Management in any material respect than the price and terms and
conditions set forth in the REIT Opportunity Notice relating to such
REIT Opportunity, or (B) if the Operating Partnership, at any time
after the REIT Opportunity Notice, negotiated a different price,
terms, or conditions with the seller, then at a price, and on terms
and conditions, that are not more favorable than such price and terms
and conditions negotiated by the Operating Partnership with the
seller. If InnSuites Management does not enter into a binding
agreement to acquire the REIT Opportunity within the One-Year Period,
InnSuites Lessee shall, for a period of one year following the
expiration of the One-Year Period, be entitled to acquire the REIT
Opportunity (A) at a price and on terms and conditions that are not
more favorable to InnSuites Lessee in any material respect than the
price and terms and conditions set forth in REIT Opportunity Notice
relating to such REIT Opportunity, or (B) if the Operating Partnership
or InnSuites Management, at any time after the REIT Opportunity
Notice, negotiated a different price, terms, or conditions with the
seller, then at a price, and on terms and conditions, that are not
more favorable than such price and terms and conditions negotiated by
the Operating Partnership or InnSuites Management with the seller. If
neither InnSuites Management nor InnSuites Lessee enter into a binding
agreement to acquire the REIT Opportunity within their respective
allotted periods, or if the price and terms and conditions are more
favorable to InnSuites Management or InnSuites Lessee in any material
respect than the price and terms and conditions set forth in the REIT
Opportunity Notice (or, if applicable, than the price and terms and
conditions negotiated by the Operating Partnership with the seller
subsequent to the REIT Opportunity Notice), InnSuites Management or
InnSuites Lessee (as the case may be) shall again be required to
comply with the procedures set forth above in Section 2(a)(i) if it
desires to acquire such REIT Opportunity. The "Operating Partnership
Withdrawal Date" means any one of the following dates, as applicable:
(A) the date that the Operating Partnership notifies the appropriate
Tenant that it has rejected the REIT Opportunity, (B) if the Operating
Partnership does not respond to such Tenant regarding the REIT
Opportunity, the expiration date of the Ten-Day Period, or (C) if the
Operating Partnership accepts the REIT Opportunity but subsequently
ceases to pursue the opportunity, the earlier of (i) thirty (30) days
after the date on which the Operating Partnership ceases to pursue the
REIT Opportunity or (ii) the date of receipt by such Tenant of written
notice from the Operating Partnership that it is no longer pursuing
the REIT Opportunity.
(iii) Each of the Tenants agrees to use its commercially
reasonable best efforts to assist the Operating Partnership in
structuring and consummating any REIT Opportunity accepted by the
Operating Partnership, on terms determined by
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the Operating Partnership (including without limitation structuring
such investment opportunity as a "REIT-Qualified Investment," as
hereinafter defined). A "REIT-Qualified Investment" means an
investment, the income from which would qualify under the 95% gross
income test set forth in section 856(c)(2) of the Code, the ownership
of which would not cause a REIT to violate the asset limitations set
forth in section 856(c)(5) of the Code, and which otherwise meets the
federal income tax requirements applicable to REITs. Any expenses
incurred that are directly related to structuring an investment as a
REIT-Qualified Investment shall be borne solely by the Operating
Partnership.
(b) Notification Right. In the event that either of the Tenants
develops or becomes aware of any investment opportunity during the term of
this Agreement (other than a REIT Opportunity), and such Tenant is not
interested in pursuing such opportunity, or the opportunity is otherwise
unavailable to the Tenant, such Tenant shall immediately notify the
Operating Partnership of such opportunity and provide to the Operating
Partnership a copy of all written information, and a description of all
material terms not set forth in writing, available to the Tenant concerning
such opportunity.
3. Operating Partnership Right of First Opportunity Following Tenant
Acquisition of a REIT Opportunity
(a) If either of the Tenants acquires a REIT Opportunity pursuant to
the provisions of Section 2(a)(ii) of this Agreement and desires to sell,
dispose, or otherwise transfer any portion of its interest in such REIT
Opportunity within five (5) years of the acquisition of such REIT Opportunity (a
"Disposition Opportunity"), such Tenant shall first offer such Disposition
Opportunity to the Operating Partnership. The offer shall be made by written
notice from the appropriate Tenant to the Operating Partnership (the
"Disposition Opportunity Notice"). The Operating Partnership shall have thirty
(30) days (the "Thirty-Day Disposition Period") from the date of its receipt of
the Disposition Opportunity Notice regarding such Disposition Opportunity to
notify the appropriate Tenant in writing that it has accepted or rejected the
Disposition Opportunity. If the Operating Partnership does not so respond by the
end of the Thirty-Day Disposition Period, the Operating Partnership shall be
deemed to have rejected the Disposition Opportunity. If the Operating
Partnership accepts a Disposition Opportunity, but subsequently decides not to
pursue such opportunity, or for any other reason fails to consummate such
Disposition Opportunity, the Operating Partnership shall immediately provide
written notice that it is no longer pursuing such Disposition Opportunity to the
appropriate Tenant.
(b) If the Tenant does not enter into a binding agreement to exercise
the Disposition Opportunity within one year of the termination of the Thirty-Day
Disposition Period, the Tenant shall again be required to comply with the
procedures set forth above in Section 3(a) if it desires to exercise such
Disposition Opportunity.
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4. Operating Partnership Option to Purchase Following Tenant Acquisition
of a REIT Opportunity
(a) If either of the Tenants acquires a REIT Opportunity pursuant to
the provisions of Section 2(a)(ii) of this Agreement, such Tenant shall grant
the Operating Partnership an option to acquire (an "Option") the property that
was the subject of such REIT opportunity. The Operating Partnership may exercise
an Option for an amount equal to the greater of (i) 90% of the value of an
Option Property established by an appraisal conducted by a Member of the
Appraisal Institute (MAI) (which appraisal shall be completed within sixty (60)
days of the delivery of an exercise notice to the Operating Partnership), or
(ii) the sum of (A) the total cost to the Tenant to acquire such Option
Property, (B) any interest charges or expenses incurred by the Tenant relating
to, and during its ownership of, such Option Property, (C) any net operating
losses incurred by the Tenant relating to its ownership of such Option Property,
and (D) an annual return of ten percent (10%) computed on the equity invested by
Tenant in the Option Property. The Operating Partnership shall have thirty (30)
days (the "Thirty-Day Period") from the date of its receipt of the MAI appraisal
report regarding such Option to notify the appropriate Tenant in writing that it
has decided to proceed to acquire the Option Property. If the Operating
Partnership does not so respond by the end of the Thirty-Day Period, the
Operating Partnership shall be deemed to have rejected the Option.
(b) An Option shall be exercisable until the earlier to occur of (i)
three (3) years from the date of Tenant's acquisition of an Option Property, or
(ii) the prior disposition of such Option Property in accordance with the
provisions of this Agreement.
5. InnSuites Lessee Right of First Opportunity for Tenant Opportunity.
(a) From and after the date hereof, and throughout the remaining term
of this Agreement, if the Operating Partnership develops a Tenant Opportunity,
or if a Tenant Opportunity otherwise becomes available to the Operating
Partnership, the Operating Partnership shall first offer such Tenant Opportunity
to InnSuites Lessee. The offer shall be made by written notice from the
Operating Partnership to InnSuites Lessee (the "Tennant Opportunity Notice"),
which Tennant Opportunity Notice shall contain a detailed description of the
material terms and conditions under which the Operating Partnership proposes to
offer such Tenant Opportunity to InnSuites Lessee. The Operating Partnership
shall thereafter provide or cause to be provided promptly to InnSuites Lessee
such additional information relating to the Tenant Opportunity as InnSuites
Lessee reasonably may request. For a period of thirty (30) days after the date
that the Operating Partnership delivers the Tennant Opportunity Notice to
InnSuites Lessee, the Operating Partnership and InnSuites Lessee shall negotiate
with each other on an exclusive basis with respect to such Tenant Opportunity.
If the Operating Partnership and InnSuites Lessee are unable to enter into a
mutually satisfactory arrangement with respect to the Tenant Opportunity within
such 30-day period, or if InnSuites Lessee indicates that it is not interested
in pursuing such Tenant Opportunity (in which event InnSuites Lessee shall
provide written notice to the Operating Partnership as soon as InnSuites Lessee
decides against pursuing such opportunity), then the Operating Partnership shall
be free for a period of one year after the expiration of such 30-day period to
enter into a binding agreement with respect to such Tenant Opportunity with
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InnSuites Management or any other party at a price and on terms and conditions
that are not more favorable to the Operating Partnership in any material respect
than the price and terms and conditions set forth in the Tennant Opportunity
Notice relating to such Tenant Opportunity. If the Operating Partnership does
not enter into a binding agreement with respect to such Tenant Opportunity
within such one-year period, or if the price and terms and conditions are more
favorable to the Operating Partnership in any material respect than the price
and terms and conditions set forth in the Tennant Opportunity Notice relating to
such tenant Opportunity, the Operating Partnership shall again be required to
comply with the procedures set forth above in this Section 4(a) if it thereafter
desires to pursue such Tenant Opportunity.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (1) the Operating Partnership shall not be required to offer to
InnSuites Lessee any Tenant Opportunity in connection with a proposed
acquisition until a binding contract has been entered into with respect to such
acquisition, and the consummation of any agreement between the Operating
Partnership and InnSuites Lessee with respect to a Tenant Opportunity shall be
subject to the actual closing of such acquisition by the Operating Partnership,
(2) the Operating Partnership shall have the right in its sole discretion to
decide not to pursue, or to discontinue at any time pursuing, any investment
opportunity, even if such opportunity, if pursued, would create a Tenant
Opportunity, and (3) the Operating Partnership shall have no obligation to offer
any opportunity other than a Tenant Opportunity to InnSuites Lessee.
(c) InnSuites Lessee agrees to cooperate with the Operating
Partnership in structuring all dealings with outside parties in connection with
any Tenant Opportunity that InnSuites Lessee and the Operating Partnership agree
to enter into pursuant to Section 4(a) above. InnSuites Lessee agrees to
cooperate with the Operating Partnership in structuring any Tenant Opportunity
with the Operating Partnership as a "REIT-Qualified Investment" for the
Operating Partnership. The Operating Partnership shall have the right, in its
sole discretion, to structure any investment as a REIT-Qualified Investment,
even if such structuring prevents the Operating Partnership from creating a
Tenant Opportunity for InnSuites Lessee.
6. InnSuites Management Right of First Opportunity for Operating
Opportunity.
(a) From and after the date hereof, and throughout the remaining term
of this Agreement, if InnSuites Lessee develops an Operating Opportunity, or if
an Operating Opportunity otherwise becomes available to InnSuites Lessee,
InnSuites Lessee shall first offer such Operating Opportunity to InnSuites
Management. The offer shall be made by written notice from InnSuites Lessee to
InnSuites Management (the "Operating Opportunity Notice"), which Operating
Opportunity Notice shall contain a detailed description of the material terms
and conditions under which InnSuites Lessee proposes to offer such Operating
Opportunity to InnSuites Management. InnSuites Lessee shall thereafter provide
or cause to be provided promptly to InnSuites Management such additional
information relating to the Operating Opportunity as InnSuites Management
reasonably may request. For a period of thirty (30) days after the date that
InnSuites Lessee delivers the Operating Opportunity Notice to InnSuites
Management, InnSuites Lessee and InnSuites Management shall negotiate with each
other on an exclusive basis with respect to such Operating Opportunity. If
InnSuites Lessee and InnSuites
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Management are unable to enter into a mutually satisfactory arrangement with
respect to the Operating Opportunity within such 30-day period, or if InnSuites
Management indicates that it is not interested in pursuing such Operating
Opportunity (in which event InnSuites Management shall provide written notice to
InnSuites Lessee as soon as InnSuites Management decides against pursuing such
opportunity), then InnSuites Lessee shall be free for a period of one year after
the expiration of such 30-day period to enter into a binding agreement with
respect to such Operating Opportunity with any party at a price and on terms and
conditions that are not more favorable to InnSuites Lessee in any material
respect than the price and terms and conditions set forth in the Operating
Opportunity Notice relating to such Operating Opportunity. If InnSuites Lessee
does not enter into a binding agreement with respect to such Operating
Opportunity within such one-year period, or if the price and terms and
conditions are more favorable to InnSuites Lessee in any material respect than
the price and terms and conditions set forth in the Operating Opportunity Notice
relating to such Operating Opportunity, InnSuites Lessee shall again be required
to comply with the procedures set forth above in this Section 5(a) if it
thereafter desires to pursue such Operating Opportunity.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (1) InnSuites Lessee shall not be required to offer to InnSuites
Management any Operating Opportunity in connection with a proposed lease of any
property until a binding contract has been entered into with respect to such
property, and the consummation of any agreement between InnSuites Lessee and
InnSuites Management with respect to a Operating Opportunity shall be subject to
the actual lease of such property by InnSuites Lessee, (2) InnSuites Lessee
shall have the right in its sole discretion to decide not to pursue, or to
discontinue at any time pursuing, any lease opportunity, even if such
opportunity, if pursued, would create an Operating Opportunity, and (3)
InnSuites Lessee shall have no obligation to offer any opportunity other than an
Operating Opportunity to InnSuites Management.
(c) InnSuites Management agrees to cooperate with InnSuites Lessee in
structuring all dealings with outside parties in connection with any Operating
Opportunity that InnSuites Lessee and InnSuites Management agree to enter into
pursuant to Section 5(a) above. InnSuites Management agrees to cooperate with
InnSuites Lessee and the Operating Partnership in structuring any Operating
Opportunity with InnSuites Lessee as a "REIT-Qualified Investment" for the
Operating Partnership. The Operating Partnership shall have the right, in its
sole discretion, to structure any investment as a REIT-Qualified Investment,
even if such structuring prevents InnSuites Lessee from creating an Operating
Opportunity for InnSuites Management.
7. General Terms and Conditions for Rights of First
Opportunity/Notification Rights.
(a) Unless waived or unless agreed to as part of an investment and/or
lease, each party shall bear its own expenses with respect to any opportunity to
which this Agreement is applicable, and each party agrees that it shall not be
entitled to any compensation from the other party with respect to any such
opportunity.
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(b) A party shall not be required to comply with the rights of first
opportunity and notification requirements set forth in this Agreement during any
period in which the other party or any Controlled Affiliate of such other party
(as hereinafter defined) is in default of this Agreement or any other agreement
entered into by the parties hereto or any of their Controlled Affiliates, if
such default is material and remains uncured for fifteen days after receipt of
notice thereof. A "Controlled Affiliate" of a party means any entity controlled
by, controlling or under common control with such party.
(c) Any opportunity which is offered to a party under this Agreement
and rejected by such party may thereafter be offered to Insiders, subject to the
reoffer provisions set forth in Sections 2(a)(ii), 3(b), 5(a), and 6(a) above.
(d) Any opportunity which is offered to and accepted by the Operating
Partnership under this Agreement may be entered into by or on behalf of the
Operating Partnership or by any designee which is a Company Affiliate or
Controlled Affiliate of the Operating Partnership. Any opportunity which is
offered to and accepted by either of the Tenants under this Agreement may be
entered into by or on behalf of such Tenant or by any designee which is a
Controlled Affiliate of such Tenant.
(e) All rights of first opportunity and notification rights set forth
in this Agreement shall be subordinated to any seller consent and
confidentiality requirements; no party shall be required to comply with the
rights of first opportunity and notification rights set forth in this Agreement
if such compliance would violate any seller consent or confidentiality
requirements.
(f) While it is the intention of the parties to align their businesses
in accordance with the terms of this Agreement, each party shall act
independently in its own best interests, and neither party shall be considered a
partner or agent of the other party or to owe any fiduciary or other common law
duties to the other party.
8. Specific Performance. Each party hereto hereby acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party hereto would likely have no adequate remedy at law if such party
shall fail to perform its obligations hereunder, and such party therefor
confirms that the other party's right to specific performance of the terms of
this Agreement is essential to protect the rights and interests of the other
party. Accordingly, in addition to any other remedies that a party hereto may
have at law or in equity, such party shall have the right to have all
obligations, covenants, agreements, and other provisions of this Agreement
specifically performed by the other party hereto and the right to obtain a
temporary restraining order or a temporary or permanent injunction to secure
specific performance and to prevent a breach or threatened breach of this
Agreement by the other party hereto. Each party submits to the jurisdiction of
the courts of the State of Ohio for this purpose.
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9. Affiliates. Each party hereto shall cause all entities that are under
its control to comply with the terms hereof. InnSuites Trust, by its signature
below, hereby agrees that it shall comply with the terms of this Agreement
applicable to the Operating Partnership.
10. Term. The term of the Agreement shall commence as of the date first
written above and shall terminate on January 31, 2009. Notwithstanding the
foregoing, a party hereto may terminate this Agreement if the other party or any
Controlled Affiliate of such other party is in default of this Agreement or any
other agreement entered into by the parties hereto or any of their Controlled
Affiliates, if such default is material and remains uncured for fifteen days
after receipt of notice thereof.
11. Miscellaneous.
(a) Notices. Notices shall be sent to the parties at the following
addresses:
RRF Limited Partnership (Operating Parthership)
c/o InnSuites Hospitality Trust
1625 E. Northern Avenue
Suite 201
Phoenix, Arizona 85020
Attention: Executive Vice President
Phone: 602-944-1500
Facsimile: 602-678-0281
with a copy to:
James B. Aronoff, Esq.
Thompson Hine & Flory LLP
3900 Key Center
127 Public Square
Cleveland, Ohio 44114
Phone: 216-566-5500
Facsimile: 216-566-5800
InnSuites Hotels, Inc. (InnSuites Lessee)
1625 E. Northern Avenue
Suite 201
Phoenix, Arizona 85020
Attention: President
Phone: 602-944-1500
Facsimile: 602-678-0281
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with a copy to:
James W. Reynolds, Esq.
Dillingham Cross, P.L.C.
5080 North 40/th/ Street
Suite 335
Phoenix, Arizona 85018
Phone: 602-468-1811
Facsimile: 602-468-0442
InnSuites Innternational Hotels, Inc. (InnSuites Management)
1625 E. Northern Avenue
Suite 201
Phoenix, Arizona 85020
Attention: President
Phone: 602-944-1500
Facsimile: 602-678-0281
with a copy to:
James W. Reynolds, Esq.
Dillingham Cross, P.L.C.
5080 North 40/th/ Street
Suite 335
Phoenix, Arizona 85018
Phone: 602-468-1811
Facsimile: 602-468-0442
Notices shall first be sent by facsimile, with confirming copy to be sent
by certified mail, return receipt requested, Federal Express or comparable
overnight delivery service. Notice will be deemed received on the fourth
business day following deposit in U.S. mail or deposit with Federal Express or
other delivery service. Any party to this Agreement may change its address for
notice by giving written notice to the other party at the address and in
accordance with the procedures provided above.
(b) Reasonable and Necessary Restrictions. Each of the parties hereto
hereby acknowledges and agrees that the restrictions, prohibitions and other
provisions of this Agreement are reasonable, fair and equitable in scope, term
and duration, are necessary to protect the legitimate business interests of the
parties hereto and are a material inducement to the parties hereto to enter into
the transactions described in and contemplated by the recitals hereto. Each
party hereto covenants that it will not sue to challenge the enforceability of
this Agreement or raise any equitable defense to its enforcement.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. This Agreement shall not be assigned without the express written
consent of each of the parties hereto. Notwithstanding the foregoing, this
Agreement may be assigned without the consent of any party
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hereto in connection with any merger, consolidation, reorganization or other
combination of a party with or into another entity where the party is not the
surviving entity.
(d) Amendments; Waivers. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set forth
in a writing signed by the party or parties to be bound thereby. The waiver of
any right or remedy with respect to any occurrence on one occasion shall not be
deemed a waiver of such right or remedy with respect to such occurrence on any
other occasion.
(e) Choice of Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by the laws of the State of Ohio,
without regard to the principles of choice of law thereof.
(f) Severability. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
(g) Entire Agreement; No Third-Party Beneficiaries. This Agreement (i)
constitutes the entire agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties hereto with respect to the subject matter hereof, so that no such
external or separate agreement relating to the subject matter of this Agreement
shall have any effect or be binding, unless the same is referred to specifically
in this Agreement or is executed by the parties after the date hereof; and (ii)
is not intended to confer upon any other person any rights or remedies
hereunder, and shall not be enforceable by any party not a signatory to this
Agreement.
(h) Gender; Number. As the context requires, any word used herein in
the singular shall extend to and include the plural, any word used in the plural
shall extend to and include the singular and any word used in any gender or the
neuter shall extend to and include each other gender or be neutral.
(i) Headings. The headings of the sections hereof are inserted for
convenience of reference only and are not intended to be a part of or affect the
meaning or interpretation of this Agreement or of any term or provision hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by one of its duly authorized corporate officers, as of the date
first above written.
RRF LIMITED PARTNERSHIP, a Delaware
limited partnership
By: InnSuites Hospitality Trust, an Ohio real
estate investment trust, its sole general
partner
By: /s/ James F. Wirth
-----------------------------------
Name: James F. Wirth
----------------------------
Title: President
---------------------------
INNSUITES HOTELS, INC.,
a Nevada corporation
By: /s/ William Kidwell
-----------------------------------
Name: William Kidwell
----------------------------
Title: President
---------------------------
INNSUITES INNTERNATIONAL HOTELS,
INC., a Nevada corporation
By: /s/ James F. Wirth
-----------------------------------
Name: James F. Wirth
----------------------------
Title: President
---------------------------
The undersigned, the sole general partner of the Operating Partnership,
hereby agrees to the restrictions imposed upon it pursuant to Section 7 of the
Agreement.
INNSUITES HOSPITALITY TRUST, an Ohio
real estate investment trust
By: /s/ James F. Wirth
-----------------------------------
Name: James F. Wirth
------------------------------
Title: President
-----------------------------
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF THE REGISTRANT AS OF JANUARY 31, 2000 AND 1999 AND THE STATEMENTS OF
OPERATIONS OF THE REGISTRANT FOR THE THREE YEARS ENDED JANUARY 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 208,109
<SECURITIES> 0
<RECEIVABLES> 618,063
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 64,479,347
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,305,519
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 56,674,253
0
0
<COMMON> 0
<OTHER-SE> 8,631,266
<TOTAL-LIABILITY-AND-EQUITY> 65,305,519
<SALES> 0
<TOTAL-REVENUES> 9,546,181
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,555,658
<LOSS-PROVISION> 1,945,732
<INTEREST-EXPENSE> 3,340,568
<INCOME-PRETAX> (951,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (951,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (951,811)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.40)
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE THE CAPTIONS
"TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITIES" ARE NOT APPLICABLE.
</FN>
</TABLE>
