SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2000
Commission File Number 1-7062
INNSUITES HOSPITALITY TRUST
(Exact name of registrant as specified in its charter)
Ohio 34-6647590
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
InnSuites Hotels Centre
1625 E. Northern Ave., Suite 201
Phoenix, AZ 85020
(Address of principal executive offices)
Registrant's telephone number, including area code (602) 944-1500
Indicate by check mark whether the registrant: (l) has filed all
reports required to be filed by Section 13 or l5(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of outstanding Shares of Beneficial Interest, without par value,
as of December 11, 2000: 2,197,227
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INNSUITES HOSPITALITY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, 2000 JANUARY 31, 2000
---------------- ----------------
Assets (UNAUDITED) (AUDITED)
<S> <C> <C>
Hotel properties, net $ 65,814,101 64,479,347
Cash and cash equivalents -- 208,109
Rent receivable from affiliates, net of $4,447,574
and $2,845,732 allowance respectively -- --
Interest receivable and other assets 514,121 618,063
------------- -------------
Total assets $ 66,328,222 65,305,519
============= =============
Liabilities and shareholders' equity
Liabilities
Mortgage notes payable 25,785,747 24,251,662
Notes payable to banks 11,300,000 11,300,000
Notes payable to related parties 688,700 225,000
Advances payable to related parties 4,811,203 2,970,000
Accounts payable and accrued expenses 1,041,544 1,138,168
------------- -------------
Total liabilities 43,627,194 39,884,830
Minority interest in partnership 15,426,840 16,789,423
Shareholders' equity
Shares of beneficial interest, without par value; unlimited
authorization; 2,180,272 and 2,507,949 shares issued and outstanding
at October 31 and January 31, 2000, respectively 8,650,473 9,093,020
Treasury stock (1,376,285) (461,754)
------------- -------------
Total shareholders' equity 7,274,188 8,631,266
------------- -------------
Total liabilities and shareholders' equity $ 66,328,222 65,305,519
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Rent revenue from affiliate $ 7,552,207 7,389,428
Interest income 8,518 20,863
Other income 20,587 15,210
----------- -----------
Total revenues 7,581,312 7,425,501
----------- -----------
Expenses
Real estate depreciation 2,077,855 1,894,303
Real estate and personal property taxes,
insurance and ground rent 1,048,238 1,065,453
General and administrative 2,446,705 1,902,937
Interest on mortgage notes payable 1,693,112 1,544,610
Interest on notes payable to banks 804,033 684,168
Interest on notes payable to related parties 176,048 135,692
Amortization of loan fees 89,929 48,998
----------- -----------
Total expenses 8,335,920 7,276,161
----------- -----------
Income (loss) before minority interest (754,608) 149,340
Less: minority interest (248,709) 140,946
----------- -----------
Net income (loss) attributable to shares of
beneficial interest $ (505,899) 8,394
=========== ===========
Earnings (loss) per share - basic and diluted $ (0.21) 0.00
=========== ===========
Weighted average number of shares outstanding -
basic and diluted 2,364,593 2,330,349
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Rent revenue from affiliate $ 2,159,397 2,030,934
Interest income 4,072 987
Other income 10,275 5,619
----------- -----------
Total revenues 2,173,744 2,037,540
----------- -----------
Expenses
Real estate depreciation 726,947 617,083
Real estate and personal property taxes,
insurance and ground rent 368,045 421,523
General and administrative 1,038,676 419,852
Interest on mortgage notes payable 587,116 504,578
Interest on notes payable to banks 290,692 199,955
Interest on notes payable to related parties 75,074 50,301
Amortization of loan fees 42,121 4,564
----------- -----------
Total expenses 3,128,671 2,217,856
----------- -----------
Loss before minority interest (954,927) (180,316)
Less: minority interest (441,083) (81,341)
----------- -----------
Net loss attributable to shares of beneficial interest $ (513,844) (98,975)
=========== ===========
Loss per share - basic and diluted $ (0.24) (0.04)
=========== ===========
Weighted average number of shares outstanding - basic and diluted 2,177,047 2,368,656
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (505,899) 8,394
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock option compensation expense 39,388 --
Minority interest (248,709) 140,946
Depreciation and amortization 2,167,784 1,943,301
(Increase) in rent receivable from affiliates (1,601,842) (201,553)
Provision for uncollectible receivable from affiliate 1,601,842 --
(Increase) decrease in interest receivable and other assets 14,012 16,703
(Decrease) in accounts payable and accrued expenses (234,374) (1,318,881)
----------- -----------
Net cash provided by operating activities $ 1,232,202 588,910
Cash flows from investing activities:
Acquisition of hotel (2,100,000) --
Improvements and additions to hotel properties (1,430,675) (1,514,556)
Disposal of FF&E 97,502 --
Sale of land 20,564 --
----------- -----------
Net cash used in investing activities $(3,412,609) (1,514,556)
Cash flows from financing activities:
Payments of mortgage notes payable (540,915) (1,078,098)
Refinancing of mortgage notes payable 500,000 1,751,920
Borrowings on mortgage notes payable 1,575,000 --
Repurchase of partnership units (876,665) (453,327)
Repurchase of stock (914,531) (224,074)
Payment of dividends (71,622) --
Other distributions to owners (141,621) --
Cash overdraft 137,750
Borrowings on notes payable to related parties 745,000 --
Payments on notes payable to related parties (281,300) (225,000)
Advances from related parties 2,654,943 836,218
Payments on advances from related parties (813,741) --
----------- -----------
Net cash provided by financing activities $ 1,972,298 607,639
Net increase in cash and cash equivalents $ (208,109) (318,007)
Cash at beginning of period $ 208,109 420,935
----------- -----------
Cash at end of period $ -- 102,928
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
INNSUITES HOSPITALITY TRUST AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of and for the nine months ended October 31, 2000 and 1999
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
InnSuites Hospitality Trust (the "Trust") is a real estate investment
trust ("REIT") that owns, directly or indirectly, eleven hotels with 1,787
suites in Arizona, southern California and New Mexico. 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 that 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. 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 subsequent hotel
acquisitions, 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.
The Trust's general partnership interest in the Partnership was 48.01%
on October 31, 2000, and the weighted average for the nine months ended October
31, 2000 was 46.04%.
Partnership Agreement
The Partnership Agreement of the Partnership provides for the issuance
of two classes of limited partnership units, Class A and Class B. Such classes
are identical in all respects, except that each Class A limited partnership unit
in the Partnership shall be convertible into a like number of shares of
beneficial interest of the Trust, at any time at the option of the particular
limited partner, if the Trust determines that such conversion would not cause
the Trust to fail to qualify as a REIT. As of October 31, 2000, a total of
1,642,282 Class A limited partnership units were issued and outstanding.
Additionally 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 and B limited partnership units
were to be converted, the limited partners in the Partnership would receive
6,868,646 shares of beneficial interest of the Trust. The Class B limited
partnership units may only become convertible with the approval of the Board of
Trustees, in its sole discretion.
Basis of Presentation
As sole general partner, the Trust exercises unilateral control over
the Partnership. Therefore, the financial statements of the Partnership are
consolidated with the Trust. All significant intercompany transactions and
balances have been eliminated.
6
<PAGE>
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended October 31,
2000 are not necessarily indicative of the results that may be expected for the
year ended January 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Trust's Annual Report
on Form 10-K/A as of and for the year ended January 31, 2000.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. REVENUE RECOGNITION:
Trust revenues are recognized when earned. Minimum rent revenues are
calculated and recognized monthly. Percentage rent is calculated quarterly and
recognized if percentage rent is greater than minimum rent.
3. EARNINGS 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 nine months ended October 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 7,133,188 in
the first nine months of fiscal 2001 and 7,687,566 in the first nine months of
fiscal 2000. These shares are anti-dilutive due to the losses for the first nine
months of fiscal year 2001 and are dilutive due to the earnings for the first
nine months of fiscal 2000.
For the nine months ended October 31, 2000 and 1999, 348,000 and
394,300 stock options, respectively, are not included in the computation of
diluted earnings per share since the option exercise prices were greater than
the average market price of the shares of beneficial interest.
4. ACQUISITION:
Effective August 30, 2000, Albuquerque Suite Hospitality, LLC, a
wholly-owned subsidiary of the Partnership, acquired 100% of the ownership
interest in a hotel located in Albuquerque, New Mexico for $2,100,000. The
acquisition was funded with a first mortgage on the property in the amount of
$1,575,000 and cash from loans made to the Partnership by Wirth and his
affiliates.
5. CREDIT FACILITY:
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,
7
<PAGE>
which charges interest at a variable interest rate (LIBOR + 2.75%). The interest
rate was 9.37% on October 31, 2000. By its terms, the Credit Facility will
expire in approximately four months on April 16, 2001. 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 1.75 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.
On December 12, 2000, the Trust notified Pacific Century Bank that the
Trust was not in compliance with certain financial covenants contained in the
Credit Facility. The Trust also applied for, but has not yet received, a waiver
of such noncompliance from Pacific Century Bank. Under the terms of the Credit
Facility, the Trust has 30 days from its receipt of written notice from Pacific
Century Bank to cure its noncompliance, which 30-day period may be extended for
up to an additional 90 days if noncompliance can not reasonably be cured within
the 30-day period. If the Trust is not able to cure its noncompliance within the
cure period, the Trust will be in default of the Credit Facility and the $11.3
million drawn from the Credit Facility by the Trust may become immediately due
and payable. The Trust continues to actively seek individual loans on each of
the three Hotels which are currently securing the Credit Facility and expects to
have new financing in place to pay off the Credit Facility prior to its
expiration on April 16, 2001. To date, Pacific Century Bank has not declared the
Credit Facility due and payable.
During the third quarter of fiscal 2001, the Trust was notified that
Pacific Century Bank would not renew the Credit Facility when it expires on
April 16, 2001 due to a decision by Pacific Century Bank to cease funding
hospitality operations. Pacific Century Bank has also announced that they are
selling their Arizona branches. The Trust is actively seeking individual loans
on each of the three Hotels securing the Credit Facility and expects to have new
financing in place before the expiration date.
6. 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:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2001 $ 1,818,750
2002 6,850,000
2003 6,850,000
2004 6,850,000
2005 6,850,000
Thereafter 16,816,667
-------------
$ 46,035,417
=============
</TABLE>
The Trust earned approximately $7.6 million and $7.4 million in rent revenue
during the first nine months of fiscal 2001 and 2000, respectively. The revenues
during both nine month periods were in excess of base rent by approximately $2.3
million. After a review of projected cash flows to assess the future
collectibility of current rents, the Trust recorded a provision for
uncollectible rent receivables of approximately $1.6 million for the first nine
months of fiscal 2001.
7. RELATED PARTY TRANSACTIONS:
The Partnership is responsible for all expenses incurred by the Trust
in accordance with the Partnership Agreement.
8
<PAGE>
Wirth is a 9.8% indirect shareholder of the Lessee.
During the third quarter ended October 31, 2000, the Lessee paid
$215,000 to the Partnership to satisfy loan obligations.
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 October 31, 2000, Wirth and his affiliates held
5,226,364 Class B limited partnership units. As of October 31, 2000 Wirth and
his affiliates held 582,813 shares of beneficial interest in the Trust.
At October 31, 2000, the Trust owned a 48.01% interest in the eleven
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 loaned 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 on the property 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 InnSuites Hotels Scottsdale
to the Partnership in exchange for 1.6 million general partner units.
The Trust repurchased 370,487 of the Partnership's Class A units in the
first nine months of fiscal 2001 and 131,493 of the Partnership's Class
A units in all of fiscal 2000 at a weighted average price per unit of
$2.37 and $4.10, respectively. Of these units, 160,904 were retired and
341,076 units were reclassified from Class A units to General Partner
units.
The Trust paid interest on related party notes to Wirth in the amount
of $186,431 for the nine months ended October 31, 2000.
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 cash expenses.
Loans payable to related parties and notes payable to related parties
consists of funds provided by Wirth and his affiliates to repurchase Partnership
units, acquire hotel properties and fund working capital and capital improvement
needs and a note payable to Steve Robson to repurchase Partnership Class A
limited partnership units. The aggregate amounts outstanding were approximately
$5.5 million and $3.0 million as of October 31 and January 31, 2000,
respectively. The loans payable to related parties 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.
9
<PAGE>
Wirth received an unsecured promissory note that consolidated four
outstanding unsecured loans to the Trust totaling $600,000. The loan
amounts consolidated were $200,000, $120,000, $30,000 and $250,000, all
bearing interest at 7% per year with varying maturities. Interest on
these four notes through July 31, 2000 was approximately $41,999 which
was subsequently paid on August 15, 2000 according to the unsecured
consolidated promissory note. The loans were used to fund operations,
to pay down the outstanding loan to the Partnership and to pay
dividends declared October 12, 1999. The unsecured consolidated
promissory note from the Trust in the amount of $600,000, bearing
interest at 7% per year, became effective August 1, 2000. The unpaid
principal balance and accrued interest on the unsecured consolidated
promissory note is due on May 15, 2001.
Suite Hotels Limited Liability Company, owned directly or indirectly by
Wirth, made an unsecured loan to the Trust in the amount of $180,000,
bearing interest at 7% per year, effective June 8, 2000. The unpaid
principal balance and accrued interest is due on May 15, 2001. The
Trust used the proceeds to fund operations. During the third quarter
ended October 31, 2000, the Trust paid the loan in full.
InnSuites Innternational Hotels, Inc. owned directly or indirectly by
Wirth, made an unsecured loan to the Trust in the amount of $100,000,
bearing interest at 7% per year, effective July 6, 2000. The unpaid
principal balance and accrued interest is due on May 15, 2001. The
Trust used the proceeds to fund operations. During the third quarter
ended October 31, 2000, the Trust paid the loan in full.
On July 27, 2000, the Partnership repurchased 300,000 of the Trust's
shares from Wirth and/or affiliates, owned directly or indirectly by
Wirth, issuing 10 secured promissory notes in the amount of $723,000.
The promissory notes are secured by the repurchased shares. The secured
promissory notes in the aggregate amount of $723,000 bear interest at
7% per year, effective July 27, 2000. The unpaid principal balances and
accrued interest are due at various dates ranging from August 27, 2000
to July 27, 2003. All payments have been made as scheduled. The balance
on October 31, 2000 was $654,009.
On July 27, 2000, the Trust purchased 311,326 of the Partnership's
Class A limited partnership units from Steve Robson, Trustee of the
Trust, for $750,000. The Trust made an initial payment of $5,000 and
issued a secured promissory note in the amount of $745,000. The
promissory note is secured by the purchased Partnership units. The
secured promissory note in the amount of $745,000 bears interest at 7%
per year, effective July 27, 2000. The unpaid principal balance and
accrued interest is to be amortized over 36 months. The final payment
is due August 27, 2003. All payments have been made as scheduled. The
balance on October 31, 2000 was $688,700.
Pepper Tree/Freeway Community Limited Partnership, owned directly or
indirectly by Wirth, made an unsecured loan to the Trust in the amount
of $50,000, bearing interest at 7% per year, effective July 28, 2000.
The unpaid principal balance and accrued interest is due on May 15,
2001. The Trust used the proceeds to fund operations. During the third
quarter ended October 31, 2000, the Trust paid the loan in full.
Pepper Tree/Freeway Community Limited Partnership, owned directly or
indirectly by Wirth, made two (2) unsecured loans to the Trust in the
amount of $200,000 and $150,000, both bearing interest at 7% per year,
effective August 14 and September 12, 2000, respectively. The unpaid
principal balance and accrued interest is due on May 15 and May 30,
2001, respectively. The Trust used the proceeds to fund operations.
During the third quarter ended October 31, 2000, the Trust paid the
loans in full.
Wirth made six (6) unsecured loans to the Trust in the total amount of
$1,317,000, all bearing interest at 7% per year, effective varying from
August 15 to October 23, 2000. The unpaid principal balances and
accrued interest are due ranging from May 15 to June 1, 2001. The Trust
used the
10
<PAGE>
proceeds to invest in the Albuquerque, New Mexico acquisition and to
fund operations.
InnSuites Innternational Hotels Inc., owned directly or indirectly by
Wirth, made an unsecured loan to the Partnership in the amount of
$90,000, bearing interest at 7% per year, effective September 19, 2000.
The unpaid principal balance and accrued interest is due on May 15,
2001. The Trust used the proceeds to fund startup costs for the
Albuquerque, New Mexico hotel property.
8. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
The Trust issued 59,623 shares of beneficial interest during the nine
months ended October 31, 2000 valued at $131,505 in exchange for Class A limited
partnership units.
The Trust paid $213,243 in dividends and distributions in the nine
months ended October 31, 2000.
The Trust paid $2,606,387 in interest for the nine months ended October
31, 2000.
9. STATEMENTS OF OPERATIONS OF INNSUITES HOTELS, INC. (LESSEE)
Certain condensed financial information related to the Lessee's
operations is as follows:
INNSUITES HOTELS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
2000 1999
-------- ---------
<S> <C> <C>
Revenues from hotel operations
Room, food and beverage $ 21,490 20,974
Other 787 730
-------- --------
Total revenues 22,277 21,704
Expenses
Departmental 7,157 6,750
Percentage rent 7,552 7,434
Advertising 1,639 1,621
Other 7,452 6,551
-------- --------
Total expenses 23,800 22,356
-------- --------
Net loss $ (1,523) (652)
======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with the
InnSuites Hospitality Trust unaudited consolidated financial statements and
notes thereto and the InnSuites Hotels, Inc. (the "Lessee") unaudited condensed
statements of operations appearing elsewhere in this quarterly 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 Internal Revenue Code of 1986, as amended (the "Code"), neither the
Trust
11
<PAGE>
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 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 expects to restructure and acquire the Lessee on
February 1, 2001 following the guidelines of the REIT Modernization Act ("RMA").
Restructuring pursuant to the RMA will simplify the structure of the Trust and
allow all profits of the Lessee to flow directly to the Trust instead of the
Lessee retaining profits.
At October 31, 2000, the Trust owned a 48.01% interest in the Hotels
through its sole general partner's interest in the Partnership.
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 cash expenses. The Percentage Leases
provide for the payment of base rent and percentage rent. For the nine-month
period ended October 31, 2000, base rent and percentage rent in the aggregate
amount of $7.6 million was earned by the Trust. The principal determinant of
percentage rent is the Lessee's room revenues at the Hotels, as defined by the
Percentage Leases. Therefore, management believes that a review of the
historical performance of the operations of the 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.
In comparing the first nine months of fiscal 2001 and 2000, ADR decreased $0.10,
or 0.1%, to $67.48 in the first nine months of fiscal 2001 from $67.58 in the
first nine months of fiscal 2000, primarily due to a conscious effort to drive
additional occupancy by managing down the ADR. Occupancy increased by 3.3% to
65.4% in the first nine months of fiscal 2001 from 62.1% in the first nine
months of fiscal 2000 primarily as the result of the rate management activity.
This resulted in an increase in REVPAR of $2.20, or 5.2%, to $44.16 in the first
nine months of fiscal 2001 from $41.96 in the first nine months of fiscal 2000.
The following table shows certain historical financial and other
information for the periods indicated.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
OCTOBER 31,
2000 1999
-------- --------
<S> <C> <C>
Occupancy 65.4% 62.1%
Average daily rate (ADR) $ 67.48 $ 67.58
Revenue per available room (REVPAR) $ 44.16 $ 41.96
</TABLE>
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 nine months ended October 31, 2000
compared to the nine months ended October 31, 1999
For the nine months ended October 31, 2000 compared to the nine months
ended October 31, 1999, Trust revenues increased $155,000, or 2.1%, to $7.6
million from $7.4 million, respectively. The increase was primarily due to the
addition of revenues attributable to the Albuquerque, New Mexico hotel acquired
in August 2000. Total expenses increased $1.1 million, or 14.6%, to $8.3 million
from $7.3 million
12
<PAGE>
comparing the nine months ended October 31, 2000 and 1999, respectively. The
increase was primarily due to provisions for uncollectible rent totaling $1.6
million, an increase in depreciation and interest expense of $493,000, or 11.6%,
and additional expenses of $94,000 attributable to the Albuquerque, New Mexico
hotel in the nine months ended October 31, 2000, offset by the elimination of a
complementary rooms program which reduced expenses by $383,000 in the nine
months ended October 31, 2000, the one-time write-off of $575,000 for a
withdrawn public offering in the nine months ended October 31, 1999, and the
final settlement of accounting and legal charges of $300,000 associated with the
Trust's closing of the Cleveland office in the nine months ended October 31,
1999.
Real estate depreciation for the nine months ended October 31, 2000
compared to the nine months ended October 31, 1999 increased $184,000, or 9.7%,
to $2.1 million from $1.9 million, respectively. The increase was primarily due
to an increase in capitalized refurbishment costs and the addition of shorter
life categories for assets purchased after October 31, 1999.
For the nine months ended October 31, 2000, real estate and personal
property taxes, insurance and ground rent totaled $1.0 million compared to a
similar amount of $1.1 million for the nine months ended October 31, 1999.
General and administrative expenses include overhead charges for
management, accounting, shareholder and legal services for the Trust. In
comparing the nine months ended October 31, 2000 and 1999, general and
administrative expenses increased $544,000, or 28.6%, to $2.4 million from $1.9
million, respectively. The increase was primarily due to the provision for
uncollectible rent totaling $1.6 million in the nine months ended October 31,
2000, offset by the elimination of a complementary rooms program which reduced
expenses by $383,000 in the nine months ended October 31, 2000, the write-off of
$575,000 for a withdrawn public offering in the nine months ended October 31,
1999, the final settlement of accounting and legal charges of $300,000
associated with the Trust's closing of the Cleveland office in the nine months
ended October 31, 1999, and other miscellaneous expenses.
Total interest expense increased $309,000, or 13.1%, to $2.7 million
from $2.4 million comparing the nine months ended October 31, 2000 and 1999,
respectively. Interest on mortgage notes payable increased $149,000, or 9.6%, to
$1.7 million from $1.5 million comparing the nine months ended October 31, 2000
and 1999, respectively. The increase was primarily due to net additional
borrowings of approximately $2.3 million during fiscal 2000 for a loan
modification relating to the Northern Phoenix, Arizona hotel property, the
refinancing of the San Diego, California property, and the addition of interests
costs attributable to the Albuquerque, New Mexico hotel acquired in fiscal 2001.
Interest on notes payable to banks increased $120,000, or 17.5%, to $804,000
from $684,000 comparing the nine months ended October 31, 2000 and 1999,
respectively. The increase was primarily due to an increase in the variable rate
paid on the $12 million Credit Facility. Interest on notes payable to related
parties increased $40,000, or 29.7%, to $176,000 from $136,000 due to additional
loans from Wirth and his affiliates during the second half of fiscal 2000 and
the first nine months of fiscal 2001.
Results of Operations of the Trust for the three months ended October 31, 2000
compared to the three months ended October 31, 1999
For the three months ended October 31, 2000 compared to the three
months ended October 31, 1999, Trust revenues increased $136,000, or 6.7%, to
$2.2 million from $2.0 million, respectively. The increase was primarily due to
the addition of revenues attributable to the Albuquerque, New Mexico hotel
acquired in August 2000. Total expenses increased $911,000, or 41.1%, primarily
due to provisions for uncollectible rent totaling $682,000 in the three months
ended October 31, 2000, the elimination of a complementary rooms program which
reduced expenses by $248,000 in the three months ended October 31, 2000, an
increase in depreciation and interest expenses of $308,000 in the three months
ended October 31, 2000 and additional expenses in the amount of $94,000 related
to the acquisition of the Albuquerque, New Mexico hotel in August 2000.
13
<PAGE>
Real estate depreciation for the three months ended October 31, 2000
compared to the three months ended October 31, 1999 increased $110,000, or
17.8%, to $727,000 from $617,000, respectively. The increase was primarily due
to an increase in capitalized refurbishment costs in fiscal 2001 and the latter
half of fiscal 2000 and the addition of shorter life categories for assets
purchased after October 31, 1999.
For the three months ended October 31, 2000 real estate and personal
property taxes, insurance and ground rent totaled $368,000 compared to a similar
amount of $422,000 for the three months ended October 31, 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 three months ended October
31, 2000 and 1999, general and administrative expenses increased $619,000, or
147.4%, to approximately $1.0 million from $420,000, respectively. The increase
was primarily due to provisions for uncollectible rent totaling $682,000 in the
three months ended October 31, 2000.
Total interest expense increased $198,000, or 26.2%, to $952,000 from
$755,000 comparing the three months ended October 31, 2000 and 1999,
respectively. Interest on mortgage notes payable increased $82,000, or 16.4%, to
$587,000 from $505,000 comparing the three months ended October 31, 2000 and
1999, respectively. The increase was primarily due to net additional borrowings
of approximately $2.3 million during fiscal 2000 for a loan modification
relating to the Northern Phoenix, Arizona property, the refinancing of the San
Diego, California property and the acquisition of the Albuquerque, New Mexico
hotel in fiscal 2001. Interest on notes payable to banks increased $91,000, or
45.4%, to $291,000 from $200,000 comparing the three months ended October 31,
2000 and 1999, respectively. The increase was primarily due to an increase in
the variable rate paid on the $12 million Credit Facility. Interest on notes
payable to related parties increased $25,000, or 49.2%, to $75,000 from $50,000
due to additional loans from Wirth and his affiliates during the second half of
fiscal 2000 and the first nine months of fiscal 2001.
Minority interest decreased by $390,000, or more than 100%, to a loss
of $249,000 for the nine months ended October 31, 2000 from income of $141,000
for the nine months ended October 31, 1999. The decrease was due to the minority
interest's 53.96% weighted average share of the $755,000 loss for the nine
months ended October 31, 2000 compared to the minority interest's 61.53%
weighted average share of the $149,000 income for the nine months ended October
31, 1999.
Funds from Operations (FFO)
The Trust notes that industry analysts and investors use Funds From
Operations ("FFO") as another tool to evaluate and compare equity REITs. The
Trust also believes it is meaningful as an indicator of net income excluding
most non-cash items and provides information about the Trust's cash available
for distributions, debt service and capital expenditures. The Trust follows the
March 1995 interpretation of the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO, as amended January 1, 2000, which is
calculated (in the Trust's case) as net income (computed in accordance with
accounting principles generally accepted in the United States ("GAAP")),
excluding gains (or losses) from sales of property, plus depreciation and
amortization on real estate property. FFO does not represent cash flow from
operating activities in accordance with GAAP and is not indicative of cash
available to fund all of the Trust's cash needs. FFO should not be considered as
an alternative to net income or any other GAAP measure as an indicator of
performance and should not be considered as an alternative to cash flows as a
measure of liquidity. In addition, the Trust's FFO may not be comparable to
other companies' FFO due to differing methods of calculating FFO and varying
interpretations of the NAREIT definition.
14
<PAGE>
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31,
(Unaudited)
(Amounts in thousands)
2000 1999
-------- --------
<S> <C> <C>
Net income (loss) attributable to common stockholders $ (506) 8
Depreciation 2,078 1,894
Minority interest share of depreciation (1,121) (1,165)
------ ------
Funds from operations (FFO) $ 451 737
====== ======
</TABLE>
FFO decreased to approximately $451,000 from approximately $737,000
when comparing the first nine months of fiscal 2001 and 2000, respectively. The
decrease of approximately $286,000, or 38.8%, was primarily due to higher
general and administrative expenses in the nine month period ended October
31,2000.
Results of Operations of the Lessee for the nine months ended October 31, 2000
compared to the nine months ended October 31, 1999
For the nine months ended October 31, 2000, the Lessee had total
revenues of $22.3 million compared to $21.7 million for the nine months ended
October 31, 1999. The increase of $573,000, or 2.6%, in total revenue was
primarily due to the addition of the Albuquerque, New Mexico hotel's total
revenues of $300,000 and an increase in total revenues of the other Hotels of
$273,000.
Departmental expenses, which include operating expenses for the rooms,
food and beverage, telecommunications and miscellaneous departments, increased
$407,000, or 6.0%, to $7.2 million from $6.8 million for the nine months ended
October 31, 2000 and 1999, respectively. This increase was primarily due to an
overall increase in operating expenses in all departments consistent with the
rate of inflation and the addition of expenses attributable to the Albuquerque,
New Mexico hotel.
Percentage Lease expense increased by $118,000, or 1.6%, to $7.6
million from $7.4 million for the nine month periods ended October 31, 2000 and
1999, respectively. The increase was primarily due to the addition of $74,000
lease expense for the Albuquerque, New Mexico hotel.
Other expenses include general and administrative, maintenance,
hospitality, utility and insurance expenses. These expenses were $7.5 million
for the nine months ended October 31, 2000 compared to $6.6 million for the nine
months ended October 31, 1999. The increase of $902,000, or 13.8%, was primarily
due to increased general and administrative expenses of $434,000, inflationary
increases in utility, hospitality, maintenance and insurance expenses and the
addition of the Albuquerque, New Mexico hotel's other expenses totaling $90,000.
LIQUIDITY AND CAPITAL RESOURCES
The Trust, through its ownership interest in the Partnership, has 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.
For the nine months ended October 31, 2000, the Trust recorded a provision of
approximately $1.6 million for uncollectible receivables. No such provision was
made with respect to the nine
15
<PAGE>
months ended October 31, 1999. These charges reflect the Trust's assessment of
the collectibility of its receivables, which primarily consists of rent
receivable from the Lessee, based on an evaluation of the Lessee's estimated
future cash flows. The Trust's management expects to restructure and acquire the
Lessee on February 1, 2001 following the guidelines of the RMA which will allow
all profits to flow directly to the Trust.
As of October 31, 2000, the Trust has no commitments for capital
expenditures beyond a 4% reserve for refurbishment and replacements set aside
annually, as 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 the $12 million 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 four months on April 16, 2001. 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 1.75 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. During the third quarter of fiscal 2001, the
Trust was notified that Pacific Century Bank would not renew the Credit Facility
when it expires on April 16, 2001 due to a decision by Pacific Century Bank to
cease funding hospitality operations. Pacific Century Bank has also announced
that they are selling their Arizona branches. In order to replace the liquidity
provided by the Credit Facility, the Trust is actively seeking individual loans
on each of the three Hotels which are currently securing the Credit Facility and
expects to have new financing in place to pay off the Credit Facility prior to
its expiration.
On December 12, 2000, the Trust notified Pacific Century Bank that the
Trust was not in compliance with certain financial covenants contained in the
Credit Facility. The Trust also applied for, but has not yet received, a waiver
of such noncompliance from Pacific Century Bank. Under the terms of the Credit
Facility, the Trust has 30 days from its receipt of written notice from Pacific
Century Bank to cure its noncompliance, which 30-day period may be extended for
up to an additional 90 days if noncompliance can not reasonably be cured within
the 30-day period. If the Trust is not able to cure its noncompliance within the
cure period, the Trust will be in default of the Credit Facility and the $11.3
million drawn from the Credit Facility by the Trust may become immediately due
and payable. The Trust continues to actively seek individual loans on each of
the three Hotels which are currently securing the Credit Facility and expects to
have new financing in place to pay off the Credit Facility prior to its
expiration on April 16, 2001. To date, Pacific Century Bank has not declared the
Credit Facility due and payable.
In addition, as of October 31, 2000, the Trust reported a zero cash
balance on its unaudited consolidated Statement of Cash Flows. In order to
provide sufficient cash for operations, the Trust anticipates utilizing the
financing proceeds described in the preceding paragraph. In addition, the Trust
is seeking refinancing on additional Hotels that will provide positive cash flow
to fund operations. The Trust also plans to reduce refurbishment expenditures
and other cash outlays during fiscal 2002.
The Trust may seek to 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 or from the proceeds of additional
issuances of shares of beneficial interest or other securities. However, there
can be no assurance that the Trust will successfully acquire or develop
additional hotels.
On August 30, 2000, Albuquerque Suite Hospitality, LLC, a 100% owned
subsidiary of the Partnership, purchased the 122-suite Albuquerque Best Western
Airport Inn located in Albuquerque, New Mexico for $2.1 million. The funds
utilized
16
<PAGE>
for the purchase price were secured by a first mortgage in the amount of
$1,575,000 and the remaining amount was loaned by Wirth and his affiliates.
The Partnership continues to contribute to a Capital Expenditures Fund
(the "Fund") 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 the nine months ended October 31, 2000, the
Hotels spent approximately $1.4 million for capital expenditures. 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 Lessee also spent approximately $1.3 million during
the nine months ended October 31, 2000 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 result in
changes in the Trust's revenues based on changes in the underlying Hotel
revenues. Therefore, the Trust relies entirely on the performance of the Hotels
and the Lessee's ability to increase revenues to keep pace with inflation.
Operators of hotels in general, and the Lessee in particular, can change room
rates quickly, but competitive pressures may limit the Lessee's ability to raise
rates faster than inflation.
SEASONALITY
The Hotels' operations historically have been seasonal. The six
southern Arizona hotels experience their highest occupancy 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, California and New Mexico 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.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Trust intends that such
forward-looking statements be subject to the safe harbors created by such Acts.
Those forward-looking statements include statements regarding the intent, belief
or current expectations of the Trust, its Trustees or its officers in respect of
(i) the declaration or payment of dividends; (ii) the leasing, management or
operation of the Hotels; (iii) the adequacy of reserves for renovation and
refurbishment; (iv) the Trust's financing plans; (v) the Trust's position
regarding investments, acquisitions, developments, 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.
17
<PAGE>
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 rates; changes in room rental rates which may be charged by the
Lessee in response to market rental rate changes or otherwise; interest rate
fluctuations; changes in federal income tax laws and regulations; competition;
any changes in the Trust's financial condition or operating results due to
acquisitions or dispositions of hotel properties; real estate and hospitality
market conditions; hospitality industry factors; and local or national economic
and business conditions, including, without limitation, conditions which may
affect public securities markets generally, the hospitality industry, or the
markets in which the Trust operates or will operate. The Trust does not
undertake any obligation to update publicly or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of 1934, the
qualifications set forth hereinabove are inapplicable to any forward-looking
statements in this Form 10-Q relating to the operations of the Partnership.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Trust is exposed to interest rate risk primarily as a result of its
mortgage notes payable, notes payable to banks and other notes payable. 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.
There have been no significant changes in the Trust's debt structure during the
nine months ended October 31, 2000.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
EXHIBIT
NUMBER EXHIBIT
------- -------
10.1 Promissory Note dated August 14, 2000 by InnSuites
Hospitality Trust in favor of Pepper Tree/Freeway
Community Limited Partnership.
10.2 Promissory Note dated August 15, 2000 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.3 Promissory Note dated August 29, 2000 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.4 Promissory Note dated September 8, 2000 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.5 Promissory Note dated September 12, 2000 by InnSuites
Hospitality Trust in favor of Pepper Tree/Freeway
Community Limited Partnership.
10.6 Promissory Note dated September 19, 2000 by RRF Limited
Partnership in favor of InnSuites Innternational Hotels
Inc.
10.7 Promissory Note dated September 25, 2000 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.8 Promissory Note dated October 19, 2000 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.9 Promissory Note dated October 23, 2000 by InnSuites
Hospitality Trust in favor of James F. Wirth.
27.1 Financial Data Schedule. (1)
(1) Filed only in electronic format pursuant to Item 601(c) of Regulation S-K.
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed by the Trust during the
fiscal quarter ended October 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 15, 2000 INNSUITES HOSPITALITY TRUST (Registrant)
By: /s/ Anthony B. Waters
------------------------------------------
Anthony B. Waters, Chief Financial Officer
19
