<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 34-0-22164
RFS HOTEL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-1534743
(State or other Jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
850 Ridge Lake Boulevard, Suite 220, (901) 767-7005
Memphis, TN 38120 (Registrant's Telephone Number
(Address of Principal Executive Offices) Including Area Code)
(Zip Code)
n/a
(Former address, if changed since last report)
Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to
such filing requirements for the past 90 days.
X Yes No
The number of shares of Registrant's Common Stock, $.01 par value,
outstanding on June 30, 1999 was 25,005,946
<PAGE> 2
RFS HOTEL INVESTORS, INC.
INDEX
<TABLE>
<CAPTION>
Form 10-Q
Report
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RFS Hotel Investors, Inc.
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income - For the three and the
six months ended June 30, 1999 and June 30, 1998 4
Consolidated Statements of Cash Flows - For the three and
the six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE> 3
RFS HOTEL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ----------
(unaudited)
<S> <C> <C>
ASSETS
Investment in Hotel Properties, net $ 643,464 $ 624,730
Hotels under development 7,751 18,289
Cash and cash equivalents 1,833 2,014
Restricted cash 1,081 7,809
Accounts receivable-Lessees 15,128 10,656
Notes receivable 4,926 4,949
Deferred expenses, net 4,926 5,216
Prepaid and other assets 6,249 8,818
Escrow deposits 1,510 1,510
--------- ---------
$ 686,868 $ 683,991
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 4,105 $ 5,320
Accrued real estate taxes 4,104 2,961
Borrowings on line of credit 90,307 82,307
Long-term obligations 185,861 190,492
Minority interest 35,897 35,974
--------- ---------
320,274 317,054
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, 973,684 shares outstanding 10 10
Common Stock, $.01 par value, 100,000,000 shares
authorized, 25,115,946 and 24,986,946 shares outstanding 251 251
Paid-in capital 374,959 374,959
Treasury stock, 110,000 shares (2,012) (2,012)
Distributions in excess of income (5,228) (4,468)
Unearned directors' and officers' compensation (1,386) (1,803)
--------- ---------
Total shareholders' equity 366,594 366,937
--------- ---------
$ 686,868 $ 683,991
========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
3
<PAGE> 4
RFS HOTEL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
3 MONTHS 3 MONTHS 6 MONTHS 6 MONTHS
ENDED ENDED ENDED ENDED
06/30/99 06/30/98 06/30/99 06/30/98
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Leases $ 26,073 $ 25,601 $ 49,588 $ 47,624
Other 165 152 376 238
-------- -------- -------- --------
Total revenue 26,238 25,753 49,964 47,862
-------- -------- -------- --------
Expenses:
Real estate taxes and property and
casualty insurance 2,538 2,480 4,902 4,968
Depreciation 5,770 5,147 11,372 10,065
Amortization of franchise fees and
unearned compensation 202 157 477 386
Compensation 346 447 841 1,041
Franchise taxes 45 45 90 90
General and administrative 527 571 1,044 1,377
Lease termination fee 239
Gain on sale of a hotel property (523)
Amortization of loan costs 294 273 570 516
Interest expense, net 4,707 3,962 9,331 7,510
-------- -------- -------- --------
Total expenses 14,429 13,082 28,866 25,430
-------- -------- -------- --------
Income before minority interest 11,809 12,671 21,098 22,432
Minority interest (1,035) (1,179) (1,900) (2,115)
-------- -------- -------- --------
Net income 10,774 11,492 19,198 20,317
Preferred stock dividends (352) (352) (700) (700)
-------- -------- -------- --------
Net income applicable to common
shareholders $ 10,422 $ 11,140 $ 18,498 $ 19,617
======== ======== ======== ========
Basic earnings per share 0.42 0.45 0.74 0.80
Diluted earnings per share 0.41 0.44 0.74 0.79
Weighted average common shares outstanding 25,006 24,877 25,006 24,630
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
4
<PAGE> 5
RFS HOTEL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS MONTHS
JUNE 30, JUNE 30,
1999 1998
------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,198 $ 20,317
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,419 10,967
Income allocated to minority interest 1,900 2,115
Gain on sale of a hotel property (523)
Write-off of old loan costs 129
Changes in assets and liabilities:
Accounts receivable-Lessees (4,472) (5,153)
Prepaids and other assets 2,569 (3,209)
Accounts payable and other liabilities (72) (925)
-------- --------
Net cash provided by operating activities 31,542 23,718
-------- --------
Cash flows from investing activities:
Investment in hotel properties and hotels
under development (19,568) (60,708)
Cash received from reserves 6,728
Cash paid for franchise fees (90)
Proceeds from sale of hotel property 4,440
-------- --------
Net cash used by investing activites (12,930) (56,268)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 11,040
Purchase of treasury stock (2,012)
Distributions to common and preferred shareholders (19,958) (19,209)
Distributions to limited partners (1,977) (1,927)
Borrowings on revolving credit agreement 8,000 52,500
Redemption of limited partnership units (37)
Payments on debt and bonds (4,631) (7,868)
Collections on notes receivable 23
Loan fees paid (250) (220)
-------- --------
Net cash provided (used) by financing activities (18,793) 32,267
-------- --------
Net decrease in cash and cash equivalents (181) (283)
Cash and cash equivalents at beginning of period 2,014 4,131
-------- --------
Cash and cash equivalents at end of period $ 1,833 $ 3,848
======== ========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
In 1998, the Company, through a partnership, assumed $19,169 of debt
in connection with the purchase of a hotel.
In 1998, the Company applied a deposit of $20 towards the purchase of land
In 1998, due to the resignation of an officer, the Company cancelled
45,000 shares of restricted common stock which had not vested.
In 1998, the Company sold a hotel for which the purchaser paid $2,940
in cash and signed a note to the Company for $1,500.
The accompanying notes are an integral
part of these consolidatedfinancial statements.
5
<PAGE> 6
RFS HOTEL INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE, UNIT AND PER SHARE DATA)
1. ORGANIZATION AND PRESENTATION. RFS Hotel Investors, Inc. (the "Company")
was incorporated in Tennessee on June 1, 1993, and is a self-administered real
estate investment trust ("REIT"). The Company contributed substantially all of
the net proceeds of its public offerings to RFS Partnership, L.P. (the
"Partnership") in exchange for the sole general partnership interest in the
Partnership. The Partnership began operations in August 1993. At June 30, 1998,
the Company owned approximately 90.6% of the Partnership. RFS Managers, Inc.
("Managers") a wholly-owned subsidiary of the Company, was formed effective
January 1, 1995 to provide management services to the Company. RFS Financing
Partnership, L.P., (the "Financing Partnership"), a bankruptcy remote, single
purpose Tennessee limited partnership, was formed to issue commercial mortgage
bonds (the "Bonds"). During 1997, Ridge Lake General Partners, Inc. ("RLGP") was
formed to purchase a hotel. The Company owns approximately 95% of RLGP. In June
1998, the Company purchased a 75% interest in Wharf Associates Partnership
("Wharf") which owns a hotel in California. In December 1998, RFS SPE 1 1998,
LLC, ("SPE 1"), and RFS SPE 2 1998, LLC, ("SPE 2"), bankruptcy remote,
single-purpose limited liability companies, were formed to effect a debt
financing of ten hotel properties. The Company owns 100% of SPE 1 and SPE 2.
The Company, through its subsidiary partnerships, acquires or develops and
owns hotel properties which are leased to third parties.
These unaudited consolidated financial statements include the accounts of
the Company, and its subsidiaries, and have been prepared pursuant to the
Securities and Exchange Commission ("SEC") rules and regulations and should be
read in conjunction with the financial statements and notes thereto of the
Company included in the Company's 1997 Annual Report on Form 10-K. The following
notes to the consolidated financial statements highlight significant changes to
notes included in the Form 10-K and present interim disclosures required by the
SEC. The accompanying consolidated financial statements reflect, in the opinion
of management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring nature.
2. DECLARATION OF DIVIDEND. On July 28, 1999, the Company declared a $.385
dividend on each share of Common Stock outstanding to shareholders of record on
August 6, 1999 and a $.3625 dividend on each share of Series A Preferred Stock
outstanding. The dividend will be paid on August 16, 1999.
6
<PAGE> 7
3. CALCULATION OF EARNINGS PER SHARE. Calculations of basic and diluted
earnings per share are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS:
Net income $ 10,774 $ 11,492 $ 19,198 $ 20,317
Less dividends declared on preferred stock (352) (352) (700) (700)
-------- -------- -------- --------
$ 10,422 $ 11,140 $ 18,498 $ 19,617
======== ======== ======== ========
Weighted average common shares outstanding 25,006 24,877 25,006 24,630
$ 0.42 $ 0.45 $ 0.74 $ 0.80
======== ======== ======== ========
Diluted EPS:
Net income $ 10,774 $ 11,492 $ 19,198 $ 20,317
======== ======== ======== ========
Weighted average common shares outstanding 25,006 24,877 25,006 24,630
Preferred shares outstanding 974 974 974 974
Potential dilutive common shares 23 180 13 162
-------- -------- -------- --------
Weighted average common shares, preferred
shares and dilutive common stock
equivalents outstanding 26,003 26,031 25,993 25,766
$ 0.41 $ 0.44 $ 0.74 $ 0.79
======== ======== ======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and words
of similar import. Such forward-looking statements relate to future events and
the future financial performance of the Company, and involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from the
results or achievements expressed or implied by such forward-looking statements.
The Company is not obligated to update any such factors or to reflect the impact
of actual future events or developments on such forward-looking statements.
7
<PAGE> 8
BACKGROUND
The following chart summarizes information regarding the 61 hotels (the
"Hotels") owned at June 30, 1999:
<TABLE>
<CAPTION>
Number of Number of
Franchise Affiliation Hotel Properties Rooms/Suites
- --------------------- ---------------- ------------
<S> <C> <C>
Full Service Hotels:
Holiday Inn ............................. 6 1,208
Sheraton Hotels and
Sheraton Four Points .................. 5 1,018
DoubleTree .............................. 1 220
Ramada Plaza ............................ 1 234
Independent ............................. 2 290
---- -----
Sub-total ....................... 15 2,970
---- -----
Extended Stay Hotels:
Residence Inn by Marriott ............... 14 1,815
Homewood Suites ......................... 1 83
Hawthorn Suites ......................... 1 280
TownePlace Suites ....................... 2 190
---- -----
Sub-total ........................ 18 2,368
Limited Service Hotels:
Hampton Inn ............................. 19 2,364
Courtyard by Marriott ................... 1 102
Comfort Inn ............................. 5 637
Holiday Inn Express ..................... 3 472
---- -----
Sub-total ........................ 28 3,575
---- -----
Total ............................ 61 8,913
==== =====
</TABLE>
The following chart summarizes ownership history for the periods presented:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Hotels owned at beginning of year 60 60
Acquisitions and developed Hotels placed into service 1 5
Sales (1)
---- ----
Hotels owned at June 30, 1999 and 1998 61 64
==== ====
</TABLE>
8
<PAGE> 9
The Hotels are located in 24 states. Management believes it is prudent
to diversify geographically and among franchise brands.
The Partnership leases all except four of the Hotels to third parties
(collectively, the "Lessees") pursuant to leases (the "Percentage Leases") which
provide for annual rent equal to the greater of (i) fixed base rent, or (ii)
rent payments based on percentages of the Hotels' revenues. Base rent is payable
monthly. Percentage rent is payable quarterly. Four hotels are not leased and
are operated by third parties pursuant to management agreements. One of the
Lessees has a right of first refusal, subject to certain exceptions, to lease
hotels acquired by the Partnership, through February 27, 2006.
RESULTS OF OPERATIONS
Comparison of the Three Months ended June 30, 1999 to 1998 and the Six Months
Ended June 30, 1999 to 1998.
Increases in lease revenue for the three and the six months ended June 30, 1999
over 1998 are due to increases in revenue per available room ("REVPAR") at the
hotels owned throughout both periods.
The following table shows statistical data regarding the Hotels on an
actual and a pro forma basis. The pro forma assumes 58 of the 61 hotels owned at
June 30, 1999 were owned by the Partnership throughout both periods; it excludes
three hotels which were opened since January 1998.
<TABLE>
<CAPTION>
for the Three Months Ended June 30,
Actual Pro Forma
------ ---------
% Increase % Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
---- ---- ---------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Occupancy 75.7% 77.2% (1.9) 76.1% 77.8% (2.2)
ADR $88.20 $82.65 6.7 $88.58 $85.20 4.0
RevPAR $66.78 $63.79 4.7 $67.39 $66.28 1.7
<CAPTION>
for the Six Months Ended June 30,
Actual Pro Forma
------ ---------
% Increase % Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
---- ---- ---------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Occupancy 72.8% 74.6% (2.4) 73.1% 75.1% (2.6)
ADR $88.16 $82.04 7.4 $88.40 $84.79 4.2
RevPAR $64.21 $61.17 5.0 $64.64 $63.69 1.5
</TABLE>
Increases in depreciation in 1999 over 1998 are due to capitalized
renovation costs at certain of the Hotels.
9
<PAGE> 10
Decreases in compensation are due to decreased bonus accruals for the
officers of the Company in 1999 over 1998.
Increases in interest expense in 1999 over 1998 are primarily due to
the fixed rate financing of approximately $95 million of debt which was used to
repay variable rate borrowings under the Line of Credit. The fixed rate debt
carries a higher interest rate than the variable rate Line of Credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit") for $100
million. Borrowings under the Line of Credit bear interest at LIBOR. The
interest rate was approximately 7.0% at June 30, 1999. The Line of Credit is
collateralized by first priority mortgages on 16 hotels and agreements
restricting the transfer, pledge or other hypothecation of 5 hotels
(collectively, the "Collateral Pool"). The Line of Credit contains various
covenants including the maintenance of a minimum net worth, minimum debt
coverage and interest coverage ratios, total indebtedness and total liabilities
limitations and borrowing base to value limitations. The Company was in
compliance with these covenants at June 30, 1999. The Company had borrowed $90.3
million on the Line of Credit at June 30, 1999. The Line of Credit is due July
30, 2000.
In November 1996, the Company, through a subsidiary, issued $75 million
of commercial mortgage bonds, (the "Bonds") series 1996-1 as follows:
<TABLE>
<CAPTION>
Initial
Class Principal Amount Rate Stated Maturity
-------------------------------------------------------------------
<S> <C> <C> <C>
Class A $50 Million 6.83% August 20, 2008
Class B $25 Million 7.30% November 21, 2011
</TABLE>
Principal payments due on the Class A Bonds are payable based on a
141-month amortization schedule beginning in December 1996; principal payments
on the Class B Bonds are payable based on a 39-month amortization schedule
beginning in September 2008. The total monthly principal and interest payments
approximate $.7 million on the Class A Bonds.
In December 1998, SPE 1 and SPE 2 completed a $95.8 million long-term
financing of 10 of the Hotels. Principal and interest payments, based on a
25-year amortization, of $.7 million and escrow payments of $.4 million are due
monthly through December 2008 at which time all outstanding principal and
interest is due. The debt bears interest at 7.8%.
10
<PAGE> 11
In connection with the purchase of a Sheraton Hotel in Birmingham, AL,
Ridge Lake General Partners, Inc. ("RLGP"), a subsidiary of the Company, assumed
industrial development bonds ("Birmingham IDB's"), which are due in 2001. The
Birmingham IDB's bear interest at a variable rate which, at June 30, 1999, was
approximately 3.5% per year. Interest is payable quarterly; principal is payable
annually. The outstanding balance on the Birmingham IDB's is $4.4 million. The
Birmingham hotel is collateral for the Birmingham IDB's.
Wharf has non-recourse debt of $18.9 million. This debt bears interest
at 8.22%. Principal and interest payments, based on a 25-year amortization, of
$152,000 and escrow payments of $50,000 are due monthly through November of 2007
at which time all outstanding principal and interest is due.
The Company budgeted $16.6 million for 1999 capital improvements at 58
of the hotels owned at June 30, 1999. At June 30, 1999, the Partnership had
spent approximately $7.5 million of the budgeted amounts. The Company will use
cash generated from operations and borrowings under the Line of Credit to fund
the remaining $9.1 million of expenditures. The Company intends to substantially
complete these improvements by the end of the second quarter of 2000.
The Partnership is developing a 95-suite TownPlace Suites in Miami West, FL.
Total estimated development costs are $6.5 million. Completion is expected in
the third quarter of 1999. The Partnership is also constructing a 40-room
addition to the Beverly Heritage Hotel in Milpitas, CA. Construction costs are
estimated at $4.0 million. Completion of the addition is expected in the fourth
quarter of 1999.
In addition to purchasing existing hotel properties, management
anticipates that the Company will both develop additional hotels and enter into
contracts to acquire hotels from third parties after completion of development.
It is expected that future investments in hotel properties will be financed, in
whole or in part, with cash generated from operations, short-term investments,
proceeds from additional issuances of capital stock, borrowings under the Line
of Credit or other securities or borrowings.
The Company in the future may seek to increase further the amount of
its credit facilities, negotiate additional credit facilities, or issue
corporate debt instruments. Although the Company has no charter restrictions on
the amount of indebtedness the Company may incur, the Board of Directors of the
Company has adopted a policy limiting the amount of indebtedness that the
Company will incur to an amount not in excess of approximately 40% of the
Company's investment in hotel properties, at cost, after giving effect to the
Company's use of proceeds from any indebtedness and accounting for all
investments in hotel properties under the purchase method of accounting. Any
debt incurred or issued by the Company may be secured or unsecured, long-term or
short-term, may charge a fixed or variable interest rate and may be subject to
such other terms as the Board of Directors of the Company in its discretion, may
approve.
11
<PAGE> 12
The Company intends to fund cash distributions to shareholders
principally out of cash generated from operations. The Company may incur, or
cause the Partnership to incur, indebtedness to meet distribution requirements
imposed on a REIT under the Internal Revenue Code (including the requirement
that a REIT distribute to its shareholders annually at least 95% of its taxable
income) to the extent that working capital and cash flow from the Company's
investments are insufficient to make such distributions. In 1999, the
Partnership has, through June 30, 1999, made cash distributions to its partners,
including the Company, of $21.2 million or $.385 per Partnership unit, from
which the Company made cash distributions to common shareholders of $19.3
million, or $.385 per share. The Company also made cash distributions to the
preferred shareholder of $.7 million, or $.72 per share. The Company and the
Partnership utilized available cash to fund such distributions.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy during the second and third quarters. This
seasonality can be expected to cause fluctuations in the Partnership's quarterly
lease revenue to the extent that it receives Percentage Rent.
YEAR 2000 MANAGEMENT
Many existing computer programs have been designed to use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000.
Beginning in the fourth quarter of 1997, the Company began evaluating the impact
of the Year 2000 (Y2K) problem on its systems. The Company also began inquiring
of its Lessees regarding the operation of the Lessee's systems at properties
owned by the Company. The only software package that was not Y2K compliant was
the accounting system of the Company. The Company purchased a new accounting
system in January of 1998. The Company has been converting to the new format and
plans to go live in the third quarter of 1999. All computers passed the Y2K
check, as well as the phone system and other hardware. The Company has been
advised by its Lessees and management companies that the systems at the
properties (reservation, accounting, etc.) are being upgraded where necessary by
the appropriate management company. Since the Company depends on its Lessees and
management companies for revenue information at the hotels in order to calculate
percentage rent due to the Company under the leases, any Y2K problem which
affects revenue accounting by the Lessees or management companies at the
Company's hotels could have a material adverse impact on the Company's business.
Although we do not believe the Y2K issue will materially affect our operations,
we can't assure you that our Y2K remediations will be fully in compliance, nor
can we assure you that any third party, on whose data or services we rely, will
be fully in compliance. Testing will continue throughout 1999 on both the new
and old software to verify its operation. The Company is in the process of
obtaining a statement from its vendors about their Y2K status. The Company
estimates its total cost related to the Y2K problem to be approximately $80,000.
12
<PAGE> 13
FUNDS FROM OPERATIONS
The Company considers Funds From Operations ("FFO") a widely accepted
and appropriate measure of performance for an equity REIT that provides a
relevant basis for comparison among REITs. FFO, as defined by the National
Association of Real Estate Investment Trusts (NAREIT), means income (loss)
before minority interest (determined in accordance with GAAP), excluding gains
(losses) from debt restructuring and sales of property, plus real estate
depreciation and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing the performance of
the Company. The Company's method of calculating FFO may be different from the
methods used by other REITs and, accordingly, may not be comparable to such
other REITs. The computation of FFO is consistent with the NAREIT White Paper
Definition of FFO with the exception that the 1999 lease termination fee has
been added back to calculate FFO. FFO (i) does not represent cash flows from
operations as defined by GAAP, (ii) is not indicative of cash available to fund
all cash flow needs and liquidity, including its ability to make distributions,
and (iii) should not be considered as an alternative to net income (as
determined in accordance with GAAP) for purposes of evaluating the Company's
operating performance.
The Company's FFO for the periods ended June 30, 1999 and 1998 was
computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30 June 30
------- -------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Income before allocation
to minority interest $ 11,809 $ 12,671 $ 21,098 $ 22,432
Add depreciation 5,770 5,147 11,372 10,065
Add lease termination fee 239
Less gain on sale of hotel (523)
Less preferred dividend (352) (352) (700) (700)
-------- -------- -------- --------
FFO $ 17,227 $ 17,466 $ 32,009 $ 31,274
======== ======== ======== ========
Weighted average shares,
partnership units and potential
dilutive shares outstanding 27,597 27,445 27,587 27,198
FFO per share $ 0.62 $ 0.64 $ 1.16 $ 1.15
</TABLE>
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Pursuant to the general instructions to Item 305 of SEC Regulation S-K,
the quantitative and qualitative disclosures called for by this Item 3 and by
Rule 305 of Regulation S-K are inapplicable to the Company at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 28, 1999, the annual meeting of shareholders was held to elect
three Class III directors to serve on the Board of Directors until the annual
meeting of shareholders in 2002, one Class II director to serve until the annual
meeting of shareholders in 2001 and to consider and act upon a proposal to amend
the Company's Amended and Restated 1993 Restricted Stock and Stock Option Plan
(the "Plan") to increase the number of shares of common stock that may be
subject to awards under the Plan from 2,000,000 to 3,000,000 shares.
The shareholders voted to elect the four following directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Class III Directors:
Robert M. Solmson 23,890,746 154,469
Harry J. Phillips, Sr. 23,821,981 223,234
R. Lee Jenkins 23,857,578 187,637
Class II Director:
J. William Lovelace 23,889,735 155,480
</TABLE>
The following directors terms of office continued after the meeting:
Class I Directors (terms expiring in 2000) - Michael S. Starnes and
John W. Stokes, Jr.
Class II Directors (terms expiring in 2001) - Bruce Campbell and H.
Lance Forsdick, Sr.
Effective July 1, 1999, J. William Lovelace resigned as a director and
officer of the Company.
There were 16,876,449 votes cast for, 6,742,983 votes withheld and
425,783 abstentions regarding amendment to the Plan and the proposal was
approved.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - A Form 8-K was filed on May 12, 1999 which
describes material risk factors that may affect our business and
financial condition.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
RFS HOTEL INVESTORS, INC.
August 10, 1999 /s/ Michael J. Pascal
- --------------- --------------------------------------------
Date Michael J. Pascal, Secretary and Treasurer
(Principal Financial and Accounting Officer)
August 10, 1999 /s/ Robert M. Solmson
- --------------- --------------------------------------------
Date Robert M. Solmson, Chairman and
Chief Executive Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,833
<SECURITIES> 0
<RECEIVABLES> 15,128
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 712,856
<DEPRECIATION> 69,392
<TOTAL-ASSETS> 686,868
<CURRENT-LIABILITIES> 0
<BONDS> 276,168
0
18,143
<COMMON> 350,463
<OTHER-SE> (2,012)
<TOTAL-LIABILITY-AND-EQUITY> 686,868
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,331
<INCOME-PRETAX> 19,198
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,198
<EPS-BASIC> 0.74
<EPS-DILUTED> 0.74
</TABLE>
