<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 March 31, 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, Memphis, TN 38120 (901) 767-7005
(Address of Principal Executive Offices) (Registrant's Telephone Number
(Zip Code) Including Area 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 March 31, 1999 was 25,005,946.
<PAGE> 2
RFS HOTEL INVESTORS, INC.
INDEX
<TABLE>
<CAPTION>
Form 10-Q Report
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RFS Hotel Investors, Inc.
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Income - For the three months ended
March 31, 1999 and March 31, 1998 4
Consolidated Statements of Cash Flows - For the three months ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
RFS HOTEL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Investment in Hotel Properties, net $ 624,430 $ 624,730
Hotels under development 21,875 18,289
Cash and cash equivalents 5,458 2,014
Restricted cash 679 7,809
Accounts receivable-Lessees 12,598 10,656
Notes receivable 4,938 4,949
Deferred expenses, net 5,103 5,216
Prepaid and other assets 6,967 8,818
Escrow deposits 1,510 1,510
--------- ---------
$ 683,558 $ 683,991
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 6,175 $ 5,320
Accrued real estate taxes 3,577 2,961
Borrowings on line of credit 85,307 82,307
Long-term obligations 187,025 190,492
Minority interest 35,851 35,974
--------- ---------
317,935 317,054
--------- ---------
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 (6,027) (4,468)
Unearned directors' and officers' compensation (1,558) (1,803)
--------- ---------
Total shareholders' equity 365,623 366,937
--------- ---------
$ 683,558 $ 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 PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FOR THE
3 MONTHS 3 MONTHS
ENDED ENDED
03/31/99 03/31/98
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
Revenue:
Leases $ 23,515 $ 22,023
Other 211 86
-------- --------
Total revenue 23,726 22,109
-------- --------
Expenses:
Real estate taxes and property and
casualty insurance 2,364 2,488
Depreciation 5,602 4,918
Amortization of franchise fees and
unearned compensation 275 229
Compensation 495 594
Franchise taxes 45 45
General and administrative 517 806
Gain on sale of a hotel property (523)
Lease termination fee 239
Amortization of loan costs 276 243
Interest expense, net 4,624 3,548
-------- --------
Total expenses 14,437 12,348
-------- --------
Income before minority interest 9,289 9,761
Minority interest (865) (936)
-------- --------
Net income 8,424 8,825
Preferred stock dividends (348) (348)
-------- --------
Net income applicable to common shareholders $ 8,076 $ 8,477
======== ========
Basic earnings per share 0.32 0.35
Diluted earnings per share 0.32 0.35
Weighted average common shares 25,006 24,380
</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 THREE FOR THE THREE
MONTHS MONTHS
MARCH 31, MARCH 31,
1999 1998
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,424 $ 8,825
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,153 5,390
Income allocated to minority interest 865 936
Gain on sale of a hotel property (523)
Write-off of old loan costs 129
Changes in assets and liabilities:
Accounts receivable-Lessees (1,942) (2,279)
Prepaids and other assets 1,851 (968)
Accounts payable and other liabilities 1,471 (2,128)
-------- --------
Net cash provided by operating activities 16,822 9,382
-------- --------
Cash flows from investing activities:
Investment in hotel properties and hotels
under development (8,888) (14,359)
Restricted cash 7,130
Proceeds from sale of hotel property 2,940
-------- --------
Net cash used by investing activities (1,758) (11,419)
-------- --------
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 (9,983) (9,494)
Distributions to limited partners (988) (964)
Borrowings on revolving credit agreement 3,000 15,000
Redemption of limited partnership units (37)
Payments on debt and bonds (3,467) (1,288)
Collections on notes receivable 11
Loan fees paid (193) (119)
-------- --------
Net cash provided by financing activities (11,620) 12,126
-------- --------
Net increase (decrease) in cash and cash equivalents 3,444 10,089
Cash and cash equivalents at beginning of period 2,014 4,131
-------- --------
Cash and cash equivalents at end of period $ 5,458 $ 14,220
======== ========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
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 consolidated financial 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 March 31, 1999,
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. During 1996, RFS
Financing Partnership, L.P., ("FPLP"), a bankruptcy remote, single purpose
Tennessee limited partnership, was formed to issue commercial mortgage bonds
(the "Bonds"). The Company owns 100% of FPLP. 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 1998 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 April 28, 1999, the Company declared a $.385
dividend on each share of Common Stock outstanding to shareholders of record on
May 10, 1999. The dividend will be paid on May 17, 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 Ended
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
BASIC EPS:
Net income $ 8,424 $ 8,825
Less dividends declared on preferred stock (348) (348)
-------- --------
$ 8,076 $ 8,477
======== ========
Weighted average common shares outstanding 25,006 24,380
$ 0.32 $ 0.35
DILUTED EPS:
Net income $ 8,424 $ 8,825
Less dividends declared on preferred stock (348) (348)
-------- --------
$ 8,076 $ 8,477
======== ========
Weighted average common shares outstanding 25,006 24,380
Preferred shares outstanding -- --
Potential dilutive shares -- 121
-------- --------
Weighted average common shares
and potential dilutive shares outstanding 25,006 24,501
$ 0.32 $ 0.35
</TABLE>
The preferred shares are anti-dilutive and thus are not considered in the
calculation of diluted earnings per share.
7
<PAGE> 8
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, and Section 21E of the Securities
Exchange Act of 1934, as amended including, without limitation, statements
containing the words "believes," "anticipates," "expects" and similar words.
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, including
those set forth in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Attention should be paid to the various factors identified or
incorporated by reference in this report which could cause actual results to
differ, including, but not limited to those discussed in the section
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this report and "Acquisition Strategy," "Internal Growth
Strategy," "Business Issues," "Competition," "Environmental Issues," "Tax
Status," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. 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.
8
<PAGE> 9
BACKGROUND
The following chart summarizes information regarding the 60 hotels (the
"Hotels") owned at March 31, 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............................1,847
Homewood Suites.......................1...............................83
TownePlace Suites.....................1...............................95
Hawthorn Suites..................... 1........................... 280
-- -----
Sub-total...................17............................2,305
-- -----
Limited Service Hotels:
Hampton Inn..........................19............................2,364
Courtyard by Marriott.................1..............................102
Holiday Inn Express...................5..............................637
Comfort Inn...........................3..............................472
-- -----
Sub-total...................28............................3,575
-- -----
Total.......................60............................8,850
== =====
</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 2
Sales (1)
---- ----
Hotels owned at March 31, 1999 and 1998 60 61
==== ====
</TABLE>
The Hotels are located in 24 states. Management believes it is prudent
to diversify geographically and among franchise brands.
9
<PAGE> 10
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 March 31, 1999 to 1998.
Increases in lease revenue for the three months ended March 31, 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 60 hotels owned at
March 31, 1999 were owned by the Partnership throughout both periods; it
excludes two new hotels:
<TABLE>
<CAPTION>
Actual Pro Forma
------ ---------
% Increase % Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Occupancy 69.9% 71.8% (2.7) 70.2% 72.4% (3.1)
ADR $88.08 $81.36 8.3 $88.16 $84.35 4.5
RevPAR $61.59 $58.45 5.4 $61.85 $61.05 1.3
</TABLE>
10
<PAGE> 11
Decreases in real estate taxes and property and casualty insurance in
1999 over 1998 are due to decreases in estimates for real estate tax assessments
at certain hotels in 1999 over 1998.
Increases in depreciation in 1999 over 1998 are due to capitalized
renovation costs at certain Hotels.
Decreases in compensation are primarily due to a decreased number of
employees, including one highly compensated employee who resigned at the end of
February 1998 and whose responsibilities were assumed by existing employees.
The lease termination fee in 1999 relates to expenses incurred related
to lease terminations for hotels sold in 1998.
The gain on the sale of a hotel property relates to the sale of the
Executive Inn in Tupelo, MS which was sold in February 1998.
Increases in interest expense in 1999 over 1998 are primarily due to
the fixed rate financing of approximately $95 million of debt which carries a
higher rate of interest than the variable rate Line of Credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit") in the
amount of $100 million. Borrowings under the Line of Credit bear interest at a
variable rate based on LIBOR. The interest rate was approximately 7.2% at March
31, 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 March 31, 1999. The Company had borrowed
$85.3 million on the Line of Credit at March 31, 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>
11
<PAGE> 12
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.
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%.
In connection with the purchase of a hotel in Fishkill, NY, the
Partnership assumed approximately $2.4 million of indebtedness pursuant to
industrial development bonds issued in 1988 and which were due December 1, 2002.
The industrial development bonds, with an outstanding balance of $1.8 million,
were paid-off in the first quarter of 1999.
In connection with the purchase of a Sheraton Hotel in Birmingham, AL,
("RLGP") assumed industrial development bonds ("Birmingham IDB's"), which are
due in 2001. The Birmingham IDB's bear interest at a variable rate which, at
March 31, 1999, was approximately 4% per year. Interest is payable quarterly;
principal is payable annually. The outstanding balance on the Birmingham IDB's
is $4.4 million at March 31, 1999. The Birmingham hotel is collateral for the
Birmingham IDB's.
Wharf has non-recourse debt of $19.1 million at March 31, 1999. 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 $20.6 million for 1998 capital improvements at 55
of the hotels owned at December 31, 1998. At March 31, 1999, the Partnership had
spent approximately $19.9 million of the budgeted amounts. The Company will use
cash generated from operations and borrowings under the Line of Credit to fund
the remaining $1.7 million of expenditures. The Company intends to substantially
complete these improvements by the end of the second quarter of 1999.
Additionally, the Company has budgeted approximately $15.9 million for 1999
capital improvements at 58 of the Hotels owned March 31, 1999. The Company will
use cash generated from operations and borrowings on the Line of Credit to fund
these expenditures.
12
<PAGE> 13
The Partnership is developing the following hotels:
<TABLE>
<CAPTION>
ANTICIPATED
NUMBER OF ESTIMATED OPENING
FRANCHISE LOCATION ROOMS/SUITES DEVELOPMENT COSTS QUARTER
--------- -------- ------------ ----------------- -------
<S> <C> <C> <C> <C>
TownePlace Suites Miami Lakes, FL 95 $6.5 million 2Q99
TownePlace Suites Tampa, FL 95 $6.3 million 3Q99
TownePlace Suites Miami Airport, FL 95 $6.5 million 3Q99
Courtyard by Marriott Crystal Lake, IL 90 $7.5 million 1Q00
</TABLE>
The Partnership is constructing a 40-room addition to the Beverly
Heritage Hotel in Milpitas, CA. Construction costs are estimated at $3.8
million. Completion of the addition is expected in the fourth quarter of 1999.
In addition to purchasing existing hotel properties at targeted rates
of return, 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 equity
securities, 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.
13
<PAGE> 14
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 March 31, 1999, made cash distributions to its
partners, including the Company, of $11.0 million or $0.385 per Partnership
unit, from which the Company made cash distributions to common shareholders of
$9.6 million, or $0.385 per share. The Company also made cash distributions to
the preferred shareholder of $0.4 million, or $0.3625 per share. The Company and
the Partnership utilized available cash to fund such distributions.
SEASONALITY
The Hotels' operations in the aggregate 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
on July 1,1999. 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.
14
<PAGE> 15
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.
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 nonrecurring 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 the 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 March 31, 1999 and 1998 was
computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31
--------------------------
1999 1998
-------- --------
(in thousands, except per share amounts)
<S> <C> <C>
Income before allocation
to minority interest $ 9,289 $ 9,761
Add depreciation 5,602 4,918
Less gain on sale of hotel (523)
Add lease termination fee 239
Less preferred dividend (348) (348)
-------- --------
FFO $ 14,782 $ 13,808
======== ========
Weighted average shares and
partnership units outstanding 27,574 26,949
FFO per share and partnership unit $ 0.54 $ 0.51
</TABLE>
15
<PAGE> 16
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
16
<PAGE> 17
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.
5/13/99 /s/ Michael J. Pascal
- ---------------------- ------------------------------------------------
Date Michael J. Pascal, Secretary and Treasurer
(Principal Financial and Accounting Officer)
5/13/99 /s/ Robert M. Solmson
- ---------------------- ------------------------------------------------
Date Robert M. Solmson, Chairman and
Chief Executive Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RFS HOTEL INVESTORS, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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0
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