<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 COMMISSION FILE NUMBER 34-0-23290
EQUITY INNS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-1550848
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER)
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
4735 SPOTTSWOOD, SUITE 102, MEMPHIS, TN 38117
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(901) 761-9651
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME OR 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 (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
X YES NO
------ ------
THE NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING ON
NOVEMBER 7, 1996 WAS 23,668,278.
<PAGE> 2
EQUITY INNS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
EQUITY INNS, INC.
Consolidated Balance Sheets - September 30, 1996 (unaudited)
and December 31, 1995 3
Consolidated Statements of Operations (unaudited) - For the
three and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited) - For the
nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
TRUST LEASING, INC. (formerly McNeill Hotel Co., Inc.)
Balance Sheets - September 30, 1996 (unaudited) and December 31, 1995 10
Statements of Operations (unaudited) - For the three and nine months
ended September 30, 1996 and 1995 11
Statements of Cash Flows (unaudited) - For the nine months ended
September 30, 1996 and 1995 12
Notes to Financial Statements 13
EQUITY INNS, INC. AND TRUST LEASING, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations of Equity Inns, Inc. and Trust
Leasing, Inc. 16
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
2
<PAGE> 3
PART I. Financial Information
Item 1. Financial Statements
EQUITY INNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Investment in hotel properties, net $ 291,909,943 $ 218,428,938
Cash and cash equivalents 5,758,741 132,630
Due from Lessee 6,970,001 2,299,330
Deferred expenses, net 3,420,862 4,189,436
Prepaid and other assets 286,068 16,537
------------- -------------
Total assets $ 308,345,615 $ 225,066,871
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt $ 66,650,966 $ 74,938,763
Accounts payable and accrued expenses 2,621,950 2,515,449
Distributions payable 6,792,477 4,046,952
Minority interest in Partnership 6,922,780 6,072,829
------------- -------------
Total liabilities 82,988,173 87,573,993
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 23,533,694 and 14,907,231 shares
issued and outstanding at September 30, 1996
and December 31, 1995, respectively 235,336 149,072
Preferred Stock, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding
Additional paid-in capital 236,744,692 143,576,024
Unearned directors' compensation (69,827) (93,103)
Predecessor basis assumed (1,263,887) (1,263,887)
Distributions in excess of net earnings (10,288,872) (4,875,228)
------------- -------------
Total shareholders' equity 225,357,442 137,492,878
------------- -------------
Total liabilities and shareholders' equity $ 308,345,615 $ 225,066,871
============= =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
3
<PAGE> 4
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
----------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Percentage lease revenue $12,325,995 $ 7,588,229 $28,882,975 $17,996,253
Other income 15,050 5,740 94,137 21,624
----------- ----------- ----------- -----------
Total revenues 12,341,045 7,593,969 28,977,112 18,017,877
----------- ----------- ----------- -----------
Expenses
Real estate and personal property taxes 1,001,467 543,844 2,594,884 1,596,311
Depreciation and amortization 3,591,116 2,124,824 9,291,592 5,285,244
Interest 945,187 309,671 3,040,723 2,633,801
General and administrative 594,852 497,619 1,717,088 1,148,132
----------- ----------- ----------- -----------
Total expenses 6,132,622 3,475,958 16,644,287 10,663,488
----------- ----------- ----------- -----------
Income before minority interest 6,208,423 4,118,011 12,332,825 7,354,389
Minority interest 186,252 214,447 378,694 431,609
----------- ----------- ----------- -----------
Net income applicable to
common shareholders $ 6,022,171 $ 3,903,564 $11,954,131 $ 6,922,780
=========== =========== =========== ===========
Net income per common share $ .26 $ .27 $ .60 $ .61
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 23,415,000 14,527,000 20,062,000 11,323,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
4
<PAGE> 5
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,954,131 $ 6,922,780
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,068,920 4,676,162
Amortization of loan costs 1,199,396 585,806
Amortization of unearned directors' compensation 23,276 23,276
Minority interest 378,694 431,609
Changes in assets and liabilities:
Due from Lessee (4,670,671) (2,598,932)
Deferred expenses (82,204) (1,336,343)
Prepaid and other assets (269,531) 89,737
Accounts payable and accrued expenses 400,241 427,582
------------ ------------
Net cash flow provided by operating activities 17,002,252 9,221,677
------------ ------------
Cash flows from investing activities:
Investment in hotel properties (81,429,769) (55,903,240)
Cash paid for franchise applications (322,100)
------------ ------------
Net cash flow used by investing activities (81,751,869) (55,903,240)
------------ ------------
Cash flows from financing activities:
Proceeds of public offerings 85,737,548 51,516,986
Proceeds of issuance of Common Stock 5,537,500
Proceeds of private placement of Partnership Units 2,875,000
Distributions paid (15,170,016) (7,298,873)
Borrowings under revolving credit facility 84,125,000 53,702,412
Payments on revolving credit facility (92,409,220) (52,168,490)
Cash paid for loan costs (316,507)
Payments on capital lease obligations (3,577) (8,141)
------------ ------------
Net cash flow provided by financing activities 70,375,728 45,743,894
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,626,111 (937,669)
Cash and cash equivalents at beginning of the period 132,630 1,086,384
------------ ------------
Cash and cash equivalents at end of the period $ 5,758,741 $ 148,715
============ ============
Supplemental disclosure of cash flow information-interest paid $ 3,515,562 $ 2,801,273
============ ============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
At September 30, 1996, $6,792,477 in distributions to shareholders and limited
partners had been declared but not paid. The distributions were paid on October
31, 1996. At December 31, 1995, $4,046,952 in distributions to shareholders and
limited partners had been declared but not paid. The distributions were paid on
January 29, 1996.
On January 24, 1996, 151,971 limited partnership units were exchanged for shares
of Common Stock by certain limited partners. Additionally, on April 19, 1996,
30,844 limited partnership units were exchanged for shares of Common Stock by
certain limited partners.
In January 1996, the Company issued 25,000 shares of Common Stock to its
officers in lieu of cash to satisfy bonus compensation accrued at December 31,
1995. These shares, at the date of issuance, were valued at $11.75 per share.
Offering expenses of $169,833, which were paid in 1995 and included in deferred
offering expenses at December 31, 1995, have been deducted from the proceeds of
the Fourth Offering ( as defined in the accompanying notes) which occurred in
April 1996. Accordingly, these amounts have been reclassified to additional
paid-in capital.
In 1996, approximately $151,000 of the net proceeds of the Company's Fourth
Offering was allocated to minority interest. The remainder of the net proceeds
increased common stock and additional paid-in capital.
The accompanying notes are an integral
part of these consolidated financial statements
5
<PAGE> 6
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------
1. Organization and Basis of Presentation
Equity Inns, Inc. (the "Company") was incorporated on November 24, 1993.
The Company is a real estate investment trust ("REIT") for federal income
tax purposes. The Company, through its wholly owned subsidiary, Equity
Inns Trust (the "Trust"), is the sole general partner of Equity Inns
Partnership, L.P. (the "Partnership") and at September 30, 1996 owned an
approximate 97.0% interest in the Partnership. The Company was formed to
acquire equity interests in hotel properties and at September 30, 1996
owned, through the Partnership, 46 hotel properties with a total of 5,591
rooms in 24 states.
On April 16, 1996, the Company completed a public offering (the "Fourth
Offering") of 7,000,000 shares of common stock, $.01 par value per share
("Common Stock"), and an additional 947,000 shares were issued on May 3,
1996 upon exercise of a portion of the underwriters' over-allotment
option. The offering price was $11.50 per share resulting in gross
proceeds of approximately $91,390,000 (including the over-allotment
shares). Net of underwriters' discount and offering expenses, the Company
received approximately $86,000,000. In addition, Trust Leasing, Inc.
purchased, in a private placement, 250,000 units of limited partnership
interest in the Partnership ("Units") at $11.50 per unit on April 16,
1996, resulting in gross proceeds of $2,875,000 to the Partnership. On
May 31, 1996, Promus Hotels, Inc. ("Promus") purchased 347,826 shares of
Common Stock at the offering price of $11.50, in conjunction with the
Partnership's purchase of two hotel properties from Promus, which
resulted in gross proceeds of $4,000,000 to the Partnership. On September
27, 1996, Promus purchased 123,822 shares of Common Stock in connection
with the Company's purchase of the San Antonio Homewood Suites hotel. On
November 5, 1996, Promus purchased 134,584 shares of Common Stock in
connection with the Company's purchase of the Phoenix (Camelback)
Homewood Suites hotel. Both of these hotels were purchased from Promus.
The Common Stock issued in connection with each sale was issued at $12.42
and $11.52, respectively per share, resulting in gross proceeds of
$1,537,500 and $1,550,000, respectively. Promus has agreed to purchase up
to an additional $8.0 million of Common Stock over the next three years
as the Company develops or converts additional hotels to Promus brand
hotels.
On September 9, 1996, the Company, formerly listed on the Nasdaq Stock
Market, listed its Common Stock on the New York Stock Exchange under the
symbol "ENN." Management believes that this change should improve the
liquidity of the shares of Common Stock and will provide greater access
to investors.
Trust Leasing, Inc. (the "Lessee", which formerly operated as McNeill
Hotel Co., Inc.) leases hotels owned by the Partnership pursuant to
separate percentage lease agreements (the "Percentage Leases") which
provide for rent payments equal to the greater of (i) a fixed based rent
or (ii) percentage rent based on the revenues of the hotels. The Lessee
is wholly owned by Phillip H. McNeill, Sr., Chairman of the Board and
Chief Executive Officer of the Company.
6
<PAGE> 7
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------
1. Organization and Basis of Presentation (Continued)
These unaudited consolidated financial statements include the accounts of
the Company, the Trust and the Partnership 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
1995 Annual Report on Form 10-K. The following notes to the consolidated
financial statements highlight significant changes to the 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. Net Income Applicable to Common Shareholders
Net income per common share has been computed by dividing net income
applicable to common shareholders by the weighted average number of
shares of Common Stock and equivalents outstanding.
3. Distributions
On September 18, 1996, the Company declared a $0.28 per share
distribution on each share of Common Stock and each Unit outstanding on
September 30, 1996. The distribution was paid on October 31, 1996.
4. Shareholders' Equity
On March 29, 1995, the Company filed a Registration Statement on Form S-3
with the SEC relating to the possible issuance by the Company of up to
806,745 shares of Common Stock upon redemption of 806,745 Units in the
Partnership. On January 24, 1996, and on April 19, 1996, 151,971 shares
and 30,844 shares, respectively, were issued upon redemption of Units. On
January 4, 1996, 25,000 shares of Common Stock were issued to fund
officers' bonuses accrued at December 31, 1995.
5. Subsequent Events
On October 1, 1996, the Partnership completed the acquisition of a
96-room Residence Inn in Burlington, Vermont from an unaffiliated third
party for a purchase price of $7,650,000. The purchase price was paid
partially with the issuance of 96,303 Units of limited partnership
interest in the Partnership totaling $1,101,000, and the balance of the
purchase price was funded from the Company's line of credit and cash on
hand.
7
<PAGE> 8
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------
5. Subsequent Events (Continued)
On November 5, 1996, the Partnership completed the acquisition of a
124-room Homewood Suites in Phoenix (Camelback), Arizona from Promus for
a purchase price of $9,592,852. In conjunction with the closing of this
hotel, the Company issued 134,584 shares of Common Stock to Promus at a
price of $11.52 per share, which resulted in gross proceeds of $1,550,000
to the Partnership.
Both hotels will be leased by the Lessee until the expected close of the
transaction with Crossroads/Memphis as is discussed below.
On October 4, 1996, Phillip H. McNeill, Sr. entered into an agreement,
subject to certain conditions, to contribute substantially all of the
assets of the Lessee and of Trust Management, Inc. (an affiliated company
also wholly owned by Mr. McNeill, which formerly operated as McNeill
Hospitality Corporation), including the leases between Trust Leasing,
Inc. and the Partnership, to Crossroads/Memphis Partnership, L.P.
("Crossroads/Memphis"), an affiliate of Interstate Hotels Company
("IHC"), a publicly held hotel management company not presently
affiliated with the Lessee or Mr. McNeill, in exchange for partnership
interests in Crossroads/Memphis.
The agreement provides for all economic and voting interests of
Crossroads/Memphis to be retained by IHC. In addition, IHC has agreed to
guarantee the prompt and full payment of rent and other amounts due the
Company under the Percentage Leases, as well as the performance of all
covenants contained in the Percentage Leases.
On November 4, 1996, the Company and the Partnership entered into a
Master Agreement with Crossroads/Memphis. Interstate Hotels Corporation,
a wholly-owned subsidiary of IHC, and Crossroads Future Company LLC, a
wholly-owned subsidiary of IHC ("New Lessee"), pursuant to which the
existing leases between the Partnership and the Lessee will be amended to
provide for, among other things, (i) a right of first refusal for the New
Lessee to lease hotels acquired or developed by the Partnership during
the five-year period following the closing, (ii) the Partnership having
certain rights to acquire hotels developed by IHC and its affiliates,
subject to certain exceptions, (iii) amendment of the existing leases
effective upon closing of the IHC transactions between the Partnership
and the Trust to provide for a fifteen year term from the date of
closing, and (iv) providing for certain other future leases between the
Partnership and the New Lessee. The closing of the transfer of the leases
to Crossroads/Memphis and the effectiveness of the Master Agreement is
anticipated to occur in November 1996.
8
<PAGE> 9
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------
6. Pro Forma Information (Unaudited)
Due to the impact of the Fourth Offering and the acquisitions in 1996,
historical results of operations may not be indicative of future results
of operations and earnings per share. The following unaudited pro forma
condensed consolidated statements of operations for the nine months ended
September 30, 1996 and 1995, are presented as if the acquisition of all
46 hotels owned at September 30, 1996, the consummation of the 1995 and
1996 Follow-On Offerings had occurred on January 1, 1995, and the hotels
had been leased to the Lessee pursuant to the percentage leases. The
following pro forma financial information does not include the
acquisition of the hotels discussed in Note 5. The pro forma condensed
consolidated statements of operations do not purport to present what
actual results of operations would have been if the acquisition of the
hotels had occurred on such date or to project results for any future
period.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Percentage lease revenues $32,906,150 $30,303,820
----------- -----------
Expenses:
Real estate and personal property taxes 2,756,140 2,477,408
Depreciation and amortization 10,731,028 9,354,693
Interest 3,553,613 3,837,703
General and administrative 1,740,607 1,487,185
----------- -----------
Total expenses 18,781,388 17,156,989
----------- -----------
Income before minority interest 14,124,762 13,146,831
Minority interest 422,330 393,090
----------- -----------
Net income applicable to common shareholders $13,702,432 $12,753,741
=========== ===========
Net income per share $ .58 $ .54
=========== ===========
Weighted average number of common shares
outstanding 23,533,694 23,533,694
=========== ===========
</TABLE>
9
<PAGE> 10
TRUST LEASING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $10,306,837 $ 4,176,309
Accounts receivable:
Trade 2,699,169 1,228,260
Affiliates 2,250,417 1,779,223
Inventories 272,694 168,315
Prepaid expenses 669,566 517,658
----------- -----------
Total current assets 16,198,683 7,869,765
Furniture and equipment 23,994 23,659
Investment in Equity Inns, Inc. and
Equity Inns Partnership, L.P. 3,143,750 268,750
----------- -----------
Total assets $19,366,427 $ 8,162,174
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,912,189 $ 1,400,264
Accrued expenses - affiliate 6,956,198 2,279,577
Accrued expenses - other 3,394,701 2,202,441
----------- -----------
Total liabilities 12,263,088 5,882,282
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Common Stock, no par value, 1,000 shares
authorized, issued and outstanding, $.10
stated value 100 100
Additional paid-in capital 2,875,000
Retained earnings 4,228,239 2,279,792
----------- -----------
Total shareholders' equity 7,103,339 2,279,892
----------- -----------
Total liabilities and shareholders' equity $19,366,427 $ 8,162,174
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements
10
<PAGE> 11
TRUST LEASING, INC.
STATEMENTS OF OPERATIONS
(unaudited)
----------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Room revenues $ 25,394,556 $ 15,409,779 $ 62,040,022 $ 38,396,575
Other revenue 1,660,343 983,818 4,427,138 2,811,551
------------ ------------ ------------ ------------
Total revenue 27,054,899 16,393,597 66,467,160 41,208,126
------------ ------------ ------------ ------------
Expenses
Hotel operating costs and
expenses 6,532,928 3,743,318 16,152,336 9,901,312
General and administrative 2,078,297 1,208,641 5,168,551 3,358,533
Franchise costs 1,969,346 1,208,459 4,858,088 3,011,789
Advertising and promotion 780,605 414,637 1,942,238 1,102,021
Utilities 1,339,190 747,611 3,439,689 1,956,361
Repairs and maintenance 1,012,752 580,522 2,625,904 1,572,024
Insurance expense 247,053 174,198 698,932 490,837
Consulting fees 250,000 750,000 750,000 750,000
Percentage lease expense 12,325,995 7,588,229 28,882,975 17,996,253
------------ ------------ ------------ ------------
Total expenses 26,536,166 16,415,615 64,518,713 40,139,130
------------ ------------ ------------ ------------
Net income (loss) $ 518,733 $ (22,018) $ 1,948,447 $ 1,068,996
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
11
<PAGE> 12
TRUST LEASING, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
--------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,948,447 $ 1,068,996
Adjustment to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 2,885
Changes in assets and liabilities:
Accounts receivable (1,470,909) (812,892)
Inventories (104,379) (37,925)
Prepaid expenses (151,908) (200,051)
Accounts payable 511,925 211,964
Accrued expenses 5,868,881 3,448,859
------------ ------------
Net cash provided by operating activities 6,604,942 3,678,951
------------ ------------
Cash flows from investing activities:
Purchase of Units in Equity Inns Partnership, L.P. (2,875,000)
Purchase of investment in Equity Inns, Inc. (268,750)
Advance to affiliates (471,194)
Purchase of furniture and equipment (3,220)
------------ ------------
Net cash used in investing activities (3,349,414) (268,750)
------------ ------------
Cash flows from financing activities:
Contribution of capital 2,875,000
------------ ------------
Net increase in cash and cash equivalents 6,130,528 3,410,201
Cash and cash equivalents at beginning of period 4,176,309 2,411,501
------------ ------------
Cash and cash equivalents at end of period $ 10,306,837 $ 5,821,702
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements
12
<PAGE> 13
TRUST LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------
1. Organization
Trust Leasing, Inc. ("the Lessee", which formerly operated as McNeill
Hotel Co., Inc.) began operations on March 1, 1994 and is wholly owned by
Phillip H. McNeill, Sr. The Lessee has elected status as a Subchapter S
corporation under the Internal Revenue Code. The Lessee was formed to
operate and lease hotels owned by Equity Inns Partnership, L.P. (the
"Partnership") pursuant to separate percentage lease agreements (the
"Percentage Leases"). At September 30, 1996, approximately 97.0% of the
Partnership was owned by Equity Inns, Inc. (through its wholly-owned
subsidiary, Equity Inns Trust) in which Mr. McNeill is also Chairman of
the Board and Chief Executive Officer. As of September 30, 1996, the
Lessee leased forty-six hotels from the Partnership. Thirty-four of the
hotels are operated by the Lessee as Hampton Inn hotels or Homewood
Suites hotels under franchise agreements with Promus Hotels, Inc. Four of
the hotels are operated by the Lessee as Residence Inn hotels under
franchise agreements with Marriott Corporation. Three of the hotels are
operated by the Lessee as Comfort Inn hotels under a franchise agreement
with Choice Hotels International, Inc. Five of the hotels are operated by
the Lessee as Holiday Inn hotels or Holiday Inn Express hotels under
franchise agreements with Holiday Inn, Inc. Thirty-six of the hotels are
limited service hotels, four of the hotels are full service hotels, and
six of the hotels are extended stay hotels.
Each hotel is separately leased by the Partnership to the Lessee under a
Percentage Lease that provides for a non-cancelable term of ten years,
subject to earlier termination upon certain events. The Percentage Leases
require a base rental payment to be made to the Partnership on a monthly
basis and additional quarterly payments to be made based upon percentages
of room revenue and, to a lesser extent, food and beverage revenue at the
hotels. The Lessee will not be considered in default for non-payment of
the percentage rent for any calendar year as long as such payment is made
within ninety days following the end of each calendar year.
These unaudited financial statements 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 Lessee included in Equity Inns, Inc.'s 1995 Annual Report
on Form 10-K. The following notes to the financial statements highlight
significant changes to the notes included in the Form 10-K and present
interim disclosures required by the SEC. The accompanying 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.
13
<PAGE> 14
TRUST LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
2. Consulting Agreement
The Lessee has a consulting agreement with Trust Management, Inc. (an
affiliated company, wholly owned by Phillip H. McNeill, Sr., which
formerly operated as McNeill Hospitality Corporation) to provide
consulting and other technical services through December 31, 1996. The
agreement provides for annual fees of $1,000,000, payable $250,000 per
quarter. These fees will be discontinued upon the completion of the IHC
transaction as described in Note 5.
3. Investment in Equity Inns, Inc. and Equity Inns Partnership, L.P.
On April 16, 1996, the Lessee purchased 250,000 units of limited
partnership interest ("Units") of the Partnership in a private placement.
The Units were purchased at $11.50 per Unit, resulting in a total cost of
$2,875,000. In connection with this transaction, Phillip H. McNeill, Sr.
made a capital contribution of $2,875,000 to the Lessee. At September 30,
1996, Trust Leasing, Inc. owned an approximate 1% interest in the
Partnership.
In addition, the Lessee owns 25,000 shares of the Common Stock of Equity
Inns, Inc. Both the Units and Common Stock are pledged as collateral for
personal indebtedness of Phillip H. McNeill, Sr.
4. Commitments
The Lessee has future lease commitments to the Partnership under the
Percentage Leases which expire in 2004 (25 hotels), 2005 (12 hotels) and
2006 (9 hotels). Minimum future rental payments are computed based on the
base rent as defined under these noncancellable operating leases and is
as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
------------------- ------
<S> <C>
Remainder of 1996 $ 5,402
1997 21,609
1998 21,609
1999 21,609
2000 21,609
2001 and thereafter 92,013
---------
$ 183,851
=========
</TABLE>
14
<PAGE> 15
TRUST LEASING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
4. Commitments (Continued)
The Lessee paid base rents of approximately $14.2 million and $8.9
million and percentage rents in excess of base rents of approximately
$14.7 million and $9.1 million for the nine months ended September 30,
1996 and 1995, respectively. The percentage rents are based on a
percentage of gross room revenue, beverage revenue and food revenue, if
applicable, of the hotels. Both the base rent and the threshold room
revenue amount in each percentage rent formula is adjusted for changes in
the CPI. The adjustment is calculated at the beginning of each year,
provided the lease has been in effect for a complete calendar year, based
upon the average change in the CPI during the prior 24 months. The
adjustment in any lease year may not exceed 7%. Effective January 1,
1996, twenty-five of the leases were adjusted, resulting in a 2.8%
increase in both base rent and threshold room revenue.
5. Subsequent Events
On October 4, 1996, Phillip H. McNeill, Sr. entered into an agreement,
subject to certain conditions, to contribute substantially all of the
assets of the Lessee and of Trust Management, Inc. (an affiliated company
also wholly-owned by Mr. McNeill, which formerly operated as McNeill
Hospitality Corporation), including the leases between Trust Leasing,
Inc. and the Partnership, to Crossroads/Memphis Partnership, L.P.
("Crossroads/Memphis"), an affiliate of Interstate Hotels Company, a
publicly held hotel management company not presently affiliated with the
Lessee or Mr. McNeill, in exchange for partnership interests in
Crossroads/Memphis. The transaction is anticipated to occur in November
1996.
On October 18, 1996, in connection with terms of the pending transaction
with Crossroads/Memphis, the Lessee distributed its investment of 250,000
Units of the Partnership and 25,000 shares of Common Stock of Equity
Inns, Inc. to Phillip H. McNeill, Sr.
On October 1, 1996 and November 5, 1996, the Partnership acquired a
Residence Inn in Burlington, Vermont and a Homewood Suites in Phoenix,
Arizona. Both hotels will be leased by the Lessee until the expected
close of the transaction with Crossroads/Memphis.
15
<PAGE> 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
EQUITY INNS, INC. AND TRUST LEASING, INC.
BACKGROUND
The Company and the Lessee commenced operations on March 1, 1994 upon completion
of the Company's initial public offering (the "IPO") and the simultaneous
acquisition of eight Hampton Inn hotel properties with 995 rooms.
At the time of the IPO, the Company was the sole general partner of the
Partnership. Effective January 3 , 1995, the Company transferred its equity
interest in the Partnership to Equity Inns Trust (the "Trust"), a wholly-owned
subsidiary of the Company, and the Trust became the sole general partner of the
Partnership. Since the IPO, the Company has actively implemented its acquisition
strategy. The following chart summarizes information regarding the Company's
hotels at September 30, 1996:
<TABLE>
<CAPTION>
Number of Number of
Franchise Affiliation Hotel Properties Rooms/Suites
--------------------- ---------------- ------------
<S> <C> <C>
Limited Service Hotels:
Hampton Inn 32 3,940
Comfort Inn 3 362
Holiday Inn Express 1 101
--- ------
36 4,403
Extended Stay Hotels:
Residence Inn 4 376
Homewood Suites 2 255
--- ---
6 631
Full Service Hotels:
Holiday Inn 4 557
--- ------
Total 46 5,591
=== ======
</TABLE>
At September 30, 1996, the Partnership owned 46 hotels (the "Hotels") in 24
states and the Trust owned an approximate 97.0% interest in the Partnership. The
Lessee leases and operates the Hotels pursuant to the Percentage Leases which
provide for rent payments based, in part, on the revenues of the Hotels. The
Lessee is wholly owned by Phillip H. McNeill, Sr., Chairman of the Board and
Chief Executive Officer of the Company. On October 4, 1996, Phillip H. McNeill,
Sr. entered into an agreement, subject to certain conditions, to contribute
substantially all of the assets of the Lessee and of Trust Management, Inc. (an
affiliated company also wholly owned by Mr. McNeill, which formerly operated as
McNeill Hospitality Corporation), including the leases between Trust Leasing,
Inc. and the Partnership, to Crossroads/Memphis Partnership, L.P., an affiliate
of Interstate Hotels Company , a publicly held hotel management company not
presently affiliated with the Lessee or Mr. McNeill, in exchange for partnership
interests in Crossroads/Memphis.
16
<PAGE> 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
BACKGROUND, Continued
The agreement provides for all economic and voting interests of
Crossroads/Memphis to be retained by IHC. In addition, IHC has agreed to
guarantee the prompt and full payment of rent and other amounts due the Company
under the Percentage Leases, as well as the performance of all covenants
contained in the Percentage Leases.
On November 4, 1996, the Company and the Partnership entered into a Master
Agreement with Crossroads/Memphis. Interstate Hotels Corporation, a wholly-owned
subsidiary of IHC, and Crossroads Future Company LLC, a wholly-owned subsidiary
of IHC ("New Lessee"), pursuant to which the existing leases between the
Partnership and the Lessee will be amended to provide for, among other things,
(i) a right of first refusal for the New Lessee to lease hotels acquired or
developed by the Partnership during the five-year period following the closing,
(ii) the Partnership having certain rights to acquire hotels developed by IHC
and its affiliates, subject to certain exceptions, (iii) amendment of the
existing leases effective upon closing of the IHC transactions between the
Partnership and the Trust to provide for a fifteen year term from the date of
closing, and (iv) providing for certain other future leases between the
Partnership and the New Lessee. The closing of the transfer of the leases to
Crossroads/Memphis and the effectiveness of the Master Agreement is anticipated
to occur in November 1996.
In order for the Company to qualify as a REIT, neither the Company (by itself or
through the Trust), nor the Partnership can operate hotels. Therefore, the
Partnership leases the Hotels to the Lessee pursuant to the Percentage Leases.
The Partnership's, and therefore the Company's, principal source of revenue is
lease payments by the Lessee under the Percentage Leases. Percentage Rent is
based primarily upon the Hotels' room revenue, and to a lesser extent, when
applicable, food and beverage revenue. The Lessee's ability to make payments to
the Partnership under the Percentage Leases is dependent on its ability to
generate sufficient cash flow from the operations of the Hotels.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations of the Company and
the Lessee for the three month periods ended September 30, 1996 and 1995.
THE COMPANY
Comparison of the Three Months Ended September 30, 1996 to the Three Months
Ended September 30, 1995
For the three months ended September 30, 1996, the Company had total revenues of
$12,341,045, consisting primarily of Percentage Lease revenue of $12,325,995.
Interest expense of $945,187 was incurred on borrowings used for the acquisition
of hotel properties, with an average outstanding balance under the Line of
Credit (the "Line of Credit") of approximately $50.4 million, at an average
17
<PAGE> 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
RESULTS OF OPERATIONS, Continued
interest rate of 7.3%. Net income for the period was $6,022,171 or $.26 per
share. Funds From Operations (utilizing the definition of Funds From Operations
recommended by the National Association of Real Estate Investment Trusts
["NAREIT"]) were $9,339,195 or $.39 per share. The Company considers Funds From
Operations to be a key measure of a REIT's performance and believes that Funds
From Operations should be considered along with, but not as an alternative to,
net income and cash flows as a measure of the Company's operating performance
and liquidity.
For the three months ended September 30, 1995, the Company had total revenues of
$7,593,969, consisting primarily of Percentage Lease revenue of $7,588,229.
Interest expense of $309,671 was incurred on borrowings used for the acquisition
of hotel properties, with an average outstanding balance under the Line of
Credit of approximately $38 million, at an average interest rate of 8.2%. Net
income for the period was $3,903,564 or $.27 per share. Funds From Operations
were $5,775,482 or $.38 per share.
The increase in Percentage Lease revenue for the three months ended September
30, 1996 over the comparable period last year is the result of (i) the number of
hotels owned and leased increasing from 33 at September 30, 1995 to 46 at
September 30, 1996 and (ii) to a lesser extent, increased Percentage Lease
revenue for the Hotels owned throughout both periods. In addition, for the 46
hotels owned at September 30, 1996, on a pro forma basis, room revenue per
available room ("REVPAR") was $52.46 for the three months ended September 30,
1996, compared to $50.97 for the comparable period in 1995, representing an
increase of 2.9%. Real estate and personal property taxes and depreciation and
amortization increased over the same period last year as a result of the
increase in the number of hotels. Interest expense increased in the 1996 period
due to the utilization of the Line of Credit for acquisitions. General and
administrative expenses increased primarily as a result of the increase in
number of hotels over the comparable period last year.
Comparison of the Nine Months Ended September 30, 1996 to the Nine Months Ended
September 30, 1995
For the nine months ended September 30, 1996, the Company had total revenues of
$28,977,112, consisting primarily of Percentage Lease revenue of $28,882,975.
Interest expense of $3,040,723 was incurred on borrowings used for the
acquisition of hotel properties, with an average outstanding balance under the
Line of Credit of approximately $54.0 million, at an average interest rate of
7.3%. Net income for the period was $11,954,131 or $.60 per share. Funds From
Operations (utilizing the new definition of Funds From Operations recommended by
NAREIT) were $20,281,589 or $.98 per share.
18
<PAGE> 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
RESULTS OF OPERATIONS, Continued
For the nine months ended September 30, 1995, the Company had total revenues of
$18,017,877, consisting primarily of Percentage Lease revenue of $17,996,253.
Interest expense of $2,633,801 was incurred on borrowings used for the
acquisition of hotel properties, with an average outstanding balance under the
Line of Credit of approximately $38 million, at an average interest rate of
8.4%. Net income for the period was $6,922,780 or $.61 per share. Funds From
Operations (under NAREIT's new definition) were $11,952,839 or $.99 per share.
The increase in Percentage Lease revenue for the nine months ended September 30,
1996 over the comparable period last year is the result of (i) the number of
hotels owned and leased increasing from 33 at September 30, 1995 to 46 at
September 30, 1996 and (ii) to a lesser extent, increased Percentage Lease
revenue for the Hotels owned throughout both periods. In addition, for the 46
hotels owned at September 30, 1996, on a pro forma basis, REVPAR was $47.06 for
the nine months ended September 30, 1996, compared to $45.79 for the comparable
period in 1995, representing an increase of 2.8%. Real estate and personal
property taxes and depreciation and amortization increased over the same period
last year as a result of the increase in the number of hotels. Interest expense
increased in the 1996 period due to the utilization of the Line of Credit for
acquisitions.
General and administrative expenses increased primarily as a result of the
increase in number of hotels over the comparable period last year.
In future periods, subsequent to the assignment of the leases by the Lessee as
described in Note 5 of the Lessee's financial statements, general and
administrative expenses will increase due to activities that will now be
performed by the Company as a result of having an unaffiliated Lessee.
Additionally, such expenses will increase as a result of the Company engaging in
hotel construction and developmental activity.
The following is a reconciliation of net income before minority interest to
Funds From Operations (under NAREIT's new definition):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before minority interest $ 6,208,423 $ 4,118,011 $12,332,825 $ 7,354,389
Add:
Depreciation of investment in
hotel properties 3,130,772 1,657,471 7,948,764 4,598,450
----------- ----------- ----------- -----------
Funds From Operations $ 9,339,195 $ 5,775,482 $20,281,589 $11,952,839
=========== =========== =========== ===========
Weighted average number of outstanding shares
of Common Stock and Units of the Partnership 24,140,411 15,181,528 20,715,018 12,029,175
=========== =========== =========== ===========
Funds From Operations per Share and Unit $ .39 $ .38 $ .98 $ .99
=========== =========== =========== ===========
</TABLE>
19
<PAGE> 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
RESULTS OF OPERATIONS, Continued
THE LESSEE
Comparison of the Three Months Ended September 30, 1996 to the Three Months
Ended September 30, 1995
For the three months ended September 30, 1996, the Lessee had total revenues of
$27,054,899, consisting primarily of room revenue of $25,394,556. Hotel
expenses, other than Percentage Lease expense and consulting fees, as a
percentage of total revenue, were 51.6%. Percentage Lease expenses, as a
percentage of total revenue, were 45.6% reflecting the strength of the third
quarter room revenues as compared to the other quarters. Consulting fees in the
amount of $250,000 were paid to Trust Management, Inc. during the three months
ended September 30, 1996, resulting in net income of $518,733. Pro forma REVPAR
for the 46 hotels leased by the Lessee at September 30, 1996 was $52.46 for the
three months ended September 30, 1996. Pro forma occupancy and average daily
rate ("ADR") for the three months ended September 30, 1996 were 78.8% and
$66.59, respectively, for the same period.
For the three months ended September 30, 1995, the Lessee had total revenues of
$16,393,597, consisting primarily of room revenue of $15,409,779. Hotel
expenses, other than lease expense and consulting fees, as a percentage of total
revenue, were 49.3%. Percentage Lease expenses, as a percentage of total
revenue, were 46.3% reflecting the strength of the third quarter room revenues
as compared to the other quarters. Consulting fees in the amount of $750,000
were paid to McNeill Hospitality Corporation during the three month period,
resulting in a net loss of $22,018. Pro forma REVPAR for the 46 hotels leased by
the Lessee at September 30, 1995 was $50.97 for the three months ended September
30, 1995. Occupancy for the three months ended September 30, 1995 was 81.5%, and
ADR was $62.51 for the same period.
Comparison of the Nine Months Ended September 30, 1996 to the Nine Months Ended
September 30, 1995
For the nine months ended September 30, 1996, the Lessee had total revenues of
$66,467,160, consisting primarily of room revenue of $62,040,022. Hotel
expenses, other than Percentage Lease expense and consulting fees, as a
percentage of total revenue, were 52.5%. Percentage Lease expense, as a
percentage of total revenue, was 43.5%. Consulting fees in the amount of
$750,000 were paid to Trust Management, Inc. during the nine months ended
September 30, 1996, resulting in net income of $1,948,447. Pro forma REVPAR for
the 46 hotels leased by the Lessee at September 30, 1996 was $47.06 for the nine
months ended September 30, 1996. Pro forma occupancy and ADR for the nine months
ended September 30, 1996 were 73.4% and $64.12, respectively, for the same
period.
20
<PAGE> 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
RESULTS OF OPERATIONS, Continued
For the nine months ended September 30, 1995, the Lessee had total revenues of
$41,208,126, consisting primarily of room revenue of $38,396,575. Hotel
expenses, other than lease expense and consulting fees, as a percentage of total
revenue, were 51.9%. Percentage Lease expenses, as a percentage of total
revenue, were 43.7%. Pro forma REVPAR was $45.79 for the nine months ended
September 30, 1995. Occupancy for the 46 hotels for the nine months ended
September 30, 1995 was 76.5%, and ADR for the same period was $59.86.
The Lessee has elected Subchapter S status and as a result pays no federal
income tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements, including
distributions to shareholders, is its share of the Partnership's cash flow. The
Partnership's principal source of revenue is rent payments from the Lessee
pursuant to the Percentage Leases. The Lessee's obligations under the Percentage
Leases are unsecured, and the Company's liquidity, including its ability to make
distributions to shareholders, is dependent upon the Lessee's ability to make
rent payments under the Percentage Leases by generating sufficient cash flow
from the operations of the Hotels in excess of hotel operating expenses.
Cash and cash equivalents as of September 30, 1996 were $5,758,741, compared to
$132,630 at December 31, 1995. The increase in cash is the result of an advance
funding from the Company's Line of Credit for the purchase of the Residence Inn
in Burlington, Vermont, which took place on October 1, 1996. Additionally, all
of the September 30, 1996 receivable due from the Lessee was received in October
1996. Net cash provided by operating activities for the nine months ended
September 30, 1996 was $17,002,253.
In December 1995, the Company increased the principal amount of its Line of
Credit from $69 million to $130 million. The increased facility bears interest
at 1.75% over 90-day LIBOR (7.25% at September 30, 1996). Under the Company's
charter, the Company may incur debt of up to 45% of its investment in hotel
properties, at its cost. At September 30, 1996, the Company had outstanding debt
of approximately $67 million, leaving approximately $63 million in the unused
portion of the Line of Credit. The Line of Credit is secured by a first mortgage
on 35 of the 46 hotels owned by the Partnership as of September 30, 1996, and
will be secured by hotels acquired in the future using proceeds from the Line of
Credit.
During the nine months ended September 30, 1996, the Company invested
approximately $16 million to fund capital improvements to its properties,
including replacement of carpets, drapes, renovation of common areas and
improvement of hotel exteriors. Most of these capital improvements were
21
<PAGE> 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
LIQUIDITY AND CAPITAL RESOURCES, Continued
required by the franchisor on hotels that the Company purchased as part of the
franchisors' product improvement plan ("PIP"). The Company took the PIP into
consideration when negotiating the prices for these properties, and, as a
result, purchased them at substantially reduced prices. In addition, the Company
has committed to fund approximately $2 million during the remainder of 1996 for
capital improvements. The Company intends to fund such improvements out of
future cash from operations, present cash balances and borrowings under the Line
of Credit. Under the Line of Credit, the Partnership has agreed to fund a
minimum of 4% of room revenues per quarter on a cumulative basis, for the
ongoing replacement or refurbishment of furniture, fixtures and equipment at the
hotels. Management believes that these amounts will be sufficient to fund
required expenditures for the term of the Percentage Leases for the capital
improvements anticipated. Recurring repairs and maintenance are performed by the
Lessee.
The Company elected to be taxed as a REIT, commencing with its taxable year
ended December 31, 1994 and expects to continue to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a
result, the Company is not subject to federal income taxes or significant state
income taxes on net income.
REITs are subject to a number of organizational and operational requirements.
For example, for federal income tax purposes, a REIT, and therefore the Company,
is required to pay distributions of at least 95 percent of its taxable income to
its shareholders. The Company intends to pay these distributions from operating
cash flows. The Company also intends to retain as a reserve such amounts as it
considers necessary for the acquisition, expansion and renovation of hotel
properties consistent with continuing to distribute to its shareholders amounts
sufficient to maintain the Company's qualification as a REIT.
During the nine months ended September 30, 1996, the Partnership declared
quarterly distributions in the aggregate of $17,915,542 to its partners,
including the Trust, or $.84 per unit, and the Company declared distributions in
the aggregate of $17,367,775, or $.84 per share to its shareholders.
The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations, existing cash balances and, if
necessary, short-term borrowings under its Line of Credit. The Company believes
that its net cash provided by operations will be adequate to fund both operating
requirements and payment of dividends by the Company in accordance with REIT
requirements.
22
<PAGE> 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
EQUITY INNS, INC. AND TRUST LEASING, INC.
LIQUIDITY AND CAPITAL RESOURCES, Continued
The Company expects to meet its long-term liquidity requirements, such as
scheduled debt maturities and property acquisitions, through long-term secured
and unsecured borrowings, the issuance of additional equity securities of the
Company, or, in connection with acquisitions of hotel properties, issuance of
Units in the Partnership. Pursuant to the Partnership Agreement for the
Partnership, holders of Units have the right to require the Partnership to
redeem their Units. During the nine months ended September 30, 1996, holders of
Units tendered 182,815 Units for redemption. Pursuant to the Partnership
Agreement, the Partnership has the option to redeem Units tendered for
redemption on a one-for-one basis for shares of Common Stock or for an
equivalent amount of cash. Alternatively, the Company may acquire directly Units
tendered to the Partnership for redemption. The Company, through the Trust,
acquired the 182,815 Units tendered in exchange for 182,185 shares of Common
Stock increasing the Company's ownership of the Partnership, through the Trust,
to approximately 97%. The Company anticipates that it will acquire, through the
Trust, any other Units tendered for redemption in the foreseeable future in
exchange for shares of Common Stock.
INFLATION
Operators of hotels in general possess the ability to adjust room rates quickly.
However, competitive pressures may limit the Lessee's ability to raise room
rates in the face of inflation.
SEASONALITY
The Hotels' operations historically have been seasonal in nature, reflecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in the Partnership's quarterly revenue to
the extent that it receives Percentage Rent.
IMPLEMENTATION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation", which is
effective for fiscal years that begin after December 15, 1995. SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument and is
effective for transactions entered into in fiscal years that begin after
December 15, 1995. While SFAS No. 123 encourages adoption of the fair value
based method, it also allows an entity to continue measuring compensation cost
as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." However, such entities will be required to make
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. The Company expects to elect the
disclosure only provisions of SFAS No. 123.
23
<PAGE> 24
EQUITY INNS, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during the
quarter ended September 30, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -- EX-27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K -- The following Current Reports on Form 8-K were
filed during the last quarter of the period covered by this Quarterly
Report on Form 10-Q.
(i) Current Report on Form 8-K dated June 25, 1996 and filed on
August 5, 1996, reporting the Partnership's acquisition of an
80-room Residence Inn in Madison, Wisconsin, a 126-room
Hampton Inn in Scottsdale, Arizona, and a 167-room Hampton Inn
in Chattanooga, Tennessee (no financial statements available);
and
(ii) Current Report on Form 8-K dated September 9, 1996 and filed
on September 13, 1996, reporting the listing and initiation of
trading of the Company's Common Stock on the New York Stock
Exchange.
24
<PAGE> 25
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.
Equity Inns, Inc.
November 11 , 1996 By: /s/Howard A. Silver
- -------------------------- ------------------------------------------------
Date Howard A. Silver
Vice President of Finance, Secretary, Treasurer,
Chief Financial Officer (Principal Financial and
Accounting Officer)
25
<PAGE> 26
EXHIBITS
Exhibit
Number Description
27 Financial Data Schedule (filed only electronically with the SEC)
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,758,741
<SECURITIES> 0
<RECEIVABLES> 6,970,001
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 291,909,943
<DEPRECIATION> 0
<TOTAL-ASSETS> 308,345,615
<CURRENT-LIABILITIES> 0
<BONDS> 66,650,966
0
0
<COMMON> 235,336
<OTHER-SE> 225,122,106
<TOTAL-LIABILITY-AND-EQUITY> 308,345,615
<SALES> 28,977,112
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,644,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,040,723
<INCOME-PRETAX> 12,332,825
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,954,131
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
