<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
--
X Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission File Number 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 Identification Number)
Incorporation or Organization)
4735 Spottswood, Suite 102, Memphis, Tennessee 38117
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(Address of Registrant's Principal Executive Office) (Zip Code)
( 901) 761-9651
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of March 10, 1998: $536,903,997.
Number of shares of Common Stock, $.01 par value, outstanding as of March 10,
1998: 35,585,663
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 14, 1998 (the "Proxy Statement") are incorporated by
reference into Part III of this Report. Portions of the Registrant's
Registration Statements on Form S-11 (No. 33-73304 and No. 33-80318) and
Registration Statements on Form S-3 (No. 33-90364, No. 33-93158, No. 33-99480
and No. 333-26559) are incorporated by reference into Part IV of this report.
Exhibit Index beginning on Page 62.
Page 1 of 66
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EQUITY INNS, INC
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 19
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 25
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 54
Part III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 54
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on
Form 8-K 55
</TABLE>
2
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Equity Inns, Inc. (the "Company") is in the business of acquiring equity
interests in hotel properties. 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 December 31, 1997,
owned an approximate 95.0% interest in the Partnership.
(b) Financial Information About Industry Segment
The Company is in the business of acquiring equity interests in hotel
properties. See the Consolidated Financial Statements and notes thereto included
in Item 8 of this Annual Report on Form 10-K for certain financial information
required in Item 1.
(c) Narrative Description of Business
In order to qualify as a REIT, neither the Company nor the Partnership can
operate hotels. At December 31, 1997, the Partnership leased 79 hotels
collectively to Crossroads/Memphis Partnership, L.P., Crossroads Future Company,
L.L.C. and Crossroads/Memphis Financing Company, L.L.C. (collectively
"Crossroads"), each of which is an affiliate of Interstate Hotels Company
("Interstate"). Interstate has a right of first refusal, subject to certain
exceptions, to lease hotels acquired by the Partnership, through November 15,
2001. The Partnership leased 10 hotels to Caldwell Holding Company ("Caldwell"),
a wholly-owned subsidiary of Prime Hospitality Corporation ("Prime").
All hotels owned by the Company are leased to Crossroads and Caldwell
(collectively, the "Lessees" and individually, the "Lessee") pursuant to
percentage leases ("Percentage Leases") which provide for rent based, in part,
on the revenues from the hotels and which are designed to allow the Company to
participate in the growth of room revenues, and where applicable, food and
beverage revenue.
At December 31, 1997, the Partnership owned 89 hotel properties, with a total of
10,777 rooms in 30 states (the "Current Hotels"). The diversity of the portfolio
is such that at December 31, 1997, no individual hotel exceeded 2% of the total
rooms, and hotels owned in any one state do not exceed 10% of the total rooms in
the portfolio. This geographical distribution and franchise diversity is further
illustrated by the following chart.
<TABLE>
<CAPTION>
% Of
Franchise Total Date
State/City Affiliation Rooms Rooms Opened
- ------------------------------- ----------- ----- ----- --------------
<S> <C> <C> <C> <C>
ALABAMA:
Birmingham (Mountain Brook) Hampton Inn 131 1.2% December 1987
Birmingham (Vestavia) Hampton Inn 123 1.1% November 1986
Enterprise Comfort Inn 78 0.7% May 1987
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
% Of
Franchise Total Date
State/City Affiliation Rooms Rooms Opened
- ------------------------------- ----------- ----- ----- --------------
<S> <C> <C> <C> <C>
ARIZONA:
Flagstaff AmeriSuites 117 1.1% September 1993
Phoenix Homewood Suites 124 1.1% September 1996
Scottsdale Hampton Inn 126 1.2% January 1996
Tucson Residence Inn 128 1.2% July 1985
ARKANSAS:
Little Rock-North Hampton Inn 123 1.1% June 1985
Little Rock-South Hampton Inn 122 1.1% September 1985
COLORADO:
Colorado Springs Residence Inn 96 0.9% October 1984
Colorado Springs Hampton Inn 128 1.2% December 1985
Denver (Aurora) Hampton Inn 132 1.2% June 1985
CONNECTICUT:
Hartford Homewood Suites 132 1.2% May 1990
Meriden Hampton Inn 125 1.2% May 1988
Milford Hampton Inn 148 1.4% August 1986
FLORIDA:
Destin Hampton Inn 104 1.0% June 1994
Jacksonville Hampton Inn 122 1.1% November 1986
Jacksonville AmeriSuites 112 1.0% July 1996
Jacksonville Beach Comfort Inn 177 1.6% October 1973
Miami AmeriSuites 126 1.2% February 1996
Sarasota Hampton Inn 97 0.9% March 1987
Tampa AmeriSuites 126 1.2% November 1994
GEORGIA:
Atlanta (Northlake) Hampton Inn 130 1.2% February 1988
Augusta Homewood Suites 65 0.6% April 1997
Columbus Hampton Inn 119 1.1% September 1986
Savannah Hampton Inn 129 1.2% August 1986
ILLINOIS:
Chicago (Gurnee) Hampton Inn 134 1.2% June 1988
Chicago (Naperville) Hampton Inn 130 1.2% October 1987
INDIANA:
Indianapolis Hampton Inn 129 1.2% March 1987
Indianapolis (Keystone) AmeriSuites 126 1.2% March 1992
KANSAS:
Overland Park Hampton Inn 134 1.2% March 1991
Overland Park AmeriSuites 126 1.2% April 1994
KENTUCKY:
Louisville Hampton Inn 119 1.1% December 1986
MARYLAND:
Baltimore (Glen Burnie) Hampton Inn 116 1.1% December 1989
MICHIGAN:
Ann Arbor Hampton Inn 150 1.3% November 1986
Detroit (Northville) Hampton Inn 125 1.2% August 1989
Detroit (Madison Heights) Hampton Inn 124 1.2% October 1987
Traverse City Hampton Inn 127 1.2% January 1987
MINNESOTA:
Minneapolis (Eagan) Residence Inn 120 1.1% January 1988
MISSISSIPPI:
Memphis (Southaven) Hampton Inn 86 0.8% March 1995
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
% Of
Franchise Total Date
State/City Affiliation Rooms Rooms Opened
- ------------------------------- ----------- ----- ----- --------------
<S> <C> <C> <C> <C>
MISSOURI:
Kansas City Hampton Inn 120 1.1% June 1987
St. Louis Hampton Inn 122 1.1% July 1987
NEBRASKA:
Omaha Residence Inn 80 0.7% January 1981
NEW JERSEY:
Princeton Residence Inn 208 1.9% May 1988
Tinton Falls Residence Inn 96 0.9% June 1988
NEW YORK:
Albany Hampton Inn 154 1.4% July 1986
NORTH CAROLINA:
Chapel Hill Hampton Inn 122 1.1% August 1986
Fayetteville Hampton Inn 122 1.1% May 1986
Gastonia Hampton Inn 109 1.0% February 1989
Shelby Hampton Inn 78 0.7% February 1989
Wilkesboro Holiday Inn
Express 101 0.9% August 1985
Winston-Salem Holiday Inn 160 1.5% October 1969
OHIO:
Cincinnati (Blue Ash) AmeriSuites 127 1.2% June 1990
Cincinnati (Forest Park) AmeriSuites 126 1.2% June 1992
Cleveland Hampton Inn 123 1.1% January 1987
Columbus AmeriSuites 126 1.2% May 1994
Columbus (Dublin) Hampton Inn 123 1.1% April 1988
OKLAHOMA:
Oklahoma City Residence Inn 135 1.3% December 1982
PENNSYLVANIA:
Scranton Hampton Inn 129 1.2% February 1994
State College Hampton Inn 120 1.1% January 1987
SOUTH CAROLINA:
Charleston (Airport) Hampton Inn 125 1.2% October 1985
Charleston (Mt. Pleasant) Holiday Inn 158 1.5% May 1988
Columbia Hampton Inn 121 1.1% January 1985
TENNESSEE
Chattanooga Hampton Inn 168 1.6% April 1988
Cleveland Hampton Inn 60 0.6% March 1993
Knoxville Hampton Inn 118 1.1% February 1991
Memphis (Germantown) Homewood Suites 92 0.9% May 1996
Memphis (Poplar) Hampton Inn 126 1.2% November 1985
Memphis (Sycamore View) Hampton Inn 117 1.1% August 1984
Nashville (Brentwood) Hampton Inn 114 1.1% August 1985
Nashville (Briley) Hampton Inn 120 1.1% January 1987
Pickwick Dam Hampton Inn 50 0.5% June 1994
TEXAS:
Austin Hampton Inn 122 1.1% July 1987
College Station Hampton Inn 135 1.3% May 1986
Dallad (Addison) Hampton Inn 160 1.5% December 1985
Dallas (Arlington) Hampton Inn 141 1.3% December 1985
Dallas (Garland) Hampton Inn 125 1.2% October 1986
Dallas (Richardson) Hampton Inn 130 1.2% January 1987
Ft. Worth Hampton Inn 125 1.2% February 1987
San Antonio Homewood Suites 123 1.1% August 1996
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
% Of
Franchise Total Date
State/City Affiliation Rooms Rooms Opened
- ------------------------------- ----------- ----- ----- --------------
<S> <C> <C> <C> <C>
VERMONT:
Burlington Residence Inn 96 0.9% November 1988
Rutland Comfort Inn 104 1.0% August 1985
VIRGINIA:
Norfolk Hampton Inn 119 1.1% November 1990
Richmond AmeriSuites 126 1.2% January 1992
WEST VIRGINIA:
Beckley Hampton Inn 108 1.0% March 1992
Bluefield Holiday Inn 120 1.1% May 1980
Morgantown Hampton Inn 108 1.0% June 1991
Oak Hill Holiday Inn 119 1.1% August 1983
WISCONSIN:
Madison Residence Inn 80 0.7% January 1988
------ -----
TOTAL ROOMS 10,777 100.0%
====== =====
</TABLE>
The Company has contracted to acquire a Residence hotel Inn in Portland, Oregon
for $23.5 million; a Residence Inn hotel in Boise, Idaho for $7.0 million; and a
Hampton Inn hotel in San Antonio, Texas for $12.6 million, with closings
expected from late March through the end of April 1998. The 92 hotels owned and
contracted to own by the Company at March 10, 1998 are herein referred to as the
"Hotels."
BUSINESS STRATEGY
The Company has developed a growth strategy which management believes
capitalizes on attractive acquisition opportunities and improving industry
conditions. The Company's primary objective is to increase funds from operations
and enhance shareholder value by participating in increased revenues from the
Hotels through leases which provide for rent payments based on the revenues from
the Hotels and by acquiring equity interests in additional hotels that meet the
Company's investment criteria.
ACQUISITION STRATEGY
The Company intends to acquire additional existing hotel properties that meet
its investment criteria, primarily premier upscale limited service,
extended-stay, all-suite and underperforming hotels, that can be renovated
and/or converted to premium mid-price franchise brands. In particular, the
Company has increasingly emphasized the acquisition of hotel portfolios in order
to capitalize on the Company's efficiency and experience in acquisition analysis
and transaction structuring and to enable the Company to more rapidly expand its
hotel portfolio.
The Company considers investment in hotel properties which meet some or all of
the following criteria:
Particular emphasis is given to premium extended stay and all-suite
properties in the mid-price segment, such as AmeriSuites(R), Homewood
Suites(R), Residence Inn(R), Hampton Inn & Suites(R) and Hawthorn Suites(R)
and premium limited service hotels, such as Hampton Inn(R) and Marriott
Courtyard(R), with major franchisors such as Promus Hotel Corporation,
Marriott Corporation, Prime Hospitality Corporation and U.S. Franchise
Systems;
6
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Properties in attractive locations that the Company believes could benefit
significantly by changing franchise affiliations to a brand the Company
believes will strengthen the acquired hotel's competitive position. In
general, the Company focuses on acquisitions in markets with the following
characteristics:
o high barriers to entry, such as the scarcity or high cost of land for
additional development, restrictive zoning, stringent local
development laws, extended permit-approval processes, and a relatively
low supply of competing hotels;
o historically stable demand generators, such as major corporate office
or retail complexes, airports, major universities and medical centers
with convenient access to major thoroughfares and airports;
Properties with relatively stable operating histories; and
Properties with purchase prices which, coupled with the elimination or
significant reduction of debt, may allow the Company to realize a favorable
return on its investment.
The Company has rights of first refusal to acquire from Affiliates of Phillip H.
McNeill, Sr., the Company's Chairman of the Board, two Hampton Inn hotels in
Memphis (Collierville), Tennessee, and White River Junction, Vermont. The rights
of first refusal require that before a property is sold to a person or entity
other than the Partnership, the seller must first offer the property to the
Partnership on the same terms and conditions as the proposed sale to a third
party. The option provides that the Company or Partnership may purchase any such
hotel at any time twelve months after the opening of the hotel for a price
determined by appraisal. Management currently anticipates that a property will
have achieved stabilized operating performance and cash flows prior to the
Partnership considering the purchase of such property. All investment decisions
relating to transactions between the Company or the Partnership and Mr. McNeill
or his Affiliates must be approved by a majority of the Independent Directors.
DEVELOPMENT STRATEGY
The Company intends to consider selective internal development of hotel
properties, principally in the premium extended stay, all-suite and limited
service segment of the market. At December 31, 1997, the Company had a 125-room
Hampton Inn & Suites hotel under construction in Memphis (Bartlett), Tennessee,
with a scheduled opening date in the spring of 1998.
The Company may also seek to obtain certain of the benefits of development
without incurring certain of the risks of development, by (a) acquiring
newly-developed hotels or (b) contracting with developers to build hotels that
the Company will buy upon completion. The Company has established and is
pursuing relationships with developers who have established good relationships
with the franchisors of the Company's preferred hotel brands. The Company seeks
established developers who have demonstrated, among other things, the ability to
(a) find attractive sites which, when developed, would meet the Company's
acquisition criteria and (b) manage the franchise brand approval and development
processes. The Company has agreed to purchase a 161-room Homewood Suites hotel
in Seattle, Washington for $22 million and a 252-room Homewood Suites hotel in
Orlando, Florida for $22.8 million. Both of these hotels are currently under
construction with completion dates expected in June 1998 and April 1999,
respectively.
INTERNAL GROWTH STRATEGY
The Percentage Leases are designed to allow the Company to participate in any
growth in room revenues at the Hotels and to a lesser extent, food and beverage
revenue, if any. The Percentage Leases provide for rent equal to the greater of
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(i) a fixed Base Rent or (ii) Percentage Rent. The Percentage Leases provide
that the Base Rent and the thresholds for the payment of Percentage Rent will
be adjusted annually (subject to an annual cap of 7%) based on changes in the
United States Consumer Price Index ("CPI").
EMPLOYEES
At March 1, 1998, the Company had 16 employees.
COMPETITION
The hotel industry is highly competitive. Each of the Hotels is located in a
developed area that includes other hotel properties. The number of competitive
hotel properties in a particular area could have a material adverse effect on
occupancy, Average Daily Rate ("ADR") and Revenue Per Available Room ("REVPAR")
of the Hotels or at hotel properties acquired in the future. The Company
believes that brand recognition, location, the quality of the hotel and services
provided, and price are the principal competitive factors affecting the
Company's hotels.
The Company may be competing for investment opportunities with entities which
have substantially greater financial resources than the Company. These entities
generally may be able to accept more risk than the Company prudently can manage.
Competition generally may reduce the number of suitable investment opportunities
available to the Company and increase the bargaining power of property owners
seeking to sell. Further, the Company believes that competition from entities
organized for purposes substantially similar to the Company's objectives will
increase significantly.
FRANCHISE AGREEMENTS
The Lessees hold or will hold the franchise license for each of the Hotels.
Fifty-eight of the ninety- two Hotels currently owned and contracted to own by
the Partnership are licensed as Hampton Inn hotels. Hampton Inn(R) is a
registered trademark of Promus Hotels, Inc. ("Promus"). Promus approved the
transfer of the franchise license to Crossroads when the Partnership acquired
each Hotel that is operated as a Hampton Inn hotel. Ten of the Hotels are
licensed as AmeriSuites hotels. AmeriSuites(R) is a registered trademark of
Prime Hospitality Corporation. Eleven of the Hotels are licensed as Residence
Inn hotels. Residence Inn(R) is a registered trademark of Marriott Corporation
("Marriott"). Marriott approved the transfer of the franchise license to
Crossroads when the Partnership acquired each Hotel that is operated as a
Residence Inn hotel. Five of the Hotels are licensed as Homewood Suites hotels.
Homewood Suites(R) is a registered trademark of Promus Hotel Corporation. Promus
approved the transfer of the franchise license to Crossroads when the
Partnership acquired each Hotel that is operated as a Homewood Suites hotel.
Five of the Hotels are licensed as Holiday Inn hotels or Holiday Inn Express
hotels. Holiday Inn(R) and Holiday Inn Express(R) are registered trademarks of
Holiday Inns, Inc., ("Holiday Inn"). Holiday Inn approved the transfer of the
franchise license to Crossroads when the Partnership acquired each Hotel that is
operated as a Holiday Inn or Holiday Inn Express. Three of the Hotels are
licensed as Comfort Inn hotels. Comfort Inn(R) is a registered trademark of
Choice Hotels International, Inc., ("Choice"). Choice approved the transfer of
the franchise license to Crossroads when the Partnership acquired each Hotel
that is operated as a Comfort Inn. The Company currently intends to maintain the
existing franchise affiliations of all the Hotels.
The Company anticipates that most of the additional hotel properties in which it
invests will be operated under franchise licenses. The Company believes that the
public's perception of quality associated with a franchisor is an important
feature in the operation of a hotel. Franchisors provide a variety of benefits
for franchisees which include national advertising, publicity and other
marketing programs designed to increase brand awareness, training of personnel,
continuous review of quality
8
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standards and centralized reservation systems.
The Hampton Inn, Homewood Suites, Comfort Inn, Residence Inn, AmeriSuites and
Holiday Inn franchise licenses generally specify (and in the case of
AmeriSuites, will specify) certain management, operational, recordkeeping,
accounting, reporting and marketing standards and procedures with which the
applicable Lessee must comply. Such franchise licenses obligate the applicable
Lessee to comply with the franchisors' standards and requirements with respect
to training of operation personnel, safety, maintaining specified insurance, the
types of services and products ancillary to guest room services that may be
provided by the applicable Lessee, display of signage, and the type, quality and
age of furniture, fixtures and equipment included in guest rooms, lobbies and
other common areas.
Each new franchise license generally gives the Lessee the right to operate the
particular Hotel under a franchise license for periods ranging up to 20 years.
The franchise agreements provide for termination at the franchisor's option upon
the occurrence of certain events, including the Lessee's failure to pay
royalties and fees or perform its other covenants under the license agreement,
bankruptcy, abandonment of the franchise, commission of a felony, assignment of
the license without the consent of the franchisor, or failure to comply with
applicable law in the operation of the relevant Hotel. The Lessee will be
entitled to terminate the franchise license only by giving at least 12 months'
notice and paying a specific amount of liquidated damages. The license
agreements will not renew automatically upon expiration. The Partnership made
franchise transfer payments to franchisors aggregating $2.1 million in 1997. The
Partnership is also committed to franchisors to fund certain capital
improvements to hotel properties when acquired, which are funded from
borrowings, working capital, or the room renovation accounts. The Partnership
made capital improvements of approximately $18.1 million to its hotel properties
in 1997, including approximately $12.3 million in renovations required by
franchisors. In 1998, the Partnership expects to fund approximately $25.3
million of capital improvements, approximately $8.4 million of which is
renovation required by franchisors, for the hotel properties owned and
contracted to own at December 31, 1997. The Lessee is responsible for making
royalty payments under the franchise agreements to the franchisors. Under the
Hampton Inn franchise agreements, the Lessee pays a franchise fee of 8% of room
revenue (plus additional fees). One half of such fee is designated for a
marketing and reservation fund for the benefit of Hampton Inn hotels systemwide.
Under the Homewood Suites franchise agreements, the Lessee pays a franchise fee
of 8% of room revenue, of which 4% is designated for a marketing and
reservations fund. Under the Comfort Inn franchise agreements, the Lessee pays a
franchise fee of 8.05% of room revenue, of which 3.05 % (plus additional fees)
is designated for a marketing and reservations fund. Under the Holiday Inn
franchise agreements, the Lessee pays a franchise fee of 7.3% of room revenue,
of which 2.3% (plus additional fees) is designated for a marketing and
reservations fund. Under the Residence Inn franchise agreements, the Lessee pays
a franchise fee of 6.5%-7.5% of room revenue, of which 2.5% (plus additional
fees) is designated for a marketing and reservations fund. Under the proposed
AmeriSuites franchise agreements, the Lessee will pay a franchise fee based upon
a percentage of room revenue. Promus has agreed that, in the event of a default
by the Lessees under a franchise agreement for the Hampton Inn hotels or the
Homewood Suites hotels, or the Partnership's termination of a Percentage Lease
for a Hampton Inn hotel or a Homewood Suites hotel, upon request by the
Partnership and the curing of any event of default, including payment of past
due franchise fees, Promus will allow that hotel to be operated by a designee of
the Partnership acceptable to Promus for a reasonable period of time, not to
exceed twelve (12) months, to allow the designee of the Partnership to apply for
a new franchise license. The Partnership will be obligated to pay Promus' actual
costs of investigating the Partnership's designee. In addition, Promus requires
that normal change of ownership commitment fees be paid when a designee applies
for a new franchise license.
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THE PERCENTAGE LEASES
Each hotel owned by the Partnership is separately leased to the Lessees under a
Percentage Lease. Effective November 15, 1996, each of the existing Percentage
Leases assigned to Crossroads was amended and restated in a Consolidated Lease
Amendment between the Partnership and Crossroads (the "Consolidated Lease
Amendment"). The principal amendments were as follows: (i) the initial term of
each Percentage Lease was increased to 15 years from the date of closing, with
rent for the final five years of the initial term to be re-negotiated after ten
years, and, if the parties cannot agree to new rent terms, the new rent terms
will be determined by arbitration; (ii) the non-compete provision precluding the
Lessee or its affiliates from owning, leasing, operating, managing or
franchising any hotel or motel within a 20-mile radius of any hotel in which the
Partnership or an affiliate of the Partnership has an interest, was deleted;
(iii) events of default shall include, among others, (a) the failure of
Crossroads to make Base Rent or Percentage Rent payments when due and payable
and continuing for a 10-day period after receipt of notice from the Partnership,
as compared to the previous 90-day period for non-payment of Percentage Rent and
(b) occurrence of a breach of any representation or warranty under the Lease
Guaranties; (iv) Crossroads shall be required, not later than 30 days prior to
the commencement or each lease year, to prepare and submit to the Partnership
for its approval a capital budget; (v) prohibitions on payment of fees to any
affiliate of Crossroads was deleted; (vi) the Partnership has the right to
approve any manager of its hotels that is not an affiliate of Crossroads; (vii)
Crossroads will have an extended period (up to 30 days) to cure defaults under
the franchise agreements; (viii) certain amendments were made in the casualty
restoration and condemnation provisions; (ix) the respective obligations of the
parties relating to franchise agreements, capital expenditures and repairs and
maintenance were amended; (x) the Partnership has the right to terminate the
lease (a) upon a sale of the property, provided that the Partnership either (1)
offers Crossroads a substitute lease or leases creating for the Lessee a
leasehold estate having substantially the same fair market value as the
Percentage Lease for the property being sold or (2) pays Crossroads a
termination payment equal to the net present value of the property's cash flow
to Crossroads, and (b) in the event that the Company terminates its REIT status
and the Partnership makes the applicable lease termination payment; and (xi)
Crossroads has a right of first offer to acquire hotels subject to the
Percentage Leases. Future leases between the Partnership and the Lessees will
contain provisions substantially similar to the Consolidated Lease Amendment.
All Percentage Leases with the Lessees have a non-cancelable initial term of
ten-fifteen years, subject to earlier termination upon the occurrence of certain
contingencies described in the Percentage Leases. During the term of each
Percentage Lease, the Lessees are obligated to pay (i) the greater of Base Rent
or Percentage Rent and (ii) certain other amounts, including interest accrued on
any late payments or charges. Base Rent accrues and is required to be paid
monthly. Percentage Rent is based on percentages of room revenues and to a
lesser extent, food and beverage revenues, if any, for each of the Hotels. Both
the Base Rent and the threshold room revenue amount in each Percentage Rent
formula will be adjusted for changes in the CPI. The adjustment is calculated at
the beginning of each lease year after a holding period of a full 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% of the Base Rent and threshold
room revenue amounts for the prior fiscal year. Percentage Rent is payable
quarterly, on or before the 30th day following the end of each of the calendar
quarters in each fiscal year.
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The following table summarizes the percentages of room revenues in excess of
certain levels payable as Percentage Rent under the Percentage Leases as of
January 1, 1998.
<TABLE>
<CAPTION>
Range of Percentages of Room Revenue
------------------------------------
First Tier Top Tier
---------- --------
<S> <C> <C>
Full Service (1) 28% to 38% 65% to 77%
Extended Stay 27% to 37.2% 65% to 75%
All-Suite 35.5% to 38% 71.3% to 76.1%
Limited Service 22% to 37% 62% to 74%
</TABLE>
(1) Percentage Rent formula also includes 15%-30% of beverage revenue and 5%-15%
of food revenue.
Other than real estate and personal property taxes and maintenance of
underground utilities and structural elements, which are obligations of the
Partnership, the Percentage Leases require the Lessees to pay insurance,
utilities and all other costs and expenses incurred in the operation of the
Hotels. The Percentage Leases also provide for rent reductions and abatements in
the event of damage or destruction or a partial taking of any Hotel.
Maintenance and Modifications. Under the Percentage Leases, the Partnership is
required to maintain the underground utilities and the structural elements of
the improvements, including exterior and interior load bearing walls (excluding
plate glass) and the roof of each Hotel. In addition, the Percentage Leases
obligate the Partnership to fund certain capital expenditures at the Hotels
pursuant to the capital budgets approved by the Partnership, when and as deemed
necessary by the Lessees, up to an amount equal to 4% of annual room revenue,
net of amounts actually expended for capital expenditures for each Hotel during
any fiscal year. The Partnership's obligation will be carried forward to the
extent that the Lessees have not expended such amount, and any unexpended
amounts will remain the property of the Partnership upon termination of the
Percentage Leases. Otherwise, the Lessees are required, at their expense, to
maintain the Hotels in good order and repair, except for ordinary wear and tear,
and to make non-structural, foreseen and unforeseen, and ordinary and
extraordinary, repairs which may be necessary and appropriate to keep the Hotels
in good order and repair.
The Lessees, at their expense and with the Partnership's approval, may make
non-capital and capital additions, modifications or improvements to the Hotels,
provided that such action does not significantly alter the character or purposes
of the Hotels or significantly detract from the value or operating efficiencies
of the Hotels. All such alterations, replacements and improvements shall be
subject to all the terms and provisions of the Percentage Leases and will become
the property of the Partnership upon termination of the Percentage Leases. The
Partnership owns substantially all personal property (other than inventory,
linens and other nondepreciable personal property) not affixed to, or deemed a
part of, the real estate or improvements thereon, except to the extent that
ownership of such personal property would cause the rents under a Percentage
Lease not to qualify as "rents from real property" for REIT income test
purposes.
Insurance and Property Taxes. The Partnership is responsible for paying real
estate and personal property taxes on the Hotels (except to the extent that
personal property associated with the Hotels is owned by the Lessee). The
Lessees are required to keep in force and pay or reimburse the Partnership for
all insurance on the Hotels, with extended coverage, including casualty,
comprehensive general public liability, workers' compensation, earthquake, flood
and other insurance
11
<PAGE>
appropriate and customary for properties similar to the Hotels and is required
to name the Partnership as an additional named insured.
Indemnification. Under each of the Percentage Leases, the Lessees are obligated
to indemnify, and are obligated to hold harmless, the Partnership from and
against liabilities, costs and expenses (including reasonable attorneys' fees
and expenses) incurred by, imposed upon or asserted against the Partnership on
account of, among other things, (i) any accident or injury to person or property
on or about the Hotels, (ii) any misuse by the Lessees or any of its agents of
the leased property, (iii) any environmental liability resulting from any action
or negligence of the Lessees, (iv) taxes and assessments in respect of the
Hotels (other than real estate and personal property taxes and income taxes of
the Partnership on income attributable to the Hotels), (v) the sale or
consumption of alcoholic beverages on or in the real property or improvements
thereon, or (vi) any breach of the Percentage Leases by Lessees; provided,
however, that such indemnification will not be construed to require the Lessees
to indemnify the Partnership against the Partnership's own grossly negligent
acts or omissions or willful misconduct or third-party contractual liabilities
arising from termination of the Percentage Leases due to an event of default by
the Partnership thereunder.
Assignment and Subleasing. The Lessees are not permitted to sublet all or any
part of the Hotels or assign its interest under any of the Percentage Leases,
other than to an Affiliate of the Lessees, without the prior written consent of
the Partnership. No assignment or subletting will release the Lessees from any
of their obligations under the Percentage Leases.
Damage to Hotels. In the event of damage to or destruction of any hotel covered
by insurance which renders the Hotel unsuitable for the Lessee's use and
occupancy, the Lessee, at its option, will be obligated to (i) repair, rebuild,
or restore the Hotel or (ii) offer to acquire the Hotel on the terms set forth
in the applicable Percentage Lease. If a Lessee rebuilds the Hotel, the
Partnership is obligated to disburse to the Lessee, from time to time and upon
satisfaction of certain conditions, any insurance proceeds actually received by
the Partnership as a result of such damage or destruction, and any excess costs
of repair or restoration will be paid by the Lessee. If the Lessee decides not
to rebuild and the Partnership exercises its right to reject the Lessee's
mandatory offer to purchase the Hotel on the terms set forth in the Percentage
Lease, the Percentage Lease will terminate and the insurance proceeds will be
retained by the Partnership. If the Partnership accepts the Lessee's offer to
purchase the Hotel, the Percentage Lease will terminate and the Lessee will be
entitled to the insurance proceeds. In the event that damage to or destruction
of a Hotel which is covered by insurance does not render the Hotel wholly
unsuitable for the Lessee's use and occupancy, the Lessee generally will be
obligated to repair or restore the Hotel. In the event of damage to or
destruction of any Hotel which is not covered by insurance, the Lessee will be
obligated to either repair, rebuild, or restore the Hotel or offer to purchase
the Hotel on the terms and conditions set forth in the Percentage Lease. The
Percentage Lease shall remain in full force and effect during the period
required for repair or restoration of any damaged or destroyed Hotel, with the
Lessee to receive a credit against rental payments and other charges in an
amount equal to any loss-of-income insurance proceeds actually received by the
Partnership.
Condemnation of Hotel. In the event of a total condemnation of a Hotel, the
relevant Percentage Lease will terminate with respect to such Hotel as of the
date of taking, and the Partnership and the Lessee will be entitled to their
shares of the condemnation award in accordance with the provisions of the
Percentage Lease. In the event of a partial taking which does not render the
Hotel unsuitable for the Lessee's use, the Lessee shall restore the untaken
portion of the Hotel to a complete architectural unit and the Partnership shall
contribute to the cost of such restoration that part of the condemnation award
specified for restoration, provided that if the condemnation awards are
inadequate to restore the affected Hotel to a complete architectural unit,
either the Partnership or the Lessee shall have the right to terminate the
applicable Percentage Lease.
12
<PAGE>
Events of Default. Events of Default under the existing Percentage Leases
include the following:
(i) the occurrence of an Event of Default under any other lease between
the Partnership and a Lessee or any Affiliate of a Lessee (including the
Consolidated Lease Amendment);
(ii) the failure by a Lessee to pay Base Rent, Percentage Rent or any
additional charges within 10 days after written notice from the Partnership that
such has become due and payable;
(iii) the failure by a Lessee to observe or perform any other term of a
Percentage Lease and the continuation of such failure for a period of 30 days
after receipt by the Lessee of notice from the Partnership thereof, unless such
failure cannot be cured within such period and the Lessee commences appropriate
action to cure such failure within said 30 days and thereafter acts, with
diligence, to correct such failure within such time as is necessary;
(iv) if a Lessee or a guarantor of the Percentage Leases shall file a
petition in bankruptcy or reorganization pursuant to any federal or state
bankruptcy law or any similar federal or state law, or shall be adjudicated a
bankrupt or shall make an assignment for the benefit of creditors or shall admit
in writing its inability to pay its debts generally as they become due, or if a
petition or answer proposing the adjudication of the Lessee or a guarantor of
the Percentage Leases as bankrupt or its reorganization pursuant to any federal
or state bankruptcy law or any similar federal or state law shall be filed in
any court and the Lessee or a guarantor of the Percentage Leases shall be
adjudicated a bankrupt and such adjudication shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if a
receiver of the Lessee or a guarantor of the Percentage Leases or of the whole
or substantially all of the assets of the Lessee shall be appointed in any
proceeding brought by the Lessee or a guarantor of the Percentage Leases or if
any such receiver, trustee or liquidator shall be appointed in any proceeding
brought against the Lessee or any guarantor of the Percentage Leases and shall
not be vacated or set aside or stayed within 60 days after such appointment;
(v) if the Lessee voluntarily discontinues operations of a Hotel for
more than 30 days, except as a result of damage, destruction, or condemnation;
(vi) if the franchise agreement with respect to a Hotel is terminated
as a result of any action or failure to act by the Lessee or its agents (other
than a failure to complete a capital improvement required by the franchisor
resulting from the Partnership's failure to fund such capital improvements); or
(vii) the occurrence of an event of default under the Lease Guaranties
pursuant to which Interstate and a wholly-owned subsidiary guarantees
Crossroads' obligation under the Percentage Leases.
If an Event of Default occurs and continues beyond any curative period, the
Partnership will have the option of terminating the Percentage Lease or any or
all other Percentage Leases between the Partnership and the Lessee and the
Consolidated Lease Amendment and the Percentage Leases shall terminate and the
Lessee will be required to surrender possession of the affected Hotels.
Right of First Offer. In the event that the Partnership desires to sell its
interest in a Hotel, the Partnership shall first offer to Lessee by written
notice the opportunity to acquire the Hotel at the price at which the
Partnership intends to offer the Hotel (the "Offer Price"). In the event that
the Lessee elects within 15 days after receipt of such notice to acquire the
Hotel at the Offer Price, the Partnership will be obligated to sell the Hotel to
the Lessee or its nominee at the Offer Price, and upon such sale, the applicable
Percentage Lease shall terminate with respect to the Hotel. Such provisions
shall not apply to any sale, transfer or conveyance by the Partnership of any
interest in
13
<PAGE>
the Hotels to any affiliate of the Partnership.
Termination of Percentage Leases on Disposition of the Hotels. In the event the
Partnership enters into an agreement to sell or otherwise transfer a Hotel and
the Lessee does not elect to acquire the Hotel in accordance with the right of
first offer described above, the Partnership shall be permitted to sell the
Hotel to a third party at a price equal to or greater than 95% of the Offer
Price. As compensation for the early termination of the Lessee's leasehold
estate, the Partnership will have the right to terminate the Percentage Lease
with respect to such Hotel upon either (i) paying the Lessee the net present
value of the Lessee's leasehold interest in the remaining term of the Percentage
Lease to be terminated or (ii) offering to lease to the Lessee one or more
substitute hotels on terms that would create a leasehold interest in such hotels
with a fair market value equal to or exceeding the fair market value of the
Lessee's remaining leasehold interest under the Percentage Lease to be
terminated.
Termination of Percentage Leases on Company's Termination of REIT Status. In the
event that the Company terminates its REIT status or the Code provisions are
amended so that REITs are permitted to operate hotels, the Partnership may elect
to terminate the Percentage Leases. In such event, the Partnership shall be
obligated to pay to the Lessees the termination payment calculated as set forth
in "The Percentage Leases-Termination of Percentage Leases on Disposition of the
Hotels."
Other Lease Covenants. The Lessees have agreed that they will not make any
payments to any Affiliate of the Lessee in connection with the Hotels as gross
operating expenses unless expressly set forth in the operating budget or an
approved capital budget or otherwise agreed to by the Partnership. A Lessee
shall be permitted to contract with its Affiliates for management and other
services and pay fees for such services, provided that such contracts and fees
(i) are disclosed in writing to the Partnership and (ii) shall not be included
in gross operating expenses. A Lessee's obligation to pay such fees shall be
subordinated to its obligation to pay Base Rent, Percentage Rent and additional
charges to the Partnership pursuant to the Percentage Leases.
Approval of Management Agreement. The Partnership shall have the right in its
sole and absolute discretion to approve in advance any manager or proposed
manager of a Hotel which is not an Affiliate of either Lessee or is not
controlled by Interstate, Prime or their senior management, as well as any
agreement relating to the management or operation of the Hotel (a "Management
Agreement") by a manager which is not an Affiliate of either Lessee, and the
Lessee will provide the Partnership with an executed copy of any Management
Agreement so approved by the Partnership. Any Management Agreement (whether or
not with a manager which is an Affiliate of either Lessee) must provide that (i)
upon termination of the applicable Percentage Lease or termination of the
Partnership's or the Lessee's right to possession of the Hotel for any reason,
the Management Agreement may be terminated by the Partnership without liability
for any payment due or to become due to the manager thereunder; (ii) any
management fees shall be subordinated to payments of rent to the Partnership;
and (iii) in the event that the Lessee is in default, the manager shall, at the
election of the Partnership and provided the manager continues to be paid,
continue to perform under the terms of the Management Agreement for a period not
to exceed 90 days. No fees or other amounts payable by the Lessee to any manager
shall excuse the Lessee from its obligations to pay rent and other amounts
payable by the Lessee to the Partnership under the applicable Percentage Lease.
Breach by Partnership. If the Partnership fails to cure a breach by it under a
Percentage Lease, the Lessee may purchase the relevant Hotel from the
Partnership for a purchase price equal to that Hotel's then fair market value.
Upon notice from the Lessee that the Partnership has breached the Lease, the
Partnership has 30 days to cure the breach or proceed to cure the breach, which
period may be extended in the event of certain specified, unavoidable delays
with such extension not to
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<PAGE>
exceed 90 days after the notice of breach from the Lessee.
Inventory. All inventory required in the operation of the Hotels is purchased
and owned by the Lessee at its expense. The Company has the option to purchase
all inventory related to a particular hotel at fair market value upon
termination of the related Percentage Lease.
SEASONALITY
The Hotels' operations historically have been seasonal in nature, generally
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in the Company's quarterly
lease revenue to the extent that it receives Percentage Rent.
TAX STATUS
The Company intends to operate so as to be taxed as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As long
as the Company qualifies for taxation as a REIT, with certain exceptions, the
Company will not be taxed at the corporate level on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it distribute
annually at least 95% of its taxable income. Failure to qualify as a REIT will
render the Company subject to tax (including any applicable minimum tax) on its
taxable income at regular corporate rates and distributions to the shareholders
in any such year will not be deductible by the Company. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property. In connection with the Company's
election to be taxed as a REIT, the Company's Charter imposes restrictions on
the transfer of shares of Common Stock. The Company has adopted the calendar
year as its taxable year.
In order for the Company to maintain its qualification as a REIT, not more than
50% in value of its outstanding stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities).
Furthermore, if any shareholder or group of shareholders of the Lessee owns,
actually or constructively, 10% or more of the stock of the Company, the Lessee
could become a related party tenant of the Partnership, which likely would
result in loss of REIT status for the Company. For the purpose of preserving the
Company's REIT qualification, the Company's Charter prohibits direct or indirect
ownership of more than 9.9% of the outstanding shares of any class of the
Company's stock by any person or group (the "Ownership Limitation"). Generally,
the capital stock owned by affiliated owners will be aggregated for purposes of
the Ownership Limitation.
Any transfer of shares that would prevent the Company from continuing to qualify
as a REIT under the Code will be void ab initio, and the intended transferee of
such shares will be deemed never to have had an interest in such shares.
Further, if, in the opinion of the Board of Directors, (i) a transfer of shares
would result in any shareholder or group of shareholders acting together owning
in excess of the Ownership Limitation or (ii) a proposed transfer of shares may
jeopardize the qualification of the Company as a REIT under the Code, the Board
of Directors may, in its sole discretion, refuse to allow the shares to be
transferred to the proposed transferee. Finally, the Company may, in the
discretion of the Board of Directors, redeem any stock held of record by any
shareholder in excess of the Ownership Limitation.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner knew of, or was responsible
for, the presence of hazardous or toxic substances. Furthermore, a person that
15
<PAGE>
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to sell such
real estate or to use such real estate as collateral for borrowings. In
connection with the ownership and operation of the Hotels, the Company, the
Partnership or the Lessee, as the case may be, may be potentially liable for any
such costs.
In connection with the Partnership's acquisition of the Hotels, Phase I
environmental site assessments ("ESAs") were obtained on all of the Hotels from
various independent environmental engineers. The Phase I ESAs were intended to
identify potential environmental contamination for which the Hotels may be
responsible and the potential for environmental regulatory compliance
liabilities. The Phase I ESAs included historical review of the Hotels, reviews
of certain public records, preliminary investigations of the sites and
surrounding properties, screening for the presence of hazardous substances,
toxic substances and underground storage tanks, and the preparation and issuance
of a written report. The Phase I ESAs did not include invasive procedures, such
as soil sampling or ground water analysis to detect contaminants from former
operations on the Current Hotels or migrating from neighbors or caused by third
parties.
The Phase I ESAs have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets,
results of operations or liquidity, nor is the Company aware of any such
liability or that there are material environmental liabilities of which the
Company is unaware. Nevertheless, no assurances can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Hotels will not be
affected by the condition of the properties in the vicinity of Hotels (such as
the presence of leaking underground storage tanks) or by third parties unrelated
to the Partnership or the Company.
The Company believes that its Hotels are in compliance in all material respects
with all federal, state and local statutes, ordinances and regulations regarding
hazardous or toxic substances and other environmental matters. Neither the
Company nor, to the knowledge of the Company, any of the most recent owners of
the Hotels prior to the Partnership's acquisition of the Hotels has been
notified by any governmental authority of any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental matter
in connection with any of its present or former properties.
DEPRECIATION
The Partnership has acquired 77 of the Current Hotels exclusively for cash and
12 of the Current Hotels for a combination of cash and the issuance of units of
limited partnership interest in the Partnership ("Units"), including four hotels
acquired from Phillip H. McNeill, Sr., or certain of his affiliates at the time
of the Company's initial public offering in March 1994 (the "McNeill Initial
Hotels"). To that extent, the Partnership's initial basis in such hotels for
federal income tax purposes generally is equal to the purchase price paid by the
Partnership. The Partnership depreciates such hotel property for federal income
tax purposes under either the modified accelerated cost recovery system of
depreciation ("MACRS") or the alternative depreciation system of depreciation
("ADS"). The Partnership uses MACRS for furnishings and equipment. Under MACRS,
the Partnership depreciates such furnishings and equipment over a five-year
recovery period using a 200% declining balance method and a half-year
convention. If, however, the Partnership places more than 40% of its furnishings
and equipment in service during the last three months of a taxable year, a
mid-quarter depreciation convention must be used for the furnishings and
equipment placed in service during that year. The Partnership uses ADS for
buildings and
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<PAGE>
improvements. Under ADS, the Partnership generally will depreciate such
buildings and improvements over a 40-year recovery period using a straight line
method and a mid-month convention.
To the extent that the Partnership acquired the McNeill Initial Hotels in
exchange for Partnership Units, the Partnership's initial basis in each McNeill
Initial Hotel for federal income tax purposes should be the same as the
transferor's basis in that McNeill Initial Hotel on the date of acquisition.
Although the law is not entirely clear, the Partnership depreciates such hotel
property for federal income tax purposes over the same remaining useful lives
and under the same methods used by the transferors. The Partnership's tax
depreciation deductions are allocated among the partners in accordance with
their respective interest in the Partnership (except to the extent that the
Partnership is required under Code Section 704 (c) to use a method for
allocating depreciation deductions attributable to the McNeill Initial Hotels or
other contributed properties that results in the Company receiving a
disproportionately large share of such deductions). Because the Partnership's
initial basis in the McNeill Initial Hotels is less than the fair market value
of those hotels on the date of acquisition, the Company's depreciation
deductions may be less than they otherwise would have been if the Partnership
had purchased the McNeill Initial Hotels entirely for cash.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, listed below, serve in their respective
capacities for approximate one year terms and are subject to re-election
annually by the Board of Directors, normally in May of each year.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Phillip H. McNeill, Sr. Chairman of the Board, Chief Executive Officer
and Director
David L. Levine President and Chief Operating Officer
Howard A. Silver Executive Vice President of Finance, Secretary,
Treasurer and Chief Financial Officer
Phillip H. McNeill, Jr. Executive Vice President of Development
J. Ronald Cooper Vice President, Assistant Secretary, Assistant
Treasurer and Controller
</TABLE>
Phillip H. McNeill, Sr. (age 59) is Chairman and Chief Executive Officer of the
Company and has been Chairman of McNeill Hospitality Corporation since 1984.
From 1963 to 1977, he served in various capacities, including President and
Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage
banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President
and Director of the Memphis Mortgage Bankers Association and the Tennessee State
Mortgage Bankers Association. He has served as a member of the Board of
Trustees of the University of Memphis Foundation and as a Director of First
Commercial Bank of Memphis. He is currently serving as a member of the Board of
Directors of National Commerce Bancorporation. Mr. McNeill holds both a B.S.
and a J.D. degree from the University of Memphis and is a graduate of the
Northwestern School of Mortgage Banking.
David L. Levine (age 50) is President and Chief Operating Officer of the Company
and joined the Company in June 1994. Mr. Levine entered the hospitality
industry in 1969 with the E.F. McDonald Incentive Travel Company, an incentive
and corporate travel arrangement company. In 1974 Mr. Levine was made director
of the Corporate Travel Division of the E.F. McDonald Incentive Travel Company.
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<PAGE>
In 1975 Mr. Levine joined Intercontinental Hotels Corporation to direct their
Midwest Travel Industry Sales Department. From 1977 to 1981, Mr. Levine held
various positions with Holiday Inns, Inc. including Director of Worldwide Sales-
USA and Canada, and National Sales Director and in 1982 became the Director of
Corporate and Franchise Hotel Operations for its Chicago district. From 1984 to
1985 Mr. Levine was Vice President of Operations of a regional Holiday Inn hotel
operator. In 1985, Mr. Levine formed North American Hospitality, Inc. and
served as its President before joining the Company. North American Hospitality,
Inc. operates Hampton Inn hotels and other properties for financial institutions
and private developers.
Howard A. Silver (age 43) is Executive Vice President of Finance, Secretary,
Treasurer and Chief Financial Officer of the Company and has been a certified
public accountant since 1980. Mr. Silver joined the Company in May 1994. From
1992 until joining the Company, Mr. Silver served as Chief Financial Officer of
Alabaster Originals, L.P., Memphis, Tennessee, a fashion jewelry wholesaler.
From 1978 to 1985, Mr. Silver was a certified public accountant with the
national accounting firm of Coopers & Lybrand L.L.P., and from 1987 to 1992 Mr.
Silver was employed as a certified public accountant with the national
accounting firm of Ernst & Young. Mr. Silver holds a B.S. in Accounting from the
University of Memphis.
Phillip H. McNeill, Jr. (age 36) is Executive Vice President of Development of
the Company. From 1994 to 1996, he served as President of Trust Leasing, Inc.,
formerly McNeill Hotel Co., Inc., the Company's former lessee ("Former Lessee"),
and from 1984 to 1996 served as Vice President of Trust Management, Inc.,
formerly McNeill Hospitality Corporation, both of which are affiliates of the
Former Lessee. Mr. McNeill is the son of Phillip H. McNeill, Sr. and holds a
B.B.A. from the University of Memphis and is a graduate of the Northwestern
School of Mortgage Banking.
J. Ronald Cooper (age 49) is Vice President, Assistant Secretary, Assistant
Treasurer and Controller of the Company. From 1994 to 1996, he was Controller
and Director of Financial Reporting for the Former Lessee and joined the Former
Lessee in October 1994. Mr. Cooper has been a certified public accountant since
1972. From 1978 until joining the Former Lessee, Mr. Cooper was employed as
Secretary, Treasurer and Controller of Wall Street Deli, Inc., a publicly-owned
delicatessen company. Prior to that, Mr. Cooper was a certified public
accountant with the national accounting firm of Coopers & Lybrand L.L.P. from
1970 to 1976. Mr. Cooper holds a B.S. degree in accounting from Murray State
University.
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<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the Current
Hotels on a pro forma basis:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Revenue
Number Pro Forma Pro Forma Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue(3) Payment (1)(3) Occupancy Rate Room (2)
------ ------- ---------- -------------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn:
Albany, New York 1986 154 3,205 1,541 71.5% $79.76 $57.02
Ann Arbor, Michigan 1986 150 2,718 1,261 72.1% $68.87 $49.65
Atlanta (Northlake),
Georgia 1988 130 1,993 970 68.0% $61.78 $42.00
Austin, Texas 1987 122 2,143 1,024 75.9% $63.80 $48.42
Baltimore (Glen Burnie),
Maryland 1989 116 2,211 973 73.9% $70.78 $52.29
Beckley, West Virginia 1992 108 2,127 1,140 83.4% $64.94 $54.17
Birmingham (Mountain
Brook), Alabama 1987 131 2,381 1,277 74.7% $66.63 $49.79
Birmingham (Vestavia),
Alabama 1986 123 2,105 955 73.8% $63.52 $46.88
Chapel Hill, North
Carolina 1986 122 2,483 1,327 82.7% $67.41 $55.75
Charleston, South
Carolina 1985 125 1,993 900 71.6% $61.02 $43.68
Chattanooga, Tennessee 1988 168 2,490 1,107 65.4% $62.07 $40.61
Chicago (Gurnee),
Illinois 1988 134 2,421 1,121 71.2% $69.58 $49.50
Chicago (Naperville),
Illinois 1987 130 2,382 1,095 75.5% $66.49 $50.19
Cleveland, Ohio 1987 123 2,257 1,173 75.0% $67.05 $50.27
Cleveland, Tennessee 1993 60 959 405 78.1% $56.07 $43.78
College Station, Texas 1986 135 2,130 990 74.6% $57.94 $43.22
Colorado Springs,
Colorado 1985 128 2,402 1,192 82.2% $62.55 $51.42
Columbia, South Carolina 1985 121 1,821 856 68.1% $60.54 $41.23
Columbus, Georgia 1986 119 1,934 923 78.2% $56.96 $44.52
Columbus (Dublin), Ohio 1988 123 2,053 971 68.6% $66.69 $45.73
Dallas (Addison), Texas 1985 160 2,908 1,556 73.8% $67.48 $49.80
Dallas (Arlington),
Texas 1985 141 2,014 817 61.1% $64.09 $39.14
Dallas (Garland), Texas 1987 125 1,545 609 60.5% $56.02 $33.86
Dallas (Richardson),
Texas 1987 130 1,966 925 67.4% $61.52 $41.44
Denver (Aurora),
Colorado 1985 132 2,094 944 72.1% $60.24 $43.45
Destin, Florida 1994 104 1,765 931 65.6% $80.63 $52.86
Detroit (Northfield),
Michigan 1989 125 2,457 1,225 80.3% $67.10 $53.85
Detroit (Madison Heights),
Michigan 1987 124 2,129 980 72.7% $64.74 $47.04
Fayetteville, North
Carolina 1986 122 1,573 645 66.8% $52.89 $35.33
Ft. Worth, Texas 1987 125 1,732 680 64.8% $58.58 $37.97
Gastonia, North Carolina 1989 109 1,689 853 68.7% $61.82 $42.46
Indianapolis, Indiana 1987 129 2,457 1,193 73.6% $70.86 $52.18
Jacksonville, Florida 1986 122 1,788 713 72.4% $55.51 $40.16
Kansas City (Overland
Park), Kansas 1991 134 2,417 1,160 74.1% $66.83 $49.51
Kansas City, Missouri 1987 120 2,243 1,077 72.3% $70.88 $51.22
Knoxville, Tennessee 1991 118 1,755 714 73.4% $55.55 $40.75
Little Rock (North),
Arkansas 1985 123 1,709 754 68.8% $55.32 $38.07
Little Rock (South),
Arkansas 1985 122 1,271 378 53.8% $53.02 $28.54
Louisville, Kentucky 1986 119 1,841 834 68.9% $61.54 $42.38
Memphis (Poplar),
Tennessee 1985 126 2,672 1,381 81.9% $70.94 $58.09
Memphis (Sycamore View),
Tennessee 1984 117 1,845 751 76.6% $56.42 $43.22
Meriden, Connecticut 1988 125 1,914 900 65.1% $64.46 $41.94
Milford, Connecticut 1986 148 2,922 1,430 80.2% $67.47 $54.09
Morgantown, West
Virginia 1991 108 1,922 963 75.7% $64.40 $48.77
Nashville (Brentwood),
Tennessee 1985 114 2,269 1,055 76.5% $71.24 $54.52
Nashville (Briley
Parkway), Tennessee 1987 120 2,495 1,191 81.4% $70.00 $56.96
Norfolk, Virginia 1990 119 1,930 908 62.9% $70.43 $44.32
Pickwick, Tennessee 1994 50 748 247 64.4% $63.58 $40.97
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Revenue
Number Pro Forma Pro Forma Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue (3) Payment (1)(3) Occupancy Rate Room (2)
------ ------- ----------- -------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn (Continued):
Sarasota, Florida 1987 97 1,451 551 62.5% $65.59 $40.98
Savannah, Georgia 1986 129 1,744 776 66.6% $55.64 $37.05
Scottsdale, Arizona 1996 126 2,140 1,037 54.3% $85.69 $46.53
Scranton, Pennsylvania 1994 129 2,507 1,171 77.1% $69.05 $53.25
Shelby, North Carolina 1989 78 992 442 68.5% $50.86 $34.84
Southaven (Memphis),
Mississippi 1995 86 1,471 642 78.8% $59.44 $46.86
St. Louis (Westport),
Missouri 1987 122 1,938 834 65.8% $66.13 $43.52
State College,
Pennsylvania 1987 120 2,279 1,125 74.3% $69.96 $52.00
Traverse City, Michigan 1987 127 1,960 894 57.7% $73.35 $42.29
Comfort Inn:
Enterprise, Alabama 1987 78 981 416 70.7% $48.74 $34.45
Jacksonville Beach,
Florida 1973 177 3,389 1,492 65.2% $80.42 $52.46
Rutland, Vermont 1985 104 1,710 731 77.0% $58.52 $45.06
Residence Inn:
Burlington, Vermont 1988 96 2,643 1,328 84.6% $89.14 $75.44
Colorado Springs,
Colorado 1984 96 2,563 1,367 81.0% $90.35 $73.15
Madison, Wisconsin 1988 80 1,607 520 73.9% $74.47 $55.04
Minneapolis (Eagan),
Minnesota 1988 120 3,214 1,625 84.2% $87.11 $73.38
Oklahoma City, Oklahoma 1982 135 3,270 1,634 82.8% $80.16 $66.37
Omaha, Nebraska 1981 80 1,906 759 79.8% $81.78 $65.27
Princeton, New Jersey 1988 208 5,992 3,141 81.5% $96.89 $78.92
Tinton Falls, New Jersey 1988 96 2,831 1,336 85.6% $94.43 $80.80
Tucson, Arizona 1985 128 3,015 1,429 75.7% $85.26 $64.53
Holiday Inn:
Bluefield, West Virginia 1980 120 2,060 980 67.4% $69.79 $47.03
Charleston (Mt. Pleasant),
South Carolina 1988 158 3,177 1,640 75.1% $73.41 $55.09
Oak Hill, West Virginia 1983 119 1,251 613 44.6% $64.58 $28.81
Winston-Salem, North
Carolina 1969 160 2,146 825 63.8% $57.62 $36.75
Holiday Inn Express:
Wilkesboro, North
Carolina 1985 101 1,405 739 62.0% $61.52 $38.13
Homewood Suites:
Augusta, Georgia (4) 1997 65 395
Hartford, Connecticut 1990 132 3,433 1,629 79.4% $89.81 $71.26
Memphis (Germantown),
Tennessee 1996 92 2,002 957 68.2% $87.35 $59.61
Phoenix, Arizona 1996 124 3,296 1,479 69.9% $104.22 $72.81
San Antonio, Texas 1996 123 2,453 1,000 69.8% $78.24 $54.64
AmeriSuites:
Cincinnati (Blue Ash),
Ohio 1990 127 2,215 1,064 66.7% $71.67 $47.78
Cincinnati (Forest
(Park), Ohio 1992 126 2,106 946 65.5% $69.88 $45.79
Columbus, Ohio 1994 126 2,628 1,300 74.4% $76.80 $57.15
Flagstaff, Arizona 1993 117 1,838 801 65.4% $65.35 $42.76
Indianapolis, Indiana 1992 126 2,244 1,097 65.2% $74.84 $48.80
Jacksonville, Florida 1996 112 1,965 946 71.5% $67.20 $48.06
Kansas City (Overland
Park), Kansas 1994 126 2,729 1,392 78.3% $75.78 $59.34
Miami, Florida 1996 126 2,969 1,671 83.2% $77.59 $64.57
Richmond, Virginia 1992 126 3,070 1,697 80.0% $83.46 $66.75
Tampa, Florida 1994 126 2,915 1,626 78.7% $80.57 $63.38
------ -------- ------- ---- ------ ------
Consolidated Totals/Weighted
Average for all Hotels 10,777 $195,783 $93,062 72.0% $69.67 $50.14
====== ======== ======= ==== ====== ======
</TABLE>
20
<PAGE>
- ------------------------
(1) Represents lease payments calculated on a pro forma basis by applying the
rent provisions in the Percentage Leases using historical room revenues of
the hotels as if January 1, 1997 was the beginning of the lease year.
(2) Determined by multiplying occupancy and the average daily rate.
(3) Amounts in thousands.
(4) Hotel was not open for the entire period; therefore, pro forma results are
not available, minimum rent has been assumed.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Partnership currently is involved in any material
litigation nor, to the Company's knowledge, is any material litigation currently
threatened against the Company or the Partnership. The Lessees have advised the
Company that they currently are not involved in any litigation, other than
routine litigation arising in the ordinary course of business. The Lessees have
advised the Company that none of such litigation is material and substantially
all of any liability is expected to be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company shareholders during the
fourth quarter of 1997, through the solicitation of proxies or otherwise.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "ENN." The following table sets forth for the indicated periods
the high and low closing prices for the common stock as traded through the
facilities of the NYSE and, prior to September 9, 1996, the Nasdaq Stock Market,
and the cash dividends declared per share:
<TABLE>
<CAPTION>
Distributions
Declared
Price Range Per Share Record
High Low and Unit Date
---- --- ------------- ------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
First Quarter 13 1/4 11 1/2 0.28 March 29, 1996
Second Quarter 12 3/4 11 1/4 0.28 June 28, 1996
Third Quarter 13 11 0.28 September 30, 1996
Fourth Quarter 13 1/8 11 1/8 0.28 December 31, 1996
Year Ended December 31, 1997:
First Quarter 14 1/2 12 1/2 0.28 March 31, 1997
Second Quarter 14 1/8 12 7/8 0.28 June 30, 1997
Third Quarter 15 13/16 13 1/4 0.29 September 30, 1997
Fourth Quarter 16 9/16 14 1/8 0.29 December 30, 1997
</TABLE>
(b) Stockholder Information
On March 10, 1998, there were 1,069 record holders of the Company's common
stock, including shares held in "street name" by nominees who are record
holders, and approximately 28,000 beneficial owners.
21
<PAGE>
(c) Distributions
The Company intends to make regular quarterly distributions to its shareholders.
The Company's ability to make distributions is dependent on the receipt of
distributions from the Partnership. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to shareholders annually at
least 95% of its taxable income. The Company, as general partner of the
Partnership through the Trust, intends to cause the Partnership to distribute to
its partners sufficient amounts to permit the Company to make regular quarterly
distributions to its shareholders. The Partnership's primary source of revenue
consists of rent payments from the Lessees under the Percentage Leases.
A portion of the distribution to shareholders is expected to represent a return
of capital for federal income tax purposes which generally will not be subject
to federal income tax under current law. The Company's distributions made in
1997 and 1996 are considered to be approximately 10% and 29% return of capital,
respectively, for federal income tax purposes.
Future distributions paid by the Company will be at the discretion of the Board
of Directors of the Company and will depend on the actual cash flow of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
directors of the Company deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected historical financial information for the
Company and the McNeill Initial Hotels, which are deemed under the rules of the
Securities and Exchange Commission (the "SEC") to be the predecessor of the
Company.
With respect to the Company, the following tables set forth (i) selected
historical operating and other financial information for the years ended
December 31, 1997, 1996 and 1995 and the period from March 1, 1994 (inception of
operations) through December 31, 1994, and (ii) selected historical balance
sheet data as of December 31, 1997, 1996, 1995 and 1994. The selected historical
financial information has been derived from the historical financial statements
of the Company audited by Coopers & Lybrand L.L.P., independent accountants.
With respect to the McNeill Initial Hotels, the following tables set forth
selected combined historical financial data for the period January 1, 1994
through February 28, 1994, and for the year ended December 31, 1993. The
selected combined historical financial information for the McNeill Initial
Hotels for the year ended December 31, 1993, has been derived from the
historical combined financial statements.
The following selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this report.
22
<PAGE>
EQUITY INNS, INC
SELECTED FINANCIAL DATA
(in thousands, Except Per Share Data)
<TABLE>
<CAPTION>
March 1, 1994
(inception of
operations)
Year Ended December 31, through
1997 1996 1995 December 31, 1994
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Operating Data:
Revenue $71,761 $38,430 $24,145 $9,798
Net income 23,543 14,473 8,511 4,620
Income before extraordinary
item per common share .88 .69 .70 .60
Net income per common share .82 .69 .70 .60
Distributions declared per
common share and Unit 1.14 1.12 1.00 .70
Funds from operations (1) 45,748 26,397 15,804 7,611
Funds from operations per
common share and Unit 1.53 1.22 1.22 .89
Weighted average number of
common shares and Units
outstanding 29,963 21,652 12,920 8,551
Balance Sheet Data:
Investments in hotel
properties, net $617,072 $309,202 $218,429 $140,970
Total assets 635,525 317,880 225,067 145,555
Debt 233,206 77,399 74,939 45,838
Minority interest in
Partnership 19,035 7,728 6,073 6,081
Shareholders' Equity 360,172 222,951 137,493 89,802
</TABLE>
(1) Represents Funds from Operations of the Company on a consolidated basis.
Industry analysts generally consider Funds from Operations to be an
appropriate measure of the performance of an equity REIT. In accordance
with the resolution adopted by the Board of Governors of NAREIT, Funds
from Operations represent net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses)
from debt restructuring or sales of property, plus depreciation, and
after adjustments for unconsolidated partnerships and joint ventures. For
the periods presented, depreciation, gain on the sale of hotel
properties, minority interest and the 1997 extraordinary charge from
write-off of deferred financing fees were the only non-cash adjustments.
Funds from Operations should not be considered an alternative to net
income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows
from operating, investing or financing activities as a measure of
liquidity. Funds from Operations does not reflect working capital
changes, cash expenditures for capital improvements or principal payments
with respect to indebtedness on the hotels.
23
<PAGE>
The following information reflects the combined selected financial data for four
hotels acquired from affiliates of the Company's Chairman of the Board and Chief
Executive Officer in connection with the Company's IPO. Under the rules of the
SEC, such combined hotels are deemed to be the predecessor of the Company.
MCNEILL INITIAL HOTELS
SELECTED FINANCIAL DATA
(in thousands)
<TABLE>
<CAPTION>
January 1, 1994 Year Ended
to December 31,
February 28, 1994 1993
----------------- -----------
<S> <C> <C>
Operating Data:
Room revenue $1,026 $6,052
Other revenue 46 286
------- ------
Total revenue 1,072 6,338
Hotel operating expenses 657 3,628
Depreciation and amortization 116 699
Interest 218 1,036
Other corporate expenses 82 614
------ ------
Net income (loss) $ (1) $ 361
====== ======
</TABLE>
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company
Equity Inns, Inc. (the "Company") is a self-advised real estate investment trust
("REIT") which commenced operations on March 1, 1994. 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 December 31,
1997 owned an approximate 95.0% interest in the Partnership.
In order to qualify as a REIT, neither the Company nor the Partnership can
operate hotels. Therefore, the Partnership leases 79 hotels collectively to
Crossroads/Memphis Partnership, L.P., Crossroads Future Company, L.L.C. and
Crossroads/Memphis Financing Company, L.L.C. (collectively "Crossroads"), each
of which is an affiliate of Interstate Hotels Company ("Interstate"). Interstate
has managed hotel properties since 1961, and as of December 31, 1997, owned,
managed, leased or performed related services for 223 hotels with 45,329 rooms
in 35 states, including 75 of the Hotels. The Partnership leases 10 hotels to
Caldwell Holding Company ("Caldwell"), a wholly-owned subsidiary of Prime
Hospitality Corporation ("Prime"). Prime has managed hotel properties since
1992, and as of December 31, 1997, managed 140 hotels with 19,513 rooms in 29
states, including 10 of the Hotels. Both Crossroads and Caldwell are required to
perform all operational and management functions necessary to operate the
Hotels. All hotels owned by the Partnership are leased to Crossroads and
Caldwell, collectively, as the lessees (the "Lessees"), and individually as the
lessee (the "Lessee") pursuant to the percentage leases (the "Percentage
Leases") which provide for the greater of (i) fixed annual base rent ("Base
Rent") or (ii) rent based, in part, on the revenue of the hotels ("Percentage
Rent"). The Partnership's, and therefore the Company's, principal sources of
revenue are lease payments made by the Lessees under the Percentage Leases.
Percentage Rent is based primarily upon the hotels' room revenues and, to a
lesser extent, food and beverage revenues.
Recent Highlights
Since its inception, the Company has taken steps to position itself for growth
and stability. Several changes have occurred since December 31, 1996 which add
significantly to these efforts. These events are as follows:
Formation of Strategic Alliances with Prime Hospitality Corporation and
US Franchise Systems, Inc.
On September 22, 1997, the Company entered into a strategic alliance
with Prime, the exclusive developer of AmeriSuites. Under the
agreement, the Company will have the right of first offer to purchase
from Prime up to twenty AmeriSuites per year for three years. In
December 1997, the Company purchased ten AmeriSuites for approximately
$86 million.
On January 20, 1998, the Company entered into a strategic alliance with
US Franchise Systems, Inc., ("USFS"), the exclusive franchisor of
Hawthorn Suites. Under the agreement, the Company will have the right
of first offer to purchase from USFS up to twelve Hawthorn Suites per
year for three years.
Equity Offerings
On May 29, 1997, the Company completed a follow-on offering resulting
in the sale of 8.1 million shares priced at $13.38 per share. On
December 1, 1997, the Company completed a follow-on offering resulting
in the sale of 3 million shares priced at $15.13 per share. Net
proceeds from these offerings totaled approximately $144.5 million.
25
<PAGE>
On February 12, 1998, the Company completed an offering resulting in
the sale of 641,556 shares priced at $15.81 per share. Net proceeds
from this offering totaled approximately $9.6 million.
Improved Financing Strategy
On February 10, 1997, the Company, through a subsidiary, issued $88
million of rated Commercial Mortgage Bonds (the "Bonds") in a private
placement transaction, at a combined interest rate fixed at 7.22%.
Proceeds from the issuance of the Bonds were used to repay existing
debt under the line of credit. The Company expects to repay the Bonds
in full within 10 years.
On October 10, 1997, the Company replaced its existing secured line of
credit with a $250 million unsecured line of credit (the "Unsecured
Line of Credit"). The Unsecured Line of Credit bears interest at a
variable rate of LIBOR plus 1.4%, 1.5%, 1.625% or 1.75% as determined
by the Company's percentage of total debt to the total value of the
Company's investment in hotel properties, as defined in the loan
agreement (the "Percentage"). The Percentage is reviewed quarterly, and
the interest rate is adjusted as necessary. Currently, the interest
rate on the Unsecured Line of Credit is LIBOR plus 1.625%. The
Unsecured Line of Credit has a three-year term plus a one-year renewal
option.
On December 18, 1997, the Company arranged an interest rate swap on a
notional amount of $75 million with The First National Bank of Chicago
as a hedge against the floating rate. The swap results in a fixed
interest rate of 5.90% plus the Percentage on the notional amount. The
swap agreement will expire in October 2000.
Acquisitions
Since the IPO, the Company has actively implemented its acquisition
strategy. During 1997 and 1996, the Company acquired the following
types of hotels at advantageous capitalization rates for the
approximate amounts indicated:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
No. of Purchase No. of Purchase
Hotels Price Hotels Price
------ -------- ------ --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Premium Limited Service 34 $198,574 5 $36,200
Premium Extended Stay 6 61,650 5 41,300
All-Suite 10 86,966
Full Service 1 5,100
-- -------- -- -------
50 $347,190 11 $82,600
== ======== == =======
</TABLE>
On October 31, 1997, nine premium limited service hotels purchased
during 1997 were sold at a gain of approximately $666,000.
26
<PAGE>
The following chart summarizes information regarding the 89 hotels (the
"Current Hotels") owned at December 31, 1997:
<TABLE>
<CAPTION>
# of Hotel # of Rooms/
Franchise Affiliation Properties Suites
--------------------- ---------- ------
<S> <C> <C>
Premium Limited Service Hotels:
Hampton Inn 57 6,947
Comfort Inn 2 182
Holiday Inn Express 1 101
-- ------
Sub-total 60 7,230
-- ------
All-Suite Hotels:
AmeriSuites 10 1,238
Premium Extended Stay Hotels:
Residence Inn 9 1,039
Homewood Suites 5 536
-- ------
Sub-total 14 1,575
-- ------
Full Service Hotels:
Holiday Inn 4 557
Comfort Inn 1 177
-- ------
Sub-total 5 734
-- ------
Total 89 10,777
== ======
</TABLE>
The Current Hotels are located in 30 states. Management believes it is
prudent to diversify geographically, by market segment and among
franchise brands.
Results of Operations
Comparison of the Company's operating results for the year ended December 31,
1997 with the year ended December 31, 1996.
For the year ended December 31, 1997, the Company had total revenues of $71.7
million, consisting substantially of Percentage Lease revenue. This compares
with total revenues of $38.4 million for the year ended December 31, 1996.
Increases in revenue from hotel operations for the year ended December 31, 1997
as compared to 1996 are due to (i) an increased number of hotels being owned and
leased by the Partnership throughout 1997, (ii) increases in ADR and/or
occupancy at many of the hotels leased during both years, and (iii) a full year
of operation in 1997 of hotels acquired in 1996. Assuming all hotels which were
in operation a full year in both 1997 and 1996 had been owned and leased as of
January 1, 1996, revenue per available room ("REVPAR") on a pro forma basis
would have increased 5.7% over 1996.
Real estate and personal property taxes and general and administrative expenses
in the aggregate remained fairly constant in 1997 and 1996 as a percentage of
total revenue. Interest expense increased to $12.6 million from $4.4 million in
1996 due primarily to borrowings incurred to finance the Company's acquisitions.
The Company's weighted average interest rate on outstanding borrowings during
the years ended December 31, 1997 and 1996, was 7.53% for both years. Net income
for 1997 was $23.5 million or $0.82 per share, compared to $14.5 million or
$0.69 per share for 1996. Funds from Operations ("FFO"), as defined below, for
1997 was $45.7 million or $1.53 per share and Unit, compared to $26.4 million or
$1.22 per share and Unit for 1996, an increase of 25%.
27
<PAGE>
The increase in FFO/share is attributable to (i) an increase in REVPAR on a pro
forma basis of 5.7% over 1996 and (ii) acquisition of fifty hotels in 1997,
acquired at accretive capitalization rates.
Comparison of the Company's operating results for the year ended December 31,
1996 with the year ended December 31, 1995.
For the year ended December 31, 1996, the Company had total revenues of $38.4
million, consisting substantially of Percentage Lease revenue. This compares
with total revenues of $24.1 million for the year ended December 31, 1995.
Increases in revenue from hotel operations for the year ended December 31, 1996
as compared to 1995 are due to (i) an increased number of hotels being owned and
leased by the Partnership throughout 1996, (ii) increases in ADR and/or
occupancy at many of the hotels leased during both years, and (iii) a full year
of operation in 1996 of hotels acquired in 1995. Assuming all hotels which were
in operation a full year in both 1996 and 1995 had been owned and leased as of
January 1, 1995, REVPAR on a pro forma basis would have increased 2.8% over
1995.
Real estate and personal property taxes and general and administrative expenses
in the aggregate remained fairly constant in 1996 and 1995 as a percentage of
total revenue. Interest expense increased to $4.4 million from $3.7 million in
1995 due primarily to borrowings incurred to finance the Company's acquisitions
subsequent to the fourth offering. The Company's weighted average interest rate
on outstanding borrowings at December 31, 1996 was 7.53%. Net income for 1996
was $14.5 million or $0.69 per share, compared to $8.5 million or $0.70 per
share for 1995. FFO for 1996 was $26.4 million or $1.22 per share and Unit,
compared to $15.8 million or $1.22 per share and Unit for 1995. FFO for 1996
compared to 1995 remained flat, due to an unanticipated delay in the Company's
1996 acquisition program and a follow-on stock offering in April 1996 that
greatly increased the Company's weighted number of shares outstanding.
The Current Hotels - Actual
The following room revenue data reflects the actual operations of the Current
Hotels which were in operation a full year in both 1997 and 1996 and is
independent of ownership and other pro forma consideration for the periods
indicated.
ROOM REVENUE
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, Percent
1997 1996 Change
-------- -------- -------
<S> <C> <C> <C>
Hampton Inn
Albany, New York $ 3,205 $ 3,004 6.7%
Ann Arbor, Michigan 2,718 2,501 8.7%
Atlanta (Northlake), Georgia 1,993 2,167 -8.0%
Austin, Texas 2,143 2,136 0.3%
Baltimore (Glen Burnie), Maryland 2,211 2,120 4.3%
Beckley, West Virginia 2,127 2,156 -1.3%
Birmingham (Mountain Brook), Alabama 2,381 2,365 0.7%
Birmingham (Vestavia), Alabama 2,105 2,086 0.9%
Chapel Hill, North Carolina 2,483 2,371 4.7%
Charleston, South Carolina 1,993 1,932 3.2%
Chattanooga, Tennessee 2,490 2,438 2.2%
Chicago (Gurnee), Illinois 2,421 2,197 10.2%
Chicago (Naperville), Illinois 2,382 2,172 9.7%
Cleveland, Ohio 2,257 1,895 19.1%
Cleveland, Tennessee 959 889 7.8%
College Station, Texas 2,130 1,933 10.2%
Colorado Springs, Colorado 2,402 2,228 7.8%
Columbia, South Carolina 1,821 1,986 -8.3%
Columbus, Georgia 1,934 1,934 -0.0%
Columbus (Dublin), Ohio 2,053 1,862 10.3%
Dallas (Addison), Texas 2,908 2,850 2.0%
Dallas (Arlington), Texas 2,014 2,075 -2.9%
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Percent
1997 1996 Change
-------- -------- -------
<S> <C> <C> <C>
Dallas (Garland), Texas 1,545 1,598 -3.3%
Dallas (Richardson), Texas 1,966 2,062 -4.6%
Denver (Aurora), Colorado 2,094 2,045 2.4%
Destin, Florida 1,765 1,512 16.8%
Detroit (Northfield), Michigan 2,457 2,255 9.0%
Detroit (Madison Heights), Michigan 2,129 1,962 8.5%
Fayetteville, North Carolina 1,573 1,574 -0.1%
Ft. Worth, Texas 1,732 1,801 -3.8%
Gastonia, North Carolina 1,689 1,961 -13.9%
Indianapolis, Indiana 2,457 2,056 19.5%
Jacksonville, Florida 1,788 1,645 8.7%
Kansas City (Overland Park), Kansas 2,417 2,358 2.5%
Kansas City, Missouri 2,243 2,064 8.7%
Knoxville, Tennessee 1,755 1,561 12.4%
Little Rock (North), Arkansas 1,709 1,841 -7.2%
Little Rock (South), Arkansas 1,271 1,363 -6.8%
Louisville, Kentucky 1,841 1,766 4.2%
Memphis (Poplar), Tennessee 2,672 2,582 3.5%
Memphis (Sycamore View), Tennessee 1,845 1,790 3.1%
Meriden, Connecticut 1,914 1,702 12.4%
Milford, Connecticut 2,922 2,615 11.7%
Morgantown, West Virginia 1,922 1,809 6.3%
Nashville (Brentwood), Tennessee 2,269 2,252 0.7%
Nashville (Briley Parkway), Tennessee 2,495 2,393 4.3%
Norfolk, Virginia 1,930 2,038 -5.3%
Pickwick, Tennessee 748 799 -6.4%
Sarasota, Florida 1,451 1,495 -2.9%
Savannah, Georgia 1,744 1,877 -7.1%
Scottsdale, Arizona 2,140 1,701 25.8%
Scranton, Pennsylvania 2,507 2,675 -6.3%
Shelby, North Carolina 992 935 6.1%
Southaven (Memphis), Mississippi 1,471 1,368 7.5%
St. Louis (Westport), Missouri 1,938 1,887 2.7%
State College, Pennsylvania 2,279 2,149 6.0%
Traverse City, Michigan 1,960 1,855 5.7%
Comfort Inn
Enterprise, Alabama 981 950 3.2%
Jacksonville Beach, Florida 3,389 3,273 3.6%
Rutland, Vermont 1,710 1,618 5.7%
Residence Inn
Burlington, Vermont 2,643 2,583 2.4%
Colorado Springs, Colorado 2,563 2,702 -5.1%
Madison, Wisconsin 1,607 1,377 16.7%
Minneapolis (Eagan), Minnesota 3,214 2,746 17.0%
Oklahoma City, Oklahoma 3,270 3,159 3.5%
Omaha, Nebraska 1,906 1,834 3.9%
Princeton, New Jersey 5,992 5,620 6.6%
Tinton Falls, New Jersey 2,831 2,645 7.0%
Tucson, Arizona 3,015 3,087 -2.3%
Holiday Inn
Bluefield, West Virginia 2,060 1,974 4.3%
Charleston (Mt. Pleasant),
South Carolina 3,177 3,122 1.8%
Oak Hill, West Virginia 1,251 1,204 3.9%
Winston-Salem, North Carolina 2,146 2,152 -0.3%
Holiday Inn Express
Wilkesboro, North Carolina 1,405 1,285 9.4%
Homewood Suites
Augusta, Georgia (1)
Hartford, Connecticut 3,433 3,231 6.3%
Memphis (Germantown), Tennessee (1)
Phoenix, Arizona (1)
San Antonio, Texas (1)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Percent
1997 1996 Change
-------- -------- -------
<S> <C> <C> <C>
AmeriSuites
Cincinnati (Blue Ash), Ohio 2,215 2,104 5.3%
Cincinnati (Forest Park), Ohio 2,106 2,078 1.4%
Columbus, Ohio 2,628 2,370 10.9%
Flagstaff, Arizona 1,838 1,945 -5.5%
Indianapolis, Indiana 2,244 2,124 5.6%
Jacksonville, Florida 1,965 1,852 6.1%
Kansas City (Overland Park), Kansas 2,729 2,410 13.2%
Miami, Florida (1)
Richmond, Virginia 3,070 2,637 16.4%
Tampa, Florida 2,915 2,601 12.1%
-------- -------- ----
$185,063 $177,326 4.4%
======== ======== ====
</TABLE>
(1) Hotel was not open for the full two years; therefore, revenues are not
comparable.
As shown above, room revenues for the Current Hotels increased 4.4% on a pro
forma basis, average daily rate increased an average of 6.4% from $64.77 to
$68.90 with occupancy experiencing a decrease from 73.4% in 1996 to 72.1% in
1997.
For the forty-five hotels owned by the Company and managed by Crossroads since
December 31, 1996, average daily rate increased 5.6% from $64.24 to $67.83, and
occupancy was stable at 70.8%, resulting in a REVPAR increase of 5.7% on a same
store basis for 1997 over 1996.
Funds from Operations
Industry analysts generally consider Funds from Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts, FFO represent net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation, and
after adjustments for unconsolidated partnerships and joint ventures. For the
periods presented, depreciation, gain on the sale of hotel properties, minority
interest and the 1997 extraordinary charge from write-off of deferred financing
fees were the only non-cash adjustments. FFO should not be considered an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash flows
from operating, investing or financing activities as a measure of liquidity. FFO
does not reflect working capital changes, cash expenditures for capital
improvements or principal payments with respect to indebtedness on the hotels.
30
<PAGE>
The following reconciliation of income before minority interest to FFO
illustrates the difference in the two measures of operating performance:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996
------- -------
(in thousands, except per share and Unit data)
<S> <C> <C>
Income before extraordinary item
and minority interest $26,445 $14,933
Less:
Gain on sale of hotel properties (666)
Add:
Depreciation of buildings,
furniture and fixtures 19,969 11,464
------- -------
Funds from Operations $45,748 $26,397
======= =======
Weighted average number of
common shares and Units
outstanding 29,963 21,652
======= =======
Funds from Operations per share
and Unit $ 1.53 $ 1.22
======= =======
</TABLE>
Liquidity and Capital Resources
The Company's principal source of cash to meet its cash requirements, including
distributions to its shareholders, is its cash distributions from the
Partnership. The Partnership receives cash payments from the Lessees pursuant to
the Percentage Leases. The Company's liquidity, including its ability to make
distributions to shareholders, is dependent upon the Lessees' ability to make
payments under the Percentage Leases. All of Crossroads lease obligations are
guaranteed by Interstate. The Company's other Lessee, Caldwell, is required,
under the terms of its master lease agreement, to maintain 20% of its expected
annual percentage rents generated from the Percentage Leases in cash or
marketable securities.
Cash and cash equivalents were $190,000 at December 31, 1997, compared to
$129,000 at December 31, 1996. Excess cash balances are used to reduce the
Company's outstanding debt. For the year ended December 31, 1997, cash flow
provided by operating activities, consisting primarily of Percentage Lease
revenue, was $50.4 million.
The Company's Charter limits debt to 45% of the Company's investment in hotel
properties, at cost. At December 31, 1997, the Company had outstanding debt of
approximately $233.2 million, including $86.3 million under the Bonds, and
$146.9 million under the Unsecured Line of Credit, leaving approximately $103.1
million available for future acquisitions. The Company's consolidated
indebtedness was 35.3% of its investments in hotels, at cost, at December 31,
1997.
During 1997, the Company spent $18.1 million, including $12.3 million for
renovations required by franchisors, to fund capital improvements to its
properties, including replacement of carpets, drapes, renovation of common areas
and improvements of hotel exteriors. In addition, the Company has committed to
fund approximately $25.3 million in 1998 for capital improvements, $8.4 million
of which is renovations required by franchisors.
31
<PAGE>
The Company intends to fund such improvements out of future cash from
operations, present cash balances and borrowings under its Unsecured Line of
Credit. Under the Unsecured Line of Credit and the Bonds, the Partnership is
obligated to fund 4% of room revenues per quarter on a cumulative basis, to a
separate room renovation account for the ongoing replacement or refurbishment of
furniture, fixtures and equipment at the hotels. During 1997 and 1996,
non-recurring enhancements for capital expenditures, based upon 4% of room
revenue, were $6.1 million and $3.4 million, respectively. Management believes
that these amounts will be sufficient to fund required expenditures for the term
of the Percentage Leases with the capital improvements anticipated and recurring
repairs and maintenance performed by the Lessees.
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. Accordingly, no provision
for federal income taxes has been reflected in the financial statements.
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% of its taxable income to its
shareholders. The Company intends to pay these distributions from operating cash
flows. During 1997, the Partnership distributed an aggregate of $36.4 million to
its partners, or $1.14 per Unit (including $34.9 million of distributions to the
Company to fund distributions to shareholders of $1.14 per share in 1997).
During 1996, the Partnership distributed an aggregate of $24.8 million to its
partners, or $1.12 per Unit (including $24.0 million of distributions to the
Company to fund distributions to shareholders of $1.12 per share in 1996). For
federal income tax purposes, 10% of 1997 distributions represented a return of
capital, compared with 29% for 1996.
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 the Unsecured Line of Credit. The Company
believes that its net cash provided by operations will be adequate to fund both
operating requirements and payment of distributions by the Company in accordance
with REIT requirements.
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, the issuance of
Partnership Units. Pursuant to the Partnership Agreement for the Partnership,
subject to certain holding period requirements, holders of Units have the right
to require the Partnership to redeem their Units. During the year ended December
31, 1997, no Units were tendered for redemption. Pursuant to the Partnership
agreement, the Company 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. The Company anticipates that it will acquire any Units tendered for
redemption in the foreseeable future in exchange for shares of Common Stock and
has agreed to register such shares so as to be freely tradeable by the
recipient.
Inflation
Operators of hotels in general have the ability to adjust room rates quickly.
However, competitive pressures may limit the Lessees' ability to raise room
rates in the face of inflation.
Seasonality
Hotel operations historically are seasonal in nature, generally reflecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in the Company's quarterly lease revenues
to the extent that it receives Percentage Rent.
32
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the general instructions to Rule 305 of SEC Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 7a and by Rule
305 of SEC Regulation S-K are inapplicable to the Company at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements:
The following financial statements are located in this report on the pages
indicated.
<TABLE>
<CAPTION>
Equity Inns, Inc. Page
<S> <C>
Report of Independent Accountants 34
Consolidated Balance Sheets as of December 31, 1997 and
1996 35
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 36
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995 37
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 39
Notes to Consolidated Financial Statements 40
</TABLE>
(b) Supplementary Data:
Equity Inns, Inc. Quarterly Financial Information
Unaudited quarterly results for 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter (1) Quarter (1) Quarter (1) Quarter (1)
----------- ----------- ----------- -----------
1997 (in thousands, except per share data)
----
<S> <C> <C> <C> <C>
Revenue $11,795 $16,039 $24,745 $19,182
Net income 3,167 5,746 11,235 3,395
Income before
extraordinary item
per common share .13 .22 .35 .16
Net income per common
share .13 .22 .35 .10
1996
----
Revenue $6,984 $9,652 $12,341 $9,453
Net income 1,312 4,620 6,022 2,519
Net income per
common share .09 .21 .26 .11
</TABLE>
- ------------------------
(1) Acquisitions of hotel properties throughout both years, coupled with the
seasonality of the hotels, have impacted the trend of quarterly results for the
periods shown.
33
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders
Equity Inns, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Equity Inns, Inc. listed in Item 14(a) of this Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Equity Inns, Inc.
as of December 31, 1997 and 1996 and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
January 22, 1998
34
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Investment in hotel properties, net $617,072 $309,202
Cash and cash equivalents 190 129
Due from Lessees 5,925 3,377
Note receivable 3,884
Deferred expenses, net 7,276 3,779
Deposits and other assets 1,178 1,393
-------- --------
Total Assets $635,525 $317,880
======== ========
Liabilities and Shareholders' Equity:
Debt $233,206 $ 77,399
Accounts payable and accrued expenses 12,467 2,938
Distributions payable 10,645 6,864
Minority interest in Partnership 19,035 7,728
-------- --------
Total Liabilities 275,353 94,929
-------- --------
Commitments and contingencies (Note 5)
Shareholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized,
34,865,578 and 23,693,278 shares
issued and outstanding at December
31, 1997 and 1996, respectively 349 237
Preferred stock, $.01 par value,
10,000,000 shares authorized, no
shares issued and outstanding
Additional paid-in capital 387,134 238,748
Unearned directors' and officers'
compensation (274) (366)
Predecessor basis assumed (1,264) (1,264)
Distributions in excess of net
earnings (25,773) (14,404)
-------- --------
Total Shareholders' Equity 360,172 222,951
-------- --------
Total Liabilities and Shareholders'
Equity $635,525 $317,880
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
35
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenue:
Percentage lease revenues $70,478 $38,314 $24,101
Gain on sale of hotel properties 666
Other income 617 116 44
------- ------- -------
Total Revenue 71,761 38,430 24,145
------- ------- -------
Expenses:
Real estate and personal property
taxes 6,688 3,693 2,158
Depreciation and amortization 20,214 11,631 6,904
Interest 12,601 4,382 3,701
Amortization of loan costs 1,013 1,565 793
General and administrative 4,142 1,975 1,438
Amortization of unearned directors'
and officers' compensation 92 33 31
Rental expense 566 218 107
------- ------- -------
Total Expenses 45,316 23,497 15,132
------- ------- -------
Income before extraordinary item
and minority interest 26,445 14,933 9,013
Extraordinary charge from write-off
of deferred financing fees 1,984
------- ------- -------
Income before minority interest 24,461 14,933 9,013
Minority interest 918 460 502
------- ------- -------
Net income $23,543 $14,473 $ 8,511
======= ======= ========
Net income per common share, basic
and diluted:
Income before extraordinary item $ .88 $ .69 $ .70
Extraordinary charge .06
------- ------- -------
Net income $ .82 $ .69 $ .70
======= ======= ========
Weighted average number of common
shares outstanding - diluted 28,834 20,957 12,227
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
36
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Unearned
Additional Directors' Predecessor Distributions
Common Stock Paid-In and Officers' Basis In Excess of
Shares Dollars Capital Compensation Assumed Net Earnings Total
----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 9,615,000 $ 96 $ 92,073 $ (124) $ (1,264) $ (979) $ 89,802
----------- ----------- ----------- ----------- ----------- ----------- -----------
Issuance of common
shares, net of offering
expenses and allocation
to minority interest 5,125,000 51 50,218 50,269
Conversion of Units to
common shares 152,013 2 1,121 1,123
Payment of advisory fees 15,218 164 164
Amortization of unearned
directors' compensation 31 31
Net income 8,511 8,511
Distributions ($1.00
per share) (12,407) (12,407)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1995 14,907,231 149 143,576 (93) (1,264) (4,875) 137,493
----------- ----------- ----------- ----------- ----------- ----------- -----------
Issuance of common
shares, net of
offering expenses
and allocation to
minority interest 7,947,000 80 85,787 85,867
Issuance of common
shares to officers in
lieu of cash bonus 25,000 294 294
Issuance of restricted
common shares to
officers 25,000 306 (306)
Issuance of common
shares in private
placements 606,232 6 7,082 7,088
Conversion of Units
to common shares 182,815 2 1,703 1,705
Amortization of unearned
officers' and directors'
compensation 33 33
Net income 14,473 14,473
Distributions ($1.12
per share) (24,002) (24,002)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1996 23,693,278 237 238,748 (366) (1,264) (14,404) 222,951
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
37
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Unearned
Additional Directors' Predecessor Distributions
Common Stock Paid-In and Officers' Basis In Excess of
Shares Dollars Capital Compensation Assumed Net Earnings Total
----------- ----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
shares, net of
offering expenses 11,082,300 111 144,428 144,539
Issuance of common
shares to officers
through exercise
of stock options 90,000 1 1,124 1,125
Amortization of unearned
officers' and directors'
compensation 92 92
Net income 23,543 23,543
Distributions ($1.14
per share) (34,912) (34,912)
Adjustments to
minority interest
from issuance of
common shares
and partnership
units 2,834 2,834
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1997 34,865,578 $ 349 $ 387,134 $ (274) $ (1,264) $ (25,773) $ 360,172
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
38
<PAGE>
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income applicable to common shareholders $ 23,543 $ 14,473 $ 8,511
Adjustment to reconcile net income to net cash
provided by operating activities:
Gain on sale of hotel properties (666)
Depreciation and amortization 20,214 11,631 6,904
Amortization of loan costs 1,013 1,565 793
Write-off of debt costs 1,984
Amortization of unearned directors' and
officers' compensation 92 33 31
Minority interest 918 460 502
Changes in assets and liabilities:
Due from Lessees (2,548) (1,078) (259)
Note receivable from sale of hotels (3,884)
Deferred expenses (8) (225) (192)
Deposits and other assets 215 (1,376) 89
Accounts payable and accrued expenses 9,529 717 1,138
--------- --------- ---------
Net cash flow provided by operating
activities 50,402 26,200 17,517
--------- --------- ---------
Cash flows from investing activities:
Acquisitions of hotel properties (337,069) (81,395) (77,704)
Improvements and additions to hotel properties (18,083) (19,440) (6,509)
Cash paid for franchise applications (2,144) (340) (518)
Proceeds from sale of hotel properties 43,207
--------- --------- ---------
Net cash flow used in investing activities (314,089) (101,175) (84,731)
--------- --------- ---------
Cash flows from financing activities:
Gross proceeds from public offerings 153,388 91,390 55,094
Payment of offering expenses (8,849) (5,653) (3,556)
Proceeds from exercise of stock options 1,125
Distributions paid (32,656) (21,962) (11,345)
Borrowings under revolving credit facility 326,411 102,890 85,480
Payments on revolving credit facility (256,885) (100,724) (56,366)
Borrowings under CMBS credit facility 88,000
Payments under CMBS credit facility (1,717)
Proceeds from issuance of common stock 7,087
Proceeds from sale of Units 2,875
Cash paid for loan costs (5,067) (926) (3,033)
Payments on capital lease obligations (2) (6) (13)
--------- --------- ---------
Net cash flow provided by financing
activities 263,748 74,971 66,261
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 61 (4) (953)
Cash and cash equivalents at beginning of year 129 133 1,086
--------- --------- ---------
Cash and cash equivalents at end of year $ 190 $ 129 $ 133
========= ========= =========
Supplemental disclosure of cash flow information --
Interest paid $ 12,226 $ 4,399 $ 3,588
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
39
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Equity Inns, Inc. (the "Company") is in the business of acquiring equity
interests in hotel properties. 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 December 31, 1997 owned
an approximate 95.0% interest in the Partnership.
As of December 31, 1997, the Partnership owned 89 hotel properties, with a total
of 10,777 rooms in 30 states. The Partnership, under operating leases providing
for the payment of percentage rent (the "Percentage Leases"), leased 25 of the
current hotels to Crossroads/Memphis Partnership, L.P., 31 of the current hotels
to Crossroads Future Company, L.L.C. and 23 of the current hotels to
Crossroads/Memphis Financing Company, L.L.C. (referred to collectively as
"Crossroads"). Each of these lessees is an affiliate of Interstate Hotels
Company ("Interstate"). All payments due under these Percentage Leases are
guaranteed by Interstate. The Partnership leased 10 hotels to Caldwell Holding
Company ("Caldwell"), a wholly-owned subsidiary of Prime Hospitality Corporation
("Prime"). Caldwell is required, under the terms of its master lease agreement,
to maintain 20% of its expected annual percentage rents in cash or marketable
securities. All hotels owned by the Company are leased to Crossroads and
Caldwell (collectively, the "Lessees"), and individually as the Lessee (the
"Lessee"). The Lessees operate and lease hotels owned by the Partnership
pursuant to separate Percentage Leases which provide for rent payments equal to
the greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent based
on the revenues of the hotels ("Percentage Rent").
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Trust and the Partnership. All significant intercompany balances and
transactions have been eliminated.
Investment in Hotel Properties
The hotel properties are recorded at cost. Depreciation is computed using the
straight-line method over estimated useful lives of the assets which range from
31 to 40 years for buildings and 5 to 7 years for furniture and equipment.
Maintenance and repairs are the responsibility of the Lessees; major renewals
and improvements are capitalized. Upon disposition, both the asset and
accumulated depreciation accounts are relieved, and the related gain or loss is
credited or charged to the income statement.
The Company reviews the carrying value of each hotel property to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel property or that depreciation periods should be
modified. If impairment is indicated, the carrying value of the hotel property
is adjusted based on the discounted future cash flows. The Company does not
believe that there are any current facts or circumstances indicating impairment
of any of its investment in hotel properties.
40
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Deferred Expenses
Deferred expenses are recorded at cost and consist of the following at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
(in thousands)
<S> <C> <C>
Initial franchise fees $3,615 $1,963
Loan costs 4,380 3,409
Other 254 247
-------- ------
8,249 5,619
Accumulated amortization (973) (1,840)
------ ------
$7,276 $3,779
====== ======
</TABLE>
Amortization of franchise fees is computed using the straight-line method over
the remaining lives of the franchise agreements which range up to 20 years and
is included in depreciation and amortization expense. Amortization of loan costs
is computed using the straight-line method over the term of the related debt. In
1997, the Company expensed approximately $2.0 million of unamortized loan costs
relating to debt that was replaced in 1997.
Deposits and Other Assets
Deposits include escrow deposits and other prepayments relating to the potential
acquisitions of hotel properties.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate debt. The agreements are
contracts to exchange floating rates for fixed interest payments periodically
over the life of the agreements without the exchange of the underlying notional
amounts. The notional amounts of interest rate agreements are used to measure
the interest to be received or paid and do not represent the amount of exposure
to credit loss. The differential paid or received on interest rate agreements is
recognized as an adjustment to interest expense.
41
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Revenue Recognition
Percentage Lease revenue is recognized when earned from the Lessees under the
Percentage Leases from the date of acquisition of each hotel property (Note 5).
The Lessees are in compliance with all of their obligations as stipulated in the
Percentage Leases.
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
changes the computation and presentation of earnings per share. SFAS 128
requires the presentation of basic and diluted earnings per share, replacing
primary and fully diluted earnings per share previously required. Earnings per
share for all prior years presented have been presented in accordance with SFAS
128.
A reconciliation of the numerator and denominator used in the basic earnings per
share computation to the numerator and denominator used in the diluted earnings
per share computation is presented below for the year ended December 31, 1997.
For the years ended December 31, 1996 and 1995, the dilutive effect of stock
options outstanding was not significant (i.e., the numerators and denominators
for the basic and diluted computations were the same).
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(in thousands except per share data)
<S> <C> <C> <C>
Income before extraordinary charge $25,453 $0.88
Extraordinary charge (1,910) (0.06)
------- -----
Net income - basic 23,543 28,773 0.82
Dilutive effect of stock options
outstanding using the treasury
stock method 61
------- ------ -----
Net income - diluted $23,543 28,834 $0.82
======= ====== =====
</TABLE>
Distributions
The Company pays regular quarterly cash distributions to shareholders which are
dependent upon receipt of distributions from the Partnership.
Minority Interest
Minority interest in the Partnership represents the limited partners'
proportionate share of the equity of the Partnership. Income is allocated to
minority interest based on weighted average percentage ownership throughout the
year.
42
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Stock-Based Compensation Plans
The Company applies APB Opinion No. 25 and related interpretations in its
accounting for Stock Based Compensation Plans. Accordingly, the Company has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."
Income Taxes
The Company has qualified as a REIT under Sections 856 through 860 of the
Internal Revenue Code, as amended. Accordingly, no provision for federal income
taxes has been reflected in the financial statements.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from net income reported for financial reporting
purposes primarily due to the differences for federal tax purposes in the
estimated useful lives and methods used to compute depreciation. Distributions
made to shareholders in 1997 and 1996 are considered to be approximately 10% and
29% return of capital, respectively, for federal income tax purposes.
Concentration of Credit Risk
The Company maintains cash balances with financial institutions with high
ratings. The Company has not experienced any losses with respect to bank
balances in excess of government-provided insurance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Investment in Hotel Properties
Hotel properties consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Land $ 76,730 $ 39,336
Buildings and improvements 505,715 252,218
Furniture and equipment 72,878 40,974
Construction in progress 5,568 1,033
--------- ---------
660,891 333,561
Less accumulated depreciation (43,819) (24,359)
--------- ---------
$617,072 $309,202
======== ========
</TABLE>
43
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Investment in Hotel Properties, Continued
Sixty of the hotel properties are premium limited service hotels, five are full
service hotels, fourteen are premium extended stay hotels, and ten are all-suite
hotels.
During 1997 and 1996, the Company acquired the following types of hotels for the
approximate amounts indicated:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
No. of Purchase No. of Purchase
Hotels Price Hotels Price
------ -------- ------ --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Premium Limited Service 34 $198,574 5 $36,200
Premium Extended Stay 6 61,650 5 41,300
All-Suite 10 86,966
Full Service 1 5,100
-- -------- -- -------
50 $347,190 11 $82,600
== ======== == =======
</TABLE>
The above acquisitions were accounted for as purchases, and the results of such
acquisitions are included in the Company's consolidated statements of operations
from the dates of acquisition.
In connection with the purchase of twenty-eight premium limited service hotels
in June 1997, the Company received $2.25 million from Interstate as an
inducement to enter into percentage lease contracts with Interstate. This
inducement is being amortized into other income over ten years, the lives of the
percentage lease contracts. As part of the purchase, the Company agreed to pay
Interstate a lease termination fee equal to 50% of the net book gain on the sale
of nine of the hotels.
On October 31, 1997, the Company sold nine premium limited service hotels to a
subsidiary of Hudson Hotel Corporation ("Hudson") resulting in a gain of
approximately $666,000, after the lease termination fee.
Approximately $3.9 million of the total sales price was in the form of a
two-year note bearing interest at 10% per annum which is collateralized by
2,000,000 shares of common stock of Hudson.
4. Debt
Debt is comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
Revolving credit facility $146,850 $77,025
Commercial Mortgage Bonds 86,283
Other 73 374
-------- -------
$233,206 $77,399
======== =======
</TABLE>
44
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Debt, Continued
On February 10, 1997, the Company, through a subsidiary, issued $88 million of
rated Commercial Mortgage Bonds ("Bonds") in a private placement transaction as
follows:
<TABLE>
<CAPTION>
Initial
Principal Interest Stated
Class Amount Rate Maturity Rating
----- ------------- -------- ----------------- ------
<S> <C> <C> <C> <C>
A $27.4 million 6.825% November 20, 2006 AA
B $50.6 million 7.370% December 20, 2015 A
C $10.0 million 7.580% February 20, 2017 BBB
</TABLE>
The combined interest rate for all three issues of Bonds is fixed at 7.22%.
Proceeds from the issuance of these Bonds were used to repay existing debt under
the line of credit of approximately $85.6 million and loan costs of
approximately $2.4 million. Principal payments are to be applied to each class
of Bonds in order of their respective maturities with no principal payment on
any Bond until all Bonds in a bond class with an earlier stated maturity have
been paid in full. The Company expects to repay these Bonds in full within 10
years. Twenty-three hotel properties with a carrying value of approximately
$130.5 million at December 31, 1997 and their respective leases collateralize
the Bonds.
Aggregate annual principal payments for the next five years at December 31, 1997
for the Bonds are as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $2,195
1999 2,351
2000 2,518
2001 2,698
2002 2,890
</TABLE>
On October 10, 1997, the Company replaced its previous line of credit with
borrowings under a $250 million unsecured line of credit (the "Unsecured Line of
Credit"). The Unsecured Line of Credit bears interest at a variable rate of
LIBOR plus 1.4%, 1.5%, 1.625%, or 1.75% as determined by the Company's
percentage of total debt to the total value of the Company's investment in hotel
properties, as defined in the loan agreement (the "Percentage"). The Percentage
is reviewed quarterly, and the interest rate is adjusted as necessary. At
December 31, 1997, the interest rate on the Unsecured Line of Credit was LIBOR
(5.94% at December 31, 1997) plus 1.625%. The Unsecured Line of Credit has a
three-year term, expiring in October 2000, plus a one-year renewal option.
On December 18, 1997, the Company entered into an interest rate swap agreement
with a financial institution. The agreement effectively fixes the interest rate
on floating rate debt at a rate of 5.90% plus the Percentage for a notional
principal amount of $75 million. The swap agreement will expire in October 2000.
45
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Debt, Continued
On November 14, 1997, the Company obtained an additional $5,000,000 line of
credit with the National Bank of Commerce (the "NBC Credit Line"). The NBC
Credit Line bears interest at the bank's prime rate (8.5% at December 31, 1997)
and is also unsecured. The NBC Credit Line has a three-year term, expiring in
September 2000. There were no outstanding borrowings under this agreement at
December 31, 1997.
The weighted average interest rate on the Company's outstanding borrowings
during 1997 and 1996 was 7.53% for both years. Fees of .25% and .20% are paid
quarterly on the unused portion of the Unsecured Line of Credit and the NBC
Credit Line, respectively. The carrying amount of the Company's borrowings on
its revolving credit facilities approximates fair value due to the Company's
ability to obtain such borrowings at comparable interest rates.
The Company's charter limits total borrowings to 45% of the Company's investment
in hotel properties. The Unsecured Line of Credit agreement requires the Company
to maintain certain debt coverage ratios and certain levels of cash flow, with
which the Company was in compliance at December 31, 1997. Additionally, the
Unsecured Line of Credit agreement requires a quarterly deposit into a separate
room renovation account for the amount by which 4% of room revenues at the
Company's hotels exceeds the amount expended by the Company during the quarter
for replacement of furniture, fixtures and equipment and capital improvements
for the hotels. For the years ended December 31, 1997 and 1996, actual
expenditures exceeded the amounts required.
5. Commitments and Related Party Transactions
The hotel properties are operated under franchise agreements and are licensed as
Hampton Inn hotels (57), AmeriSuites hotels (10), Residence Inn hotels (9),
Homewood Suites hotels (5), Holiday Inn hotels (4), Comfort Inn hotels (3), and
Holiday Inn Express hotels (1). The franchisors approve the transfer of the
franchise licenses to the Lessee when the Partnership acquires each hotel
property. The franchise agreements require the payment of fees based on a
percentage of hotel room revenue, beverage revenue and food revenue, if
applicable, which are paid by the Lessee.
The Lessees have future lease commitments to the Company under the Percentage
Leases for various terms extending through 2012. Minimum future rental income
(Base Rents) under these non-cancelable operating leases is as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
(in thousands)
<S> <C>
1998 $ 54,057
1999 54,057
2000 54,057
2001 54,057
2002 54,057
2003 and thereafter 396,375
--------
$666,660
========
</TABLE>
46
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Commitments and Related Party Transactions, Continued
The Company earned Base Rents of $38.3 million, $20.1 million and $12.6 million
and Percentage Rents in excess of Base Rents of $32.2 million, $18.2 million and
$11.5 million, respectively, for the years ended December 31, 1997 and 1996 and
1995. The Percentage Lease revenue is based on a percentage of gross room
revenue, and food and beverage revenue, if applicable, of the hotels. The
Percentage Leases range in terms from ten to fifteen years. Rental rates on all
fifteen-year leases are required to be re-negotiated after ten years. Both the
Base Rent and the threshold room revenue amount in each Percentage Rent formula
are adjusted for changes in the U.S. Consumer Price Index ("CPI"). The
adjustment is calculated on January 1 of each year, provided the lease has been
in effect for a complete calendar year and is 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, 1998, forty-eight of the Percentage Leases were
adjusted, resulting in a 2.67% increase in both Base Rent and threshold room
revenue.
At December 31, 1997, the Lessees owed the Company $5,925,000 representing
fourth quarter Percentage Rent which is due and payable to the Company by
January 30, 1998.
Under the Percentage Leases, the Partnership is obligated to pay the costs of
real estate and personal property taxes and to maintain underground utilities
and structural elements of the Hotels. In addition, the Percentage Leases
obligate the Partnership to fund the cost of periodic repair, replacement and
refurbishment of furniture, fixtures and equipment in the Hotels.
During 1996, Promus Hotels, Inc. ("Promus") purchased 606,232 shares of the
Company's common stock in private placement transactions in connection with the
Company's purchase of four hotels from Promus. Additionally, 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.
The Company also may be required by franchisors to fund certain capital
improvements to hotel properties when acquired, which are funded from
borrowings, working capital, or the room renovation account (Note 4). Capital
improvements of $18.1 million, $19.4 million and $6.5 million in 1997, 1996, and
1995, respectively, were made to the hotel properties, including those required
by the franchisors at the acquisition of the property. In 1998, the Company
expects to fund approximately $25 million of capital improvements for the hotel
properties owned at December 31, 1997.
The Company has commitments under operating land leases through December 31,
2062, at nine hotel properties for payments as follows: 1998 -- $733,929; 1999
- -- $736,429; 2000 -- $766,138; 2001 -- $777,861; 2002 -- $804,288; thereafter --
$12.7 million.
In 1996, the Partnership began construction on a 124-room Hampton Inn and Suites
hotel in Memphis (Bartlett), Tennessee. Construction costs are estimated at $7.5
million, with completion of the hotel expected in the second quarter of 1998. In
addition, the Company has agreed to purchase a 161-room Homewood Suites hotel in
Seattle, Washington for $22 million and a 252- room Homewood Suites hotel in
Orlando, Florida for $22.8 million. Both of these hotels are currently under
construction with completion dates expected in June 1998, and January 1999,
respectively. Total costs incurred relating to these developments at December
31, 1997 were approximately $5.6 million, of which $264,000 represents related
interest costs.
47
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Supplemental Disclosure of Noncash Investing and Financing Activities
In 1995, 152,013 units of limited partnership interest in the Partnership
("Units") with a book value of $1.1 million were exchanged for shares of common
stock by certain limited partners; 15,218 shares of common stock were issued to
McNeill Investment Company, Inc. in payment of incentive advisory fees of
$164,000; 3,238 Units valued at $37,000 were issued as part of the total
acquisition cost of a hotel property; $4.0 million in distributions to
shareholders and limited partners had been declared but not paid at December 31,
1995; $1.3 million of the net proceeds of the Company's third offering was
allocated to minority interest; and offering expenses of approximately $170,000
which were paid in 1995 and included in deferred expenses at December 31, 1995,
were deducted from the net proceeds of the fourth offering in April 1996.
In 1996, the Company issued 25,000 shares of common stock valued at $11.75 per
share to its officers in lieu of cash to satisfy bonus compensation accrued at
December 31, 1995; 182,815 Units with a book value of $1.7 million were
exchanged for shares of common stock by certain limited partners; 96,303 Units
valued at $1.1 million and an assumption of a $300,000 note payable were issued
as part of the total acquisition cost of a hotel property; 25,000 shares of
restricted common stock valued at $12.25 per share were issued to the Company's
officers; $297,000 of the net proceeds of the Company's public offering was
allocated to minority interest with the remainder of the net proceeds increasing
common stock and additional paid-in capital; and $6.9 million in distributions
to shareholders and limited partners had been declared but not paid at December
31, 1996.
In 1997, the Company issued 90,000 shares of common stock to an officer upon
exercise of options; 1,021,062 Units valued at $14.7 million were issued as part
of the total acquisition cost of six hotel properties; and $10.6 million in
distributions to shareholders and limited partners had been declared but not
paid at December 31, 1997.
7. Capital Stock
The Board of Directors is authorized to provide for the issuance of ten million
shares of preferred stock in one or more series, to establish the number of
shares in each series and to fix the designation, powers, preferences, and
rights of each such series and the qualifications, limitations or restriction
thereof. As of December 31, 1997 and 1996, no preferred stock was issued.
The outstanding Units in the Partnership are redeemable at the option of the
holder for a like number of shares of common stock, or at the option of the
Company, the cash equivalent thereof. Total Units outstanding at December 31,
1997 and 1996 were 1,842,520 and 821,458, respectively. The total market value
of these Units at December 31, 1997, based on the last reported sales price of
the common stock on the NYSE of $14.75, was approximately $27.2 million.
The Company issued 5,000 shares to each of its three initial independent
directors, which shares vest over five years at a rate of 1,000 shares per year
beginning in 1994. The unvested shares are subject to forfeiture if the director
does not remain a director of the Company for the specified vesting period. The
Company began charging operations for compensation expense with respect to these
shares in 1994.
48
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Capital Stock, Continued
In December 1996, the Company issued a total of 25,000 shares of restricted
shares of common stock to its officers, which shares vest ratably over five
years. The shares were valued at $12.25 per share at the date of issuance. The
unvested shares are subject to forfeiture if the officer does not remain an
officer of the Company for the specified vesting period.
8. Stock Option Plans
On June 13, 1994, the Board of Directors of the Company approved the 1994 Stock
Incentive Plan (the "1994 Plan") to provide for incentives awarded to officers
and key employees of the Company. The 1994 Plan provides for the grant of stock
options to purchase a specified number of shares of common stock ("Options") or
grants of performance shares of common stock ("Performance Stock") or restricted
shares of common stock ("Restricted Stock"). Under the plan, the total number of
shares available for grant is 2,300,000 shares of common stock, of which not
more than 100,000 shares may be grants of Restricted Stock or Performance Stock.
The exercise price of the options shall be determined on the date of each grant
and expire in 2002.
On July 6, 1994, the Company granted options to officers and key employees of
the Company to purchase 600,000 shares of common stock at an exercise price of
$12.50 per share, which options vest ratably over five years. At December 31,
1997, options for 90,000 shares have been exercised.
On June 13, 1994, the Board of Directors of the Company also approved the
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan provides for the award of options to purchase common stock to
each director who is not an employee of the Company or a related entity. Under
the Directors' Plan, the total number of shares available for grant is 50,000
shares of common stock. In June 1997, 1996 and April 1995, each eligible
director was awarded an option to acquire 1,000 shares (aggregate 3,000 shares)
of common stock at an exercise price of $13.50, $11.75 and $11.25, the fair
market value on their respective dates of grant. At December 31, 1997, no
options have been exercised. During the remaining term of the Directors' Plan,
each eligible director will receive an option for 1,000 shares of common stock
at the first meeting of the Board of Directors following each annual meeting of
the Company's shareholders. The exercise price of the options shall be
determined on the date of each grant and expire ten years after the date of each
grant.
At December 31, 1997 and 1996, exercisable options under both plans were 519,000
and 606,000 shares, respectively.
9. Pro Forma Financial Information (Unaudited)
Due to the impact of the acquisitions discussed in Note 1, Note 3 and Note 10,
historical operations may not be indicative of future results of operations and
net income per common share.
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 1997 and 1996 are presented as if the acquisition of all
89 hotels owned at December 31, 1997, and the consummation of the offerings and
the application of the net proceeds therefrom had occurred on January 1, 1996,
and all of the hotels had been leased to the Lessees pursuant to the Percentage
Leases. Additionally, the pro forma consolidated statements of operations are
presented without consideration of the gain on the sale of hotel properties and
the extraordinary charge from the write-off of deferred financing fees, both of
which occurred in 1997.
49
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Pro Forma Financial Information (Unaudited), Continued
The pro forma consolidated statements of operations do not purport to present
what actual results of operations would have been if the acquisitions and the
consummation of the offerings had occurred on such date or to project results
for any future period.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
------- -------
(in thousands, except per share data)
<S> <C> <C>
Percentage lease revenues $93,062 $86,685
Other income 617 116
------- -------
Total revenues 93,679 86,801
------- -------
Expenses:
Real estate and personal property taxes 9,049 7,965
Depreciation and amortization 26,834 24,889
Compensation 2,099 1,870
Interest 18,968 16,429
Amortization of loan costs 1,040 1,805
General and administrative 2,043 1,536
Amortization of unearned directors' and
officers' compensation 92 33
Rental expense 815 745
------- -------
Total expenses 60,940 55,272
------- -------
Income before minority interest 32,739 31,529
Minority interest 1,644 1,583
------- -------
Net income applicable to common shareholders $31,095 $29,946
======= =======
Net income per common share $ .89 $ .86
======= =======
Weighted average number of common shares
outstanding 34,866 34,866
======= =======
</TABLE>
10. Significant Lessee Information
As discussed in Note 1, the Percentage Leases relating to hotels accounting for
more than 20% of the Company's assets are guaranteed by Interstate and its
parent, Interstate Hotels Company, a publicly traded hotel management company.
At December 31, 1997, Interstate owned, managed, leased or performed related
services for a portfolio of 223 hotels totaling 45,329 rooms.
50
<PAGE>
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Significant Lessee Information, Continued
Summarized financial information for Interstate Hotels Company as of and for the
year ended December 31, 1997 is as follows (in thousands):
<TABLE>
<S> <C>
Balance Sheet Data:
Investment in hotel real estate $ 41,297
Cash and short-term investments 28,920
Total assets 1,373,463
Total debt 800,124
Shareholders' equity 456,375
Income Statement Data:
Total revenue $ 661,712
Net income 43,586
</TABLE>
51
<PAGE>
EQUITY INNS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
Cost Capitalized Subsequent Gross Amount at Which
Initial Cost to Acquisition Carried at Close of Period
------------------------------ ----------------------------- ------------------------------
Furniture Buildings Furniture Buildings Furniture
and and and and and
Description of Property Land Improvements Fixtures Land Improvements Fixture Land Improvements Fixtures
- ----------------------- ------- ------------ --------- ------ ------------ -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn-Albany, NY $ 953 $ 9,897 $ 802 $ 0 $ 158 $ 733 $ 953 $10,055 $ 1,535
Hampton Inn-Cleveland, OH 820 4,428 217 0 173 391 820 4,601 608
Hampton Inn-College Station, TX 656 4,655 671 0 213 530 656 4,868 1,201
Hampton Inn-Columbus, GA 603 2,591 1,073 0 470 650 603 3,061 1,723
Hampton Inn-Ft. Worth, TX 385 1,754 896 0 334 726 385 2,088 1,622
Hampton Inn-Little Rock, AR 549 2,688 328 0 107 575 549 2,795 903
Hampton Inn-Louisville, KY 395 2,406 919 0 239 804 395 2,645 1,723
Hampton Inn-Sarasota, FL 553 3,389 753 0 231 489 553 3,620 1,242
Hampton Inn-Ann Arbor, MI 565 4,499 506 0 372 712 565 4,871 1,218
Comfort Inn-Enterprise, AL 544 2,398 112 0 99 323 544 2,497 435
Hampton Inn-Gurnee, IL 630 3,397 277 0 431 927 630 3,828 1,204
Hampton Inn-Traverse City, MI 526 6,153 335 0 94 536 526 6,247 871
Hampton Inn-Arlington, TX 425 6,387 582 0 207 355 425 6,594 937
Residence Inn-Eagan, MN 540 8,130 652 0 541 1,230 540 8,671 1,882
Residence Inn-Tinton Falls, NJ 0 7,711 419 0 246 176 0 7,957 595
Hampton Inn-Milford, CT 759 5,689 467 0 226 566 759 5,915 1,033
Hampton Inn-Meriden, CT 648 3,226 435 0 142 299 648 3,368 734
Hampton Inn-Beckley, WV 1,876 5,557 402 0 90 188 1,876 5,647 590
Holiday Inn-Bluefield, WV 1,661 6,141 342 0 520 897 1,661 6,661 1,239
Hampton Inn-Gastonia, NC 1,835 4,741 358 0 79 588 1,835 4,820 946
Hampton Inn-Morgantown, WV 1,573 4,311 324 4 62 519 1,577 4,373 843
Holiday Inn-Oak Hill, WV 269 3,727 85 0 1,031 674 269 4,758 759
Hampton Inn-Shelby, NC 401 2,457 165 0 154 407 401 2,611 572
Holiday Inn Express-Wilkesboro, NC 269 2,778 177 0 250 391 269 3,028 568
Hampton Inn-Naperville, IL 678 6,455 396 0 261 583 678 6,716 979
Hampton Inn-State College, PA 718 7,310 525 0 180 480 718 7,490 1,055
Comfort Inn-Rutland, VT 359 3,683 354 0 292 490 359 3,975 844
Hampton Inn-Cleveland, TN 181 1,825 171 0 106 106 181 1,931 277
Hampton Inn-Scranton, PA 403 7,017 720 0 64 62 403 7,081 782
Residence Inn-Omaha, NE 953 2,650 162 6 515 372 959 3,165 534
Hampton Inn-Fayetteville NC 403 5,043 148 18 497 732 421 5,540 880
Hampton Inn-Indianapolis, IN 1,207 6,513 126 0 300 1,073 1,207 6,813 1,199
Hampton Inn-Jacksonville, FL 403 4,793 126 0 234 938 403 5,027 1,064
Holiday Inn-Mt. Pleasant, SC 1,205 7,874 247 0 423 587 1,205 8,297 834
Comfort Inn-Jacksonville Beach, FL 849 7,307 371 2 1,222 760 851 8,529 1,131
Hampton Inn-Austin, TX 500 6,659 375 6 220 544 506 6,879 919
Hampton Inn-Garland, TX 375 4,959 450 3 181 386 378 5,140 836
Hampton Inn-Knoxville, TN 617 3,871 232 0 189 494 617 4,060 726
Hampton Inn-Glen Burnie, MD 0 5,075 322 0 240 346 0 5,315 668
Hampton Inn-Detroit, MI 1,207 5,785 526 0 165 91 1,207 5,950 617
Homewood Suites-Hartford, CT 2,866 7,660 915 0 280 85 2,866 7,940 1,000
Residence Inn-Madison, WI 700 2,879 356 0 101 129 700 2,980 485
Holiday Inn-Winston-Salem, NC 1,350 3,124 639 0 28 39 1,350 3,152 678
Hampton Inn-Scottsdale, AZ 2,227 6,566 723 0 40 9 2,227 6,606 732
Hampton Inn-Chattanooga, TN 1,475 6,824 752 0 271 237 1,475 7,095 989
Homewood Suites-San Antonio, TX 907 6,661 1,029 0 42 16 907 6,703 1,045
Residence Inn-Burlington, VT 679 6,677 342 0 362 259 679 7,039 601
Homewood Suites-Phoenix, AZ 0 7,086 902 0 1,623 0 0 8,708 903
Residence Inn-Colorado Springs, CO 1,350 7,638 740 0 68 139 1,350 7,706 879
Residence Inn-Oklahoma City, OK 1,450 8,921 850 0 172 140 1,450 9,093 889
Residence Inn-Tucson, AZ 832 7,078 705 0 66 48 832 7,144 753
Hampton Inn-Savannah, GA 705 4,186 334 0 125 522 705 4,310 856
Hampton Inn-Norfolk, VA 5,092 520 0 209 423 0 5,301 943
Hampton Inn-Pickwick, TN 370 1,484 263 0 79 43 370 1,563 306
Hampton Inn-Southaven, MS 698 3,138 522 0 77 60 698 3,215 582
Hampton Inn-Overland Park, KS 906 5,931 330 0 80 72 906 6,011 402
Hampton Inn-Addison, TX 2,981 6,336 810 0 179 88 2,981 6,521 895
Hampton Inn-Atlanta (Northlake), GA 6,905 600 0 124 11 0 7,029 611
<CAPTION>
Accumulated Net Book
Depreciation Value Life Upon
Building and Buildings and Which
Improvements; Improvements; Depreciation
Furniture & Furniture & Date of In Statement
Total Fixtures Fixtures Construction Is Computed
-------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Hampton Inn-Albany, NY $ 12,543 $ 2,043 $ 10,500 1986 5-40 Yrs
Hampton Inn-Cleveland, OH 6,029 845 5,184 1987 5-40 Yrs
Hampton Inn-College Station, TX 6,725 1,237 5,488 1986 5-40 Yrs
Hampton Inn-Columbus, GA 5,387 1,906 3,481 1986 5-40 Yrs
Hampton Inn-Ft. Worth, TX 4,095 1,323 2,772 1987 5-40 Yrs
Hampton Inn-Little Rock, AR 4,247 781 3,466 1985 5-40 Yrs
Hampton Inn-Louisville, KY 4,763 2,053 2,710 1986 5-40 Yrs
Hampton Inn-Sarasota, FL 5,415 1,290 4,125 1987 5-40 Yrs
Hampton Inn-Ann Arbor, MI 6,654 1,109 5,545 1986 5-31 Yrs
Comfort Inn-Enterprise, AL 3,476 469 3,007 1987 5-31 Yrs
Hampton Inn-Gurnee, IL 5,662 919 4,743 1988 5-31 Yrs
Hampton Inn-Traverse City, MI 7,644 1,158 6,486 1987 5-31 Yrs
Hampton Inn-Arlington, TX 7,956 1,128 6,828 1985 7-31 Yrs
Residence Inn-Eagan, MN 11,093 1,461 9,632 1988 7-31 Yrs
Residence Inn-Tinton Falls, NJ 8,552 1,081 7,471 1988 7-31 Yrs
Hampton Inn-Milford, CT 7,707 986 6,721 1986 7-31 Yrs
Hampton Inn-Meriden, CT 4,750 617 4,133 1988 7-31 Yrs
Hampton Inn-Beckley, WV 8,113 767 7,346 1992 7-31 Yrs
Holiday Inn-Bluefield, WV 9,561 1,022 8,539 1980 7-31 Yrs
Hampton Inn-Gastonia, NC 7,601 783 6,818 1989 7-31 Yrs
Hampton Inn-Morgantown, WV 6,793 685 6,108 1991 7-31 Yrs
Holiday Inn-Oak Hill, WV 5,786 620 5,166 1983 7-31 Yrs
Hampton Inn-Shelby, NC 3,584 432 3,152 1989 7-31 Yrs
Holiday Inn Express-Wilkesboro, NC 3,865 458 3,407 1985 7-31 Yrs
Hampton Inn-Naperville, IL 8,373 1,023 7,350 1978 7-31 Yrs
Hampton Inn-State College, PA 9,213 1,019 8,194 1987 7-31 Yrs
Comfort Inn-Rutland, VT 5,178 560 4,618 1985 7-31 Yrs
Hampton Inn-Cleveland, TN 2,389 239 2,150 1993 7-31 Yrs
Hampton Inn-Scranton, PA 8,266 772 7,494 1994 7-31 Yrs
Residence Inn-Omaha, NE 4,658 296 4,362 1985 7-31 Yrs
Hampton Inn-Fayetteville NC 6,841 615 6,226 1986 7-31 Yrs
Hampton Inn-Indianapolis, IN 9,219 786 8,433 1987 7-31 Yrs
Hampton Inn-Jacksonville, FL 6,494 618 5,876 1986 7-31 Yrs
Holiday Inn-Mt. Pleasant, SC 10,336 816 9,520 1988 7-31 Yrs
Comfort Inn-Jacksonville Beach, FL 10,511 754 9,757 1990 7-31 Yrs
Hampton Inn-Austin, TX 8,304 652 7,652 1987 7-31 Yrs
Hampton Inn-Garland, TX 6,354 554 5,800 1986 7-31 Yrs
Hampton Inn-Knoxville, TN 5,403 384 5,019 1988 7-31 Yrs
Hampton Inn-Glen Burnie, MD 5,983 431 5,552 1989 7-31 Yrs
Hampton Inn-Detroit, MI 7,774 424 7,350 1989 7-31 Yrs
Homewood Suites-Hartford, CT 11,806 613 11,193 1990 7-31 Yrs
Residence Inn-Madison, WI 4,165 244 3,921 1988 7-31 Yrs
Holiday Inn-Winston-Salem, NC 5,180 292 4,888 1969 7-31 Yrs
Hampton Inn-Scottsdale, AZ 9,565 463 9,102 1996 7-31 Yrs
Hampton Inn-Chattanooga, TN 9,559 519 9,040 1988 7-31 Yrs
Homewood Suites-San Antonio, TX 8,655 456 8,199 1996 7-31 Yrs
Residence Inn-Burlington, VT 8,319 359 7,960 1988 7-31 Yrs
Homewood Suites-Phoenix, AZ 9,611 476 9,135 1996 7-31 Yrs
Residence Inn-Colorado Springs, CO 9,935 361 9,574 1984 7-31 Yrs
Residence Inn-Oklahoma City, OK 1,450 411 11,122 1982 7-31 Yrs
Residence Inn-Tucson, AZ 8,729 327 8,402 1985 7-31 Yrs
Hampton Inn-Savannah, GA 5,871 188 5,684 1986 7-31 Yrs
Hampton Inn-Norfolk, VA 6,244 216 6,028 1990 7-31 Yrs
Hampton Inn-Pickwick, TN 2,239 71 2,168 1994 7-31 Yrs
Hampton Inn-Southaven, MS 4,495 145 4,350 1995 7-31 Yrs
Hampton Inn-Overland Park, KS 7,319 172 7,147 1991 7-31 Yrs
Hampton Inn-Addison, TX 10,397 175 10,219 1985 7-31 Yrs
Hampton Inn-Atlanta (Northlake), GA 7,640 163 7,477 1988 7-31 Yrs
</TABLE>
52
<PAGE>
EQUITY INNS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
AS OF DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
Cost Capitalized Subsequent Gross Amount at Which
Initial Cost to Acquisition Carried at Close of Period
------------------------------ ----------------------------- ------------------------------
Furniture Buildings Furniture Buildings Furniture
and and and and and
Description of Property Land Improvements Fixtures Land Improvements Fixture Land Improvements Fixtures
- ----------------------- ------- ------------ --------- ------ ------------ -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn-Birmingham (Mtn. Brook),
AL 7,988 687 0 190 53 0 8,178 740
Hampton Inn-Birmingham (Vestavia),
AL 1,057 5,162 541 0 88 48 1,057 5,250 589
Hampton Inn-Chapel Hill, NC 1,834 6,504 725 0 177 85 1,834 6,680 811
Hampton Inn-Charleston, SC 712 5,219 516 0 128 73 712 5,346 589
Hampton Inn-Colorado Springs, CO 803 3,925 411 0 70 37 803 3,995 448
Hampton Inn-Columbia, SC 650 6,572 628 0 152 75 650 6,724 703
Hampton Inn-Aurora, CO 784 3,344 359 0 173 142 784 3,517 501
Hampton Inn-Detroit (Madison Heights),
MI 881 4,304 451 0 198 0 881 4,502 451
Hampton Inn-Dublin, OH 944 3,612 483 0 240 19 944 3,852 502
Hampton Inn-Kansas City, KS 585 4,294 425 0 160 114 585 4,454 539
Hampton Inn-Little Rock (North), AR 898 5,520 558 0 192 45 898 5,712 603
Hampton Inn-Memphis (Poplar), TN 1,955 6,547 739 0 191 121 1,955 6,738 860
Hampton Inn-Memphis (Sycamore), TN 2,751 239 0 109 72 0 2,860 311
Hampton Inn-Nashville (Brentwood), TN 928 5,705 577 0 175 100 928 5,880 677
Hampton Inn-Nashville (Briley Parkway),
TN 6,550 569 0 98 16 0 6,647 585
Hampton Inn-Richardson, TX 1,750 5,252 609 0 181 67 1,750 5,433 676
Hampton Inn-St. Louis, MO 665 3,775 386 0 123 88 665 3,898 474
Hampton Inn-Destin, FL 952 5,166 680 0 50 0 952 5,216 680
Homewood Suites-Germantown, TN 1,011 5,760 1,011 0 54 0 1,011 5,814 1,011
Homewood Suites-Augusta, GA 330 4,164 516 0 15 0 330 4,179 516
Residence Inn-Princeton, NJ 1,920 15,875 1,500 0 39 0 1,920 15,914 1,500
AmeriSuites-Cincinnati (Blue Ash), OH 900 6,241 466 0 34 0 900 6,275 466
AmeriSuites-Cincinnati (Forest Park),
OH 800 5,616 569 0 31 0 800 5,647 569
AmeriSuites-Columbus, OH 903 6,774 856 0 25 0 903 6,799 856
AmeriSuites-Flagstaff, AZ 600 3,832 737 0 13 0 600 3,845 737
AmeriSuites-Jacksonville, FL 1,168 5,734 436 0 9 0 1,168 5,743 436
AmeriSuites-Indianapolis, IN 700 4,775 800 0 44 0 700 4,819 800
AmeriSuites-Miami, FL 1,500 9,387 900 0 96 0 1,500 9,483 900
AmeriSuites-Overland Park, KS 1,300 7,030 900 0 11 0 1,300 7,041 900
AmeriSuites-Richmond, VA 1,772 9,640 921 0 34 0 1,772 9,673 922
AmeriSuites-Tampa, FL 1,400 9,786 523 0 212 0 1,400 9,998 523
Construction in Progress 3,663 1,905 5,568
Corporate Office--Memphis, TN 0 0 75 0 75
$80,354 $486,919 $47,598 $1,944 $18,796 $25,280 $82,298 $505,715 $72,878
======= ======== ======= ====== ======= ======= ======= ======== =======
<CAPTION>
Accumulated Net Book
Depreciation Value Life Upon
Building and Buildings and Which
Improvements; Improvements; Depreciation
Furniture & Furniture & Date of In Statement
Total Fixtures Fixtures Construction Is Computed
-------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Hampton Inn-Birmingham (Mtn. Brook), AL 8,918 153 8,765 1987 7-31 Yrs
Hampton Inn-Birmingham (Vestavia), AL1,057 6,898 131 6,765 1986 7-31 Yrs
Hampton Inn-Chapel Hill, NC 9,325 171 9,154 1986 7-31 Yrs
Hampton Inn-Charleston, SC 6,647 133 6,515 1985 7-31 Yrs
Hampton Inn-Colorado Springs, CO 5,246 100 5,146 1985 7-31 Yrs
Hampton Inn-Columbia, SC 8,077 165 7,912 1985 7-31 Yrs
Hampton Inn-Aurora, CO 4,802 96 4,706 1985 7-31 Yrs
Hampton Inn-Detroit (Madison Heights), MI 5,834 108 5,726 1987 7-31 Yrs
Hampton Inn-Dublin, OH 5,298 99 5,199 1988 7-31 Yrs
Hampton Inn-Kansas City, KS 5,578 114 5,464 1987 7-31 Yrs
Hampton Inn-Little Rock (North), AR 7,213 139 7,074 1985 7-31 Yrs
Hampton Inn-Memphis (Poplar), TN 9,553 174 9,379 1985 7-31 Yrs
Hampton Inn-Memphis (Sycamore), TN 3,171 68 3,103 1984 7-31 Yrs
Hampton Inn-Nashville (Brentwood), TN 7,485 149 7,336 1985 7-31 Yrs
Hampton Inn-Nashville (Briley Parkway), TN 7,232 155 7,078 1987 7-31 Yrs
Hampton Inn-Richardson, TX 7,859 140 7,719 1987 7-31 Yrs
Hampton Inn-St. Louis, MO 5,037 100 4,937 1987 7-31 Yrs
Hampton Inn-Destin, FL 6,848 137 6,711 1994 7-31 Yrs
Homewood Suites-Germantown, TN 7,836 171 7,665 1986 7-31 Yrs
Homewood Suites-August, GA 5,025 98 4,927 1997 7-31 Yrs
Residence Inn-Princeton, NJ 19,334 212 19,122 1988 7-31 Yrs
AmeriSuites-Cincinnati (Blue Ash), OH 7,641 18 7,623 1990 7-31 Yrs
AmeriSuites-Cincinnati (Forest Park), OH 7,016 18 6,998 1992 7-31 Yrs
AmeriSuites-Columbus, OH 8,558 23 8,535 1994 7-31 Yrs
AmeriSuites-Flagstaff, AZ 5,182 16 5,166 1993 7-31 Yrs
AmeriSuites-Jacksonville, FL 7,347 16 7,331 1996 7-31 Yrs
AmeriSuites-Indianapolis, IN 6,319 19 6,300 1992 7-31 Yrs
AmeriSuites-Miami, FL 11,883 29 11,854 1996 7-31 Yrs
AmeriSuites-Overland Park, KS 9,241 24 9,217 1994 7-31 Yrs
AmeriSuites-Richmond, VA 12,367 36 12,331 1992 7-31 Yrs
AmeriSuites-Tampa, FL 11,921 31 11,890 1994 7-31 Yrs
Construction in Progress 5,568 5,568
Corporate Office--Memphis, TN 75 9 66 7 Yrs
-------- ------- --------
$660,891 $43,819 $617,072
======== ======= ========
</TABLE>
<TABLE>
<S> <C>
(a) Reconciliation of Real Estate:
Balance at December 31, 1995 $231,324
Additions during the period 102,237
--------
Balance at December 31, 1996 333,561
Additions during the period 366,840
Sales during the period (39,510)
--------
Balance at December 31, 1997 $660,891
========
(b) Reconciliation of Accumulated Depreciation:
Balance At December 31, 1995 $12,895
Depreciation expense during the period 11,464
-------
Balance at December 31, 1996 24,359
Depreciation expense during the period 19,969
Depreciation on sales during the period (509)
-------
Balance at December 31, 1997 $43,819
=======
</TABLE>
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 1997 and through the date of this
report, there has been no change in the Company's independent accountants, nor
have any disagreements with such accountants or reportable events occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the section
entitled "Proposal One - Election of Class I Director" in the Proxy Statement as
to the Company's directors. See also Item 1 -- "Business-Executive Officers of
the Company."
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the section
entitled "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the sections
entitled "Ownership of the Company's Common Stock" and "Proposal One - Election
of Class I Director" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the section
entitled "Certain Relationships and Related Transactions" in the Proxy
Statement.
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements:
The following financial statements and financial statement schedules are located
in this report on the pages indicated:
<TABLE>
<CAPTION>
Equity Inns, Inc. Page
----
<S> <C>
Report of Independent Accountants 34
Consolidated Balance Sheets at December 31, 1997 and 1996 35
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 36
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995 37
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 39
Notes to Consolidated Financial Statements 40
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1997 52
</TABLE>
All other schedules to the consolidated financial statements required by Article
7 of Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.
(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 Report on Form 10-K.
(1) Current Report on Form 8-K reporting (a) the Company's agreement on
September 22, 1997 to acquire ten AmeriSuites brand hotels with an
aggregate of 1,239 rooms for a purchase price of approximately $87.0
million, (b) the Company's sale of nine hotels on October 31, 1997 for
an aggregate sales price of approximately $46.3 million and (c) the
closing of the Company's new $250 million unsecured line of credit on
October 10, 1997, such report being dated September 22, 1997 and filed
on November 24, 1997 (no financial statements were required to be filed
with this report).
(2) Current Report on Form 8-K reporting the approval and adoption of
the Company's Second Amended and Restated Charter, such report being
dated October 15, 1997 and filed October 23, 1997 (no financial
statements were required to be filed with this report).
(3) Current Report on Form 8-K reporting the execution of the
Underwriting Agreement and opinion of Hunton & Williams as to tax
matters in connection with the Company's Fifth Follow-On Offering, such
report being both dated and filed November 25, 1997 (no financial
statements were required to be filed with this report).
(4) Current Report on Form 8-K reporting the closing of the Company's
acquisition of ten AmeriSuites brand hotels with an aggregate of 1,239
rooms for a purchase price of approximately $87.0 million, such report
being dated December 10, 1997 and filed December 24, 1997 (no financial
statements were required to be filed with this report).
55
<PAGE>
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1(a) -- Charter of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
3.1(b) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on April 27, 1995)
3.1(c) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on May 31, 1996)
3.1(d) -- Second Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated October 15, 1997 Registration
No. 0-23290) filed with the Securities and Exchange
Commission on October 23, 1997)
3.2 -- By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
4.1 -- Form of Share Certificate for the Company's Common Stock,
$.01 par value (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-11
(Registration No. 33-73304))
4.2(a) -- Second Amended and Restated Agreement of Limited Partnership
of Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (Registration No. 33-90364))
4.2(b) -- Third Amended and Restated Agreement of Limited Partnership of
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
June 24, 1997 (Registration No. 0-23290) filed with the
Securities and Exchange Commission on July 10, 1997)
4.3, 10.1 -- Indenture dated as of February 6, 1997 among EQI
Financing Partnership I, L.P., as Issuer, LaSalle National
Bank, as Trustee, and ABN AMBRO Bank N.V., as Fiscal Agent
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q (Registration No. 0-23290) for
the quarter ended March 31, 1997 and filed with the Securities
and Exchange Commission on April 30, 1997)
10.2(a) -- Form of Percentage Lease Agreement (incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement on
Form S-11 (Registration No. 33-73304))
10.2(b) -- Consolidated Lease Amendment dated as of November 15, 1996
between Equity Inns Partnership, L.P. and Crossroads/Memphis
Partnership, L.P. (incorporated by reference to Exhibit
10.1(a) to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on December 13, 1996)
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
10.2(c) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Crossroads/Future Company, L.L.C.
(incorporated by reference to Exhibit 10.1(b) to the Company's
Amended Current Report on Form 8-K (Registration No. 0-23290)
filed with the Securities and Exchange Commission on July 22,
1997)
10.2(d) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Caldwell Holding Corp. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on December 24, 1997)
10.3(a) -- Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29(a) to the Company's Registration
Statement on Form S-11 (Registration No. 33-80318))
10.3(b) -- Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29(b) to the
Company's Registration Statement on Form S-11 (Registration
No. 33-80318))
10.4 -- Right of First Refusal Agreement between Wolf River Hotel,
L.P. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-3 (Registration No. 33-93158))
10.5 -- Right of First Refusal Agreement between SAHI I L.P. and
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form
S-3 (Registration No. 33-93158))
10.6(a) -- Credit Agreement between Equity Inns, Inc., Equity Inns Trust,
Equity Inns Partnership, L.P., Smith Barney Mortgage Capital
Group, Inc., National Bank of Commerce, First National Bank of
Chicago, Leader Federal Bank for Savings, AmSouth Bank, First
National Bank of Commerce, Bank of Mississippi, Mercantile
Bank of St. Louis, First National Bank of Chicago and Smith
Barney Mortgage Capital Group, Inc. as collateral agent
(incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K/A for the year ended December 31,
1995 (Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 20, 1996)
10.6(b) -- Unsecured Revolving Credit Agreement dated as of October 10,
1997, by and among Equity Inns Partnership, L.P. and Equity
Inns/West Virginia Partnership, L.P. as Borrower and The First
National Bank of Chicago, Credit Lyonnais New York Branch, and
AmSouth Bank as Lenders, Credit Lyonnais New York Branch, as
Syndication Agent and The First National Bank of Chicago as
Administrative Agent (incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K (Registration
No. 0-23290) filed with the Securities and Exchange Commission
on November 24, 1997)
10.7 -- Memorandum of Understanding between Promus Hotels, Inc.,
Equity Inns, Inc. and McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
10.8 -- Agreement of Phillip H. McNeill, Sr. concerning investments of
the income of McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
10.9 -- Agreement of Phillip H. McNeill, Sr. concerning purchase of
250,000 units of limited partnership interest in Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.10 -- Agreement of Phillip H. McNeill, Sr. concerning development
activities (incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.11 -- Amendment to Agreement of Phillip H. McNeill, Sr. concerning
the purchase of 250,000 units of limited partnership interest
in Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 22, 1996)
10.12 -- Stock Purchase Agreement dated as of May 31, 1996 by and among
Equity Inns, Inc., Equity Inns Partnership, L.P. and Promus
Hotels, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K (Registration No.
23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.13 -- Development Agreement dated as of May 31, 1996 between Equity
Inns Partnership, L.P., Trust Leasing, Inc. and Promus Hotels,
Inc. (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K (Registration No. 0-
23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.14 -- Form of Management Agreement between Equity Inns Partnership,
L.P., Trust Leasing, Inc. and Promus Hotels, Inc.
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on June 13, 1996)
10.15 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Company (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission
on December 13, 1996)
10.16 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Corporation (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
December 13, 1996)
10.17 -- Master Agreement dated as of November 4, 1996 among Equity
Inns, Inc., Equity Inns Partnership, L.P., Interstate Hotels
Corporation, Crossroads/Memphis Partnership, L.P. and
Crossroads Future Company, L.L.C. (incorporated by reference
to Exhibit 10.4 to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on December 13, 1996)
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
10.18 -- First Amendment to Master Agreement dated as of November 15,
1996 among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Interstate Hotels Corporation, Crossroads/Memphis Partnership,
L.P. and Crossroads Future Company, L.L.C. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on December 13, 1996)
10.19 -- Second Amendment to Master Agreement dated as of February 6,
1997 by Equity Inns, Inc., Equity Inns Partnership, L.P., EQI
Financing Partnership 1, L.P., Interstate Hotels Corporation,
Crossroads/Memphis Partnership, L.P., Crossroads/Memphis
Financing Company, L.L.C., and Crossroads Future Company,
L.L.C. (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q Registration No.
0-23290) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.20 -- Form of Deed of Trust dated as of February 6, 1997 by EQI
Financing Partnership 1, L.P. in favor of LaSalle National
Bank, as Trustee (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q (Registration No.
0-23290) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.21 -- Credit Agreement dated June 25, 1997, by and among Equity Inns
Partnership, L.P. and Equity Inns Trust, The First National
Bank of Chicago, Credit Lyonnais, New York Branch and AmSouth
Bank of Alabama, as Lenders, Credit Lyonnais, New York Branch,
as Documentation Agent and The First National Bank of Chicago,
as Administrative Agent and Syndication Agent (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on July 10, 1997)
10.22 -- Hotel Asset Purchase Agreement by and between Hudson Hotels
Corporation, Hudson Hotels Properties Corp. and Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
November 24, 1997)
10.23 -- Amendment No. 1 to Hotel Asset Purchase Agreement by and
between Hudson Hotels Corporation, Hudson Hotels Properties
Corp. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on November 24, 1997)
10.24 -- Amended and Restated Purchase and Sale Agreement between Prime
Hospitality Corp. and Equity Inns Partnership, L.P. dated
December 2, 1997 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
December 24, 1997)
10.25 -- Second Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on December 24,
1997)
</TABLE>
59
<PAGE>
<TABLE>
<S> <C>
10.26 -- Third Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on December 24,
1997)
10.27 -- Fourth Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on December 24,
1997)
10.28* -- Revolving Credit Loan Agreement dated as of November 14, 1997
by and among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
Trust and National Bank of Commerce
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of Coopers & Lybrand L.L.P.
27.1* -- Financial Data Schedule (filed electronically with the
Securities and Exchange Commission)
</TABLE>
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* Filed herewith.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report on Form 10-K. See Item 14 (a).
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on the 11th day of March,
1998.
EQUITY INNS, INC.
By: /s/Phillip H. McNeill, Sr.
--------------------------
Phillip H. McNeill, Sr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 11th day of March, 1998.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Phillip H. McNeill, Sr. Chairman of the Board and March 11, 1998
- ---------------------------
Phillip H. McNeill, Sr. Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ David L. Levine President and Chief Operating March 11, 1998
- -------------------
David L. Levine Officer
/s/ Howard A. Silver Executive Vice President-Finance, March 11, 1998
- ---------------------
Howard A. Silver Secretary, Treasurer, and Chief
Financial Officer (Principal
Financial and Accounting Officer)
William A. Deupree, Jr. Director March 11, 1998
- ---------------------------
William A. Deupree, Jr.
/s/ James A. Thomas III Director March 11, 1998
- ----------------------
James A. Thomas III
/s/ Joseph W. McLeary Director March 11, 1998
- ---------------------
Joseph W. McLeary
</TABLE>
61
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1(a) -- Charter of the Registrant (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
3.1(b) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on April 27, 1995)
3.1(c) -- Articles of Amendment to the Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on May 31, 1996)
3.1(d) -- Second Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated October 15, 1997
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on October 23, 1997)
3.2 -- By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-11 (Registration No. 33-73304)
4.1 -- Form of Share Certificate for the Company's Common Stock, $.01
par value (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-11 (Registration
No. 33-73304))
4.2(a) -- Second Amended and Restated Agreement of Limited Partnership
of Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (Registration No. 33-90364))
4.2(b) -- Third Amended and Restated Agreement of Limited Partnership of
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
June 24, 1997 (Registration No. 0-23290) filed with the
Securities and Exchange Commission on July 10, 1997)
4.3, 10.1 -- Indenture dated as of February 6, 1997 among EQI
Financing Partnership I, L.P., as Issuer, LaSalle National
Bank, as Trustee, and ABN AMBRO Bank N.V., as Fiscal Agent
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q (Registration No. 0-23290) for
the quarter ended March 31, 1997 and filed with the Securities
and Exchange Commission on April 30, 1997)
10.2(a) -- Form of Percentage Lease Agreement (incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement on
Form S-11 (Registration No. 33-73304))
10.2(b) -- Consolidated Lease Amendment dated as of November 15, 1996
between Equity Inns Partnership, L.P. and Crossroads/Memphis
Partnership, L.P. (incorporated by reference to Exhibit
10.1(a) to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on December 13, 1996)
10.2(c) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Crossroads/Future Company, L.L.C.
(incorporated by reference to Exhibit 10.1(b) to the Company's
Amended Current Report on Form 8-K (Registration No. 0-23290)
filed with the Securities and Exchange Commission on July 22,
1997)
</TABLE>
62
<PAGE>
<TABLE>
<S> <C>
10.2(d) -- Form of Percentage Lease Amendment between Equity Inns
Partnership, L.P. and Caldwell Holding Corp. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on December 24, 1997)
10.3(a) -- Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29(a) to the Company's Registration
Statement on Form S-11 (Registration No. 33-80318))
10.3(b) -- Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29(b) to the
Company's Registration Statement on Form S-11 (Registration
No. 33-80318))
10.4 -- Right of First Refusal Agreement between Wolf River Hotel,
L.P. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-3 (Registration No. 33-93158))
10.5 -- Right of First Refusal Agreement between SAHI I L.P. and
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form
S-3 (Registration No. 33-93158))
10.6(a) -- Credit Agreement between Equity Inns, Inc., Equity Inns Trust,
Equity Inns Partnership, L.P., Smith Barney Mortgage Capital
Group, Inc., National Bank of Commerce, First National Bank of
Chicago, Leader Federal Bank for Savings, AmSouth Bank, First
National Bank of Commerce, Bank of Mississippi, Mercantile
Bank of St. Louis, First National Bank of Chicago and Smith
Barney Mortgage Capital Group, Inc. as collateral agent
(incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K/A for the year ended December 31,
1995 (Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 20, 1996)
10.6(b) -- Unsecured Revolving Credit Agreement dated as of October 10,
1997, by and among Equity Inns Partnership, L.P. and Equity
Inns/West Virginia Partnership, L.P. as Borrower and The First
National Bank of Chicago, Credit Lyonnais New York Branch, and
AmSouth Bank as Lenders, Credit Lyonnais New York Branch, as
Syndication Agent and The First National Bank of Chicago as
Administrative Agent (incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K (Registration
No. 0-23290) filed with the Securities and Exchange Commission
on November 24, 1997)
10.7 -- Memorandum of Understanding between Promus Hotels, Inc.,
Equity Inns, Inc. and McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
10.8 -- Agreement of Phillip H. McNeill, Sr. concerning investments of
the income of McNeill Hotel Co., Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on March 20, 1996)
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
10.9 -- Agreement of Phillip H. McNeill, Sr. concerning purchase of
250,000 units of limited partnership interest in Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.10 -- Agreement of Phillip H. McNeill, Sr. concerning development
activities (incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
March 20, 1996)
10.11 -- Amendment to Agreement of Phillip H. McNeill, Sr. concerning
the purchase of 250,000 units of limited partnership interest
in Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on March 22, 1996)
10.12 -- Stock Purchase Agreement dated as of May 31, 1996 by and among
Equity Inns, Inc., Equity Inns Partnership, L.P. and Promus
Hotels, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K (Registration No.
23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.13 -- Development Agreement dated as of May 31, 1996 between Equity
Inns Partnership, L.P., Trust Leasing, Inc. and Promus Hotels,
Inc. (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K (Registration No. 0-
23290) filed with the Securities and Exchange Commission on
June 13, 1996)
10.14 -- Form of Management Agreement between Equity Inns Partnership,
L.P., Trust Leasing, Inc. and Promus Hotels, Inc.
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on June 13, 1996)
10.15 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Company (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
December 13, 1996)
10.16 -- Guaranty of Leases dated November 15, 1996 by Interstate
Hotels Corporation (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
December 13, 1996)
10.17 -- Master Agreement dated as of November 4, 1996 among Equity
Inns, Inc., Equity Inns Partnership, L.P., Interstate Hotels
Corporation, Crossroads/Memphis Partnership, L.P. and
Crossroads Future Company, L.L.C. (incorporated by reference
to Exhibit 10.4 to the Company's Current Report on Form 8-K
(Registration No. 0-23290) filed with the Securities and
Exchange Commission on December 13, 1996)
10.18 -- First Amendment to Master Agreement dated as of November 15,
1996 among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Interstate Hotels Corporation, Crossroads/Memphis Partnership,
L.P. and Crossroads Future Company, L.L.C. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on December 13, 1996)
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
10.19 -- Second Amendment to Master Agreement dated as of February 6,
1997 by Equity Inns, Inc., Equity Inns Partnership, L.P., EQI
Financing Partnership 1, L.P., Interstate Hotels Corporation,
Crossroads/Memphis Partnership, L.P., Crossroads/Memphis
Financing Company, L.L.C., and Crossroads Future Company,
L.L.C. (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q (Registration No.
0-23290) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.20 -- Form of Deed of Trust dated as of February 6, 1997 by EQI
Financing Partnership 1, L.P. in favor of LaSalle National
Bank, as Trustee (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q (Registration No.
0-23290) for the quarter ended March 31, 1997 and filed with
the Securities and Exchange Commission on April 30, 1997)
10.21 -- Credit Agreement dated June 25, 1997, by and among Equity Inns
Partnership, L.P. and Equity Inns Trust, The First National
Bank of Chicago, Credit Lyonnais, New York Branch and AmSouth
Bank of Alabama, as Lenders, Credit Lyonnais, New York Branch,
as Documentation Agent and The First National Bank of Chicago,
as Administrative Agent and Syndication Agent (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on July 10, 1997)
10.22 -- Hotel Asset Purchase Agreement by and between Hudson Hotels
Corporation, Hudson Hotels Properties Corp. and Equity Inns
Partnership, L.P. (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
November 24, 1997)
10.23 -- Amendment No. 1 to Hotel Asset Purchase Agreement by and
between Hudson Hotels Corporation, Hudson Hotels Properties
Corp. and Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K (Registration No. 0-23290) filed with the Securities
and Exchange Commission on November 24, 1997)
10.24 -- Amended and Restated Purchase and Sale Agreement between Prime
Hospitality Corp. and Equity Inns Partnership, L.P. dated
December 2, 1997 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (Registration No.
0-23290) filed with the Securities and Exchange Commission on
December 24, 1997)
10.25 -- Second Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on December 24,
1997)
10.26 -- Third Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on December 24,
1997)
10.27 -- Fourth Purchase and Sale Agreement between Prime Hospitality
Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
(incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Registration No. 0-23290) filed
with the Securities and Exchange Commission on December 24,
1997)
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
10.28* -- Revolving Credit Loan Agreement dated as of November 14, 1997
by and among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
Trust and National Bank of Commerce
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of Coopers & Lybrand L.L.P.
27.1* -- Financial Data Schedule (filed electronically with the
Securities and Exchange Commission)
</TABLE>
- --------------
* Filed herewith.
66
<PAGE>
EXHIBIT 10.28
REVOLVING CREDIT LOAN AGREEMENT
THIS REVOLVING CREDIT LOAN AGREEMENT is made and entered into as of the
14th day of November, 1997, by EQUITY INNS PARTNERSHIP, L.P.. a Tennessee
limited partnership, and EQUITY INNS/WEST VIRGINIA PARTNERSHIP, L.P.. a
Tennessee limited partnership (together herein called "Borrower"), EQUITY INNS,
INC.. a Tennessee corporation, and EQUITY INNS TRUST, a Maryland real estate
investment trust (together herein called "Guarantor"), and NATIONAL BANK OF
COMMERCE, Memphis, Tennessee ("Bank").
WITNESSETH
For mutual considerations, receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:
ARTICLE l
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Defined Terms. As used in this Agreement the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"Agreement" means this Revolving Credit Loan Agreement, as amended,
supplemented, or modified from time to time.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Memphis, Tennessee, are authorized or required to
close under the laws of the State of Tennessee.
"Commitment" means Bank's obligation to make Loans to Borrower pursuant
to Section 2.01 in the amount referred to therein.
"Default" means any of the events specified in Section 4.01, whether or
not any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Event of Default" means any of the events specified in Section 4.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"First Chicago Credit Facility" means the unsecured revolving credit
facility of up to $250,000,000.00 committed to Borrower by The First National
Bank of Chicago, Credit Lyonnais New York Branch and AmSouth Bank.
<PAGE>
"Guarantors" means Equity Inns, Inc., a Tennessee corporation, and
Equity Inns Trust, a Maryland real estate investment trust.
"Guaranty" means the Guaranty Agreement in substantially the form of
Exhibit A attached hereto to be delivered by Guarantors under the terms of this
Agreement.
"Head Office" means the office of Bank at 7770 Poplar Avenue, P.O. Box
381197, Germantown, Tennessee 38138-1197.
"Loan(s)" means collectively the Revolving Credit Loans.
"Loan Documents" means collectively this Agreement, the Revolving
Credit Note, the Guaranty, and any additional documents required to be delivered
by Borrower or Guarantors under this Agreement.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"Prime Rate" means such variable reference or benchmark rate of
interest as shall be established by Bank as its prime rate to be in effect from
time to time, whether or not such rate is otherwise published.
"Revolving Credit Loans" shall have the meaning assigned to such term
in Section 2.01.
"Revolving Credit Note" shall have the meaning assigned to such term in
Section 2.05.
"Termination Date" means the date on which Bank's commitment to make
Revolving Credit Loans hereunder shall terminate, which is September 1, 2000.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. Revolving Credit. Bank agrees on the terms and conditions
hereinafter set forth, to make advances ("Revolving Credit Loans") to Borrower
from time to time during the period from the date of this Agreement up to but
not including the Termination Date in an aggregate amount not to exceed at any
time outstanding FIVE MILLION and No/100 DOLLARS ($5,000,000.00). Within the
limits of the Commitment, Borrower may borrow, prepay pursuant to Section 2.06,
and reborrow under this Section 2.01.
SECTION 2.02. Notice and Manner of Borrowing. Borrower shall submit to
Bank a request for any Revolving Credit Loan under this Agreement in writing. In
order for Bank to fund any such Revolving Credit Loan on the same date a request
is received, Bank must receive such request not later than 2:00 P.M. current
Memphis, Tennessee time on the date such Revolving Credit Loan is
-2-
<PAGE>
requested. Requests received after 2:00 PM. will be funded the next Business
Day. Bank will make such Revolving Credit Loan available to Borrower in
immediately available funds by crediting the amount thereof to Borrower's
account with Bank.
SECTION 2.03. Interest. Borrower shall pay interest to Bank on the
outstanding and unpaid principal amount of the Revolving Credit Loans made under
this Agreement at a rate per annum equal to the lesser of (a) the maximum
effective rate which Bank is allowed under applicable law to contract for and
charge from time to time, or (b) the Prime Rate of Bank. On the date of this
Agreement, the rate of interest payable on the Revolving Credit Loans is
__________________. Such interest rate shall be adjusted daily, on each day the
Prime Rate is changed by Bank. Interest shall be calculated on the basis of a
year of 365 days for the actual number of days elapsed. Interest on the
Revolving Credit Loans shall be paid in immediately available funds on the first
day of each month at the Head Office. Any principal amount not paid when due (at
maturity, by acceleration, or otherwise) shall beat interest thereafter until
paid at a rate which shall be equal to the lesser of (i) Prime Rate plus two
percent (2%) or (ii) the maximum effective rate of interest which Bank as a
national bank is permitted to contract for and charge from time to time.
SECTION 2.04 Commitment Fee. In consideration of Bank's undertaking to
make Revolving Credit Loans hereunder, Borrower shall pay to Bank a commitment
fee in an amount equal to the following: two-tenths of one percent (.20%) per
annum of the unused portion of the Commitment. The fee will be calculated based
on the average daily unborrowed portion of the Commitment in each calendar
quarter, and shall be payable quarterly in arrears.
SECTION 2.05. Revolving Credit Note. All Revolving Credit Loans made by
Bank under this Agreement shall be evidenced by, and repaid with interest in
accordance with, a single promissory note of Borrower in substantially the form
of Exhibit B attached hereto duly completed, in the principal amount of FIVE
MILLION AND NO/100 DOLLARS ($5,000,000.00), payable to Bank, and maturing as to
principal on the Termination Date (the "Revolving Credit Note"). The amounts
reflected on Bank's internal records shall be deemed conclusive as to the
outstanding balance of principal and interest of the Revolving Credit Loans from
time to time absent Borrower furnishing to Bank conclusive and irrefutable
evidence of an error made by Bank with respect to such records.
SECTION 2.06. Prepayments. Borrower may prepay the Revolving Credit
Note in whole or in part at any time without penalty, provided that accrued
interest to the date of such prepayment shall be paid on the principal amount
prepaid.
SECTION 2.07. Method of Payment. Borrower shall make each payment under
this Agreement and under the Revolving Credit Note not later than 1:00 P.M.
current Memphis, Tennessee time on the date when due in lawful money of the
United States to Bank at the Head Office in immediately available funds.
Borrower hereby authorizes Bank, if and to the extent payment is not made when
due under this Agreement or under the Revolving Credit Note, to charge from time
to time against any account of Borrower with Bank any amount so due. Whenever
any payment to be made under this Agreement or under the Revolving Credit Note
shall be stated to be due on a
-3-
<PAGE>
Saturday, Sunday, or a public holiday, or banking holiday under the laws of the
state in which the Head Office is located, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Condition Precedent to Initial Revolving Credit Loan. The
obligation of Bank to make the initial Revolving Credit Loan to Borrower is
subject to the condition precedent that Bank shall have received and approved on
or before the day of such Revolving Credit Loan each of the following, in form
and substance satisfactory to Bank and its counsel:
(1) Note. The Revolving Credit Note duly executed by Borrower.
(2) Guaranty. The Guaranty duly executed by the Guarantor.
(3) Evidence of existence and good standing of Borrower. Certified
copies of Borrower's Certificate and Partnership Agreement,
Certificates of Existence of Borrower issued by the Secretary
of State of Tennessee.
(4) Evidence of all required partnership action by the Borrower.
Certified (as of the date of this Agreement) copies of all
partnership action taken by the Borrower, authorizing the
execution, delivery, and performance of the Note, Agreement
and all other Loan Documents to be executed and delivered by
it.
(5) Opinion of counsel for Borrower and Guarantor. A favorable
opinion of Hunton & Williams, counsel for Borrower and
Guarantor as to the existence and authority of Borrower and
Guarantor, as applicable, and the enforceability of the
applicable Loan Documents, and as to such other matters as
Bank may reasonably request;
(6) Evidence of existence and authority of Guarantors. Certified
copy of the Charter of Equity Inns, Inc. and certificate of
good standing issued by the Secretary of Tennessee.
Certificate of Existence of Equity Inns Trust issued by the
Secretary of State of Maryland.
(7) Evidence of all corporate action by Guarantor. Certified (as
of the date of this Agreement) copies of all corporate action
taken by Guarantor, including resolutions of its Board of
Directors, and trustees authorizing the execution, delivery
and performance of the Loan Documents to which it is a party
and each other document to be delivered pursuant to this
Agreement;
-4-
<PAGE>
(8) Other Documents. Bank shall have received such other
approvals, opinions, or documents as Bank may reasonably
request.
(9) Other. The items required by Section 3.02(1).
SECTION 3.02. Conditions Precedent to All Revolving, Credit Loans. The
obligation of Bank to make such Revolving Credit Loans (including the initial
Revolving Credit Loan) is subject to the further conditions precedent that on
the date of such Loan:
(1) The following statements shall be true and Bank shall have received
a certificate signed by a duly authorized officer of the general partner of the
Borrower dated the date of such Revolving Credit Loan, stating that:
(a) No Default or Event of Default has occurred and is
continuing, or would result from such Loan; and
(b) There has been no material adverse change in the financial
condition of Borrower or either Guarantor since the date of the last financial
statements delivered to Bank in connection herewith.
ARTICLE IV
EVENTS OF DEFAULT
SECTION 4.01. Events of Default. If any of the following events
("Events of Default") shall occur:
(1) Borrower should fail to pay the principal of, or interest on, the Loans,
or any amount of a commitment fee, within ten (10) days after notice of such
default in payment is given to Borrower by Bank; '
(2) Any representation or warranty made or deemed made by Borrower or
Guarantor in this Agreement, the Loan Documents or in any certificate, document,
opinion or financial or other statement furnished at any time under or in
connection with any Loan Document shall prove to have been materially and
adversely incorrect in any material respect on or as of the date made or deemed
made;
(3) Borrower or Guarantor shall fail to perform or observe any term,
covenant, or agreement to be performed or observed by Borrower or Guarantor
contained in any Loan Document (other than the Revolving Credit Note) to which
it is a party; and such failure shall continue for a period of thirty (30) days
after notice to Borrower from Bank describing the nature of the failure;
provided that, if such failure is not susceptible of cure within such thirty
(30) day period, Borrower shall be allowed a reasonable time not to exceed an
additional sixty (60) days to effect such cure to Bank's reasonable satisfaction
provided Borrower promptly begins efforts to cure and thereafter diligently
pursues such cure.
-5-
<PAGE>
(4) Any Default under the First Chicago Credit Facility.
(5) Borrower or either Guarantor (a) shall generally not, or shall be
unable to, or shall admit in writing its inability to pay its debts as such
debts become due; or (b) shall make an assignment for the benefits of creditors,
petition or apply to any tribunal for the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (3) shall commence any
proceeding under any bankruptcy, reorganization, arrangements, readjustment of
debt, dissolution, or liquidation law or statute of any jurisdiction whether how
or hereafter in effect, or (d) shall have any such petition or application filed
or any such proceeding commenced against it in which an order for relief is
entered or adjudication or appointment is made and which remains undismissed for
a period of one hundred eighty (180) days or more; or (e) by any act or omission
shall indicate its consent to, approval of, or acquiescence in any such
petition, application, or proceeding, or order for relief, or the appointment of
a custodian, receiver, or trustee for all or any substantial part of its
properties; or (f) shall suffer any such custodianship, receivership, or
trusteeship to continue undischarged for a period of one hundred eighty (180)
days or more;
(6) The Guaranty shall, at any time after its execution and delivery
and for any reason, cease to be in full force and effect or shall be declared
null and void, or an Event of Default shall occur thereunder, or the validity or
enforceability thereof shall be contested by either Guarantor, or either
Guarantor shall deny it has any further liability or obligation or shall fail to
perform its obligations under the Guaranty. within any applicable cure period:
then, and in any such event, Bank may, by notice to Borrower, (1) declare its
obligation to make Revolving Credit Loans terminated, whereupon the same shall
forthwith terminate, and (2) declare the outstanding Revolving Credit Loans, all
interest thereon, and all other amount payable under this Agreement to be
forthwith due and payable, without presentment, demand, protest. or further
notice of any kind, all of which are hereby expressly waived by Borrower;
provided, however, that occurrence of any event specified in subsection (5)
above shall constitute an immediate and automatic termination of Bank's
obligation to make Revolving Credit Loans hereunder, and all Revolving Credit
Loans then outstanding shall become automatically and simultaneously due and
payable in full without any action on the part of Bank.
ARTICLE V MISCELLANEOUS
SECTION 5.01. Amendments. Etc. No amendment modification, termination,
or waiver of any provision of any Loan Document to which Borrower is a party,
nor consent to any departure by Borrower from any Loan Document to which it is a
party, shall in any event be effective unless the same shall be in writing and
signed by Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 5.02. Notices. Etc. All notices and other communications
provided for under this Agreement and under the other Loan Documents to which
Borrower is a party shall be in writing (including telegraphic or facsimile
communication) and mailed, sent by facsimile or telegraphed or delivered, if to
Borrower, at its address at:
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<PAGE>
4735 Spottswood
Suite 102
Memphis, Tennessee 38117
Attention: Phillip H. McNeill
(fax number (901) 761-1485)
With a copy to:
Gerald Best
Hunton & Williams
1751 Pinnacle Drive
Suite 1700
McLean. VA 22102
and if to Bank, at its address at:
7770 Poplar Avenue
P.O. Box 381197
Germantown, Tennessee 38138-1197
Attention: Edward L. Simpson
(fax number (901) 757-4883)
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 5.02. All such notices and communications shall, when mailed or
telegraphed, be effective when deposited in the mails or delivered to the
telegraph company, respectively, addressed as aforesaid, except that notices to
Bank pursuant to the provisions of Article Il shall not be effective until
received by Bank.
SECTION 5.03. No Waiver: Remedies. No failure on the part of Bank to
exercise, and no delay in exercising, any right, power, or remedy under any Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Loan Documents preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 5.04. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Borrower and Bank and their respective
successors and assigns, except that Borrower may not assign or transfer, any of
its rights under any Loan Document to which Borrower is a party without the
prior written consent of Bank.
-7-
<PAGE>
SECTION 5.05. Costs, Expenses and Taxes. Borrower agrees to pay on
demand all costs and expenses in connection with the preparation, execution,
delivery, and administration of any of the Loan Documents, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for Bank,
and all costs and expenses, if any, in connection with the enforcement of any of
the Loan Documents.
SECTION 5.06. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, Bank is hereby authorized at any time and
from time to time, without notice to Borrower (any such notice being expressly
waived by Borrower), to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by Bank to or for the credit or the account of
Borrower against any and all of the obligations of Borrower now or hereafter
existing under this Agreement or the Note or any other Loan Document,
irrespective of whether or not Bank shall have made any demand under this
Agreement or the Note or such other Loan Document and although such obligations
may be unmatured. Bank agrees promptly to notify Borrower after any such setoff
and application provided that the failure to give such notice shall not affect
the validity of such setoff and application. The rights of Bank under this
Section 5.06 are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Bank may have.
SECTION 5.07. Waiver of Right to Jury Trial. The undersigned jointly
and severally waive(s) any right to a trial by jury in any action or proceeding
to enforce or defend any rights under this Agreement or under any amendment,
instrument, document or agreement delivered (or which may in the future be
delivered) in connection herewith or arising from any banking relationship
existing in connection with this Agreement. The undersigned agree(s) that such
action or proceeding shall be tried in Shelby County, Tennessee before a court
and not before a jury.
SECTION 5.08. Governing Law. This Agreement and the Revolving Credit
Note shall be governed by, and construed in accordance with, the internal laws
of the State of Tennessee, except with respect to interest which shall be
governed by applicable federal law in effect from time to time.
SECTION 5.09. Severability of Provisions. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the valid~, or enforceability of such provision in any
other jurisdiction.
SECTION 5.10. Headings. Article and Section headings in the Loan
Documents are included in such Loan Documents for the convenience of reference
only and shall not constitute a part of the applicable Loan Documents for any
other purpose.
SECTION 5.11. Joinder by Guarantor. Guarantor joins in the execution
hereof for the purpose of consenting to the provisions contained herein
applicable to it and its properties and of agreeing to comply with all such
provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
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<PAGE>
BORROWER:
EQUITY INNS PARTNERSHIP, L.P.,
a Tennessee limited partnership
By: Equity Inns Trust, a Maryland
real estate investment trust,
its sole general partner
By: /s/ Howard A. Silver
--------------------
Name: Howard A. Silver
Title: CFO
-9-
<PAGE>
EQUITY INNS/WEST VIRGINIA
PARTNERSHIP. L.P.,
a Tennessee limited partnership
By: Equity Inns Services, Inc.,
a Tennessee corporation
ts sole general partner
By: /s/ Howard A. Silver
--------------------
Name: Howard A. Silver
Title: CFO
GUARANTOR:
EQUITY INNS, INC.,
a Tennessee corporation
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Phillip H. McNeill, Sr.
Title: Chairman of the Board
-10-
<PAGE>
EQUITY INNS TRUST, a
Maryland real estate investment trust
By: /s/ Phillip H. McNeill, Sr.
---------------------------
Phillip H. McNeill, Sr.
Title: Chairman of the Board
-11-
<PAGE>
BANK:
NATIONAL BANK OF COMMERCE
By: /s/ Edward L. Simpson
---------------------
Edward L. Simpson
Title: Vice President
-12-
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is entered into as of the 14th day of November,
1997, by and between EQUITY INNS, INC., a Tennessee corporation, and EQUITY INNS
TRUST, a Maryland real estate investment trust (hereafter collectively called
"Guarantor") and NATIONAL BANK OF COMMERCE, Memphis, Tennessee, a national
banking association (hereafter "Bank").
Statement of Guaranty. In consideration of the extension by Bank of
credit to EQUITY INNS PARTNERSHIP, L.P., a Tennessee limited partnership, and
EQUITY INNS/WEST VIRGINIA PARTNERSHIP, L.P., a Tennessee limited partnership
(collectively "Borrower"), and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in order to induce
Bank to make loans or other financial accommodations to Borrower and
acknowledging that Bank is relying on this Guaranty, Guarantor absolutely and
unconditionally guarantees to Bank, its endorsees, transferees, successors and
assigns of either this Guaranty or of any obligation guaranteed hereby, the
punctual payment when due (whether at scheduled maturity, acceleration, demand
or otherwise) of any and all indebtedness or obligations now or hereafter owing
by Borrower to Bank arising under or as a consequence of the loans from Bank to
Borrower made under or pursuant to the Revolving Credit Loan Agreement (the
"Loan Agreement") of even date herewith by and among Borrower, Guarantor and
Bank and evidenced by the Revolving Credit Promissory Note of Borrower of even
date herewith in the stated principal sum of FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00), or any renewals or extensions thereof, in whole or in part,
without limitation as to the number of such renewals or extensions or the period
or periods thereof, together with interest thereon and all collection costs,
attorneys' fees and other losses, charges and expenses of whatever nature
becoming due or incurred by Bank and/or by the endorsees, transferees,
successors or assigns of Bank in connection with the indebtedness guaranteed
hereby (all of the foregoing principal indebtedness, interest, costs, fees,
loss, charges and expenses being hereinafter referred to as the "Indebtedness").
Other Agreements.
(a) The liability of Guarantor hereunder shall be independent of and in
addition to any other guaranty or agreement by Guarantor or any other party at
any time in effect as to all or any part of the Indebtedness and Guarantor's
obligations hereunder may be enforced regardless of any such other guaranty or
agreement.
(b) Each Guarantor understands and agrees that in the event any payment
made by or on behalf of Borrower respecting the Indebtedness or any part thereof
shall at any time be repaid by Bank in compliance with an order (whether or not
final) by a court of competent jurisdiction pursuant to any provision of the
Revised Bankruptcy Act as now existing or hereafter amended or applicable state
law, the Indebtedness guaranteed hereby shall not be deemed to have been paid to
the extent of the repayment so made, the obligations of Guarantor and each of
them shall continue in full force and effect and Bank will continue to be
entitled to the full benefits of this Guaranty, notwithstanding any termination
of this Guaranty or the cancellation of any note or other agreement evidencing
the Indebtedness.
<PAGE>
(c) No invalidity., irregularity or unenforceability of the
Indebtedness or any part thereof shall be a defense to this Guaranty. Guarantor
and each of them understand and agree that this Guaranty remains fully
enforceable not withstanding any defenses that Borrower may assert to liability
for the Indebtedness, including but not limited to failure of consideration,
breach of warranty, statute of frauds and statute of limitations.
(d) This Guaranty is a continuing and unconditional guaranty of payment
and may not be terminated by Guarantor until such time as all Indebtedness
guaranteed hereby, including any renewals or extensions thereof, have been paid
in full and such payments have become final and are not subject to being
refunded as a preference or fraudulent transfer under Bankruptcy Code or other
applicable law.
Waivers. Guarantor waives notice of acceptance of this Guaranty and of
the creation, extension or renewal of any Indebtedness or liability of Borrower
guaranteed hereby and the default on or acceleration of maturity of such
Indebtedness. Guarantor also waives presentment, demand, notice of protest,
notice of dishonor and all other demands and notices in connection with the
delivery, acceptance, performance, default or endorsement of any Indebtedness or
liability guaranteed hereby or of this Guaranty, and hereby waives any failure
to promptly commence suit against any party thereto or liable thereon or to give
any notice to or make any claim or demand upon the Guarantor or the Borrower. No
act, failure to act, or omission of any kind on the part of the Guarantor, the
Borrower, the Bank or any other person shall be a legal or equitable discharge
or release of the Guarantor from its obligation hereunder unless agreed to
hereafter in writing by the Bank. This Guaranty shall not be affected by any
change which may arise by reason of the dissolution of the Guarantor, or the
death or dissolution of any partner(s) of the Guarantor, or of the Borrower, or
by reason of the accession to any such partnership of any one or more new
partners.
Rights of Bank. From time to time, without further authorization from
or notice to Guarantor, and with or without consideration, Bank may (a) grant
credit to Borrower from time to time; (b) alter, compromise, accelerate, extend
or modify the time or manner of payment of any Indebtedness guaranteed hereby;
(c) increase or reduce the rate of interest thereon; (d) extend, modify or amend
the terms and conditions of any instrument evidencing the Indebtedness; and (e)
add or release any one or more other Guarantors. Bank is expressly authorized to
(a) waive any right it may have to require additional collateral; (b) surrender
or release collateral held by it; and (c) substitute any collateral held by it
for other collateral of like kind or of any kind. The obligations of Guarantor
hereunder and the rights of Bank protected hereby shall not be diminished or in
any manner affected by (a) Bank's failure to accelerate the maturity of the
Indebtedness upon default by Borrower; (b) Bank's failure to exercise its rights
with regard to any collateral; (c) the extension of the maturity of the
Indebtedness; (d) the renewal or modification of any instrument evidencing the
Indebtedness; (e) Bank's failure to attempt collection of the Indebtedness by
legal proceedings or otherwise or by proceeding in any manner against Borrower
or the collateral securing the Indebtedness; or (f) any impairment,
modification, change, release or limitation of the Indebtedness or obligations
guaranteed hereby, or any release of Borrower, resulting from the operation of
any present or future provision of the Revised Bankruptcy Act or other similar
statute, or from the decision of any court.
-2-
<PAGE>
Default/Remedy. "Event of Default" as used herein shall mean:
1) Any "Event of Default" as defined under the Loan
Agreement or any other of the Loan Documents (as defined in the Loan Agreement);
2) Default in the observance or performance of any
covenant or agreement of Guarantor contained herein and the expiration of any
grace or cure period herein given; or
3) Insolvency of Guarantor, however evidenced; or
4) Guarantor voluntarily or involuntarily terminates or
dissolves or is terminated or dissolved; or
5) There is a material adverse change in the financial
status of Guarantor.
If an Event of Default shall occur, then or at any time thereafter,
while such Event of Default shall continue, Bank may declare all Indebtedness,
regardless of their terms, for the purposes of this Guaranty, together with all
obligations of Guarantor hereunder, to be due and payable and Guarantor shall,
upon demand by Bank, immediately pay to Bank the full amount of the Indebtedness
and such obligation shall become the direct and primary obligation of Guarantor.
Except as may otherwise be provided herein or in any other Loan
Document, there shall be no duty. or obligation upon the Bank, whether by notice
under any applicable statutory law or otherwise, (i) to proceed against the
Borrower or the Guarantor, (ii) to initiate any proceeding or exhaust any remedy
against the Borrower or the Guarantor, or (iii) to give any notice to the
Guarantor or the Borrower, whatsoever, before bringing suit, exercising any
rights to any collateral or security, or instituting proceedings of any kind
against the Borrower, the Guarantor or both.
Application of Payments. With or without notice to Guarantor, Bank, in
its sole discretion, may apply to the Indebtedness all payments from Borrower,
from Guarantor, or from any other Guarantor under this or any other instrument,
or realized from any collateral, in such manner and order of priority as Bank
sees fit subject, however, to applicable law.
Joint and Several Liability. If more than one Guarantor has executed
this Guaranty or a separate guaranty, the obligations and liability of all
Guarantors shall be joint and several. Bank shall be authorized and empowered to
institute proceedings in law or in equity against each Guarantor, or any one or
more of them, without joining Borrower or any other Guarantor. Bank shall have
no duty or obligation to proceed against any collateral securing the
Indebtedness prior to enforcing this Guaranty.
Lien on Guarantor's Property. In addition to all liens upon, and rights
of setoff against the moneys, securities, or other properties of Guarantor given
to Bank by contract or by law, Bank shall have a lien upon and right of setoff
against all moneys, securities, and other property of Guarantor or any one of
them now or hereafter in the possession of or on deposit with Bank, whether held
in a general or special account, or deposit, or for safekeeping or otherwise;
and every such lien and right of setoff may be exercised without demand upon or
notice to Guarantor.
-3-
<PAGE>
Rights with Respect to Collateral. The Guarantor hereby agrees that any
rights which the Guarantor may now or hereafter have to payments of any
indebtedness owing from Borrower or to Guarantor in any collateral securing any
of the Indebtedness or against the Borrower or any property of the Borrower,
including rights arising by virtue of subrogation or indemnification upon
payment by Guarantor of amounts due from Borrower to Bank or otherwise, shall be
subordinate and junior to the Bank's rights to said collateral or property and
to the Bank's indefeasible right to the prior payment of the Indebtedness or
liabilities until such time as the Indebtedness is fully and finally paid. The
Guarantor further authorizes the Bank, without notice or demand, to apply any
obligations due or to become due to the Guarantor from the Bank in satisfaction
of any of the Indebtedness and the Guarantor's obligation hereunder, including,
but not limited to, the right to set-off against any deposits of the Guarantor
with the Bank.
The Bank shall be under no duty to undertake to collect upon such
collateral or any part thereof, and shall not be liable for any negligence or
mistake in judgment in handling, disposing of, obtaining, or failing to collect
upon, or perfecting a security, interest in, any such collateral.
Incorporation by Reference. Guarantor agrees that the terms,
conditions, agreements, and stipulations in all instruments evidencing the
Indebtedness guaranteed hereby, heretofore or hereafter executed, shall become
part of this Guaranty and are hereby ratified, adopted and confirmed by
Guarantor.
Severability. If any provision in this Guaranty is held invalid, such
invalidity shall not affect the validity or enforceability of the remaining
provisions of this Guaranty.
Binding Effect. This Guaranty shall bind the heirs, legal
representatives, successors and assigns of Guarantor.
Counterpart Originals. This Guaranty may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
Governing Law. This Guaranty shall be governed by and construed
according to the internal laws of the State of Tennessee.
Disclaimer. THE GUARANTOR'S EXECUTION OF THIS GUARANTY WAS NOT BASED
UPON ANY FACTS OR MATERIALS PROVIDED BY BANK, NOR WAS THE GUARANTOR INDUCED TO
EXECUTE THIS GUARANTY BY ANY REPRESENTATION, STATEMENT OR ANALYSIS MADE BY BANK.
THE GUARANTOR ACKNOWLEDGES AND AGREES THAT THE GUARANTOR ASSUMES SOLE
RESPONSIBILITY FOR INDEPENDENTLY OBTAINING ANY INFORMATION OR REPORTS DEEMED
ADVISABLE BY THE GUARANTOR WITH REGARD TO THE BORROWER OR THE GUARANTOR, AND THE
GUARANTOR AGREES TO RELY SOLELY ON THE INFORMATION OR REPORTS SO OBTAINED IN
REACHING ANY DECISION TO EXECUTE OR NOT TO TERMINATE THIS GUARANTY. THE
GUARANTOR ACKNOWLEDGES AND AGREES THAT THE BANK IS AND SHALL BE UNDER NO
OBLIGATION NOW OR IN THE FUTURE TO FURNISH ANY
-4-
<PAGE>
INFORMATION TO THE GUARANTOR CONCERNING THE BORROWER, THE INDEBTEDNESS OR THE
GUARANTOR, AND THAT THE BANK DOES NOT AND SHALL NOT BE DEEMED IN THE FUTURE TO
WARRANT THE ACCURACY OF ANY INFORMATION OR REPRESENTATION CONCERNING THE
BORROWER, THE GUARANTOR OR ANY OTHER PERSON WHICH MAY INDUCE THE GUARANTOR TO
EXECUTE OR NOT TO TERMINATE THIS GUARANTY.
Waiver of Trial by Juryo GUARANTOR AND BANK HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR
RELATED TO OR INCIDENTAL TO ANY DEALINGS OF THE PARTIES HERETO WITH RESPECT TO
THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR (c) ARISING IN CONNECTION WITH THE
TRANSACTIONS RELATED THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF EITHER
PARTY'S RIGHTS AND REMEDIES THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND Whether SOUNDING IN CONTRACT, TORT OR
OTHERWISE. THE GUARANTOR AND BANK AGREE THAT EITHER OR BOTH OF THEM MAY FILE A
COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY AND BARGAINED AGREEMENT BETWEEN THE PARTIES IRREVOCABLY TO WAIVE TRIAL
BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN THEM SHALL
INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT
A JURY.
Modification. No provision of this Guaranty may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought.
-5-
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day
and year first written above.
GUARANTOR:
EQUITY INNS, INC.,
a Tennessee corporation
By: /s/ Howard A. Silver
--------------------
Title: CFO
EQUITY INNS TRUST, a Maryland
By: /s/ Howard A. Silver
--------------------
Title: CFO
-6-
<PAGE>
REVOLVING CREDIT
PROMISSORY NOTE
$5,000,000.00 Memphis, Tennessee
November 14, 1997
FOR VALUE RECEIVED, the undersigned EQUITY INNS PARTNERSHIP, L.P., a
Tennessee limited partnership, and EQUITY INNS/WEST VIRGINIA PARTNERSHIP, L.P.,
a Tennessee limited partnership ("Borrower"), jointly and severally promise to
pay to the order of NATIONAL BANK OF COMMERCE ("Bank") the principal sum of FIVE
MILLION AND NO/100 DOLLARS ($5,000,000.00) together with interest from the date
hereof on so much of the principal hereof as shall have been advanced pursuant
to file Revolving Credit Loan Agreement of even date herewith among Borrower,
Equity Inns, Inc., a Tennessee corporation, Equity Inns Trust, a Maryland real
estate investment trust, and Bank (the "Loan Agreement") and remain outstanding
from time to time at the rate which shall be equal to the lesser of (a) the
maximum effective rate which Bank is allowed under applicable law to contract
for and charge from time to time (the "Maximum Rate"), or (b) the Prime Rate (as
hereinafter defined) of Bank as such Prime Rate shall vary from time to time,
changes in the rate of interest payable hereunder to become effective without
notice to Borrower on the effective date of any change in said Prime Rate. As
used herein the term "Prime Rate" shall mean such variable reference or
benchmark rate of interest as shall be established by Bank as its prime rate to
be in effect from time to time, whether or not such rate is otherwise published.
Monthly installments of accrued interest shall be due and payable on
the first day of each and every month hereafter until the principal outstanding
is paid in full. Interest shall accrue on a 365-day year basis. All sums of
principal or interest payable hereunder not paid when due shall bear interest
beginning thirty (30) days after the due date at the lesser of (i) the Prime
Rate plus two percent (2%) or (ii) the Maximum Rate in effect on the due date.
Maturity Date. The entire balance of principal outstanding and all
accrued and unpaid interest shall be due and payable, on September 1, 2000 (the
"Maturity Date").
Place of Payment. All installments of interest and the final
installment of principal and interest of this Note are payable in lawful money
of the United States of America, at the Head Office of Bank in Germantown,
Tennessee or such other place as the holder of this Note may designate in
writing.
Prepayments. This Note may be prepaid, in whole or in part without
premium, Any prepayment shall be applied first to interest accrued on the
outstanding principal balance and currently due and payable, and the remainder,
if any, shall be applied to reduce the outstanding principal balance of this
Note.
Additional Charges. The Borrower shall pay a "late charge" of five
percent (5%) of any payments of principal and/or interest (excluding, however,
the final payment after maturity or acceleration) which are paid as much as
fifteen (15) days after the due date thereof (provided that in no event shall
the said "late charge" result in the payment of interest in excess of the
maximum interest permitted by law) to cover the extra expenses involved in
handling delinquent payments.
<PAGE>
Limitation of Interest. Notwithstanding any provision to the contrary,
it is the intent of the Bank, the Borrower, and all parties liable on this Note,
that neither the Bank nor any subsequent holder shall be entitled to receive,
collect, reserve or apply, as interest, any are not in excess of the maximum
lawful rate of interest permitted to be charged by applicable law or
regulations, as amended or enacted from time to time. In the event this Note
calls for an interest payment that exceeds the maximum lawful rate of interest
then applicable, such interest shall not be received, collected, charged, or
restated until such time as that interest, together with all other interest then
payable, falls within the then applicable maximum lawful rate of interest. In
the event the Bank, or any subsequent holder, receives any such interest in
excess of the then maximum lawful rate of interest, such amount which would be
excessive interest shall be deemed a partial prepayment of principal and treated
hereunder as such, or, if the principal indebtedness evidenced hereby is paid in
full, any remaining excess funds shall immediately be paid to the Borrower.
Waiver. Borrower and every maker, endorser, surety and guarantor of
this Note or the obligations in the Loan Documents waives demand, presentment,
protest, notice of nonpayment, notice of protest, notice of dishonor, any and
all lack of diligence or delay in collection or the filing of suit hereon which
may occur, and all other demands and notices in connection with the delivery,
acceptance, performance, default, or endorsement of this Note or their
respective obligations hereon; consents to any extensions, renewals or
postponements of the due date or time of payment hereof, or any other
indulgence; agrees that the indebtedness evidenced hereby may be extended or
renewed in whole or in part without notice to the Borrower, maker, endorser,
surety or guarantor, and without limitation as to the number of such extensions
or the period or periods thereof; and consents to any substitution, exchange or
release of collateral and/or to the addition or release of any other liable
party or person, whether primarily or secondarily liable.
Attorneys' Fees and Costs. In the event this Note is placed in the
hands of an attorney for collection or in the event this Note is collected in
whole or in part through legal proceedings of any nature, then, and in any such
case, there shall be added to the unpaid principal balance hereof all costs of
collection, including but not limited to reasonable attorneys' fees and all
expenses incurred, whether or not suit is filed.
Governing Law. This Note shall be construed in accordance with the
internal laws of the State of Tennessee.
Headings. The headings of the Sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part hereof.
Modification. No provision of this Note may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought.
Severability. If any provision of this Note is held invalid, such
invalidity shall not affect the validity or enforceability of the remaining
provisions of this Note.
-2-
<PAGE>
Loan Agreement. This Note is the Revolving Credit Note as defined in
the Loan Agreement and is subject to the terms and conditions therein set forth.
Unless otherwise defined herein, all capitalized terms referenced herein shall
have the meanings assigned to such terms as set forth in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
as of the date first set forth above.
BORROWER:
EQUITY INNS PARTNERSHIP, L.P.,
a Tennessee limited partnership
By: Equity Inns Trust, a Maryland
real estate investment trust,
its sole general partner
By: /s/ Howard A. Silver
--------------------
Title: CFO
-3-
<PAGE>
EQUITY INNS/WEST VIRGINIA
PARTNERSHIP. L.P.,
a Tennessee limited partnership
By: Equity Inns Services, Inc.,
a Tennessee corporation.
its sole general partner
By: /s/ Howard A. Silver
--------------------
Title: CFO
-4-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF EQUITY INNS, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation/Organization
- ---- --------------------------
<S> <C>
Equity Inns Trust Maryland
Equity Inns Services, Inc. Tennessee
Equity Inns Partnership, L.P. Tennessee
Equity Inns/West Virginia Partnership, L.P. Tennessee
EQI Financing Corporation Tennessee
EQI Financing Partnership I, L.P. Tennessee
ENN Company, Inc. Tennessee
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Equity Inns, Inc. on Form S-3 (File Nos. 333-26559, 33-99840 and 33-90364) of
our report dated January 22, 1998 on our audits of the consolidated financial
statements and financial statement schedule of Equity Inns, Inc. as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997 which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUITY INNS, INC. FOR THE YEAR ENDED DECEMBER 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 9,809
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 617,072
<DEPRECIATION> 0
<TOTAL-ASSETS> 635,525
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 359,823
<TOTAL-LIABILITY-AND-EQUITY> 635,525
<SALES> 71,761
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 45,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,601
<INCOME-PRETAX> 26,445
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,984
<CHANGES> 0
<NET-INCOME> 23,543
<EPS-PRIMARY> .88
<EPS-DILUTED> .82
</TABLE>
