SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For The Quarterly Period Ended June 30, 1998 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)
Incorporation or Organization) Identification No.)
4735 Spottswood, Suite 102, Memphis, TN 38117
--------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(901) 761-9651
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant: (i) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
---- ----
The number of shares of Common Stock, $.01 par value, outstanding on
August 9, 1998 was 36,408,319.
1 of 26
<PAGE>
EQUITY INNS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1998
(unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Operations (unaudited) -
For the three months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited) -
For the three months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 22
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
2
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
EQUITY INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Investment in hotel properties, net $776,019,221 $617,071,977
Cash and cash equivalents 326,875 190,458
Due from Lessees 13,191,804 5,925,109
Note receivable 3,884,052 3,884,052
Deferred expenses, net 6,913,408 7,275,473
Deposits and other assets 2,794,334 1,178,028
------------ ------------
Total assets $803,129,694 $635,525,097
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt $316,633,905 $233,206,156
Accounts payable and accrued expenses 12,800,450 12,467,254
Dividends and distributions payable 11,948,492 10,645,348
Deferred lease revenue (Note 2) 20,521,170
Minority interest in Partnership 18,782,712 19,034,524
------------ ------------
Total liabilities 380,686,729 275,353,282
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common Stock, $.01 par value, 50,000,000
shares authorized, 36,266,467 and 34,865,578
shares issued and outstanding, respectively 362,665 348,656
Preferred Stock, $.01 par value, 10,000,000
shares authorized, 2,750,000 shares of 9 1/2%
Series A Preferred Stock issued and outstanding 68,750,000
Additional paid-in capital 405,796,246 387,133,407
Unearned directors' and officers' compensation (160,220) (273,482)
Predecessor basis assumed (1,263,887) (1,263,887)
Distributions in excess of net earnings (51,041,839) (25,772,879)
------------ ------------
Total shareholders' equity 422,442,965 360,171,815
------------ ------------
Total liabilities and shareholders' equity $803,129,694 $635,525,097
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
<PAGE>
EQUITY INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
---------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue (Note 2) $ 15,422,136 $ 15,713,892 $ 28,936,432 $ 27,491,755
Other income 186,261 324,632 356,579 341,943
------------ ------------ ------------ ------------
Total revenues 15,608,397 16,038,524 29,293,011 27,833,698
------------ ------------ ------------ ------------
Expenses
Real estate and personal property taxes 2,922,571 1,647,708 5,355,934 2,957,550
Depreciation and amortization 7,287,011 4,493,384 13,969,130 8,339,504
Amortization of loan costs 210,201 238,049 423,198 427,018
Interest 5,027,133 2,496,476 9,317,763 4,641,800
General and administrative 1,631,544 1,208,726 3,271,353 2,227,861
------------ ------------ ------------ ------------
Total expenses 17,078,460 10,084,343 32,337,378 18,593,733
------------ ------------ ------------ ------------
Income (loss) before minority interest (1,470,063) 5,954,181 (3,044,367) 9,239,965
Minority interest (80,202) 207,964 (158,472) 327,151
------------ ------------ ------------ ------------
Net income (loss) (1,389,861) 5,746,217 (2,885,895) 8,912,814
Preferred stock dividends 108,854 108,854
------------ ------------ ------------ ------------
Net income (loss) applicable to
common shareholders (Note 2) $ (1,498,715) $ 5,746 217 $ (2,994,749) $ 8,912,814
============ ============ ============ ============
Net income (loss) per common share-
basic and diluted (Note 2) $ (.04) $ .22 $ (.08) $ .35
============ ============ ============ ============
Weighted average number of
common shares outstanding-diluted 38,176,000 27,620,000 37,623,000 26,116,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
<PAGE>
EQUITY INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) applicable to common shareholders $ (2,994,749) $ 8,912,814
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,969,130 8,339,503
Amortization of loan costs 423,198 427,018
Amortization of unearned directors' compensation 39,762 46,142
Directors' compensation 29,943
Minority interest (158,472) 327,151
Changes in assets and liabilities:
Due from Lessees (7,266,695) (4,675,350)
Deferred lease revenue 20,521,170
Deferred expenses (8,750) (6,466)
Deposits and other assets (1,616,306) (487,179)
Accounts payable and accrued expenses 1,395,962 5,175,908
Preferred dividends payable 108,854
------------- -------------
Net cash provided by operating activities 24,443,047 18,059,541
------------- -------------
Cash flows from investing activities:
Investment in hotel properties (145,583,927) (222,482,927)
Improvements and additions to hotel properties (14,464,854) (9,242,682)
Cash paid for franchise applications (179,437) (2,018,650)
------------- -------------
Net cash used by investing activities (160,228,218) (233,744,259)
------------- -------------
Cash flows from financing activities:
Gross proceeds from public offering of common stock 20,144,615 108,769,513
Gross proceeds from public offering of preferred stock 68,750,000
Payment of offering expenses (3,450,515) (6,474,036)
Proceeds from exercise of stock options 112,500
Distributions paid (22,248,134) (13,765,565)
Borrowings under revolving credit facility 123,475,000 194,095,395
Payments on revolving credit facility (49,725,000) (151,010,395)
Borrowings under CMBS credit facility 88,000,000
Payments on CMBS credit facility (1,078,418) (674,968)
Payments on debt assumed (39,158)
Cash paid for loan costs (17,582) (3,132,839)
Payments on capital lease obligations (1,720) (414)
------------- -------------
Net cash provided by financing activities 135,921,588 215,806,691
------------- -------------
Net increase in cash and cash equivalents 136,417 121,973
Cash and cash equivalents at beginning of period 190,458 128,974
------------- -------------
Cash and cash equivalents at end of period $ 326,875 $ 250,947
============= =============
</TABLE>
5
<PAGE>
Supplemental disclosure of noncash investing and financing activities:
During February 1998, the Company issued 69,123 shares of common stock at
$15.375 per share to officers of the Company in lieu of cash as a performance
bonus.
Additionally, during the six month period ending June 30, 1998, the Company
issued 508 shares of common stock at $14.75 per share; 160 shares at $15.50 per
share; 729 shares at $15.44; 164 shares at $15.19; 243 shares at $15.38; and 182
shares at $13.69 to the independent directors of the Company in lieu of cash as
compensation.
At June 30, 1998, $11,839,638 in distributions to common shareholders and
limited partners had been declared but not paid. The distributions were paid on
August 3, 1998. At December 31, 1997, $10,645,348 in distributions to
shareholders and limited partners had been declared but not paid.
At June 30, 1997, $9,266,670 in distributions to shareholders and limited
partners had been declared but not paid. The distributions were paid on August
1, 1997. At December 31, 1996, $6,864,126 in distributions to shareholders and
limited partners had been declared but not paid.
In April 1998, 123,457 limited partnership units valued at $1,925,912 were
issued as part of the total acquisition cost of a Hampton Inn hotel in San
Antonio, Texas. Of this amount, $717,080 was allocated to minority interest and
additional paid-in capital, respectively.
In April 1998, the Company assumed two mortgage notes payable totaling
approximately $10.8 million in connection with the purchase of two hotels.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
6
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------
1. Organization and Basis of Presentation
Equity Inns, Inc. (the "Company") was incorporated on November 24, 1993.
The Company is a self-administered 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 June 30, 1998
owned an approximate 95.0% interest in the Partnership. The Company was
formed to acquire equity interests in hotel properties and at June 30,
1998 owned, through the Partnership, 104 hotel properties with a total of
12,739 rooms in 35 states.
At June 30, 1998, 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., 34 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. At June 30, 1998, the
Partnership leased 19 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 the expected annual percentage rents in cash or
marketable securities. The Partnership leases 101 of the hotels owned by
the Company at June 30, 1998 to Crossroads and Caldwell (collectively,
the "Lessees" and individually, a "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"). The remaining three hotels
are operated pursuant to management agreements, two of which are operated
by Interstate and one is operated by CapStar Hotel Co. On June 2, 1998,
Interstate was acquired by Patriot American Hospitality, Inc., a publicly
traded hotel REIT.
On April 21, 1998, the Company announced that it had signed a definitive
agreement to merge with RFS Hotel Investors, Inc. ("RFS") in a stock
transaction in which each share of RFS will be exchanged for shares of
Common Stock of the Company ("Common Stock"). Under the terms of the
agreement, each RFS shareholder will receive 1.5 shares of Common Stock
for each RFS share, providing the Company's average stock price is
between $14 and $17 per share during an agreed upon 20-day measurement
period prior to the closing of the merger. If the Company's average stock
price during that period exceeds $17 per share, the exchange ratio will
be adjusted to provide RFS shareholders with $25.50 worth of Common Stock
for each share of RFS stock. If the average stock price during such
period is less than $14, then either the Company or RFS may terminate the
agreement. The merger is subject to approval of the shareholders of the
Company and RFS and other conditions.
7
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
1. Organization and Basis of Presentation, Continued
During the quarter ended June 30, 1998, the Company acquired the
following hotel properties:
<TABLE>
<CAPTION>
Date of # of Cost
Acquisition Property Rooms (in millions)
----------- -------- ----- -------------
<S> <C> <C> <C>
April 14, 1998 Hampton Inn-San Antonio, Texas 169 $ 12.6
April 15, 1998 Homewood Suites-Sharonville
(Cincinnati), Ohio 111 7.8
April 28, 1998 Residence Inn-Portland, Oregon 168 23.5
April 28, 1998 Residence Inn-Boise, Idaho 104 7.0
May 8, 1998 Residence Inn-Somers Point, New
Jersey 120 8.1
June 26, 1998 AmeriSuites-Albuquerque, New
Mexico 128 9.5
June 26, 1998 AmeriSuites-Baltimore, Maryland 128 10.0
June 26, 1998 AmeriSuites-Baton Rouge, Louisiana 128 10.9
June 26, 1998 AmeriSuites-Birmingham, Alabama 128 7.7
June 26, 1998 AmeriSuites-Las Vegas, Nevada 202 19.1
June 26, 1998 AmeriSuites-Memphis, Tennessee 128 8.4
June 26, 1998 AmeriSuites-Miami, Florida 67 10.5
June 26, 1998 AmeriSuites-Minneapolis, Minnesota 128 9.6
June 26, 1998 AmeriSuites-Nashville, Tennessee 128 11.2
----- ------
1,837 $155.9
===== ======
</TABLE>
Also during the quarter ended June 30, 1998, the Company completed its
first development property, a 125-room Hampton Inn & Suites located in
Bartlett (Memphis), Tennessee, at a cost of approximately $7.5 million.
On June 25, 1998, the Company completed its first offering of preferred
stock ("Preferred Stock"), selling 2,750,000 shares of its 9 1/2% Series
A Cumulative Preferred Stock, $.01 par value ("Series A Preferred
Stock"). The offering price was $25 per share, resulting in gross
proceeds of $68.8 million. The Company received approximately $66.3
million after underwriters' discounts and offering expenses from the
offering.
These unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of Securities and Exchange
Commission ("SEC") and should be read in conjunction with the financial
statements and notes thereto of the Company included in the
8
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
1. Organization and Basis of Presentation, Continued
Company's 1997 Annual Report on Form 10-K. The accompanying condensed
consolidated financial statements, reflect, in the opinion of management,
all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.
2. Change in Accounting Principle
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force issued EITF number 98-9, "Accounting for Contingent Rent in
Interim Financial Periods" (EITF 98-9). EITF 98-9 provides that a lessor
shall defer recognition of contingent rental income in interim periods
until specified targets that trigger the contingent income are met. In
July 1998 the Task Force issued transition guidance stating that the
consensus could be applied on a prospective basis or in a manner similar
to a change in accounting principle effective April 1, 1998. The Company
has reviewed the terms of its percentage leases and has determined that
the provisions of EITF 98-9 will significantly impact the Company's
current revenue recognition on an interim basis, but will have no impact
on the Company's annual percentage lease revenue or interim cash flow
from its third party Lessees. The Company adopted the provisions of EITF
98--9 and elected to restate the first quarter results of 1998 and record
the results of the second quarter in accordance with the new
pronouncement. The effect of the change on the three months ended March
31, 1998 was to decrease lease revenues and, therefore, net income
applicable to common shareholders by $7,892,638 ($.21 per share-basic and
diluted) to a loss of $1,496,034 ($(.04) per share-basic and diluted).
The effect on the three months ended June 30, 1998 was to decrease lease
revenues and, therefore, net income applicable to common shareholders by
$12,628,532 ($(.33) per share-basic and diluted) to a loss of $1,498,715
($(.04) per share-basic and diluted). The pro forma per share amounts
below reflect the effect on prior periods had the new method been in
effect. The 1998 amounts are presented for comparative purposes only.
9
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
2. Change in Accounting Principle, Continued
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1998 1997 1998 1997
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Pro forma amounts:
Net loss applicable to
common shareholders $ (1,498,715) $(2,107,895) $(2,994,749) $ (3,806,457)
============ =========== =========== =============
Net loss per common
share-basic and diluted $ (.04) $ (.08) $ (.08) $ (.15)
============ =========== =========== =============
Amounts actually reported:
Net income (loss) applicable to
common shareholders $ (1,498,715) $ 5,746,217 $(2,994,749) $ 8,912,814
============ ============ =========== =============
Net income (loss) per common
share-basic and diluted $ (.04) $ .22 $ (.08) $ .35
============ ============ =========== =============
</TABLE>
3. 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
three and six months ended June 30, 1998 and 1997, respectively. Stock
options are anti-dilutive for the three-month and six-month periods ended
June 30, 1998 and thus are not considered in the calculation of diluted
earnings per share.
10
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
3. Net Income Per Common Share, Continued
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
1998 1997
------------------------------------------ --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)-basic $(1,498,715) 36,236,749 $(0.04) $5,746,217 26,603,100 $0.22
Dilutive effect of
potential conversion
or partnership units
and elimination of
minority interest (80,202) 1,939,037 207,964 972,022
Dilutive effect of stock
options outstanding
using the treasury
stock method 44,501
----------- ---------- ------ ---------- ---------- -----
Net income (loss)-diluted $(1,578,917) 38,175,786 $(0.04) $5,954,181 27,619,623 $0.22
=========== ========== ====== ========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1998 1997
------------------------------------------ --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)-basic $(2,994,749) 35,731,863 $(0.08) $8,912,814 25,156,227 $0.35
Dilutive effect of
potential conversion
or partnership units
and elimination of
minority interest (158,472) 1,891,045 327,151 916,252
Dilutive effect of stock
options outstanding
using the treasury
stock method 43,249
----------- ---------- ------ ---------- ---------- -----
Net income (loss)-diluted $(3,153,221) 37,622,908 $(0.08) $9,239,965 26,115,728 $0.35
=========== ========== ====== ========== ========== =====
</TABLE>
4. Debt
Debt is comprised of the following at June 30, 1998:
<TABLE>
<S> <C>
Commercial Mortgage Bonds $ 85,204,678
Unsecured Line of Credit 220,500,000
Other 10,929,227
------------
$316,633,905
============
</TABLE>
11
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
4. Debt, Continued
The Company's $250 million 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
June 30, 1998, the interest rate on the Unsecured Line of Credit was
LIBOR (5.69% at June 30, 1998) plus 1.50%. The Unsecured Line of Credit
has a three-year term, expiring in October 2000, plus a one-year renewal
option.
The Company's $5,000,000 line of credit with the National Bank of
Commerce (the "NBC Credit Line") bears interest at the bank's prime rate
(8.5% at June 30, 1998) and is also unsecured. The NBC Credit Line has a
three-year term, expiring in September 2000.
In connection with the purchase of a Hampton Inn hotel in San Antonio,
Texas in April 1998, the Partnership assumed a mortgage note payable with
a principal balance of approximately $6.5 million. The note bears
interest at 10% and is due in monthly principal and interest installments
of approximately $66,000. The note is due September 1, 2015. The hotel
securing this note has a carrying value of $12.6 million at June 30,
1998.
In connection with the purchase of a Residence Inn hotel in Boise, Idaho
in April 1998, the Partnership assumed a mortgage note payable with a
principal balance of approximately $4.3 million. The note bears interest
at a variable rate which, as of June 30, 1998, was approximately 8.6% and
is due in monthly principal and interest installments of approximately
$39,000. The note is due December 1, 2016 and contains a prepayment
penalty. The hotel securing this note has a carrying value of
approximately $7.0 million at June 30, 1998.
5. Shareholders' Equity
In connection with the purchase of the Hampton Inn hotel located in San
Antonio, Texas on April 14, 1998, the Partnership issued 123,457 units of
limited partnership interests ("Units") valued at approximately $1.9
million.
During the quarter ended June 30, 1998, 40,062 shares of Common Stock
were issued upon redemption of Units on a one-for-one basis.
6. Subsequent Events
The following hotel was acquired by the Company subsequent to June 30,
1998:
<TABLE>
<CAPTION>
Date of # of Cost
Acquisition Property Rooms (in millions)
----------- -------- ----- -------------
<S> <C> <C> <C>
August 7, 1998 Homewood Suites-Seattle,
Washington 161 $22.0
</TABLE>
12
<PAGE>
EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
--------------------
7. Pro Forma Financial Information
Due to the impact of the acquisitions in 1998, historical results of
operations may not be indicative of future results of operations and
earnings per share. The following unaudited pro forma condensed
consolidated statements of operations for the six months ended June 30,
1998 and 1997, are presented as if the acquisition of all 104 hotels
owned at June 30, 1998, and the consummation of the Company's equity
offerings and the application of the net proceeds therefrom had
occurred on or prior to January 1, 1997, and the hotels had been leased
to the Lessees pursuant to the percentage leases. As discussed in Note
2, the Company has adopted the provisions of EITF 98-9 which
significantly impacted the Company's revenue recognition on an interim
basis. The pro forma information below reflects the effect of the
change in accounting principle had the new method been in effect on
January 1, 1997. The pro forma condensed consolidated statement of
operations does not purport to present what actual results of
operations would have been if the acquisition of the hotels had
occurred on such date or to project results for any future period.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
----------- -----------
<S> <C> <C>
Lease revenues $36,434,944 $35,827,381
Interest income 356,579 341,943
----------- -----------
Total revenues 36,791,523 36,169,324
Expenses:
Real estate and personal property taxes 6,198,871 5,721,446
Depreciation and amortization 16,516,464 16,305,742
Amortization of loan costs 423,198 453,686
Interest 11,764,055 12,045,984
General and administrative 3,271,353 2,454,828
----------- -----------
Total expenses 38,173,941 36,981,686
----------- -----------
Loss before minority interest (1,382,418) (812,362)
Minority interest (234,261) (205,530)
----------- -----------
Net loss (1,148,157) (606,832)
Preferred stock dividends 3,265,625 3,265,625
----------- -----------
Net loss applicable to common shareholders $(4,413,782) $(3,872,457)
=========== ===========
Net loss per share-basic and diluted $ (.12) $ (.11)
=========== ===========
Weighted average number of common
shares outstanding-diluted 38,192,382 38,192,382
=========== ===========
Weighted average number of common
shares outstanding-basic 36,266,467 36,266,467
=========== ===========
</TABLE>
13
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
BACKGROUND
The Company commenced operations on March 1, 1994 upon completion of the
Company's initial public offering (the "IPO") and the simultaneous acquisition
of eight Hampton Inn hotel properties with 995 rooms. Since the IPO, the Company
has actively implemented its acquisition strategy. The following chart
summarizes information regarding the Company's hotels at June 30, 1998:
<TABLE>
<CAPTION>
Number of Number of
Franchise Affiliation Hotel Properties Rooms/Suites
--------------------- ---------------- ------------
<S> <C> <C>
Premium Limited Service Hotels:
Hampton Inn 58 7,116
Hampton Inn & Suites 1 125
Comfort Inn 2 182
Holiday Inn Express 1 101
--- ------
Sub-total 62 7,524
All-Suite Hotels:
AmeriSuites 19 2,403
Premium Extended Stay Hotels:
Residence Inn 12 1,431
Homewood Suites 6 647
--- ------
Sub-total 18 2,078
--- ------
Full Service Hotels:
Holiday Inn 4 557
Comfort Inn 1 177
--- ------
Sub-total 5 734
--- ------
Total 104 12,739
=== ======
</TABLE>
In order for the Company to qualify as a REIT, neither the Company nor the
Partnership can operate hotels. Therefore, the Partnership leases 101 of the
Hotels to the Lessees pursuant to the Percentage Leases. The remaining three
hotels are operated pursuant to management agreements, two of which are operated
by Interstate and one is operated by CapStar Hotel Co. The Partnership's, and
therefore the Company's, principal source of revenue is lease payments by the
Lessees under the Percentage Leases. Percentage Rent is based primarily upon the
Hotels' room revenue, and to a lesser extent, when applicable, food and beverage
revenue.
14
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
BACKGROUND, Continued
Change in Accounting Principle
In May 1998, the Financial Accounting Standards Board's Emerging Issues Task
Force issued EITF number 98-9, "Accounting for Contingent Rent in Interim
Financial Periods" (EITF 98-9). EITF 98- 9 provides that a lessor shall defer
recognition of contingent rental income in interim periods until specified
targets that trigger the contingent income are met. In July 1998 the Task Force
issued transition guidance stating that the consensus could be applied on a
prospective basis or in a manner similar to a change in accounting principle
effective April 1, 1998. The Company has reviewed the terms of its percentage
leases and has determined that the provisions of EITF 98-9 will significantly
impact the Company's current revenue recognition on an interim basis, but will
have no impact on the Company's annual percentage lease revenue, funds from
operations or interim cash flow from its third party Lessees. The Company has
adopted the provisions of EITF 98-9 and elected to restate the first quarter
results of 1998 and record the results of the second quarter in accordance with
the new pronouncement. The effect of the change on the three months ended March
31, 1998 was to decrease lease revenues and, therefore, net income applicable to
common shareholder by $7,892,638 ($(.21) per share-basic and diluted) to a loss
of $1,496,034 ($(.04) per share-basic and diluted). The effect of the change on
the three months ended June 30, 1998 was to decrease lease revenue and therefore
net income applicable to common shareholders by $12,628,552 ($.33 per
share-basic and diluted) to a loss of $1,498,715 ($(.04) per share-basic and
diluted).
The Company's percentage leases provide for the greater of (i) annual fixed base
rent or (ii) Percentage Rent to be remitted to the Company annually. The leases
contain annual room revenue thresholds used to calculate two tiers of Percentage
Rent which are applied to annualized room revenues on a quarterly basis to
determine quarterly Lessee Percentage Rent payments. The provisions of EITF 98-9
call for straight-line recognition of the annual base rent throughout the year
and for the deferral of any additional Percentage Rent collected or due from the
Lessees until such amounts exceed the annual fixed base rent. This will
generally result in base rent being recognized in the first and second quarters
and Percentage Rents collected or due from the Lessees in the first and second
quarters being deferred and then recognized in the third and fourth quarters due
to the structure of the Company's percentage leases and the seasonality of the
hotel operations. Historically, the Company has recorded lease revenue in
interim periods on a basis similar to that used to determine quarterly Lessee
Percentage Rent payments, resulting in the second and third quarters being the
strongest quarters.
At June 30, 1998, deferred revenue of $20,521,170 represents Percentage Rent
collected or due from the Lessees under the terms of the leases which the
Company expects to recognize as lease revenue in the third and fourth quarters
of 1998. The Company's quarterly distributions to shareholders generally are
based on Percentage Rents collected or due from Lessees as opposed to percentage
lease revenue recognized. Management expects its hotel portfolio to yield
substantial Percentage Rent annually, based on its cash flow analyses of the
hotels prior to their acquisition and based on the negotiated terms of the
related leases.
15
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Lease revenue $15,422,136 $15,713,892 $28,936,432 $27,491,755
Add:
Deferred lease revenue 12,628,532 20,521,170
----------- ----------- ----------- -----------
Percentage rents collected or
due from Lessees $28,050,668 $15,713,893 $49,457,602 $27,491,755
=========== =========== =========== ===========
</TABLE>
Three Months Ended June 30, 1998 and 1997
The decrease in reported lease revenue for the three months ended June 30, 1998
from the comparable period in 1997 is attributable to the change in the
Company's revenue recognition as discussed above. Included in deferred revenue
at June 30, 1998 is $12,628,532 of first and second quarter Percentage Rents
collected or due from the Lessees which management expects the Company to
recognize as revenue in the third and fourth quarters of 1998. After considering
such amounts included in deferred revenue at June 30, 1998, Percentage Rents
collected or due from the Lessees under the terms of the leases during the three
months ended June 30, 1998 were $28,050,668 compared to $15,713,892 for the
three months ended June 30, 1997. The increase is the result of (i) the number
of hotels increasing from 85 at June 30, 1997 to 104 at June 30, 1998 and (ii)
to a lesser extent, increased Percentage Rents collectible from the Lessees for
hotels owned throughout both periods. On a comparable basis, this increase was
caused by an increase in revenue per available room ("REVPAR") for hotels owned
by the Company throughout both periods of 1.9% to $53.48 from $52.48. For
hotels, on a pro forma basis, which were in operation for the full quarter in
both 1998 and 1997, REVPAR (on a pro forma basis) increased to $55.43 from
$55.07, an increase of .7%.
Real estate and personal property taxes and depreciation and amortization
increased over the comparable period in 1997 due to the increase in the number
of hotel properties owned by the Company, from 85 properties at June 30, 1997 to
104 properties at June 30, 1998.
General and administrative expenses increased primarily as a result of (i)
increases in the number of hotels owned subject to ground leases; and (ii)
increased corporate staff and related expenses.
Interest expense increased $2,530,657 in the three months ended June 30, 1998
over the comparable period in 1997. The increase was due primarily to an
increase in the average outstanding balance of the Company's debt from $140
million for the three months ended June 30, 1997 to $270 million for the three
months ended June 30, 1998. Average interest rates increased slightly, from 7.4%
to 7.5% for the quarter ended June 30, 1998.
16
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
Three Months Ended June 30, 1998 and 1997, Continued
Funds From Operations (as defined below) were $18,262,667 or $0.48 per share for
the three months ended June 30, 1998, compared to $10,382,010 or $0.38 per share
for the three months ended June 30, 1997. The Company considers Funds From
Operations to be a key measure of a REIT's performance and believes that Funds
From Operations should be considered along with, but not as an alternative to,
net income and cash flows as a measure of the Company's operating performance
and liquidity.
Six Months Ended June 30, 1998 and 1997
Lease revenue increased slightly for the six months ended June 30, 1998 from the
comparable period in 1997 despite the change in the Company's revenue
recognition as discussed above. Included in deferred revenue at June 30, 1998 is
$20,521,178 of second quarter Percentage Rents collected or due from the Lessees
which Management expects the Company to recognize as revenue in the third and
fourth quarters of 1998. After considering such amounts included in deferred
revenue at June 30, 1998, Percentage Rents collected or due from the Lessees
under the terms of the leases during the six months ended June 30, 1998 were
$49,457,602 compared to $27,491,755 for the six months ended June 30, 1997. The
increase is the result of (i) the number of hotels increasing from 85 at June
30, 1997 to 104 at June 30, 1998 and (ii) to a lesser extent, increased
Percentage Rents collectible from the Lessees for hotels owned throughout both
periods. On a comparable basis, this increase was caused by an increase in
REVPAR for hotels owned by the Company throughout both periods of 2.9% to $49.58
from $48.19. For hotels, on a pro forma basis, which were in operation for the
full quarter in both 1998 and 1997, REVPAR (on a pro forma basis) increased to
$52.04 from $51.29, an increase of 1.5%.
Real estate and personal property taxes and depreciation and amortization
increased over the comparable period in 1997 due to the increase in the number
of hotel properties owned by the Company, from 85 properties at June 30, 1997 to
104 properties at June 30, 1998.
General and administrative expenses increased primarily as a result of (i)
increased legal and professional fees and shareholder expenses, resulting from
the Company's growth; (ii) increases in the number of hotels owned subject to
ground leases; and (iii) increased corporate staff and related expenses.
Interest expense increased $4,675,963 in the six months ended June 30, 1998 over
the comparable period in 1997. The increase was due primarily to an increase in
the average outstanding balance of the Company's debt from $130 million for the
six months ended June 30, 1997 to $252 million for the six months ended June 30,
1998.
17
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
Six Months Ended June 30, 1998 and 1997, Continued
Funds From Operations (as defined below) were $31,192,443 or $0.83 per share for
the six months ended June 30, 1998, compared to $17,452,555 or $0.67 per share
for the six months ended June 30, 1997. The Company considers Funds From
Operations to be a key measure of a REIT's performance and believes that Funds
From Operations should be considered along with, but not as an alternative to,
net income and cash flows as a measure of the Company's operating performance
and liquidity.
Funds From Operations
The Company considers Funds From Operations ("FFO") (after adjustment for
deferred lease revenue) one measure of REIT performance. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investments Trusts ("NAREIT"), FFO represents 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 and minority interest 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.
FFO presented herein is not necessarily comparable to FFO presented by other
real estate companies due to the fact that not all real estate companies use the
same definition. However, the Company's FFO is comparable to the FFO of real
estate companies that use the current definition of the NAREIT, after the
adjustment for deferred lease revenue.
18
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
Funds From Operations, Continued
The following is a reconciliation of income before minority interest to Funds
From Operations under the NAREIT definition and after adjustment to add back
deferred lease revenue:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1998 1997 1998 1997
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Income (loss) before minority interest $ (1,470,063) $ 5,954,181 $ (3,044,367) $ 9,239,965
Less:
Preferred stock dividends (108,854) (108,854)
Add:
Depreciation of buildings, furniture
and equipment 7,213,052 4,427,829 13,824,494 8,212,590
Deferred lease revenue (Note 2) 12,628,532 20,521,170
------------ ------------ ------------ ------------
Funds From Operations $ 18,262,667 $ 10,382,010 $ 31,192,443 $ 17,452,555
============ ============ ============ ============
Weighted average number of outstanding shares of
Common Stock - dilutive 38,175,786 27,575,122 37,622,908 26,072,479
============ ============ ============ ============
Funds From Operations per share $ .48 $ .38 $ .83 $ .67
============ ============ ============ ============
</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 as of June 30, 1998 were $326,875, compared to
$190,458 at December 31, 1997. Additionally, all of the June 30, 1998 receivable
due from the Lessees was received in July 1998. Net cash provided by operating
activities for the six months ended June 30, 1998 was $24,443,047.
The Company intends to make additional investments in hotel properties and may
incur, or cause the Partnership to incur, indebtedness to make such investments
or to meet distribution requirements imposed on a REIT under the Code to the
extent that working capital and cash flow from the Company's investments are
insufficient to make such distributions. Prior to its latest annual meeting, the
Company's Charter limited aggregate indebtedness to 45% of the Company's
investment in hotel
19
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
LIQUIDITY AND CAPITAL RESOURCES, Continued
properties, at cost, after giving effect to the Company's use of proceeds from
any indebtedness. This requirement was deleted by shareholder vote on May 14,
1998. The Company's Board of Directors has subsequently adopted a policy
currently imposing the same limitations previously imposed by the Charter. At
June 30, 1998, the Company had outstanding debt of approximately $316.6 million,
including $85.2 million under the Bonds, and $220.5 million under the Unsecured
Line of Credit, leaving approximately $29.5 million available under the
Unsecured Line of Credit for future acquisitions. The Company's consolidated
indebtedness was 38.0% of its investments in hotels, at cost, at June 30, 1998.
During the six months ended June 30, 1998, the Company invested approximately
$14.5 million to fund capital improvements to its properties, including
replacement of carpets, drapes, renovation of common areas and improvement of
hotel exteriors. Most of these capital improvements were required by the
franchisors on hotels that the Company purchased as part of the franchisors'
product improvement plans ("PIPs"). The Company took the PIPs into consideration
when negotiating the prices for these properties. In addition, the Company has
committed to fund approximately $13.3 million during the remainder of 1998 for
capital improvements. The Company intends to fund such improvements out of
future cash from operations, present cash balances and borrowings under the
Unsecured Line of Credit. Under the Unsecured Line of Credit and the Commercial
Mortgage Bonds, the Partnership has agreed to fund a minimum of 4% of room
revenues per quarter on a cumulative basis, for the ongoing replacement or
refurbishment of furniture, fixtures and equipment at the hotels. Management
believes that these amounts will be sufficient to fund required expenditures for
the term of the Percentage Leases for the capital improvements anticipated.
Recurring repairs and maintenance are performed by the Lessees.
During the six months ended June 30, 1998, the Partnership declared
distributions in the aggregate of $23,442,424 to its partners, including the
Trust, or $.62 per Unit, and the Company declared distributions in the aggregate
of $22,274,210, or $.62 per share to its shareholders.
In June 1998, the Company issued 2,750,000 shares of 9 1/2% Series A Preferred
Stock. Dividends on the Series A Preferred Stock are cumulative from the date of
issue and are payable quarterly in an amount equal to $2.375 per share. The
Series A Preferred Stock has a liquidation preference of $25 per share plus
accumulated accrued and unpaid dividends.
On April 21, 1998, the Company announced that it had signed a definitive
agreement to merge with RFS Hotel Investors, Inc. ("RFS") in a stock transaction
in which each share of RFS will be exchanged for shares of the Company. Under
the terms of the agreement, each RFS shareholder will receive 1.5 shares of
Common Stock for each RFS share, providing the Company's average stock price is
between $14 and $17 per share during an agreed upon 20-day measurement period.
If the Company's average stock price during that period exceeds $17 per share,
the exchange ratio will be
20
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
LIQUIDITY AND CAPITAL RESOURCES, Continued
adjusted to provide RFS shareholders with $25.50 worth of Common Stock for each
share of RFS stock. If the average stock price during such period is less than
$14, then either the Company or RFS may terminate the agreement. The merger is
subject to approval of the shareholders of the Company and RFS and other
conditions.
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 borrowing under its 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 dividends 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 borrowing, the issuance of additional equity securities of the
Company, or, in connection with acquisitions of hotel properties, issuance of
Units in the Partnership. Pursuant to the Partnership Agreement for the
Partnership, holders of Units have the right to require the Partnership to
redeem their Units. During the six months ended June 30, 1998, 40,062 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 issued
40,062 shares of Common Stock upon redemption of the 40,062 Units in the first
six months of 1998 and anticipates that it will acquire any Units tendered for
redemption in the foreseeable future in exchange for shares of Common Stock.
INFLATION
Operators of hotels, including the Lessees and any third-party managers retained
by the Lessees, in general possess the ability to adjust room rates quickly.
However, competitive pressures have limited and may in the future limit the
ability of the Lessees and any third-party managers retained by the Lessees to
raise room rates in response to inflation.
21
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
SEASONALITY
The hotel industry is seasonal in nature. The Hotels' operations historically
reflect higher occupancy rates and ADR during the second and third quarters. The
provisions of EITF 98-9 call for straight-line recognition of the annual base
rent throughout the year and for the deferral of any Percentage Rent amounts
collected or due from the Lessees until such amounts exceed the annual fixed
base rent. This will generally result in base rent being recognized in the first
and second quarters and Percentage Rents collected or due from the Lessees being
deferred and then recognized in the third and fourth quarters due to the
structure of the Company's percentage leases and the seasonality of the hotel
operations. Historically, the Company has recorded lease revenue in interim
periods on a basis similar to that used to determine quarterly Lessee Percentage
Rent payments, resulting in the second and third quarters being the strongest
quarters. To the extent that cash flow from operating activities from the Hotels
for a quarter is insufficient to generate Percentage Lease revenue necessary to
fund all of the distributions for such quarter, the Company may maintain the
annual distribution rate by funding seasonal-related shortfalls with available
cash or borrowing under the Unsecured Line of Credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
22
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 1998 annual meeting of shareholders (the "Annual Meeting") of the Company
was held on May 14, 1998 for the Company's shareholders to take action on each
of five proposals: (1) to elect one Class I director to serve on the Board of
Directors until the Company's annual meeting of shareholders in 2001 or until
his successor has been duly elected and qualified; (2) to consider and vote upon
a proposal to amend Article 5 of the Charter to increase the number of
authorized shares of Common Stock from 50 million shares to 100 million shares;
(3) to consider and vote upon a proposal to delete Article 7 of the Charter,
which limits the Company's consolidated indebtedness to 45% of the Company's
investment in hotel properties, at its cost; (4) to consider and vote upon a
proposal to amend Article 14(c) of the Charter to conform Article 14(c) to other
provisions in the Charter relating to the Company's ability to preserve its
status as a real estate investment trust so long as its actions to not prohibit
the settlement of any transactions entered into through the facilities of any
national securities exchange registered under the Exchange Act or of the
national market system of a national securities association registered under the
Exchange Act; and (5) to consider and vote on a proposal to approve an amendment
to the Company's Non-Employee Directors' Stock Incentive Plan (the "Directors'
Plan") to, among other things, permit the Company's independent directors to
elect to receive retainer and meeting fees in the form of shares of Common Stock
and increase the number of shares that may be issued under the Directors' Plan
to allow for such elections.
The results of the shareholders' votes, approving each of the above matters
submitted before the 1998 Annual Meeting, were summarized in the Company's
Current Report on Form 8-K dated May 14, 1998 and filed with the SEC on May 28,
1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -- The following exhibit is filed in this Quarterly Report on
Form 10-Q:
27 Financial Data Schedule (filed only electronically with the SEC)
(b) Reports on Form 8-K -- The Company filed the following Current Reports
on Form 8-K during the period covered by this Quarterly Report on Form
10-Q:
(1) Current Report on Form 8-K dated April 21, 1998 and filed with
the SEC on May 21, 1998, reporting the Company's execution of
an Asset Sale Agreement and Plans of Mergers (the "Merger
Agreement") by and among RFS Hotel Investors, Inc., RHI
Acquisition, Inc., the Company, the Partnership and RFS
Partnership, L.P., with the following financial statements and
information:
23
<PAGE>
Pro forma financial information (unaudited) for the
Company for the year ended December 31, 1997 and for
the three months ended March 31, 1998 reflecting the
pro forma effects of the transactions described in
the Merger Agreement, as well as certain other
transactions specific to RFS Hotel Investors, Inc.
and the Company;
Historical audited financial statements of RFS Hotel
Investors, Inc. as of December 31, 1997 and 1996 and
for the three-year period ended December 31, 1997;
Historical unaudited financial statements of RFS
Hotel Investors, Inc. as of March 31, 1998 and for
the three months ended March 31, 1998 and 1997
(unaudited); and
Historical audited financial statements of RFS, Inc.
as of December 31, 1997 and 1996 and for the
three-year period ended December 31, 1997.
(2) Current Report on Form 8-K dated May 14, 1998 and filed with
the SEC on May 28, 1998, reporting the results of the Annual
Meeting (no financial information required);
(3) Current Report on Form 8-K dated June 15, 1998 and filed with
the SEC on June 16, 1998, reporting the filing of certain
exhibits in connection with the Company's public offering of
its shares of Series A Preferred Stock (no financial
information required); and
(4) Current Report on Form 8-K dated June 23, 1998 and filed with
the SEC on June 24, 1998, reporting the filing of certain
underwriting-related exhibits in connection with the Company's
public offering of its shares of Series A Preferred Stock (no
financial information required).
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Equity Inns, Inc.
August 13, 1998 By: /s/Donald H. Dempsey
- --------------- ------------------------------------------------
Date Donald H. Dempsey
Executive Vice President, Secretary, Treasurer,
and Chief Financial Officer (Principal Financial
and Accounting Officer)
25
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
27 Financial Data Schedule (filed only electronically with the SEC)
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Equity Inns, Inc. for the six months ended June
30, 1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 326,875
<SECURITIES> 0
<RECEIVABLES> 17,075,856
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 776,019,221
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 316,633,905
0
68,750,000
<COMMON> 362,665
<OTHER-SE> 353,330,300
<TOTAL-LIABILITY-AND-EQUITY> 803,129,694
<SALES> 29,293,011
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,337,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,317,763
<INCOME-PRETAX> 0
<INCOME-TAX> (3,044,367)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,994,749)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
