<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1996
Commission File Number 0-24568
INNKEEPERS USA TRUST
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 65-0503831
(State or other Jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
306 Royal Poinciana Way (407) 835-1800
Palm Beach, FL 33480 (Registrant's telephone number
(Address of principal executive offices) including area code)
zip code)
</TABLE>
N/A
(former name)
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 short period that the
Registrant was required to file such report), and (ii) 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 May 6,
1996 was 10,821,401.
<PAGE> 2
INNKEEPERS USA TRUST
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. Financial Information
INNKEEPERS USA TRUST
--------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1996 (Unaudited) and December 31, 1995 1
Condensed Consolidated Statements of Income for the
three months ended March 31, 1996 (unaudited)
and March 31, 1995 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 (unaudited)
and March 31, 1995 (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's discussion and analysis of
financial condition and results of operations 9
JF HOTEL, INC. AND JF HOTEL II, INC.
------------------------------------
Item 1. Financial Statements
Condensed Combined Balance Sheets at March 31
1996 (Unaudited) and December 31, 1995 15
Condensed Combined Statements of Income for the
three months ended March 31, 1996 (unaudited)
and March 31, 1995 (unaudited) 16
Condensed Combined Statements of Cash Flows for
the three months ended March 31, 1996 (unaudited)
and March 31, 1995 (unaudited) 17
Notes to Condensed Combined Financial Statements 18
Item 2. Management's discussion and analysis of financial
condition and results of operations 20
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
<PAGE> 3
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
Investment in hotel properties, at cost:
Land $ 18,255 $ 17,380
Buildings and improvements 122,540 112,899
Furniture and equipment 17,229 16,245
--------- ---------
158,024 146,524
Accumulated depreciation (11,591) (10,137)
--------- ---------
Net investment in hotel properties 146,433 136,387
Cash and cash equivalents 6,774 2,093
Due from Lessee 3,015 2,048
Deferred expenses, net 2,248 2,300
Other assets 275 511
--------- ---------
Total assets $ 158,745 $ 143,339
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 61,834 $ 45,636
Accrued expenses - public offering 0 415
Accounts payable and other accrued expenses 277 431
Distributions payable 2,603 2,487
Minority interest in Partnership 6,112 6,124
--------- ---------
Total liabilities 70,826 55,093
--------- ---------
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred Shares, $.01 par value, 20,000,000 shares
authorized, no shares issued or outstanding 0 0
Common Shares, $.01 par value, 100,000,000 shares
authorized, 10,821,168 and 10,817,883 shares
issued and outstanding at March 31, 1996 and
December 31, 1995, respectively 108 108
Additional paid-in capital 90,650 90,659
Unearned trustees' compensation (173) (185)
Distributions in excess of net earnings (2,666) (2,336)
--------- ---------
Total shareholders' equity 87,919 88,246
--------- ----------
Total liabilities and shareholders' equity $ 158,745 $ 143,339
========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 4
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Percentage lease revenue $ 5,696 $2,280
Other revenue 94 32
--------- ---------
Total revenue 5,790 2,312
--------- ---------
Expenses:
Depreciation and amortization 1,469 525
Ground rent 85 83
Interest expense 1,065 143
Amortization of loan origination
fees 161 31
Real estate and personal
property taxes and property
insurance 515 162
General and administrative 221 199
Amortization of unearned trustees'
compensation 12 10
--------- ---------
Total expenses 3,528 1,153
--------- ---------
Income before minority interest 2,262 1,159
Minority interest in income (147) (143)
--------- ---------
Net income $ 2,115 $ 1,016
========= =========
Net income per common share $ .20 $ .22
========= =========
Weighted average number of
common shares and common
share equivalents outstanding 11,568,591 5,376,600
========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 5
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except supplemental non-cash financing activities)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,115 $ 1,016
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,481 535
Amortization of loan origination fees 161 31
Minority interest in Partnership 147 143
Change in operating assets and liabilities:
(Increase) decrease in:
Due from lessee (967) (370)
Deferred expenses, net (3) (199)
Other assets 236 129
Increase (decrease) in:
Accounts payable and other accrued expenses (154) (607)
-------- ---------
Net cash provided by operating activities 3,016 678
-------- ---------
Cash flows from investing activities:
Investment in hotel properties (7,896) (12,597)
Cash paid for franchise fees (40) (83)
Deposit on Acquisition Hotels (3,604) 0
-------- ---------
Net cash used in investing activities (11,540) (12,680)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 16,223 14,899
Payments on long-term debt (25) (758)
Payments on dividend reinvestment plan (28) 0
Payments on accrued expenses-public offering (397) (4)
Distributions paid (2,487) (1,043)
Loan origination fees paid (81) (601)
-------- ---------
Net cash provided by financing activities 13,205 12,493
-------- ---------
Net increase (decrease) in cash and cash equivalents 4,681 491
Cash and cash equivalents at beginning of period 2,093 1,455
-------- ---------
Cash and cash equivalents at end of period $ 6,774 $ 1,946
======== =========
Supplemental cash flow information:
Interest paid $ 1,065 $ 112
======== =========
</TABLE>
Supplemental non-cash financing activities:
The Company declared a quarterly distribution of $.19375 per common share
and common share equivalent outstanding for the quarter ending March 31,
1995. The Company declared a quarterly distribution of $.225 per common
share and common share equivalent outstanding for the quarter ending March
31, 1996. The aggregate amount of dividends paid for each such quarter was
approximately $1,042,000 and $2,603,000, respectively and is to be treated
as ordinary income and return on capital for income tax purposes on the part
of the recipient.
The Company reversed $18,000 of accrued expenses-public offering which was
recorded in additional paid in capital for the period January 1, 1996
through March 31, 1996.
The accompany notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 6
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Innkeepers USA Trust (the "Company") commenced operations on September
30, 1994. On September 30, 1994, the Company sold 4,690,000 common
shares of beneficial interest ("Common Shares") in a public offering
(the "IPO") and used substantially all of the net proceeds of the IPO
to acquire an approximate 87.7% equity interest in Innkeepers USA
Limited Partnership (with its subsidiary partnerships, the
"Partnership"). The Partnership used substantially all of such
proceeds to purchase seven existing hotels (the "Initial Hotels").
The Company has acquired twelve hotels subsequent to the IPO (the
"Acquired Hotels" and together with the Initial Hotels, the "Hotels").
On October 6, 1995, the Company sold 6,100,000 common shares of
beneficial interest ("Common Shares") in a public offering (the
"Offering") and contributed substantially all of the net proceeds to
the Partnership and after such contribution owned a 93.5% equity
interest in the Partnership. The Partnership used proceeds of the
Offering and a $30 million Term Loan ("Term Loan") to purchase eight
of the Acquired Hotels.
The Partnership leases the Hotels to JF Hotel, Inc. or JF Hotel II,
Inc. (collectively, the "Lessee") pursuant to leases which provide for
rent based, in substantial part, on the room revenues of the Hotels
("Percentage Leases").
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments, which consist only of
normal and recurring adjustments, necessary for a fair presentation of
results for the periods indicated. The results of any interim period
are not necessarily indicative of results for the full year. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes thereto for
the year ended December 31, 1995. The December 31, 1995 condensed
consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
2. RESTRICTED CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of approximately $4.9 million that
is required to be held in an escrow account as specified by the terms
of the Company's $70 million line of credit ("Line of Credit") and the
Term Loan. The restricted cash and cash equivalents is to be used to
pay for insurance, taxes, furniture, fixtures and equipment and
capital expenditures pertaining to the ten Hotels that collateralize
the Line of Credit and the eight Hotels that collateralize the Term
Loan.
4
<PAGE> 7
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
3. LONG-TERM DEBT
Long-term debt consists of a mortgage note collateralized by one
Hotel, outstanding borrowings under the Line of Credit and the Term
Loan.
The mortgage note is payable in monthly installments of $23,526
including interest at 5.0% through January 2002. The outstanding
principal balance on the mortgage note was approximately $3.7 million
at March 31, 1996.
Outstanding borrowings under the Line of Credit bear interest at the
30 day LIBOR rate plus 175 basis points. The average interest rate on
borrowings under the Line of Credit for the three months ended March
31, 1996 was 7.7% and the Line of Credit expires March 1998. The
outstanding principal balance on the Line of Credit was approximately
$28.2 million at March 31, 1996.
The Term Loan matures in twenty years and bears interest at a 8.17%
fixed annual rate. The Term Loan has scheduled principal amortization
over a twenty-year term commencing in the second year of the Term
Loan. Interest on the outstanding principal balance of the Term Loan
will accrue at 13.17% if the outstanding principal balance is not paid
in full by the twelfth year of the Term Loan.
Substantially all of the Company's assets, other than one of the
Hotels are pledged as collateral on the Line of Credit and Term Loan.
The scheduled principal payments to be made in future years are as
follows (in thousands):
<TABLE>
<S> <C>
1996 $ 75
1997 28,436
1998 745
1999 805
2000 870
Thereafter 30,903
------
$61,834
======
</TABLE>
5
<PAGE> 8
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
4. SHARE OPTION PLAN
The Company has adopted a share option plan which covers employees and
officers of the Company. The Company has reserved 500,000 Common
Shares for issuance upon the exercise of options under the plan. The
plan provides for the granting of incentive share options and
non-qualified options. The option price of incentive share options
may not be less than the fair market value of the Common Shares at the
date of grant. The Company has granted 110,000 incentive share
options and 140,000 non-qualified options to an officer of the
Company, who is also a trustee at an exercise price of $10.00 per
share. In February 1996, the Company granted an additional 156,000
non-qualified options to the officer and trustee at an exercise price
of $9.75. Additionally, the Company has granted 15,000 non-qualified
options to three of its non-employee trustees at an exercise price of
$10.00 per share. The incentive share options vest over a ten year
period and the non-qualified options vest over a five year period,
except for the 156,000 non-qualified options granted in February 1996
of which 32,000 vest in each of 1996, 1997, and 1998, and 60,000 which
vest in 1999. The Company has also granted 20,000 incentive share
options to an officer at an exercise price of $8.875, which vest over
a three year period. No options were exercised as of March 31, 1996.
5. ACQUISITIONS
In February 1996, the Partnership acquired an existing hotel from an
unaffiliated party for approximately $7,000,000 in cash.
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Pursuant to the Partnership's Partnership Agreement, limited partners
who hold units of limited partnership interest in the Partnership
("Units") have redemption rights which enable them to redeem their
Units in exchange for Common Shares on a one-for-one basis or, at the
Company's option, an equivalent amount of cash at any time after
September 30, 1995 or, in the case of 91,991 Units, October 7, 1997.
The aggregate number of Common Shares issuable upon exercise of the
redemption rights is 747,423 at March 31, 1996. In February 1996,
3,285 Units were redeemed for 3,285 Common Shares.
The Hotels are operated under franchise agreements and are licensed as
Hampton Inn, Residence Inn, Sheraton Inn, Holiday Inn Express or
Comfort Inn hotels. The Partnership has paid or will pay the cost of
obtaining or transferring franchise license agreements to the Lessee.
The franchise agreements require the payment of fees based on a
percentage of hotel room revenue. These fees are paid by the Lessee,
which holds the franchise licenses.
6
<PAGE> 9
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS, CONTINUED
The Partnership earned Percentage Lease revenue of $5,696,000 and
$2,280,000 for the three months ended March 31, 1996 and March 31,
1995, respectively. At March 31, 1996, the Lessee owed the Company
approximately $3,197,000 in Percentage Lease revenue under the
Percentage Leases. The Company evaluated the credit worthiness of the
Lessee and has determined that an allowance for doubtful accounts is
not warranted. The Company has not incurred any losses pertaining to
Percentage Lease receivables for the three months ended March 31,
1996.
The Lessee has future minimum base lease commitments under the
Percentage Lease agreements to the Partnership through the year 2004.
Minimum future base lease revenue, under the Percentage Lease
agreements, are as follows (in thousands):
<TABLE>
<S> <C>
1996 $10,395
1997 10,437
1998 10,437
1999 10,437
2000 10,437
Thereafter 42,290
</TABLE>
The Lessee's net income and gross room revenue were approximately
$420,000 and $12,009,000, respectively, for the three months ended
Mach 31, 1996 and $318,000 and $4,675,000, respectively, for the three
months ended March 31, 1995 and are derived solely from the operations
of the Company's hotels.
At March 31, 1996, the Company's Declaration of Trust limited the
consolidated indebtedness of the Company to 50.0% of the Company's
investment in hotels at cost, after giving effect to the Company's use
of proceeds from any indebtedness.
7. SUBSEQUENT EVENTS
Acquisitions
In March 1996, the Partnership contracted to acquire on or about
September 1, 1996 two hotels under development from an unaffiliated
party for approximately $27,500,000 in cash.
7
<PAGE> 10
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
7. SUBSEQUENT EVENTS, CONTINUED
In May 1996, the Partnership acquired two existing hotels from an
unaffiliated party for approximately $16,600,000 in cash.
Share Option Plan
In May 1996, the Company's shareholders approved increasing the Common
Shares reserved for issuance upon the exercise of options under the
share option plan from 500,000 to 800,000.
Dividend Reinvestment and Share Purchase Plan
In March 1996, the Company established a dividend reinvestment and
share purchase plan ("Plan") for its shareholders. In April 1996, 233
common shares were issued under the Plan.
8
<PAGE> 11
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and related notes thereto.
GENERAL
Innkeepers USA Trust (the "Company") commenced operations on September 30,
1994. On September 30, 1994, the Company sold 4,690,000 common shares of
beneficial interest ("Common Shares") in a public offering (the "IPO") and used
substantially all of the net proceeds of the IPO to acquire an approximate
87.7% equity interest in Innkeepers USA Limited Partnership (with its
subsidiary partnerships, the "Partnership"). The Partnership used
substantially all of such proceeds to purchase seven existing hotels (the
"Initial Hotels"). The Company has acquired twelve hotels subsequent to the
IPO (the "Acquired Hotels" and together with the Initial Hotels, the "Hotels").
On October 6, 1995, the Company sold 6,100,000 common shares of beneficial
interest ("Common Shares") in a public offering (the "Offering") and
contributed substantially all of the net proceeds to the Partnership and after
such contribution owned a 93.5% equity interest in the Partnership. The
Partnership used proceeds of the Offering and a $30 million Term Loan ("Term
Loan") to purchase eight of the Acquired Hotels.
The Partnership leases the Hotels to JF Hotel, Inc. or JF Hotel II, Inc.
(collectively, the "Lessee") pursuant to leases which provide for rent based,
in substantial part, on the room revenues of the Hotels ("Percentage Leases").
During the three months ended March 31, 1996, the Partnership acquired a
164-room Holiday Inn Express in Lexington, Massachusetts.
HOTELS
The following chart summarizes information regarding the Hotels at March 31,
1996.
<TABLE>
<CAPTION>
Franchise Affiliation Number of Hotel Properties Number of Rooms
--------------------- -------------------------- ---------------
<S> <C> <C>
Extended stay hotels:
Residence Inn 9 896
-- -----
Limited service hotels:
Hampton Inn 7 909
Comfort Inn 1 127
Holiday Inn Express 1 164
-- -----
9 1,200
-- -----
Full service Hotels:
Sheraton Inn 1 139
-- -----
Total 19 2,235
== =====
</TABLE>
9
<PAGE> 12
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Pro forma Revenue Per Available Room ("REVPAR") for the Hotels, presented as if
the acquisition of the Hotels had occurred at the beginning of the periods
presented, increased for the three months ended March 31, 1996 as compared to
the three months ended March 31, 1995. Management believes the growth in
REVPAR at the Hotels reflects the implementation of professional management
techniques by the Lessee and improving industry conditions. The following
table sets forth information with respect to occupancy, Average Daily Rate
("ADR") and REVPAR for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995. No assurance can be given that the trends
reflected in the following table will continue or that occupancy, ADR and
REVPAR will not decrease due to changes in national or local economic,
hospitality or other industry conditions.
<TABLE>
<CAPTION>
For the Three Months For the Three Months Percentage
Hotels Ended March 31, 1996 Ended March 31, 1995 Change
- - ------ -------------------- -------------------- ------
<S> <C> <C> <C>
Occupancy 77.3% 73.9% 4.6%
ADR $77.09 $74.16 4.0%
REVPAR $59.63 $54.80 8.8%
</TABLE>
RESULTS OF OPERATIONS
The Company -- Actual
Three months ended March 31, 1996
The Company had revenues of $5,790,000, consisting of $5,696,000 of Percentage
Lease revenue from the Lessee and $94,000 of other revenue. Depreciation and
amortization, amortization of loan origination fees, and amortization of
unearned trustees' compensation were $1,642,000 in the aggregate. Real estate
and personal property taxes and property insurance were $515,000. Interest
expense of $1,065,000 primarily consisted of interest incurred on borrowings
outstanding under the Line of Credit and Term Loan. Net income before minority
interest was $2,262,000 or $0.20 per share. Funds from Operations (income
before minority interest, depreciation and amortization, amortization of loan
origination fees and amortization of unearned trustees' compensation) was
$3,904,000 or $0.34 per share.
Three months ended March 31, 1995
The Company had revenues of $2,312,000, consisting of $2,280,000 of Percentage
Lease revenue from the Lessee and $32,000 of other revenue. Depreciation and
amortization, amortization of loan origination fees, and amortization of
unearned trustees' compensation were $566,000 in the aggregate. Real estate
and personal property taxes and property insurance were $162,000. Interest
expense of $143,000 primarily consisted of interest incurred on borrowings
outstanding under a Line of Credit and Mortgage Note. Net income before
minority interest was
10
<PAGE> 13
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
$1,159,000 or $0.22 per share. Funds from Operations (income before minority
interest, depreciation and amortization, amortization of loan origination fees
and amortization of unearned trustees' compensation) was $1,725,000 or $0.32
per share.
Percentage Lease revenue, depreciation and amortization, interest expense and
real estate and personal property taxes and property insurance increased for
the three months ended March 31, 1996 over the three months ended March 31,
1995 primarily due to the number of hotels owned increasing from 7 at January
1, 1995 to 18 at January 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of March 31, 1996 were $6,774,000, including
approximately $247,000 which the Partnership is required, under the Percentage
Leases, to make available to the Lessee for certain hotel renovations.
Additionally, cash and cash equivalents includes approximately $4,900,000 that
is held in escrow to pay for insurance, taxes, furniture, fixtures and
equipment and capital expenditures pertaining to the ten Hotels that
collateralize the Line of Credit and the eight Hotels that collateralize the
Term Loan. On April 16, 1996, the Company paid $2,603,000 in distributions to
holders of Common Shares and units of limited partnership interest in the
Partnership ("Units") of record as of March 29, 1996.
Net cash provided by operating activities for the three months ended March 31,
1996 was $3,016,000.
Net cash used in investing activities was $11,540,000 for the three months
ended March 31, 1996. This was comprised primarily of the Company acquiring a
Holiday Inn Express Hotel in Lexington, Massachusetts for $7,000,000 in cash
and deposits of $3,604,000 applied toward the purchase of four additional hotel
properties.
Net cash provided by financing activities was $13,205,000 for the three months
ended March 31, 1996, reflecting proceeds from long term debt of $16,223,000,
including $10,604,000 in borrowings under the Line of Credit to purchase one
Acquired Hotel and make deposits toward the purchase of four additional hotel
properties. The Company paid an aggregate of $2,487,000 in dividends to
holders of Common Shares and Units during the three month period ended March
31, 1996.
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. The Company's Declaration of Trust
limits aggregate indebtedness to 50% of the Company's investment in hotel
properties, at cost, after giving effect to the Company's use of proceeds from
any indebtedness.
11
<PAGE> 14
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
As of March 31, 1996, the Company had outstanding indebtedness of approximately
$61,834,000.
The Company's long-term debt at March 31, 1996 consists of a mortgage note
collateralized by one hotel property (the "Mortgage Note"), outstanding
borrowings under a $70 million revolving line of credit (the "Line of Credit"),
and a $30 million Term Loan ("Term Loan").
The Mortgage Note is payable in monthly installments of $23,526 including
interest at 5.0% through January 2002. The outstanding principal balance on
the Mortgage Note was approximately $3.7 million at March 31, 1996.
In March 1995, the Company, through the Partnership, obtained the $40 million
Line of Credit to fund future hotel acquisitions and provide working capital.
The Line of Credit has been increased to $70 million as of March 31, 1996. As
of March 31, 1996, approximately $28.2 million in borrowings were outstanding
under the Line of Credit. The Line of Credit is collateralized by ten Hotels
and will be collateralized by any hotels acquired in the future with proceeds
from the Line of Credit. As of March 31, 1996, borrowings under the Line of
Credit bore interest at 175 basis points over the 30-day LIBOR rate as
published by Telerate. The average interest rate on borrowings under the line
of credit for the three month period ended March 31, 1996 was 7.7%.
The Term Loan is collateralized by eight hotel properties. The Term Loan bears
interest at a fixed rate equal to 8.17%. The principal amount of the Term Loan
will amortize on a 20-year schedule commencing on the second anniversary of the
Term Loan. The Term Loan will mature and be payable in full in 20 years, but
may be prepaid at any time after 12 years without penalty. If the Term Loan is
not prepaid at such time, interest on the then outstanding principal balance
will accrue at 13.17%.
The Company in the future may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments, all in compliance with the Debt Limitation. Any debt incurred or
issued by the Company may be secured or unsecured, long-term, fixed or variable
interest rate and may be subject to such other terms as the Board of Trustees
of the Company deems prudent.
Under federal income tax law provisions applicable to a REIT, the Company is
required to distribute at least 95% of its taxable income to maintain its
status as a REIT. The Company believes that its net cash provided by
operations will be adequate to fund both operating requirements and the payment
of distributions by the Company in accordance with the requirements to maintain
its status as a REIT.
The Percentage Leases require the Partnership to make available to the Lessee
an amount equal to 4.0% of room revenues from all of the Hotels, per quarter,
on a cumulative basis, for the
12
<PAGE> 15
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
periodic replacement or refurbishment of furniture, fixtures and equipment at
the Hotels. The Partnership has made available to the Lessee approximately
$1,632,000 for hotel renovations since September 30, 1994. The Company intends
to cause the expenditure of amounts in excess of such obligated amounts if
necessary to comply with the reasonable requirements of any franchise agreement
and otherwise to the extent that the Company deems such expenditures to be in
the best interests of the Company. The Company is also obligated to fund the
cost of capital improvements to the Hotels.
Management believes that the amounts required to be made available to the
Lessee will be sufficient to meet required expenditures for furniture, fixtures
and equipment during the terms of the Percentage Leases. The Company currently
intends to pay for the cost of capital improvements and any additional
furniture, fixture and equipment requirements from undistributed cash or to the
extent that undistributed cash is insufficient to pay such costs, the Line of
Credit. Provisions comparable to those described above in the Percentage
Leases for the Hotels, are expected to be included in the Percentage Lease for
any other hotel in which the Company invests.
In January 1996, the Company completed certain renovations to convert its
Germantown, Maryland hotel to a Hampton Inn.
SEASONALITY OF HOTEL BUSINESS
The hotel industry is seasonal in nature. The Hotels' operations historically
reflect higher occupancy rates and ADR during the second and third quarters for
the 15 Hotels located outside of Florida and higher occupancy rates and ADR
during the first and fourth quarters for three of the four Hotels located in
Florida. This tends to diminish the impact on any quarter. The seasonality
generally, and the significant impact of the first quarter with respect to the
revenues of three of the Hotels located in Florida, makes the annual revenue of
those three Hotels located in Florida highly dependent on first quarter room
revenue. 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 borrowings under the Line of Credit.
INFLATION
Operators of hotels, including the Lessee and any third-party manager retained
by the Lessee, 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 Lessee and any third-party manager retained by the Lessee to
raise room rates in response to inflation.
13
<PAGE> 16
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
SUBSEQUENT EVENTS
Acquisitions
In March 1996, the Partnership contracted to acquire on or about September 1,
1996 two hotels under development from an unaffiliated party for approximately
$27,500,000 in cash.
In May 1996, the Partnership acquired two existing hotels from an unaffiliated
party for approximately $16,600,000 in cash.
Share Option Plan
In May 1996, the Company's shareholders approved increasing the Common Shares
reserved for issuance upon the exercise of options under the share option plan
from 500,000 to 800,000.
Dividend Reinvestment and Share Purchase Plan
In March 1996, the Company established a dividend reinvestment and share
purchase plan ("Plan") for its shareholders. In April 1996, 233 common shares
were issued under the Plan.
14
<PAGE> 17
JF HOTEL, INC. AND JF HOTEL II, INC.
CONDENSED COMBINED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,616 $ 2,894
Marketable securities 517 260
Accounts receivable 1,387 1,540
Due from shareholders 0 41
Inventory 36 27
Prepaid expenses 186 219
Other assets 209 154
-------- --------
Total assets $ 5,951 $ 5,135
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable 1,517 2,023
Accrued expenses 1,149 1,062
Due to partnership 3,015 2,048
-------- --------
Total liabilities 5,681 5,133
-------- --------
Commitments and contingencies (Note 3)
Shareholders' equity:
Common shares, $1 par value, 2,000 shares
authorized issued and outstanding 2 2
Retained earnings 268 0
-------- --------
Total shareholders' equity 270 2
-------- --------
Total liabilities and shareholders' equity $ 5,951 $ 5,135
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
15
<PAGE> 18
JF HOTEL, INC. AND JF HOTEL II, INC.
CONDENSED COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
(JF Hotel, Inc. and
JF Hotel II, Inc.) (JF Hotel, Inc.)
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Gross operating revenue:
Rooms $ 12,009 $ 4,675
Food and beverage 187 130
Telephone 453 122
Other 269 116
--------- ---------
Gross operating revenue $ 12,918 $ 5,043
--------- ---------
Departmental Profit:
Rooms $ 9,615 $ 3,868
Food and beverage 35 26
Telephone 264 51
Other 189 83
--------- ---------
Total departmental profit $ 10,103 $ 4,028
--------- ---------
Unallocated operating expenses:
General and administrative 712 241
Franchise fees 915 385
Advertising and promotions 456 119
Utilities 791 255
Repairs and maintenance 606 179
Management fees 51 0
--------- ---------
Total unallocated operating
expenses 3,531 1,179
--------- ---------
Gross operating profit $ 6,572 $ 2,849
--------- ---------
Insurance (97) (41)
--------- ---------
Net operating profit 6,475 2,808
--------- ---------
Lessee overhead (359) (210)
Percentage lease payments (5,696) (2,280)
--------- ---------
Net income $ 420 $ 318
========= =========
</TABLE>
The accompanying notes are an integral part
of these condensed combined financial statements
16
<PAGE> 19
JF HOTEL, INC. AND JF HOTEL II, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(in thousands, except supplemental non-cash financing activities)
<TABLE>
<CAPTION>
(JF Hotel, Inc. and (JF Hotel, Inc.)
JF Hotel II, Inc.) Three
Three Months Ended Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 420 $ 318
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 153 (152)
Inventory (9) 11
Prepaid expenses 33 30
Other assets (55) (32)
Increase (decrease) in:
Account payable (506) (52)
Accrued expenses 87 229
Due to partnership 967 370
-------- --------
Net cash provided by operating activities 1,090 722
-------- --------
Cash flows from investing activities:
Purchase of marketable securities (257) 0
-------- ---------
Net cash used in investing activities (257) 0
-------- ---------
Cash flows from financing activities:
Dividends paid (111) (153)
-------- ---------
Net cash used in financing activities (111) (153)
-------- ---------
Net increase in cash and cash equivalents 722 569
Cash and cash equivalents at beginning of period 2,894 549
-------- ---------
Cash and cash equivalents at end of period $ 3,616 $ 1,118
======== =========
</TABLE>
Supplemental non-cash financing activities:
The Lessee's shareholders repaid due from shareholders from retained
earnings in the amount of $41,000 for the period January 1, 1996 through
March 31, 1996.
The accompanying notes are an integral part of these condensed
combined financial statements
17
<PAGE> 20
JF HOTEL, INC. AND JF HOTEL II, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
JF Hotel, Inc. was formed primarily to lease and operate hotels owned
by Innkeepers USA Trust (the "Company") through Innkeepers USA Limited
Partnership and its subsidiary partnerships (collectively the
"Partnership"). As of March 31, 1996, approximately 93.5% of the
Partnership was owned by the Company. The principal shareholder of
the Lessee is also the President and Chairman of the Company. The
Lessee commenced the leasing and operation of seven hotels owned by
the Partnership (the "Initial Hotels") on September 30, 1994. The
Company has acquired twelve hotels subsequent to September 30, 1994
(the "Acquired Hotels" and together with the Initial Hotels, the
"Hotels"). JF Hotel, Inc. leases and operates four of the Acquired
Hotels owned by the Partnership.
JF Hotel II, Inc., a company under common ownership with JF Hotel,
Inc., was formed to lease eight of the Acquired Hotels owned by the
Partnership (JF Hotel, Inc. and JF Hotel II, Inc. are referred to
collectively herein as the "Lessee"). JF Hotel II, Inc. has
contracted with an unaffiliated party to operate five of the Acquired
Hotels that it leases.
Each Hotel is leased by the Partnership to the Lessee under a
percentage lease agreement (a "Percentage Lease"). The Percentage
Lease for each Hotel provides for the payment to the Partnership of
monthly base rent and monthly percentage rent based, in substantial
part, on fixed percentages of gross room revenue in excess of certain
specified levels of room revenue.
Each Hotel is operated under a franchise license. The cost of
obtaining the franchise licenses is paid by the Partnership and the
continuing franchise fees (generally a percentage of room revenue) are
paid by the Lessee. The franchise license is held by the Lessee.
2. ACQUISITIONS
In February 1996, the Partnership acquired and leased to the Lessee an
existing hotel.
18
<PAGE> 21
JF HOTEL, INC. AND JF HOTEL II, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS, CONTINUED
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Lessee has future minimum base lease commitments under the
Percentage Lease agreements to the Partnership through the year 2004.
Minimum future base lease payments under the Percentage Lease
agreements, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996 $10,395
1997 10,437
1998 10,437
1999 10,437
2000 10,437
Thereafter 42,290
</TABLE>
The Lessee has purchased 50,000 common shares of the Company which is
included in marketable securities.
4. SUBSEQUENT EVENTS
In March 1996, the Partnership contracted to acquire on or about
September 1, 1996, two hotels under development. It is anticipated
that these hotels will be leased to the Lessee.
In May 1996, the Partnership acquired and leased to the Lessee two
existing hotels.
19
<PAGE> 22
JF HOTEL, INC. AND JF HOTEL II, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
condensed financial statements and related notes thereto.
GENERAL
JF Hotel, Inc. was formed primarily to lease and operate hotels owned by
Innkeepers USA Trust (the "Company") through Innkeepers USA Limited Partnership
and its subsidiary partnerships (collectively the "Partnership"). As of March
31, 1996, approximately 93.5% of the Partnership was owned by the Company. The
principal shareholder of the Lessee is also the President and Chairman of the
Company. The Lessee commenced the leasing and operation of seven hotels owned
by the Partnership (the "Initial Hotels") on September 30, 1994. The Company
has acquired twelve hotels subsequent to September 30, 1994 (the "Acquired
Hotels" and together with the Initial Hotels, the "Hotels"). JF Hotel, Inc.
leases and operates four of the Acquired Hotels owned by the Partnership.
JF Hotel II, Inc., a company under common ownership with JF Hotel, Inc., was
formed to lease eight of the Acquired Hotels owned by the Partnership (JF
Hotel, Inc. and JF Hotel II, Inc. are referred to collectively herein as the
"Lessee"). JF Hotel II, Inc. has contracted with an unaffiliated party to
operate five of the Acquired Hotels that it leases.
Each Hotel is leased by the Partnership to the Lessee under a percentage lease
agreement (a "Percentage Lease"). The Percentage Lease for each Hotel provides
for the payment to the Partnership of monthly base rent and monthly percentage
rent based, in substantial part, on fixed percentages of gross room revenue in
excess of certain specified levels of room revenue.
Each Hotel is operated under a franchise license. The cost of obtaining the
franchise licenses is paid by the Partnership and the continuing franchise fees
(generally a percentage of room revenue) are paid by the Lessee. The franchise
license is held by the Lessee.
RESULTS OF OPERATIONS
The Lessee -- Actual
Three Months Ended March 31, 1996
The Lessee had total revenue of $12,918,000, consisting of $12,009,000 of room
revenue and $909,000 of other revenue. Percentage Lease payments, hotel
operating expenses and overhead expenses were $5,696,000, $6,443,000 and
$359,000, respectively, resulting in net income of $420,000.
20
<PAGE> 23
JF HOTEL, INC. AND JF HOTEL II, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Three Months Ended March 31, 1995
The Lessee had total revenue of $5,043,000, consisting of $4,675,000 of room
revenue and $368,000 of other revenue. Percentage Lease payments, hotel
operating expenses and overhead expenses were $2,280,000, $2,235,000 and
$210,000, respectively, resulting in net income of $318,000.
Room revenues, Percentage Lease payments, hotel operating expenses and overhead
expenses increased for the three months ended March 31, 1996 over the three
months ended March 31, 1995 primarily due to the number of hotels leased
increasing from 7 at January 1, 1995 to 18 at January 1, 1996.
The Lessee -- Pro Forma
The following pro forma information is presented as if the acquisition of the
Hotels had occurred at the beginning of the periods presented.
Three Months Ended March 31, 1996 Compared to the Three Months
Ended March 31, 1995
Pro forma room revenue increased by $1,104,000 or 10.02% from $11,023,000 for
the three months ended March 31, 1995 to $12,127,000 for the three months ended
March 31, 1996.
Occupancy, ADR and REVPAR for the hotels on a pro forma basis for the three
months ended March 31, 1996 was 77.3%, $77.09 and $59.63, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,090,000 for the three months
ended March 31, 1996. The Lessee has met all of its obligations under the
Percentage Leases since September 30, 1994 (inception). The Lessee has only
nominal assets and relies solely on cash flow from the hotels that it leases to
satisfy all of its obligations under the Percentage Leases.
SEASONALITY
The hotel industry is seasonal in nature. The Hotels' operations historically
reflect higher occupancy rates and ADR during the second and third quarters for
the 15 Hotels located outside of Florida and higher occupancy rates and ADR
during the first and fourth quarters for three of the four Hotels located in
Florida. This tends to diminish the impact on any quarter. The seasonality
generally, and the significant impact of the first quarter with respect to the
revenues of three of the Hotels located in Florida, makes the annual revenue of
those three Hotels located in Florida highly dependent on the first quarter
room revenue.
21
<PAGE> 24
JF HOTEL, INC. AND JF HOTEL II, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
INFLATION
Operators of hotels, including the Lessee and any third-party manager retained
by the Lessee, 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 Lessee and any third-party manager retained by the Lessee to
raise room rates in response to inflation.
SUBSEQUENT EVENTS
In March 1996, the Partnership contracted to acquire on or about September 1,
1996 two hotels under development. It is anticipated that these hotels will be
leased to the Lessee.
In May 1996, the Partnership acquired and leased to the Lessee two existing
hotels.
22
<PAGE> 25
INNKEEPERS USA TRUST
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - A Form 8-K dated February 2, 1996
regarding the acquisition of the Holiday Inn Express in
Lexington, Massachusetts was filed on February 21, 1996.
23
<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INNKEEPERS USA TRUST
May 13, 1996 /s/ David Bulger
--------------------------------------
David Bulger
Secretary and Treasurer (Principal
Financial Officer)
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARTICLE 5
FDS FOR THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,774
<SECURITIES> 0
<RECEIVABLES> 3,015
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 158,024
<DEPRECIATION> 11,591
<TOTAL-ASSETS> 158,745
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> 87,811
<TOTAL-LIABILITY-AND-EQUITY> 158,745
<SALES> 0
<TOTAL-REVENUES> 5,790
<CGS> 0
<TOTAL-COSTS> 2,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,226
<INCOME-PRETAX> 2,262
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,262
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
