<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 June 30, 1996
Commission File Number 0-24568
INNKEEPERS USA TRUST
(Exact name of registrant as specified in its charter)
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)
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 August 9,
1996 was 10,822,257.
<PAGE> 2
INNKEEPERS USA TRUST
<TABLE>
<CAPTION>
INDEX
Page Number
-----------
<S> <C>
PART I. Financial Information
INNKEEPERS USA TRUST
--------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1996 (Unaudited) and December 31, 1995 1
Condensed Consolidated Statements of Income for the
three and six months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's discussion and analysis of
financial condition and results of operations 10
JF HOTEL, INC. AND JF HOTEL II, INC.
------------------------------------
Item 1. Financial Statements
Condensed Combined Balance Sheets at June 30,
1996 (Unaudited) and December 31, 1995 18
Condensed Combined Statements of Income for the
three and six months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited) 19
Condensed Combined Statements of Cash Flows for
the six months ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited) 20
Notes to Condensed Combined Financial Statements 21
Item 2. Management's discussion and analysis of financial
condition and results of operations 23
PART II. Other Information
Item 4. Submission of matters to a vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
</TABLE>
<PAGE> 3
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Investment in hotel properties, at cost:
Land $ 20,025 $ 17,380
Buildings and improvements 136,413 112,899
Furniture and equipment 19,480 16,245
-------- --------
175,918 146,524
Accumulated depreciation (13,151) (10,137)
-------- --------
Net investment in hotel properties 162,767 136,387
Cash and cash equivalents 6,511 2,093
Due from Lessee 3,264 2,048
Deferred expenses, net 2,551 2,300
Other assets 335 511
-------- --------
Total assets $175,428 $143,339
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 78,673 $ 45,636
Accrued expenses - public offering 0 415
Accounts payable and other accrued expenses 518 431
Distributions payable 2,603 2,487
Minority interest in Partnership 6,084 6,124
------- -------
Total liabilities 87,878 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, 10,821,401 and 10,817,883 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively 108 108
Additional paid-in capital 90,630 90,659
Unearned trustees' compensation (161) (185)
Distributions in excess of net earnings (3,027) (2,336)
-------- --------
Total shareholders' equity 87,550 88,246
-------- --------
Total liabilities and shareholders' equity $175,428 $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 Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Percentage lease revenue $6,354 $12,050 $2,238 $ 4,518
Other revenue 153 247 51 83
------ ------- ------ ------
Total revenue 6,507 12,297 2,289 4,601
------ ------- ------ ------
Expenses:
Depreciation and amortization 1,575 3,044 615 1,140
Ground rent 86 171 83 166
Interest expense 1,377 2,442 433 576
Amortization of loan origination
fees 215 376 124 155
Real estate and personal
property taxes and property
insurance 638 1,153 212 390
General and administrative 390 611 112 295
Amortization of unearned trustees'
compensation 12 24 10 20
------ ------ ------ ------
Total expenses 4,293 7,821 1,589 2,742
----- ----- ----- -----
Income before minority interest 2,214 4,476 700 1,859
Minority interest in income (144) (291) (86) (229)
------ ------ ---- ------
Net income $2,070 $4,185 $ 614 $1,630
====== ====== ====== ======
Net income per common share $ .19 $ .39 $ .13 $ .35
====== ====== ====== ======
Weighted average number of
common shares and common
share equivalents (units) outstanding 11,568,783 11,568,687 5,376,600 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>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,185 $ 1,630
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,068 1,160
Amortization of loan origination fees 376 155
Minority interest in Partnership 291 229
Change in operating assets and liabilities:
(Increase) decrease in:
Due from lessee (1,216) 42
Deferred expenses, net (10) (851)
Other assets 176 156
Increase (decrease) in:
Accounts payable and other accrued expenses 87 (830)
-------- ---------
Net cash provided by operating activities 6,957 1,691
-------- ---------
Cash flows from investing activities:
Investment in hotel properties (26,544) (19,032)
Cash paid for franchise fees (122) (154)
Deposit on Acquisition Hotels (2,850) 0
-------- ---------
Net cash used in investing activities (29,516) (19,186)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 35,086 21,867
Payments on long-term debt (2,049) (782)
Payments on dividend reinvestment plan (49) 0
Proceeds from issuance of common shares 2 0
Payments on accrued expenses-public offering (397) (4)
Distributions paid (5,091) (2,085)
Loan origination fees paid (525) (700)
-------- ---------
Net cash provided by financing activities 26,977 18,296
-------- ---------
Net increase in cash and cash equivalents 4,418 801
Cash and cash equivalents at beginning of period 2,093 1,455
-------- ---------
Cash and cash equivalents at end of period $ 6,511 $ 2,256
======== ========
Supplemental cash flow information:
Interest paid $ 2,442 $ 547
======== ========
</TABLE>
Supplemental non-cash financing activities:
The Company (and the Partnership) declared a quarterly distribution of
$.19375 and $.215 per common share and common share equivalent (units)
outstanding for the quarters ending March 31 and June 30, 1995,
respectively. The Company declared a quarterly distribution of $.225 per
common share and common share equivalent (units) outstanding for the
quarters ending March 31 and June 30, 1996, respectively. The aggregate
amount of distributions paid for each such quarter was approximately
$1,042,000, $1,156,000, $2,603,000 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 June 30, 1996.
The accompanying 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 (including its wholly owned subsidiaries, the
"Company") commenced operations on September 30, 1994 and owns 21
hotels in eleven states at June 30, 1996. 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 Partnership has acquired fourteen 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"), 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 unaudited 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 $5.5 million that
is required to be held in escrow accounts as specified by the terms of
the Company's $70 million line of
4
<PAGE> 7
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
2. RESTRICTED CASH AND CASH EQUIVALENTS, CONTINUED
credit ("Line of Credit") and the $30 million term loan (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 twelve Hotels that collateralize the
Line of Credit and the eight Hotels that collateralize the Term Loan.
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 $3.6 million
at June 30, 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 six months ended June 30,
1996 was 7.45% and the Line of Credit expires March 1998. The
outstanding principal balance on the Line of Credit was approximately
$45.0 million at June 30, 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
based on a twenty-year term commencing on the second year anniversary
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. The
outstanding principal balance on the Term Loan was $30.0 million at
June 30, 1996.
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 $ 51
1997 45,295
1998 745
1999 805
2000 870
Thereafter 30,907
------
$78,673
======
</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 800,000 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 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 vest in 1999.
The Company has also granted 20,000 incentive share options to an
officer of the Company at an exercise price of $8.875, which vest over
a three year period. No options were exercised as of June 30, 1996.
5. ACQUISITIONS
In February 1996, the Partnership acquired an existing hotel from an
unaffiliated party for approximately $7,000,000 in cash.
In May 1996, the Partnership acquired two existing hotels from an
unaffiliated party for approximately $16,800,000 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 June 30, 1996. In February 1996,
3,285 Units were redeemed for 3,285 Common Shares.
6
<PAGE> 9
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS, CONTINUED
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.
The Partnership earned Percentage Lease revenue of $12,050,000 and
$4,518,000 for the six months ended June 30, 1996 and June 30, 1995,
respectively. At June 30, 1996, the Lessee owed the Company
approximately $3,491,000 in Percentage Lease revenue under the
Percentage Leases. The Company evaluated the creditworthiness 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 six months ended June 30, 1996.
The Lessee has future minimum base lease commitments under the
Percentage Lease agreements to the Partnership through the year 2006.
Minimum future base lease revenue, under the Percentage Lease
agreements, are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 5,942
1997 11,885
1998 11,885
1999 11,885
2000 11,885
Thereafter 53,949
</TABLE>
The Lessee's net income and gross room revenue were approximately
$826,000 and $25,333,000, respectively, for the six months ended June
30, 1996 and $410,000 and $9,514,000, respectively, for the six months
ended June 30, 1995 and are derived solely from the operations of the
Company's hotels.
At June 30, 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. The Company's consolidated
indebtedness is 45% of its investment in hotels, at cost, at June 30,
1996.
7
<PAGE> 10
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
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.
In August 1996, the Partnership acquired an existing hotel from an
unaffiliated party for approximately $3,000,000 in cash.
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 and July
1996, 233 and 330 common shares were issued under the Plan,
respectively.
Redemption of Units
In July 1996, 526 units were redeemed for 526 common shares.
8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma consolidated statements of income of the
Company is presented as if the acquisition of the Hotels has occurred
at the beginning of the periods presented and all of the Hotels had
been leased to the Lessee pursuant to the percentage leases throughout
the periods presented.
The unaudited pro forma consolidated statements of income for the
periods presented are not necessarily indicative of what actual
results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the periods
presented, nor does it purport to represent the results of operations
for future periods.
8
<PAGE> 11
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Operating Data:
Percentage Lease Revenue $ 12,781 $ 11,233
Other revenue 456 456
------ ------
Total Revenue 13,237 11,689
------ ------
Depreciation and amortization 3,449 3,449
Ground rent 168 168
Interest expense 3,004 3,004
Amortization of origination fees 480 480
Real estate and personal property taxes
and property insurance 1,164 1,164
General and administrative 500 500
Amortization of unearned Trustees'
compensation 24 24
----- -----
Total expenses 8,789 8,789
Income before minority interest 4,448 2,900
Minority interest in income (289) (189)
----- -----
Net income $ 4,159 $ 2,711
========== ==========
Net income per common share $ 0.38 $ 0.25
========== ==========
Weighted average number of common
shares and common share equivalents
outstanding 11,568,591 11,568,591
========== ==========
</TABLE>
9
<PAGE> 12
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 (including its wholly owned subsidiaries, the "Company")
commenced operations on September 30, 1994 and owns 21 hotels in eleven states
at June 30, 1996. 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 Partnership has acquired fourteen 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"),
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 six months ended June 30, 1996, the Partnership acquired a 164-room
Holiday Inn Express in Lexington, Massachusetts, a 96-suite Residence Inn in
Cherry Hill, New Jersey and an 80-suite Residence Inn in Harrisburg,
Pennsylvania.
10
<PAGE> 13
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
HOTELS
The following chart summarizes information regarding the Hotels at June 30,
1996.
<TABLE>
<CAPTION>
Franchise Affiliation Number of Hotel Properties Number of Rooms
--------------------- -------------------------- ---------------
<S> <C> <C>
Extended stay hotels:
Residence Inn 11 1,072
-- -----
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 21 2,411
== =====
</TABLE>
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 and six months ended June 30, 1996 as
compared to the three and six months ended June 30, 1995. Management believes
the growth in REVPAR at the Hotels reflects the continued 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 and six months
ended June 30, 1996 as compared to the three and six months ended June 30,
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.
11
<PAGE> 14
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
For the Three Months For the Three Months Percentage
Hotels Ended June 30, 1996 Ended June 30, 1995 Change
- ------ ------------------- ------------------- ------
<S> <C> <C> <C>
Occupancy 82.9% 78.6% 5.5%
ADR $76.10 $72.57 4.9%
REVPAR $63.10 $57.05 10.6%
</TABLE>
<TABLE>
<CAPTION>
For the Six Months For the Six Months Percentage
Hotels Ended June 30, 1996 Ended June 30, 1995 Change
- ------ ------------------- ------------------- ------
<S> <C> <C> <C>
Occupancy 80.4% 76.3% 5.4%
ADR $76.91 $74.29 3.5%
REVPAR $61.85 $56.68 9.1%
</TABLE>
RESULTS OF OPERATIONS
The Company -- Actual
Three months ended June 30, 1996
The Company had revenues of $6,507,000, consisting of $6,354,000 of Percentage
Lease revenue from the Lessee and $153,000 of other revenue. Depreciation and
amortization, amortization of loan origination fees, and amortization of
unearned trustees' compensation were $1,802,000 in the aggregate. Real estate
and personal property taxes and property insurance were $638,000. Interest
expense of $1,377,000 primarily consisted of interest incurred on borrowings
outstanding under the Line of Credit and Term Loan. Net income before minority
interest was $2,214,000 or $0.19 per share. Funds from Operations (income
before minority interest and depreciation and amortization) was $3,789,000 or
$0.33 per share.
Three months ended June 30, 1995
The Company had revenues of $2,289,000, consisting of $2,238,000 of Percentage
Lease revenue from the Lessee and $51,000 of other revenue. Depreciation and
amortization, amortization of loan origination fees, and amortization of
unearned trustees' compensation were $749,000 in the aggregate. Real estate
and personal property taxes and property insurance were $212,000. Interest
expense of $433,000 primarily consisted of interest incurred on borrowings
outstanding under the Line of Credit and Mortgage Note. Net income before
minority interest was $700,000 or $0.13 per share. Funds from Operations
(income before minority interest and depreciation and amortization) was
$1,315,000 or $0.24 per share.
12
<PAGE> 15
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Percentage Lease revenue, depreciation and amortization, interest expense and
real estate and personal property taxes and property insurance increased for
the three months ended June 30, 1996 over the three months ended June 30, 1995
primarily due to the number of hotels owned increasing from 7 at January 1,
1995 to 18 at January 1, 1996 and to 21 at June 30, 1996.
Six months ended June 30, 1996
The Company had revenues of $12,297,000, consisting of $12,050,000 of Percentage
Lease revenue from the Lessee and $247,000 of other revenue. Depreciation and
amortization, amortization of loan origination fees, and amortization of
unearned trustees' compensation were $3,444,000 in the aggregate. Real estate
and personal property taxes and property insurance were $1,153,000. Interest
expense of $2,442,000 primarily consisted of interest incurred on borrowings
outstanding under the Line of Credit and Term Loan. Net income before minority
interest was $4,476,000 or $0.39 per share. Funds from Operations (income
before minority interest and depreciation and amortization) was $7,520,000 or
$0.65 per share.
Six months ended June 30, 1995
The Company had revenues of $4,601,000, consisting of $4,518,000 of Percentage
Lease revenue from the Lessee and $83,000 of other revenue. Depreciation and
amortization, amortization of loan origination fees, and amortization of
unearned trustees' compensation were $1,315,000 in the aggregate. Real estate
and personal property taxes and property insurance were $390,000. Interest
expense of $576,000 primarily consisted of interest incurred on borrowings
outstanding under the Line of Credit and Mortgage Note. Net income before
minority interest was $1,859,000 or $0.35 per share. Funds from Operations
(income before minority interest and depreciation and amortization) was
$2,999,000 or $0.56 per share.
Percentage Lease revenue, depreciation and amortization, interest expense and
real estate and personal property taxes and property insurance increased for
the six months ended June 30, 1996 over the six months ended June 30, 1995
primarily due to the number of hotels owned increasing from 7 at January 1,
1995 to 18 at January 1, 1996 and to 21 at June 30, 1996.
13
<PAGE> 16
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The Company - 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.
Six months ended June 30, 1996 compared to the six months ended
June 30, 1995
Pro forma Percentage Lease revenue increased by $1,548,000, or 14%, from
$11,233,000 for the six months ended June 30, 1995 to $12,781,000 for the six
months ended June 30, 1996. The increase was primarily due to a 3.5% increase
in ADR and a 5.4% increase in occupancy at the Hotels, which resulted in
increased Percentage Lease revenue. As a percentage of total revenue, total
pro forma expenses decreased from 75% for the six months ended June 30, 1995 to
66% for the six months ended June 30, 1996 as a result of expenses remaining
relatively constant while pro forma total revenue increased.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of June 30, 1996 were $6,511,000, including
approximately $806,000 which the Partnership is required, under the Percentage
Leases, to make available to the Lessee for the replacement and refurbishment
of furniture, fixtures and equipment. Additionally, cash and cash equivalents
includes approximately $4,667,000 that is held in escrow to pay for insurance,
taxes, and capital expenditures pertaining to the twelve Hotels that
collateralize the Line of Credit and the eight Hotels that collateralize the
Term Loan.
Net cash provided by operating activities for the six months ended June 30,
1996 was $6,957,000.
Net cash used in investing activities was $29,516,000 for the six months ended
June 30, 1996. This was comprised primarily of the Company acquiring a Holiday
Inn Express Hotel in Lexington, Massachusetts for $7,000,000 and Residence Inn
Hotels in Cherry Hill, New Jersey and Harrisburg, Pennsylvania for an aggregate
of $16,800,000 in cash and deposits of $2,850,000 applied toward the purchase of
three additional hotel properties. The Company's purchase price for the three
additional hotel properties is approximately $30.5 million. The Company's
consolidated indebtedness is 45% of its investment in hotels, at cost, at June
30, 1996 representing further borrowing capacity of approximately $19 million at
June 30, 1996 (the Declaration of Trust consolidated indebtedness limitation is
50% of its investment in hotels, at cost). The Company is exploring various
alternatives to finance the remaining $11.5 million purchase price of the three
additional hotel properties. Additionally, the deposits of $2,850,000
14
<PAGE> 17
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
are potentially subject to forfeiture if the purchase of the three additional
hotel properties is not consummated.
Net cash provided by financing activities was $26,977,000 for the six months
ended June 30, 1996, reflecting proceeds from long term debt of $35,086,000,
including $26,650,000 in borrowings under the Line of Credit to purchase three
Acquired Hotels and make deposits toward the purchase of three additional hotel
properties. The Company (and the Partnership) paid an aggregate of $5,091,000
in distributions to holders of Common Shares and Units during the six-month
period ended June 30, 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. The Company's consolidated indebtedness is 45% of its
investment in hotels, at cost, at June 30, 1996. At June 30, 1996, the Company
had outstanding indebtedness of approximately $78,673,000.
The Company's long-term debt at June 30, 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 $3.6 million at June 30, 1996.
In March 1995, the Company, through the Partnership, obtained a $40 million
Line of Credit to fund future hotel acquisitions and provide working capital.
In October 1995, the Line of Credit was increased to $50 million and in March
1996, the Line of Credit was increased to $70 million. As of June 30, 1996,
approximately $45.0 million in borrowings were outstanding under the Line of
Credit. The Line of Credit is collateralized by twelve Hotels and will be
further collateralized by any hotels acquired in the future with proceeds from
the Line of Credit. As of June 30, 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 six-month period ended June 30, 1996 was 7.45%.
15
<PAGE> 18
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The Term Loan is collateralized by eight Hotels. The Term Loan bears interest
at a fixed rate equal to 8.17%. The principal amount of the Term Loan will
amortize based on a twenty-year term commencing on the second year 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 after the twelfth year, interest on the then
outstanding principal balance will accrue at 13.17%. The outstanding principal
balance on the Term Loan was $30.0 million at June 30, 1996.
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 periodic replacement or refurbishment of
furniture, fixtures and equipment at the Hotels. The Partnership has made
available to the Lessee approximately $2,814,000 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.
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.
16
<PAGE> 19
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
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 17 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. 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.
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 August 1996, the Partnership acquired an existing hotel from an unaffiliated
party for approximately $3,000,000 in cash.
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 and July 1996, 233 and
330 common shares were issued under the Plan, respectively.
Redemption of Units
In July 1996, 526 units were redeemed for 526 common shares.
17
<PAGE> 20
JF HOTEL, INC. AND JF HOTEL II, INC.
CONDENSED COMBINED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------ -----------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,151 $ 2,894
Marketable securities 763 260
Accounts receivable 1,914 1,540
Due from shareholders 0 41
Inventory 25 27
Prepaid expenses 56 219
Other assets 214 154
-------- --------
Total assets $ 6,123 $ 5,135
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,220 $ 2,023
Accrued expenses 1,103 1,062
Due to partnership 3,264 2,048
-------- --------
Total liabilities 5,587 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 534 0
-------- --------
Total shareholders' equity 536 2
-------- --------
Total liabilities and shareholders' equity $ 6,123 $ 5,135
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed combined financial statements.
18
<PAGE> 21
JF HOTEL, INC. AND JF HOTEL II, INC.
CONDENSED COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
(JF Hotel, Inc. and (JF Hotel, Inc. and
JF Hotel II, Inc.) JF Hotel II, Inc.) (JF Hotel, Inc.) (JF Hotel, Inc.)
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross operating revenue:
Rooms $13,324 $25,333 $4,839 $9,514
Food and beverage 254 441 140 270
Telephone 432 885 143 265
Other 266 567 109 225
------- ------- ------ -------
Gross operating revenue $14,276 $27,226 $5,231 $10,274
------- ------- ------ -------
Departmental Profit:
Rooms $10,549 $20,164 $3,807 $7,675
Food and beverage 18 53 (5) 21
Telephone 314 578 70 121
Other 238 427 79 162
------- ------- ------ ------
Total departmental profit $11,119 $21,222 $3,951 $7,979
------- ------- ------ ------
Unallocated operating expenses:
General and administrative 785 1,497 306 547
Franchise fees 1,007 1,922 373 758
Advertising and promotions 518 974 177 296
Utilities 675 1,466 279 534
Repairs and maintenance 661 1,267 221 400
Management fees 54 105 0 0
------- ------- ------ ------
Total unallocated operating
expenses 3,700 7,231 1,356 2,535
------- ------- ------ ------
Gross operating profit $ 7,419 $13,991 $2,595 $5,444
------- ------- ------ ------
Insurance (109) (206) (64) (105)
------- ------- ------ -----
Net operating profit 7,310 13,785 2,531 5,339
------- ------- ------ ------
Lessee overhead (545) (904) (201) (411)
Percentage lease payments (6,354) (12,050) (2,238) (4,518)
------- ------- ------ ------
Net income $ 411 $ 831 $ 92 $ 410
======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these
condensed combined financial statements.
19
<PAGE> 22
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 II, Inc.) (JF Hotel, Inc.)
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 831 $ 410
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (374) (192)
Inventory 2 9
Prepaid expenses 163 96
Other assets (60) (42)
Increase (decrease) in:
Account payable (803) 40
Accrued expenses 41 93
Due to partnership 1,216 (42)
-------- -----
Net cash provided by operating activities 1,016 372
-------- -----
Cash flows from investing activities:
Purchase of marketable securities (503) 0
-------- -----
Net cash used in investing activities (503) 0
-------- -----
Cash flows from financing activities:
Dividends paid (256) (269)
--------- -----
Net cash used in financing activities (256) (269)
--------- -----
Net increase in cash and cash equivalents 257 103
Cash and cash equivalents at beginning of period 2,894 549
--------- -----
Cash and cash equivalents at end of period $ 3,151 $ 652
========= =====
</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
June 30, 1996.
The accompanying notes are an integral part of these
condensed combined financial statements
20
<PAGE> 23
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 (including its wholly owned subsidiaries, the
"Company") through Innkeepers USA Limited Partnership and its
subsidiary partnerships (collectively the "Partnership"). As of June
30, 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. JF Hotel, Inc. commenced the
leasing and operation of seven hotels owned by the Partnership (the
"Initial Hotels") on September 30, 1994. The Partnership has acquired
fourteen hotels subsequent to September 30, 1994 (the "Acquired
Hotels" and together with the Initial Hotels, the "Hotels"). JF
Hotel, Inc. leases and operates six of the Acquired Hotels owned by
the Partnership. JF Hotel, Inc. leases and operates 13 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 eight
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.
In May 1996, the Partnership acquired and leased to the Lessee two
existing hotels.
21
<PAGE> 24
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 2006.
Minimum future base lease payments under the Percentage Lease
agreements, are as follows (in thousands):
<TABLE>
YEAR AMOUNT
---- ------
<S> <C>
1996 $ 5,942
1997 11,885
1998 11,885
1999 11,885
2000 11,885
Thereafter 53,949
</TABLE>
The Lessee has purchased 78,000 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 August 1996, the Partnership acquired and leased to the Lessee an
existing hotel.
22
<PAGE> 25
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 (including its wholly owned subsidiaries, the "Company")
through Innkeepers USA Limited Partnership and its subsidiary partnerships
(collectively the "Partnership"). As of June 30, 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. JF Hotel, Inc.
commenced the leasing and operation of seven hotels owned by the Partnership
(the "Initial Hotels") on September 30, 1994. The Partnership has acquired
fourteen hotels subsequent to September 30, 1994 (the "Acquired Hotels" and
together with the Initial Hotels, the "Hotels"). JF Hotel, Inc. leases and
operates six of the Acquired Hotels owned by the Partnership. JF Hotel, Inc.
leases and operates 13 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 June 30, 1996
The Lessee had total revenue of $14,276,000, consisting of $13,324,000 of room
revenue and $952,000 of other revenue. Percentage Lease payments, hotel
operating expenses and overhead expenses were $6,354,000, $6,966,000 and
$545,000, respectively, resulting in net income of $411,000.
23
<PAGE> 26
JF HOTEL, INC. AND JF HOTEL II, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Three months ended June 30, 1995
The Lessee had total revenue of $5,231,000, consisting of $4,839,000 of room
revenue and $392,000 of other revenue. Percentage Lease payments, hotel
operating expenses and overhead expenses were $2,238,000, $2,700,000 and
$201,000, respectively, resulting in net income of $92,000.
Room revenues, Percentage Lease payments, hotel operating expenses and overhead
expenses increased for the three months ended June 30, 1996 over the three
months ended June 30, 1995 primarily due to the number of hotels leased
increasing from 7 at January 1, 1995 to 18 at January 1, 1996, and to 21 at
June 30, 1996.
Additionally, the gross margin percentage was 78% and 76% for the three months
ended June 30, 1996 and June 30, 1995, respectively. Unallocated operating
expenses as a percentage of gross operating revenue remained constant at 26%
for the three months ended June 30, 1996 and June 30, 1995. The increase in
gross margin percentage is primarily attributable to a 4.9% increase in ADR.
Net income as a percentage of gross operating revenue remained relatively
constant at 3% and 2% for the three months ended June 30, 1996 and June 30,
1995, respectively.
Six months ended June 30, 1996
The Lessee had total revenue of $27,226,000, consisting of $25,333,000 of room
revenue and $1,893,000 of other revenue. Percentage Lease payments, hotel
operating expenses and overhead expenses were $12,050,000, $13,441,000 and
$904,000, respectively, resulting in net income of $831,000.
Six months ended June 30, 1995
The Lessee had total revenue of $10,274,000, consisting of $9,514,000 of room
revenue and $760,000 of other revenue. Percentage Lease payments, hotel
operating expenses and overhead expenses were $4,518,000, $4,935,000 and
$411,000, respectively, resulting in net income of $410,000.
Room revenues, Percentage Lease payments, hotel operating expenses and overhead
expenses increased for the six months ended June 30, 1996 over the six months
ended June 30, 1995 primarily due to the number of hotels leased increasing
from 7 at January 1, 1995 to 18 at January 1, 1996, and to 21 at June 30, 1996.
Additionally, the gross margin percentage remained relatively constant at 78%
for the six months ended June 30, 1996 and June 30, 1995. Net income as a
percentage of gross operating revenue
24
<PAGE> 27
JF HOTEL, INC. AND JF HOTEL II, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
remained relatively constant at 3% and 4% for the six months ended June 30,
1996 and June 30, 1995.
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 June 30, 1996 compared to the three months
ended June 30, 1995
Pro forma room revenue increased by $1,328,000 or 10.6% from $12,516,000 for
the three months ended June 30, 1995 to $13,844,000 for the three months ended
June 30, 1996.
Occupancy, ADR and REVPAR for the hotels on a pro forma basis for the three
months ended June 30, 1996 was 82.9%, $76.10 and $63.10, respectively.
Six months ended June 30, 1996 compared to the six months
ended June 30, 1995
Pro forma room revenue increased by $2,403,000 or 9.7% from $24,736,000 for the
six months ended June 30, 1995 to $27,139,000 for the six months ended June 30,
1996.
Occupancy, ADR and REVPAR for the hotels on a pro forma basis for the six
months ended June 30, 1996 was 80.4%, $76.91 and $61.85, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,016,000 for the six months
ended June 30, 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 17 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.
25
<PAGE> 28
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 August 1996, the Partnership acquired and leased to the Lessee an existing
hotel.
26
<PAGE> 29
INNKEEPERS USA TRUST
PART II - OTHER INFORMATION
ITEM 4 Submission of matters to a vote of Security Holders.
A. The Annual Meeting of Shareholders was held on May 8, 1996 for
the following purposes:
- To elect (a) one Class I trustee to serve on the
Board of Trustees until the annual meeting of
shareholders in 1998 and (b) two Class II trustees to
serve on the Board of Trustees until the annual
meeting of shareholders in 1999. (Proposal one)
- To vote upon a proposal to amend the Company's 1994
Share Incentive Plan to increase the maximum
aggregate number of common shares issuable under the
1994 Share Incentive Plan from 500,000 to 800,000
common shares. (Proposal two)
- To vote upon a proposal to amend the Company's
Trustees' Share Incentive Plan to permit Trustees
elected or appointed to the Board of Trustees other
than at an annual meeting of the Company's
shareholders to receive awards upon their election or
appointment to the Board. (Proposal three)
Under proposal one, shareholders voted to elect one Class I
trustee, Mr. Nicholas A. Buoniconti, with 10,048,159 shares
voted for (33,200 votes withheld authority), and two Class II
trustees, Mr. Miles Berger, with 10,047,659 shares voted for
(33,700 votes withheld authority) and Mr. C. Gerald Goldsmith,
with 10,048,059 shares voted for (33,300 votes withheld
authority). Mr. Bruce Zenkel and Jeffrey H. Fisher continue
to serve as trustees of the Company.
Under proposal two, the shareholders voted to amend the
Company's 1994 Share Incentive Plan with 9,693,958 shares
voted for, 341,530 shares voted against and 45,871 votes
withholding authority.
Under proposal three, the shareholder's voted to amend the
Company's Trustees' Share Incentive Plan with 9,624,700 shares
voted for, 374,647 shares voted against and 82,012 votes
withholding authority.
B. A special meeting of shareholders was held on March 6, 1996 to
vote on a proposal to amend the Company's Amended and Restated
Declaration of Trust to increase the limitation on
consolidated indebtedness from 40% to 50% of the Company's
investment in hotel properties, at cost.
27
<PAGE> 30
The shareholders voted to amend the Company's Amended and
Restated Declaration of Trust 7,259,469 shares voted for,
132,219 shares voted against and 106,016 votes withholding
authority.
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.
- A Form 8-K dated May 8, 1996 regarding the
acquisition of the Residence Inn in Cherry Hill, New
Jersey and the Residence Inn in Harrisburg,
Pennsylvania was filed on May 21, 1996.
- A Form 8K-A dated May 8, 1996 regarding the
acquisition of the Residence Inn in Cherry Hill, New
Jersey and the Residence Inn in Harrisburg,
Pennsylvania was filed on July 17, 1996.
28
<PAGE> 31
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
August 13, 1996 /s/ David Bulger
- --------------- ---------------------------------------
David Bulger
Secretary and Treasurer
(Principal Financial Officer)
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INNKEEPERS USA TRUST FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
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0
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