<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 September 30, 1997
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 (561) 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 November 1,
1997 was 32,848,608.
<PAGE> 2
INNKEEPERS USA TRUST
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
INNKEEPERS USA TRUST
Consolidated Balance Sheets at
September 30, 1997 (unaudited) and December 31, 1996 1
Consolidated Statements of Income for the
three and nine months ended September 30, 1997 and
1996 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited) 3
Notes to Consolidated Financial Statements 4
JF HOTEL
Combined Balance Sheets at September 30, 1997
(unaudited) and December 31, 1996 13
Combined Statements of Income for the
three and nine months ended September 30, 1997 and 1996
(unaudited) 14
Combined Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996
(unaudited) 15
Notes to Combined Financial Statements 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
</TABLE>
<PAGE> 4
INNKEEPERS USA TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Investment in hotel properties:
Land $60,404 $42,565
Buildings and improvements 401,559 251,411
Furniture and equipment 58,555 32,644
--------- ---------
520,518 326,620
Accumulated depreciation (30,167) (17,560)
--------- ---------
Net investment in hotel properties 490,351 309,060
Cash and cash equivalents 18,890 40,339
Restricted cash and cash equivalents 10,846 4,400
Due from Lessee 9,175 3,541
Deferred expenses, net 5,669 2,718
Other assets 953 299
--------- ---------
Total assets $535,884 $360,357
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $100,320 $100,740
Accounts payable and other accrued expenses 4,846 915
Distributions payable 10,501 5,217
Minority interest in Partnership 75,092 45,880
--------- ---------
Total liabilities 190,759 152,752
--------- ---------
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred Shares, $.01 par value, 20,000,000 shares
authorized, no shares issued or outstanding
Common Shares, $.01 par value, 100,000,000 shares authorized, 32,848,341 and
22,322,498 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively 328 223
Additional paid-in capital 355,664 213,692
Unearned compensation (1,941) (138)
Distributions in excess of net earnings (8,926) (6,172)
--------- ---------
Total shareholders' equity 345,125 207,605
--------- ---------
Total liabilities and shareholders' equity $535,884 $360,357
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE> 5
INNKEEPERS USA TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Percentage Lease revenue $ 20,424 $ 6,882 $ 47,736 $ 18,932
Other revenue 407 117 964 364
------------ ------------ ------------ ------------
Total revenue 20,831 6,999 48,700 19,296
------------ ------------ ------------ ------------
Expenses:
Depreciation 5,608 1,730 12,607 4,744
Amortization of franchise costs 16 30 49 60
Ground rent 112 94 288 265
Interest expense 2,845 1,563 7,291 4,005
Amortization of loan origination
fees 391 244 795 620
Real estate and personal
property taxes and property
insurance 1,695 698 3,948 1,851
General and administrative 679 278 1,697 889
Amortization of unearned
compensation 237 12 294 36
------------ ------------ ------------ ------------
Total expenses 11,583 4,649 26,969 12,470
------------ ------------ ------------ ------------
Income before minority interest 9,248 2,350 21,731 6,826
Minority interest, common (736) (153) (1,316) (444)
Minority interest, preferred (1,159) (3,393)
------------ ------------ ------------ ------------
Net income $ 7,353 $ 2,197 $ 17,022 $ 6,382
============ ============ ============ ============
Net income per common share $ 0.25 $ 0.20 $ 0.69 $ 0.59
============ ============ ============ ============
Weighted average number of
common shares and common
share equivalents outstanding 32,442,503 11,569,095 26,616,607 11,568,715
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE> 6
INNKEEPERS USA TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except supplemental non-cash financing activities)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
--------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,022 $ 6,382
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,745 5,460
Minority interest, common and preferred 4,709 444
Changes in operating assets and liabilities:
Due from lessee (5,634) (1,475)
Deferred expenses, net (119)
Other assets (124) 3
Accounts payable and other accrued expenses 1,681 343
--------- --------
Net cash provided by operating activities 31,399 11,038
--------- --------
Cash flows from investing activities:
Investment in hotel properties (157,646) (31,732)
Net deposits into restricted cash accounts (6,446)
Payments for franchise fees (166) (188)
Deposits under purchase agreements (300) (5,675)
Other acquisition costs paid (351) (127)
--------- --------
Net cash used in investing activities (164,909) (37,722)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt 161,328 43,342
Payments on long-term debt (161,748) (4,275)
Proceeds from issuance of common shares 135,438 5
Dividend reinvestment plan and shelf registration costs paid (81) (55)
Payment of common share issuance expenses (452)
Distributions paid to Unit holders (3,103) (1,395)
Distributions paid to common shareholders (16,258) (6,298)
Loan origination fees and costs paid (3,515) (566)
--------- --------
Net cash provided by financing activities 112,061 30,306
--------- --------
Net increase (decrease) in cash and cash equivalents (21,449) 3,622
Cash and cash equivalents at beginning of period 40,339 2,093
--------- --------
Cash and cash equivalents at end of period $ 18,890 $ 5,715
========= ========
Supplemental cash flow information:
Interest paid $ 7,463 $ 4,005
========= ========
</TABLE>
Supplemental non-cash financing activities:
The Company issued 2,307,763 common Units with a deemed value at the time of
issuance of $33,995,000 for the acquisition of 11 hotel properties during the
nine months ended September 30, 1997.
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 7
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND RECENT DEVELOPMENTS
ORGANIZATION
Innkeepers USA Trust ("Innkeepers") is a self-administered real estate
investment trust ("REIT"), which commenced operations on September 30,
1994. Innkeepers initially acquired an 87.7% equity interest in
Innkeepers USA Limited Partnership (with its subsidiary partnerships,
the "Partnership" and collectively with Innkeepers, the "Company")
which owned seven hotels with an aggregate of 851 rooms. At September
30, 1997, Innkeepers owned interests in 47 hotels with an aggregate of
5,727 rooms (the "Hotels") through its 82.1% interest in the
Partnership. The Hotels are comprised of 23 Residence Inn by Marriott
hotels, 12 Hampton Inn hotels, 6 Summerfield Suites hotels, 2 Sierra
Suites hotels, 1 Comfort Inn hotel, 1 Sheraton Inn hotel, 1 Holiday Inn
Express hotel and 1 Sunrise Suites hotel. The Hotels are located in 18
states, with nine hotels located in California.
The Company leases 38 of the Hotels to JF Hotel, Inc. (or other
entities under common ownership, collectively the "JF Lessee") and nine
of the Hotels to an affiliate of Summerfield Hotel Corporation (the
"Summerfield Lessee" and collectively with the JF Lessee, the "Lessee")
pursuant to leases which provide for rent based on the room revenues of
the Hotels ("Percentage Leases").
Two officers of the Company are the shareholders of the JF Lessee. A
trustee of the Company is a principal shareholder of the Summerfield
Lessee.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC")
and should be read in conjunction with the financial statements and
notes thereto of the Company and the JF Lessee included in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 (the "10-K"). The notes to the financial statements included
herein highlight significant changes to the notes included in the 10-K
and present interim disclosures required by the SEC. In the opinion of
management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. The
results of any interim period are not necessarily indicative of results
for the full year.
4
<PAGE> 8
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND RECENT DEVELOPMENTS, CONTINUED
RECENT DEVELOPMENTS
The Company successfully completed an underwritten public offering of
9,500,000 Common Shares on July 29, 1997. The underwriters exercised
their over-allotment option on an additional 784,000 Common Shares on
August 27, 1997. The net proceeds from the offering (including the
over-allotment) were approximately $135,400,000.
On October 31, 1997, the Company purchased a 96-room Residence Inn
hotel located in Shelton, Connecticut, for a cash price of $11,150,000.
2. LONG-TERM DEBT
Long-term debt at September 30, 1997 consists of (a) mortgage notes
collateralized by the Hampton Inn hotel located in West Palm Beach, FL
(the "Florida Mortgage Note"), a Residence Inn hotel located in
Sunnyvale, CA (the "California Mortgage Note") and two Residence Inn
hotels located in East Lansing and Grand Rapids, MI (the "Michigan
Mortgage Note"), (b) outstanding borrowings under the Company's $190
million line of credit (the "Line of Credit"), and (c) outstanding
borrowings under two term loans (the "First Term Loan" and "Second Term
Loan").
The Florida Mortgage Note is payable in equal monthly installments of
$23,526 including interest at a fixed rate of 5.0% per annum through
January 2002 at which time all outstanding principal and interest is
due. The outstanding principal balance on the Florida Mortgage Note was
approximately $3.5 million and $3.6 million at September 30, 1997 and
December 31, 1996, respectively.
The California Mortgage Note is payable in equal monthly installments
of $141,331, including interest at a fixed rate of 10.35% per annum
through June 2010, at which time all outstanding principal and interest
is due. The outstanding principal balance on the California Mortgage
Note was approximately $14.8 million and $14.9 million at September 30,
1997 and December 31, 1996, respectively.
The Michigan Mortgage Note is payable in monthly interest only
payments, at a variable interest rate (3.75% at September 30, 1997),
which is based upon the 30-day yield of a group of tax exempt
securities selected by an independent party, through December 2014, at
which time all outstanding principal and interest is due. The Michigan
Mortgage Note is also collateralized by irrevocable letters of credit.
The outstanding principal balance on the Michigan Mortgage Note was
$10.0 million at September 30, 1997 and December 31, 1996.
5
<PAGE> 9
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. LONG-TERM DEBT, CONTINUED
Outstanding borrowings under the Line of Credit bear interest at the
30-day LIBOR rate plus 175 basis points for collateralized borrowings
and at the 30-day LIBOR rate plus 195 basis points for uncollateralized
borrowings. $40.0 million of the Line of Credit is available on an
uncollateralized basis. The interest rate on borrowings under the Line
of Credit at September 30, 1997 was 7.375% and at December 31, 1996 was
7.1%. The Line of Credit was amended in May 1997 and expires in May
2000. The Company has the option to extend the term of the Line of
Credit for an additional one year period upon the satisfaction of
certain conditions and the payment of an extension fee. The outstanding
principal balance on the Line of Credit was approximately $0.0 million
and $42.2 million at September 30, 1997 and December 31, 1996,
respectively.
The First Term Loan, in the principal amount of $30.0 million, bears
interest at an 8.17% fixed annual rate. The First Term Loan has
scheduled principal amortization over a twenty-year term commencing on
November 11, 1997. Interest on the outstanding principal balance of the
First Term Loan will accrue at 13.17% if the outstanding principal
balance is not paid in full by October 11, 2007. The Company
anticipates repaying the remaining principal balance of the First Term
Loan on or before October 11, 2007. The outstanding principal balance
on the First Term Loan was $30.0 million at September 30, 1997 and
December 31, 1996.
In March 1997, $42.0 million of the outstanding principal balance on
the Line of Credit was refinanced with the Second Term Loan, which
bears interest at an 8.15% fixed annual rate. The Second Term Loan has
scheduled principal amortization over a twenty-year term commencing on
April 11, 1999. Interest on the outstanding principal balance of the
Second Term Loan will accrue at 13.15% if the outstanding principal
balance is not paid in full by March 11, 2009. The Company anticipates
repaying the remaining principal balance of the Second Term Loan on or
before March 11, 2009. The outstanding principal balance on the Second
Term Loan was $42.0 million at September 30, 1997.
In June 1997, the Company borrowed approximately $89,380,000 on an
interim loan (the "Interim Loan") to partially finance the purchase of
nine existing Hotels from an unaffiliated party. The Interim Loan bore
interest at the 30-day LIBOR rate plus 171 basis points (which was
7.4%). The Interim Loan was repaid in July 1997 from the proceeds of
the common share offering completed on July 29, 1997. The Company may
re-borrow up to $70.0 million under this facility upon the satisfaction
of certain terms and conditions.
6
<PAGE> 10
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. LONG-TERM DEBT, CONTINUED
At September 30, 1997, 40 of the Company's hotel properties
collateralized the long-term debt described previously. Under the loan
agreements relating to that long-term debt, the Company is required to
satisfy various affirmative and negative covenants. The Company was in
compliance with these covenants at September 30, 1997.
3. SHARE OPTION AND RESTRICTED COMMON SHARE PLAN
In May 1997, the Company's shareholders approved an amended share
incentive plan ("Amended 1994 Plan") which covers employees and
officers of the Company. The Amended 1994 Plan increased from 800,000
to 2,700,000 the number of Common Shares reserved for issuance (a) upon
the exercise of incentive share options and nonqualified options or (b)
as restricted Common Shares and performance based Common Shares. The
Company may grant up to 900,000 restricted Common Shares and
performance-based Common Shares under the Amended 1994 Plan.
The exercise price of common share options may not be less than fair
market value of the common shares at the date of grant. The table below
delineates information concerning outstanding common share options
granted under the Amended 1994 Plan.
<TABLE>
<CAPTION>
Granted Common Shares Option Price Per Share
------- ------------- ----------------------
<S> <C> <C>
1994 250,000 $10.00
1995 20,000 8.875
1996 156,000 9.75
1997 1,192,500 13.25
1997 100,000 14.0625
</TABLE>
Of the 1,718,500 common share options granted, 242,310 are incentive
share options and 1,476,190 are nonqualified options. As of September
30, 1997, no common share options have been exercised. The incentive
share options and nonqualified options vest over varying periods, not
to exceed ten and five years, respectively.
The Company granted 116,250 restricted Common Shares which vest equally
over a seven year period commencing February 1997. Common Share
dividends are payable on the restricted Common Shares. The Company has
also authorized the issuance of 116,250 performance-based Common
Shares, of which up to one-half will be earned in February 1998 if
certain Common Share price appreciation targets are met during 1997.
The other
7
<PAGE> 11
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SHARE OPTION AND RESTRICTED COMMON SHARE PLAN, CONTINUED
one-half of the performance-based Common Shares will be earned in
February 1999 if certain Common Share price appreciation targets are
met during 1998. Performance-based Common Shares eligible to be earned,
but that are not earned in February 1998, will be earned in February
1999 if certain Common Share price appreciation targets are met during
the two-year period 1997/1998. Restricted Common Shares will be issued
equal to the number of performance-based Common Shares earned and will
vest equally over six years commencing February 1998 for those
performance-based Common Shares issued in February 1998 and will vest
equally over five years commencing February 1999 for those
performance-based Common Shares issued in February 1999.
In August 1997, the Company granted an additional 2,500 restricted
Common Shares and 2,500 performance-based Common Shares with provisions
similar to the previously described share grants.
In May 1997, the Company's shareholders approved an amended
non-employee trustees share incentive plan which provides for the
granting of incentive share options and restricted Common Shares. The
amended trustees plan provides for awards beyond the year 2000 and
increased awards to its non-employee trustees.
The Company has granted an aggregate of 25,000 nonqualified options to
its non-employee trustees. The table below delineates information
concerning outstanding Common Share options granted under its amended
trustees plan.
<TABLE>
<CAPTION>
Granted Common Shares Option Price Per Share
------- ------------- ----------------------
<S> <C> <C>
1994 15,000 $10.00
1996 3,000 11.75
1997 7,000 13.25 - 14.50
</TABLE>
The nonqualified options vest over varying periods not to exceed five
years. As of September 30, 1997, no Common Share options have been
exercised.
The Company has also granted 56,214 restricted Common Shares to its
non-employee trustees, which vest over varying periods not to
exceed five years.
4. ACQUISITIONS
In January 1997, the Company acquired a 126-room Residence Inn hotel
located in Eden Prairie, Minnesota, from an unaffiliated party for
approximately $10,630,000 in cash and 45,488 common units of limited
partnership interest in the Partnership ("Common Units") with a deemed
value of approximately $620,000 at the time of issuance.
8
<PAGE> 12
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. ACQUISITIONS, CONTINUED
In February 1997, the Company acquired, from unaffiliated parties, a
114-room Residence Inn hotel located in Arlington, Texas, for
$10,500,000 in cash, and a 150-room Residence Inn hotel located in
Addison, Texas, for approximately $10,194,000 in cash and 324,328
Common Units with a deemed value of approximately $4,306,000 at the
time of issuance.
On June 26, 1997, the Company acquired, from an unaffiliated party,
three Hampton Inn hotels located in Schaumburg, Westchester and
Lombard, Illinois, with an aggregate of 368 rooms for $19,100,000 in
cash.
Effective June 20, 1997, the Company acquired six Summerfield Suites
hotels, two Sierra Suites hotels and one Sunrise Suites hotel located
in California (3), New Jersey (2), Texas (2), Arizona (1) and Georgia
(1) with an aggregate of 1,057 rooms from unaffiliated parties for
approximately $89,478,000 in cash and 1,937,947 Common Units with a
deemed value of approximately $29,069,000 at the time of issuance.
5. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Pursuant to the Partnership's Partnership Agreement, limited partners
who hold Common Units have redemption rights ("Redemption Rights")
which enable them to redeem their Common Units for cash or, at the
Company's option, Common Shares on a one-for-one basis. The redemption
rights become effective as follows:
<TABLE>
<CAPTION>
Number of Effective
Common Units Date
------------ ------------------
<S> <C>
654,906 September 30, 1995
280,091 July 31, 1997
91,991 October 7, 1997
119,474 November 1, 1997
1,572,861 June 20, 1998
365,086 June 20, 1999
----------
3,084,409
==========
</TABLE>
Additionally, limited partners who held preferred units of limited
partnership interest in the Partnership ("Preferred Units" and
collectively with the Common Units, "Units") at September 30, 1997 have
Redemption Rights which enable them to redeem their Preferred Units for
cash or, at the Company's option, Common Shares on a one-for-one basis
at any time after November 1, 1998. The aggregate number of Preferred
Units outstanding was 4,063,329 at September 30, 1997.
9
<PAGE> 13
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS,
CONTINUED
Minimum annual preferred distributions of $1.10 are payable on each
Preferred Unit, which may increase up to $1.155 for each Preferred
Unit, based on increases in dividends payable on the Common Shares. The
current quarterly preferred distribution rate is $0.285 for each
Preferred Unit ($1.14 on an annualized basis). The Preferred Units have
a preference value of $11.00 per unit, may be converted into Common
Units at any time on a one-for-one basis and will be converted into
Common Units on the tenth anniversary of the Preferred Units issuance
unless previously converted or redeemed.
The Hotels are operated under franchise or management agreements as
Residence Inn by Marriott, Summerfield Suites, Sierra Suites, Sunrise
Suites, Hampton Inn, Sheraton Inn, Holiday Inn Express or Comfort Inn
hotels. The Company has paid the cost of obtaining or transferring
certain franchise license agreements to the Lessee. The franchise and
management agreements require the payment of fees based on a percentage
of hotel revenue. These fees are paid by the Lessee, which holds the
franchise licenses.
Under the Percentage Leases, the Company generally is obligated to pay
the costs of certain capital improvements, real estate and personal
property taxes and property insurance. Additionally, the Company must
make available to the Lessee on a monthly basis an amount equal to 4.0%
of gross revenues for the periodic replacement or refurbishment of
furniture, fixtures and equipment at the Hotels, except that the amount
that the Company must make available for such purposes is 5.0% of gross
revenues for the eight Hotels that collateralize the Second Term Loan.
The Lessee has future minimum base rent commitments under the
Percentage Lease agreements to the Company. Minimum future base rent
revenue, under the Percentage Lease agreements, are as follows through
the year 2006 (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1997 $ 33,542
1998 40,072
1999 35,045
2000 35,045
2001 35,045
Thereafter 151,450
--------
$330,199
========
</TABLE>
10
<PAGE> 14
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS,
CONTINUED
The Company's Declaration of Trust limits 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 was approximately
$100,320,000, or 19.3% of its investment in hotels, at cost, at
September 30, 1997.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma statements of income of the Company are
presented as if the acquisition of the Hotels and the equity offerings
in 1996 and 1997 had occurred at the beginning of the periods presented
and all of the Hotels had been leased to the Lessee pursuant to
Percentage Leases throughout the periods presented. Such pro forma
information is based in part on the consolidated statements of income
of the Company and the JF Lessee included elsewhere in this quarterly
report on Form 10-Q. In management's opinion, all adjustments necessary
to reflect the effects of these transactions have been made.
The unaudited pro forma statements of income of the Company for the
periods presented are not necessarily indicative of what the results of
the 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.
11
<PAGE> 15
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Percentage Lease revenue $ 55,698 $ 48,405
Other revenue 964 369
------------ ------------
Total revenue 56,662 48,774
------------ ------------
Expenses:
Depreciation 15,968 14,508
Amortization of franchise costs 55 74
Ground rent 288 286
Interest expense 6,108 5,875
Amortization of loan origination fees 992 916
Real estate and personal property taxes
and property insurance 4,846 5,153
General and administrative 1,875 1,875
Amortization of unearned compensation 294 36
------------ ------------
Total expenses 30,426 28,723
------------ ------------
Income before minority interest 26,236 20,051
Minority interest, common (1,964) (1,436)
Minority Interest, preferred (3,393) (3,352)
------------ ------------
Net Income $ 20,879 $ 15,263
============ ============
Net income per common share $ 0.64 $ 0.46
============ ============
Weighted average number of
common shares and common share
equivalents outstanding 35,932,750 35,932,750
============ ============
</TABLE>
12
<PAGE> 16
JF HOTEL
COMBINED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------- -------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,343 $ 5,551
Marketable securities 1,967 1,161
Accounts receivable, net 6,289 2,393
Due from affiliates 298
Inventory 24 67
Prepaid expenses 236 233
------- -------
Total current assets 20,859 9,703
Other assets 181 252
------- -------
Total assets $21,040 $ 9,955
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,500 $ 2,150
Accrued expenses 3,075 1,545
Payable to Manager 3,299 1,634
Other liabilities 785
Due to Partnership 6,949 3,541
------- -------
Total current liabilities 16,823 9,655
Other long-term liabilities 574
Total liabilities 17,397 9,655
------- -------
Commitments (Note 2)
Shareholders' equity:
Common shares, $1 par value, 3,000 shares
authorized issued and outstanding 3 3
Unrealized gain on marketable securities 754 358
Retained earnings (deficit) 2,886 (61)
------- -------
Total shareholders' equity 3,643 300
------- -------
Total liabilities and shareholders' equity $21,040 $ 9,955
======= =======
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
13
<PAGE> 17
JF HOTEL
COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross operating revenue:
Rooms $ 31,483 $ 14,425 $ 85,214 $ 39,758
Food and beverage 129 49 468 490
Telephone 1,055 613 3,049 1,498
Other 678 299 1,817 866
-------- -------- -------- --------
Gross operating revenue 33,345 15,386 90,548 42,612
Departmental expenses:
Rooms 5,924 3,080 15,978 8,249
Food and beverage 134 41 424 429
Telephone 373 303 1,102 610
Other 299 113 820 253
-------- -------- -------- --------
Total departmental profit 26,615 11,849 72,224 33,071
-------- -------- -------- --------
Unallocated operating expenses:
General and administrative 2,135 920 6,128 2,417
Franchise fees 2,092 1,088 5,588 3,010
Advertising and promotions 1,353 525 3,759 1,499
Utilities 1,377 779 3,789 2,245
Repairs and maintenance 1,378 753 3,844 2,020
Management fees 1,092 55 2,025 160
-------- -------- -------- --------
Total unallocated operating
expenses 9,427 4,120 25,133 11,351
-------- -------- -------- --------
Gross profit 17,188 7,729 47,091 21,720
Insurance (174) (82) (543) (288)
Lessee overhead (411) (520) (1,692) (1,424)
Percentage Lease payments (15,727) (6,882) (41,909) (18,932)
-------- -------- -------- --------
Net Income $ 876 $ 245 $ 2,947 $ 1,076
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
14
<PAGE> 18
JF HOTEL
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1997 1996
-------- -------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,947 $ 1,076
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 21
Changes in operating assets and liabilities:
Accounts receivable (3,896) (461)
Inventory 43 (21)
Prepaid expenses (3) (5)
Other assets 50 (54)
Accounts payable 1,350 (293)
Accrued expenses 1,530 186
Payable to Manager 1,665
Other liabilities (211)
Due to Partnership 3,408 1,475
-------- -------
Net cash provided by operating activities 6,904 1,903
-------- -------
Cash flows from investing activities:
Repayment of advances 298
Purchase of marketable securities (410) (519)
-------- -------
Net cash used in investing activities (112) (519)
-------- -------
Cash flows from financing activities:
Dividends paid (575)
-------- -------
Net cash used in financing activities (575)
-------- -------
Net increase in cash and cash equivalents 6,792 809
Cash and cash equivalents at beginning of period 5,551 2,894
-------- -------
Cash and cash equivalents at end of period $ 12,343 $ 3,703
======== =======
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
15
<PAGE> 19
JF HOTEL
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
JF Hotel, Inc., JF Hotel II, Inc., JF Hotel III, Inc., JF Hotel IV,
Inc., JF Hotel V, Inc., and Royal Poinciana Management, Inc.
(collectively the "JF Lessee") are under common control and were formed
primarily to lease and operate hotels owned by Innkeepers USA Trust, or
its subsidiaries (the "Company"). The JF Lessee commenced the leasing
and operation of seven hotels (the "Initial Hotels") on September 30,
1994 and at September 30, 1997 leased 38 hotels (the "Hotels") from the
Company. The shareholders of the JF Lessee are officers of the Company.
The JF Lessee operates 24 of the Hotels. Residence Inn by Marriott,
Inc. ("RIBM", a wholly-owned subsidiary of Marriott International,
Inc.) operates 12 of the Hotels, and an unaffiliated party ("TMH")
operates two of the Hotels. The financial statements of the twelve
hotels operated by RIBM are maintained on a 52/53 week period basis.
2. COMMITMENTS
The JF Lessee has future minimum base rent commitments under the
Percentage Lease agreements to the Company. Minimum future base rent
payments, under the Percentage Lease agreements, are as follows through
the year 2006 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1997 $ 26,537
1998 26,537
1999 26,537
2000 26,537
2001 26,537
Thereafter 108,764
--------
$241,449
========
</TABLE>
16
<PAGE> 20
JF HOTEL
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS, CONTINUED
2. COMMITMENTS, CONTINUED
RIBM operates twelve of the Hotels under management agreements with the
JF Lessee (the "RIBM Management Agreements"). The RIBM Management
Agreements have an initial term of 13 years and provide for a base
management fee of 2% of gross revenues and an incentive management fee
which is either 50% of available cash flow, as defined, or 65% of
available cash flow up to 3.5% of gross revenue and 50% of available
cash flow thereafter. The payment of incentive management fees is
subordinate to the JF Lessee's obligations under the Percentage Leases
at the managed Hotels. The agreements also contain substantial
penalties for early termination. The right to operate the twelve Hotels
as Residence Inn hotels is contained in the RIBM Management Agreements
and provide for system and marketing fees based on the gross revenues
at the managed Hotels. There are no separate fanchise agreements for
these Hotels.
TMH operates two of the Hotels under management agreements with the JF
Lessee (the "TMH Management Agreements"). The TMH Management Agreements
have terms of five years and provide for a base fee of 2% of gross
revenues and an incentive fee based on the performance of the hotels
managed.
17
<PAGE> 21
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
consolidated financial statements and related notes thereto.
GENERAL
For background information relating to the Company and the JF Lessee and the
definitions of certain capitalized terms used herein, reference is made to Note
1 of the Consolidated Financial Statements of Innkeepers USA Trust and the
Combined Financial Statements of JF Hotel appearing elsewhere herein.
The Company acquired the following hotel properties during the nine months ended
September 30, 1997:
<TABLE>
<CAPTION>
Number of Date Purchase
Hotel Suites/Rooms Acquired Price
- ----- ------------ -------- ---------
<S> <C> <C> <C>
Residence Inn-Eden Prairie, MN 126 January 4, 1997 $11,250,000
Residence Inn-Addison, TX 150 February 1, 1997 14,500,000
Residence Inn-Arlington, TX 114 February 1, 1997 10,500,000
Summerfield Suites-Belmont, CA 132 June 20, 1997 (a)
Summerfield Suites-El Segundo, CA 122 June 20, 1997 (a)
Summerfield Suites-West Hollywood, CA 109 June 20, 1997 (a)
Summerfield Suites-Mount Laurel, NJ 116 June 20, 1997 (a)
Summerfield Suites-Addison, TX 132 June 20, 1997 (a)
Summerfield Suites-Irving (Las Colinas), TX 148 June 20, 1997 (a)
Sunrise Suites-Eatontown (Tinton Falls), NJ 96 June 20, 1997 (a)
Sierra Suites-Phoenix (Camelback), AZ 113 June 20, 1997 (a)
Sierra Suites-Atlanta (Cumberland), GA 89 June 20, 1997 (a)
Hampton Inn-Schaumburg (Chicago), IL 128 June 26, 1997 (b)
Hampton Inn-Westchester (Chicago), IL 112 June 26, 1997 (b)
Hampton Inn-Lombard (Chicago), IL 128 June 26, 1997 (b)
</TABLE>
(a) Aggregate purchase price of $118,547,000
(b) Aggregate purchase price of $19,100,000
18
<PAGE> 22
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The following chart summarizes information regarding the Hotels at September 30,
1997.
<TABLE>
<CAPTION>
Number of Number of
Franchise Affiliation Hotel Properties Rooms/Suites
- --------------------- ---------------- ------------
<S> <C> <C>
Upscale extended-stay hotels:
Residence Inn 23 2,713
Summerfield Suites 6 759*
Sunrise Suites 1 96
--- ------
30 3,568
Mid-priced extended-stay hotels:
Sierra Suites 2 202
--- ------
Limited service hotels:
Hampton Inn 12 1,527
Comfort Inn 1 127
Holiday Inn Express 1 164
-- -----
14 1,818
Full service hotels:
Sheraton Inn 1 139
-- -----
Total 47 5,727
== =====
</TABLE>
* contains a total of 1,057 bedrooms
19
<PAGE> 23
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Average daily rate ("ADR"), occupancy and revenue per available room ("REVPAR")
for the 42 Hotels open for the entire third quarters of 1996 and 1997 are
presented in the following table. Results were excluded for such comparison for
five newly developed hotels. Management believes that growth in REVPAR at the
Hotels reflects the results of the Company's focused acquisition strategy, the
continued implementation of professional management techniques by the Lessee and
third party management and improving industry conditions. 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 Percentage
Ended September 30, Change
------------------------------ ----------
1997 1996
------ -----
<S> <C> <C> <C>
ADR $95.72 $85.01 12.6%
Occupancy 83.9% 83.8% 0.1%
REVPAR $80.29 $71.22 12.7%
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Percentage
Ended September 30, Change
------------------------------ ----------
1997 1996
------ -----
<S> <C> <C> <C>
ADR $93.32 $83.16 12.2%
Occupancy 81.8% 82.0% (0.2%)
REVPAR $76.31 $68.17 11.9%
</TABLE>
20
<PAGE> 24
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Results of Operations
The following is a discussion of the results of operations for the Company.
The Company - Actual
Comparison of the Three Months Ended September 30, 1997 ("1997") to the Three
Months Ended September 30, 1996 ("1996")
The Company had revenues of $20,831,000, consisting of $20,424,000 of Percentage
Lease revenue from the Lessee and $407,000 of other revenue for 1997 compared
with $6,999,000, $6,882,000 and $117,000, respectively, for 1996. Depreciation,
amortization of franchise costs, amortization of loan origination fees, and
amortization of unearned compensation ("Depreciation and Amortization") were
$6,252,000 in the aggregate for 1997 compared with $2,016,000 for 1996. Real
estate and personal property taxes and property insurance were $1,695,000 for
1997 compared with $698,000 for 1996. Interest expense for 1997 was $2,845,000
compared with $1,563,000 for 1996. Interest expense for 1997 consisted primarily
of interest incurred on borrowings outstanding under the Company's $190 million
Line of Credit, the Interim Loan, the First Term Loan and the Second Term Loan.
Interest expense for 1996 consisted primarily of interest incurred on borrowings
outstanding under the Line of Credit and First Term Loan. Net income before
minority interest was $9,248,000 or $0.25 per share, for 1997 compared with
$2,350,000, or $0.20 per share, for 1996.
Percentage Lease revenue, Depreciation and Amortization, interest expense and
real estate and personal property taxes and property insurance increased
substantially for 1997 compared with 1996, primarily due to the number of Hotels
owned increasing from 22 at September 30, 1996 to 47 at September 30, 1997.
The Company considers Funds From Operations ("FFO") a widely used and
appropriate measure of performance for an equity REIT. FFO, as defined by the
National Association of Real Estate Investment Trusts (NAREIT), is income (loss)
before minority interest (determined in accordance with GAAP), excluding gains
(losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. FFO is presented to assist investors in
analyzing the performance of the Company. The Company's method of calculating
FFO may be different from methods used by other REITs and, accordingly, may not
be comparable to such other REITs. FFO (i) does not represent cash flows from
operations as defined by GAAP, (ii) is not indicative of cash available to fund
all cash flow needs and liquidity, including its ability to make distributions,
and (iii) should not be considered as an alternative to net income (as
determined in accordance with GAAP) for
21
<PAGE> 25
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
purposes of evaluating the Company's operating performance. FFO (income before
minority interest and depreciation) was $14,856,000, or $0.41 per share, for
1997 compared with $4,080,000, or $0.35 per share, for 1996.
The Company - Actual
Comparison of the Nine Months Ended September 30, 1997 ("1997") to the Nine
Months Ended September 30, 1996 ("1996")
The Company had revenues of $48,700,000 consisting of $47,736,000 of Percentage
Lease revenue from the Lessee and $964,000 of other revenue for 1997 compared
with $19,296,000, $18,932,000 and $364,000, respectively, for 1996. Depreciation
and Amortization were $13,745,000 for 1997 compared with $5,460,000 for 1996.
Real estate and personal property taxes and property insurance were $3,948,000
for 1997 compared with $1,851,000 for 1996. Interest expense for 1997 was
$7,291,000 compared with $4,005,000 for 1996. Interest expense for 1997
consisted primarily of interest incurred on borrowings outstanding under the
Line of Credit, the Interim Loan, the First Term Loan and the Second Term Loan.
Interest expense for 1996 consisted primarily of interest incurred on borrowings
outstanding under the Line of Credit and the First Term Loan. Net income before
minority interest was $21,731,000 or $0.69 per share for 1997 compared with
$6,826,000, or $0.59 per share, for 1996.
Percentage Lease revenue, Depreciation and Amortization, interest expense and
real estate and personal property taxes and property insurance increased
substantially for 1997 compared with 1996, primarily due to the number of Hotels
owned increasing from 22 at September 30, 1996 to 47 at September 30, 1997.
FFO was $34,338,000, or $1.12 per share, for 1997 compared with $11,570,000, or
$1.00 per share, for 1996.
The Company - Proforma
Comparison of Nine Months Ended September 30, 1997 ("1997") to the
Nine Months Ended September 30, 1996 ("1996")
Proforma Percentage Lease revenue increased by approximately $7,293,000 or
15.1%, from approximately $48,405,000 for 1996 to approximately $55,698,000 for
1997. The increase was primarily due to a 11.9% increase in REVPAR at the
Hotels. As a percentage of total revenue, total pro forma expenses decreased
from 58.9% for 1996 to 53.7% for 1997 as a result of expenses remaining
relatively constant while pro forma total revenue increased.
22
<PAGE> 26
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is rent payments from the Lessee
under the Percentage Leases, and the Company is dependent on the Lessee to make
such payments to provide cash for additional hotel investment, debt service,
distributions, capital expenditures on its Hotels, and working capital. The
Company believes that its cash provided by operations will be adequate to meet
some of its liquidity needs, which primarily include funding distributions and
paying operating expenses. The Company also currently expects to fund its growth
objectives in part by accessing the capital markets, borrowing on its Line of
Credit, and exchanging equity for hotel properties.
Cash and cash equivalents at September 30, 1997 were $29,736,000, including
approximately $1,731,000 which the Company 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 $9,115,000 that is held in escrow to pay for insurance,
taxes, and capital expenditures for certain hotels.
Net cash provided by operating activities for the nine months ended September
30, 1997 was $31,399,000.
Net cash used in investing activities was $164,909,000 for the nine months ended
September 30, 1997. This was comprised primarily of the Company (a) acquiring a
Residence Inn hotel in Eden Prairie, Minnesota for approximately $10,630,000,
(b) acquiring a Residence Inn hotel in Arlington, Texas for $10,500,000, (c)
acquiring a Residence Inn hotel in Addison, Texas for approximately $10,194,000,
(d) acquiring three Hampton Inn hotels in Schaumburg, Westchester, and Lombard,
Illinois, for approximately $19,100,000 and (e) acquiring six Summerfield Suites
hotels, two Sierra Suites hotels and one Sunrise Suite hotel for approximately
$89,478,000. The purchase prices of certain hotels also included the issuance of
Common Units in addition to the cash portion described above.
Net cash provided by financing activities was $112,061,000 for the nine months
ended September 30, 1997, consisting primarily of proceeds from the issuance of
Common Shares of $135,438,000 and distributions paid of $19,361,000.
In March of 1997, the Company declared an increase in its quarterly distribution
to $0.25 per Common Share from $0.225 per Common Share, and, in September 1997,
declared another increase in the quarterly distribution to $0.26 per Common
Share. Quarterly preferred distributions of $0.285 are payable on each Preferred
Unit, which may increase up to $0.28875 for each Preferred Unit, based on
increases in distributions payable on the Common Shares. The
23
<PAGE> 27
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Preferred Units are convertible at any time into Common Units on a one-for-one
basis. On or after November 1, 1998, the holders of the Preferred Units may
redeem their Units for cash or, at the election of the Company, Common Shares on
a one-for-one basis. 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.
In making additional investments in hotel properties, the Company may incur
indebtedness to make such investments. The Company may also incur indebtedness
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 the consolidated indebtedness of the Company 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 ("Debt Limitation"). The Company's
consolidated indebtedness was 19.3% of its investment in hotels, at cost, at
September 30, 1997. At September 30, 1997, the Company had outstanding
indebtedness of approximately $100,320,000. Approximately 90% of the Company's
indebtedness at September 30, 1997 bears interest at a fixed rate.
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, short-term or 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.
The Percentage Leases require the Company to make available to the Lessee an
amount equal to 4.0% of room revenues from all of the Hotels, on a monthly
basis, for the periodic replacement or refurbishment of furniture, fixtures and
equipment at the Hotels. The Second Term Loan requires that the Company make
available for such purposes at the eight Hotels collateralizing that loan, 5.0%
of room revenues from such Hotels. 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 interest of the
Company.
Management believes that the amounts required to be made available by the
Company will be sufficient to meet required expenditures for furniture, fixtures
and equipment at the Hotels. 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.
24
<PAGE> 28
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. Historically, the Hotels' operations
have generally reflected higher occupancy rates and ADR during the second and
third quarters. To the extent that cash flow from the Percentage Leases for a
quarter is insufficient to fund all of the distributions for such quarter due to
seasonal and other factors, the Company may maintain the annual distribution
rate by funding quarterly distributions with available cash or borrowings under
the Line of Credit.
INFLATION
Operators of hotels, including the Lessee and any third-party managers 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.
IMPLEMENTATION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board issued Statement No. 128
"Earnings Per Share" ("FAS 128"). FAS 128 establishes standards for computing
and presenting earnings per share ("EPS") and replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the statement of operations and requires
a reconciliation of the numerator and the denominator of the basic EPS
computation to the numerator and the denominator of the diluted EPS computation.
The Company will adopt the disclosure requirements of FAS 128 beginning December
31, 1997. The Company does not expect the adoption of FAS 128 to have a material
impact on their financial position, results of operations, and cash flows.
25
<PAGE> 29
INNKEEPERS USA TRUST
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of the Securities and
Exchange Commission's Regulation S-K, the quantitative and qualitative
disclosures called for by Rule 305 are inapplicable to the Company at
this time.
26
<PAGE> 30
INNKEEPERS USA TRUST
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits - None
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K -
- A Form 8-K regarding the acquisition of six
Summerfield Suites hotels, two Sierra Suites hotels
and one Sunrise Suites hotel, including the required
historical and pro forma financial statements, was
filed on July 18, 1997.
27
<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
November 11, 1997 /s/ Gregory M. Fay
----------------------------
Gregory M. Fay
Vice-President of Accounting
28
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 29,736
<SECURITIES> 0
<RECEIVABLES> 9,175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 520,518
<DEPRECIATION> (30,167)
<TOTAL-ASSETS> 535,884
<CURRENT-LIABILITIES> 0
<BONDS> 100,320
0
0
<COMMON> 328
<OTHER-SE> 344,797
<TOTAL-LIABILITY-AND-EQUITY> 535,884
<SALES> 47,736
<TOTAL-REVENUES> 48,700
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,086
<INCOME-PRETAX> 17,022
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,022
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0
</TABLE>
