<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 9,
1997 was 22,323,108.
<PAGE> 2
INNKEEPERS USA TRUST
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. Financial Information
INNKEEPERS USA TRUST
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1997 (unaudited) and December 31, 1996 1
Condensed Consolidated Statements of Income for the
three months ended March 31, 1997 (unaudited)
and March 31, 1996 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 (unaudited)
and March 31, 1996 (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
Item 1. Financial Statements
Condensed Combined Balance Sheets at March 31,
1997 (unaudited) and December 31, 1996 18
Condensed Combined Statements of Income for the
three months ended March 31, 1997 (unaudited)
and March 31, 1996 (unaudited) 19
Condensed Combined Statements of Cash Flows for
the three months ended March 31, 1997 (unaudited)
and March 31, 1996 (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 6. Exhibits and Reports on Form 8-K 24
Signature 25
</TABLE>
<PAGE> 3
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
Investment in hotel properties:
Land $ 45,665 $ 42,565
Buildings and improvements 282,400 251,411
Furniture and equipment 38,075 32,644
-------- --------
366,140 326,620
Accumulated depreciation (20,777) (17,560)
-------- --------
Net investment in hotel properties 345,363 309,060
Cash and cash equivalents 14,353 44,739
Due from Lessee 6,768 3,541
Deferred expenses, net 3,952 2,718
Other assets 289 299
-------- --------
Total assets $370,725 $360,357
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $105,834 $100,740
Accounts payable and other accrued
expenses 1,016 915
Distributions payable 7,007 5,217
Minority interest in Partnership 49,247 45,880
-------- --------
Total liabilities 163,104 152,752
-------- --------
Commitments and contingencies (Note 5)
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, 22,322,817 and 22,322,498 shares
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 223 223
Additional paid-in capital 215,049 213,692
Unearned trustees' compensation (128) (138)
Distributions in excess of net earnings (7,523) (6,172)
-------- --------
Total shareholders' equity 207,621 207,605
-------- --------
Total liabilities and shareholders' equity $370,725 $360,357
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 4
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
(Unaudited) (Unaudited)
Revenue:
Percentage lease revenue $ 12,380 $ 5,696
Other revenue 345 94
----------- -----------
Total revenue 12,725 5,790
----------- -----------
Expenses:
Depreciation and amortization 3,234 1,469
Ground rent 88 85
Interest expense 1,997 1,065
Amortization of loan origination
fees 256 161
Real estate and personal
property taxes and property
insurance 1,129 515
General and administrative 430 221
Amortization of unearned trustees'
compensation 10 12
----------- -----------
Total expenses 7,144 3,528
----------- -----------
Income before minority interest 5,581 2,262
Minority interest, common (234) (147)
Minority interest, preferred (1,117) 0
----------- -----------
Net income $ 4,230 $ 2,115
=========== ===========
Net income per common share $ .19 $ .20
=========== ===========
Weighted average number of
common shares and common
share equivalents outstanding 23,583,810 11,568,591
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 5
INNKEEPERS USA TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except supplemental non-cash financing activities)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,230 $ 2,115
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,244 1,481
Amortization of loan origination fees 256 161
Minority interest, common and preferred 1,351 147
Change in operating assets and liabilities:
(Increase) decrease in:
Due from lessee (3,227) (967)
Deferred expenses, net (1,087) (3)
Other assets 10 236
Increase (decrease) in:
Accounts payable and other accrued expenses 101 (154)
-------- --------
Net cash provided by operating activities 4,878 3,016
-------- --------
Cash flows from investing activities:
Investment in hotel properties (34,600) (7,896)
Payments paid for franchise fees 0 (40)
Deposit on Acquisition Hotels 0 (3,604)
-------- --------
Net cash used in investing activities (34,600) (11,540)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 5,120 16,223
Payments on long-term debt (26) (25)
Payments for dividend reinvestment plan and shelf registration (121) (28)
Payments on accrued expenses-public offering 0 (397)
Common share distributions paid (5,217) (2,487)
Loan origination fees paid (420) (81)
-------- --------
Net cash (used in) provided by financing activities (664) 13,205
-------- --------
Net increase (decrease) in cash and cash equivalents (30,386) 4,681
Cash and cash equivalents at beginning of period 44,739 2,093
-------- --------
Cash and cash equivalents at end of period $ 14,353 $ 6,774
======== ========
Supplemental cash flow information:
Interest paid $ 1,726 $ 1,065
======== ========
</TABLE>
Supplemental non-cash financing activities:
The Company incurred $18,000 of accrued expenses-public offering which was
recorded in additional paid in capital for the period January 1, 1996 through
March 31, 1996.
The Company issued 369,816 common units aggregating $4,920,000 for the
acquisition of two hotel properties during the three months ended March 31,
1997.
The accompany notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 6
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Innkeepers USA Trust (the "Company") commenced operations on September
30, 1994. The Company owned an 80.8% equity interest in Innkeepers
USA Limited Partnership (with its subsidiary partnerships, the
"Partnership") at March 31, 1997 and has elected to be taxed as a real
estate investment trust ("REIT"). The Partnership owned 35 Hotels
(the "Hotels") in 16 states at March 31, 1997. The 35 Hotels are
comprised of 23 Residence Inn by Marriott, 9 Hampton Inns, 1 Comfort
Inn, 1 Sheraton Inn and 1 Holiday Inn Express.
The Partnership leases the Hotels to JF Hotel, Inc. (or other entities
under common ownership, collectively the "Lessee") pursuant to leases
which provide for rent based, in substantial part, on the room
revenues of the Hotels ("Percentage Leases").
An officer and shareholder of the Company is also an officer and
principal shareholder of the Lessee.
In the opinion of the Company's management, 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, 1996. The December 31,
1996 condensed consolidated balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
Capitalized Interest
Interest is capitalized on hotels which are closed due to renovation.
Interest capitalized for the three months ended March 31, 1997 was
$41,000.
Deferred Expenses
Deferred expenses consist primarily of loan origination fees and
franchise fees and are recorded at cost. Amortization is computed
using the straight-line method over the original lives of the
franchise agreements which range from approximately 3 to 13 years.
4
<PAGE> 7
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
Loan origination fees are amortized using the interest method over the
original term of the Company's $70 million line of credit ("Line of
Credit"), $30 million term loan ("First Term Loan") and $42 million
term loan ("Second Term Loan"), which is 3, 12 and 12 years,
respectively.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of approximately $8.7 million and
$4.4 million that is required to be held in escrow accounts as
specified primarily by the terms of the Company's Line of Credit and
two Term Loans at March 31, 1997 and December 31, 1996, respectively.
The restricted cash and cash equivalents are to be used to pay for
insurance, taxes, furniture, fixtures, equipment and capital
expenditures pertaining to the eight Hotels that collateralize the
Line of Credit, the eight Hotels that collateralize the First Term
Loan and the eight hotels that collateralize the Second Term Loan.
3. LONG-TERM DEBT
Long-term debt at March 31, 1997 consists of (a) mortgage notes
collateralized by one hotel property located in Florida (the "Florida
Mortgage Note"), one hotel property located in California (the
"California Mortgage Note") and two hotel properties located in
Michigan (the "Michigan Mortgage Note"), (b) outstanding borrowings
under the Line of Credit, and (c) the two Term Loans.
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 $3.6 million at March 31, 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 $14.9 million at March 31, 1997 and
December 31, 1996, respectively.
The Michigan Mortgage Note is payable in monthly interest only
payments, at a variable interest rate based upon the 30-day yield 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 collateralized by two hotel properties located in
Michigan. The interest rate and
5
<PAGE> 8
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
LONG-TERM DEBT, CONTINUED
outstanding principal balance on the Michigan Mortgage Note is 3.6%
and $10.0 million, respectively, at March 31, 1997 and 3.9% and $10.0
million, respectively at December 31, 1996.
Outstanding borrowings under the Line of Credit bear interest at the
30-day LIBOR rate plus 175 basis points. The interest rate on
borrowings under the Line of Credit at March 31, 1997 was 7.2% and at
December 31, 1996 was 7.1% and the Line of Credit expires May 1997.
The outstanding principal balance on the Line of Credit was
approximately $5.3 million and $42.2 million at March 31, 1997 and
December 31, 1996, respectively.
The First Term Loan matures in 2015 and bears interest at an 8.17%
fixed annual rate. The First Term Loan has scheduled principal
amortization over a twenty-year term commencing on the second
anniversary of the First Term Loan. 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 the end of the
twelfth year of the First Term Loan. The outstanding principal
balance on the First Term Loan was $30 million at March 31, 1997 and
December 31, 1996.
In March 1997, $42,000,000 of the outstanding principal balance on the
Line of Credit was refinanced as the Second Term Loan. The Second
Term Loan matures in twenty years and bears interest at an 8.15% fixed
annual rate. The Second Term Loan has scheduled principal
amortization over a twenty-year term commencing on the second
anniversary of the Second Term Loan. 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 the end of the
twelfth year of the Second Term Loan. The outstanding principal
balance on the Second Term Loan was $42 million at March 31, 1997.
Substantially all of the Company's assets at March 31, 1997, other
than the hotel properties collateralizing the Florida, California and
Michigan Mortgage Notes and seven unencumbered hotel properties, are
pledged as collateral on the Line of Credit and the two Term Loans.
4. ACQUISITIONS
In January 1997, the Partnership acquired an existing hotel from an
unaffiliated party for approximately $10,630,000 in cash and
approximately $620,000 in common units of limited partnership interest
in the Partnership ("Common Units").
6
<PAGE> 9
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
ACQUISITIONS, CONTINUED
In February 1997, the partnership acquired an existing hotel for
$10,500,000 in cash and a newly developed hotel for approximately
$10,200,000 in cash and approximately $4,300,000 in Common Units, from
an unaffiliated party.
5. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Pursuant to the Partnership's Partnership Agreement, limited partners
who hold Common Units at March 31, 1997 have redemption rights
("Redemption Rights") which enable them to redeem their Common 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 Common Units after
October 7, 1997, in the case of 119,473 Common Units after October
1997 and in the case of 369,816 Common Units after May, 1998. The
aggregate number of Common Shares issuable upon exercise of such
redemption rights is 1,236,186 at March 31, 1997.
Additionally, limited partners who hold preferred units of limited
partnership interest in the Partnership ("Preferred Units") at March
31, 1997 have Redemption Rights which enable them to redeem their
Preferred 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 November 1, 1998. The aggregate number of Common Shares
issuable upon exercise of such Redemption Rights is 4,063,329 at March
31, 1997.
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 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
Hampton Inn, Residence Inn by Marriott, Sheraton Inn, Holiday Inn
Express or Comfort Inn hotels. The Partnership has paid the cost of
obtaining or transferring 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 any franchise licenses.
The Partnership is obligated to pay the costs of certain capital
improvements, real estate and personal property taxes and property
insurance. Additionally, the Partnership must make available to the
Lessee on a monthly basis an amount equal to 4.0% of room revenues for
the periodic replacement or refurbishment of furniture, fixtures and
7
<PAGE> 10
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS, CONTINUED
equipment at the Hotels except for 5% of room revenues for the eight
hotels that collateralize the Second Term Loan. The amount of cash
and cash equivalents allocated for availability to the Lessee is
approximately $1,400,000 and $287,000 at March 31, 1997 and December
31, 1996, respectively.
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>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 24,000
1998 24,000
1999 24,000
2000 24,000
2001 24,000
Thereafter 103,000
</TABLE>
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
approximately 29% of its investment in hotels, at cost, at March 31,
1997.
6. SUBSEQUENT EVENTS
Line of Credit
In March 1997, the Company obtained a commitment to increase its Line
of Credit to $190 million (from $70 million), of which $40 million is
uncollateralized. The maturity date on the amended line of credit
will be extended to March 2001. The interest rate on the amended Line
of Credit is 175 basis points over the 30-day LIBOR rate for the
collateralized portion and is 195 basis points over the 30-day LIBOR
rate for the uncollateralized portion.
Distributions
In March 1997, the Company declared an increase in its quarterly
distribution to $0.25 per Common Share from $0.225 per Common Share
which on an annualized basis
8
<PAGE> 11
INNKEEPERS USA TRUST
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
SUBSEQUENT EVENTS, CONTINUED
represents a distribution of $1.00 per Common Share. The distribution
is payable on April 15, 1997 to common shareholders of record on March
28, 1997.
Share Option 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
Common Shares to 2,700,000 Common Shares the number of Common Shares
reserved for issuance upon the exercise of incentive share options and
non-qualified options, or the granting of 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.
In May 1997, the Company's shareholders approved an amended
nonemployee trustees 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 nonemployee trustees.
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 (the "Company") commenced operations on September 30,
1994. The Company owned an 80.8% equity interest in Innkeepers USA Limited
Partnership (with its subsidiary partnerships, the "Partnership") at March 31,
1997 and has elected to be taxed as a real estate investment trust ("REIT").
The Partnership owned 35 Hotels (the "Hotels") in 16 states at March 31, 1997.
The 35 Hotels are comprised of 23 Residence Inn by Marriott, 9 Hampton Inns, 1
Comfort Inn, 1 Sheraton Inn and 1 Holiday Inn Express.
The Partnership leases the Hotels to JF Hotel, Inc. (or other entities under
common ownership, collectively the "Lessee") pursuant to leases which provide
for rent based, in substantial part, on the room revenues of the Hotels
("Percentage Leases"). The Lessee operates 21 of the Hotels, Residence Inn by
Marriott, Inc., a wholly-owned subsidiary of Marriott International, Inc.,
operates twelve of the hotels, and an unaffiliated party manages two of the
hotels. The 14 managed hotels are managed under management agreements between
the respective manager and the Lessee. The non- Marriott-managed hotels
operate under franchise licenses held by the Lessee, the cost of obtaining
which was paid for by the Partnership. The right to operate the twelve
Marriott-managed Hotels as Residence Inns is contained in the Marriott
management agreements. Continuing franchise and management fees are paid by
the Lessee.
The Company acquired the following hotel properties during the three months
ended March 31, 1997:
<TABLE>
<CAPTION>
Number of
Hotel Suites/Rooms
- ----- ------------
<S> <C>
Residence Inn-Addison, TX 150
Residence Inn-Arlington, TX 114
Residence Inn-Eden Prairie, MN 126
</TABLE>
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 March 31,
1997.
<TABLE>
<CAPTION>
Number of Number of
Franchise Affiliation Hotel Properties Rooms
- --------------------- ---------------- -----
<S> <C> <C>
Extended stay hotels:
Residence Inn 23 2,713
Limited service hotels:
Hampton Inn 9 1,159
Comfort Inn 1 127
Holiday Inn Express 1 164
-- -----
11 1,450
Full service hotels:
Sheraton Inn 1 139
-- -----
Total 35 4,302
== =====
</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 9.2% for the three months ended March 31, 1997 as compared
to the three months ended March 31, 1996. Results were excluded for such
comparison for the Residence Inn -- Atlanta (Downtown), Georgia, the Residence
Inn -- Portland, Maine, the Residence Inn -- Addison, Texas and the Hampton Inn
- -- Norcross, Georgia, each of which was initially opened in mid or late 1996,
and the Comfort Inn -- Woburn, Massachusetts, which was closed for renovation
during the three months ended March 31, 1997. Management believes the 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. The following table sets forth pro forma information with respect
to occupancy, average daily rate ("ADR") and REVPAR for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996. 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 For the
Three Months Ended Three Months Ended Percentage
March 31, 1997 March 31, 1996 Change
-------------- -------------- ------
<S> <C> <C> <C>
Occupancy 79.33% 81.45% (2.6)%
ADR $91.39 $81.50 12.1%
REVPAR $72.50 $66.38 9.2%
</TABLE>
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 March 31, 1997 ("1997") to the Three
Months Ended December 31, 1996 ("1996")
The Company had revenues of $12,725,000, consisting of $12,380,000 of
Percentage Lease revenue from the Lessee and $345,000 of other revenue for 1997
compared with $5,790,000, $5,696,000 and $94,000, respectively, for 1996.
Depreciation and amortization, amortization of loan origination fees, and
amortization of unearned trustees' compensation ("Depreciation and
Amortization") were $3,500,000 in the aggregate for 1997 compared with
$1,642,000 for 1996. Real estate and personal property taxes and property
insurance were $1,129,000 for 1997 compared with $515,000 for 1996. Interest
expense for 1997 was $1,997,000 compared with $1,065,000 for 1996. Interest
expense for 1997 consisted primarily of interest incurred on borrowings
outstanding under the Company's $70 million line of credit ("Line of Credit"),
$30 million term loan ("First Term Loan") and $42 million term loan ("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 $5,581,000 or $0.19 per share,
for 1997 compared with $2,262,000, or $0.20 per share, for 1996. Funds from
Operations (FFO) (income before minority interest and depreciation) was
$8,798,000, or $.32 per share, for 1997 compared with $3,717,000, or $.32 per
share, for 1996.
FFO per share was impacted by the number of common shares outstanding more than
doubling in 1997 due to the Company's second follow-on offering in October of
1996. Proceeds from the offering were used for the acquisition of ten hotels,
which have historically yielded the strongest results in the second and third
quarters.
Percentage Lease revenue, Depreciation and Amortization, interest expense and
real estate and personal property taxes and property insurance increased
substantially for 1997 compared with
12
<PAGE> 15
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
1996, primarily due to the number of hotels owned increasing from 18 at January
1, 1996 to 32 at December 31, 1996 and 35 at March 31, 1997.
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 as necessary and as
market conditions permit.
Cash and cash equivalents at March 31, 1997 were $14,353,000, including
approximately $1,400,000 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 $7,300,000 that is held in escrow to
pay for insurance, taxes, and capital expenditures pertaining primarily to the
eight Hotels that collateralize the Line of Credit, the eight Hotels that
collateralize the First Term Loan and the eight hotels that collateralize the
Second Term Loan.
Net cash provided by operating activities for the three months ended March 31,
1997 was $4,878,000.
Net cash used in investing activities was $34,600,000 for the three months
ended March 31, 1997. This was comprised primarily of the Company acquiring a
Residence Inn Hotel in Eden Prairie, Minnesota for approximately $10,630,000 in
cash and approximately $620,000 in Common Units, acquiring a Residence Inn in
Arlington, Texas for $10,500,000 in cash and acquiring a Residence Inn in
Addison, Texas for approximately $10,200,000 in cash and approximately
$4,300,000 in Common Units.
Net cash used by financing activities was $664,000 for the three months ended
March 31, 1997, consisting primarily of proceeds from long-term debt of
$5,120,000 and Common Share distributions paid of $5,217,000.
The Company (and the Partnership) paid an aggregate of $5,217,000 ($0.225 per
Common Share and Common Unit) in distributions to holders of Common Shares and
Common Units during the three months ended March 31, 1997. 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, which on an annualized basis
represents a distribution of $1.00 per Common Share. The Distribution is
payable on April 15, 1997 to common shareholders of record on March 28, 1997.
Annual
13
<PAGE> 16
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
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
distributions payable on the Common Shares. The Preferred Units are
convertible at any time into Common Units on a one-for-one basis. On or after
November 1998, the holders of the Preferred Units may redeem their Units for
Common Shares of the Company or, at the election of the Company, an equivalent
value of cash. 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, or
cause the Partnership to 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 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 ("Debt Limitation"). The
Company's consolidated indebtedness is 29% of its investment in hotels, at
cost, at March 31, 1997. At March 31, 1997, the Company had outstanding
indebtedness of approximately $105,834,000. Approximately 86% of the Company's
indebtedness at March 31, 1997 bore interest at a fixed rate.
The Company's long-term debt at March 31, 1997 consists of (a) mortgage notes
collateralized by one hotel property located in Florida (the "Florida Mortgage
Note"), one hotel property located in California (the "California Mortgage
Note") and two hotel properties located in Michigan (the "Michigan Mortgage
Note"), (b) outstanding borrowings under the Line of Credit, and (c) the two
Term Loans. Twenty-eight of the 35 hotels owned by the Company at March 31,
1997 collateralized this indebtedness.
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 $3.6 million
at March 31, 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
$14.9 million at March 31, 1997 and December 31, 1996, respectively.
The Michigan Mortgage Note is payable in monthly interest only payments, at a
variable interest rate based upon the 30- day yield 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 collateralized by two hotel
properties located in Michigan. The interest rate and outstanding principal
balance
14
<PAGE> 17
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
on the Michigan Mortgage Note was 3.6% and $10.0 million, respectively, at
March 31, 1997 and 3.9% and $10.0 million, respectively, at December 31, 1996.
Outstanding borrowings under the Line of Credit bear interest at the 30-day
LIBOR rate plus 175 basis points. The interest rate on borrowings under the
Line of Credit at March 31, 1997 was 7.2% and at December 31, 1996 was 7.1% and
the Line of Credit expires May 1997. The outstanding principal balance on the
Line of Credit was approximately $5.3 million and $42.2 million at March 31,
1997 and December 31, 1996, respectively.
The Company has negotiated and obtained from the Line of Credit lender a
commitment for an amended and expanded line of credit, which is expected to
close on or about May 15, 1997. The Company's Line of Credit will be increased
to $190 million (from $70 million), of which $40 million will be
uncollateralized. The maturity date on the amended Line of Credit would be
extended to March 2001. The interest rate on the amended Line of Credit would
remain at 175 basis points over the 30-day LIBOR rate for the collateralized
portion and would be 195 basis points over the 30-day LIBOR rate for the
uncollateralized portion.
The First Term Loan, obtained from the Line of Credit lender, matures in 2015
and bears interest at an 8.17% fixed annual rate. The First Term Loan has
scheduled principal amortization over a twenty-year term commencing on the
second anniversary of the First Term Loan. 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 the end of the twelfth
year of the First Term Loan. The First Term Loan may be prepaid in full
without penalty on and after the twelfth anniversary of the closing of the
loan, when the Company expects to pay off the loan in full. The outstanding
principal balance on the First Term Loan was $30 million at March 31, 1997 and
December 31, 1996. The Term Loan is collateralized by eight Residence Inn
Hotels.
In March 1997, the Company fixed the interest rate on $42,000,000 of borrowings
previously outstanding under the variable interest rate Line of Credit by
refinancing such amounts as a Second Term Loan from the Line of Credit lender.
The Second Term Loan matures in twenty years and bears interest at an 8.15%
fixed annual rate. The Second Term Loan has scheduled principal amortization
over a twenty-year term commencing on the second anniversary of the Second Term
Loan. Interest on the outstanding principal balance of the Second Term Loan
will will accrue at 13.15% if the outstanding principal balance is not paid in
full by the end of the twelfth year of the Second Term Loan. The Second Term
Loan may be prepaid in full without penalty on or after the twelfth anniversary
of the closing of the loan, when the Company expects to pay off the loan in
full. The outstanding principal balance on the Second Term Loan was $42
million at March 31, 1997. The Second Term Loan is collateralized by mortgages
on eight hotels, including five hotels previously collateralizing the line of
credit and three previously unencumbered hotels.
15
<PAGE> 18
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
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 Partnership 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 Partnership made available to the Lessee
approximately $7,800,000 for hotel renovations from September 30, 1994 to March
31, 1997. The Second Term Loan requires that the Partnership make available
for such purposes at the Hotels collateralizing that loan 5% 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
Partnership 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.
In May 1997 the Company completed the conversion of the Comfort Inn Hotel in
Woburn, Massachusetts to a Hampton Inn and had expended $1,600,000 through
March 31, 1997 for such conversion.
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 31 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. 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.
16
<PAGE> 19
INNKEEPERS USA TRUST
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.
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.
17
<PAGE> 20
JF HOTEL
CONDENSED COMBINED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $10,950 $5,551
Marketable securities 1,223 1,161
Accounts receivable 3,207 2,393
Due from affiliates 298
Inventory 9 67
Prepaid expenses 214 233
Other assets 204 252
------- ------
Total assets $15,807 $9,955
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,681 $2,150
Accrued expenses 1,329 1,545
Due to affiliates 89
Payable to manager 3,462 1,634
Other liabilities 620 785
Due to Partnership 6,768 3,541
------- ------
Total liabilities 14,949 9,655
------- ------
Commitments (Note 3)
Shareholders' equity:
Common shares, $1 par value, 3,000 shares
authorized issued and outstanding 3 3
Unrealized gain on marketable securities 420 358
Retained earnings (deficit) 435 (61)
------- ------
Total shareholders' equity 858 300
------- ------
Total liabilities and shareholders' equity $15,807 $9,955
======= ======
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
18
<PAGE> 21
JF HOTEL
CONDENSED COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Gross operating revenue:
Rooms $ 25,533 $ 12,009
Food and beverage 169 187
Telephone 964 453
Other 534 269
--------- --------
Gross operating revenue 27,200 12,918
Departmental Expenses:
Rooms 4,867 2,394
Food and beverage 142 152
Telephone 344 189
Other 232 80
--------- --------
Total departmental profit 21,615 10,103
--------- --------
Unallocated operating expenses:
General and administrative 1,947 712
Franchise fees 1,993 915
Advertising and promotions 884 456
Utilities 1,328 791
Repairs and maintenance 1,220 606
Management fees 539 51
--------- --------
Total unallocated operating
expenses 7,911 3,531
--------- --------
Gross profit 13,704 6,572
Insurance (205) (97)
Lessee overhead (623) (359)
Percentage lease payments (12,380) (5,696)
--------- --------
Net income $ 496 $ 420
========= ========
</TABLE>
The accompanying notes are an integral part
of these condensed combined financial statements.
19
<PAGE> 22
JF HOTEL
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(in thousands, except supplemental non-cash financing activities)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 496 $ 420
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11
Changes in:
Accounts receivable (814) 153
Inventory 58 (9)
Prepaid expenses 19 33
Other assets 43 (55)
Account payable 531 (506)
Accrued expenses (216) 87
Payable to manager 1,828
Other liabilities (165)
Due to Partnership 3,227 967
------- ------
Net cash provided by operating activities 5,018 1,090
------- ------
Cash flows from investing activities:
Purchase of marketable securities (257)
Purchase of equipment (6)
Advances from affiliates 387
------- ------
Net cash provided by (used in) investing activities 381 (257)
------- ------
Cash flows from financing activities:
Dividends paid (111)
------- ------
Net cash used in financing activities (111)
------- ------
Net increase in cash and cash equivalents 5,399 722
Cash and cash equivalents at beginning of period 5,551 2,894
------- ------
Cash and cash equivalents at end of period $10,950 $3,616
======= ======
</TABLE>
Supplemental non-cash financing activities:
The Lessee's shareholders repaid due from shareholders from retained earnings
in the amount of $41,000 for the period January 1, 1996 through March 31,
1996.
The accompanying notes are an integral part of these condensed combined
financial statements.
20
<PAGE> 23
JF HOTEL
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
JF Hotel, Inc., JF Hotel II, Inc., JF Hotel III, Inc., JF Hotel IV,
Inc. and JF Hotel V, Inc. (collectively "JF Hotel" or the "Lessee")
are under common control and were formed primarily to lease and
operate hotels owned by Innkeepers USA Trust (the "Company") through
Innkeepers USA Limited Partnership and its subsidiaries (collectively
the "Partnership"). As of March 31, 1997, approximately 80.8% of the
Partnership was owned by the Company. The principal shareholder of
the Lessee is also the President and Chairman of the Company. The
Lessee commenced the leasing and operation of seven hotels (the
"Initial Hotels") on September 30, 1994 and at March 31, 1997 leases
35 hotels (the "Hotels") from the Partnership.
The Lessee operates 21 of the Hotels. Residence Inn by Marriott, Inc.
("RIBM", a wholly-owned subsidiary of Marriott International, Inc.)
operates twelve 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. ACQUISITIONS
In January 1997, the Partnership acquired an existing hotel from an
unaffiliated party for approximately $10,630,000 in cash and
approximately $620,000 in Common Units.
In February 1997, the Partnership acquired an existing hotel for
$10,500,000 in cash and a newly developed hotel for approximately
$10,200,000 in cash and approximately $4,300,000 in Common Units, from
an unaffiliated party.
3. COMMITMENTS
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>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 $ 24,000
1998 24,000
1999 24,000
2000 24,000
2001 24,000
Thereafter 103,000
</TABLE>
21
<PAGE> 24
JF HOTEL
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS, CONTINUED
COMMITMENTS, CONTINUED
RIBM operates twelve of the Hotels under management agreements with
the Lessee (the "RIBM Management Agreements"). The RIBM Management
Agreements have an initial term of 13 years and provide for a base fee
of 2% of gross revenues at the managed hotels and an incentive 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 agreements also contain penalties for early
termination.
The right to operate the twelve hotels as Residence Inns is contained
in the RIBM Management Agreements.
TMH operates two of the Hotels under management agreements with the
Lessee (the "TMH Management Agreements"). The TMH Management
Agreements have terms of 5 years and provide for a base fee of 2% of
gross revenues and an incentive fee based on the performance of the
hotels managed.
22
<PAGE> 25
JF HOTEL
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.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations of the Lessee.
The Lessee -- Actual
Comparison of Three Months Ended March 31, 1997 ("1997") to the Three
Months Ended March 31, 1996 ("1996")
The Lessee had total revenue for 1997 of $27,200,000, consisting of $25,533,000
of room revenue and $1,667,000 of other revenue. Room revenue increased by
$13,524,000, or 112.6% from $12,009,000 for 1996. This increase was primarily
due to the number of Hotels leased increasing from 18 at January 1, 1996 to 32
at December 31, 1996 and 35 at March 31, 1997.
Percentage Lease payments, hotel operating expenses and overhead expenses for
1997 were $12,380,000, $13,701,000, and $623,000, respectively. Percentage
Lease payments, hotel operating expense and overhead expenses increased by
$6,684,000, or 117.3%, $7,258,000, or 112.6%, and $264,000, or 73.5%,
respectively, from $5,696,000, $6,443,000, and $359,000, respectively, for
1996. These increases were primarily due to the number of Hotels leased
increasing from 18 at January 1, 1996 to 32 at December 31, 1996 and 35 at
March 31, 1997. Net income for 1997 was $496,000. Net income increased
$76,000, or 18.1% from $420,000 for 1996.
The gross margin percentage increased to 79.5% in 1997 from 78.2% in 1996.
This was primarily due to direct room operating expenses decreasing as a
percentage of room revenue in 1997. Net income as a percentage of gross
operating revenue decreased from 3.3% in 1996 to 1.8% in 1997, primarily due to
increased percentage lease payments as a percentage of room revenue in 1997.
23
<PAGE> 26
INNKEEPERS USA TRUST
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K - None
24
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INNKEEPERS USA TRUST
May 12, 1997 /s/ David Bulger
---------------------------------
David Bulger
Chief Financial Officer
(Principal Financial Officer)
25
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,353
<SECURITIES> 0
<RECEIVABLES> 6,768
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 366,140
<DEPRECIATION> (20,777)
<TOTAL-ASSETS> 370,725
<CURRENT-LIABILITIES> 0
<BONDS> 105,834
0
0
<COMMON> 223
<OTHER-SE> 207,398
<TOTAL-LIABILITY-AND-EQUITY> 370,725
<SALES> 0
<TOTAL-REVENUES> 12,725
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,997
<INCOME-PRETAX> 5,581
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,230
<EPS-PRIMARY> 0
<EPS-DILUTED> .19
</TABLE>
