<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, 1999
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 Plaza (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 common shares of beneficial interest, $.01 par value, outstanding
on May 1, 1999, was 34,676,586.
<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
March 31, 1999 (unaudited) and December 31, 1998 1
Consolidated Statements of Income for the
three months ended March 31, 1999 and
1998 (unaudited) 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (unaudited) 3
Notes to Consolidated Financial Statements 4
INNKEEPERS HOSPITALITY
Combined Balance Sheets at March 31, 1999
(unaudited) and December 31, 1998 11
Combined Statements of Income for the
three months ended March 31, 1999 and 1998
(unaudited) 12
Combined Statements of Cash Flows for
the three months ended March 31, 1999 and 1998
(unaudited) 13
Notes to Combined Financial Statements 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 28
Signature 29
</TABLE>
<PAGE> 3
INNKEEPERS USA TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Investment in hotel properties:
Land and improvements $ 94,026 $ 90,103
Buildings and improvements 610,935 573,846
Furniture and equipment 93,722 87,828
Renovations in process 13,212 12,228
Hotels under development 227 216
--------- ---------
812,122 764,221
Accumulated depreciation (74,635) (65,923)
--------- ---------
Net investment in hotel properties 737,487 698,298
Cash and cash equivalents 5,448 2,642
Restricted cash and cash equivalents 6,989 6,893
Due from Lessees 12,150 10,699
Deferred expenses, net 4,083 4,191
Deposits under purchase agreements -- 1,000
Other assets 1,550 1,391
--------- ---------
Total assets $ 767,707 $ 725,114
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 237,874 $ 191,183
Accounts payable and accrued expenses 7,707 6,714
Distributions payable 13,061 13,023
Minority interest in Partnership 59,548 59,802
--------- ---------
Total liabilities 318,190 270,722
--------- ---------
Commitments and contingencies (Note 4)
Shareholders' equity:
Preferred Shares, $.01 par value, 20,000,000 shares
authorized, 4,630,000 shares issued and outstanding 115,750 115,750
Common Shares, $.01 par value, 100,000,000 shares
authorized, 34,676,586 and 34,541,586 shares issued
and outstanding at March 31, 1999 and
December 31, 1998, respectively 347 345
Additional paid-in capital 367,172 365,711
Unearned compensation (6,139) (4,901)
Distributions in excess of net earnings (27,613) (22,513)
--------- ---------
Total shareholders' equity 449,517 454,392
--------- ---------
Total liabilities and shareholders' equity $ 767,707 $ 725,114
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE> 4
INNKEEPERS USA TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
(Unaudited) (Unaudited)
(Restated)
<S> <C> <C>
Revenue:
Percentage Lease revenue $ 25,806 $ 23,680
Other revenue 209 176
-------- --------
Total revenue 26,015 23,856
-------- --------
Expenses:
Depreciation 8,712 7,441
Amortization of franchise costs 18 18
Ground rent 114 112
Interest expense 3,960 4,805
Amortization of loan origination
fees 238 268
Real estate and personal
property taxes and property
insurance 2,977 2,355
General and administrative 1,155 1,126
Amortization of unearned
compensation 357 149
-------- --------
Total expenses 17,531 16,274
-------- --------
Income before minority interest
and extraordinary loss 8,484 7,582
Minority interest, common (205) (292)
Minority interest, preferred (1,173) (1,173)
Extraordinary loss -- (2,760)
-------- --------
Net income 7,106 3,357
Preferred share dividends (2,496) --
-------- --------
Net income applicable
to common shareholders $ 4,610 $ 3,357
======== ========
Earnings per share data:
Basic - before extraordinary loss $ 0.14 $ 0.19
Extraordinary loss -- (0.08)
-------- --------
Basic $ 0.14 $ 0.10
======== ========
Diluted - before extraordinary loss $ 0.13 $ 0.18
Extraordinary loss -- (0.08)
-------- --------
Diluted $ 0.13 $ 0.10
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE> 5
INNKEEPERS USA TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
(Unaudited) (Unaudited)
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,106 $ 3,357
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,325 7,876
Minority interests 1,378 1,465
Extraordinary loss -- 2,760
Changes in operating assets and liabilities:
Due from Lessees (1,451) (6,896)
Other assets (159) 214
Accounts payable and accrued expenses 993 417
-------- ---------
Net cash provided by operating activities 17,192 9,193
-------- ---------
Cash flows from investing activities:
Investment in hotel properties (46,899) (99,133)
Net deposits into restricted cash accounts (96) (34)
Payments for franchise fees -- (27)
Deposits under purchase agreements -- (250)
-------- ---------
Net cash used in investing activities (46,995) (99,444)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt issuance 47,000 268,330
Payments on long-term debt (309) (163,666)
Dividend reinvestment plan and shelf registration costs paid (133) (24)
Distributions paid to unit holders (1,605) (1,961)
Distributions paid to shareholders (12,167) (8,541)
Redemption of units (27) --
Loan origination fees and costs paid (150) (2,473)
-------- ---------
Net cash provided by financing activities 32,609 91,665
-------- ---------
Net increase in cash and cash equivalents 2,806 1,414
Cash and cash equivalents at beginning of period 2,642 4,228
-------- ---------
Cash and cash equivalents at end of period $ 5,448 $ 5,642
======== =========
Supplemental cash flow information:
Interest paid $ 3,330 $ 4,936
======== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE> 6
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 at March 31, 1999, owned interests in
66 hotels with an aggregate of 8,043 rooms (the "Hotels") through its
general partnership interest in Innkeepers USA Limited Partnership
(with its subsidiary partnerships, the "Partnership" and collectively
with Innkeepers, the "Company"). The Hotels are comprised of 44
Residence Inn by Marriott hotels, 12 Hampton Inn hotels, six
Summerfield Suites hotels, one Comfort Inn hotel, one Courtyard by
Marriott hotel, one Holiday Inn Express hotel and one Sunrise Suites
hotel. The Hotels are located in 23 states, with 11 hotels located in
California.
The Company leases 59 of the Hotels to Innkeepers Hospitality, Inc. (or
other entities under common ownership, collectively the "IH Lessee")
and seven of the Hotels to affiliates of Patriot American Hospitality,
Inc. (the "Summerfield Lessee" and collectively with the IH Lessee, the
"Lessees") 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 IH Lessee. A trustee of the Company
is a director 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 IH Lessee included in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (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.
RECENT DEVELOPMENTS
On January 8, 1999, the Company purchased two Residence Inn by Marriott
hotels located in Chicago (Rosemont), Illinois and Richmond
(Northwest), Virginia with an aggregate of 296 rooms for a cash price
of approximately $31,268,000. The purchase price was funded through the
Line of Credit and available cash.
4
<PAGE> 7
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND RECENT DEVELOPMENTS, CONTINUED
On March 12, 1999, the Company purchased a 112-room Residence Inn by
Marriott hotel located in Detroit (Livonia), Michigan for a cash price
of approximately $10,200,000. The purchase price was funded through the
Line of Credit and available cash. This purchase completes the
acquisition of the six newly-built Residence Inn by Marriott hotels
announced by the Company in April 1998.
2. RESTATEMENT OF 1998 INTERIM RESULTS
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force (the "EITF") released EITF issue 98-9, "Accounting for
Contingent Rent in Interim Financial Periods" ("EITF 98-9"). EITF 98-9
provides that a lessor shall defer recognition of contingent rental
income in interim periods until specified annual targets that trigger
the contingent income are met. The Company reviewed the terms of its
Percentage Leases and determined that the provisions of EITF 98-9
impacted the Company's revenue recognition on an interim basis, but had
no impact on the Company's annual Percentage Lease revenue recognition
or interim cash flow from its Lessees. The Company adopted the
provisions of EITF 98-9 as a change in accounting principle, restated
the first quarter results of 1998 and recorded the results of the
second and third quarters of 1998 in accordance with the new
pronouncement.
On November 19, 1998, the EITF rescinded EITF 98-9, which allowed
companies to recognize revenue on the basis used prior to the issuance
of EITF 98-9. Therefore, the Company has again restated the three
months ended March 31, 1998 to recognize Percentage Lease revenue on
the basis used prior to the issuance of EITF 98-9.
The following table presents the effects of the reversal of EITF 98-9
on the three months ended March 31, 1998:
<TABLE>
<CAPTION>
As As
Reported Adjustments Restated
-------- ----------- --------
<S> <C> <C> <C>
Percentage Lease Revenue $13,336,000 $10,344,000 $23,680,000
Net income applicable to
common shareholders (6,146,000) 9,503,000 3,357,000
Basic and diluted
earnings per share (0.19) 0.29 0.10
</TABLE>
5
<PAGE> 8
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income $ 7,106,000 $ 3,357,000
Preferred share dividends (2,496,000) --
------------ ------------
Net income applicable to
common shareholders 4,610,000 3,357,000
Extraordinary loss -- 2,760,000
------------ ------------
Net income applicable to common
shareholders before
extraordinary loss $ 4,610,000 $ 6,117,000
============ ============
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 34,064,095 32,858,291
Effect of dilutive securities:
Stock options 30,144 316,661
Restricted shares 74,900 20,325
------------ ------------
Denominator for diluted
earnings per share -
adjusted weighted
average shares and
assumed conversions 34,169,139 33,195,277
============ ============
Earnings per share data:
Basic-before extraordinary loss $ 0.14 $ 0.19
Extraordinary loss -- $ (0.08)
------------ ------------
Basic $ 0.14 $ 0.10
============ ============
Diluted-before extraordinary loss $ 0.13 $ 0.18
Extraordinary loss -- $ (0.08)
------------ ------------
Diluted $ 0.13 $ 0.10
============ ============
</TABLE>
6
<PAGE> 9
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Pursuant to the Partnership's partnership agreement, limited partners
who hold common units of limited partnership interest in the
Partnership ("Common Units") have redemption rights ("Redemption
Rights") which enable them to redeem each of their Common Units for
cash at the then-current fair market value of a common share or, at
Innkeepers' option, one common share. Substantially all of the
Redemption Rights are currently effective. The aggregate number of
Common Units outstanding was 1,537,323 and 2,849,806 at March 31, 1999
and 1998, respectively.
Additionally, limited partners who hold preferred units of limited
partnership interest in the Partnership ("Class B Preferred Units" and
collectively with the Common Units, "Units") have Redemption Rights
which enable them to redeem each of their Preferred Units for cash at
the then-current fair market value of a common share or, at Innkeepers'
option, one common share. The aggregate number of Class B Preferred
Units outstanding was 4,063,329 at March 31, 1999 and 1998.
The Company pays regular quarterly distributions on its common shares
and Common Units and the current quarterly distribution is $0.28 per
share or unit ($1.12 on an annualized basis). Annual preferred
distributions of $1.10 to $1.155 are payable on each Class B Preferred
Unit, and are based on the dividends payable on the common shares. The
current quarterly preferred distribution rate is $0.28875 for each
Class B Preferred Unit ($1.155 on an annualized basis). The Class B
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 November 1, 2006 unless previously
converted or redeemed.
In May 1998, the Company issued 4,630,000 8.625% Series A cumulative
convertible preferred shares of beneficial interest (the "Series A
Preferred Shares"). The Series A Preferred Shares are convertible into
1.4811 common shares at any time and, therefore, the Company has
reserved 6,857,493 common shares for issuance upon conversion. The
Series A Preferred Shares may be redeemed by the Company after May 18,
2003 and have no stated maturity or sinking fund requirements. The
Series A Preferred Shares have a liquidation preference of $25 per
share and are entitled to annual dividends equal to the greater of (i)
$2.15624 per share ($0.53906 per share payable quarterly) or (ii) the
cash dividend paid or payable on the number of common shares into which
a Series A Preferred Share is then convertible.
7
<PAGE> 10
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS,
CONTINUED
The Hotels are operated under franchise or management agreements with
the Lessees as Residence Inn by Marriott, Summerfield Suites, Sunrise
Suites, Hampton Inn, Courtyard by Marriott, Holiday Inn Express or
Comfort Inn hotels. The Company has paid the cost of obtaining or
transferring certain franchise license agreements to the IH Lessee. For
certain hotels which did not require a franchise transfer fee, the
Company has advanced to the IH Lessee the working capital deposit
required under the IH Lessee's management agreements with Residence Inn
by Marriott, Inc. ("RIBM"). The franchise and management agreements
require the Lessees to pay fees based on percentages of hotel revenue.
The Company has guaranteed certain of the IH Lessee's obligations under
the franchise licenses and is secondarily liable for certain of the IH
Lessee's obligations under the RIBM management agreements, generally in
exchange for certain rights to substitute replacement lessees if the
Company terminates the related Percentage Lease.
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 for the Hotels. Additionally, the
Company must make available to the Lessees an amount equal to 4.0% of
room revenues from the Hotels, on a monthly basis, for the periodic
replacement or refurbishment of furniture and equipment and certain
other expenditures at the Hotels. The Second Term Loan and Third Term
Loan require that the Company make available for such purposes, at the
Hotels collateralizing those loans, an additional 1.0% (for a total of
5.0%) of room revenues from such Hotels.
For the three months ended March 31, 1999 and 1998, Percentage Lease
revenue consisted of base rents of $14,538,000 and $13,336,000,
respectively, and percentage rents in excess of base rents of
$11,268,000 and $10,344,000, respectively. The Lessees have future
minimum base rent commitments to the Company under the Percentage Lease
agreements. Minimum future base rent revenue, under the Percentage
Lease agreements assuming no further increases in base rent pursuant to
increases in the Consumer Price Index, are as follows through the year
2012 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1999 $ 60,027
2000 60,027
2001 60,027
2002 60,027
2003 60,027
Thereafter 332,062
--------
$632,197
========
</TABLE>
8
<PAGE> 11
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. 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
$237,874,000, or 29.3% of its investment in hotels, at cost, at March
31, 1999.
The Company has two fifty-year term ground leases expiring July 2034
and May 2035, respectively, and a 98-year term ground lease expiring
October 2084, on the land underlying three of its hotel properties.
Minimum annual rent payable under these leases is approximately
$460,000 in the aggregate.
The Company is committed to purchase a 95-room Towne Place Suites hotel
located in Horsham, Pennsylvania, for approximately $8,000,000 upon
completion of its development, which is anticipated in May 1999. The
Company expects to fund this purchase through the Line of Credit and
available cash.
The Company has paid $25,000 to the IH Lessee for shared personnel and
services in each of the three month periods ended March 31, 1999 and
1998. This amount has been recorded in general and administrative
expense in the statements of income.
The Company places substantially all of its insurance with a full
service commercial insurance broker that has developed a specialty in
brokering insurance for hotels. The broker is a private company of
which a trustee of the Company owns 47% of the stock. For the year
ended December 31, 1998, the gross amount of premiums paid for
insurance placed by this broker was approximately $930,000.
5. 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 offering
in 1998 had occurred at the beginning of the periods presented and all
of the Hotels had been leased to the Lessees pursuant to Percentage
Leases at the beginning of the periods presented. Such pro forma
information is based in part on the consolidated statements of income
of the Company and the IH Lessee. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have
been made.
9
<PAGE> 12
INNKEEPERS USA TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. PRO FORMA FINANCIAL INFORMATION (UNAUDITED), CONTINUED
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.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Revenue:
Percentage Lease revenue $ 26,069 $ 26,095
Other revenue 209 176
-------- --------
Total revenue 26,278 26,271
-------- --------
Expenses:
Depreciation 8,782 8,267
Amortization of franchise costs 18 18
Ground rent 114 112
Interest expense 4,087 4,384
Amortization of loan origination fees 238 268
Real estate and personal property taxes
and property insurance 3,013 2,822
General and administrative 1,155 1,126
Amortization of unearned compensation 357 149
-------- --------
Total expenses 17,764 17,146
-------- --------
Income before minority interest 8,514 9,125
Minority interest, common (208) (447)
Minority interest, preferred (1,173) (1,173)
-------- --------
Net income 7,133 7,505
Preferred share dividends (2,496) (2,496)
-------- --------
Net income applicable to
common shareholders $ 4,637 $ 5,009
======== ========
Diluted earnings per share $ 0.14 $ 0.15
</TABLE>
10
<PAGE> 13
INNKEEPERS HOSPITALITY
COMBINED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,472 $13,562
Marketable securities 2,987 2,366
Accounts receivable, net 7,160 4,384
Prepaid expenses 381 443
-------- -------
Total current assets 26,000 20,755
Other assets 138 158
-------- -------
Total assets $ 26,138 $20,913
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,632 $ 4,139
Accrued expenses 3,878 3,466
Payable to Manager 5,464 2,442
Due to Partnership 10,341 9,882
-------- -------
Total current liabilities 24,315 19,929
Other long-term liabilities 910 745
-------- -------
Total liabilities 25,225 20,674
-------- -------
Commitments (Note 2)
Shareholders' equity:
Common shares, $1 par value, 7,000 shares
authorized, issued and outstanding 7 7
Unrealized gain (loss) on marketable securities (343) 26
Retained earnings 1,249 206
-------- -------
Total shareholders' equity 913 239
-------- -------
Total liabilities and shareholders' equity $ 26,138 $20,913
======== =======
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
11
<PAGE> 14
INNKEEPERS HOSPITALITY
COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Gross operating revenue:
Rooms $ 46,250 $ 41,572
Food and beverage 13 158
Telephone 1,373 1,311
Other 891 807
-------- --------
Gross operating revenue 48,527 43,848
Departmental expenses:
Rooms 9,160 7,653
Food and beverage 1 150
Telephone 447 447
Other 425 347
-------- --------
Total departmental profit 38,494 35,251
-------- --------
Unallocated operating expenses:
General and administrative 3,681 3,385
Franchise fees 2,935 2,694
Advertising and promotions 2,248 1,948
Utilities 2,156 1,897
Repairs and maintenance 2,182 1,830
Management fees 1,083 871
-------- --------
Total unallocated operating
expenses 14,285 12,625
-------- --------
Gross profit 24,209 22,626
Insurance (219) (264)
Lessee overhead (776) (795)
Percentage Lease payments (21,997) (20,070)
-------- --------
Net income 1,217 1,497
Other comprehensive income -
unrealized gains (losses) on marketable
securities (369) 95
-------- --------
Comprehensive income $ 848 $ 1,592
======== ========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
12
<PAGE> 15
INNKEEPERS HOSPITALITY
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,217 $ 1,497
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 20 12
Changes in operating assets and liabilities:
Accounts receivable (2,776) (3,372)
Inventory -- 3
Prepaid expenses 62 102
Other assets -- (1)
Accounts payable 493 2,345
Accrued expenses 412 935
Payable to Manager 3,022 769
Due to Partnership 459 6,014
-------- --------
Net cash provided by operating activities 2,909 8,304
-------- --------
Cash flows from investing activities:
Advances from Partnership 165 --
Purchase of marketable securities (990) (77)
-------- --------
Net cash used in investing activities (825) (77)
-------- --------
Cash flows from investing activities:
Distributions (174) --
-------- --------
Net cash used in investing activities (174) --
-------- --------
Net increase in cash and cash equivalents 1,910 8,227
Cash and cash equivalents at beginning of period 13,562 7,863
-------- --------
Cash and cash equivalents at end of period $ 15,472 $ 16,090
======== ========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
13
<PAGE> 16
INNKEEPERS HOSPITALITY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Innkeepers Hospitality, Inc., formally known as JF Hotel, Inc., and
other entities with identical ownership (collectively "IH" or the "IH
Lessee") are under common control and were formed primarily to lease
and operate hotels owned by Innkeepers USA Trust ("Innkeepers") through
Innkeepers USA Limited Partnership and its subsidiary partnerships
(collectively the "Partnership," and together with Innkeepers, the
"Company"). The IH Lessee leased 59 hotels (the "IH Leased Hotels")
from the Company at March 31, 1999.
The IH Lessee operates 31 of the IH Leased Hotels, Residence Inn by
Marriott, Inc. ("RIBM", a wholly-owned subsidiary of Marriott
International, Inc.) operates 26 of the IH Leased Hotels, and an
unaffiliated party operates two of the Hotels.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto of the Company and the IH
Lessee included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (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.
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS
RIBM operates 26 of the IH Leased Hotels under management agreements
with the IH Lessee (the "RIBM Management Agreements"). The RIBM
Management Agreements, generally, have an initial term of 13 years and
provide for base fees and incentive fees which are based on the
performance of each RIBM managed hotel, as defined in the RIBM
Management Agreements. The payment of incentive fees is subordinate to
the IH Lessee's obligations under the Percentage Leases at the RIBM
managed hotels. The RIBM Management Agreements also contain substantial
penalties for early termination without cause. Amounts due to RIBM
under the RIBM Management Agreements are included in "Payable to
Manager" in the accompanying combined balanced sheets. The right to
operate the 26 hotels as Residence Inn by Marriott hotels is contained
in the RIBM Management Agreements. In lieu of a franchise fee, the RIBM
Management Agreements provide for a system fee of 5% of gross revenues
at the RIBM managed hotels. The system fee is included in "Franchise
fees" in the accompanying combined statements of income.
14
<PAGE> 17
INNKEEPERS HOSPITALITY
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. COMMITMENTS AND RELATED PARTY TRANSACTIONS, CONTINUED
Two of the IH Leased Hotels are operated under management agreements
with an unaffiliated party with remaining terms of approximately two
years and providing for a base fee of 2% of gross revenues and an
incentive fee based on the performance of the hotels managed.
The Company has reimbursed the IH Lessee $25,000 for shared personnel
and services in each of the three month periods ended March 31, 1999
and 1998, respectively. The Company has paid the cost of obtaining or
transferring certain franchise license agreements to the IH Lessee. For
certain hotels which did not require a franchise transfer fee, the
Company has advanced to the IH Lessee the working capital deposit
required under the RIBM Management Agreements. These advances are
included in "Other long-term liabilities" in the accompanying combined
balance sheets. Percentage Lease expense due to the Company, which
remains unpaid at March 31, 1999 and 1998, is included in "Due to
Partnership" in the accompanying combined balance sheets. The Company
has also guaranteed certain of the IH Lessee's obligations under its
franchise licenses (and is secondarily liable for certain of the IH
Lessee's obligations under the RIBM Management Agreements), generally
in exchange for certain rights to substitute a replacement lessee as
the franchisee (or as the party to the RIBM Management Agreement) if
the Company terminates the related Percentage Lease.
15
<PAGE> 18
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
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and related notes thereto
of Innkeepers USA Trust included in its Annual Report on Form 10-K for the year
ending December 31, 1998.
GENERAL
For background information relating to the Company and the IH Lessee and the
definitions of certain capitalized terms used herein, reference is made to the
notes to the Consolidated Financial Statements of Innkeepers USA Trust and the
Combined Financial Statements of Innkeepers Hospitality appearing elsewhere
herein, and in the Company's Annual Report on Form 10-K for the year ending
December 31, 1998.
The Company acquired the following hotel properties during the three months
ended March 31, 1999:
<TABLE>
<CAPTION>
Number of Date Purchase
Hotel Suites/Rooms Acquired Price
- ----- ------------ --------------- -----------
<S> <C> <C> <C>
Residence Inn-Richmond (Northwest), VA 104 January 8, 1999 (a)
Residence Inn-Chicago (Rosemont), IL 192 January 8, 1999 (a)
Residence Inn-Detroit (Livonia), MI 112 March 12, 1999 $10,200,000
</TABLE>
(a) Aggregate purchase price of $31,268,000
16
<PAGE> 19
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
THE HOTELS
The following chart summarizes information regarding the Hotels at March 31,
1999.
<TABLE>
<CAPTION>
Number of Number of
Franchise Affiliation Hotel Properties Rooms/Suites
- --------------------- ---------------- ------------
<S> <C> <C>
Upscale extended-stay hotels:
Residence Inn 44 5,194
Summerfield Suites 6 759*
Sunrise Suites 1 96
--- -----
51 6,049
Limited service hotels:
Hampton Inn 12 1,527
Courtyard by Marriott 1 136
Comfort Inn 1 127
Holiday Inn Express 1 204
-- -----
15 1,994
Total 66 8,043
== =====
</TABLE>
* includes 298 two-bedroom suites
17
<PAGE> 20
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 58 of the Hotels are presented in the following table. Results were excluded
for such comparison for two hotels which were under substantial renovation
during the first quarter of 1999 and six hotels which were not open during the
first quarter of 1998. Management believes that growth in RevPAR at certain of
the Hotels reflects the results of the Company's focused acquisition strategy,
the continued implementation of professional management techniques by the
Lessees and third party management and stable 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>
Three Months ended
March 31, %
1999 1998 inc (dec)
---- ---- ---------
<S> <C> <C> <C>
Portfolio (1)
- --------------------------------
Average Daily Rate $ 99.58 $ 99.93 (0.3)
Occupancy 77.6% 77.4% 0.3
RevPAR $ 77.26 $ 77.29 0.0
By Type
- --------------------------------
Upscale Extended Stay Hotels (2)
Average Daily Rate $104.97 $106.76 (1.7)
Occupancy 81.8% 81.4% 0.4
RevPAR $ 85.81 $ 86.93 (1.3)
Limited Service Hotels (3)
Average Daily Rate $ 81.34 $ 76.93 5.7
Occupancy 66.2% 66.2% 0.1
RevPAR $ 53.85 $ 50.90 5.8
</TABLE>
(1) 58 hotels
(2) 44 hotels
(3) 14 hotels
18
<PAGE> 21
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.
Comparison of the Three Months Ended March 31, 1999 ("1999") to the Three Months
Ended March 31, 1998 ("1998")
The Company had revenues for 1999 of $26,015,000, consisting of $25,806,000 of
Percentage Lease revenue from the Lessees and $209,000 of other revenue,
compared with $23,856,000, $23,680,000 and $176,000, respectively, for 1998. The
increase in Percentage Lease revenue is due, primarily, to the number of hotels
owned increasing from 56 at January 1, 1998, to 62 at March 31, 1998, to 63 at
January 1, 1999 and to 66 at March 31, 1999.
Depreciation, amortization of franchise costs, amortization of loan origination
fees, and amortization of unearned compensation ("Depreciation and
Amortization") were $9,325,000 in the aggregate for 1999 compared with
$7,876,000 for 1998. The increase in Depreciation and Amortization was primarily
due to the increase in the number of hotels owned as discussed previously. Also
contributing to the increase in Depreciation and Amortization was the
depreciation of renovations completed at the Hotels and amortization of
restricted share awards granted in 1998.
Real estate and personal property taxes and property insurance were $2,977,000
for 1999 compared with $2,355,000 for 1998. This increase was primarily due to
the increase in the number of hotels owned as discussed previously and increases
in assessed values of certain hotels for real estate tax purposes.
Interest expense for 1999 was $3,960,000 compared with $4,805,000 for 1998. This
decrease is due to the reduction in borrowings outstanding under the Line of
Credit from the Company's May 1998 preferred share offering, offset by
additional borrowings for hotel acquisitions subsequent to March 31, 1998.
General and administrative expenses remained relatively constant in 1999 both in
absolute dollars and as a percentage of total revenue.
Net income for 1999 was $7,106,000, or $0.13 per diluted share, compared with
$3,357,000, or $0.10 per diluted share, for 1998. This increase was due
primarily to the extraordinary loss in 1998 related to the extinguishment of the
Company's previous line of credit.
19
<PAGE> 22
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 Lessees
under the Percentage Leases, and the Company is dependent on the Lessees to make
such payments to provide cash for debt service, distributions, capital
expenditures at its Hotels, and working capital. The Company believes that its
cash provided by operating activities will be adequate to meet some of its
liquidity needs. The Company currently expects to fund its growth objectives,
and any other additional liquidity needs, primarily by borrowing on its Line of
Credit or other facilities, and exchanging equity for hotel properties or
possibly accessing the capital markets if market conditions permit.
Cash and cash equivalents (including restricted cash and cash equivalents) at
March 31, 1999 and 1998 were $12,437,000 and $12,424,000, including
approximately $3,427,000 and $1,535,000, respectively, which the Company is
required, under the Percentage Leases, to make available to the Lessees for the
replacement and refurbishment of furniture and equipment and certain other
capital expenditures. Additionally, cash and cash equivalents include
approximately $3,562,000 and $5,247,000, respectively, that is held in escrow to
pay for insurance, taxes, and capital expenditures for certain Hotels.
Net cash provided by operating activities for the three months ended March 31,
1999 and 1998 was $17,192,000 and $9,193,000, respectively.
Net cash used in investing activities was $46,995,000 for the three months ended
March 31, 1999. This was comprised primarily of the Company (a) acquiring three
Residence Inn by Marriott hotels located in Richmond (Northwest), Virginia,
Chicago (Rosemont), Illinois and Detroit (Livonia), Michigan for an aggregate of
approximately $41,468,000 and (b) renovations at certain hotels of approximately
$5,330,000.
Net cash used in investing activities was $99,444,000 for the three months ended
March 31, 1998. This was comprised primarily of the Company (a) acquiring a
Residence Inn by Marriott hotel in Bothell, Washington, for approximately
$11,750,000, and (b) acquiring a portfolio of six Residence Inn by Marriott
hotels in Washington and Oregon for approximately $83,000,000.
Net cash provided by financing activities was $32,609,000 for the three months
ended March 31, 1999, consisting primarily of borrowings under the Line of
Credit of $47,000,000 offset by distributions paid of $13,772,000.
20
<PAGE> 23
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Net cash provided by financing activities was $91,665,000 for the three months
ended March 31, 1998, consisting primarily of net proceeds from long-term debt
of $104,664,000 and distributions paid of $10,502,000.
In May 1998 the Company issued an aggregate of 4,630,000 8.625% Series A
cumulative convertible preferred shares of beneficial interest (the "Series A
Preferred Shares"). The Series A Preferred Shares are convertible into 1.4811
common shares at any time. The Series A Preferred Shares may be redeemed by the
Company after May 18, 2003 and have no stated maturity or sinking fund
requirements. The Series A Preferred Shares have a liquidation preference of $25
per share and are entitled to annual dividends equal to the greater of (i)
$2.15624 per share ($0.53906 per share payable quarterly) or (ii) the cash
dividend paid or payable on the number of common shares into which a Series A
Preferred Share is then convertible. The net proceeds of the Series A Preferred
Share offering of approximately $111,500,000 were used to repay borrowings
outstanding under the Line of Credit.
The Company pays regular distributions on its common shares and Common Units and
the current quarterly distribution is $0.28 per share or unit. Quarterly
preferred distributions of $0.28875 are payable on each Class B Preferred Unit.
The holders of the Common Units and Class B Preferred Units may redeem their
units for cash or, at the election of Innkeepers, common shares on a one-for-one
basis. Under federal income tax law provisions applicable to REITs, the Company
is required to distribute at least 95% of its taxable income to maintain its
REIT status.
The Company's consolidated indebtedness was 29.3% of its investment in hotels,
at cost, at March 31, 1999. At March 31, 1999, the Company had outstanding
indebtedness of approximately $237,874,000, of which approximately 56% bore
interest at a weighted average fixed rate of approximately 7.6%. At March 31,
1999, 26 of the Company's hotel properties collateralized its long-term debt and
40 of the Company's hotel properties were unencumbered. In making future
investments in hotel properties, the Company may incur additional indebtedness.
The Company may also incur indebtedness to meet distribution requirements
imposed on a REIT under the Internal Revenue Code to the extent that working
capital and cash flow from the Company's investments are insufficient to make
such distributions. The Company's Declaration of Trust limits aggregate
indebtedness to 50% of the Company's investment in hotel properties, at cost,
after giving effect to the Company's use of proceeds from any indebtedness. The
Company has additional borrowing capacity under its Line of Credit of
approximately $140,000,000 at March 31, 1999.
Certain debt coverage ratios for the Company are as follows for the twelve
months ended March 31, 1999: (a) interest coverage ratio of 6.4x, (b) fixed
charged coverage ratio of 2.8x, and (c) total debt to EBITDA of 2.6x.
21
<PAGE> 24
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The Company's Line of Credit bears interest based on the LIBOR rate and
increases or decreases in the LIBOR rate will increase or decrease the Company's
cost of borrowings outstanding under the Line of Credit. Based on the borrowings
outstanding under the Line of Credit at March 31, 1999, a one percent increase
in the LIBOR rate would increase annual interest charges $955,000. In March
1999, the Company entered into an interest rate cap agreement with a notional
amount of $100,000,000 and a term of one year. The agreement effectively caps
the interest rate on $100,000,000 of borrowings on the Line of Credit at 7.625%.
In the future, the Company may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments, all in compliance with the Company's 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 management or the Board of Trustees of the Company deems prudent. The
Company has no interest rate hedging instrument exposure or forward equity
commitments.
The Company has a shelf registration statement for $250,000,000 of common
shares, preferred shares or warrants to purchase shares of the Company. The
shelf registration statement was declared effective by the Securities and
Exchange Commission on April 11, 1997. The terms and conditions of the
securities issued thereunder are determined by the Company based on market
conditions at the time of issuance. Approximately $106,000,000 remains available
for issuance under the shelf registration statement.
The Percentage Leases require the Company to make available to the Lessees an
amount equal to 4.0% of room revenues from the Hotels, on a monthly basis, for
the periodic replacement or refurbishment of furniture and equipment and certain
other capital expenditures at the Hotels. The Second and Third Term Loans
require that the Company make available for such purposes, at the Hotels
collateralizing those loans, an additional 1.0% (for a total of 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 interests of the
Company.
Management believes that the amounts required to be made available by the
Company under the Percentage Lease agreements will be sufficient to meet most of
the routine expenditures for furniture and equipment at the Hotels. It is
currently estimated that the Company will spend between $20,000,000 and
$25,000,000 in capital expenditures at the Hotels in 1999. The Company currently
intends to pay for the cost of capital improvements and any additional furniture
and equipment requirements from undistributed cash or, to the extent that
undistributed cash is insufficient to pay such costs, the Line of Credit.
22
<PAGE> 25
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Management has become aware of certain financial difficulties at the Summerfield
Lessee. While the full extent of the financial difficulties of the Summerfield
Lessee is not known, management of the Company believes that near term liquidity
problems exist at the Summerfield Lessee. However, the Summerfield Lessee has
paid to the Company all amounts owed to the Company at March 31, 1999. The
Summerfield Lessee also has a $5,533,484 irrevocable Letter of Credit pledged as
collateral for amounts owed to the Company under the Percentage Leases.
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 Lessees and any third-party managers retained
by the Lessees, in general possess the ability to adjust room rates quickly.
However, competitive pressures have limited and may in the future limit the
ability of the Lessees and any third-party managers retained by the Lessees to
raise room rates in response to inflation.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather then four to define the applicable year. Any systems that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failures or
miscalculations. The Company and the Lessees have initiated programs to address
the challenges the Year 2000 may present to their systems and applications. This
program includes or will include computer systems and applications operated by
the Company or the Lessees, systems of third parties upon whose data or
functionality the Company or the Lessees rely (for example: Marriott, Promus,
banks, credit card companies, utilities and Patriot American Hospitality, Inc.),
and certain other systems or assets which contain date sensitive technology.
Based upon its investigation to date, neither the Company nor the Lessees have
yet identified any material Year 2000 issues with respect to their systems. By
the end of the second quarter of 1999, management expects to have substantially
completed (i) the assessment phase of the program and (ii) any necessary
modifications to their own systems, and necessary conversions to new software
23
<PAGE> 26
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
and related testing. As part of the compliance program, the Company has
initiated or will initiate communications with those third parties whose failure
to timely convert their systems could reasonably be expected to have an impact
on the Company's operations.
Although the Company does not believe the Year 2000 issue will have a material
impact on the Company's operations, there can be no guarantee that the
Company's, the Lessees' or any third party's Year 2000 remediation efforts will
be fully compliant. If noncompliance is extensive, this could have a material
effect on the Company's or the Lessees' business, financial conditions, results
of operation and liquidity. The Company has not hired any external consultants
or incurred any additional costs to address possible remedial efforts in
connection with computer software that could be affected by the Year 2000
problem; although it may retain such consultants or incur additional costs in
the future as circumstances warrant. The use of the Company's own information
system personnel to address the Year 2000 problem has not delayed other
information systems projects or affected normal operations. Conflicts regarding
the time demands on its and its Lessees' information systems' personnel of Year
2000 remediation efforts and maintaining/supporting normal operations may cause
delays or create issues in one or both functions. Management does not consider
the incurred or estimated costs of its compliance program to be material. This
assessment could differ materially if either the scope or schedule progress with
its compliance program is significantly altered.
The Company and the Lessees intend to establish contingency plans to handle any
unknown or potential material issues that may arise from the Year 2000 issue.
The Company expects any contingency plans to be completed in the third quarter
of 1999. The Company's and the Lessees' critical applications include its
reservations systems, credit card transmission, security systems, payment
systems, credit card transmission, utilities, payroll, accounts payable and
receivable and other financial applications. Should any or all of the critical
applications fail to perform properly subsequent to January 1, 2000, other than
utilities, the Company intends that it and its Lessees will resort to temporary
manual processing, which will slow operations but is not expected to have a
material adverse impact on its operations in the long-term.
This discussion includes forward-looking statements of the Company's efforts and
managements expectations relating to Year 2000 readiness. The Company's ability
to achieve Year 2000 readiness and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and costs of programming and testing resources, vendors' ability to install or
modify proprietary hardware and software, unanticipated problems identified in
the ongoing Year 2000 readiness review and problems that may not be identifiable
despite reasonable efforts.
24
<PAGE> 27
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
FUNDS FROM OPERATIONS
Funds From Operations ("FFO") is a widely used 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 generally accepted accounting principles),
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 operating activities as defined by generally accepted
accounting principles, (ii) is not indicative of cash available to fund all cash
flow and liquidity needs, including its ability to make distributions, and (iii)
should not be considered as an alternative to net income (as determined in
accordance with generally accepted accounting principles) for purposes of
evaluating the Company's operating performance.
The following presents the Company's calculation of FFO and FFO per share:
<TABLE>
<CAPTION>
Three Months
ended March 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Net income applicable to
common shareholders $ 4,610,000 $ 3,357,000
Minority interest, common 205,000 292,000
Minority interest, preferred 1,173,000 1,173,000
Extraordinary loss -- 2,760,000
Depreciation 8,712,000 7,441,000
Preferred share dividends 2,496,000 --
----------- -----------
FFO $17,196,000 $15,023,000
=========== ===========
Denominator for diluted
earnings per share 34,169,139 33,195,277
Weighted average:
Common Units 1,540,096 2,947,316
Preferred Units 4,063,329 4,063,329
Convertible Preferred shares 6,857,493 --
----------- -----------
Denominator for
FFO per share 46,630,057 40,205,922
=========== ===========
FFO per share $ 0.37 $ 0.37
=========== ===========
</TABLE>
25
<PAGE> 28
INNKEEPERS USA TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
containing the words "believes", "anticipates", "expects" and words of similar
import. Such forward-looking statements relate to future events and the future
financial performance of the Company, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from the results or
achievements expressed or implied by such forward-looking statements. The
Company is not obligated to update any such factors or to reflect the impact of
actual future events or developments on such forward-looking statements.
26
<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.
27
<PAGE> 30
INNKEEPERS USA TRUST
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits - 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
28
<PAGE> 31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INNKEEPERS USA TRUST
May 13, 1999 /s/ Gregory M. Fay
- ------------ ------------------------------------
Gregory M. Fay
Vice-President of Accounting
(Principal Accounting Officer)
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INNKEEPERS USA TRUST FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,437
<SECURITIES> 0
<RECEIVABLES> 12,150
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 812,122
<DEPRECIATION> (74,635)
<TOTAL-ASSETS> 767,707
<CURRENT-LIABILITIES> 0
<BONDS> 237,874
0
115,750
<COMMON> 347
<OTHER-SE> 333,420
<TOTAL-LIABILITY-AND-EQUITY> 767,707
<SALES> 25,806
<TOTAL-REVENUES> 26,015
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,198
<INCOME-PRETAX> 8,484
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,106
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
