UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number: 0-25060
HUMPHREY HOSPITALITY TRUST, INC.
(Exact name of registrant as specified in its charter)
Virginia 52-1889548
(State or other Jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
12301 Old Columbia Pike, Silver Spring MD 20904 (301) 680-4343
(Address of principal executive offices) (Registrant's telephone number
(zip code) including area code)
N/A
----------------------------------------------------
(former name, former address and former fiscal year,
if changed since last report)
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.
YES X NO
--- ---
The number of shares of Common Stock, $.01 par value, outstanding on August 12,
1997 was 3,481,700.
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
AMENDMENT TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
Humphrey Hospitality Trust, Inc.is restating its Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997. The Company is restating its net income for
the three and six month period ended June 30, 1997. Interest expense was
underaccrued for both periods by $132,601. Net income, as previously reported,
was overstated by this amount or $ .03 per share for both periods.
-2-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
<S><C>
Item 1. HUMPHREY HOSPITALITY TRUST, INC.
Consolidated Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 4
Consolidated Statements of Income and Changes in Retained Earnings (Deficit) for the three
and six months ended June 30, 1997 and 1996 (unaudited) 5
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
1996 (unaudited) 6
Notes to Consolidated Financial Statements 7
HUMPHREY HOSPITALITY MANAGEMENT, INC.
Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 12
Summary Statements of Operations and Changes in Retained
Earnings (Deficit) for the three and six months ended June
30, 1997 and 1996 (unaudited) 13
Statement of Cash Flows for the six months ended June 30, 1997 and 1996 (unaudited) 14
Notes to Financial Statements 15
Item 2. Management's Discussion and Analysis of Financial Condition 18
PART II. OTHER INFORMATION 22
None.
SIGNATURES 23
</TABLE>
-3-
<PAGE>
PART I. FINANCIAL INFORMATION
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
June December
30, 1997 31, 1996
--------- --------
(unaudited)
<S><C>
ASSETS
Investment in hotel properties, net of accumulated depreciation $48,286,768 $21,405,005
Cash and cash equivalents 258,027 7,100,692
Accounts receivable from Lessee 1,527,551 1,066,995
Deferred expenses, net of accumulated amortization 760,580 373,466
Replacement reserve 45,315 68,466
Other assets 181,812 206,021
----------- -----------
Total assets $51,060,053 $30,220,645
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes and bond payable $28,845,383 $ 8,150,609
Obligations under capital leases 36,275 33,946
Accounts payable and accrued expenses 252,804 83,936
Distributions payable 779,959 561,459
------------ ------------
29,914,421 8,829,950
------------ ------------
Minority interest 3,210,950 3,247,108
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock. $.01 par value, 25,000,000 shares
authorized, 3,481,700 shares issued and outstanding 34,817 34,817
Additional paid-in capital 18,193,185 18,200,563
Retained earnings (deficit) (293,320) (91,793)
------------ ------------
17,934,682 18,143,587
------------ ------------
Total liabilities and shareholders' equity $ 51,060,053 $ 30,220,645
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED STATEMENT OF INCOME AND
CHANGES IN RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S><C>
Revenue
Percentage lease revenue $1,777,161 $1,039,098 $2,740,737 $1,872,849
Other revenue 14,205 5,082 87,928 12,628
---------- ------------ ------------ -----------
Total revenue 1,791,366 1,044,180 2,828,665 1,885,477
---------- ------------ ------------ -----------
Expenses
Interest 398,157 154,394 554,217 306,710
Real estate and personal property taxes and insurance 98,949 51,102 154,171 102,403
General and administrative 177,253 137,991 219,106 210,170
Depreciation and amortization 373,530 186,691 578,937 353,072
---------- ------------ ------------ -----------
Total expenses 1,047,889 530,178 1,506,431 972,355
---------- ------------ ------------ -----------
Income before allocation to minority interest 743,477 514,002 1,322,234 913,122
Income allocated to minority interest 112,860 108,403 200,715 192,578
---------- ------------ ------------ -----------
Net income 630,617 405,599 1,121,519 720,544
Retained earnings (deficit) beginning of period (262,414) (125,677) (91,793) 2,401
Distributions declared (661,523) (443,023) (1,323,046) (886,046)
---------- ------------ ------------ -----------
Accumulated deficit end of period $(293,320) $(163,101) $(293,320) $(163,101)
========== ========== ========= =========
Income per common share outstanding $ 0.18 $ 0.17 $ 0.32 $ 0.31
Weighted average shares outstanding 4,105,050(1) 2,955,050(1) 4,105,050(1) 2,955,050(1)
</TABLE>
- ---------------------
(1) Includes 623,350 units which are redeemable on a one-for-one basis for
shares of common stock at any time.
See notes to consolidated financial statements.
-5-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
---- ----
<S><C>
Cash flows from operating activities
Net income $ 1,121,519 $ 720,544
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 578,937 353,072
Income allocated to minority interest 200,715 192,578
Changes in assets and liabilities
(Increase) decrease in accounts receivable (460,556) 70,335
(Increase) decrease in other assets 24,209 (38,726)
Franchise costs paid (301,746) --
Increase in accounts payable
and accrued expenses 168,868 110,559
------------ ------------
Net cash provided by operating activities 1,331,946 1,408,362
------------ ------------
Cash flows from investing activities
Investment in hotel properties (27,460,700) (1,002,003)
Deposit to replacement reserve (261,673) (221,159)
Interest earned on replacement reserve (919) (2,485)
Withdrawals from replacement reserve 285,743 466,903
------------ ------------
Net cash used in investing activities (27,437,549) (758,744)
------------ ------------
Cash flows from financing activities
Proceeds from Credit Facility 19,519,773 506,478
Cost from sale of stock (7,378) --
Financing costs paid (85,368) --
Distributions paid (1,341,418) (1,122,920)
Proceeds from mortgage payable 1,220,000 --
Principal payments on long-term debt (45,000) (56,391)
Increase in capital lease obligations 16,147 --
Principal payments on capital leases (13,818) (11,315)
------------ ------------
Net cash provided by (used in) financing activities 19,262,938 (684,148)
------------ ------------
Net decrease in cash and cash equivalents (6,842,665) (34,530)
Cash and cash equivalents, beginning of period 7,100,692 168,636
------------ ------------
Cash and cash equivalents, ending of period $ 258,027 $ 134,106
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 421,616 $ 306,710
============ ============
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Trust, Inc. (the "Company") was incorporated on
August 23, 1994, to acquire equity interests in eight existing hotel properties.
The Company is a self-administered, Virginia corporation and qualifies as a real
estate investment trust (a "REIT") for federal income tax purposes. During the
fourth quarter of 1994, the Company completed an initial public offering (the
"IPO") of 1,321,700 shares of $.01 par value common stock ("Common Stock") . The
offering price per share was $6 resulting in gross proceeds of $7,930,200. Net
of underwriters discount and offering expenses, the Company received proceeds of
$6,949,899.
Upon completion of the IPO, the Company contributed substantially all of
the net proceeds of the offering to Humphrey Hospitality Limited Partnership
(the "Partnership") in exchange for a 71.46% general partnership interest in the
Partnership. The Partnership used the proceeds from the Company to acquire an
equity interest in seven existing hotel properties and a general partnership
interest in Solomons Beacon Inn Limited Partnership (the "Subsidiary
Partnership") (such interests, collectively, the "Initial Hotels") and to retire
certain indebtedness relating to the Initial Hotels. The Partnership acquired
the Initial Hotels in exchange for (i) approximately $4.8 million in cash, (ii)
527,866 units of limited partnership interest in the Partnership ("Units") which
are redeemable, subject to certain limitations, for shares of Common Stock on a
one for one basis, a value of approximately $3.2 million based on the IPO
offering price, and (iii) the assumption of approximately $15.5 million of
indebtedness. All of the Units were issued to James I. Humphrey, Jr., Chairman
of the Board of Directors, and President of the Company and Humphrey Associates,
Inc. The Partnership owns a 99% general partnership interest and the Company
owns a 1% limited partnership interest in the Subsidiary Partnership. Hotel
properties are carried at the lower of cost or net realizable value.
The Company began operations on November 29, 1994.
On July 21, 1995, the Company completed a second public offering (the
"Second Stock Offering") of 1,010,000 shares of Common Stock. Net of
underwriters' discount and offering expenses, the Company received proceeds of
approximately $6,957,000. The Company used the proceeds to repay certain debt
and through the Partnership, acquire the Days Inn hotel in Farmville, Virginia
(the "Days Inn Hotel"). The Partnership acquired the Days Inn Hotel from
Farmville Lodging Associates, LLC (the "LLC"), a Maryland limited liability
company in which Mr. Humphrey, Chairman of the Board of Directors and President
of the Company, owns a 98% equity interest. The Partnership acquired the Days
Inn Hotel in exchange for (i) 95,484 Units and (ii) the assumption of
approximately $1.23 million of debt secured by the Days Inn Hotel, which was
repaid immediately with proceeds of the Second Stock Offering. The acquisition
of the Days Inn Hotel has been recorded by the Company at the affiliates
historical cost; which is less than net realizable value. The equity of the Days
Inn Hotel, net of the portion allocated to the minority interest, has been
recorded as an increase in paid-in capital. Upon completion of the Second Stock
Offering, the Company owned a 78.91% partnership interest, and Mr. Humphrey,
Humphrey Associates and the LLC (collectively, the "Limited Partners") owned a
21.09% interest in the Partnership.
On December 6, 1996, the Company completed a third public offering (the
"Third Stock Offering") of 1,150,000 shares of common stock. The gross proceeds
were $9,487,500 based on the offering price of $8.25 per share. Net of
underwriters' discount and offering expenses, the Company received net proceeds
of approximately $8,645,000. The Company used the proceeds (i) to repay
approximately $660,000 of outstanding debt under a credit agreement dated April
10, 1996 with Mercantile Safe Deposit and Trust Company (the "Credit Facility"),
secured by six of the hotels and the Comfort Suites hotel in Dover, Delaware
(the "New Development"), (ii) to repay the costs associated with the development
of the New Development which were approximately $1.6 million at December 31,
1996; and (iii) to establish a fund for future acquisitions and development.
Upon completion of the Third Stock Offering, the Company owned an 84.82%
partnership interest, and the Limited Partners owned a 15.18% interest in the
Partnership.
On January 22, 1997, the New Development, the 64 room Comfort Suites
hotel located in Dover, Delaware, opened for business. The hotel is leased by
Humphrey Hospitality Management, Inc. (the "Lessee") which is wholly-owned by
Mr. Humphrey, for a fixed lease payment of $378,840 (the "Fixed Lease") a year,
payable in equal monthly installments and prorated for any partial month.
-7-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
On February 26, 1997, the Company closed on the purchase of the 49 room
Comfort Inn hotel located in Culpeper, Virginia. The Company assumed
approximately $1,220,000 in taxable and tax exempt bond financing and utilized
approximately $680,000 in cash for the purchase. The hotel is leased by the
Lessee pursuant to a Percentage Lease (defined herein) which provides for rent
based, in part, on the room revenues from the hotel.
In February, 1997 the Company increased its Credit Facility from $6.5
million to $12.0 million. The term of the Credit Facility is for two more years
with two one-year extensions at the option of the bank. The Credit Facility
bears interest rate at the prime rate plus 25 basis points, presently at 8.75%.
Mr. Humphrey's personal guaranty obligation has been reduced from $6.5 million
to $2.0 million. The Credit Facility is secured by liens on the Company's hotels
located in Solomons, MD; Farmville, VA (2 hotels); Elizabethton, TN; Dahlgren,
VA; Princeton, WV; Dover, DE; Culpeper, VA; New Castle, PA; Harlan, KY;
Danville, KY; and Murphy, NC.
On March 17, 1997, the Company closed on the purchase of the 79 room
Comfort Inn hotel located in New Castle, Pennsylvania. The Company paid $3
million in cash for the site. The hotel is leased by the Lessee pursuant to a
Percentage Lease which provides for rent based, in part, on the room revenues
from the hotel.
On April 17, 1997, the Company closed on the purchase of the 63 room Best
Western Hotel in Harlan, Kentucky. The Company paid $2.6 million in cash of
which $875,000 was borrowed from the Credit Facility. The hotel is leased by the
Lessee pursuant to a Percentage Lease which provides for rent based, in part, on
the room revenues from the hotel.
On April 23, 1997, the Company closed on the purchase of the 62 room
Holiday Inn Express in Danville, Kentucky and the 56 room Comfort Inn located in
Murphy, North Carolina. The Company paid $4.7 million collectively for both
hotels with borrowings from the Credit Facility. The hotels are leased by the
Lessee pursuant to a Percentage Lease which provides for rent based, in part, on
the room revenues from the hotels.
In May, 1997 the Company increased its Credit Facility from $12.0 million
to $23.0 million. The term and rate remain unchanged. The Comfort Inn in
Chambersburg, PA, the Holiday Inn Express in Allentown, PA, the Comfort Inn in
Gettysburg, PA and the Holiday Inn Express in Gettysburg, PA serve as additional
collateral for the Credit Facility.
On May 22, 1997 the Company closed on the purchase of the 81 room Comfort
Inn in Gettysburg, PA and the 51 room Holiday Inn Express hotel in Gettysburg,
PA. The Company paid $7.05 million collectively for both hotels with borrowings
from the Credit Facility. The hotels are leased by the Lessee pursuant to a
Percentage Lease which provides for rent based, in part, on the room revenues
from the hotels.
On May 29, 1997 the Company closed on the purchase of the 65 room Comfort
Inn in Chambersburg, PA. The Company paid $2.6 million for the site with
borrowings from the Credit Facility. The hotel is leased by the Lessee pursuant
to a Percentage Lease which provides for rent based, in part, on the room
revenues from the hotels.
On June 10, 1997 the Company closed on the purchase of the 83 room
Holiday Inn Express in Allentown, PA. The Company paid $3.75 million for the
site with borrowings from the Credit Facility. The hotel is leased by the Lessee
pursuant to a Percentage Lease which provides for rent based, in part, on the
room revenues from the hotels.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and accordingly, do not include
all of the disclosures normally required by generally accepted accounting
principles or those made in the Company's Annual Report or Form 10-K filed with
the Securities and Exchange Commission. The financial information has been
prepared in accordance with the Company's customary accounting practices. The
financial statements for the three and six months ended June 30, 1997 have been
restated to reflect the previously underaccrued interest expense in the amount
of $132,601. In the opinion of management, the information presented, as
adjusted, reflects all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Company's financial position
as of June 30, 1997, and the results of operations for the
-8-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
three and six months ended June 30, 1997 and 1996. The results of operations for
the three and six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. The
unaudited consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1996.
Note 2. Distributions
On January 31, 1997, the Company paid a $.19 per share distribution on
each share of Common Stock outstanding (including the distribution to minority
interest) to shareholders of record as of December 1, 1996. On March 10, 1997,
the Company declared a $.19 per share distribution for each share of Common
Stock outstanding on March 24, 1997. The distribution was paid on May 5, 1997.
On June 20, 1997, the Company declared a $.19 per share distribution on each
share of Common Stock outstanding on July 8, 1997. The distribution was paid on
August 4, 1997.
Note 3. Commitments and Contingencies
Pursuant to the Humphrey Hospitality Limited Partnership Agreement, the
Limited Partners have certain redemption rights, (the "Redemption Rights"), that
enable them to cause the Partnership to redeem their Units in exchange for
shares of Common Stock or for cash at the election of the Company. The
Redemption Rights may be exercised by the Limited Partners at any time. At June
30, 1997, the aggregate number of shares of Common Stock issuable to the Limited
Partners upon exercise of the Redemption Rights is 623,350. The number of shares
issuable upon exercise of the Redemption Rights will be adjusted upon the
occurrence of stock splits, mergers, consolidations or similar pro rata share
transactions, that otherwise would have the effect of diluting the ownership
interests of the Limited Partners or the shareholders of the Company.
The Company is the sole general partner in the Partnership, which is the
sole general partner in the Subsidiary Partnership and as such, is liable for
all recourse debt of the partnerships to the extent not paid by the
partnerships. In the opinion of management, the Company does not anticipate any
losses as a result of its general partner obligations.
The Company has entered into percentage leases relating to eighteen of
its nineteen Hotels and a fixed lease relating to the New Development, with
Humphrey Hospitality Management, Inc. (the "Lessee"). Each such lease (the
"Percentage Leases" and the "Fixed Lease") has a term of 10 years, with a five
year renewal option at the option of the Lessee. Pursuant to the terms of the
Percentage Leases, the Lessee is required to pay both base rent and percentage
rent and certain other additional charges and is entitled to all profits from
the operations of the Hotels after the payment of certain specified operating
expenses. Pursuant to the terms of the Fixed Lease, the Lessee is required to
pay a fixed rent and certain other additional charges and is entitled to all
profits from the operations of the Hotel after the payment of certain specified
operating expenses. Also pursuant to the terms of the Percentage Lease and the
Fixed Lease, the Company is required to make available to the Lessee an amount
equal to 4% of room revenue on a quarterly, cumulative basis for capital
improvements and refurbishments. The Company has future lease commitments from
the Lessee through June, 2007. Minimum future rental income under these
noncancellable operating leases at December 31, 1996 is as follows:
Year
----
1997 $ 3,859,683
1998 3,859,683
1999 3,859,683
2000 3,859,683
2001 3,859,683
Thereafter 21,228,256
----------
$40,526,671
===========
-9-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
For the three and six months ended June 30, 1997, the Company earned base
rents of $786,566 and $1,300,762, and percentage rents of $990,595 and
$1,439,975 respectively. As of June 30, 1997, $1,527,551 was due from the
Lessee. The percentage rents are based on a percentage of gross room and other
revenue.
The hotel properties are operated under franchise agreements assumed by
the Lessee that have a twenty year life but may be terminated by the franchisor
on certain anniversary dates specified in the agreements. The agreements require
annual payments for franchise royalties, reservation, and advertising services
which are based upon percentages of gross room revenue. These fees are paid by
the Lessee.
Note 4. Mortgages and Bonds Payable
In May 1997 the Company increased its Credit Facility from $12.0 million
to $23.0 million. The term and rate remain unchanged. The Credit Facility is
secured by the Company's hotels located in Solomons, MD; Farmville, VA (2
hotels); Elizabethton, TN; Dahlgren, VA; Princeton, WV; Dover, DE; Culpeper, VA;
New Castle, PA; Harlan, KY; Danville, KY; Murphy, NC; Chambersburg, PA;
Allentown, PA and Gettysburg, PA (2 hotels).
Note 5. Pro Forma Financial Information (Unaudited)
The following pro forma information is presented for informational
purposes as if the acquisition of the Hotels occurred on January 1, 1996. This
unaudited pro forma condensed statement of operations is not necessarily
indicative of what actual results of operations of the Company would have been
assuming such transactions had been completed as of January 1, 1996, nor does it
purport to represent the results of operations for future periods.
-10-
<PAGE>
Humphrey Hospitality Trust, Inc.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1997 June 30, 1996
------------- -------------
<S><C>
Revenue
Percentage lease revenue $3,873,920 $3,694,166
Other revenue 87,928 12,628
---------- ----------
Total revenue 3,961,848 3,706,794
Expenses
Interest 1,214,282 1,231,070
Real estate and personal property taxes
and insurance 223,283 218,766
General and administrative 256,131 252,671
Depreciation and amortization 892,861 828,723
---------- ----------
Total expenses 2,586,557 2,531,230
---------- ----------
Income before allocation to minority interest 1,375,291 1,175,564
Income allocated to minority interest 208,769 178,451
---------- ----------
Net income $1,166,522 $ 997,113
========== ==========
Income per common share outstanding $ 0.34 $ 0.29
Weighted average shares outstanding (1) 4,105,050 4,105,050
</TABLE>
- --------------------------------
(1) Includes 623,350 units which are currently redeemable on a one-for-one basis
for shares of common stock.
-11-
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----- ----
(unaudited)
ASSETS
<S><C>
CURRENT ASSETS
Cash and cash equivalents $ 2,358,398 $ 1,127,573
Accounts receivable 247,003 89,060
Prepaid expenses 37,770 36,282
Other assets 19,033 818
Accounts receivable - shareholder -- 51,250
---------- -----------
Total current assets $ 2,662,204 $ 1,304,983
========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 537,261 $ 107,845
Accrued expenses 307,595 67,328
Advance deposit 22,550 1,730
Prepaid slip rentals - Marina 69,652 31,203
Prepaid restaurant rental 445 --
Due to affiliates 1,527,551 1,066,996
----------- ------------
Total current liabilities 2,465,054 1,275,102
----------- ------------
COMMITMENTS -- --
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding 1 1
Retained earnings 197,149 29,880
----------- ------------
Total shareholder's equity 197,150 29,881
----------- ------------
Total liabilities and shareholder's equity $ 2,662,204 $ 1,304,983
============ ===========
</TABLE>
See notes to financial statements.
-12-
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
SUMMARY STATEMENTS OF OPERATIONS AND
CHANGES IN RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S><C>
Revenue
Room revenue $4,080,057 $2,255,136 $5,800,291 $3,767,501
Telephone revenue 69,426 46,755 108,048 89,824
Slip revenue 73,381 72,887 129,795 125,653
Other revenue 104,766 58,699 143,504 102,840
--------- --------- --------- ---------
Total revenue 4,327,630 2,433,477 6,181,638 4,085,818
--------- --------- --------- ---------
Expenses
Salaries and wages 869,649 550,956 1,407,847 1,012,002
Room expense 215,494 112,915 325,508 204,737
Telephone 63,867 40,740 104,125 78,510
Marina expense 8,648 8,899 17,477 21,648
General and administrative 197,443 116,984 304,889 209,232
Marketing and promotion 141,812 61,847 214,417 111,107
Utilities 163,988 100,195 281,659 212,295
Repairs and maintenance 101,599 83,641 137,254 121,779
Taxes and insurance 44,525 35,694 94,733 73,228
Franchise fees 187,328 108,695 280,723 188,810
Lease payments 1,777,161 1,039,098 2,740,737 1,872,849
--------- --------- --------- ---------
Total expenses 3,771,514 2,259,664 5,909,369 4,106,197
--------- --------- --------- ---------
Net income (loss) $ 556,116 $ 173,813 $ 272,269 $ (20,379)
--------- --------- --------- ---------
Retained earnings (deficit),
beginning of period (253,967) (145,396) 29,880 48,796
Distributions paid (105,000) (85,000) (105,000) (85,000)
--------- --------- --------- ---------
Retained earnings (deficit),
end of period $ 197,149 $ (56,583) $ 197,149 $ (56,583)
========== ========= ========== ==========
</TABLE>
See notes to financial statements.
-13-
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months ended
June 30,
1997 1996
---- ----
<S><C>
Cash flows from operating activities
Net income (loss) $ 272,269 $ (20,379)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Changes in assets and liabilities
Increase in accounts receivable (157,943) (93,130)
(Increase) decrease in prepaid expenses (1,488) 7,500
Increase in other assets (18,215) --
Increase in accounts payable 429,416 145,202
Increase in prepaid slip rentals 38,449 45,342
Increase in prepaid restaurant rentals 445 --
Increase (decrease) in due to affiliates 460,555 (130,531)
Increase in accrued expenses 240,267 --
Increase in advanced deposits 20,820 --
---------- ----------
Net cash provided by (used in)
operating activities 1,284,575 (45,996)
---------- ----------
Cash flows from financing activities
Distributions paid (105,000) (85,000)
Repayments of advance to shareholder 51,250(1) --
---------- ----------
Net cash used in financing activities (53,750) (85,000)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 1,230,825 (130,996)
Cash and cash equivalents, beginning of period 1,127,573 1,253,229
---------- ----------
Cash and cash equivalents, ending of period $2,358,398 $ 1,122,233
========== ============
</TABLE>
- ---------------------
(1) Mr. Humphrey repaid a $51,250 unsecured and non-interest bearing advance
from the Lessee in January 1997. The advance was made during 1996.
See notes to financial statements.
-14-
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Management, Inc. was incorporated under the laws of
the State of Maryland on August 18, 1994 to lease and operate hotel properties
from Humphrey Hospitality Limited Partnership (the "Partnership"). James
I. Humphrey, Jr. is the sole shareholder of the Lessee. The Lessee began
operations on November 29, 1994.
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and accordingly, do not include all of the
disclosures normally required by generally accepted accounting principles. The
financial information has been prepared in accordance with the Lessee's
customary accounting practices. In the opinion of management, the information
presented reflects all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Lessee's financial position
as of June 30, 1997, and the results of operations for the three and six months
ended June 30, 1997 and 1996. The results of operations for the three and six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. The unaudited financial
statements should be read in conjunction with the financial statements and
footnotes thereto included in Humphrey Hospitality Trust, Inc.'s Form 10-K for
the year ended December 31, 1996.
Accounts Receivable
The Lessee considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
Income Taxes
The Lessee has elected to be treated as an S Corporation for federal and
state income tax purposes. Therefore, no provision or benefit for income taxes
has been included in these financial statements since taxable income or loss
passes through to, and is reportable by, the shareholder individually.
Note 2. Related Party Transactions
Shared Expenses
Humphrey Associates, Inc. and HAI Management, Inc., affiliates of the
Lessee, share certain operating expenses with the Lessee. Expenditures are
allocated based on each entity's pro rata share of the expense.
Note 3. Commitments
The Lessee has entered into percentage leases relating to eighteen of its
nineteen Hotels and a fixed lease relating to the New Development. Each such
lease (the "Percentage Leases" and the "Fixed Lease") has a term of 10 years.
Pursuant to the terms of the Percentage Leases, the Lessee is required to pay
both base rent and percentage rent and certain other additional charges.
Pursuant to the terms of the Fixed Lease, the Lessee is required to pay a fixed
rent and certain other additional charges. The Lessee has future lease
commitments through June 2007. Minimum future lease payments due under these
noncancellable operating leases are as follows:
-15-
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
Year
1997 $ 3,859,683
1998 3,859,683
1999 3,859,683
2000 3,859,683
2001 3,859,683
Thereafter 21,228,256
-----------
$40,526,671
===========
For the three and six months ended June 30, 1997, the Lessee has incurred
base rents of $786,566 and $1,300,762, and percentage rents of $990,595 and
$1,439,975. As of June 30, 1997, the amount due the Partnership and Solomons
Beacon Inn Limited Partnership for lease payments were $1,527,551 collectively,
and is included in due to affiliates on the balance sheet.
-16-
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
Note 4. Pro Forma Financial Information (Unaudited)
The following pro forma information is presented for informational
purposes as if the acquisition of the hotels occurred on January 1, 1996. This
unaudited pro forma condensed statement of operations is not necessarily
indicative of what actual results of operations of the Lessee would have been
assuming such operations had commenced as of January 1, 1996, nor does it
purport to represent the results of operations for future periods.
Humphrey Hospitality Management, Inc.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S><C>
Revenue from hotel operations
Room revenue $8,032,105 $7,662,946
Telephone revenue 150,762 160,087
Slip revenue 129,794 125,653
Other revenue 185,760 174,842
---------- ----------
Total revenue 8,498,421 8,123,528
Expenses
Salaries and wages 2,022,149 1,942,814
Room expense 478,138 460,189
Telephone 130,302 128,042
Marina expense 17,478 21,648
General and administrative 382,206 347,509
Marketing and promotion 336,108 312,565
Utilities 421,377 429,186
Repairs and maintenance 221,581 250,759
Taxes and insurance 136,018 145,322
Franchise fees 433,987 477,614
Lease payments 3,873,920 3,694,166
---------- ----------
Total expenses 8,453,264 8,209,814
---------- ----------
NET INCOME (LOSS) $ 45,157 $ (86,286)
========== ==========
</TABLE>
-17-
<PAGE>
Item 2.
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
This Form 10-Q may include forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements are identified by phrases such as the
Company "expects" or "anticipates" and words of similar effect. The Company's
actual results may differ materially from those projected. Factors that could
cause such a difference include: difficulties in integrating and operating
acquired properties; termination of franchise agreements; default of the Lessee
under operating leases; and general risks associated with investments in real
estate, including the effect of changes in economic, competitive and other
market conditions in the markets where the Company's properties are
concentrated, inability to relet vacated space at adequate rates, the inability
of properties to generate adequate cash flow to fund debt service and operating
expenses, financing and refinancing risks related to the Company's floating rate
debt and new debt necessary to support growth. The Company cautions readers not
to place undue reliance on any such forward-looking statements, which statement
are made pursuant to the Private Securities Litigation Reform Act of 1995 and,
as such, speak only as of the date made.
Humphrey Hospitality Trust, Inc. (the "Company"), is a Virginia
corporation that operates as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"). The Company is the sole general
partner of Humphrey Hospitality Limited Partnership (the "Partnership") and
owned a 84.12% interest in the Partnership at June 30, 1997. As of June 30,
1997, the Partnership owned directly or indirectly nineteen hotel properties
(the "Hotels"). Eight of the Hotels (the "Initial Hotels") were acquired by the
Company in connection with its initial public stock offering in November 1994,
one hotel was acquired in July 1995, one hotel was developed in 1996 and opened
for business in January 1997 and nine hotels were acquired between February 1997
and June 1997.
In order for the Company to qualify as a REIT under the Code, neither the
Company nor the Partnership can operate hotels. Therefore, the Partnership
leases the Hotels to Humphrey Hospitality Management, Inc. (the "Lessee") which
is wholly owned by James I. Humphrey, a limited partner in the Partnership and
Chairman of the Board of Directors and President of the Company. The
Partnership's, and therefore the Company's, principal source of revenue is lease
payments by the Lessee under the Percentage Leases and the Fixed Lease. The
Lessee's ability to make payments to the Partnership under the Percentage Leases
and the Fixed Lease is dependent on its ability to generate cash flow from the
operation of the Hotels.
RESULTS OF OPERATIONS
Three months ended June 30, 1997
The Company's total revenues for the three month period ended June 30,
1997, substantially consisted of Percentage Lease revenue. The Company's revenue
during the three month period ended June 30, 1997 was $1,791,366 an increase of
$747,186, or 71.6%, as compared to Company revenue of $1,044,180 for the same
period of 1996. Net income increased by $225,018 to $630,617, or 55.5% for the
three months ended June 30, 1997 as compared to net income of $405,599 for the
same period of 1996. The improvement in revenues and net income is attributed to
the additional Lease revenue derived from the increase in the number of company
owned hotels from nine in 1996 to nineteen in 1997. Interest expense increased
as a result of increased borrowings from the Company's Line of Credit. Funds
from the Line of Credit were utilized to acquire several hotels (see "Liquidity
and Capital Resources"). General and administrative expenses increased as the
result of fees incurred from auditing the financial performance of the hotels
acquired during the second quarter.
The Lessee's room revenues from the Hotels increased by $1,824,921, or
80.9%, to $4,080,057 for the three months ended June 30, 1997, as compared to
$2,255,136 of room revenue for the same period of 1996. Occupancy (on a pro
forma basis) for the Hotels decreased from 79.2% for the three month period
ended June 30, 1996, to 76.5% for the same period in 1997. The pro forma average
daily rate of the Hotels increased to $56.96 for the three months ended June 30,
-18-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION - CONTINUED
1997, up 3.6% as compared to $54.96 for the same period of 1996. Pro forma
revenue per available room ("Revpar") was $43.57 for the three months ended June
30, 1997 as compared to $43.51 for the same period of 1996. Lessee operating
expenses increased by $1,511,850, as the result of the opening of the hotel in
Dover, Delaware and the acquisition of nine other hotels, to $3,771,514 for the
three months ended June 30, 1997, as compared to $2,259,664 for the same period
of 1996.
Six months ended June 30, 1997
The Company's total revenues for the six month period ended June 30,
1997, substantially consisted of Percentage Lease revenue. The Company's revenue
was $2,828,665 an increase of $943,188, or 50.0%, during the six month period
ended June 30, 1997 as compared to Company revenue of $1,885,477 for the same
period of 1996. Net income increased by $400,975 to $1,121,519, or 55.7% for the
six months ended June 30, 1997 as compared to net income of $720,544 for the
same period of 1996. The improvement in revenues and net income is attributed to
the additional Lease revenue derived from the increase in the number of company
owned hotels from nine in 1996 to nineteen in 1997. Interest expense increased
as a result of increased borrowings from the Company's Line of Credit. Funds
from the Line of Credit were utilized to acquire several hotels (see "Liquidity
and Capital Resources").
The Lessee's room revenues from the Hotels increased by $2,032,790, or
53.9%, to $5,800,291 for the six months ended June 30, 1997, as compared to
$3,767,501 of room revenue for the same period of 1996. Occupancy (on a pro
forma basis) for the Hotels decreased from 67.0% for the six month period ended
June 30, 1996, to 65.3% for the same period in 1997. The pro forma average daily
rate of the Hotels increased to $53.90 for the six months ended June 30, 1997,
up 3.4% as compared to $52.11 for the same period of 1996. Pro forma revenue per
available room ("Revpar") was $35.19 for the six months ended June 30, 1997, up
1.0% as compared to $34.91 for the same period of 1996. Lessee operating
expenses increased by $1,803,172, as the result of the opening of the hotel in
Dover, Delaware and the acquisition of the nine other hotels, to $5,909,369 for
the six months ended June 30, 1997, as compared to $4,106,197 for the same
period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its share of the Partnership's cash
flow. The Partnership's principal source of revenue is rent payments under the
Percentage Leases. The Lessee's obligations under the Percentage Leases are
unsecured. The Lessee's ability to make rent payments, and the Company's
liquidity, including its ability to make distributions to common shareholders,
is dependent on the Lessee's ability to generate sufficient cash flow from the
operation of the Hotels.
The hotel business is seasonal, with hotel revenue generally greater in
the second and third quarters than in the first and fourth quarters. To the
extent that cash flow from operating activities is insufficient to provide all
of the estimated quarterly distributions (particularly in the first quarter),
the Company anticipates that it will be able to fund any such deficit from
future working capital. As of June 30, 1997, the Company's cash and current
accounts receivable balances exceed the current obligations by $885,416.
The Company's Funds from Operations (net income plus minority interest and
depreciation and amortization) ("FFO") was $1,117,007 in the three months ended
June 30, 1997 which is an increase of $416,314, or 59.4% over the FFO in the
comparable period in 1996, which was $700,693. For the six months ended June 30,
1997 the Company's FFO was $1,901,171, which is an increase of $634,977, or
50.2% over the comparable period in 1996, which was $1,266,194. Most of the
improvements in FFO can be attributed to the completion and opening of the
Comfort Suites hotel in Dover, Delaware, and the acquisition of nine hotels
between February 1997 and June 1997. Management considers FFO to be a market
accepted measure of an equity REIT's cash flow which management believes
reflects on the value of real estate companies such as the Company in connection
with the evaluation of other measures of operating performances. In accordance
with the resolution adopted by the Board of Governors of the National
Association of Real Estate Investment
-19-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION - CONTINUED
Trusts, Inc. ("NAREIT"), FFO represents net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization on real
estate assets and after adjustments for unconsolidated partnerships. For the
periods presented, depreciation and amortization and minority interest were the
only non-cash adjustments. Therefore, FFO represents cash flow from operating
activities. FFO should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating, investing or
financing activities as a measure of liquidity. FFO does not reflect working
capital changes, cash expenditures for capital improvements or debt service with
respect to the hotel properties.
The computation of historical FFO is as follows:
<TABLE>
<CAPTION>
Historical Three Historical Three
Month Period Ended Month Period Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S><C>
Net income applicable to
common shares $ 630,617 $405,599
Add:
Minority interest 112,860 108,403
Depreciation and amortization 373530 186,691
---------- --------
Total $1,117,007 $700,693
========== ========
<CAPTION>
Historical Six Historical Six
Month Period Ended Month Period Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S><C>
Net income applicable to
common shares $1,121,519 $ 720,544
Add:
Minority interest 200,715 192,578
Depreciation and amortization 578,937 353,072
---------- ----------
Total $1,901,171 $1,266,194
========== ==========
</TABLE>
In May 1997 the Company increased its Credit Facility from $12.0 million
to $23.0 million. The term and rate remain unchanged. The Comfort Inn in
Chambersburg, PA, the Holiday Inn Express in Allentown, PA, the Comfort Inn in
Gettysburg, PA, Holiday Inn Express in Gettysburg, PA and the Best Western in
Key Largo, FL serve as additional collateral for the Credit Facility.
Long-term debt as of June 30, 1997, of approximately $31.8 million consisted of:
Approximately $24.1 million, from the Credit Facility which is secured by
and cross-collateralized and cross-defaulted on the Hotels located in
Solomons, MD; Farmville, VA (2 hotels); Elizabethton, TN; Dahlgren, VA;
Princeton, WV; Dover, DE; Culpeper, VA; New Castle, PA; Harlan, KY;
Danville, KY; Murphy, NC; Chambersburg, PA; Allentown, PA, Gettysburg, PA
(2 hotels) and Key Largo, FL. The interest rate on the Credit Facility is
variable at 25 basis points above the prime rate, presently at a rate of
8.75% per annum.
-20-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION - CONTINUED
Approximately $4.0 million, secured by a first deed of trust on the
Hotels located in Wytheville, Virginia, and Morgantown, West Virginia.
Interest accrues at the rate necessary to remarket bonds at a price equal
to 100% of the outstanding principal balance. The interest rate is
approximately half of the prime rate, which is adjusted weekly and is not
to exceed 15% and 11.3636% for Wytheville and Morgantown, respectively.
At June 30, 1997, the interest rate was approximately 4.0% for both. In
addition, letter of credit fees, trustee fees and financing fees
increased the effective rate on the bonds.
Approximately $1.2 million, secured by a first deed of trust and a second
deed of trust on the Hotel located in Culpeper, Virginia. The first deed
of trust bears a variable interest rate, currently 7.5% , with annual
increases to a maximum interest rate of 8.125% at maturity in the year
2007. The interest rate on the second deed of trust is to be adjusted on
November 1, 1997 to equal the then current yield on five year Treasury
bonds plus 4%, rounded up to the nearest 1/8 of 1% with a minimum
interest rate of 10% and a maximum interest rate of 14%. The current
interest rate is 10%. The second deed of trust expires in the year 2002.
Approximately $2.4 million, is secured by a first deed of trust on the
Comfort Inn-Dublin, Virginia. The outstanding balance bears interest at a
rate equal to 7.75% per annum with additional Underwriters' fees
increasing the interest rate to 8%.
In the second quarter of 1997, the Company acquired seven hotels for
approximately $1.75 million in cash and approximately $19 million of proceeds
from the Credit Facility. Presently the Company has approximately $28.8 million
of outstanding indebtedness or 52% of the aggregate amount paid by the Company
for the Hotels.
Effective April 3, 1997, the Company's Board of Directors adopted a
resolution increasing the Company's limit on consolidated indebtedness from 50%
to 55% of the aggregate purchase prices of the hotels in which it has invested.
The aggregate total purchase price paid by the Company for the Hotels as of June
30, 1997 is approximately $55.2 million. As of June 30, 1997, the Company's
total outstanding indebtedness represents approximately 52% of the aggregate
amount paid by the Company for the Hotels.
The Board of Directors has adopted a policy that will govern all of the
Company's investment in hotel properties (the "Investment Policy") including the
acquisition of existing hotels and the development of hotels until such time as
the Board amends such policy. Under the Investment Policy, the Company will make
no investment in a hotel property unless the Company can demonstrate that it can
reasonably expect an annual return on its investment (net of insurance, real
estate and personal property taxes and reserves for furniture, fixtures and
capital expenditure ("FFE Reserves")), that is greater than or equal to 12% of
the total purchase price to be paid by the Company for such property. Under the
Bylaws, the approval of a majority of the Board of Directors, including a
majority of the Independent Directors, is required for the Company to acquire
any property. In addition, the Investment Policy will be applied to a hotel
property prior to its acquisition or development by the Company, and therefore,
there can be no assurances that increases in insurance rates, real estate or
personal property tax rates or FFE Reserves, which are based on room revenues,
will not decrease the Company's annual return on its investments in any hotel
property to a level below that set out in the Investment Policy.
Because a development project has no prior revenues on which the
Company's Investment Policy can be tested, the Company intends to invest only in
developments where it reasonably believes it will receive an annual return on
its investment that are consistent with the Investment Policy. The Company
proposed to the Lessee and the Lessee has signed a lease agreement (the "Fixed
Lease" and together with Percentage Leases, the "Leases") pursuant to which the
Lessee would lease the New Development for an annual fixed rent payment which
will be payable in equal monthly installments. The annual rent payment under the
Fixed Lease (net of insurance paid by the Company, FFE Reserves and real estate
and personal property taxes) represents an approximately 12% return on the
Company's expected total investment in the New Development.
-21-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION - CONTINUED
Pursuant to the Leases, the Partnership is required to make available to
the Lessee 4% of room revenue per quarter, on a cumulative basis, for capital
improvements and periodic replacement or refurbishment of furniture, fixtures
and equipment at each of the Hotels. The Company believes that a 4% set-aside
represents a prudent estimate of future expenditure requirements for such items.
The Company intends to cause the Partnership to spend amounts in excess of the
obligated amounts if necessary to comply with the reasonable requirements of any
franchise license and otherwise to the extent that the Company deems such
expenditures to be in the best interests of the Company. The Partnership is
obligated to fund the cost of certain capital improvements to the operations to
fund the cost of capital improvements and any furniture, fixture and equipment
requirements in excess of the above.
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended, commencing with its
initial taxable year ending December 31, 1994, as such the Company will not be
subject to a federal income tax on its net income. REITs are subject to a number
of organizational and operational requirements. For example, a REIT, and
therefore the Company, is required to pay dividends to its shareholders of at
least 95% of its taxable income for federal income tax purposes. The Company
intends to pay these dividends from operating cash flows. The Company intends to
retain as a reserve such amounts as it considers necessary for the acquisition,
expansion and renovation of hotel properties consistent with continuing to
distribute to its shareholders amounts sufficient to maintain the Company's
qualification as a REIT.
The Company expects to meet its short-term liquidity requirements
generally through net cash provided by operations and existing cash balances.
The Company believes that its net cash provided by operations will be adequate
to fund both operating requirements and payment of dividends by the Company in
accordance with REIT requirements.
The Company expects to meet its long-term liquidity requirements, such as
scheduled debt maturities and property acquisitions, through long-term secured
and unsecured borrowings, the issuance of additional equity securities of the
Company, or, in connection with acquisitions of hotel properties, issuance of
units of limited partnership interest in the Partnership.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit the Lessee's ability to raise
room rates in the face of inflation.
SEASONALITY OF HOTEL BUSINESS AND THE HOTELS
The hotel industry is seasonal in nature. Generally, hotel revenues for
hotels operating in the geographic areas in which the Hotels operate are greater
in the second and third quarters than in the first and fourth quarters. The
Hotel's operations historically reflect this trend. Although the hotel business
is seasonal in nature, the Company believes that it generally will be able to
make its expected distributions by using undistributed cash flow from the second
and third quarters to fund any shortfall in the cash flow from operating
activities from the Hotels in the first and fourth quarters.
OTHER INFORMATION
The Company has not adopted the provisions of Financial Accounting
Standard Board Statement No. 128 "Earnings Per Share" on the financial
statements for this quarter. The Company intends to adopt this standard on
December 15, 1997.
Item 6. Exhibits and Reports on Form 8-K
Exhibits - None
-22-
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION - CONTINUED
Reports
(a) On April 25, 1997, the Company filed a Report on Form 8-K reporting the
acquisition of the Best Western hotel in Harlan, Kentucky; the Holiday
Inn Express hotel in Danville, Kentucky; and the Comfort Inn hotel in
Murphy, North Carolina. Audited financial information was filed on May 9,
1997.
(b) On May 9, 1997, the Company filed a Report on Form 8-K reporting the
audited financial information for the Comfort Inn hotel in Culpeper,
Virginia; the Comfort Inn hotel in New Castle, Pennsylvania; the Best
Western at Harlan, Kentucky; the Holiday Inn Express in Danville,
Kentucky; and the Comfort Inn hotel in Murphy, North Carolina.
(c) On June 02, 1997, the Company filed a Report on Form 8-K reporting the
acquisition of the Comfort Inn hotel in Gettysburg, PA, the Comfort Inn
hotel in Chambersburg, PA, and the Holiday Inn Express in Gettysburg, PA.
Audited financial information was filed on July 28, 1997.
(d) On June 18, 1997, the Company filed a Report on Form 8-K reporting the
acquisition of the Holiday Inn Express in Allentown, PA. Audited
financial information was filed on July 28, 1997.
(e) On July 28, 1997, the Company filed a Report on Form 8-K reporting the
audited financial information for the Comfort Inn hotel in Gettysburg,
PA, the Comfort Inn hotel in Chambersburg, PA, the Holiday Inn Express in
Gettysburg, PA and the Holiday Inn Express in Allentown, PA.
PART II
OTHER INFORMATION.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HUMPHREY HOSPITALITY TRUST, INC.
By: /s/ James I Humphrey, Jr
______________________________
James I. Humphrey, Jr.
President and Secretary
Date: 03/24/98
______________________________
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 258,027
<SECURITIES> 0
<RECEIVABLES> 1,527,551
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 987,707
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,060,053
<CURRENT-LIABILITIES> 1,069,038
<BONDS> 28,845,383
0
0
<COMMON> 34,817
<OTHER-SE> 17,899,865
<TOTAL-LIABILITY-AND-EQUITY> 51,060,053
<SALES> 0
<TOTAL-REVENUES> 1,791,366
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 649,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 398,157
<INCOME-PRETAX> 630,617
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 630,617
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
