<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: 0-25060
HUMPHREY HOSPITALITY TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Indicate by check mark whether the Registrant: (1) 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 shorter period that the
Registrant was required to file such reports), and (2) 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 per share, outstanding on
May 14, 1999 was 4,631,700.
Page 1 of 23
<PAGE> 2
HUMPHREY HOSPITALITY TRUST, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. HUMPHREY HOSPITALITY TRUST, INC.
<S> <C>
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income and Changes in Distributions in Excess of Net Earnings
for the three months ended March 31, 1999 and March 31, 1998 4
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and
March 31,1998 5
Notes to Consolidated Financial Statements 6
HUMPHREY HOSPITALITY MANAGEMENT, INC.
Balance Sheets as of March 31, 1999 and December 31, 1998 11
Summary Statements of Operations and Changes in Retained Earnings (Deficit) for the three
months ended March 31, 1999 and March 31, 1998 12
Statement of Cash Flows for the three months ended March 31, 1999 and March 31, 1998 13
Notes to Financial Statements 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March December
31, 1999 31, 1998
-------- --------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investment in hotel properties, net of accumulated depreciation $ 72,814,135 $ 72,804,561
Cash and cash equivalents 157,872 541,864
Accounts receivable from Lessee 1,897,904 3,024,585
Deferred expenses, net of accumulated amortization 1,671,690 1,778,083
Replacement reserve 116,678 97,767
Other assets 1,285,197 597,430
------------- ------------
Total assets $ 77,943,476 $ 78,844,290
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes and bonds payable $ 43,897,496 $ 44,195,724
Obligations under capital leases 42,301 --
Accounts payable and accrued expenses 1,345,578 1,320,711
Dividends payable 412,500 412,500
---------- ----------
Total liabilities 45,697,875 45,928,935
----------- -----------
Minority interest 5,091,613 5,197,334
------------ ------------
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, 4,631,700 shares
issued and outstanding 46,317 46,317
Additional paid-in capital 29,039,282 29,039,282
Distributions in excess of net earnings (1,931,611) (1,367,578)
-------------- --------------
27,153,988 27,718,021
----------- -----------
Total liabilities and shareholders' equity $ 77,943,476 $ 78,844,290
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 4
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN DISTRIBUTIONS IN EXCESS OF NET EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Revenue
<S> <C> <C>
Percentage lease revenue $ 2,847,768 $ 1,904,305
Other revenue 9,136 3,526
----------- -----------
Total revenue 2,856,904 1,907,831
----------- -----------
Expenses
Interest 878,757 658,996
Land lease 17,937 15,705
Real estate and personal property taxes and insurance 234,042 138,363
General and administrative 108,736 125,278
Depreciation and amortization 1,049,685 552,261
----------- -----------
Total expenses 2,289,157 1,490,603
----------- -----------
Income before allocation to minority interest 567,747 417,228
Income allocated to minority interest 89,647 66,256
----------- -----------
Net income 478,100 350,972
Distributions in excess of net earnings, beginning of period (1,367,578) (223,920)
Distributions declared (1,042,133) (705,044)
----------- -----------
Distributions in excess of net earnings, end of period $(1,931,611) $ (577,992)
=========== ===========
Basic earnings per common share $ 0.10 $ 0.10
=========== ===========
Diluted earnings per common share $ 0.10 $ 0.10
=========== ===========
Weighted average shares
Basic 4,631,700 3,481,700
Diluted 5,500,004(2) 4,139,073(1)
</TABLE>
- ------------
(1) Includes 623,350 units, which are redeemable on a one-for-one basis for
shares of common stock.
(2) Includes 868,304 units, which are redeemable on a one-for-one basis for
shares of common stock.
See notes to consolidated financial statements.
-4-
<PAGE> 5
HUMPHREY HOSPITALITY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 478,100 $ 350,972
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 1,049,685 552,261
Income allocated to minority interest 89,647 66,256
Changes in assets and liabilities
Decrease in accounts receivable 1,126,681 699,511
Increase in other assets (687,769) (112,357)
(Decrease) increase in accounts payable
and accrued expenses (735,295) 131,595
----------- -----------
Net cash provided by operating activities 1,321,049 1,688,238
----------- -----------
Cash flows from investing activities
Investment in hotel properties (19,058) (364,293)
Deposit to replacement reserve (647,232) (229,916)
Withdrawals from replacement reserve 628,321 346,270
----------- -----------
Net cash used in investing activities (37,969) (247,939)
----------- -----------
Cash flows from financing activities
Draw on line of credit 2,940,000 300,000
Repayment of line of credit (6,095,776) (1,000,000)
Proceeds from mortgage payable 5,054,000 --
Repayment of bonds payable (2,180,000) --
Cost from sale of stock -- (57,588)
Financing costs paid (121,752) --
Distributions paid (1,237,501) (838,162)
Principal payments on long-term debt (16,451) --
Principal payments on capital leases (9,592) (34,184)
----------- -----------
Net cash used in financing activities (1,667,072) (1,629,934)
----------- -----------
Net decrease in cash and cash equivalents (383,992) (189,635)
Cash and cash equivalents, beginning of period 541,864 204,065
----------- -----------
Cash and cash equivalents, end of period $ 157,872 $ 14,430
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 878,757 $ 658,996
=========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities: During
1999, the Company acquired $51,894 of equipment subject to capital leases.
As of March 31, 1999, investment in hotel property includes $755,740 of amounts
included in accounts payable and accrued expenses.
As of March 31, 1999, deferred expenses includes $4,420 of amounts included in
accounts payable and accrued expenses.
See notes to consolidated financial statements.
-5-
<PAGE> 6
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Trust, Inc. was incorporated under the laws of
the Commonwealth of Virginia on August 23, 1994. The Company is a
self-administered real estate investment trust ("REIT") for federal income tax
purposes. Humphrey Hospitality Trust, Inc., through its wholly-owned subsidiary
Humphrey Hospitality REIT Trust (collectively, the "Company") owns a controlling
partnership interest in Humphrey Hospitality Limited Partnership (the
"Partnership") and through the Partnership owns interests in twenty-six existing
limited-service hotels (including seven hotel properties acquired during 1998).
The Partnership owns a 99% general partnership interest and the Company owns a
1% limited partnership interest in Solomons Beacon Inn Limited Partnership (the
"Subsidiary Partnership"). As of March 31, 1999, the Company owns an 84.21%
interest in the Partnership. The Company began operations on November 29, 1994.
Since inception, the Partnership has leased all of its hotel
facilities to Humphrey Hospitality Management, Inc. (the "Lessee"), a
corporation wholly owned by James I. Humphrey, Jr., the President and Chairman
of the Board of the Company. The Lessee operates and leases the hotel properties
pursuant to separate percentage lease agreements (the "Percentage Leases"),
which provide for both fixed rents and percentage rents based on the revenues of
the hotels.
The Company has completed the following public offerings since its inception:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Offering price per Shares sold Net proceeds
Offering Date completed share (in thousands)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial public offering November 29, 1994 $ 6.00 1,321,700 $ 6,950
- ----------------------------------------------------------------------------------------------------------
Second offering July 21, 1995 $ 7.75 1,010,000 $ 6,957
- ----------------------------------------------------------------------------------------------------------
Third offering December 6, 1996 $ 8.25 1,150,000 $ 8,645
- ----------------------------------------------------------------------------------------------------------
Fourth offering April 24, 1998 $ 10.50 1,150,000 $ 10,945
- ----------------------------------------------------------------------------------------------------------
</TABLE>
On December 30, 1998, the Company executed an agreement to sell its
Rodeway Inn hotel in Wytheville, VA for $1,450,000. In connection with the
execution of the agreement, the Company determined that the carrying value of
the hotel exceeded its fair value. Accordingly, an impairment loss of
approximately $622,000, which represents the excess of the carrying value of
approximately $2,004,000 over the fair value, net of costs to sell of
approximately $1,382,000, was charged to operations in 1998.
The purchasers subsequently breached their obligations under the
agreement and, on March 19, 1999, the Company filed an action in the Circuit
Court of Wythe County, VA against the purchasers to, among other things, compel
specific performance and recover damages under the agreement. On April 22, 1999,
the Company executed another agreement to sell its Rodeway Inn hotel in
Wytheville, VA for $1,450,000. The Company will continue with its suit for
damages against the previous purchaser.
On February 8, 1999, the Company obtained a $5.054 million, ten
year, 7.75% fixed rate mortgage from Susquehanna Bank for the Company's Comfort
Inn and Holiday Inn Express hotels located in Gettysburg, PA.
On February 26, 1999, the Company satisfied the bonds secured by
it's Comfort Inn hotel located in Morgantown, WV. This hotel was subsequently
placed as additional collateral on the Company's revolving credit facility with
Mercantile Safe Deposit and Trust Company (the "Mercantile Credit Facility"). In
connection with this transaction, $144,163 in amortizable loan costs were
written off.
On April 1, 1999, the Company paid off the bonds secured by it's
Rodeway Inn hotel located in Wytheville, VA. The Company utilized funds from the
Mercantile Credit Facility and obtained a short term loan with Crestar Bank to
pay off the bonds. The Crestar Bank loan is for a period of one year and bears
interest at the rate of LIBOR plus 300 basis points.
On April 17, 1999, the Company chose to reduce its loan commitment
from BankBoston from $35 million to $20 million. The remaining terms of the
commitment are unchanged.
-6-
<PAGE> 7
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
On May 5, 1999, Mercantile Safe-Deposit and Trust Company extended
the term of the Mercantile Credit Facility for an additional three years.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, the Partnership and the Subsidiary Partnership. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in Hotel Properties
The hotel properties are recorded at cost. Depreciation is computed
using the straight-line method over estimated useful lives of the assets, which
range from 31 to 40 years for buildings and 5 to 12 years for furniture and
equipment. Maintenance and repairs are generally the responsibility of the
Lessee and are charged to the Lessee's operations as incurred; major
replacements, renewals and improvements are capitalized. Upon disposition, both
the asset and accumulated depreciation accounts are relieved and the related
gain or loss is credited or charged to the statement of income.
The Company reviews the carrying value of each hotel property in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 to
determine if circumstances exist indicating an impairment in the carrying value
of the investment in the hotel property or that depreciation periods should be
modified. If facts or circumstances support the possibility of impairment, the
Company will prepare a projection of the undiscounted future cash flows of the
specific hotel property and determine if the investment in the hotel property is
recoverable based on the undiscounted future cash flows. If impairment is
indicated, an adjustment will be made to the carrying value of the hotel
property based on the discounted future cash flows. The Company does not believe
that there are any current facts or circumstances indicating impairment of any
of its investment in hotel properties, except as noted above.
Revenue Recognition
Lease income is recognized when earned from the Lessee under the
lease agreements from the date of acquisition of each hotel property. Contingent
lease income is deferred until the specified target is achieved.
Earnings Per Common Share
The Company calculates earning per share in accordance with SFAS No.
128, Earnings Per Share.
Distributions
The Company intends to pay regular monthly dividends, which are
dependent upon the receipt of distributions from the Partnership.
Minority Interest
Minority interest in the Partnership represents the limited
partners' proportionate share of the equity of the Partnership. Income is
allocated to minority interest based on weighted average percentage ownership
throughout the year.
-7-
<PAGE> 8
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
Income Taxes
The Company intends to continue to qualify as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended. Accordingly,
no provision for Federal income taxes has been reflected in the financial
statements.
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 on 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.
In the opinion of management, the information presented reflects all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the Company's financial position as of March 31, 1999, and the
results of operations for the three months ended March 31, 1999 and March 31,
1998. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. The unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
In June 1998, The FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities," which requires that an entity
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measures those instruments as fair value.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company is currently in the process of evaluating the
effect this new standard will have on its financial statements.
Note 2. Distributions
On March 31, 1999, the Company paid a $.075 per share distribution
on each share of Common Stock outstanding (including the distribution to
minority interest) to shareholders of record as of February 28, 1999. The
distribution declared for shareholders of record as of March 31, 1999 was paid
on April 30, 1999, at a rate of $.075 per share.
Note 3. Commitments and Contingencies
Pursuant to the Humphrey Hospitality Limited Partnership Agreement,
the Limited Partners have certain redemption rights (the "Redemption Rights"),
which 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 March
31, 1999, the aggregate number of shares of Common Stock issuable to the Limited
Partners upon exercise of the Redemption Rights is 868,304. 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 with the Lessee
relating to each of the hotels. Each such 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. Also pursuant to the terms of the Percentage Leases, the
Company is obligated to make available to the Lessee an amount equal to 6% of
room revenue on a quarterly, cumulative basis for capital improvements and
refurbishments.
-8-
<PAGE> 9
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
The Company has future lease commitments from the Lessee through September 2008.
Minimum future rental income under these noncancelable operating leases at
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year (in thousands)
---- --------------
<S> <C> <C>
1999 5,352
2000 5,352
2001 5,352
2002 5,352
2003 5,352
Thereafter 15,977
------
$42,737
=======
</TABLE>
For the three months ended March 31, 1999, the Company earned base
rents of $1,409,070 and percentage rents of $1,438,698 as compared to base rents
of $1,020,486 and percentage rents of $883,819 for the three months ended March
31, 1998. As of March 31, 1999, $1,897,904 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 with
various franchisors assumed by the Lessee that have an eight to 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
The Company has a credit facility of $25.5 million with Mercantile
Safe Deposit and Trust Company. The term of the Mercantile Credit Facility,
which was originally scheduled to expire in April 1999, has been renewed for an
additional three years. The Mercantile Credit Facility bears interest at the
prime rate plus 25 basis points (presently 8%) and will mature on April 11,
2002. The Mercantile Credit Facility is secured by the Company's hotels located
in Solomons, MD; Farmville, VA (2 hotels); Culpeper, VA; New Castle, PA; Harlan,
KY; Danville, KY; Murphy, NC; Chambersburg, PA; Allentown, PA; Morgantown, WV
and Rocky Mount, VA.
On August 18, 1998, the Company obtained a $35 million credit
facility from BankBoston (the "BankBoston Credit Facility"). On April 17, 1999
the Company reduced the commitment from $35 million to $20 million. The term of
the BankBoston Credit Facility is for three years and bears interest at LIBOR
plus between 165 and 215 basis points. The Company entered into an interest swap
agreement that fixed the interest rate on a notional amount of approximately
$11.2 million at a ceiling of 7.79%. The line is cross-collaterized by the
Company's hotels located in Jackson, TN; Key Largo, FL; Ellenton, FL (2 hotels);
Shelby, NC; Cleveland, TN; Dahlgren, VA; Princeton, WV and Dover, DE.
On February 8, 1999, the Company obtained a $5.054 million, ten
year, 7.75% fixed rate mortgage, from Susquehanna Bank on the Company's Comfort
Inn and Holiday Inn Express hotels located in Gettysburg, PA.
On February 26, 1999, the Company satisfied the bonds secured by
it's Comfort Inn hotel located in Morgantown, WV. This hotel was subsequently
placed as additional collateral on the Mercantile Credit Facility. In connection
with this transaction, $144,163 in amortizable loan costs were written off.
On April 1, 1999, the Company paid off the bonds secured by the
Rodeway Inn hotel located in Wytheville, VA. The Company utilized funds from the
Mercantile Credit Facility and executed a short term note of approximately
$763,000 (the "Note") to pay off the bonds. The Note bears interest at LIBOR
plus 300 basis points and will mature on April 1, 2000.
-9-
<PAGE> 10
HUMPHREY HOSPITALITY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
Note 5. Pro Forma Financial Information
The following pro forma information for the three months ended March 31, 1998 is
presented for informational purposes as if the acquisition of all hotels by the
Partnership and the commencement of the Percentage Leases had occurred on
January 1, 1998. Historical information is presented for the three months ended
March 31, 1999.
Humphrey Hospitality Trust, Inc.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
(Historical) (Proforma)
Revenue
<S> <C> <C>
Percentage lease revenue $2,847,768 $2,827,938
Other revenue 9,136 3,526
---------- ----------
Total revenue 2,856,904 2,831,464
---------- ----------
Expenses
Interest 878,757 944,593
Land lease 17,937 15,705
Real estate and personal property taxes and insurance 234,042 225,239
General and administrative 205,962 125,278
Depreciation and amortization 952,459 796,154
---------- ----------
Total expenses 2,289,157 2,106,969
---------- ----------
Income before allocation to minority interest 567,747 724,495
Income allocated to minority interest 89,647 115,050
---------- ----------
Net income $ 478,100 $ 609,445
========== ==========
Earnings per common share $ 0.10 $ 0.13
========== ==========
Weighted average shares 4,631,700 4,631,700
</TABLE>
-10-
<PAGE> 11
HUMPHREY HOSPITALITY MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $2,230,390 $3,262,524
Accounts receivable 490,472 389,536
Prepaid expenses 16,745 41,095
Due from affiliate 720,218 405,765
Other assets 67,114 71,973
--------- ---------
Total current assets $3,524,939 $4,170,893
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 495,348 $ 426,685
Accrued expenses 683,820 465,666
Advance deposit 46,125 24,669
Prepaid slip rental 57,766 32,817
Line of credit 400,000 --
Due to affiliates 1,897,904 3,024,324
--------- ---------
Total current liabilities 3,580,963 3,974,161
--------- ---------
COMMITMENTS -- --
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding 1 1
(Accumulated deficit) retained earnings (56,025) 196,731
--------- ---------
Total shareholder's equity (56,024) 196,732
--------- ---------
Total liabilities and shareholder's equity $3,524,939 $4,170,893
========= =========
</TABLE>
See notes to financial statements.
-11-
<PAGE> 12
HUMPHREY HOSPITALITY MANAGEMENT, INC.
STATEMENTS OF OPERATIONS AND
CHANGES IN RETAINED EARNINGS (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Revenues
<S> <C> <C>
Room revenue $ 5,852,852 $ 3,661,980
Telephone revenue 111,104 74,412
Slip revenue 59,863 71,718
Interest revenue 13,702 9,896
Other revenue 169,972 89,699
----------- -----------
Total revenue 6,207,493 3,907,705
----------- -----------
Expenses
Salaries and wages 1,568,257 1,120,814
Room expense 396,072 215,572
Telephone 108,706 77,818
Marina expense 10,239 7,281
General and administrative 325,000 215,074
Marketing and promotion 227,445 173,559
Utilities 324,086 234,319
Repairs and maintenance 159,142 97,357
Taxes and insurance 108,354 72,363
Franchise fees 269,724 189,183
Lease payments 2,963,224 1,904,305
----------- -----------
Total expenses 6,460,249 4,307,645
----------- -----------
Net income (252,756) (399,940)
Retained earnings
beginning of period 196,731 184,944
----------- -----------
Retained earnings (deficit),
end of period $ (56,025) $ (214,996)
=========== ===========
</TABLE>
See notes to financial statements.
-12-
<PAGE> 13
HUMPHREY HOSPITALITY MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities
<S> <C> <C>
Net Income $ (252,756) $ (399,940)
Adjustments to reconcile net income to net cash
used in operating activities
Changes in assets and liabilities
Increase in accounts receivable (100,936) (45,456)
Decrease in prepaid expenses 24,350 34,596
Decrease in other assets 4,859 17,173
Increase (decrease) in accounts payable 68,663 (773)
Increase in prepaid slip rentals 24,949 24,460
Decrease in due to affiliates (1,126,420) (634,293)
Increase(decrease) in accrued expenses 218,154 (90,416)
Increase in advance deposits 21,456 67,672
----------- -----------
Net cash used in operating activities (1,117,681) (1,026,977)
----------- -----------
Cash flows from financing activities
Advances to affiliates (314,453) --
Advance from shareholder 400,000(1) 200,000
----------- -----------
Net cash provided by financing activities 85,547 200,000
----------- -----------
Net decrease in cash and
cash equivalents (1,032,134) (826,977)
Cash and cash equivalents, beginning of period 3,262,524 2,483,403
----------- -----------
Cash and cash equivalents, end of period $ 2,230,390 $ 1,656,426
=========== ===========
</TABLE>
- ---------------------
(1) Mr. Humphrey provided a $400,000 line of credit to the Lessee in
January 1999, at an interest rate equal to the prime rate plus 25
basis points. The line of credit was repaid to Mr. Humphrey in April
1999.
See notes to financial statements.
-13-
<PAGE> 14
HUMPHREY HOSPITALITY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Management, Inc. (the "Lessee") 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.
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 March 31, 1999, and the results of operations for the three
months ended March 31, 1999 and March 31, 1998. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. The unaudited
financial statements should be read in conjunction with the audited financial
statements and footnotes thereto included in Humphrey Hospitality Trust, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998.
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.
Lease Expense
Lease expense is recognized when accrued under the lease agreements
from the date of acquisition of each hotel property. Contingent lease expense is
accrued based on the probability of the future revenue target being achieved, in
accordance with EITF-98-9.
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. At March 31,
1999, $40,890 was due from affiliates for such allocated expenses. During the
three months ended March 31, 1999, the Lessee provided for capital improvements
totaling $1,049,370 which are the responsibility of the Company and have been
capitalized and included in investment in hotel properties. As of March 31,
1999, $679,328 remained payable and is recorded as due from affiliates.
Note 3. Commitments
The Lessee has entered into percentage leases with the Partnership
and the Subsidiary Partnership relating to each of their hotels. Each such lease
has a term of 10 years with a 5 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
-14-
<PAGE> 15
\
HUMPHREY HOSPITALITY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
charges. The Lessee has future lease commitments through September 2008. Minimum
future lease payments due under these noncancellable operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year (in thousands)
---- --------------
<S> <C> <C>
1999 5,352
2000 5,352
2001 5,352
2002 5,352
2003 5,352
Thereafter 15,977
------
$42,737
=======
</TABLE>
For the three months ended March 31, 1999, the Lessee incurred base
rents of $1,409,070, percentage rents of $1,438,698 and contingent rents of
$115,456, as compared to base rents of $1,020,486 and percentage rents of
$883,819 for the three months ended March 31, 1998. Contingent lease expense has
been accrued at March 31, 1999 in accordance with EITF 98-9. As of March 31,
1999, the amount due the Partnership and the Subsidiary Partnership for lease
payments was $1,897,904 collectively, and is included in due to affiliates on
the balance sheet.
-15-
<PAGE> 16
HUMPHREY HOSPITALITY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
Note 4. Pro Forma Financial Information
The following pro forma information for the three months ended
March 31, 1998 is presented for informational purposes as if the acquisition of
all hotels by the Partnership and the commencement of the Percentage Leases had
occurred on January 1, 1998. Historical information is presented for the three
months ended March 31, 1999.
Humphrey Hospitality Management, Inc.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
(Historical) (Proforma)
Revenues
<S> <C> <C>
Room revenue $ 5,852,852 $ 5,819,436
Telephone revenue 111,104 120,334
Slip revenue 59,863 71,718
Interest revenue 13,702 9,896
Other revenue 169,972 116,802
----------- -----------
Total revenue 6,207,493 6,138,186
----------- -----------
Expenses
Salaries and wages 1,568,257 1,597,833
Room expense 396,072 318,310
Telephone 108,706 107,881
Marina expense 10,239 7,281
General and administrative 325,000 308,606
Marketing and promotion 227,445 238,544
Utilities 324,086 335,278
Repairs and maintenance 159,142 160,802
Taxes and insurance 108,354 107,614
Franchise fees 269,723 288,746
Lease payments 2,963,224 2,827,938
----------- -----------
Total expenses 6,460,249 6,298,833
----------- -----------
Net loss $ (252,756) $ (160,647)
=========== ===========
</TABLE>
-16-
<PAGE> 17
Item 2.
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on 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 import. The Company's actual results may differ materially from those
projected. Factors that could cause such differences 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, 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 statements are made
pursuant to the Private Securities Litigation Reform Act of 1995.
Humphrey Hospitality Trust, Inc. 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, through Humphrey Hospitality REIT
Trust, the Company's wholly-owned subsidiary, is the sole general partner of
Humphrey Hospitality Limited Partnership and owns an 84.21% interest in the
Partnership at March 31, 1999. As of March 31, 1999, the Partnership owned
directly or indirectly twenty-six hotel properties (the "Hotels"). Eight of the
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, ten hotels were
acquired between February 1997 and September 1997 and seven hotels were acquired
between June 1998 and September 1998. One hotel was sold in June 1998.
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 pursuant to percentage leases to Humphrey
Hospitality Management, Inc., 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. The Lessee's ability to make payments to the Partnership under the
Percentage Leases is dependent on its ability to generate cash flow from the
operation of the Hotels.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
The Company's total revenues for the three month period ended March 31,
1999, substantially consisted of Lease revenue recognized pursuant to the
Leases. The Company's revenue during the three month period ended March 31, 1999
was $2,856,904 an increase of $949,073, or 49.7%, as compared to Company revenue
of $1,907,831 for the same period during 1998. The improvement in revenues is
primarily attributable to additional Lease revenue derived from the increase in
the total number of Hotels. Net income increased by $127,128, or 36.2% to
$478,100, for the three months ended March 31, 1999 as compared to net income of
$350,972 for the same period during 1998. The improvement in net income is
primarily attributable to additional Lease revenue derived from the increase in
the number of Hotels, offset in part by additional expenses associated with the
refinancing of certain hotels and additional depreciation expense incurred as
the result of substantial capital improvements completed in 1998.
The Lessee's room revenues from the Hotels increased by $2,190,872, or
59.8%, to $5,852,852 for the three months ended March 31, 1999, as compared to
$3,661,980 of room revenue for the same period of 1998. The improvement in
revenues is primarily attributable to the increase in the total number of Hotels
leased. The average daily rate of the Hotels increased to $59.07 for the three
months ended March 31, 1999, up 2.3% as compared to the pro forma average daily
rate of $57.73 for the same period of 1998. Revenue per available room
("Revpar") was $36.33 for the three months ended March 31, 1999 as compared to
pro forma Revpar of $35.38 for the same period of 1998, an increase of 2.7%.
Lessee operating expenses increased by $2,152,604, or 49.9% primarily as the
result of the increased number of Hotels under management, to $6,460,249, for
the three months ended March 31, 1999, as compared to $4,307,645 for the same
period of 1998. The net loss for the three months ended March 31, 1999 was
$252,756 as compared to a net loss of $399,940 for the same period in 1998. The
reduction in net loss is primarily the result of the increase in the number of
hotels, offset in part by the change in the accounting method used for
contingent lease payments in 1999.
-17-
<PAGE> 18
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table shows certain other pro forma information as if the
hotels acquired by the Partnership during 1998 had occurred on January 1, 1998.
Historical information is presented for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
(Historical) (Proforma)
------------ ----------
<S> <C> <C>
Occupancy rate 61.28% 61.51%
ADR $59.07 $57.73
REVPAR $36.33 $35.38
Room revenue $5,852,852 $5,819,436
Room nights available 161,010 161,010
Room nights occupied 98,674 99,033
Rooms available 1,787 1,787
</TABLE>
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
Leases. The Lessee's obligations under the 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.
For the quarter ended March 31, 1999, the Company expended
approximately $1.05 million for capital improvements for the Hotels. During the
quarter substantial improvements were performed at the Company hotels located in
Jackson, TN; Allentown, PA; Cleveland, TN; Brandon, FL; Rocky Mount, VA; and
Gettysburg, PA. Some of the Hotels experienced impact to occupancy as a result
of the capital improvements performed at the sites. The first quarter, however,
is generally the slowest business quarter for the hotels listed above and
therefore typically the best time of the year to perform substantial capital
work.
The hotel business is seasonal, with hotel revenue generally greater in
the second and third quarters than in the first and fourth quarters, with the
exception of the Company's Hotels in Florida. These Hotels are busiest in the
first and fourth quarters of the year. To the extent that cash flow from
operating activities is insufficient to provide all of the estimated monthly
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
March 31, 1999, the Company's cash and current accounts receivable balances
exceed its current obligations by $297,698.
The Company's Funds From Operations (net income plus minority
interest and depreciation and amortization) ("FFO") was $1,404,997 for the three
months ended March 31, 1999, which is an increase of $468,000, or 49.9% over FFO
in the comparable period in 1998, which was $936,997. The improvements in FFO
can be attributed to the addition of seven hotels purchased during 1998.
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. All REITs do not calculate FFO in the same
manner, therefore, the Company's calculation may not be the same as the
calculation of FFO for similar REITs. Beginning with the year ended December 31,
1997, the Company changed the way it computes FFO. The Company believes that its
new method of computing FFO is more consistent with the guidelines established
by the National Association of Real Estate Investment Trusts ("NAREIT") for
calculating FFO. FFO, as defined under the NAREIT standard, consists of net
income, computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains or losses from debt restructuring and sales of
properties, plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures.
-18-
<PAGE> 19
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The computation of historical FFO is as follows:
<TABLE>
<CAPTION>
Historical Three Historical Three
Month Period Ended Month Period Ended
March 31, 1999 Per Share March 31, 1998 Per Share
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Net income applicable to
common shares $ 478,100 $ 350,972
Add:
Minority interest 89,647 66,256
Amortization of franchise costs 25,383 14,305
Depreciation 811,867 472,622
------- -------
Funds From Operations $ 1,404,997 $ .26 $ 936,997 $ .23
=========== ===== ========== =====
</TABLE>
Long-term debt as of March 31, 1999, of approximately $43.9 million, consisted
of:
Approximately $1.6 million, secured by a first deed of trust on the
Hotel located in Wytheville, VA. Interest accrues at the rate necessary
to remarket the 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%. At March 31,
1999, the interest rate was approximately 3.15%. In addition, letter of
credit fees, trustee fees and financing fees increase the effective
rate on the bonds. The first deed of trust on the Wytheville Hotel was
paid off in April 1999.
Approximately $2.3 million, secured by a first deed of trust on the
Comfort Inn Hotel located in Dublin, VA. The outstanding balance bears
interest at a rate equal to 7.75% per annum with additional
underwriters' fees increasing the interest rate to approximately 8%.
Approximately $3.0 million, secured by a first deed of trust on the
Hampton Inn Hotel located in Brandon, FL. The outstanding balance bears
interest at a rate of 8% per annum.
Approximately $5.1 million, secured by a mortgage on the Comfort Inn
and Holiday Inn Express Hotels located in Gettysburg, PA. The
outstanding balance bears interest at a rate of 7.75%.
Approximately $11.0 million, under the BankBoston Credit Facility,
which is secured and cross-collateralized by the Company's Hotels
located in Jackson, TN; Ellenton, FL (2 hotels): Shelby, NC; Key Largo,
FL; Cleveland, TN; Dahlgren, VA; Princeton, WV and Dover, DE. The
interest rate on the BankBoston Credit Facility is LIBOR plus between
165 and 215 basis points. The Company entered into an interest rate
swap agreement that fixes the interest on approximately $11.2 at a
ceiling of 7.79%. The rate at March 31, 1999 was 7.79%.
Approximately $20.9 million, under the Mercantile Credit Facility which
is secured by and cross-collateralized and cross-defaulted on the
Company's Hotels located in Solomons, MD; Farmville, VA (2 hotels);
Culpeper, VA; New Castle, PA; Harlan, KY; Danville, KY; Murphy, NC;
Chambersburg, PA; Allentown, PA, Morgantown, WV, and Rocky Mount, VA.
The interest rate on the Mercantile Credit Facility is variable at 25
basis points above the prime rate, presently at 8% per annum.
-19-
<PAGE> 20
HUMPHREY HOSPITALITY TRUST, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's debt policy provides that it may not carry
consolidated indebtedness in excess of 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 March 31, 1999 is approximately $81.8 million.
As of March 31, 1999, the Company's total outstanding indebtedness represents
approximately 53.7% 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 expenditures of 4% of room revenue ("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 assurance 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. The Company has elected to be taxed as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended.
So long as the Company continues to qualify as a REIT, 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.
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,
with the exception of the Company's Hotels in Florida. The Company's Florida
Hotels are busiest in the first and fourth quarters of the year. The Hotels'
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 cash flow from operating activities from
the Hotels in the first and fourth quarters.
-20-
<PAGE> 21
YEAR 2000
Until recently, many computer systems and software products used
only two digit entries to define a year. As a result, computer programs that
have date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. Computer programs that do not recognize the proper
date could generate erroneous data or cause systems to fail.
In response to the Year 2000 issue, the Company modified its
existing information systems during 1998 to make them year 2000 compliant. The
Company believes it has made all necessary modifications to its existing systems
and does not expect that additional costs associated with Year 2000 compliance,
if any, will be material to the Company's results of operations or financial
position.
Because of the interdependence of information systems today, Year
2000 compliant companies may be affected by the Year 2000 readiness of their
material suppliers, customers and other third parties, including the Lessee. The
Lessee has completed an assessment of its information systems and is in the
process of replacing noncompliant systems. Approximately 40% of the systems are
currently compliant and the Lessee expects to replace all remaining noncompliant
systems by the end of the second fiscal quarter.
The Company does not have any material suppliers or customers,
however, as part of the Company's evaluation of the Year 2000 readiness of the
Lessee, the Company has required that the Lessee obtain written assurances from
its material suppliers and third party vendors that they have Year 2000
readiness programs in place as well as an affirmation that they will be
compliant when necessary. Responses to these inquiries are currently being
gathered and reviewed. To date, no such parties have informed the Lessee that
they do not expect to be Year 2000 compliant in a timeframe that would expose
the Lessee and, therefore, the Company to material business risks.
While the Company believes its efforts are adequate to address its
Year 2000 concerns, the Company could experience a material adverse effect on
its results of operations and financial condition if the Lessee's Year 2000
compliance schedule is not met or if the Lessee encounters serious problems in
its Year 2000 remediation efforts. Therefore, the Company and the Lessee are in
the process of developing plans to address such contingencies. Such contingency
plan will include, among other things, the development of back-up procedures.
The Company and the Lessee expect to complete their contingency plans in
mid-1999.
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risks & Sensitivity Analysis
The Company is exposed to various market risks, including
fluctuations in interest rates. To manage these natural business exposures, the
Company has entered into derivative transactions. The Company does not hold or
issue derivative instruments for trading purposes. These contracts are entered
into with major financial institutions thereby minimizing the risk of credit
loss. The following analyses presents the sensitivity of the market value,
earnings and cash flows of the Company's financial instruments to hypothetical
changes in the interest rates as if these changes occurred at March 31, 1999.
Market values are the present values of projected future cash flows based on the
interest rate assumptions. These forward-looking disclosures are selective in
nature and only address the potential impacts from financial instruments. They
do not include other potential effects that could impact the Company's business
as a result of these changes in interest rates.
Interest Rate and Debt Sensitivity Analysis
At March 31, 1999, the Company has debt totaling $43,897,496,
including fixed rate debt totaling $8,016,745 and variable rate debt totaling
$35,880,751. Included in the variable rate debt is $11,055,752 of debt subject
to an interest rate swap agreement which effectively changes the characteristics
of the interest rate without actually changing the debt instrument. At March 31,
1999, the Company's interest rate swap agreement converts outstanding variable
rate debt totaling $11,055,752 to fixed rate debt for a period of time. At March
31, 1999, after adjusting for the effect of the interest rate swap agreement,
the Company has fixed rate debt of $19,072,496 and variable rate debt of
$24,825,000. Holding other variables constant, a one percentage point increase
in interest rates would decrease the fair value of the fixed rate debt by
$619,494. However, for variable rate debt, interest rate changes do not affect
the fair value of the debt but do impact
-21-
<PAGE> 22
future earnings and cash flows. The earnings and cash flow impact for the next
year resulting from a one percentage point increase in interest rates would be
$51,337, holding other variables constant.
Item 5. Other Information
The date of the Company's 1999 annual meeting of shareholders has
been set for July 29, 1999. Since the 1999 annual meeting of shareholders is
scheduled for a date that is more than thirty days from the anniversary of the
Company's 1998 annual meeting of shareholders, pursuant to Rules 14a-5(f) and
14a-8(c), shareholder proposals that are to be included in the proxy materials
related to the Company's 1999 annual meeting of shareholders must be received at
the Company's principal executive offices on or before June 7, 1999.
Item 6. Exhibits and Reports on Form 8-K
Exhibits -
Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K -
None
-22-
<PAGE> 23
SIGNATURES
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 thereunto duly authorized.
HUMPHREY HOSPITALITY TRUST, INC.
By: /s/ James I Humphrey, Jr
------------------------
James I. Humphrey, Jr.
President and Secretary
Date: 5/14/99
------------------
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 157,872
<SECURITIES> 0
<RECEIVABLES> 1,897,904
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,129,341
<PP&E> 78,582,451
<DEPRECIATION> (5,768,316)
<TOTAL-ASSETS> 77,943,476
<CURRENT-LIABILITIES> 1,758,078
<BONDS> 43,939,797
0
0
<COMMON> 46,317
<OTHER-SE> 27,107,671
<TOTAL-LIABILITY-AND-EQUITY> 77,943,476
<SALES> 0
<TOTAL-REVENUES> 2,856,904
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,289,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 878,757
<INCOME-PRETAX> 567,747
<INCOME-TAX> 0
<INCOME-CONTINUING> 478,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478,100
<EPS-PRIMARY> 0.1
<EPS-DILUTED> 0.1
</TABLE>
