<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 2000.
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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 Number)
7170 Riverwood Drive, Columbia MD 21046
(Address of principal executive offices)
Telephone number: (443) 259-4900
12301 Old Columbia Pike, Silver Spring MD 20904
(Former address of principal executive offices)
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 twelve 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 ninety days:
Yes [X] No [_]
As of November 13, 2000, there were 11,173,543 shares of common stock, par value
$.01 per share, outstanding.
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC.
EXPLANATORY NOTE
On October 26, 1999, Humphrey Hospitality Trust, Inc. (the "Company") and
Supertel Hospitality, Inc. ("Supertel") consummated a merger pursuant to which
the Company exchanged 1.30 shares of its common stock for each outstanding share
of Supertel's common stock (the "Merger"). As a result of the Merger and in
accordance with the provisions of Accounting Principles Board Opinion No. 16,
"Business Combinations," Supertel is considered the acquiring enterprise for
financial reporting purposes. Accordingly, the financial statements herein
present Supertel's historical financial information for periods prior to the
Merger.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. HUMPHREY HOSPITALITY TRUST, INC. - FINANCIAL STATEMENTS
-------------------------------------------------------
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and
December 31, 1999 4
Condensed Consolidated Statements of Income
for the three and nine months ended September 30, 2000 and September 30, 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and September 30, 1999 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Part II. OTHER INFORMATION
Item 5. Other Information - Humphrey Hospitality Management, Inc. Financial Information 15
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 24
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors
Humphrey Hospitality Trust, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Humphrey Hospitality Trust, Inc. and Subsidiaries as of September 30, 2000 and
the related condensed consolidated statements of income for the three and nine
months ended September 30, 2000 and 1999 and condensed consolidated statements
of cash flows for the nine months ended September 30, 2000 and 1999. These
condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Humphrey Hospitality Trust, Inc.
and Subsidiaries as of December 31, 1999, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended (not presented herein); and our report dated March 20, 2000,
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
November 9, 2000
3
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(See Independent Accountants' Report)
<TABLE>
<CAPTION>
As of
September 30, December 31,
2000 1999
-------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
Investment in hotel properties $ 197,556,096 $ 196,189,326
Less accumulated depreciation 36,118,135 30,189,776
------------- -------------
161,437,961 165,999,550
Cash and cash equivalents 658,479 883,886
Accounts receivable - Lessee 3,619,374 4,177,016
Accounts and note receivable 239,161 296,627
Prepaid expenses 179,040 255,899
Deferred financing cost, net of accumulated amortization 1,446,380 2,094,557
Other assets 30,412 42,616
------------- -------------
Total assets $ 167,610,807 $ 173,750,151
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES
Accounts payable and accrued expenses $ 2,273,384 $ 2,822,093
Income taxes payable -- 850,000
Dividends payable 927,222 903,139
Long-term debt 116,599,220 118,972,925
Other liabilities 556,401 487,166
------------- -------------
Total liabilities 120,356,227 124,035,323
------------- -------------
MINORITY INTEREST 3,467,310 3,584,439
------------- -------------
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;
11,173,543 shares issued and outstanding 111,735 111,735
Additional paid-in capital 48,438,594 48,438,594
Distributions in excess of retained earnings (4,763,059) (2,419,940)
------------- -------------
Total shareholders' equity 43,787,270 46,130,389
------------- -------------
Total liabilities and shareholders' equity $ 167,610,807 $ 173,750,151
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(See Independent Accountants' Report)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue
Room revenue $ -- $ 14,446,101 $ -- $ 38,720,898
Other hotel revenue -- 447,732 -- 1,312,896
-------------- -------------- -------------- --------------
Total hotel revenue -- 14,893,833 -- 40,033,794
Percentage lease revenue 8,692,184 -- 24,699,214 --
Other revenue 71,770 -- 180,266 --
-------------- -------------- -------------- --------------
Total revenue 8,763,954 14,893,833 24,879,480 40,033,794
-------------- -------------- -------------- --------------
Expenses
Hotel operating expenses -- 8,524,273 -- 23,912,384
Interest expense 3,180,013 851,685 8,447,469 2,610,691
Property operating expense 932,200 -- 2,779,894 --
Depreciation 2,091,101 1,167,910 6,212,452 3,475,013
General and administrative 808,911 791,450 1,396,651 2,711,566
Other expenses -- -- -- 9,894
-------------- -------------- -------------- --------------
Total expenses 7,012,225 11,335,318 18,836,466 32,719,548
-------------- -------------- -------------- --------------
Income from operations 1,751,729 3,558,515 6,043,014 7,314,246
Loss on sale of asset -- 1,323,710 367,764 1,377,733
Minority interest 126,300 -- 409,186 --
-------------- -------------- -------------- --------------
Income before income taxes 1,625,429 2,234,805 5,266,064 5,936,513
Income taxes -- 1,413,922 -- 2,894,605
-------------- -------------- -------------- --------------
Net income $ 1,625,429 $ 820,883 $ 5,266,064 $ 3,041,908
============== ============== ============== ==============
Basic and diluted earnings per
common share $ 0.15 $ 0.17 $ 0.47 $ 0.63
============== ============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(See Independent Accountants' Report)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
Ended September 30,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,266,064 $ 3,041,908
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,212,452 3,475,013
Amortization of loan costs 885,668 --
Loss on sale of property and equipment 367,764 1,377,733
Minority interest 409,186 --
Deferred income taxes -- 271,889
(Increase) decrease in assets:
Accounts receivable and note receivable 615,108 (177,573)
Prepaid expenses and other current assets 76,859 (1,076,791)
Other assets 12,204 --
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (548,709) 973,229
Income taxes payable (850,000) 642,100
Other liabilities 69,235 (430,638)
-------------- -------------
Cash provided by operating activities 12,515,831 8,096,870
-------------- -------------
Cash flows from investing activities:
Additions to properties and equipment (3,992,243) (3,913,592)
Proceeds from sale of property and equipment 1,973,616 24,840
------------- -------------
Cash used in investing activities (2,018,627) (3,888,752)
------------- -------------
Cash flows from financing activities:
Repayments of long-term debt (5,700,056) (15,062,576)
Proceeds from long-term debt 3,326,351 --
Additions to deferred financing costs (172,491) --
Dividends and distributions paid (8,176,415) --
Proceeds from issuance of common stock -- 1,943,872
------------- -------------
Cash used in financing activities (10,722,611) (13,118,704)
------------- -------------
Decrease in cash and cash equivalents (225,407) (8,910,586)
Cash and cash equivalents, beginning of period 883,886 11,520,593
------------- -------------
Cash and cash equivalents, end of period $ 658,479 $ 2,610,007
============= =============
</TABLE>
Non-cash investing and financing activities:
The Company issued common operating partnership units to the Lessee in
conjunction with the Marquette refinancing, which is included in deferred
financing cost.
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Independent Accountants' Report)
(UNAUDITED)
Consolidated Financial Statements
The Company has prepared the condensed consolidated balance sheet as of
September 30, 2000 and the condensed statements of income for the three and nine
months ended September 30, 2000 and 1999 and condensed consolidated statements
of cash flows for the nine months ended September 30, 2000 and 1999 without
audit in accordance with the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all necessary adjustments
(which include normal recurring adjustments) have been made to present fairly
the financial position at September 30, 2000 and the results of operations and
cash flows for all periods presented. Balance sheet data as of December 31,
1999 has been derived from the audited consolidated financial statements as of
that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although management believes that the
disclosures are adequate to make the information presented not misleading.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. The results of operations
for the three and nine months ended September 30, 2000 and 1999 are not
necessarily indicative of the operating results for the full year.
Pro Forma Financial Information (Unaudited)
The following unaudited pro forma summary financial information presents
information as if the Merger had occurred and all 88 hotels had been owned at
the beginning of the periods presented and leased to Humphrey Hospitality
Management, Inc. and its subsidiary (the "Lessee") pursuant to the existing
percentage lease agreements (the "Percentage Leases"). The pro forma summary
financial information does not purport to present what actual results of
operations would have been if the Merger had occurred and the leases executed on
such date or to project results for any future period.
Humphrey Hospitality Trust, Inc.
SELECTED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1999 September 30, 1999
------------------------ ------------------------
<S> <C> <C>
Total revenue $8,919,000 $25,318,000
Expenses 5,815,000 18,042,000
Minority interest 224,000 521,000
---------- -----------
Net income $2,880,000 $ 6,755,000
========== ===========
Earnings per common share - Basic $ 0.26 $ 0.60
========== ===========
Earnings per common share - Diluted $ 0.26 $ 0.60
========== ===========
</TABLE>
Reclassification
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
7
<PAGE>
HUMPHREY HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Independent Accountants' Report)
(UNAUDITED)
Shareholders' Equity
During the nine months ended September 30, 2000, shareholders' equity
changed according to the following table:
<TABLE>
<S> <C>
Shareholders' equity at December 31, 1999 $ 46,130,389
Net income 5,266,064
Dividends declared (7,609,183)
----------------
Shareholders' equity at September 30, 2000 $ 43,787,270
================
</TABLE>
On July 12, 2000, the Company increased its monthly cash dividend by 3% to
$0.077 per share from $0.075 per share. This represents an annualized rate of
$.924 per share. The increase took effect for shareholders of record as of July
31, 2000, August 31, 2000 and September 29, 2000, and was paid on August 31,
2000, September 29, 2000 and October 31, 2000, respectively.
Related Party Transactions
The Lessee, whose stock is held by James I. Humphrey, Jr., President and
Chief Operating Officer of the Company, and certain officers of the Lessee,
leases the hotel properties pursuant to the Percentage Leases.
On September 26, 2000, the Board of Directors approved an amendment to the
Percentage Leases which calls for transferring the payment and expense of
property taxes and property insurance premiums from the Company to the Lessee.
The lease revenue calculation on the current Hotels will be amended to reduce
the Company's lease revenues by approximately $4,000,000 annually. This
reduction will allow the Lessee to pay the annual property taxes and property
related insurance expenses on the current hotels of approximately $4,000,000. In
addition, the percentage leases will be amended to simplify and match up the
terms for the existing hotels. This involves modifying the quarterly, semi-
annual and annual lease payment calculations into simple monthly percentage
lease amounts while maintaining the existing monthly base rent amounts. The new
monthly percentage lease calculation will be based on 17.9% of room revenues
consistently for each hotel in the portfolio. The new lease structure is
expected to simplify the percentage lease calculation and improve monthly cash
flow for the Company. The amended lease terms are expected to go into effect on
January 1, 2001.
On September 26, 2000, the Board of Directors approved a Financial and
Administrative Services Agreement (the "New Agreement") which combined the terms
of the existing Services Agreement, Acquisition and Finance Fee Agreement, and
Capital Fee Agreement. The New Agreement, which was effective retroactively,
January 1, 2000, will include additional real estate portfolio management and
administrative services, provided by the Lessee. These additional services are
anticipated to speed up the identification of acquisition opportunities.
The Lessee provides the Company with accounting and securities reporting
services pursuant to a services agreement, now combined into the New Agreement.
Under the New Agreement, the Lessee will provide additional real estate
portfolio management and administrative services for a total annual fee of
$1,050,000, up $750,000 from the previous annual fee of $300,000. For the nine
months ended September 30, 2000, the Company incurred related fees for the
services provided in accordance with the New Agreement of approximately
$788,000, of which approximately $638,000 was recorded in the current quarter.
8
<PAGE>
The Lessee also provides capital improvement supervisory services to the
Company pursuant to the terms of the capital fee agreement, now combined into
the New Agreement. Fees for such services equal 9% of the total cost of the
capital improvements, including furniture, fixture, and equipment purchases.
For the three and nine months ended September 30, 2000, the Lessee earned fees
totaling approximately $135,000 and $379,000, respectively. Capital improvement
and service fees were not included in the three and nine months ended September
30, 1999, presented herein, as these periods present Supertel's historical
financial information prior to the October 26, 1999 merger (see "Explanatory
Note").
Effective May 25, 2000, the Lessee and the Company agreed to a financial
services agreement, now combined into the New Agreement, which generally pays
the Lessee for services related to acquiring, disposing and financing Company
property. The fee, payable in common operating partnership units in Humphrey
Hospitality Limited Partnership, is equal to 1% of the gross sales price for
acquisitions or dispositions, or .25% of the financing amount. The payment of
any such fees is due within sixty days of the respective closing date.
Accordingly, the Company incurred $65,000 in additional financing fees, payable
to the Lessee, as a result of the Marquette refinancing (see "Refinancing of
Debt" below). The additional fees are included in deferred financing costs with
a corresponding amount recorded in minority interest. On October 1, 2000, the
Company issued 7,938 shares of common operating partnership units to the Lessee
pursuant to the New Agreement.
Loss on Sale of Asset
On April 26, 2000, the Company completed the sale of its Comfort Inn in
Murphy, NC. Proceeds from the sale were approximately $1,974,000 and were used
to reduce debt. The Company recorded a loss on the sale of approximately
$368,000.
Refinancing of Debt
On August 9, 2000, the Company closed on financing which modified its $26
million loan with Marquette Capital Bank, N.A. and Bremer Bank, N.A. extending
the term of the loan through July, 2003 and fixing the interest rate at 8.81%
through July, 2003. As a result, the Company wrote off approximately $472,000
of deferred financing costs associated with the original facility. The
remaining deferred financing costs of approximately $227,000 will be amortized,
on a straight line basis, through July, 2003.
Subsequent Events
On October 5, 2000, the Company's Allentown Holiday Inn Express franchise
agreement was terminated primarily as a result of delayed construction of a
project called for by the franchise agreement, as well as other operating
matters. The construction delays were primarily due to issues surrounding local
building permit regulations. The Company decided not to further invest in the
construction in order to maintain this franchise. As of November 1, 2000, the
Company entered into a new franchise agreement for this property with Super 8.
On October 30, 2000, the Company completed its acquisition of four Super 8
Hotels in Iowa and one Super 8 Hotel in Illinois for approximately $7,100,000.
The Company caused the Partnership to issue approximately 376,000 of a new
series of Class A preferred operating partnership units, paid approximately
$171,000 in cash, and assumed approximately $3,200,000 in debt. Under the terms
of the agreement, the sellers may either redeem the Class A preferred
partnership units, on a one-for-one basis, for common units, or redeem the Class
A preferred partnership units for cash at a redemption right of ten dollars per
Class A preferred partnership unit. Each preferred unit, valued at $10 per
share, is entitled to an annual distribution of $1.10 per share. The holders of
the units are prohibited from redeeming the units for cash or common units until
October 2002.
As a result of the acquisition, the Lessee, under the terms of the New
Agreement, will earn a total fee of approximately $144,000, a portion of which
is attributable to the 1% fee on the gross sales price of the acquisition and
the remainder is attributable to the .25% fee on the related financing. The fee
is payable in 18,461 shares of common operating partnership units.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Explanatory Note
On October 26, 1999, the Company and Supertel consummated a merger pursuant
to which Supertel was merged with and into the Company. As a result of the
merger and in accordance with the provision of Accounting Principles Board
Opinion No. 16, "Business Combinations," Supertel was considered the acquiring
enterprise for financial reporting purposes. Accordingly, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains comparisons of the Company's historical information for the three and
nine months ended September 30, 2000 with Supertel's historical information for
the three and nine months ended September 30, 1999.
General
Humphrey Hospitality Trust, Inc. was incorporated under the laws of the
Commonwealth of Virginia on August 23, 1994 and is a real estate investment
trust ("REIT") for federal income tax purposes. Humphrey Hospitality Trust,
Inc., through its wholly-owned subsidiaries, Humphrey Hospitality REIT Trust and
E&P REIT Trust (collectively, the "Company"), owns a controlling interest in
Humphrey Hospitality Limited Partnership and E&P Financing Limited Partnership
(the "Partnerships"). As of September 30, 2000, the Company owned a 92.79%
interest in Humphrey Hospitality Limited Partnership. Humphrey Hospitality
Limited 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 October 31, 2000, due to the
acquisition described under Subsequent Events above, the Company owned an 89.85%
interest in Humphrey Hospitality Limited Partnership.
As of October 31, 2000, the Company, through the Partnerships and the Subsidiary
Partnership, own 92 limited service hotels (the "Hotels"), of which 63 were
acquired in 1999 and 5 in 2000, and one office building. The Hotels comprise
6,385 rooms through out 19 states.
The Company's principal source of revenue after October 26, 1999 is from
payments by the Lessee under the Percentage Leases. The principal determinants
of Percentage Rent are the Hotels' room revenue, and to a lesser extent, other
revenue. The Lessee's ability to make payments to the Partnerships under the
Percentage Leases is dependent on the operations of the Hotels. Therefore, room
revenue and its related other hotel revenues and hotel expenses related to the
normal operations of Hotels are not reported after October 26, 1999 for the
Company and become revenue and expense items for the Lessee.
Results of Operations
Comparison of the three months ended September 30, 2000 to the three months
ended September 30, 1999
Total revenue for the three months ended September 30, 2000 was $8,764,000,
a decrease of $6,130,000 over the total revenue of $14,894,000 for the three
months ended September 30, 1999. Total revenue decreased for the period because
the Company's principal source of revenue changed on the merger date, October
26, 1999, from room revenues and other hotel revenues to revenue from operating
leases with the Lessee.
There were no corresponding Hotel operating expenses for the three months
ended September 30, 2000 compared to $8,524,000 for the three months ended
September 30, 1999 because the Company's principal source of revenue changed on
the merger date, October 26, 1999, from room revenues and other hotel revenues
to revenue from operating leases with the Lessee, who is responsible for Hotel
operating expenses.
10
<PAGE>
Interest expense increased by $2,328,000 for the three months ended
September 30, 2000 to $3,180,000 from $852,000 for the three months ended
September 30, 1999. The increase was primarily due to an increase in debt
related to the merger coupled with a non-recurring charge of $472,000 for the
write-off of deferred financing costs associated with the Company's refinancing
of its Marquette debt.
Property operating expenses for the three months ended September 30, 2000
were $932,000 with no corresponding amount for the three months ended September
30, 1999. As a result of the merger, no hotel operating expenses, which are the
responsibility of the Lessee, were reported after October 26, 1999. Property
operating expenses, which continue to be reported by the Company after October
26, 1999, primarily include expenses for real estate taxes and property related
insurance. Effective January 1, 2001, under the terms of the amended Percentage
Lease agreement, these expenses will become the responsibility of the Lessee and
will no longer be reported by the Company.
Depreciation expenses for the three months ended September 30, 2000 were
$2,091,000, compared to $1,168,000 for the three months ended September 30 1999,
an increase of $923,000. The increase in depreciation expense was also
primarily related to the merger.
General and administrative expenses for the three months ended September
30, 2000 were $809,000, compared to $791,000 for the three months ended
September 30, 1999, an increase of $18,000. The increase was primarily due to a
charge of $563,000 related to higher service fees under the New Agreement, which
was offset, in part, by an overall decrease in recurring general and
administrative charges attributable to the merger, which has resulted in the
Lessee operating and managing the hotel properties.
Net income for the three months ended September 30, 2000 was $1,625,000, or
$.15 per share, versus net income of $821,000, or $.17 per share, on a diluted
basis, for the three months ended September 30, 1999. The net increase was
primarily related to the merger and the change in the Company's principal source
of revenue from room revenues and other hotel revenues to payments by the Lessee
under the Percentage Leases.
For the period, the average daily room rate was $48.55 in 2000, compared to
$47.66 for 1999, an increase of 1.9% on a pro forma basis, assuming the
companies had been combined for the full-years. Pro forma revenue per available
room ("RevPar") for the three months ended September 30, 2000 decreased slightly
to $34.54 compared to $34.95 for the three months ended September 30, 1999. Pro
forma occupancy as a percentage of rooms available for the three months ended
September 30, 2000 was 71.2% versus 73.3% for the three months ended September
30, 1999.
Comparison of the nine months ended September 30, 2000 to the nine months ended
September 30, 1999
Total revenue for the nine months ended September 30, 2000 was $24,879,000,
a decrease of $15,155,000 over the total revenue of $40,034,000 for the nine
months ended September 30, 1999. Total revenue decreased for the period because
the Company's principal source of revenue changed on the merger date, October
26, 1999, from room revenues and other hotel revenues to revenue from operating
leases with the Lessee.
There were no corresponding Hotel operating expenses for the nine months
ended September 30, 2000 compared to $23,912,000 for the nine months ended
September 30, 1999 because the Company's principal source of revenue changed on
the merger date, October 26, 1999, from room revenues and other hotel revenues
to revenue from operating leases with the Lessee, who is responsible for Hotel
operating expenses.
Interest expense increased by $5,836,000 for the nine months ended
September 30, 2000 to $8,447,000 from $2,611,000 for the nine months ended
September 30, 1999. The increase was primarily due to an increase in debt
related to the merger coupled with a non-recurring charge of $472,000 for the
write-off of deferred financing costs associated with the Company's refinancing
of its Marquette debt.
11
<PAGE>
Property operating expenses for the nine months ended September 30, 2000
were $2,780,000 with no corresponding amount for the nine months ended September
30, 1999. As a result of the merger, no hotel operating expenses, which are the
responsibility of the Lessee, were reported after October 26, 1999. Property
operating expenses, which continue to be reported by the Company after October
26, 1999, primarily include expenses for real estate taxes and property related
insurance. Effective January 1, 2001, under the terms of the amended Percentage
Lease agreement, these expenses will become the responsibility of the Lessee and
will no longer be reported by the Company.
Depreciation expenses for the nine months ended September 30, 2000 were
$6,212,000, compared to $3,475,000 for the nine months ended September 30 1999,
an increase of $2,737,000. The increase in depreciation expense was also
primarily related to the merger.
General and administrative expenses for the nine months ended September 30,
2000 were $1,397,000, compared to $2,712,000 for the nine months ended September
30, 1999, a decrease of $1,315,000. The overall decrease was attributable to the
merger which has resulted in the Lessee operating and managing the hotel
properties, offset with a charge of $563,000 related to the higher service fees
under the New Agreement.
Net income for the nine months ended September 30, 2000 was $5,266,000, or
$.47 per share, versus net income of $3,042,000, or $.63 per share, on a diluted
basis, for the nine months ended September 30, 1999. The net increase was
primarily related to the merger and the change in the Company's principal source
of revenue from room revenues and other hotel revenues to payments by the Lessee
under the Percentage Leases.
For the period, the average daily room rate was $51.56 in 2000, compared to
$50.63 for 1999, an increase of 1.9% on a pro forma basis, assuming the
companies had been combined for the full-years. Pro forma revenue per available
room ("RevPar") for the nine months ended September 30, 2000 decreased slightly
to $34.11 from $34.64 for the nine months ended September 30, 1999. Pro forma
occupancy as a percentage of rooms available for the nine months ended September
30, 2000 was 66.1% versus 68.4% for the nine months ended September 30, 1999.
Liquidity and Capital Resources
Following the merger, the Company's principal source of cash to meet its
cash requirements, including distributions to shareholders, is its share of the
Partnerships' cash flow. The Partnerships' principal source of revenue is rent
payments received from the Lessee. 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 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, with the
exception of the Company's Hotels located in Florida, which 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 with advances from its line of credit.
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 the payment of dividends 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 securities of the Company,
or, in connection with acquisitions of hotel properties, the issuance of limited
partnership units in Humphrey Hospitality Limited Partnership.
12
<PAGE>
Debt
At September 30, 2000, the Company's outstanding debt was approximately
$116,600,000 and is secured by most of the Hotels. The following table
summarizes the outstanding loan information:
<TABLE>
<CAPTION>
Approximate Loan
Balance at Interest Maturity
Lender 9/30/00 Rate Year
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
US Bank Line of Credit $ 5,000,000 8.40% 2001
US Bank E&P Term loan $ 12,600,000 8.31% 2004
US Bank Term loan $ 9,700,000 8.53% 2004
First National Bank of Omaha $ 14,700,000 8.40% 2009
Firstar Bank $ 6,500,000 8.30% 2004
Marquette Capital Bank, N.A. $ 25,900,000 8.81% 2003
Bertha Wetzler Note $ 800,000 9.25% 2009
Mercantile Safe-Deposit &
Trust Line of Credit $ 20,300,000 9.75% 2002
BankBoston Line of Credit $ 11,200,000 7.79% 2001
Susquehanna Bank $ 4,900,000 7.75% 2009
Regions Bank, NA $ 2,900,000 8.00% 2018
Crestar Bank Bonds $ 2,100,000 8.00% 2005
</TABLE>
In connection with the transaction described under "Subsequent Events"
above, the Company assumed approximately $3,200,000 in loans, all of which are
secured by the acquired properties. The following table summarizes the assumed
debt information:
<TABLE>
<CAPTION>
Approximate Loan Interest Maturity
Lender Balance Rate Year
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peoples National Bank of Kewanee $ 700,000 8.50% 2014
Security State Bank $ 200,000 8.50% 2003
First Citizens National Bank $ 600,000 8.45% 2012
First Citizens National Bank $ 200,000 8.45% 2008
First Citizens National Bank $ 200,000 8.45% 2005
Union Planters Bank $ 500,000 7.75% 2014
SBA (c/o Iowa Business Growth Company) $ 400,000 7.10% 2017
SBA (c/o Iowa Business Growth Company) $ 200,000 8.10% 2011
SBA (c/o Iowa Business Growth Company) $ 200,000 6.95% 2013
</TABLE>
Funds from Operations
The Company's Funds From Operations ("FFO") for the three and nine months
ended September 30, 2000 were $3,843,000 and $12,255,000, respectively, an
increase of $1,946,000 and $7,218,000, from $1,897,000 and $5,037,000 for the
three and nine months ended September 30, 1999, respectively. The increase is
attributable to the addition of 63 hotels purchased through the merger with
Supertel. Management considers FFO to be a market accepted measure of an equity
REIT's operating performance. All REITs do not calculate FFO in the same
manner, and therefore, the Company's calculation may not be the same as the
calculation of FFO for similar REITs. The Company defines FFO in accordance
with the National Association of Real Estate Investment Trusts standards, which
consists of net income computed in accordance with generally accepted accounting
principles, excluding gains or losses on operating properties, plus depreciation
and amortization of real estate assets after adjustments for
13
<PAGE>
unconsolidated partnerships and joint ventures. FFO is considered a key
measurement of the performance of a real estate investment trust. The Company
has reported FFO for the period using the most recent definition, which now
includes non-recurring items. Therefore, certain amounts for 1999 have been
reclassified to conform to the 2000 presentation.
The Company's calculation below of FFO for the three and nine months ended
September 30, 2000, included a non-recurring item of $472,000 related to the
refinancing of the Marquette debt and $563,000 related to the increased fee
under the New Agreement. Excluding these items, FFO for the three and nine
months ended September 30, 2000 would be $.40 per share and $1.10 per share,
respectively.
The computation of historical FFO is as follows:
<TABLE>
<CAPTION>
Historical three months Historical nine months
ended September 30, ended September 30,
2000 1999 * 2000 1999 *
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
Common shares $ 1,625,429 $ 850,679 $ 5,266,064 $2,027,534
Add:
Minority interest expense 126,300 159,477 409,186 380,146
Loss on sale of assets -- 3,643 367,764 82,130
Depreciation 2,091,101 882,701 6,212,452 2,547,006
-------------- -------------- ------------ -----------
Funds from operations $ 3,842,830 $1,896,500 $12,255,466 $5,036,816
============== ============== ============ ===========
Per share $ 0.32 $ 0.34 $ 1.02 $ 0.92
============== ============== ============ ===========
Weighted average shares
Basic 11,173,543 4,631,700 11,173,543 4,631,700
Operating partnership unit
shares 868,304 868,304 868,304 868,304
-------------- -------------- ------------ -----------
Diluted 12,041,847 5,500,004 12,041,847 5,500,004
============== ============== ============ ===========
</TABLE>
* Presentation based on historical operations of Humphrey Hospitality Trust,
Inc. prior to its merger with Supertel Hospitality, Inc., on October 26, 1999.
For GAAP reporting basis, see Part I, Item 1 - Financial Statements contained in
this Quarterly Report on Form 10-Q.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information both included and incorporated by reference in this
Quarterly Report on Form 10-Q may contain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
and, as such, may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Forward-
looking statements, which are based on certain assumptions and describe our
future plans, strategies and expectations, are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative thereof or other variations
thereon or comparable terminology. Factors which could have a material adverse
effect on the operations and future prospects of the Company include, but are
not limited to, changes in: economic conditions generally and the real estate
market specifically, legislative/regulatory changes (including changes to laws
governing the taxation of real estate investment trusts), availability of
capital, interest rates, competition, supply and demand for hotel rooms in the
Company's current and proposed market areas and general accounting principles,
policies and guidelines
14
<PAGE>
applicable to real estate investment trusts. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference herein.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's interest rate exposure
subsequent to December 31, 1999.
Part II. OTHER INFORMATION
Item 5. OTHER INFORMATION - HUMPHREY HOSPITALITY MANAGEMENT, INC. HISTORICAL
FINANCIAL INFORMATION FOR THE QUARTER ENDED SEPTEMBER 30, 2000
As a supplement to the financial information presented in this Quarterly
Report on Form 10-Q, the Company has voluntarily included this historical
information for the quarters ended September 30, 2000 and September 30, 1999 for
Humphrey Hospitality Management, Inc. and Subsidiary ("HHMI").
Index
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
----------------------------------------------------
Independent Accountants' Report 16
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 17
Condensed Consolidated Statements of Income (unaudited)
for the three months and nine months ended September 30, 2000 and September 30, 1999 18
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 2000 and September 30, 1999 19
Notes to Condensed Consolidated Financial Statements (unaudited) 20
</TABLE>
15
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders
Humphrey Hospitality Management, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Humphrey Hospitality Management, Inc. and Subsidiary as of September 30, 2000
and the related condensed consolidated statements of income for the three and
nine months ended September 30, 2000 and 1999 and condensed consolidated
statements of cash flows for the nine months ended September 30, 2000 and 1999.
These condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Humphrey Hospitality Management,
Inc. and Subsidiary as of December 31, 1999, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the year then ended (not presented herein); and our report dated March
24, 2000, expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1999 is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
November 9, 2000
16
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(See Independent Accountants' Report)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,208,747 $ 5,056,775
Accounts receivable 1,818,657 1,390,110
Prepaid expenses 409,897 314,767
Due from affiliates 352,733 55,172
Investment in affiliated partnership 65,000 --
Other assets 6,476 133,827
------------------ -----------------
6,861,510 6,950,651
Property and Equipment, net of accumulated depreciation
of $21,909 and $7,844, respectively 402,145 31,378
------------------ -----------------
Total assets $ 7,263,655 $ 6,982,029
================== =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,693,557 $ 3,616,782
Other liabilities -- 38,454
Note payable 250,192 --
Due to affiliates 4,691,760 4,177,016
------------------ -----------------
Total current liabilities 8,635,509 7,832,252
------------------ -----------------
COMMITMENTS -- --
SHAREHOLDERS' DEFICIT
Common stock, $.01 par value, 1,000 shares authorized,
134 and 100 shares, issued and outstanding 1 1
Paid-in capital 50,369 50,369
Accumulated deficit (1,382,224) (860,593)
------------------ -----------------
(1,331,854) (810,223)
Less: Note receivable - shareholder 40,000 40,000
------------------ -----------------
Total shareholders' deficit (1,371,854) (850,223)
------------------ -----------------
Total liabilities and shareholders' deficit $ 7,263,655 $ 6,982,029
================== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(See Independent Accountants' Report)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenue
Room revenue $21,343,925 $7,431,594 $57,990,916 $20,590,830
Other hotel revenue 491,490 184,832 1,451,576 555,180
Other revenue 867,492 144,865 1,339,192 486,477
------------------ ------------------- ------------------ ------------------
Total revenue 22,702,907 7,761,291 60,781,684 21,632,487
Expenses
Hotel operating expenses 11,811,160 3,764,824 32,178,212 10,641,163
General and administrative 1,286,081 447,479 3,692,172 1,196,683
Depreciation 5,448 -- 14,065 --
Lease expense 8,986,859 3,291,678 25,418,866 9,562,825
------------------ ------------------- ------------------ ------------------
Total expenses 22,089,548 7,503,981 61,303,315 21,400,671
------------------ ------------------- ------------------ ------------------
Net income (loss) $ 613,359 $ 257,310 $ (521,631) $ 231,816
================== =================== ================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
18
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(See Independent Accountants' Report)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
Ended September 30,
-------------------------------------------------------
2000 1999
---------------------- --------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (521,631) $ 231,816
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation 14,065 --
Finance fee income (65,000) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (428,547) 116,591
(Increase) in prepaid expenses (95,130) (37,719)
Decrease in other assets 127,351 7,043
Increase in accounts payable
and accrued expenses 76,775 213,462
Decrease in other liabilities (38,454) --
Increase (decrease) in due to affiliates 217,183 (797,682)
---------------------- --------------------------
Net cash used in operating activities (713,388) (266,489)
---------------------- --------------------------
Cash flows from investing activities:
Additions to equipment (384,832) --
---------------------- --------------------------
Net cash used in investing activities (384,832) --
---------------------- --------------------------
Cash flows from financing activities:
Issuance of common stock -- 10,369
Advance from shareholder (a) -- 400,000 (a)
Repayment of advance from shareholder (a) -- (400,000) (a)
Proceeds from note payable 250,192 --
---------------------- --------------------------
Net cash provided by financing activities 250,192 10,369
---------------------- --------------------------
Net decrease in cash and cash equivalents (848,028) (256,120)
Cash and cash equivalents, beginning of period 5,056,775 3,262,524
---------------------- --------------------------
Cash and cash equivalents, end of period $4,208,747 $3,006,404
====================== ==========================
</TABLE>
(a) 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 accompanying notes to condensed consolidated financial statements.
19
<PAGE>
HUMPHREY HOSPITALITY MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(See Independent Accountants' Report)
(Unaudited)
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Management, Inc. and its wholly owned subsidiary,
Supertel Hospitality Management, Inc., (the "Lessee") were incorporated under
the laws of the State of Maryland on August 18, 1994 and October 26, 1999,
respectively, to lease and operate hotel properties from Humphrey Hospitality
Limited Partnership. As of December 31, 1998, James I. Humphrey, Jr. was the
sole shareholder of the Lessee. On June 1, 1999, the Lessee sold shares of stock
to certain of its officers, constituting a 25% interest in the Lessee, in
exchange for $10,369 in cash and a $40,000 note receivable. The Lessee accounts
for all investments in which it holds less than a 20% interest under the cost
method.
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 September 30, 2000, and the results of operations for the three and nine
months ended September 30, 2000 and September 30, 1999. The results of
operations for the three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. 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, 1999.
Accounts Receivable
The Lessee typically considers accounts receivable to be fully collectible
although an allowance for doubtful accounts is sometimes 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. Accordingly, no provision or benefit for income taxes
has been included in these financial statements.
Shareholders' Deficit
During the nine months ended September 30, 2000, shareholders' deficit
changed according to the following table:
Shareholders' deficit at December 31, 1999 $ (850,223)
Net loss (521,631)
-------------
Shareholders' deficit at September 30, 2000 $ (1,371,854)
=============
20
<PAGE>
Related Party Transactions
The Lessee, whose stock is held by James I. Humphrey, Jr., President and
Chief Operating Officer of the Company, and certain officers of the Lessee,
leases the hotel properties pursuant to the Percentage Leases.
On September 26, 2000, the Board of Directors approved an amendment to the
Percentage Leases which calls for transferring the payment and expense of
property taxes and property insurance premiums from the Company to the Lessee.
The lease revenue calculation on the current Hotels will be amended to reduce
the Company's lease revenues by approximately $4,000,000 annually. This
reduction will allow the Lessee to pay the annual property taxes and property
related insurance expenses on the current hotels of approximately $4,000,000.
In addition, the percentage leases will be amended to simplify and match up the
terms for the existing hotels. This involves modifying the quarterly, semi-
annual and annual lease payment calculations into simple monthly percentage
lease amounts while maintaining the existing monthly base rent amounts. The new
monthly percentage lease calculation will be based on 17.9% of room revenues
consistently for each hotel in the portfolio. The new lease structure is
expected to simplify the percentage lease calculation and improve monthly cash
flow for the Company. The amended lease terms are expected to go into effect on
January 1, 2001.
On September 26, 2000, the Board of Directors approved a Financial and
Administrative Services Agreement (the "New Agreement") which combined the terms
of the existing Services Agreement, Acquisition and Finance Fee Agreement, and
Capital Fee Agreement. The New Agreement, which was effective, retroactively,
January 1, 2000, will include additional real estate portfolio management and
administrative services, provided by the Lessee. These additional services are
anticipated to speed up the identification of acquisition opportunities.
The Lessee provides the Company with accounting and securities reporting
services pursuant to a services agreement, now combined into the New Agreement.
Under the New Agreement, the Lessee will provide additional real estate
portfolio management and administrative services for a total annual fee of
$1,050,000, up $750,000 from the previous annual fee of $300,000. For the nine
months ended September 30, 2000, the Company incurred related fees for the
services provided in accordance with the New Agreement of approximately
$788,000, of which approximately $638,000 was recorded in the current quarter.
The Lessee also provides capital improvement supervisory services to the
Company pursuant to the terms of the capital fee agreement, now combined into
the New Agreement. Fees for such services equal 9% of the total cost of the
capital improvements, including furniture, fixture, and equipment purchases.
For the three and nine months ended September 30, 2000, the Lessee earned fees
totaling approximately $135,000 and $379,000, respectively. Capital improvement
and service fees were not included in the three and nine months ended September
30, 1999, presented herein, as these periods present Supertel's historical
financial information prior to the October 26, 1999 merger (see "Explanatory
Note").
Effective May 25, 2000, the Lessee and the Company agreed to a financial
services agreement, now combined into the New Agreement, which generally pays
the Lessee for services related to acquiring, disposing and financing of Company
property. The fee, payable in common operating partnership units in Humphrey
Hospitality Limited Partnership, is equal to 1% of the gross sales price for
acquisitions or dispositions, or .25% of the financing amount. The payment of
any such fees is due within sixty days of the respective closing date.
Accordingly, the Lessee earned a $65,000 financing fees as a result of the
Marquette refinancing (see "Refinancing of Debt"), included in other revenue
with a corresponding amount recorded as an investment in the Company. On
October 1, 2000, the Lessee received 7,938 shares of the Company's common
operating partnership units pursuant to the New Agreement.
Note Payable
As of June 2000, the Lessee is party in debt, held jointly and severely, in the
aggregate amount of approximately $555,000 with a commercial bank. The loan has
a term of four years, incurs interest at a fixed rate of 10% and is payable in
equal monthly installments of $14,100. As of September 30, 2000, the Lessee's
allocation of the
21
<PAGE>
principal balance is approximately $250,000. The Lessee's allocation of the
monthly installments is approximately $6,400.
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.
As of September 30, 2000, the Lessee has accrued approximately $720,000 in
contingent lease expense. This represents the difference between the Lessee's
lease expense and the Company's percentage lease revenue at September 30, 2000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
2.1 Agreement and Plan of Merger dated June 11, 1999 between the Company and
Supertel Hospitality, Inc. (incorporated by reference to the Company's Current
Report on Form 8-K filed on June 14, 1999).
3.1 Second Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to the Company's Quarterly Report on Form 10-Q/A
filed on December 10, 1999).
3.2 Third Amended and Restated Bylaws of the Registrant (incorporated by
reference to the Company's Quarterly Report on Form 10-Q/A filed on December 10,
1999).
10.1 Declaration of Trust of Humphrey Hospitality REIT Trust (incorporated by
reference to the Company's Registration Statement on Form S-11 (Registration No.
333-48583)).
10.2 Bylaws of Humphrey Hospitality REIT Trust (incorporated by reference to the
Company's Registration Statement on Form S-11 (Registration No. 333-48583)).
10.3 Declaration of Trust of E&P REIT Trust.
10.4 Bylaws of E&P REIT Trust.
10.5 Second Amended and Restated Agreement of Limited Partnership of Humphrey
Hospitality Limited Partnership (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.6 Third Amended and Restated Agreement of Limited Partnership of Humphrey
Hospitality Limited Partnership [filed herewith].
10.7 Second Amended and Restated Agreement of Limited Partnership of Solomons
Beacon Inn Limited Partnership (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 33-93346)).
10.8 Agreement of Limited Partnership of E&P Financing Limited Partnership.
10.9 Agreement of Purchase and Sale dated March 26, 1997, between 344 Associates
Limited Partnership and Humphrey Hospitality Limited Partnership for the Comfort
Inn-Gettysburg, Pennsylvania (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-11 (Registration No. 333-48583)).
10.10 Agreement of Purchase and Sale dated March 26, 1997, between 144
Associated Limited Partnership and Humphrey Hospitality Limited Partnership for
the Holiday Inn Express-Gettysburg, Pennsylvania (incorporated by reference to
the Company's Registration Statement on Form S-11 (Registration No. 333-48583)).
22
<PAGE>
10.11 Purchase Agreement dated March 26, 1997, between 644 Associates Limited
Partnership and Humphrey Hospitality Limited Partnership for the Holiday Inn
Express - Allentown, Pennsylvania (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.12 Purchase Agreement, dated March 26, 1997, between 544 Associates Limited
Partnership and Humphrey Hospitality Limited Partnership for the Comfort Inn-
Chambersburg, Pennsylvania Hotel (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 333-48583)).
10.13 Option Agreement (incorporated by reference to the Company's Registration
Statement on Form S-11 (Registration No. 33-83658)).
10.14 Non-Competition Agreement (incorporated by reference to the Company's
Registration Statement on Form S-11 (Registration No. 33-83658)).
10.15 Services Agreement dated as of January 1, 1996 between the Company and
Humphrey Hospitality Management, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11 (Registration No. 333-15897)).
10.16 First Amendment to Services Agreement, dated as of October 1, 1996,
between the Company and Humphrey Hospitality Management, Inc. (incorporated by
reference to the Company's Registration Statement on Form S-11 (Registration No.
333-15897)).
10.17 Second Amendment to Services Agreement, dated as of October 26, 1999,
between the Company and Humphrey Hospitality Management, Inc.
10.18 Development Services Agreement, dated as of April 4, 1996, between
Humphrey Hospitality Limited Partnership and Humphrey Development (incorporated
by reference to the Company's Registration Statement on Form S-11 (Registration
No. 333-15897)).
10.19 First Amendment to Development Services Agreement dated November 6, 1996
between the Partnership and Humphrey Development (incorporated by reference to
the Company's Registration Statement on Form S-11 (Registration No. 333-15897)).
10.20 Agreement of Purchase and Sale dated May 31, 1998 between Allen
Investments, Inc. and Humphrey Hospitality Limited Partnership for the Best
Western - Ellenton, FL, the Shoney's Inn, Ellenton, FL and the Hampton Inn,
Brandon, FL (incorporated by reference to the Company's Current Report on Form
8-K/A filed August 6, 1998).
10.21 Revolving Credit and Guaranty Agreement dated August 18,1998 among the
Company, Humphrey Hospitality Limited Partnership, Humphrey Hospitality REIT
Trust and Solomons Beacon Limited Partnership and BankBoston, N.A. and other
banks that may become parties to the agreement (incorporated by reference to the
Company's Quarterly Report on Form 10-K405 filed on March 31, 1999).
10.22 First Amendment to BankBoston Revolving Credit and Guaranty Agreement
dated November 30, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K405 filed on March 31, 1999).
10.23 Right of First Opportunity Agreement dated June 10, 1999, between the
Company, Humphrey Hospitality Limited Partnership and Humphrey Hospitality
Management, Inc. (incorporated by reference to the Company's Quarterly Report on
Form 10-Q filed on August 5, 1999).
10.24 Non-Competition Agreement between the Company, Humphrey Hospitality
Limited Partnership, Humphrey Hospitality REIT Trust and Steve H. Borgmann
(incorporated by reference to the Company's Quarterly Report on Form 10-Q filed
on May 15, 2000).
23
<PAGE>
10.25 Non-Competition Agreement between the Company, Humphrey Hospitality
Limited Partnership and Humphrey Hospitality REIT Trust and Paul J. Schulte
(incorporated by reference to the Company's Quarterly Report on Form 10-Q filed
on May 15, 2000).
10.26 Loan Agreement between Mercantile Bank National Association and Supertel
Hospitality, Inc. (incorporated by reference to the Company's Quarterly Report
on Form 10-Q filed on May 15, 2000).
10.27 Loan Agreement between Supertel Hospitality, Inc. and U.S. Bank National
Association (incorporated by reference to the Company's Quarterly Report on Form
10-Q filed on May 15, 2000).
10.28 Loan Agreement between E&P Financing Limited Partnership and U.S. Bank
National Association (incorporated by reference to the Company's Quarterly
Report on Form 10-Q filed on May 15, 2000).
10.29 Loan Agreement between Supertel Hospitality, Inc. and U.S. Bank National
Association (incorporated by reference to the Company's Quarterly Report on Form
10-Q filed on May 15, 2000).
10.30 Loan Agreement between Marquette Capital Bank, N.A. and Bremer Bank,
National Association and Supertel Hospitality, Inc. (incorporated by reference
to the Company's Quarterly Report on Form 10-Q filed on May 15, 2000).
10.31 Loan Agreement between First National Bank of Omaha, N.A. and Supertel
Hospitality, Inc. [filed herewith].
10.32 Financial and Administrative Services Agreement [filed herewith].
10.33 Form of Percentage Lease Agreement [filed herewith].
27.1 Financial Data Schedule
B. Reports on Form 8-K.
None.
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 hereunto duly authorized.
HUMPHREY HOSPITALITY TRUST, INC.
By: /s/ Paul J. Schulte
-----------------------------
Paul J. Schulte
Chairman of THE BOARD,
Chief executive officer
DATED this 13th day of November, 2000.
24
