1================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 OCTOBER 31, 19981999
Commission File Number 1-7062
INNSUITES HOSPITALITY TRUST
(Exact name of registrant as specified in its charter)
OHIOOhio 34-6647590
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
925 EUCLID AVENUE
SUITE 1750
CLEVELAND, OHIO 44115InnSuites Hotels Centre
1625 E. Northern Ave., Suite 201
Phoenix, AZ 85020
(Address of principal executive offices)
(216) 622-0046
(Registrant'sRegistrant's telephone number, including area code)
REALTY REFUND TRUST
(Former name, former address and former fiscal year, if changed since last
report)code (602) 944-1500
Indicate by check mark whether the registrant: (l)(1) has filed all reports
required to be filed by Section 13 or l5(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[X] No --- ---[ ]
Number of outstanding Shares of Beneficial Interest, without par value, as of
December 1, 1998: 2,274,0711999: 2,562,138
================================================================================
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INNSUITES HOSPITALITY TRUST
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, AND JANUARY 31, 1998
OCTOBER 31, 19981999 JANUARY 31, 19981999
---------------- ----------------
(UNAUDITED)
(AUDITED)
ASSETS
INVESTMENT IN HOTEL PROPERTIES $58,934,646 $41,241,241
CASH AND CASH EQUIVALENTS 809,203 2,378,398
PERCENTAGE RENT RECEIVABLE 430,397 --
OTHER ASSETS
804,266 --
------------------------------
$60,978,512 $43,619,639
==============================Hotel properties, net............................................................ $65,129,440 $65,509,187
Cash and cash equivalents........................................................ 102,928 420,935
Percentage rent receivable from affiliate........................................ 989,732 788,179
Interest receivable and other assets............................................. 1,624,948 1,086,469
----------- -----------
$67,847,048 $67,804,770
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
MORTGAGE NOTES PAYABLE $23,359,014 $17,709,589
NOTES PAYABLE TO BANKS 10,955,323 155,000
OTHER NOTES PAYABLE -- 2,864,690
ADVANCES PAYABLE TO RELATED PARTIES 645,110 1,699,601
DUE TO LESSEE -- 944,234
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,773,798 572,031
MINORITY INTEREST IN PARTNERSHIP 15,948,800 14,075,523Mortgage notes payable........................................................... $23,834,874 $23,161,052
Notes payable to banks........................................................... 11,300,000 11,300,000
Other notes payable.............................................................. 225,000 450,000
Notes payable to related parties................................................. 2,850,000 2,013,782
Accounts payable and accrued expenses............................................ 969,790 2,188,709
Minority interest in partnership................................................. 20,117,877 20,621,900
SHAREHOLDERS' EQUITY:
Shares of beneficial interest, without par value; unlimited authorization;
2,216,905 and 1,667,8172,591,538 shares outstanding at October 31, 1999 and 2,286,951 shares
outstanding at January 31, 1998, respectively 8,296,467 5,598,971
------------------------------
$60,978,512 $43,619,639
==============================
The accompanying notes are an integral part of these balance sheets.
1
3
INNSUITES HOSPITALITY TRUST
UNAUDITED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
1998 19971999 8,549,507 8,069,327
----------- -----------
REVENUES:
Lease revenue (Note 2) $ 7,667,996 $ --
Interest income 19,780 --
Rental revenue from real estate held for sale -- 1,367,366
----------- -----------
7,687,776 1,367,366
----------- -----------
EXPENSES:
Real estate depreciation 1,854,155 --
Real estate and personal property taxes, insurance and ground rent 833,575 --
General and administrative 1,023,915 174,440
Interest on mortgage notes payable 1,537,454 --
Interest on notes payable to banks 387,238 --
Interest on note payable to related party -- 118,082
Loan fee amortization 19,334 --
Advisory fee paid to related party 488,436 --
Operating expenses of real estate held for sale -- 1,403,562
Amortization of deferred leasing commissions -- 21,724
Loss on sale of real estate -- 35,620
----------- -----------
6,144,107 1,753,428
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,543,669 (386,062)
MINORITY INTEREST 1,423,162 --
----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 120,507 $ (386,062)
=========== ===========
EARNINGS PER SHARE-- basic and diluted $ .07 $ (.38)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,813,563 1,020,586$67,847,048 $67,804,770
=========== ===========
The accompanying notes are an integral part of these statements.
2
4
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31,
REVENUES 1999 1998 1997
----------- -----------
REVENUES:
Lease revenue (Note 2) $ 2,936,504 $ --
RentalRent revenue from real estate held for saleaffiliate......................................... $7,389,428 $7,667,996
Interest income..................................................... 20,863 19,780
Other income........................................................ 15,210 --
262,507
----------- -----------
2,936,504 262,507
----------- -----------
EXPENSES:---------- ----------
7,425,501 7,687,776
---------- ----------
EXPENSES
Real estate depreciation 743,881 --depreciation............................................ 1,894,303 1,854,155
Real estate and personal property taxes, insurance and ground rent 279,896 --rent.. 1,065,453 833,575
General and administrative 210,330 62,565administrative.......................................... 1,327,456 1,023,915
Interest on mortgage notes payable 453,245 --payable.................................. 1,544,610 1,537,454
Interest on notes payable to banks 205,443 --banks.................................. 684,168 387,238
Interest on note payable to related party -- 20,636
Loan fee amortization 19,334party........................... 135,692 --
Advisory fee paid to related party 184,467party.................................. -- Operating expenses488,436
Amortization of real estate held for sale -- 389,886
Loss on sale of real estate -- 35,620
----------- -----------
2,096,596 508,707
----------- -----------loan fees........................................... 48,998 19,334
---------- ----------
6,700,680 6,144,107
---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST 839,908 (246,200)INTEREST.......................................... 724,821 1,543,669
MINORITY INTEREST 794,483 --
----------- -----------INTEREST........................................................ 459,886 1,423,162
---------- ----------
NET INCOME (LOSS) APPLICABLEATTRIBUTABLE TO COMMON SHARES OF BENEFICIAL INTEREST................. $ 45,425264,935 $ (246,200)
=========== ===========120,507
========== ==========
EARNINGS PER SHARE-- basic and dilutedSHARE - basic............................................... $ .02.11 $ (.24)
=========== ===========.07
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,100,301 1,020,586
=========== ===========- basic.................... 2,330,349 1,813,563
========== ==========
EARNINGS PER SHARE - diluted............................................. $ .09 $ .07
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - diluted.................. 4,777,356 1,813,563
========== ==========
The accompanying notes are an integral part of these statements.
3
5
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31,
REVENUES 1999 1998
------------ -----------
Rent revenue from affiliate.......................................... $ 2,030,934 $ 2,936,504
Interest income...................................................... 987 --
Other income......................................................... 5,619 --
------------ ------------
2,037,540 2,936,504
------------ ------------
EXPENSES
Real estate depreciation............................................. 617,083 743,881
Real estate and personal property taxes, insurance and ground rent... 421,523 279,896
General and administrative........................................... 419,852 210,330
Interest on mortgage notes payable................................... 504,578 453,245
Interest on notes payable to banks................................... 199,955 205,443
Interest on note payable to related party............................ 50,301 --
Advisory fee paid to related party................................... -- 184,467
Amortization of loan fees............................................ 4,564 19,334
------------ ------------
2,217,856 2,096,596
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST.................................... (180,316) 839,908
MINORITY INTEREST......................................................... (103,067) 794,483
------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO SHARES OF BENEFICIAL INTEREST........... $ (77,249) $ 45,425
============ ============
EARNINGS (LOSS) PER SHARE - basic and diluted............................. $ (.03) $ .02
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - basic and diluted......... 2,368,656 2,100,301
============ ============
The accompanying notes are an integral part of these statements.
4
INNSUITES HOSPITALITY TRUST
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
FOR THE NINE MONTHS ENDED OCTOBER 31,
1999 1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$ 264,935 $ 120,507 $ (386,062)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
activities --activities:
Minority interest 459,886 1,423,162
Depreciation and amortization 1,943,301 1,873,489 --
Minority interest 1,423,162 --
Amortization of deferred leasing commissions -- 21,724
Increase in other assets (823,600) 216,346
Decrease in amounts due to Lesseelessee -- (944,234)
--
Increase in percentage rent receivable (201,553) (430,397)
Increase in interest receivable and other assets (558,778) (823,600)
Increase (decrease) in accounts payable and accrued expenses (1,318,881) 718,785 (847,092)
Increase in percentage rent receivable (430,397) --
----------- -----------
Net cash provided by (used for) operating activities 588,910 1,937,712 (995,084)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties -- (1,448,000) --
Improvements and additions to hotel properties (1,514,556) (1,164,414) --
Proceeds from sale of real estate, net -- 5,599,122
----------- -----------
Net cash provided by (used for)used in investing activities (1,514,556) (2,612,414) 5,599,122
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings -- 10,750,323 --
Payments of mortgage notes payable (1,078,098) (7,435,201) --
Payment of cash dividends and distributions -- (948,772)
(153,088)
PaymentRefinancing of mortgage notes payable 1,751,920 --
Payments of other notes payable (225,000) (218,063)
Purchase of treasury stock (224,074) --
Payment toRepurchase of partnership units (453,327) --
Notes payable and advances (to) from related parties 836,218 (3,042,780) (2,300,000)
----------- -----------
Net cash used forprovided by (used in) financing activities 607,639 (894,493) (2,453,088)
----------- -----------
NET INCREASE (DECREASE)DECREASE IN CASH AND CASH EQUIVALENTS (318,007) (1,569,195)
2,150,950----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 420,935 2,378,398 531,997
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 809,203102,928 $ 2,682,947809,203
=========== ===========
4
The accompanying notes are an integral part of these statements.5
6
INNSUITES HOSPITALITY TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 19981999 AND 19971998
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
Prior to fiscal 1999, InnSuites Hospitality Trust, formerly known as
Realty ReFund Trust, (the Trust,"Trust" or the Company)"Company") specialized in mortgage
financing as its investment vehicle, refinancing existing incoming-producingincome producing
commercial, industrial and multi-unit residential real property by supplementing
or replacing existing financing. The primary refinancing technique which the
Trust employed was wrap-around mortgage lending.
On January 31, 1998, the Trust contributed $2,081,000 to RRF Limited
Partnership (the Partnership)"Partnership"), a Delaware limited partnership, in exchange for
a 13.6% general partnership interest therein. The Trust is the sole general
partner of the Partnership. The Partnership issued limited partnership interests
representing 86.4% of the Partnership to acquire six hotel properties from
various entities. In addition, in order to acquire a seventh hotel property
through a wholly-owned subsidiary, the Trust issued 647,231 shares of beneficial
interest in exchange for all of the outstanding shares of Buenaventura
Properties, Inc. (BPI)("BPI"), which owned a hotel located in Scottsdale, Arizona.
These hotels, together with the hotels described in Note 4, are referred to
herein as the Hotels. The Hotels are leased to InnSuites Hotels, Inc., formerly
known as Realty Hotel Lessee Corp. (the Lessee)"Lessee") pursuant to leases which
contain provisions for rent based on the revenues of the Hotels (the Percentage Leases)"Percentage
Leases"). Each Percentage Lease obligates the Lessee to pay rent equal to the
greater of the minimum rent or a percentage rent based on the gross revenues of
each Hotel. The Lessee holds the franchise agreement for each Hotel. The Lessee
is owned 9.8% by InnSuites Innternational Hotels, Inc., an entity owned by James
F. Wirth, Chairman, President and Chief Executive Officer of the Trust ("Wirth")
and his spouse.
On September 10, 1998, the Securities and Exchange Commission declared
effective the Trust's Registration Statement on Form S-2 relating to the
offering by certain selling stockholdersAs of up to 4,182,361 shares of beneficial
interest ofOctober 31, 1999, the Trust, which shares have been or will be issued in one or more
private placements, or may be issued upon conversionis the sole general partner of
Class A limited
partnership unitsthe Partnership, has a 44% general partner interest in the Partnership.
Partnership Agreement
The Partnership Agreement provides for the issuance of two classes of
limited partnership units, Class A and Class B. Such classes are identical in
all respects, except that each Class A limited partnership unit in the
Partnership shall be convertible into a like number of shares of beneficial
interest of the Trust, at any time at the option of the particular limited
partner, if the Trust determines that such conversion would not cause the Trust
to fail to qualify as a REIT. As of October 31, 1998,1999, a total of 2,636,3852,178,903 Class
A limited partnership units were issued and outstanding. Additionally, 39,046 Class A limited partnership units were reserved for issuance to those
partners who did not accept the formation exchange offer. As of October 31,
1998, a total
of 5,179,3635,246,364 Class B limited partnership units were issuedoutstanding at October 31,
1999 to Wirth and his affiliates, in lieu of the issuance of Class A limited
partnership units. If all of the Class A limited partnership units were to be
converted, the limited partners in the Partnership would hold 2,790,3282,178,903 shares
of beneficial interest of the Trust. The Class B limited partnership units may
only become convertible with the approval of the Board of Trustees, in its sole
discretion.
Basis of Presentation
As sole general partner, the Trust exercises unilateral control over
the Partnership. Therefore, the financial statements of the Trust,Partnership and its
wholly owned subsidiaries andsubsidiary (see note 7) are consolidated with the Partnership are consolidated.Trust. All
significant intercompany transactions and balances have been eliminated.
56
7
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine- and three-month periodsnine-month period ended October 31,
19981999 are not necessarily indicative of the results that may be expected for the
year ended January 31, 1999.2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K10-K/A as of and for the periodyear ended January 31, 1998.1999.
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 the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. CHANGE IN ACCOUNTING PRINCIPLE:REVENUE RECOGNITION:
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force issued EITF number 98-9 "Accounting for Contingent Rent in Interim
Periods" ("EITF 98-9"). EITF 98-9 provides that a lessor shall defer recognition
of contingent rental income in interim periods until specified targets that
trigger the contingent income are met. In JulyOctober 1998, the Task Force issued
transition guidance stating that the consensus could be applied on a prospective
basis or in a manner similar to a change in accounting principle. In the second
quarter, the Company adopted the provisions of EITF 98-9 and elected to restate
the first quarter results of 1998 in accordance with the new pronouncement. The
effect of the change on the three months ended April 30, 1998 was to decrease
lease revenues by $1,053,000 and, therefore, net income applicable to
shareholders by $262,000 ($.16 per share -- basic and diluted) to net income of
$173,000 ($.10 per share -- basic and diluted). Effective
August 1, 1998, the Company amended its percentage leasePercentage Lease agreements to eliminate
the annualization of interim hotel revenues. As a result, inrevenue. During the third quarter the Company
recognized as revenues $738,674 of previously deferred lease revenues. During
the third quarter,fiscal
1999, accounting for contingent rent under EITF 98-9 was rescinded.
As such,rescinded; however, the
Company believes that eliminating annualization of hotel revenue will not restateprovide
for recognition of percentage rent more consistently with the first quarter resultsgeneration of
fiscal 1999.revenue from the Hotels and continues to apply EITF 98-9.
3. NET INCOMEEARNINGS PER SHARE:
Pursuant to SFAS No. 128 "Earnings Per Share", the concept of common
stock equivalents was eliminated, and "primary" and "fully diluted"SHARE
Basic earnings (loss) per share were replaced with "basic" and "diluted" earnings per share. For the
periods presented there were no dilutive securities.
Basic earnings per share has beenis computed based on the weighted average number of
shares outstanding during the periods presented. The
calculationrespective period and excludes any potential
dilution from stock options and other common stock equivalents. Diluted earnings
(loss) per share reflects potential dilution from the exercise or conversion of
securities into common stock or from other contracts to issue common stock.
A reconciliation from basic earnings (loss) per share to diluted
earnings (loss) per share for the nine-three-month and three-monthnine-month periods ended
October 31, 1999 and October 31, 1998 and 1997 was based upon 1,813,563 and 2,100,301 shares,
respectively.follows:
Three Months Ended October 31, Nine Months Ended October 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net Income (Loss) Attributable to Shares
of Beneficial Interest $ (77,249) $ 45,425 $ 264,935 $ 120,507
============ ============ ============ ============
Basic EPS - Weighted Average Shares
Outstanding 2,368,656 2,100,301 2,330,349 1,813,563
============ ============ ============ ============
Basic Earnings (Loss) Per Share $ (0.03) $ 0.02 $ 0.11 $ 0.07
============ ============ ============ ============
Net Income (Loss) Attributable to Shares
of Beneficial Interest $ (77,249) $ 45,425 $ 264,935 $ 120,507
Additional Net Income (Loss) Attributable to Shares
of Beneficial Interest - Effect of Assumed
Conversion of Class A Partnership Units $ - $ - $ 151,497 $ -
------------ ------------ ------------ ------------
Net Income (Loss) Attributable to Shares of
Beneficial Interest - Diluted $ (77,249) $ 45,425 $ 416,432 $ 120,507
============ ============ ============ ============
Basic EPS - Weighted Average Shares
Outstanding 2,368,656 2,100,301 2,330,349 1,813,563
Effect of Diluted Securities
Stock Options - - 5,539 -
Convertible Class A Partnership Units - - 2,441,468 -
------------ ------------ ------------ ------------
Dilutive EPS - Weighted Average Shares
Outstanding 2,368,656 2,100,301 4,777,356 1,813,563
============ ============ ============ ============
Diluted Earnings (Loss) Per Share $ (0.03) $ 0.02 $ 0.09 $ 0.07
============ ============ ============ ============
Stock Options Not Included in Diluted EPS
Since Antidilutive 394,700 398,500 - 398,500
============ ============ ============ ============
Convertible Class A Partnership Units Not
Included Since Antidilutive 2,344,160 2,712,399 - 2,478,851
============ ============ ============ ============
4. ACQUISITIONS:
OnEffective February 1, 1998, the Partnership acquired 100% of the
ownership interests in the Tucson St. Mary's Hotel and Resort for $10,820,000.
The Partnership issued 699,933 Class B limited partnership units to Wirth and
his spouse who each held a 50% equity ownership interest in the Tucson St.
Mary's hotel.
OnEffective April 29, 1998, the Trust acquired a hotel property located
in San Diego, California for an aggregate consideration of $5,148,000, which was
funded with cash, proceeds from the Trust's credit facility and two promissory
notes secured by mortgage trust deeds on the property.
OnEffective June 1, 1998, the Partnership acquired 100% of the ownership
of the InnSuites Hotel Buena Park for $7,100,000. The Partnership assumed
$4,116,754 in mortgage debt and other obligations and issued 681,739628,052 limited
partnership units to Wirth and Steven S. Robson (of which 13,034 units were
subsequently paid to a third party as an advisory fee), who each held a 50%
7
equity ownership interest in the Buena Park hotel. Mr. Robson iswas subsequently
elected a Trustee of the Trust. Wirth and his affiliates also received an
additional 53,681 Class B limited partnership units as payment for a debt owed
to Wirth and his affiliates at the time of the acquisition.
All of the aboveaforementioned acquisitions have beenwere accounted for as purchases.
6
8
5. CREDIT FACILITY:
TheIn April 1998, the Trust has established a $12,000,000 secured revolving
line of credit with Pacific Century Bank. The credit facility requires, among
other things, the Trust to maintain a minimum net worth, a specified coverage
ratio of EBITDA to debt service, and a specified coverage ratio of EBITDA to
debt service and fixed charges. Further, the Trust is required to maintain its
franchise agreement at each of the hotel properties and to maintain its REIT
status.
6. PERCENTAGE LEASE AGREEMENTS:
As previously stated, effective August 1, 1998, the Company amended its
Percentage Leases modifying the interim calculations of percentage rent and the
expiration dates of the agreements. The Percentage Leases have non-cancelable
terms, which expire at various dates through Mayon January 31, 2007,2008, subject to earlier termination on the
occurrence of certain contingencies, as defined. The rent due under each
Percentage Lease is the greater of minimum rent, as defined, or percentage rent.
Percentage rent applicable to room and other hotel revenue varies by lease and
is calculated on a quarterly basis by multiplying fixed percentages by the
actual quarterly amounts of such gross revenues in excess of specified threshold
amounts. Both the minimum rent and the revenue thresholds used in computing
percentage rents arehave been subject to annual adjustments beginningsince January 1, 1999,
based on increases in the United States Consumer Price Index. Percentage rent
applicable to food and beverage revenues is calculated as 5% of such revenuesrevenue
over a minimum threshold.
Future minimum rentals (ignoring CPI increases) to be received by the
Trust from the Lessee pursuant to the Percentage Leases for the Hotels for each
of the next five fiscal years and in total thereafter are as follows:
Fiscal 1999 $1,703,000
2000 6,850,000
2001 6,850,000
2002 6,850,000
2003 6,850,000
Thereafter 29,683,000
------------
$58,786,000
============
Fiscal 2000......................................... $1,712,500
Fiscal 2001......................................... 6,850,000
Fiscal 2002......................................... 6,850,000
Fiscal 2003......................................... 6,850,000
Fiscal 2004......................................... 6,850,000
Thereafter.......................................... 27,400,000
-----------
$56,512,500
7. RELATED PARTY TRANSACTIONS:
Effective April 2, 1999, the Trust transferred its interest in the
Scottsdale property to the Partnership in exchange for 1,600,000 general
partnership units. There was no gain or loss resulting from the transfer as the
transaction involved entities under common control.
Wirth beneficially owns 9.8% of the common stock of the Lessee. The
Lessee was the sole source of the Trust's Percentage Lease revenue during the
quarternine-month period ended October 31, 1998.1999.
Wirth beneficially owns 100%made an unsecured loan to the Trust of $2 million, bearing
interest at 7% per year effective March 15, 1999. Interest only payments are due
annually beginning March 15, 2000. The unpaid principal balance and accrued
interest is due on March 15, 2004. The Trust used the proceeds to purchase
general partner units in the Partnership.
8
On April 2, 1999, the Partnership made an unsecured loan to the Trust
of $2.615 million. Annual interest only payments are due on March 1 of each year
and are based on a 7% interest rate. The unpaid principal balance is due at
maturity on April 2, 2006. The Trust used the proceeds of that loan to purchase
1.3 million general partner units in the Partnership.
Wirth made an unsecured loan to the Trust of $200,000, bearing interest
at 7% per year effective June 14, 1999. The unpaid principal balance and accrued
interest is due on June 14, 2000. The Trust used the proceeds to fund
operations.
Wirth made an unsecured loan to the Trust of $120,000, bearing interest
at 7% per year effective July 27, 1999. The unpaid principal balance and accrued
interest is due on July 27, 2000. The Trust used the proceeds to fund
operations.
Wirth made an unsecured loan to the Trust of $30,000, bearing interest
at 7% per year effective August 17, 1999. The unpaid principal balance and
accrued interest is due on August 17, 2000. The Trust used the proceeds to pay
down the outstanding loan from the Partnership.
Wirth made an unsecured loan to the Trust of $250,000, bearing interest
at 7% per year effective October 12, 1999. The unpaid principal balance and
accrued interest is due on June 1, 2000. The Trust used the proceeds to pay
dividends declared on October 12, 1999 and to pay down the outstanding loan from
the Partnership.
Wirth made an unsecured loan to the Trust of $250,000, bearing interest
at 7% per year effective October 14, 1999. The unpaid principal balance and
accrued interest is due on March 1, 2000. The Trust used the proceeds to pay
down the outstanding loan from the Partnership, which then was used by the
Partnership to pay deposits and other fees related to the pending refinancing of
the common stock of Mid-America
ReaFund Advisors, Inc. (MARA). MARA is paid an advisory fee of 1% of invested
assets (as defined). On August 12, 1998, the Trustees authorized the purchase of
MARA for a purchase price not to exceed $1,100,000. This purchase has not yet
been consummated.San Diego Hotel.
8. STATEMENTSTATEMENTS OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
In connection with the acquisition of the Buena Park hotel,
approximately $4,544,000 of historical net book value in hotel properties was
contributed to the Partnership in exchange for Partnership unitsThe Trust issued 304,587 and the
Partnership assumed approximately $4,103,000 of debt and other obligations. The
exchanging partners' interest, other than Wirth, resulted in adjustment to the
historical net carrying values of the Buena Park hotel property equal to
$1,271,000 of the difference between the fair market values and the historical
net carrying values.
During the second quarter, several non-exchanging partners from the
formation exchange offer exchanged their interests in the hotels for interests
in the Partnership. The fair market value in excess of the historical net
carrying values of the respective hotels resulted in a writeup of $1,033,573.
7
9
In connection with the acquisition of the San Diego hotel, $3,700,000
of the purchase price was satisfied through promissory notes payable to the
sellers.
On August 11, 1998, the Trust satisfied a $2.65 million participating
mortgage obligation related to the Ontario hotel through the issuance of 423,687184,560 shares of beneficial interest
to former partners of Ontario Hospitality
Properties Limited Partnershipvalued at $913,708 and 133,492$848,652 in exchange for Class B limitedA partnership units induring
the Partnership to Wirthnine months ended October 31, 1999 and his affiliates for their respective interests.
During the third quarter, holders of 153,943 of Class A limited
partnership units converted their interests, valued at $731,229, for shares of
beneficial interest of the Trust.
9. PRO FORMA FINANCIAL INFORMATION:
The unaudited pro forma financial information set forth below is
presented as if (i) the formation transactions discussed in Note 1, (ii) the
acquisition of the membership interests in the Tucson St. Mary's and Buena
Park hotels and (iii) the acquisition of the San Diego hotel had been
consummated as of February 1, 1997. The pro forma financial information is not
necessarily indicative of what actual results of operations of1998, respectively.
On October 8, 1999, the Trust would
have been assuming the formation transactions and the acquisitions had been
consummated asdeclared dividends of February$0.01 per share to
shareholders of record at October 18, 1999. The Trust paid dividends totalling
$99,962 on November 1, 1997 nor does it purport to represent the results
of operations for future periods.
(unaudited)
NINE MONTHS ENDED
OCTOBER 31,
1998 1997
------ ------
LEASE REVENUE $8,315 $7,519
INTEREST INCOME 20 -
------ ------
Total revenue 8,335 7,519
------ ------
DEPRECIATION AND AMORTIZATION 2,021 1,772
REAL ESTATE AND PERSONAL PROPERTY TAXES, INSURANCE AND
GROUND RENT 936 941
GENERAL AND ADMINISTRATIVE 1,096 593
INTEREST EXPENSE ON MORTGAGE AND OTHER NOTES PAYABLE 2,296 2,522
ADVISORY FEE TO RELATED PARTY ADVISOR 533 614
MINORITY INTEREST 1,330 895
------ ------
TOTAL EXPENSES AND MINORITY INTEREST 8,232 7,337
------ ------
NET INCOME APPLICABLE TO COMMON SHARES $ 103 $ 182
====== ======
NET INCOME PER SHARE-- basic and diluted $ .05 $ .09
====== ======
81999. These dividends are accrued at October 31, 1999.
9
109. STATEMENTS OF OPERATIONS OF INNSUITES HOTELS, INC. BALANCE SHEETS
PREDECESSOR
------------- AS OF
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- ------------
(audited) (unaudited)
ASSETS
INVESTMENT IN HOTEL PROPERTIES, at cost:
Land............................................................ $ 3,439,738 $ --
Buildings and improvements...................................... 24,831,670 --
Furniture and equipment......................................... 10,845,586 --
------------- ------------
39,116,994 --
Less-- Accumulated depreciation................................. 12,184,479 --
------------- ------------
Net investment in hotel properties.............................. 26,932,515 --
Cash and cash equivalents............................................ 129,871 556,820
Accounts receivable.................................................. 571,301 711,503
Payments on behalf of the Partnership................................ -- 3,114,510
Inventories.......................................................... 415,575 702,354
Other assets......................................................... 295,440 864,553
Cash held in escrow.................................................. 296,099 --
Deferred expenses, net............................................... 252,430 --
------------- ------------
$ 28,893,231 $ 5,949,740
============= ============
LIABILITIES AND COMBINED EQUITY
Mortgage notes payable............................................... $ 17,776,627 $ --
Accounts payable
Trade........................................................... 678,637 1,367,568
Affiliates...................................................... 1,260,601 942,845
Bank overdrafts................................................. 121,052 209,961
Lines of credit...................................................... 131,000 42,000
Percentage rent payable.............................................. -- 3,299,510
Capital lease obligation............................................. 22,437 --
Land lease payable................................................... 80,441 --
Participation investors contingent liability......................... 2,646,627 --
Accrued expenses and other liabilities............................... 867,267 1,013,377
------------- ------------
23,860,055 6,875,261
EQUITY:.............................................................. 5,033,176 (925,521)
------------- ------------
$ 28,893,231 $ 5,949,740
============= ============
See accompanying notes(LESSEE)
Certain condensed financial information, related to financial statements.
9
11the Lessee's
operations is as follows:
INNSUITES HOTELS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
PREDECESSOR PREDECESSOR
----------- -----------
FOR THE NINE FOR THE EIGHT FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBERFor The Nine-Months Ended
September 30,
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
19971999 1998
1997 1998
---- ---- ---- ------------ --------
Revenues from hotel operations:
Room revenue $14,165,01as defined by lease....................................... $ 16,113,55419,576 $ 4,496,300 $ 5,139,800
Food and beverage revenue 319,603 822,949 117,541 254,71218,208
Other revenue 735,243 1,097,592 39,908 374,663
------------ ------------ ------------ ------------revenue.......................................................... 2,141 2,124
-------- --------
Total revenues 15,219,863 18,034,095 4,653,749 5,769,175
------------ ------------ ------------ ------------revenues.................................................... 21,717 20,332
Expenses:
Departmental expenses:
Rooms 4,057,132 5,555,192 1,575,555 2,490,028
Food and beverage 284,503 670,376 144,524 (147,904)
General and administrative 2,196,370 2,597,002 611,129 1,113,007
Advertising and promotion 884,120 1,407,838 216,683 578,867
Utilities 685,497 983,946 221,720 439,103
Repairs and maintenance 2,071,050 1,017,951 993,965 534,763
Real estate, personal property
taxes, and insurance 593,164 -- 275,311 --
Percentage rent -- 6,807,504 -- 1,863,152
Interest expense 1,291,519 -- 291,410 --
Depreciation 823,279 -- 229,927 --
------------ ------------ ------------ ------------
Total expenses 12,886,634 19,039,809 4,607,612 6,871,016
------------ ------------ ------------ ------------
Net income (loss) $ 2,333,229 $ (1,005,714) $ 46,137 $ (1,101,841)
============ ============ ============ ============
See accompanying notes to financial statements.
10
12
INNSUITES HOTELS, INC.
STATEMENTS OF CASH FLOWS
PREDECESSOR
-----------
FOR THE NINE FOR THE EIGHT
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,333,229 $(1,005,714)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 858,227 --
(Increase) decrease in:
Accounts receivable (145,514) (79,634)
Inventories (53,600) (304,547)
Cash held in escrow (396,853) --
Other assets -- (254,392)
Payments on behalf of the Partnership -- (3,114,510)
(Increase) decrease in:
Accounts payable 192,719 746,495
Bank overdraft -- (199,235)
Accrued expenses (44,208) (608,940)
Percentage rent payable -- 3,299,510
----------- -----------
Net cash provided by operating activities 2,744,000 (1,520,967)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, fixtures, and equipment (205,114) --
Transfer of net assets -- 711,847
----------- -----------
Net cash used by investing activities (205,114) 711,847
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase of mortgage notes payable (453,116) --
Increase in loans from affiliates 363,855 941,845
Purchase of partners' capital (1,018,872) --
Distributions (1,208,872) --
Line of credit 40,000 42,000
Other (679,248) --
----------- -----------
Net cash (used) provided by financing activities (2,341,058) 983,845
----------- -----------
Net change in cash and cash equivalents 197,828 234,725
Cash and cash equivalents at beginning of period 628,797 322,095
----------- -----------
Cash and cash equivalents at end of period $ 826,625 $ 556,820
=========== ===========
See accompanying notes to financial statements.
11
13
INNSUITES HOTELS, INC.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. DESCRIPTION OF BUSINESS:
InnSuites Hotels, Inc., formerly known as Realty Hotel Lessee Corp.
(the Lessee), manages and operates full and limited service hotels
located in Arizona and California pursuant to the terms of percentage
leases with RRF Limited Partnership (the Partnership) and RRF Sub
Corp., a wholly-owned subsidiary of the Trust (collectively, the
Lessor).
2. ORGANIZATION:
The Lessee commenced operations on January 31, 1998. The Lessor
acquired seven of the hotel properties as of January 31, 1998, one as
of February 1, 1998, one as of April 29, 1998, and one as of June 1,
1998. The predecessor to the Lessee's business consisted of the
entities which owned the seven initial hotels.
3. BASIS OF PRESENTATION:
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The Lessee
operates on a calendar year basis, and accordingly, its financial
information is presented on that basis. The financial statements for
1997 represent the predecessor's financial statements and are not
comparable in all respects with the financial statements of the Lessee.
Operating results for the eight- and three-month periods ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. For further
information, refer to the predecessor's consolidated financial
statements and footnotes thereto included in the Trust's Annual Report
on Form 10-K for the period ended January 31, 1998.
4. PERCENTAGE LEASE AGREEMENTS:
The Lessee leases ten hotels (the Hotels) from the Partnership and RRF
Sub Corp., pursuant to long-term leases (the Percentage Leases). The
Hotels are located in Phoenix, Tempe, Scottsdale, Flagstaff, Tucson
(2), and Yuma, Arizona; and Buena Park, Ontario, and San Diego,
California.
In August 1998, the Lessee and Lessor amended the terms of the
Percentage Leases modifying the interim calculations of percentage rent
and the expiration dates of the agreements.
The Percentage Leases expire on May 31, 2007, subject to earlier
termination on the occurrence of certain contingencies, as defined. The
Percentage Leases do not contain renewal terms. The Lessee is required
to pay the higher of a minimum rent, as defined, or a percentage rent.
Percentage rent applicable to room and other hotel revenue varies by
lease and is calculated on a quarterly basis by multiplying fixed
percentages by the actual quarterly amounts of such revenues over
specified threshold amounts. Percentage rent related to food and
beverage revenues is at 5% of such revenues in excess of $200,000 for
all of the Percentage Leases. Both the threshold amounts used in
computing percentage rent and minimum rent are subject to annual
adjustments beginning January 1, 1999 based on increases in the United
States Consumer Price Index.
12
14
Other than real estate and personal property taxes, casualty insurance
and capital improvements, which are obligations of the Lessor, the
Percentage Leases require the Lessee to pay all costs and expenses
incurred in the operation of the Hotels.
The Percentage Leases require the Lessee to indemnify the Lessor
against all liabilities, costs and expenses incurred by, imposed on or
asserted against the Lessor in the normal course of operating the
Hotels.
Future minimum rent (ignoring CPI increases) to be paid by the Lessee
under the Percentage Leases at June 30, 1998 for each of the years in
the period 1998 to 2002 and in total thereafter is as follows:
1998 $ 1,703,000
1999 6,850,000
2000 6,850,000
2001 6,850,000
2002 6,850,000
Thereafter 30,254,000
-----------
$59,357,000
===========
Rent expense for the eight months ended September 30, 1998 was
$6,807,504 of which approximately $2,045,004 was in excess of minimum
rent.
5. PRO FORMA FINANCIAL INFORMATION:
The following unaudited pro forma condensed statements of operations
for the nine-month periods ended September 30, 1998 and 1997 are
presented as if the Lessee leased and operated from January 1, 1997 all
of the Hotels owned by the Partnership as of September 30, 1998.
The pro forma condensed statements of operations do not purport to
present what actual results of operations would have been if the Hotels
were operated by the Lessee pursuant to the Percentage Leases from
January 1, 1997 or to project results for any future period.
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------
(IN THOUSANDS)
Room revenue $18,208 $17,912
Food and beverage revenue 953 1,008
Other revenue 1,170 920
------- -------
Total revenues 20,332 19,840
------- -------
Departmental expenses of hotels 7,170 6,715Operating expenses..................................................... 10,419 7,169
Percentage lease expenseexpense............................................... 7,449 6,808
7,385Advertising............................................................ 1,596 1,503
Other expenses 7,954 8,156
------- -------expenses......................................................... 3,010 6,457
-------- --------
Total expensesexpenses.................................................... 22,474 21,937
22,256
------- --------------- --------
Net loss $(1,605) $(2,416)
======= =======loss.................................................................... $ (757) $ (1,605)
======== ========
13
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
On February 1, 1998,The following discussion should be read in conjunction with the
Partnership acquired 100%Innsuites Hospitality Trust condensed consolidated financial statements, the
10
Innsuites Hotels, Inc. (the "Lessee") results of the ownership
interestsoperations, and notes thereto
appearing elsewhere in the Tucson St. Mary'sthis quarterly report, respectively.
InnSuites Hotel and Resort for $10,820,000.
The Partnership assumed $7,803,000 in mortgage debt and other obligations and
issued 669,933 Class B limited partnership units to James F. Wirth, Trustee,
Chairman, President and Chief Executive Officer ofHospitality Trust (the "Trust") is a real estate investment
trust which owns the Company ("Wirth"), and
his wife (of which 28,800 units were subsequently paid to third parties as
advisory fees), who collectively held all of the equity ownership interests in
the Tucson St. Mary's hotel. On April 29,1998, the Partnership acquired the
InnSuites Hotel San Diego for $5,148,000. The Partnership invested $1,448,000 in
cash (of which $1,348,000 was drawn under the Company's secured revolving line
of credit with Pacific Century Bank) and became obligated for $3,700,000 in
seller financing in the form of two promissory notes secured by mortgage trust
deeds on the property. On June 1, 1998, the Partnership acquired 100% of the
ownership interests in an 185-suite InnSuites Hotel located in Buena Park,
California for $7,100,000. The Partnership assumed $4,103,000 in mortgage debt
and other obligations and issued 628,052 limited partnership units to Wirth and
Steven S. Robson, Trustee of the Company (of which 13,034 units were
subsequently paid to a third party as an advisory fee), who each held a 50%
equity interest in the Buena Park hotel.
At October 31, 1998, the Company owned interests in nine hotels through
its sole general partner interest in theRRF Limited Partnership
(the "Partnership") and 100% of a tenth hotel
through RRF Sub Corp., a wholly-owned subsidiary of the Company. (Unless the context indicates
otherwise, all references to the Partnership shall include RRF Sub Corp.)
In order for the CompanyTrust to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (a "REIT"), neither the CompanyTrust nor the
Partnership can operate the hotels. Therefore, each of the hotels is leased to,
and operated by, InnSuites Hotels, Inc.the Lessee (formerly known as Realty Hotel Lessee Corp., the "Lessee")
pursuant to a Percentage Lease. Each Percentage Lease obligates the Lessee to
pay rent equal to the greater of a minimum rent or a percentage rent based on
the gross revenues of each hotel. The Lessee also holds the franchise agreement
for each hotel. The Lessee is owned 9.8% by InnSuites Innternational Hotels,
Inc., an entity owned by Mr.James F. Wirth and his wife. The Company'sTrust's principal
source of revenuecash flows is distributions from the Partnership, which are dependent
upon lease payments from the Lessee pursuant to the Percentage Leases. The
Lessee's ability to make payments to the Partnership pursuant to the Percentage
Leases is dependent primarily upon the operations of the hotels.
At October 31, 1999, the Company owned a 44% interest in the ten hotels
(the "Hotels") through its sole general partner's interest in the Partnership.
This change in ownership resulted from the following transactions:
On March 15, 1999, the Trust purchased 1 million additional general partner
units in the Partnership for $2 million. This transaction was funded by Mr.
Wirth who provided an unsecured loan to the Trust of $2 million at 7%
interest payable annually beginning March 15, 2000. The unpaid principal
balance and accrued interest is due on March 15, 2004.
On April 2, 1999, the Partnership made an unsecured loan to the Trust of
$2.615 million. Annual interest only payments are due on March 1 of each
year and are based on a 7% interest rate. The unpaid principal balance is
due at maturity on April 2, 2006. The Trust used the proceeds of that loan
to purchase 1.3 million general partner units in the Partnership. The money
lent by the Partnership was generated by refinancing the Northern Phoenix
hotel and borrowing an additional $1.75 million that was secured by a
mortgage on that property. The original mortgage note was restructured to
match the terms of the refinanced note, which bears interest at 8.25% and
matures on April 1, 2014. Monthly principal and interest payments began on
April 1, 1999.
As of April 2, 1999, the Trust transferred its interest in the Scottsdale
property to the Partnership for its appraised value of approximately $7
million in exchange for 1.6 million general partner units.
The Trust's primary source of revenue is rent payments by the Lessee under
Percentage Leases covering all the Hotels in operation. The expenses of the
Trust consist of property taxes, insurance, corporate overhead, interest on
mortgage debt and depreciation of the Hotels. The Percentage Leases provide for
the payment of base rent and percentage rent. For the nine-month period ended
October 31, 1999, base rent and percentage rent in the aggregate amount of $7.4
million was earned by the Trust. The principal determinant of percentage rent is
the Lessee's room revenues at the Hotels, as defined by the Percentage Leases.
Therefore, management believes that a discussionreview of the pro forma
operating resultshistorical performance of
the Lessee is important to an understandingoperations of the businessoperating Hotels, particularly with respect to occupancy,
average daily rate ("ADR"), calculated as total room revenue divided by number
of rooms sold, and revenue per available room, calculated as total room revenue
divided by number of rooms available (known as "REVPAR"), is appropriate for
understanding revenue from the Company. The following discusses (i)Percentage Leases. ADR improved due to the
Company's pro forma resultsacquisitions in the prior year and the successful repositioning of operationsthose hotels
as studio and two room suite hotels that contribute more revenue per available
room. While ADR increased $1.24 to $67.58 in 1999 from $66.34 in 1998, occupancy
declined 1.3% in 1999 from 63.4% to 62.1% due to increased supply which exceeded
demand growth. This resulted in a slight decline in REVPAR of $0.10 for the nine
months ended October 31, 19981999.
11
The following table shows certain historical financial and other information for
the periods indicated.
For the Nine Month Period Ended
October 31,
1997;-------------------------------
1999 1998
--------- ---------
Occupancy 62.1% 63.4%
Average Daily Rate (ADR) $ 67.58 $ 66.34
Revenue Per Available Room (REVPAR) $ 41.96 $ 42.06
No assurance can be given that the trends reflected in this data will
continue or that Occupancy, ADR and (ii) the Lessee's pro forma resultsREVPAR will not decrease as a result of
operations for the nine months ended
September 30, 1998 and September 30, 1997.
14
16changes in national or local economic or hospitality industry conditions.
RESULTS OF OPERATIONS
ADOPTION OF EITF 98-9
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force (the "EITF") issued EITF number 98-9, "Accounting for Contingent Rent
in Interim Financial Periods" ("EITF 98-9"). EITF 98-9 provides that a lessor
shall defer recognition of contingent rental income in interim periods until
specified annual targets that trigger the contingent income are met. In the
second quarter, the Company adopted the provisions of EITF 98-9 and elected to
restate the first quarter results of 1998 in accordance with the new
pronouncement. The effect of the change on the three months ended April 30, 1998
was to decrease lease revenues of $1,053,000 and, therefore, net income
applicable to shareholders by $262,000 ($.16 per share -- basic and diluted) to
income of $173,000 ($.10 per share -- basic and diluted). Effective August 1,
1998, the Company amended its percentage lease agreements to eliminate the
annualization of interim hotel revenues. As a result, in the third quarter the
Company recognized as revenues $738,674 of previously deferred lease revenues.
During the third quarter, accounting for contingent rent under EITF 98-9 was
rescinded. As such, the Company will not restate the first quarter results of
fiscal 1999.
PRO FORMA RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY
For the nine months ended October 31, 1998, the Company had pro forma
revenues of $8.3 million compared to $7.5 million for the nine months ended
October 31, 1997, an increase of $.8 million (10.7%). This was due to a $.8
million increase in Percentage Lease revenues in 1998 caused by a 3.0% increase
in occupancy at the hotels and a $1.54 increase in the average daily rate (ADR)
at the hotels. Total expenses increased $.9 million from $7.3 million in the
nine months ended October 31, 1997 to $8.2 million in the nine months ended
October 31, 1998. An increase of $.6 million in general and administrative
expenses was due to increased legal and accounting and advisory expenses.
Overall, the Company improved net income applicable to common shares to $.10
million for the nine months ended October 31, 1998, a decrease of $.08 million
(44%), from $.18 million for the nine months ended October 31, 1997 and earnings
per common share (basic and diluted) declined to $.05 from $.09 for the same
respective periods.
PRO FORMA RESULTS OF OPERATIONS OF LESSEE
For the nine months ended September 30, 1998, the Lessee had pro forma
revenues of $20.3 million compared to $19.8 million for the nine months ended
September 30, 1997. This was due to consistent occupancy in 1998 and 1997 and a
$3.09 increase in ADR from 1997 to 1998. Total expenses decreased from
$22.6 million in the nine months ended September 30, 1997 to $21.9 million in
the nine months ended September 30, 1998.
Room revenues increased $.3 million, or 1.6%, from the nine months
ended September 30, 1997 to the nine months ended September 30, 1998. This was
driven by an increase in ADR of $1.54, along with a 3.0% increase in occupancy
from period to period. This was attributable to the general improvement in the
business travel and tourism industries, offset by some new competition in the
markets where the hotels operate and the InnSuites' refurbishment program. Food
and beverage revenue declined $.06 million or 5.4% from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998 relating to
reduced food and beverage revenue at the Scottsdale and Tucson St. Mary's hotels
and expansion of food service, including room service at two of the other
hotels.
Departmental expenses grew by $.46 million, or 6.0%, between the years
because of increased payroll costs, general inflationary pressures and increased
occupancy. These costs grew as a percentage of revenues from 33.8% in 1997 to
35.3% in 1998.
15
17
ACTUAL RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY
Comparison of the nine months ended October 31, 1999 with 1998 with 1997(InnSuites
Hospitality Trust)
For the nine months ended October 31, 1998,1999, the CompanyTrust had total revenues of
$7.7$7.4 million compared to $1.4$7.7 million for the nine months ended October 31,
1997, an increase1998, a decrease of $6.3 million, reflecting the inclusion of lease revenues of
$7.7 million in the nine months ending October 31, 1998 following the formation
transactions and the absence of $1.4 million of revenue from rental of real
estate held for sale (the Carbon & Carbide Building) which was sold in September
1997. Total current year expenses of $6.1 million represented a $4.4 million
increase over expenses of $1.8 million in the nine months ended October 31,
1998 due to inclusion of $1.8 million in depreciation, $1.5 million in mortgage
interest paid, $.83 million in property taxes, insurance and ground rent paid
and $.5 million in advisory fees paid to Mid-America ReaFund Advisors, Inc., a
related party, which were all associated with the ownership of the hotels in
the nine months ending October 31, 1998 compared to no similar expenses in the
nine months ended October 31, 1997 when the Company owned no hotels. General and
administrative expense increased $.8 million from $.2 million in the nine months
ended October 31, 1997 to $1.0 million in the nine months ended October 31, 1998$300,000 due to increased supply exceeding demand growth.
Total expenses related to administering the hotel portfolio.
Expenses related to the operation of the Carbon & Carbide Building of $1.4$6.7 million incurred in the nine months ending October 31, 1997 were not incurred
in the nine months ending October 31, 1998 due to the sale of that building in
September 1997. Net income before minority interest of $1.5 million in the nine
months ended October 31, 1998 represented a $1.9 million improvement over the
$.4 million loss incurred in the nine months ended October 31, 1997. After
deducting minority interest of $1.4 million, net income applicable to common
shares of $.12 million and earnings per share of $.07 for the nine months ended October 31, 1998 represented an1999 was a
$600,000 increase over expenses of $.51$6.1 million over the $.39 million
loss ($.38 per share) incurred infor the nine months ended
October 31, 1997. Funds
from Operations (FFO), which represents net income plus non-cash1998.
General and administrative expenses include overhead charges including depreciationfor
management, accounting, shareholder and amortization, increased from ($.39) million or
($.38) per share inlegal services for the Trust. In
comparing general and administrative expenses for the nine months ended October
31, 19971999 and 1998, general and administrative expenses increased $304,000 from
$1.0 million primarily due to $3.4an increase in promotional programs, such as
offering complimentary rooms.
Total interest expense increased by $440,000 in comparing the nine months
ended October 31, 1999 and 1998 due to a combination of renegotiating lower
interest rates and the addition of $2.6 million or
$.36 per share/unitin fixed mortgages and related
party notes. The proceeds of those borrowings were used for capital
improvements, dividends and additional operational needs.
Real estate and personal property taxes, insurance and ground rent
increased $232,000 in comparing the nine months ended October 31, 1999 and 1998.
A majority of the increase relates to the acquisition of the Buena Park and
San Diego properties. Additionally, the Trust incurred charges for directors and
officers insurance in 1999.
In comparing depreciation for the nine months ended October 31, 1999 and
1998, depreciation increased $40,000 primarily due to the Trust's acquisitions
of the Buena Park and San Diego properties. The remainder of the increase
resulted from an increase in capitalized refurbishment costs.
When comparing other expenses for the nine months ended October 31, 1999
and 1998, the Trust experienced a decrease of $488,000 in advisory fees due to
the termination of Advisory Agreements with Mid-America ReaFund Advisors, Inc.
("MARA") in 1999. MARA was formerly the Trust's advisory company.
The Trust had net income before minority interest of $725,000 in the
12
nine months ended October 31, 1999, which represented a $819,000 decrease from
net income of $1.5 million earned in the nine months ended October 31, 1998.
Cash available
for distribution (CAD) which is FFO less amortizationAfter deducting minority interest of debt$460,000, the Trust had net income
attributable to shares of beneficial interest of $265,000 and reserves for
repairs and replacements (4%diluted earnings
per share of gross revenue) was $1.4 million or $.15 per
share/unit$.09 for the nine months ended October 31, 19981999. This represented
an increase of $144,000 in net income compared to $.38 million
and $(.38) per sharenet income of $121,000 for the
nine months ended October 31, 1997.1998.
Comparison of the quarter ended October 31, 1999 with 1998 with 1997(InnSuites
Hospitality Trust)
For the quarter ended October 31, 1998,1999, the CompanyTrust had total revenues of
$2.9$2.0 million compared to $.3$2.9 million for the quarter ended October 31, 1997,1998, a
decrease of approximately $900,000, primarily due to the modification of the
rent calculation, which resulted from the adoption of EITF 98-9 effective August
1, 1998. Total expenses increased approximately $121,000 to $2.2 million for the
quarter ended October 31, 1999 from $2.1 million for the quarter ended October
31, 1998.
General and administrative expenses include overhead charges for
management, accounting, shareholder and legal services for the Trust. In
comparing general and administrative expenses for the quarters ended October 31,
1999 and 1998, general and administrative expenses increased $210,000 from
$210,000 for the quarter ended October 31, 1998 to $420,000 for the quarter
ended October 31, 1999, primarily due to an increase in promotional programs,
such as offering complimentary rooms.
Total interest expense increased by $96,000 comparing the quarters ended
October 31, 1999 and 1998, due to the addition of $2.6 million reflectingin fixed
mortgages and related party notes. The proceeds of those borrowings were used
for capital improvements, dividends and additional operational needs.
Real estate and personal property taxes, insurance and ground rent
increased $142,000 in comparing the inclusionquarters ended October 31, 1999 and 1998. A
majority of lease revenuesthe increase is attributable to the Trust's acquisitions of $2.9 million inthe
Buena Park and San Diego properties.
In comparing depreciation for the quarter endingended October 31, 1999 and 1998,
followingdepreciation decreased $127,000 primarily due to the formation
transactionstiming of acquisitions.
When comparing other expenses for the quarters ended October 31, 1999 and
1998, the absenceTrust experienced a decrease of $.3 million$185,000 in advisory fees due to the
termination of revenue from rentalAdvisory Agreements with MARA in fiscal year 1999.
Considering all of real
estate held for sale (the Carbon & Carbide Building) which was sold in September
1997. Total expensesthe changes and acquisitions mentioned above, the Trust
had a net loss before minority interest of $2.1 million$180,000 in the quarter ended October
31, 1998
represented a $1.6 million increase over expenses of $.5 million1999, compared to $840,000 net income reported in the quarter ended October
31, 1997 due1998. After deducting minority interest of $103,000, the Trust had a net
loss attributable to inclusionshares of $.74 million in depreciation, $.45
million in mortgagebeneficial interest paid, $.2 million in other interest paid, $.28
million in property taxes, insuranceof $77,000 and ground rent paid and $.18 million in
advisory fees paid to Mid-America ReaFund Advisors, Inc., which were all
associated with the ownershipa diluted loss
per share of the hotels in the quarter ending October 31,
1998 compared to no similar expenses in$.03 for the quarter ended October 31, 1997 when
the Company owned no hotels. General and administrative expense increased $.15
million from $.06 million in the quarter ended October 31, 19971999, compared with net
income attributable to $.21 million
in the quarter ended October 31, 1998 due to increased expenses related to
administering the hotels. Expenses related to the operationshares of the Carbon &
Carbide Building of $.39 million incurred in the quarter ending October 31,
1997 were not incurred in the quarter ending October 31, 1998
16
18
due to the sale of that building in September 1997. Net income before minoritybeneficial interest of $.84 million in the quarter ended October 31, 1998 represented a
$1.09 million increase over the $.25 million loss incurred in the quarter ended
October 31, 1997. After deducting minority interest of $.79 million, net income
applicable to common shares of $.045 million$45,000 and incomediluted
earnings per share of $.02 for the quarter ended October 31, 1998 represented an increase of $.29 million over
the $.25 million1998. The loss
($.24 per share) incurred in the quarter ended
October 31, 1997. FFO increased from ($.25) million or ($.24) per share in the
quarter ended October 1, 1997 to $1.58 million or $.16 per share/unit in the
quarter ended October 31, 1998. Cash available for distribution (CAD) which is
FFO less amortization of debt and reserves for repairs and replacements (4% of
gross revenue) was $(.88) million or $(.09) per share/unitexperienced for the quarter ended October 31, 1998 compared1999 is attributable to $(.25) million and $(.24) per sharethe
decreased revenues for the quarterquarter.
Funds from Operations (FFO)
The Trust notes that industry analysts and investors use Funds From
Operations ("FFO") as another tool to evaluate and compare equity REITs. The
Trust also believes it is meaningful as an indicator of net income excluding
most non-cash items and provides information about the Trust's cash available
for distributions, debt service and capital expenditures. The Trust follows the
March 1995 interpretation of the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO which is calculated (in the Trust's case) as
net income plus depreciation and amortization, and loss on disposals and
13
extraordinary items, if applicable. Other non-cash expenses such as stock option
expense have not been added back in FFO. FFO does not represent cash flow from
operating activities in accordance with generally accepted accounting principles
("GAAP") and is not indicative of cash available to fund all of the Trust's cash
needs. FFO should not be considered as an alternative to net income or any other
GAAP measure as an indicator of performance and should not be considered as an
alternative to cash flows as a measure of liquidity. In addition, the Trust's
FFO may not be comparable to other companies' FFO due to differing methods of
calculating FFO and varying interpretations of the NAREIT definition.
FUNDS FROM OPERATIONS (FFO)
For the Nine-Month Period
Ended October 31
(unaudited)
-----------------------------
(amounts in thousands, except
per share data)
1999 1998
------ ------
Net Income attributable to shares of beneficial interest $ 265 $ 121
Depreciation and Amortization (Trust's portion) 729 172
------ ------
Funds from Operations (FFO) $ 994 $ 293
FFO increased from $293,000 in the period ended October 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Outstanding mortgage debt increased from $17.7 million at January 31,
1998 to
$23.4 million at$994,000 for the period ended October 31, 1999. As noted above, FFO is a common
tool used to measure the ability of a REIT to provide funds for various
operating, investing, and capital improvement activities. The increase in FFO
attributable to the nine months ended October 31, 1999 over the nine months
ended October 31, 1998 is primarily due to mortgage debt assumed or
incurred relatedthe increase in the Trust's ownership
interest in the Partnership.
Comparison of the nine months ended September 30, 1999 with 1998 (InnSuites
Hotels, Inc.- Lessee)
For the nine months ended September 30, 1999, the Lessee had total revenues
of $21.7 million compared to $20.3 million for the nine months ended September
30, 1998. This 6.8% increase was due to the acquisitions of the Tucson St. Mary's, San Diego and
Buena Park hotels.properties made on April 29, 1998, and June 1, 1998, respectively,
and improvements in ADR from $66.34 to $67.58, which increased room revenue by
$1.4 million despite a decline in occupancy of 1.3% from 63.4% for the nine
month period ended September 30, 1998 to 62.1% for the nine month period ended
September 30, 1999. Total expenses increased from $21.9 million to $22.5
million.
Room revenues at the Hotels increased $1.4 million, or 7.5%, comparing the
nine-months ended September 30, 1998 to the nine-months ended September 30,
1999. The increase in revenues reflects the continued growth of the repositioned
hotels at Tucson St. Mary, Arizona and Buena Park and San Diego, California and
the influence of tourism in the southern Arizona hotels during the winter
months. Continuing efforts to enhance the properties through refurbishment
programs continues to show a positive effect on guests and referrals.
Operating, advertising and other expenses decreased by $104,000 or 0.7%,
between the periods due to the repairs and repositioning costs incurred in
1998. These costs decreased as a percentage of revenues from 74.4% in 1998 to
69.2% in 1999. Percentage lease expense, as a percentage of total revenue,
remained fairly constant.
14
LIQUIDITY AND CAPITAL RESOURCES
The Trust, through its ownership interest in the Partnership, will have
its proportionate share of the benefits and obligations of the Partnership's
ownership interests in the Hotels. The Trust's principal sources of cash to meet
its cash requirements, including distributions to its shareholders, will be its
share of the Partnership's cash flow. The Partnership's principal source of
revenue will be rent payments under the Percentage Leases. The Lessee's
obligations under the Percentage Leases are unsecured and its ability to make
rent payments to the Partnership under the Percentages Leases, and the Trust's
liquidity, including its ability to make distributions to the Trust's
shareholders, will depend upon the ability of the Lessee to generate sufficient
cash flow from hotel operations. Cash collections on rent receivables exceeded
$1.6 million dollars during the third quarter.
Beyond the 4% reserve for refurbishment and replacements set aside
annually, approximately $140,000 was spent in this quarter for the Company has no present commitmentsNova Front
Desk systems in response to potential computer systems problems associated with
the Year 2000. Expenditures totaling $200,000 for extraordinary capital
expenditures other than $350,000 in anticipated refurbishing costsongoing refurbishment at the
recently acquired InnSuitesSan Diego hotel will also be incurred in the fourth quarter.
The Trust intends to acquire and develop additional hotels and expects to
incur indebtedness to fund those acquisitions and developments. The Trust may
also incur indebtedness to meet distribution requirements imposed on a REIT
under the Internal Revenue Code to the extent that working capital and cash flow
from the Trust's investments are insufficient to make the required
distributions. The terms of the Credit Facility discussed below permit
borrowings for that purpose, but impose certain limitations on the Trust's
ability to engage in other borrowings.
The Trust maintains a Credit Facility with Pacific Century Bank to
assist it in its funding of the acquisition and development of additional hotels
and for certain other business purposes. Borrowings under the Credit Facility
are secured by first mortgages on three of the Hotels. The Trust has drawn $11.3
million from its line of credit, which bears interest at a variable interest
rate. By its terms, the Credit Facility will expire in approximately two years,
subject to renewal. The terms of the Credit Facility require the Partnership to
maintain a net worth of not less than $15 million and, as of the end each fiscal
quarter, maintain a debt to net worth ratio of not greater than 1.5 to 1.0, and
a net operating income to debt service relating to encumbered properties ratio
of not less than 1.25 to 1.0. The Trust may prepay the Credit Facility, subject
to a prepayment penalty of $250 plus a yield-maintenance penalty. During the
term of the Credit Facility, the Trust may not further encumber its collateral,
sell its collateral, change the nature of its business, or unreasonably suspend
its business.
The Trust may seek to increase the amount of its Credit Facility,
negotiate additional credit facilities, or issue debt instruments. Any debt
incurred or issued by the Trust may be secured or unsecured, long-term,
medium-term or short-term, bear interest at a fixed or variable rate and be
subject to such other terms as the Trust considers prudent.
The Trust will acquire or develop additional hotels only as suitable
opportunities arise, and the Trust will not undertake the acquisition or
redevelopment of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Credit Facility or other
borrowings or from the proceeds of additional issuances of shares of beneficial
interest or other securities. There is not an agreement or understanding to
invest in any other properties, and there can be no assurance that the Trust
will successfully acquire or develop additional hotels.
The Partnership will contribute to a Capital Expenditures Fund on a
continuing basis, from the rent paid under the Percentage Leases, an amount
equal to 4% of the Lessee's revenues from operation of the Hotels. The Capital
Expenditures Fund is intended to be used for capital improvements to the Hotels
and refurbishment and replacement of furniture, fixtures and equipment, in
addition to other uses of amounts in the Fund considered appropriate from time
15
to time. The Partnership anticipates making similar arrangements with respect to
future hotels that it may acquire or develop. During the nine-month period ended
October 31, 1999, the Hotels spent approximately $1.5 million for capital
expenditures. The Trust considers these improvements to be revenue producing and
therefore these amounts have been capitalized and are being depreciated over
their estimated useful lives. The Hotels also spent $1.2 million during the nine
month period ended October 31, 1999 on repairs and maintenance and these amounts
have been charged to expense as incurred.
Outstanding mortgage debt increased from $23.2 million at January 31,
1999 to $23.8 million at October 31, 1999 due to an increase in mortgage debt
and the refinancing of the Northern Phoenix property.
INFLATION
The Trust's revenues initially will be based on the Percentage Leases
which will result in changes in the Trust's revenues based on changes in the
underlying Hotel San Diego.revenues. Therefore, the Trust initially will be relying
entirely on the performance of the Hotels and the Lessee's ability to increase
revenues to keep pace with inflation. Operators of hotels in general, and the
Lessee in particular, can change room rates quickly, but competitive pressures
may limit the Lessee's ability to raise rates faster than inflation.
SEASONALITY
The hotels'Hotels' operations historically have been seasonal. The six southern
Arizona hotels and the Ontario, California hotel experience their highest occupancy rates in the first fiscal
quarter and, to a lesser extent, the fourth fiscal quarter. The second fiscal
quarter tends to be the lowest occupancy period at those six southern Arizona
hotels. The Flagstaff, Arizona and San Diego and Buena Park, California hotels
experience their highest occupancy rates in the second and third fiscal
quarters. This seasonality pattern can be expected to cause fluctuations in the
Company'sTrust's quarterly lease revenues under the Percentage Leases. The Company anticipates that its cash flow from the
Lessee's operation of the hotels will be sufficient to enable the Company to
make quarterly distributions at the rate of $.10 per share for at least the next
twelve months. To the extent that
cash flow from operations is insufficient during any quarter, because of
temporary or seasonal fluctuations in leasePercentage Lease revenue, the Company expects toTrust may
utilize other cash on hand or borrowings to make those distributions. No assurance candistributions to its
shareholders. The extent of the fluctuation of earnings related to seasonality
of the Hotels is anticipated to be givenleveled by the fact that the Company will make
distributions inTrust's
ownership of the future atScottsdale hotel (which shows one of the indicated rate, or at all.highest seasonal
fluctuations) has been reduced to 44% from 100%. At the same time, the Trust's
ownership of the other Hotels, including the California properties (which are
less seasonal and have a different high season) increased from an average of
14.4% to 44% as of October 31, 1999.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs having been
written using two digits instead of four digits to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the yearYear 1900 rather than the Year 2000. This
could potentially result in a system failure or miscalculations, causing
disruptions of operations and normal business activity.
The CompanyTrust and the Lessee are currently in the process of upgradinghave upgraded their computer accounting
programs and have commenced installing athe installation of new property management systemsystems along with
necessary hardware. These new systems have been warranted to be Year 2000
compliant. The CompanyTrust has estimated the total cost which willto be incurred in connection
with these installations to beis approximately $400,000, which will be capitalized
and amortized over seven years. The Company believes that such costsinstallations of the Year 2000 compliant
property management systems were completed during the third quarter. The
upgrading and installation of a new reservation center system will not resultcommence in
a material
adverse effect on its financial condition or resultslate November and will be completed by the end of operations.
TheseDecember, 1999.
While these new systems represent virtually all of the Company'sTrust's computer
systems. However,systems, the CompanyTrust and the Lessee cannot predict the effect of the Year 2000
16
problem on vendors, customers and other entities with which the Company transactsTrust and the
Lessee transact business, and there can be no assurance that the effect of the
Year 2000 problem on such entities will not adversely affect the Company'sTrust's
operations.
17
19Although the Trust is not aware of any threatened claims related to the
Year 2000, the Trust may become subject to litigation arising from such claims,
and depending on the outcome, such litigation could have a material adverse
effect on the Trust. It is not clear whether the Trust's insurance coverage
would be adequate to offset these and other business risks related to the Year
2000.
In the event of any failure of any of the computer systems, the Trust
and the Lessee intend to perform necessary functions without the aid of
the affected computer systems until any Year 2000 problems are resolved.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "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. The CompanyTrust intends that such
forward-looking statements be subject to the safe harbors created by such Acts.
Those forward-looking statements include statements regarding the intent, belief
or current expectations of the Company,Trust, its Trustees or its officers in respect of
(i) the declaration or payment of dividends; (ii) the leasing, management or
operation of the hotels;Hotels; (iii) the adequacy of reserves for renovation and
refurbishment; (iv) the Company'sTrust's financing plans; (v) the Company'sTrust's position
regarding investments, acquisitions, financings, conflicts of interest and other
matters; (vi) the Company'sTrust's continued qualification as a REIT; and (vii) trends
affecting the Company'sTrust's or any hotel'sHotel's financial condition or results of
operations. The words and phrases "looking ahead", "we are confident", "should
be", "will be", "predicted", "believe", "expect"expect", "anticipate" and similar
expressions identify forward-looking statements.
These forward-looking statements reflect the Company'sTrust's current views in
respect of future events and financial performance, but are subject to many
uncertainties and factors relating to the operations and business environment of
the hotels whichHotels that may cause the actual results of the CompanyTrust to differ materially
from any future results expressed or implied by such forward-looking statements.
Examples of such uncertainties include, but are not limited to: fluctuations in
hotel occupancy rates; changes in room rental rates which may be charged by the
Lessee in response to market rental rate changes or otherwise; interest rate
fluctuations; changes in federal income tax laws and regulations; competition;
any changes in the Company'sTrust's financial condition or operating results due to
acquisitions or dispositions of hotel properties; real estate and hospitality
market conditions; hospitality industry factors; and local or national economic
and business conditions, including, without limitation, conditions which may
affect public securities markets generally, the hospitality industry, or the
markets in which the CompanyTrust operates or will operate. The Company undertakes noTrust does not
undertake any obligation to update publicly or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of 1934, the
qualifications set forth hereinabove are inapplicable to any forward-looking
statements in this Form 10-Q relating to the operations of the Partnership.
18ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Trust is exposed to interest rate risk primarily as a result of its
mortgage notes payable, notes payable to banks and notes payable to related
parties. The proceeds from these loans were used to maintain liquidity, fund
capital expenditures and expand the Trust's real estate investment portfolio and
operations. The Trust's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives, the Trust borrows using
fixed rate debt, when possible. The Trust could enter into derivative financial
17
20instruments such as interest rate swaps, caps and treasury locks in order to
mitigate its interest rate risk on a related financial instrument. To date, the
Trust has not entered into any such derivative transactions. The Trust's
interest rate risk is monitored using a variety of techniques. There have been
no significant changes in the Trust's debt structure during the three and
nine-month periods ended October 31, 1999.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
Effective September 23, 1998, the Company changed its name to InnSuites
Hospitality Trust to recognize the Company's focus on the ownership and
operation of hotels. To reflect the name change, the Company changed its New
York Stock Exchange ticker symbol to "IHT".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Second Amended and Restated Declaration of Trust, as further
amended on July 12, 1999 (incorporated by reference to
Annex AExhibit 3.1 of the Company's definitive Proxy Statement,Registrant's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission
on May 5, 1998)September 14, 1999).
10.1 Promissory Note dated August 17, 1999 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.2 Promissory Note dated October 12, 1999 by InnSuites
Hospitality Trust in favor of James F. Wirth.
10.3 Promissory Note dated October 14, 1999 by InnSuites
Hospitality Trust in favor of James F. Wirth.
27.1 Financial Data Schedule. (1)
- ----------
(1) Filed only in electronic format pursuant to Item 601(c) of Regulation S-K.
(b) REPORTS ON FORM 8-K.
1.No Current ReportReports on Form 8-K were filed September 2, 1998, in connection withon behalf of the acquisition of interests in a Buena Park, California hotel
property.Trust during
the quarter ended October 31, 1999.
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.
Dated: December 15, 19981999 INNSUITES HOSPITALITY TRUST (Registrant)
By: --------------------------------------------
Gregory D. Bruhn,/s/ Marc E. Berg
-----------------------------------------
Marc E. Berg, Executive Vice President,
Chief Financial Officer, Treasurer and Secretary
19
18