EXHIBIT 99.3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying statements of operations, partners' deficit
and cash flows of Welcome Inn America 89-1, L.P. for each of the two years
ended December 31, 1994 and the period from January 1, 1995 through August 18,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of Welcome Inn America 89-1, L.P.
operations and its cash flows for each of the two years in the period ended
December 31, 1994 and the period from January 1, 1995 through August 18, 1995
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
October 16, 1995
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WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF OPERATIONS
FOR THE
FOR THE YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995
-------------------- THROUGH
1993 1994 AUGUST 18, 1995
Revenue:
Room revenue............................. $927,593 $1,009,872 $670,954
Other, net............................... 71,778 69,415 41,883
-------- ---------- --------
Total revenue.......................... 999,371 1,079,287 712,837
-------- ---------- --------
Costs and expenses:
Property operating expenses.............. 452,951 495,182 322,337
Property management fees to partners..... 104,051 66,564 44,880
Depreciation and amortization............ 138,987 141,362 95,546
-------- ---------- --------
Total costs and expenses............... 695,989 703,108 462,763
-------- ---------- --------
Income from operations................. 303,382 376,179 250,074
Interest expense:
Bank..................................... 185,518 211,607 184,226
Partners................................. 196,788 149,032 87,926
-------- ---------- --------
Total interest expense................. 382,306 360,639 272,152
-------- ---------- --------
Net income (loss)...................... $(78,924) $ 15,540 $(22,078)
======== ========== ========
The accompanying notes are an integral part of the financial statements.
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WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF PARTNERS' DEFICIT
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
AND THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 18, 1995
Balance, January 1, 1993............................................ $(611,817)
Net loss............................................................ (78,924)
---------
Balance, December 31, 1993.......................................... (690,741)
Net income.......................................................... 15,540
---------
Balance, December 31, 1994.......................................... (675,201)
Net loss............................................................ (22,078)
---------
Balance, August 18, 1995............................................ $(697,279)
=========
The accompanying notes are an integral part of the financial statements.
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WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF CASH FLOWS
FOR THE FOR THE
YEAR ENDED DECEMBER PERIOD FROM
31, JANUARY 1, 1995
---------------------- THROUGH
1993 1994 AUGUST 18, 1995
Cash flows from operating activities:
Net income (loss)..................... $ (78,924) $ 15,540 $(22,078)
Adjustments to reconcile net income
(loss) to net cash provided by oper-
ating activities:
Depreciation......................... 126,110 127,456 86,760
Amortization......................... 12,877 13,906 8,786
Change in:
Accounts receivable................. 106 (7,115) 117
Other current assets................ (496) (2,851) 5,672
Accounts payable.................... 3,737 (3,801) 43,481
Accrued expenses.................... 8,361 (1,483) (17,350)
Accrued interest.................... (68,493) (112,629) 79,628
Accrued salaries.................... (1,625) 496 (10,338)
--------- ----------- --------
Net cash provided by operating activi-
ties.................................. 1,653 29,519 174,678
--------- ----------- --------
Cash flows from investing activities:
Expenditures for buildings and im-
provements........................... (30,547) (660)
Purchases of furniture, fixtures and
equipment............................ (5,052) (31,921)
--------- ----------- --------
Net cash used in investing activities.. (35,599) (660) (31,921)
--------- ----------- --------
Cash flows from financing activities:
Proceeds from long-term debt.......... 2,500,000
Proceeds from notes payable to part-
ners................................. 260,000
Principal payments on long-term debt.. (209,333) (1,874,667) (96,000)
Principal payments on notes payable to
partners............................. (693,781)
Additions to deferred loan costs...... (18,000)
--------- ----------- --------
Net cash provided by (used in) financ-
ing activities........................ 32,667 (68,448) (96,000)
--------- ----------- --------
Net increase (decrease) in cash........ (1,279) (39,589) 46,757
Cash at beginning of periods........... 123,676 122,397 82,808
--------- ----------- --------
Cash at end of periods................. $ 122,397 $ 82,808 $129,565
========= =========== ========
Supplemental cash flow disclosure, in-
terest paid........................... $ 450,799 $ 473,268 $192,524
========= =========== ========
The accompanying notes are an integral part of the financial statements.
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WELCOME INN AMERICA 89-1, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Welcome Inn America 89-1, L.P. (the "Partnership") is a Georgia limited
partnership that operates an extended stay facility (formerly known as the
"Welcome Inn") in Marietta, Georgia.
On August 18, 1995, the Partnership's extended stay facility was acquired by
Extended Stay America, Inc. (the "Company"). In order to present comparable
results of operations and cash flows of the Partnership, the accompanying
financial statements represent the historical results of operations and cash
flows of the Partnership through August 18, 1995, immediately prior to the
acquisition by the Company. Accordingly, any gain or loss on the sale of assets
to the Company has not been recognized in the accompanying financial
statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
Deferred Loan Costs. The Partnership has incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loans using the effective yield method.
Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned.
NOTE 3--LONG-TERM DEBT
Interest expense related to long-term debt consisting of mortgages held by
various banks and partners. Certain notes have variable rates of interest tied
to various commonly used indices.
The following is a summary of long-term debt on which interest expense was
incurred:
1993 1994
Note payable to a bank paid in August 1995............ $2,416,000
Note payable to a bank paid in 1994................... $1,790,667
Note payable to a partner, bearing interest at twelve
percent per year...................................... 1,716,191 1,022,410
---------- ----------
$3,506,858 $3,438,410
========== ==========
NOTE 4--RELATED PARTY TRANSACTIONS
Management fees and interest charged by partners are as follows:
MANAGEMENT INTEREST
FEES EXPENSE
1993.................................................... $104,051 $196,788
1994.................................................... 66,564 149,032
Period from January 1, 1995 to August 18, 1995.......... 44,880 87,926
Management fees in 1993 included a one time bonus payment to a partner of
approximately $42,000.
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