EXHIBIT 99.5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying combined balance sheets of Hometown Inn I,
LTD and Hometown Inn II, LTD (the "Partnerships") as of December 31, 1994 and
1995, and the related combined statements of operations and partners' capital
and cash flows for each of the three years in the period ended December 31,
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 combined financial position of Hometown Inn I,
LTD and Hometown Inn II, LTD at December 31, 1994 and 1995 and the combined
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
February 23, 1996
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HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED BALANCE SHEETS
DECEMBER 31,
---------------------
ASSETS 1994 1995
Current assets:
Cash and cash equivalents............................... $ 177,079 $ 362,357
Accounts receivable, net of allowance for doubtful ac-
counts of $3,813 in 1994 and $7,686 in 1995............ 3,751 32,260
Supply inventories...................................... 26,660 26,660
Advance to affiliate.................................... 91,938
Other current assets.................................... 2,913
---------- ----------
Total current assets.................................. 207,490 516,128
Property and equipment, net............................... 4,966,202 4,964,094
Other assets.............................................. 7,000 17,733
---------- ----------
$5,180,692 $5,497,955
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable........................................ $ 15,801 $ 29,912
Accrued expenses........................................ 75,304 60,274
Deposits................................................ 19,660 161,970
Advances from affiliates................................ 159,120 204,120
Current maturities of long-term debt.................... 117,903 185,949
---------- ----------
Total current liabilities............................. 387,788 642,225
Long-term debt............................................ 1,483,324 1,529,874
---------- ----------
Total liabilities..................................... 1,871,112 2,172,099
Partners' capital......................................... 3,309,580 3,325,856
---------- ----------
$5,180,692 $5,497,955
========== ==========
The accompanying notes are an integral part of the combined financial
statements.
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HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
Revenue:
Room revenue............................. $1,802,707 $2,123,589 $2,234,569
Other, net............................... 84,679 99,719 96,617
---------- ---------- ----------
Total revenue.......................... 1,887,386 2,223,308 2,331,186
---------- ---------- ----------
Costs and expenses:
Property operating expenses.............. 1,074,103 1,143,716 989,337
Property management fees to related par-
ty...................................... 105,600 105,600 144,357
Depreciation and amortization............ 229,142 232,632 244,603
---------- ---------- ----------
Total costs and expenses............... 1,408,845 1,481,948 1,378,297
---------- ---------- ----------
Income from operations..................... 478,541 741,360 952,889
Interest expense........................... 131,848 137,532 170,232
---------- ---------- ----------
Net income............................. 346,693 603,828 782,657
Partners' capital, beginning of year....... 3,538,770 3,455,553 3,309,580
Distributions............................ (429,910) (749,801) (766,381)
---------- ---------- ----------
Partners' capital, end of year............. $3,455,553 $3,309,580 $3,325,856
========== ========== ==========
The accompanying notes are an integral part of the combined financial
statements.
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HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER
31,
-------------------------------
1993 1994 1995
Cash flows from operating activities:
Net income.................................. $ 346,693 $ 603,828 $ 782,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 229,142 232,632 243,056
Amortization.............................. 1,547
Change in:
Accounts receivable..................... 9,271 37,488 (28,509)
Other assets............................ (1,377) 1,377 (2,913)
Accounts payable........................ 944 (26,506) 14,111
Deposits................................ 3,927 8,833 142,310
Accrued expenses........................ (10,763) 11,346 (15,030)
--------- --------- ---------
Net cash provided by operating activities... 577,837 868,998 1,137,229
--------- --------- ---------
Cash flows from investing activities,
purchases of property and equipment.......... (34,818) (41,384) (240,948)
--------- --------- ---------
Cash flows from financing activities:
Payments of deferred loan costs............. (12,280)
Advances to affiliates...................... (91,938)
Advances from affiliates.................... 73,650 85,470 45,000
Principal payments on long-term debt........ (97,549) (130,956) (130,404)
Proceeds from issuance of long-term debt.... 245,000
Distributions to partners................... (429,910) (749,801) (766,381)
--------- --------- ---------
Net cash used in financing activities. (453,809) (795,287) (711,003)
--------- --------- ---------
Net increase in cash.......................... 89,210 32,327 185,278
Cash at beginning of periods.................. 55,542 144,752 177,079
--------- --------- ---------
Cash at end of periods........................ $ 144,752 $ 177,079 $ 362,357
========= ========= =========
Supplemental cash flow disclosure, interest
paid......................................... $ 125,141 $ 136,809 $ 170,227
========= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
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HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation. The combined financial statements include the assets,
liabilities, capital and results of operations of two limited partnerships,
Hometown Inn I, LTD and Hometown Inn II, LTD. Where referred to herein, the
"Partnerships" include the two entities listed above. All significant
intercompany accounts and transactions have been eliminated.
Description of Business. The Partnerships operate two extended stay
facilities in Norcross, Georgia and Riverdale, Georgia. On February 23, 1996,
the Partnerships' extended stay facilities were acquired by Extended Stay
America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. The Partnerships maintained deposits totalling
$362,357 at December 31, 1995 with one bank. Deposits in excess of $100,000 are
not insured by the Federal Deposit Insurance Corporation.
Cash and cash equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.
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 estimated useful lives on the assets are as follows:
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 5-7 years
Deferred Loan Costs. The Partnerships have incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loan using the effective yield method. Deferred loan costs
are included in other assets.
Income Taxes. Any income taxes related to income earned by the Partnerships
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned. Prepayments and deposits are recorded as unearned revenue.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
1994 1995
Land............................................ $ 646,007 $ 646,007
Building and improvements....................... 4,893,161 4,893,161
Furniture and fixtures.......................... 785,355 1,006,213
----------- -----------
6,324,523 6,545,381
Less accumulated depreciation................... (1,358,321) (1,581,287)
----------- -----------
$ 4,966,202 $ 4,964,094
=========== ===========
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HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT:
1994 1995
Long-term debt consists of the following as of December
31:
Mortgage loan, principal and interest payable monthly at
approximately $23,000 through January 1997, interest at
prime plus 1%........................................... $1,601,227 $1,483,325
Mortgage loan principal and interest payable monthly at
approximately $5,300 through August 2000, interest at
11%..................................................... 232,498
---------- ----------
1,601,227 1,715,823
Less current maturities.................................. 117,903 185,949
---------- ----------
Long-term debt, net of current maturities................ $1,483,324 $1,529,874
========== ==========
The mortgage loans are collateralized by substantially all of the
Partnerships' property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$185,949; 1997--$1,382,719; 1998--$50,217; 1999--$56,028;
2000--$40,910.
The Partnerships believe that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.
4. RELATED PARTY TRANSACTIONS:
Management fees are charged by a related entity controlled by the partners
and advances are made to and taken by the related entity from the Partnerships
as follows:
MANAGEMENT ADVANCES TO ADVANCES FROM
FEES RELATED ENTITY RELATED ENTITY
1993............................. $105,600 $ $ 73,650
1994............................. 105,600 159,120
1995............................. 144,357 91,938 204,120
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