SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
- ---
X Annual Report Pursuant to Section 13 or 15(d) of
- --- The Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001 Commission File Number 01-12073
EQUITY INNS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1550848
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7700 Wolf River Boulevard, Germantown, Tennessee 38138
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(Address of Registrant's Principal Executive Office) (Zip Code)
( 901) 754-7774
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
9 1/2% Series A Cumulative Preferred Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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Aggregate market value of voting stock and non-voting common stock held by
nonaffiliates of the registrant as of March 5, 2002: $271,890,348.
Number of shares of Common Stock, $.01 par value, outstanding as of March 5,
2002: 36,897,990
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its 2002 Annual Meeting of
Shareholders to be held May 9, 2002 (the "Proxy Statement") are incorporated by
reference into Part III of this Report.
Exhibit Index beginning on Page 55.
Page 1 of 59
EQUITY INNS, INC
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2001
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 48
Part III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 48
Item 13. Certain Relationships and Related Transactions 48
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on
Form 8-K 49
2
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Equity Inns, Inc. (the "Company") is in the business of acquiring equity
interests in hotel properties. The Company commenced operations in March 1994
and is a real estate investment trust ("REIT") for federal income tax purposes.
The Company, through its wholly-owned subsidiary, Equity Inns Trust (the
"Trust"), is the sole general partner of Equity Inns Partnership, L.P. (the
"Partnership") and, at December 31, 2001, owned an approximate 96.8% interest in
the Partnership. The Company conducts its business through the Partnership and
its subsidiaries.
(b) Narrative Description of Business
At December 31, 2001, the Partnership and its affiliates owned 96 hotel
properties with a total of 12,284 rooms in 34 states (the "Hotels"). In order to
qualify as a REIT, the Company and the Partnership cannot operate hotels.
Effective January 1, 2001 (the "2001 Effective Date") under the federal REIT
Modernization Act (the "RMA"), the Company and its affiliates (1) terminated or
assigned all existing operating leases providing for payment of percentage rent
(the "Percentage Leases") between the Company and certain affiliates of
Interstate Hotels Corporation ("IHC") leasing 75 of the Hotels (the "Interstate
Lessees") and (2) terminated related lease guaranties with Interstate Hotels,
L.L.C. and Wyndham International, Inc. and (3) entered into new Percentage
Leases with wholly-owned taxable REIT subsidiaries of the Company (the "TRS
Lessees") for the lease of 77 hotels. The terms of the Percentage Leases with
the TRS Lessees are substantially identical to the Percentage Leases terminated
with the Interstate Lessees.
Through December 31, 2001, the Partnership and its affiliates continued to lease
19 AmeriSuites Hotels to wholly-owned subsidiaries (the "Prime Lessees") of
Prime Hospitality Corporation ("Prime"), with all payments due under those
Percentage Leases guaranteed by Prime. Effective as of January 1, 2002 (the
"2002 Effective Date"), the Company and its affiliates terminated (1) the
existing Percentage Leases between the Company and the Prime Lessees and (2) the
related lease guarantees. The Company also entered into new Percentage Leases
with its TRS Lessees for such 19 Hotels, on terms substantially identical to
those of the terminated leases.
Under the RMA, the TRS Lessees are required to enter into management agreements
with eligible independent contractors to manage the hotels. On the 2001
Effective Date, the TRS Lessees entered into new management agreements for the
77 Hotels as follows: Promus Hotels, Inc. ("Promus") for 20 Hotels; Crestline
Hotels & Resorts, Inc. ("Crestline") for two Hotels; and Crossroads Hospitality
Company, L.L.C., an IHC affiliate ("CHC") for 55 Hotels. On the 2002 Effective
Date, the TRS Lessees entered into new management agreements for the 19
AmeriSuites Hotels with Prime's subsidiaries and one of the TRS Lessees also
entered into a new management agreement with Waterford Hotel Group, Inc.
("Waterford") for the Company's hotel in Burlington, Vermont. Rents generated by
the Percentage Leases with the TRS Lessees are eliminated in consolidation,
while actual operating results of all of the Company's hotels leased by the TRS
Lessees are included in the Company's financial statements. Therefore, the
Company's consolidated results of operations with respect to the 77 hotels
managed by Promus, Crestline and CHC from the 2001 Effective Date are not
comparable to 2000 results.
The diversity of the Company's portfolio is such that, at December 31, 2001, no
individual hotel exceeded 2.1% of the total rooms in the portfolio. The
Company's geographical distribution and franchise diversity is illustrated by
the following charts.
3
Franchise Diversity
# of Hotel # of
Franchise Affiliation Properties Rooms/Suites
- --------------------- ---------- --------------
Premium Limited Service Hotels:
Hampton Inn 48 6,030
Hampton Inn & Suites 1 125
Holiday Inn Express 1 101
Comfort Inn 2 245
-- ------
Sub-total 52 6,501
-- ------
All-Suite Hotels:
AmeriSuites 19 2,403
Premium Extended Stay Hotels:
Residence Inn 11 1,351
Homewood Suites 9 1,295
-- ------
Sub-total 20 2,646
-- ------
Full Service Hotels:
Holiday Inn 4 557
Comfort Inn 1 177
-- ------
Sub-total 5 734
-- ------
Total 96 12,284
== ======
4
Geographical Diversity
Number of Number of Percentage of
State Hotels Suites/Rooms Suites/Rooms
- ----- --------- ------------ -------------
Alabama 3 382 3.1%
Arizona 4 495 4.0%
Arkansas 1 123 1.0%
Colorado 3 356 2.9%
Connecticut 3 405 3.3%
Florida 8 1,079 8.8%
Georgia 3 314 2.6%
Idaho 1 104 0.8%
Illinois 3 499 4.1%
Indiana 2 255 2.1%
Kansas 2 260 2.1%
Kentucky 1 119 1.0%
Louisiana 1 128 1.0%
Maryland 2 244 2.0%
Michigan 3 399 3.2%
Minnesota 2 248 2.0%
Missouri 2 242 2.0%
Nebraska 1 80 0.7%
Nevada 1 202 1.6%
New Jersey 3 424 3.5%
New Mexico 1 128 1.0%
New York 1 154 1.3%
North Carolina 5 614 5.0%
Ohio 6 736 6.0%
Oklahoma 1 135 1.1%
Oregon 1 168 1.4%
Pennsylvania 2 249 2.0%
South Carolina 3 404 3.3%
Tennessee 10 1,172 9.5%
Texas 8 1,105 9.0%
Vermont 2 200 1.6%
Virginia 2 245 2.0%
Washington 1 161 1.3%
West Virginia 4 455 3.7%
-- ------ -----
96 12,284 100.0%
== ====== =====
GROWTH STRATEGY
The Company's business objectives are to increase funds from operations and
enhance shareholder value primarily through (i) aggressive asset management and
the strategic investment of capital in its diversified hotel portfolio, (ii)
selectively acquiring hotels that have been underperforming due to the lack of
sufficient capital improvements, poor management or franchise affiliation, and
(iii) selectively disposing of hotels that have reached their earnings potential
or may, in management's judgment, suffer adverse changes in their local market,
or require large capital outlays. Currently, the Company's acquisition and
5
growth strategy has been curtailed due to various factors, including the
difficulty in obtaining equity financing on terms deemed appropriate by
management.
EMPLOYEES
At March 1, 2002, the Company employed, through a wholly-owned subsidiary, 15
employees.
COMPETITION
The hotel industry is highly competitive with various participants competing on
the basis of price, level of service and geographic location. Each of the Hotels
is located in a developed area that includes other hotel properties. The number
of competitive hotel properties in a particular area could have a material
adverse effect on occupancy, average daily rate ("ADR") and Revenue Per
Available Room ("REVPAR") of the Hotels or at hotel properties acquired in the
future. The Company believes that brand recognition, location, the quality of
the hotel, consistency of services provided, and price are the principal
competitive factors affecting the Company's hotels.
FRANCHISE AGREEMENTS
A part of the Company's asset management program is the licensing of all its
Hotels under nationally franchised brands. The Company believes that the
public's perception of quality associated with a franchisor is an important
feature in the operation of a hotel. The Company believes that franchised
properties generally have higher levels of occupancy and ADR than properties
which are unfranchised due to access to national reservation systems and
advertising and marketing programs provided by franchisors.
The Partnership is also committed to franchisors to make certain capital
improvements to hotel properties, which will be funded from borrowings or
working capital. The Partnership made capital improvements of approximately
$22.2 million to its hotel properties in 2001, including approximately $10.3
million in renovations required by franchisors. In 2002, the Partnership expects
to fund approximately $10.0 million of capital improvements for the Hotels.
SEASONALITY
The Hotels' operations historically have been seasonal in nature, generally
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in the Company's quarterly
results of operations.
TAX STATUS
The Company intends to operate so as to be taxed as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As long
as the Company qualifies for taxation as a REIT, with certain exceptions, the
Company will not be taxed at the corporate level on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it distribute
annually at least 90% of its taxable income. Failure to qualify as a REIT will
render the Company subject to tax (including any applicable minimum tax) on its
taxable income at regular corporate rates and distributions to the shareholders
in any such year will not be deductible by the Company. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property. In connection with the Company's
election to be taxed as a REIT, the Company's Charter imposes certain
restrictions on the transfer of shares of Common Stock. The Company has adopted
the calendar year as its taxable year.
6
The RMA, which generally took effect on January 1, 2001, includes several REIT
provisions (the "REIT Provisions") which revised extensively the existing tax
rules applicable to taxable REIT subsidiaries ("TRSs"). Under the REIT
Provisions, the Company is allowed to own all of the stock in TRSs. In addition,
a TRS is allowed to perform "non-customary" services for hotel guests and is
permitted to enter into many new businesses. However, a TRS is not allowed to
manage hotels. Each TRS is required to enter into management contracts for the
Company's hotels with independent third party management companies. The use of
TRSs, however, is subject to certain restrictions, including the following:
o no more than 20% of the REIT's assets may consist of securities of its
TRSs;
o the tax deductibility of interest paid or accrued by a TRS to its
affiliated REIT is limited; and
o a 100% excise tax is imposed on non-arm's length transactions between
a TRS and its affiliated REIT or the REIT's tenants.
As a result of the opportunities offered by the RMA, the Company has terminated
or assigned the Percentage Leases with the Interstate and Prime Lessees and
entered into new Percentage Leases with the TRS Lessees for all the Hotels. On
the 2001 Effective Date, the TRS Lessees entered into new management agreements
with CHC (for 55 Hotels), Promus (for 20 Hotels) and Crestline (for two Hotels).
On the 2002 Effective Date, the TRS Lessees entered into new management
agreements with Prime's subsidiaries for 19 Hotels and with Waterford for the
Company's hotel in Burlington, Vermont.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains or incorporates by reference forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements containing the words, "believes", "anticipates",
"expects" and words of similar import. Such forward-looking statements relate to
future events, the future financial performance of the Company, and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company or industry results
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Readers should
specifically consider the various factors identified, or incorporated by
reference in this report, including the Company's Current Report on Form 8-K
filed on March 25, 2002 and in any other documents filed by the Company with the
Securities and Exchange Commission that could cause actual results to differ.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
ENVIRONMENTAL MATTERS
In connection with the Partnership's acquisition of the Hotels, Phase I
environmental site assessments ("ESAs") were obtained on all of the Hotels. The
Phase I ESAs included historical review of the Hotels, reviews of certain public
records, preliminary investigations of the sites and surrounding properties,
screenings for hazardous and toxic substances and underground storage tanks, and
the preparation and issuance of a written report. The Phase I ESAs did not
include invasive procedures to detect contaminants from former operations on the
Hotels or migrating from neighbors or caused by third parties. The Phase I ESAs
have not revealed any environmental liability that the Company believes would
have a material adverse effect on the Company's business, assets, results of
operations or liquidity, nor is the Company aware of any such liability or
material environmental issues.
7
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers, listed below, serve in their respective
capacities for approximate one year terms and are subject to re-election
annually by the Board of Directors, normally in May of each year.
NAME POSITION
---- --------
Phillip H. McNeill, Sr. Chairman of the Board, Chief Executive Officer
and Director
Howard A. Silver President, Chief Operating Officer and Director
Donald H. Dempsey Executive Vice President, Chief Financial Officer,
Secretary, Treasurer and Director
Phillip H. McNeill, Jr. Executive Vice President of Development
J. Ronald Cooper Vice President, Assistant Secretary, Assistant
Treasurer and Controller
Certain biographical information required under this section for Messrs.
McNeill, Sr., Silver and Dempsey, as directors and executive officers of the
Company, is incorporated by reference from the section entitled "The Election of
Directors" in the Proxy Statement.
Phillip H. McNeill, Jr. (age 40) is Executive Vice President of Development of
the Company. From 1994 to 1996, he served as President of Trust Leasing, Inc.,
formerly McNeill Hotel Co., Inc., the Company's former lessee (the "Former
Lessee"), and from 1984 to 1996 served as Vice President of Trust Management,
Inc., formerly McNeill Hospitality Corporation, which was an affiliate of the
Former Lessee. Mr. McNeill is the son of Phillip H. McNeill, Sr. and holds a
B.B.A. from the University of Memphis and is a graduate of the Northwestern
School of Mortgage Banking.
J. Ronald Cooper (age 53) is Vice President, Assistant Secretary, Assistant
Treasurer and Controller of the Company. From 1994 to 1996, he was Controller
and Director of Financial Reporting for the Former Lessee and joined the Former
Lessee in October 1994. Mr. Cooper has been a certified public accountant
since 1972. From 1978 until joining the Former Lessee, Mr. Cooper was employed
as Secretary, Treasurer and Controller of Wall Street Deli, Inc., a publicly-
owned delicatessen company. Prior to that, Mr. Cooper was a certified public
accountant with the national accounting firm of Coopers & Lybrand L.L.P. from
1970 to 1976. Mr. Cooper holds a B.S. degree in accounting from Murray State
University.
8
ITEM 2. PROPERTIES
The following table sets forth certain information for the year ended December
31, 2001 with respect to the Hotels owned by the Company for such period:
Year Ended December 31, 2001
Revenue
Number Hotel Net Average Per
Date Of Room Operating Daily Available
Opened Rooms Revenue(1) Income (1) Occupancy Rate Room (3)
------ ------- ---------- ---------- --------- ------- ---------
Hotels operated under
management contracts:
- -------------------------
Hampton Inn:
Albany, New York 1986 154 $ 3,784 $1,823 69.3% $97.14 $67.32
Ann Arbor, Michigan 1986 150 2,903 1,307 66.9% $79.74 $53.38
Atlanta (Northlake),
Georgia 1988 130 1,685 461 56.8% $63.01 $35.79
Austin, Texas 1987 122 2,144 913 63.5% $76.38 $48.54
Baltimore (Glen Burnie),
Maryland 1989 116 2,674 1,188 74.3% $85.80 $63.71
Beckley, West Virginia 1992 108 2,107 1,019 78.7% $67.90 $53.44
Birmingham (Mountain
Brook), Alabama 1987 131 2,130 869 65.7% $68.37 $44.89
Birmingham (Vestavia),
Alabama 1986 123 1,703 501 62.4% $60.75 $37.94
Chapel Hill, North
Carolina 1986 122 1,953 749 59.8% $73.29 $43.86
Charleston, South
Carolina 1985 125 1,655 518 61.4% $59.10 $36.27
Chattanooga, Tennessee 1988 168 2,625 834 69.6% $61.84 $43.06
Chicago (Gurnee),
Illinois 1988 134 2,016 763 57.0% $72.33 $41.22
Chicago (Naperville),
Illinois 1987 130 2,603 1,324 72.4% $76.96 $55.71
Cleveland, Ohio 1987 123 1,860 798 61.2% $67.70 $41.44
College Station, Texas 1986 135 2,282 1,014 68.9% $67.67 $46.65
Colorado Springs,
Colorado 1985 128 1,567 510 45.5% $73.65 $33.54
Columbia, South
Carolina 1985 121 1,555 469 55.9% $63.23 $35.34
Columbus, Georgia 1986 119 1,878 796 67.2% $64.91 $43.61
Columbus (Dublin), Ohio 1988 123 2,082 920 60.7% $76.36 $46.37
Dallas (Addison), Texas 1985 160 1,977 645 49.6% $68.72 $34.07
Dallas (Richardson),
Texas 1987 130 2,018 799 58.0% $73.27 $42.52
Denver (Aurora),
Colorado 1985 132 1,634 498 53.8% $63.48 $34.18
Detroit (Madison
Heights), Michigan 1987 124 2,511 1,278 69.1% $80.29 $55.47
Detroit (Northfield),
Michigan 1989 125 2,679 1,283 65.7% $89.41 $58.72
Fayetteville, North
Carolina 1986 122 1,283 351 49.8% $57.86 $28.82
Ft. Worth, Texas 1987 125 1,425 402 53.3% $58.61 $31.24
Gastonia, North
Carolina 1989 109 1,553 583 60.5% $64.51 $39.05
Indianapolis, Indiana 1987 129 2,223 1,002 66.6% $70.89 $47.20
Jacksonville, Florida 1986 122 1,792 549 64.4% $62.62 $40.34
Kansas City (Overland
Park), Kansas 1991 134 2,356 970 65.3% $73.79 $48.16
Kansas City, Missouri 1987 120 2,133 802 63.8% $76.37 $48.69
Knoxville, Tennessee 1991 118 1,745 588 65.4% $61.93 $40.50
Little Rock (North),
Arkansas 1985 123 1,286 233 51.5% $55.63 $28.64
Louisville, Kentucky 1986 119 1,759 708 61.8% $66.10 $40.84
Memphis (Poplar),
Tennessee 1985 126 2,451 1,072 70.2% $76.74 $53.87
Memphis (Sycamore
View), Tennessee 1984 117 1,346 321 55.9% $56.93 $31.80
Meriden, Connecticut 1988 125 2,340 1,105 61.2% $84.48 $51.71
Milford, Connecticut 1986 148 2,995 1,378 66.8% $82.99 $55.43
Morgantown, West
Virginia 1991 108 2,128 1,061 69.2% $78.06 $53.99
Nashville (Briley
Parkway), Tennessee 1987 120 2,152 849 68.1% $72.52 $49.36
Norfolk, Virginia 1990 119 1,911 819 66.4% $66.28 $43.99
Pickwick, Tennessee 1994 50 653 93 52.3% $68.39 $35.79
San Antonio (Bowie),
Texas 1995 169 3,676 1,925 66.8% $89.17 $59.59
Sarasota, Florida 1987 97 1,013 49 43.4% $66.00 $28.61
Scottsdale, Arizona 1996 126 1,868 816 48.5% $83.67 $40.61
9
Year Ended December 31, 2001
Revenue
Number Hotel Net Average Per
Date Of Room Operating Daily Available
Opened Rooms Revenue(1) Income (1) Occupancy Rate Room (3)
------ ------- ---------- ---------- --------- ------- ---------
Hampton Inn (Continued):
Scranton, Pennsylvania 1994 129 2,570 1,116 72.1% $75.71 $54.58
State College,
Pennsylvania 1987 120 2,173 1,028 61.2% $81.04 $49.61
St. Louis (Westport),
Missouri 1987 122 2,012 753 63.9% $70.72 $45.18
Hampton Inn & Suites:
Memphis (Bartlett),
Tennessee 1998 125 2,362 900 73.0% $70.95 $51.76
Comfort Inn:
Dallas (Arlington),
Texas 1985 141 1,283 300 45.8% $54.42 $24.93
Jacksonville Beach,
Florida 1973 177 4,114 1,711 71.9% $88.51 $63.68
Rutland, Vermont 1985 104 1,797 785 64.3% $73.60 $47.35
Residence Inn:
Boise, Idaho 1986 104 2,780 1,229 84.1% $87.07 $73.24
Burlington, Vermont 1988 96 1,861 582 60.2% $88.16 $53.11
Colorado Springs,
Colorado 1984 96 2,327 973 78.6% $84.52 $66.40
Minneapolis (Eagan),
Minnesota 1988 120 2,988 1,477 78.9% $86.44 $68.22
Oklahoma City,
Oklahoma 1982 135 2,873 1,177 75.7% $77.01 $58.30
Omaha, Nebraska 1981 80 2,039 790 80.0% $87.28 $69.82
Portland, Oregon 1990 168 4,147 2,158 66.8% $101.26 $67.64
Princeton, New Jersey 1988 208 6,457 3,610 72.2% $117.78 $85.05
Somers Point,
New Jersey 1988 120 3,795 1,716 78.6% $110.27 $86.64
Tinton Falls, New
Jersey 1988 96 3,636 1,946 83.7% $124.03 $103.76
Tucson, Arizona 1985 128 3,142 1,432 81.7% $82.27 $67.25
Holiday Inn:
Bluefield, West
Virginia 1980 120 1,897 741 64.1% $67.61 $43.32
Charleston (Mt.
Pleasant), South
Carolina 1988 158 1,953 82 42.9% $78.91 $33.86
Oak Hill, West Virginia 1983 119 1,247 303 45.8% $62.71 $28.70
Wilkesboro, North
Carolina 1985 101 1,453 612 62.0% $64.20 $39.80
Winston-Salem, North
Carolina 1969 160 1,630 198 46.4% $60.53 $28.09
Homewood Suites:
Augusta, Georgia 1997 65 1,648 735 75.2% $92.29 $69.45
Chicago, Illinois 1999 235 8,489 3,422 75.8% $131.62 $99.81
Cincinnati
(Sharonville), Ohio 1990 111 2,019 781 60.9% $81.83 $49.83
Hartford, Connecticut 1990 132 4,086 1,985 71.1% $119.35 $84.80
Memphis (Germantown),
Tennessee 1996 92 1,940 650 69.0% $83.76 $57.76
Orlando, Florida 1999 252 6,162 2,443 78.7% $85.10 $66.99
Phoenix, Arizona 1996 124 3,453 1,630 74.9% $101.93 $76.30
San Antonio, Texas 1996 123 2,920 1,199 77.2% $84.30 $65.05
Seattle, Washington 1998 161 4,963 2,588 72.7% $116.19 $84.46
Revenue
Number Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue(1) Payment (1)(2) Occupancy Rate Room (3)
------ ------- ---------- -------------- --------- ------- ---------
Hotels operated under
Percentage Leases:
AmeriSuites:
Albuquerque, New Mexico 1997 128 2,606 1,341 83.5% $66.76 $55.78
Baltimore, Maryland 1996 128 3,386 1,798 79.6% $90.99 $72.47
Baton Rouge, Louisiana 1997 128 2,211 1,144 63.1% $75.07 $47.33
Birmingham, Alabama 1997 128 2,167 1,002 62.5% $74.25 $46.38
10
Year Ended December 31, 2001
Revenue
Number Average Per
Date Of Room Lease Daily Available
Opened Rooms Revenue(1) Payment (1)(2) Occupancy Rate Room (3)
------ ------- ---------- -------------- --------- ------- ---------
AmeriSuites (Continued):
Cincinnati (Blue Ash),
Ohio 1990 127 1,277 837 42.9% $64.17 $27.55
Cincinnati (Forest
Park), Ohio 1992 126 1,765 744 51.3% $74.76 $38.39
Columbus, Ohio 1994 126 2,367 1,061 69.1% $74.52 $51.48
Flagstaff, Arizona 1993 117 1,793 735 66.1% $63.50 $41.99
Indianapolis, Indiana 1992 126 2,283 1,085 60.2% $82.49 $49.63
Jacksonville, Florida 1996 112 1,652 714 62.9% $64.19 $40.40
Las Vegas, Nevada 1998 202 4,659 2,398 78.1% $80.94 $63.19
Kansas City (Overland
Park), Kansas 1994 126 2,222 1,299 61.3% $78.82 $48.30
Memphis (Wolfchase),
Tennessee 1996 128 2,000 991 58.5% $73.15 $42.81
Miami, Florida 1996 126 2,965 1,628 84.5% $76.32 $64.47
Miami (Kendall),
Florida 1996 67 2,147 1,297 83.5% $105.16 $87.78
Minneapolis, Minnesota 1997 128 2,769 1,345 74.3% $79.76 $59.27
Nashville, Tennessee 1997 128 2,134 1,123 63.4% $72.02 $45.68
Richmond, Virginia 1992 126 1,816 1,208 59.3% $66.55 $39.50
Tampa, Florida 1994 126 3,220 1,796 75.2% $93.16 $70.06
------ ------- ------ ------- ------
Consolidated Totals/Weighted
Average for all Hotels 12,284 $233,768 65.50% $79.79 $52.23
====== ======== ===== ====== ======
- ------------------------
(1) Amounts in thousands.
(2) Represents lease payments calculated by applying the rent provisions in
the Percentage Leases to the room revenues of the hotels.
(3) Determined by multiplying occupancy times the ADR.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Partnership currently is involved in any material
litigation nor, to the Company's knowledge, is any material litigation currently
threatened against the Company or the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 2001, through the solicitation of proxies or otherwise.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, $.01 par value (the "Common Stock") is traded on the
New York Stock Exchange (the "NYSE") under the symbol "ENN." The following table
sets forth for the indicated periods the high and low closing prices for the
Common Stock as traded through the facilities of the NYSE and the cash
distributions declared per share:
11
Price Range Distributions
----------- Declared
High Low Per Share Date
-------- ------- ------------- --------------------
Year Ended December 31, 2000:
First Quarter $7-1/16 $6-5/16 $0.31 March 31, 2000
Second Quarter $7 $6-1/8 $0.25 June 30, 2000
Third Quarter $6-15/16 $6-1/8 $0.25 September 30, 2000
Fourth Quarter $6-13/16 $5-1/2 $0.25 December 29, 2000
Year Ended December 31, 2001:
First Quarter $8.22 $6.31 $0.25 March 31, 2001
Second Quarter $9.87 $6.55 $0.25 June 29, 3001
Third Quarter $9.85 $6.01 $0.25 September 28, 2001
Fourth Quarter $8.72 $6.61 $0.00 N/A
(b) Stockholder Information
On March 5, 2002, there were 868 record holders of the Company's Common Stock,
including shares held in "street name" by nominees who are record holders, and
approximately 21,500 beneficial owners.
(c) Distributions
The Company has adopted a policy of paying regular quarterly distributions on
its Common Stock, and cash distributions have been paid on the Company's Common
Stock each quarter since its inception, through the third quarter of 2001. Due
to the economic impact of the events of September 11, 2001 on the lodging
industry, the Company did not declare or pay a dividend for the fourth quarter
of 2001. Earnings and profits, which will determine the taxability of
distributions to shareholders, will differ from net income reported for
financial purposes primarily due to the difference for federal tax purposes in
the estimated lives used to compute depreciation.
The Company expects to pay future quarterly dividends, beginning in the first
quarter of 2002. The amount of future dividends will be based upon operating
results, economic conditions, capital expenditure requirements and leverage
restrictions imposed by the Company's line of credit. Future distributions paid
by the Company will be at its Board of Directors' sole discretion and will
depend on the Company's actual cash flow, its financial condition, capital
requirements, the Code's REIT annual distribution requirements and other
relevant factors.
A portion of the distribution to shareholders is expected to represent a return
of capital for federal income tax purposes which generally will not be subject
to federal income tax under current law. The Company's distributions made in
2001 and 2000 are considered to be approximately 21% and 54% return of capital,
respectively, for federal income tax purposes.
(d) Recent Sales of Unregistered Securities
The Company has no such transactions to report for the year ended December 31,
2001.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company that has been derived from the financial statements of the Company and
the notes thereto. Such data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
all of the financial statements and notes thereto.
EQUITY INNS, INC
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Year Ended December 31,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Operating Data:
Revenue (2) $226,060 $116,810 $117,294 $107,436 $71,095
Net income 10,164 16,340 29,316 31,595 23,543
Preferred stock dividends 6,531 6,531 6,531 3,374
Net income applicable to common
shareholders 3,633 9,809 22,785 28,221 23,543
Income before extraordinary
item per common share .10 .27 .61 .78 .88
Net income per common share,
basic and diluted .10 .27 .61 .78 .82
Distributions declared per
common share and Unit .75 1.06 1.24 1.24 1.14
Weighted average number of
common shares and Units
outstanding-diluted 38,036 37,960 38,570 38,001 29,963
Balance Sheet Data:
Investments in hotel properties,
net $751,891 $772,411 $814,537 $790,132 $617,072
Total assets 778,079 801,743 832,119 807,023 635,525
Debt 384,166 383,403 381,175 331,394 233,206
Minority interest in Partnership 9,512 10,370 12,008 19,070 19,035
Shareholders' Equity 358,164 383,786 412,252 431,264 360,172
Cash Flow Data:
Cash flows provided by
operating activities 68,568 58,010 71,515 69,386 50,402
Cash flows used in investing
activities (20,925) (2,201) (61,899) (193,539) (314,089)
Cash flows provided by (used in)
financing activities (44,077) (55,377) (9,655) 124,363 263,748
Other Data:
Funds from operations (1) $44,646 $53,729 $61,180 $64,985 $45,748
(1) Represents Funds from Operations ("FFO") of the Company on a consolidated
basis. The Company generally considers FFO to be an appropriate measure
of the performance of an equity REIT. In accordance with the resolution
adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), FFO represents net income (loss)
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from sales of property, plus depreciation,
and after adjustment for unconsolidated partnerships and joint ventures.
The Company's computation of FFO may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than the Company. FFO should not be considered an alternative
to net income or other measurements under
13
generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. FFO does not reflect working
capital changes, cash expenditures for capital improvements or principal
payments with respect to indebtedness on the hotels.
(2) During 2000, the Company's revenue was primarily rental income from the
Interstate Lessees and the Prime Lessees. As a result of the termination
of the Interstate leases, beginning in 2001, the Company's consolidated
results of operations reflect hotel-level revenues and operating costs
and expenses for 75 hotels previously leased to the Interstate Lessees
and two additional hotels previously operated under management contracts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company
Equity Inns, Inc. (the "Company") is a self-advised hotel real estate investment
trust ("REIT") for federal income tax purposes. The Company, through its
wholly-owned subsidiary, Equity Inns Trust (the "Trust"), is the sole general
partner of Equity Inns Partnership, L.P. (the "Partnership") and at December 31,
2001 owned an approximate 96.8% interest in the Partnership.
At December 31, 2001, the Partnership and its affiliates owned 96 hotel
properties with a total of 12,284 rooms in 34 states (the "Hotels"). In order to
qualify as a REIT, the Company and the Partnership cannot operate hotels.
Effective January 1, 2001 (the "2001 Effective Date") under the federal REIT
Modernization Act (the "RMA"), the Company and its affiliates (1) terminated or
assigned all existing operating leases providing for payment of percentage rent
(the "Percentage Leases") between the Company and certain affiliates of
Interstate Hotels Corporation ("IHC") leasing 75 of the Hotels (the "Interstate
Lessees") and (2) terminated related lease guaranties with Interstate Hotels,
L.L.C. and Wyndham International, Inc. and (3) entered into new Percentage
Leases with wholly-owned taxable REIT subsidiaries of the Company (the "TRS
Lessees") for the lease of 77 hotels. The terms of the Percentage Leases with
the TRS Lessees are substantially identical to the Percentage Leases terminated
with the Interstate Lessees.
Through December 31, 2001, the Partnership and its affiliates continued to lease
19 AmeriSuites Hotels to wholly-owned subsidiaries (the "Prime Lessees") of
Prime Hospitality Corporation ("Prime"), with all payments due under those
Percentage Leases guaranteed by Prime. Effective as of January 1, 2002 (the
"2002 Effective Date"), the Company and its affiliates terminated (1) the
existing Percentage Leases between the Company and the Prime Lessees and (2) the
related lease guarantees. The Company also entered into new Percentage Leases
with its TRS Lessees for such 19 Hotels, on terms substantially identical to
those of the terminated leases.
Under the RMA, the TRS Lessees are required to enter into management agreements
with eligible independent contractors to manage the hotels. On the 2001
Effective Date, the TRS Lessees entered into new management agreements for the
77 Hotels as follows: Promus Hotels, Inc. ("Promus") for 20 Hotels; Crestline
Hotels & Resorts, Inc. ("Crestline") for two Hotels; and Crossroads Hospitality
Company, L.L.C., an IHC affiliate ("CHC") for 55 Hotels. On the 2002 Effective
Date, the TRS Lessees entered into new management agreements for the 19
AmeriSuites Hotels with Prime's subsidiaries and one of the TRS Lessees also
entered into a new management agreement with Waterford Hotel Group, Inc.
("Waterford") for the Company's hotel in Burlington, Vermont. Rents generated by
the Percentage Leases with the TRS Lessees are eliminated in consolidation,
while actual operating results of all of the Company's hotels leased by the TRS
Lessees are included in the Company's financial statements. Therefore, the
Company's consolidated results of operations with respect to the 77 hotels
managed by Promus, Crestline and CHC from the 2001 Effective Date are not
comparable to 2000 results.
14
Recent Developments
Since its inception, the Company has taken steps to position itself for growth
and stability. Several changes have occurred since December 31, 2000 which add
significantly to these efforts. These events are as follows:
Interest Rate Swaps
On January 16, 2001, the Company entered into an interest rate swap
agreement with a financial institution on a notional principal amount of
$50 million. The agreement effectively fixes the interest rate on floating
rate debt at a rate of 6.4275%, plus 1.5%, 1.75%, 2.0%, 2.25%, 2.5% or
2.75% as determined by the Company's percentage of total debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"), as
defined in the loan agreement for the Line of Credit (the "Percentage").
The swap agreement will expire in October 2003.
Debt Covenant Modifications
In December 2001, the Company negotiated an amendment to its $125 million
secured line of credit (the "Line of Credit"). The amendment modifies
certain of the financial covenants contained in the Line of Credit and is
effective beginning in the fourth quarter of 2001 through the fourth
quarter of 2002. The Line of Credit expires in October 2003.
Action Taken as a Result of RMA Legislation
The Company terminated or assigned all 75 of its Percentage Leases with the
Interstate Lessees effective January 1, 2001. Effective January 1, 2002,
the Company terminated the remaining 19 leases with the Prime Lessees. No
remuneration was exchanged for the termination of the leases. This action
was precipitated by the recent enactment of the RMA, which enables REITs
such as the Company to gain greater control of their properties by
establishing taxable subsidiaries to function as lessees, with hotel
management provided by independent companies.
Results of Operations
During 2000, the Company's revenue was primarily rental income from the
Interstate Lessees and the Prime Lessees. As a result of the termination of the
Interstate leases, beginning in 2001, the Company's consolidated results of
operations reflect hotel-level revenues and operating costs and expenses for 75
hotels previously leased to the Interstate Lessees and two additional hotels
previously operated under management contracts. In order to provide a clearer
understanding and comparability of the Company's results of operations, in
addition to the discussion of the historical results, the Company has presented
an unaudited recap of Percentage Lease revenue which compares the historical
results related to Percentage Lease revenue for the years ended December 31,
2000 and 2001. The Company has also presented the pro forma condensed
consolidated operating results of 77 hotels not subject to third party leases
for the years ended December 31, 2000 and 2001. The pro forma recap of operating
results of the 77 hotels not subject to third party leases for the year ended
December 31, 2000 reflects the termination of the Interstate leases as if it
occurred on January 1, 2000, and a discussion of the results thereof compared to
the Company's historical results for the year ended December 31, 2001.
Because of the significant changes to the Company's structure as a result of the
termination of the Interstate leases effective January 1, 2001, management
believes that a discussion of the Company's 2001 historical results compared to
its 2000 actual results for the properties subject to the Prime Leases (see
"Recap of Percentage Lease Revenue") and pro forma results for the 77 hotels not
subject to third party leases (see "Recap of Operating Results of 77 Hotels Not
Subject to Third Party Leases") is meaningful and relevant to an investor's
understanding of the Company's present and future operations. The 2000 pro forma
adjustments to reflect the termination of the
15
Interstate leases are as follows:
o record hotel-level revenues and expenses and eliminate historical percentage
lease revenue with respect to the 77 properties;
o record the minority interest effect related to the outside ownership in the
Partnership;
o reverse the recording in operations of the deferred lease revenue as a result
of the termination of the Interstate leases; and
o record the tax provision attributable to the income of the TRS Lessees at an
effective tax rate of 38%.
The pro forma financial information does not purport to represent what the
Company's results of operations or financial condition would actually have been
if the transactions had in fact occurred at the beginning of 2000 or to project
the Company's results of operations or financial condition for any future
period. The pro forma financial information is based upon available information
and upon assumptions and estimates that management believes are reasonable under
the circumstances.
The following tables separately set forth a comparison of both the Company's
hotels leased to the Prime Lessees and the hotels leased to the TRS Lessees.
Recap of Percentage Lease Revenue
---------------------------------
(in thousands)
For the Years Ended
December 31,
----------------------
2001 2000
------- -------
Percentage rents collected or due from
Prime Lessee $23,545 $24,992
Recognition of deferred lease revenue from
termination of Interstate leases 1,386
-------- -------
Percentage Lease Revenue $24,931 $24,992
======= =======
Recap of Hotel Revenue and Operating Expenses of 77 Hotels
Not Subject to Third Party Leases
----------------------------------------------------------
(in thousands)
For the Years Ended
December 31,
------------------------
Pro Forma
2001 2000
-------- ---------
Hotel revenue $199,009 $204,146
Hotel operating expenses, including
management fees (121,467) (120,031)
Comparison of the Company's operating results for the year ended December 31,
2001 with the year ended December 31, 2000
The decrease in lease revenue from the 19 hotels leased to the Prime Lessees is
due primarily to a decrease in revenue per available room ("REVPAR") of 7.4%
over the comparable period in 2000. The decrease in hotel revenues from the 77
hotels not subject to third party leases is due to a 2.0% decrease in REVPAR. On
a same store and comparable basis, REVPAR for all hotels owned by the Company
throughout both periods decreased by 3.1% from $54.00 to $52.23. The effect of
the weakened national economy and the dramatic national events that occurred on
September 11, 2001 had a material effect on the Company's REVPAR, particularly
in the fourth quarter, where REVPAR decreased by 8.2%.
16
Other income increased by $1.1 million over the comparable period in 2000. The
Company entered into an agreement with one of its furniture and equipment
contractors to form a joint venture for the purpose of engaging in the sale of
furniture and equipment to third parties. The Company provided certain
management services to its joint venture partner in 2001 and was compensated
$1.1 million for such services.
Hotel operating expenses, on a pro forma basis, increased by $1.4 million. This
increase in expenses for the period is due primarily to increases in sales and
marketing expenses.
On a historical basis, total revenue and total expenses increased $109.2 million
and $122.5 million, respectively in 2001 over 2000 as a result of reporting
hotel operating revenues and expenses in 2001 compared to reporting percentage
lease revenue in 2000 as a result of the aforementioned termination of the
Interstate leases on January 1, 2001.
Real estate and personal property taxes decreased approximately $1.4 million
over the comparable period in 2000 due to successful settlement of several
appeals on 2000 taxes, resulting in significant refunds of taxes paid in 2000.
Depreciation and amortization increased to $41.3 million in 2001 from $40.5
million in 2000, due primarily to capitalized renovation costs at certain
hotels.
Interest expense decreased to $31.0 million from $32.3 million in 2000 due
primarily to a decrease in weighted average interest rates from 8.44% to 8.14%
in 2001.
Amortization of loan costs increased to $2.0 million from $1.7 million in 2000,
reflecting a full year's amortization of costs associated with the refinancing
of a significant amount of the Company's variable rate debt with fixed rate debt
in late 2000.
General and administration expenses decreased by approximately $300,000 over the
comparable period in 2000. This decrease is primarily attributable to a decrease
in legal and professional fees as compared to 2000 which were incurred in the
conversion of the Company's leases to management contracts and to the
establishment of taxable REIT subsidiaries to serve as Lessees.
An impairment of long-lived assets of $550,000 was recorded in 2001 as the
Company made the decision to abandon a project to construct a hotel on an
undeveloped parcel of land in Salt Lake City, Utah and consequently, recorded an
impairment charge to write the land down to its estimated net realizable value
at December 31, 2001.
An allowance for doubtful accounts was established against the Company's notes
receivable from Hudson Hotels Properties Corporation and Rosemont Hospitality
Group, L.L.C. in the amount of $3.3 million based on the Company's current
evaluation of the creditworthiness of these parties. The allowance established
has fully reserved for the notes as of December 31, 2001.
Effective January 1, 2001 the Company leases its hotels to wholly-owned taxable
REIT subsidiaries that are subject to federal and state income taxes. In years
ending before January 1, 2001, the Company was not subject to federal and state
income tax because of its REIT status. Consequently, the Company recorded a
deferred federal income tax benefit in 2001 in the amount of $3.5 million which
is comprised of net operating loss carryforwards generated by the Company's
taxable REIT subsidiaries.
Net income applicable to common shareholders for 2001 was $3.6 million or $0.10
per share, compared to $9.8 million or $0.27 per share for 2000.
17
Comparison of the Company's operating results for the year ended December 31,
2000 with the year ended December 31, 1999
For the year ended December 31, 2000, the Company had total revenue of $116.8
million, consisting substantially of Percentage Lease revenue. This compares
with total revenue of $117.3 million for the year ended December 31, 1999.
Decreases in revenue from hotel operations for the year ended December 31, 2000
as compared to 1999 are due to the recognition in 1999 of $2 million in
percentage revenue applicable to the amendment of the Company's leases with the
Interstate Lessees, partially offset by (i) a .9% increase in REVPAR for
comparable hotels and (ii) a full year of operations in 2000 of two hotels
acquired in 1999.
Real estate and personal property taxes increased over the comparable period in
1999 due primarily to taxes on two large extended stay hotels purchased in
mid-1999 that were not assessed at full value until 2000.
Depreciation and amortization increased to $40.5 million from $38.9 million over
the comparable period in 1999 due primarily to capitalized renovation costs at
certain hotels.
Interest expense increased to $32.3 million from $27.9 million in 1999 due to
(i) an increase in the Company's weighted average outstanding debt to $379.9
million from $362.4 million in 1999 and (ii) an increase in weighted average
interest rates to 8.44% from 7.74% in 1999. The increase in borrowings is due
primarily to costs incurred as a result of refinancing a major portion of the
Company's debt during the year.
Amortization of loan costs increased to $1.7 million from $1.2 million in 1999
as a result of refinancing a significant amount of the Company's variable rate
debt with fixed rate debt.
General and administration expenses increased to $5.6 million, an increase of
$571,000 over 1999. This increase is primarily attributable to legal and
professional fees incurred in the conversion of the Company's leases to
management contracts and the establishment of the TRS Lessees.
Net income applicable to common shareholders for 2000 was $9.8 million or $0.27
per share, compared to $22.8 million or $0.61 per share for 1999.
Liquidity and Capital Resources
The Company's principal source of cash to meet its cash requirements, including
distributions to its shareholders, is its cash distributions from the
Partnership. At December 31, 2001, the Partnership's principal source of revenue
was a combination of lease payments from the hotels leased by the Prime Lessees
and net operating income from the 77 hotels leased by the TRS Lessees, and the
Company's liquidity, including its ability to make distributions to
shareholders, was dependent upon the Prime Lessees' ability to make payments
under the Percentage Leases and upon the cash flow from the 77 hotels leased by
the TRS Lessees. Effective January 1, 2002, the Company's liquidity and ability
to make distributions to its shareholders will be dependent upon the cash flows
from the TRS Lessees.
Cash and cash equivalents were $4,359,000 at December 31, 2001, compared to
$793,000 at December 31, 2000. Excess cash balances are used to reduce the
Company's outstanding debt. For the year ended December 31, 2001, cash flow
provided by operating activities was $68.6 million.
The Company may make additional investments in hotel properties and may incur,
or cause the Partnership to incur, indebtedness to make such investments or to
meet distribution requirements imposed on a REIT under the Internal Revenue Code
of 1986 (the "Code") to the extent that working capital and cash flow from the
Company's investments are insufficient to make such distributions. The Company's
Board of Directors has adopted a policy limiting aggregate indebtedness to 45%
18
of the Company's investment in hotel properties, at cost, after giving effect to
the Company's use of proceeds from any indebtedness. This policy may be amended
at any time by the Board of Directors without shareholder vote. The Company's
consolidated indebtedness was 41.8% of its investments in hotels, at cost, at
December 31, 2001.
At December 31, 2001, the Company's consolidated debt was $384.2 million,
comprised of $70.9 million of Commercial Mortgage Bonds and $211.3 million of
non-recourse mortgage debt. In addition, the Company had $102 million
outstanding under the Line of Credit. The Line of Credit has a borrowing
capacity of $125 million and is due in November 2003. The weighted average
interest rate incurred by the Company in 2001 was 8.14%. Maturities under the
Company's debt in 2002 are approximately $5.1 million.
On January 16, 2001, the Company entered into an interest rate swap agreement
with a financial institution on a notional principal amount of $50 million. The
agreement effectively fixes the interest rate on floating rate debt at a rate of
6.4275% plus 1.50%, 1.75%, 2.00%, 2.25%, 2.50% or 2.75% as determined by the
Percentage. The swap agreement will expire in November 2003.
During 2001, the Company invested $22.2 million, including $10.3 million for
renovations required by franchisors, to fund capital improvements to its hotels,
including replacement of carpets, drapes, renovation of common areas and
improvements of hotel exteriors. In addition, the Company expects to fund
approximately $10.0 million in 2002 for capital improvements.
The Company intends to fund such improvements out of future cash from
operations, present cash balances and borrowings under the Line of Credit. Under
certain of its loan covenants, the Partnership is obligated to fund 4% of room
revenues per quarter on a cumulative basis, to a separate room renovation
account for the ongoing replacement or refurbishment of furniture, fixtures and
equipment at the Hotels. For the years ended December 31, 2001 and 2000, the
amounts expended exceeded the amounts required under the loan covenants.
The Company has elected to be treated as a REIT under the Internal Revenue Code.
Prior to January 1, 2001, the Company, as a REIT, was not subject to federal
income taxes. Under the Tax Relief Extension Act of 1999 that became effective
January 1, 2001, the Company leases its hotels to wholly-owned taxable REIT
subsidiaries that are subject to federal and state income taxes. The Company
accounts for income taxes in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No., 109, "Accounting for Income Taxes."
Under SFAS 109, the Company uses the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
REITs are subject to a number of organizational and operational requirements.
For example, for federal income tax purposes, a REIT, and therefore the Company,
is required to pay distributions of at least 90% of its taxable income to its
shareholders. The Company intends to pay these distributions from operating cash
flows. During 2001, the Partnership distributed an aggregate of $28.5 million to
its partners, or $.75 per Unit (including $27.6 million of distributions to the
Company to fund distributions to shareholders of $.75 per share in 2001). During
2000, the Partnership distributed an aggregate of $40.2 million to its partners,
or $1.06 per share in 2000. For federal income tax purposes, approximately 21%
of 2001 distributions represented a return of capital, compared with
approximately 54% for 2000.
The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations, existing cash balances and, if
necessary, short-term borrowings under the Line of Credit. The Company believes
that its net cash provided by operations will be adequate to fund both operating
requirements and payment of distributions by the Company in accordance with REIT
requirements.
19
The Company expects to meet its long-term liquidity requirements, such as
scheduled debt maturities and property acquisitions, through long-term secured
and unsecured borrowings, the issuance of additional equity securities of the
Company or, in connection with acquisitions of hotel properties, the issuance of
Partnership Units. Under the Partnership's limited partnership agreement (the
"Partnership Agreement"), subject to certain holding period requirements,
holders of Units in the Partnership have the right to require the Partnership to
redeem their Units. During the year ended December 31, 2001, 11,421 Units were
tendered for redemption. Under the Partnership Agreement, the Company has the
option to redeem Units tendered for redemption on a one-for-one basis for shares
of Common Stock or for an equivalent amount of cash. The Company anticipates
that it will acquire any Units tendered for redemption in the foreseeable future
in exchange for shares of Common Stock and, to date, has registered such shares
so as to be freely tradeable by the recipient.
Funds from Operations
The Company generally considers Funds from Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), FFO represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(or losses) from sales of property, plus depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. For the periods presented,
depreciation and minority interest were the Company's only adjustments to net
income for the definition of FFO. The Company's computation of FFO may not be
comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. FFO should not be considered an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash flows
from operating, investing or financing activities as a measure of liquidity. FFO
does not reflect working capital changes, cash expenditures for capital
improvements or principal payments with respect to indebtedness on the hotels.
The following reconciliation of net income to FFO illustrates the difference in
the two measures of operating performance:
For the Years Ended December 31,
2001 2000
------- -------
(in thousands, except per
share and Unit data)
Net income $10,164 $16,340
Less:
Gain on sale of hotel properties (83)
Preferred stock dividends (6,531) (6,531)
Add:
Minority interest 119 337
Depreciation of buildings,
furniture and fixtures 40,977 40,267
Loss on sale of hotel properties 3,316
------- ------
Funds from Operations 44,646 53,729
Add non-recurring items:
Provision for doubtful accounts 2,592
Impairment of long-lived assets 550
------- ------
Recurring Funds From Operations $47,788 $53,729
======= =======
Weighted average number of
common shares and Units
outstanding 38,036 37,960
======= =======
20
Inflation
Operators of hotels in general have the ability to adjust room rates quickly.
However, competitive pressures may limit the Company's ability to raise room
rates in the face of inflation.
Seasonality
Hotel operations historically are seasonal in nature, generally reflecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in the Company's quarterly results of
operations.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") approved SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Asset." The
Statement requires that long- lived assets to be disposed of by sale be
considered held and used until they are disposed of. The Statement requires that
long-lived assets to be disposed of by sale be accounted for under the
requirements of SFAS No. 121 which requires that such assets be measured at the
lower of carrying amount or fair value less cost to sell and to cease
depreciation. SFAS No. 144 requires a probability-weighted cash flow estimation
approach with situations in which alternative courses of action to recover the
carrying amount of a long-lived asset are under consideration or a range of
possible future cash flow amounts are estimated. As a result, discontinued
operations will no longer be measured on a net realizable basis, and future
operating losses will no longer be recognized before they occur. Additionally,
goodwill will be removed from the scope of SFAS No. 144 and as a result will no
longer be required to be allocated to long-lived assets to be tested for
impairment. The Statement is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. The Company is currently not affected by the Statement's
requirements.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company's management to make estimates and judgments that affect the
reported amount of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.
On an on-going basis, all estimates are evaluated by the Company's management,
including those related to bad debts, carrying value of investments in hotel
properties, income taxes, contingencies and litigation. All estimates are based
upon historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers and other borrowers to make
required payments. If the financial condition of its customers or other
borrowers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.
21
The Company records an impairment charge when it believes an investment in
hotels has been impaired such that future undiscounted cash flows would not
recover the book basis of the investment in the hotel property. Future
adverse changes in market conditions or poor operating results of underlying
investments could result in losses or an inability to recover the carrying
value of the investments that may not be reflected in an investment's
carrying value, thereby possibly requiring an impairment charge in the
future.
The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. The Company's
management has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation
allowance. If management determines that the Company will not be able to
realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the
periods such determination was made.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains, or incorporates by reference, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended, including, without
limitation, statements containing the words "believes," "estimates," "projects,"
"anticipates," "expects" and words of similar import. Such forward-looking
statements relate to future events and the future financial performance of the
Company, and involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from the results or achievement expressed or implied
by such forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to certain financial market risks, the most predominant
of which is the fluctuation in interest rates. At December 31, 2001, the
Company's exposure to market risk for a change in interest rates is related
solely to its debt outstanding under the Line of Credit. Total debt outstanding
under the Line of Credit totaled $102 million at December 31, 2001.
The Company's line of credit bears interest at a variable rate of LIBOR plus
1.5%, 1.75%, 2.0%, 2.5% or 2.75% as determined by the Company's percentage of
total debt to earnings before interest, taxes, depreciation and amortization, as
defined in the loan agreement (the "Percentage"). At December 31, 2001, the
interest rate on the line of credit was LIBOR (1.93% at December 31, 2001) plus
2.5%. The Company's interest rate risk objective is to limit the impact of
interest rate fluctuations on earnings and cash flows and to lower its overall
borrowing costs. To achieve this objective, the Company manages its exposure to
fluctuations in market interest rates for its borrowings through the use of
fixed rate debt instruments to the extent that reasonably favorable rates are
obtainable through such arrangements and derivative financial instruments such
as interest rate swaps, to effectively lock the interest rate on a portion of
its variable rate debt. The Company does not enter into derivative or interest
rate transactions for speculative purposes. The Company regularly reviews
interest rate exposure on its outstanding borrowings in an effort to minimize
the risk of interest rate fluctuation.
On January 16, 2001, the Company entered into an interest rate swap agreement
with a financial institution on a notional principal amount of $50 million. The
agreement effectively fixes the interest rate on the first $50 million of
floating rate debt at 6.4275% plus the Percentage. The swap agreement will
expire in November 2003. Thus, at December 31, 2001, the Company had $52 million
of variable rate debt outstanding under the Line of Credit that was exposed to
fluctuations in the market rate of interest.
22
The Company's line of credit matures in November of 2003. As discussed above,
the Company's line of credit bears interest at variable rates, and therefore,
cost approximates market value. As of December 31, 2001, the fair value
liability of the Company's interest rate swap was approximately $2.9 million.
The Company's operating results are affected by changes in interest rates,
primarily as a result of its borrowings under the Line of Credit. If interest
rates increased by 25 basis points, the Company's interest expense would have
increased by approximately $130,000, based on balances outstanding during the
year ended December 31, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements:
The following financial statements are located in this report on the pages
indicated.
Equity Inns, Inc. Page
Report of Independent Accountants 25
Consolidated Balance Sheets as of December 31, 2001 and
2000 26
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 27
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2001, 2000 and 1999 28
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001, 2000, and 1999 29
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000, and 1999 31
Notes to Consolidated Financial Statements 32
Schedule II -- Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000 and 1999 45
Schedule III -- Real Estate and Accumulated Depreciation
as of December 31, 2001 46
23
(b) Supplementary Data:
Quarterly Financial Information
Unaudited quarterly results for 2001 and 2000 are summarized as follows:
First Second Third Fourth
Quarter (1) Quarter (1) Quarter (1) Quarter (1)
----------- ----------- ------------- -----------
2001 (in thousands, except per share data)
Revenue $54,566 $60,569 $58,946 $51,979
Net income (loss) applicable
to common shareholders (390) 5,011 2,576 (3,564)
Net income (loss) per common
share, basic and diluted (.01) .14 .07 (.10)
2000
Revenue $20,332 $20,759 $29,430 $46,289
Net income (loss) applicable
to common shareholders (6,180) (6,499) 3,520 18,968
Net income (loss) per common
share, basic and diluted (.17) (.18) .10 .52
- ------------------
(1) During 2000, the Company's revenue was primarily rental income from the
Interstate Lessees and the Prime Lessees. As a result of the termination of the
Interstate leases, beginning in 2001, the Company's consolidated results of
operations reflect hotel-level revenues and operating costs and expenses for 75
hotels previously leased to the Interstate Lessees and two additional hotels
previously operated under management contracts.
24
Report of Independent Accountants
To the Board of Directors and
Shareholders of Equity Inns, Inc.
In our opinion, the financial statements listed in the accompany index appearing
under item 8(a) on page 23 present fairly, in all material respects, the
financial position of Equity Inns, Inc. at December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompany index appearing under
item 8(a) on page 23 present fairly, in all material respects, the information
set forth therein, when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedules are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
February 7, 2002
25
EQUITY INNS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
2001 2000
------------ ------------
Assets:
Investment in hotel properties, net $751,891 $772,411
Cash and cash equivalents 4,359 793
Accounts receivable, net of doubtful
accounts of $125 2,534
Due from Lessees 162 5,595
Notes receivable, net 739 3,408
Deferred expenses, net 10,820 12,843
Deferred tax asset 3,452
Deposits and other assets 4,122 6,693
-------- --------
Total Assets $778,079 $801,743
======== ========
Liabilities and Shareholders' Equity:
Debt $384,166 $383,403
Accounts payable and accrued expenses 22,225 13,605
Distributions payable 1,089 10,579
Interest rate swap 2,923
Minority interest in Partnership 9,512 10,370
-------- --------
Total Liabilities 419,915 417,957
-------- --------
Commitments and contingencies (Note 9)
Shareholders' Equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
2,750,000 issued and outstanding
at December 31, 2001 and 2000 68,750 68,750
Common stock, $.01 par value,
100,000,000 shares authorized,
37,591,622 and 37,498,659 shares
issued and outstanding at December 31,
2001 and 2000, respectively 376 375
Additional paid-in capital 418,351 417,755
Treasury stock, at cost, 747,600 shares
issued and outstanding at December 31,
2001 and 2000 (5,173) (5,173)
Unearned directors' and officers'
compensation (1,153) (1,854)
Distributions in excess of net earnings (120,064) (96,067)
Unrealized loss on interest rate swap (2,923)
-------- --------
Total Shareholders' Equity 358,164 383,786
-------- --------
Total Liabilities and Shareholders' Equity $778,079 $801,743
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
26
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
2001 2000 1999
-------- -------- --------
Revenue:
Hotel revenues $199,090
Percentage lease revenues 24,931 $115,875 $116,459
Other income 2,039 935 835
-------- -------- --------
Total Revenue 226,060 116,810 117,294
-------- -------- --------
Expenses:
Hotel operating expenses 121,467
Real estate and personal property taxes 12,677 14,085 12,756
Depreciation and amortization 41,327 40,494 38,856
Interest 31,044 32,323 27,947
Amortization of loan costs 1,964 1,749 1,210
General and administrative expenses:
Stock based or non-cash compensation 975 1,007 971
Other general and administrative expenses 5,335 5,641 5,070
Impairment of long-lived assets 550
Provision for doubtful accounts 2,717
Rental expense 1,256 1,518 1,346
-------- -------- --------
Total Expenses 219,312 96,817 88,156
-------- -------- --------
Income before minority interest
and other items 6,748 19,993 29,138
Minority interest (119) (337) (819)
Gain (loss) on sale of hotel properties 83 (3,316) 1,130
Change in accounting for corporate
organizational costs (133)
-------- -------- --------
Income before taxes 6,712 16,340 29,316
Income tax benefit 3,452
-------- -------- --------
Net income 10,164 16,340 29,316
Preferred stock dividends 6,531 6,531 6,531
-------- -------- --------
Net income applicable to common
shareholders $ 3,633 $ 9,809 $ 22,785
======== ======== ========
Net income per common share, basic
and diluted $ .10 $ .27 $ .61
======== ======== ========
Weighted average number of common
shares and units outstanding - diluted 38,036 37,960 38,570
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
27
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For the Years Ended December 31,
2001 2000 1999
------- ------- -------
Net income $10,163 $16,340 $29,316
Unrealized loss on interest rate swap (2,923)
------- ------- -------
Comprehensive income $ 7,240 $16,340 $29,316
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
28
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Unearned
Preferred Stock Common Stock Additional Treasury Stock Directors'
------------------ ------------------- Paid-In ----------------- and Officers'
Shares Dollars Shares Dollars Capital Shares Dollars Compensation
--------- ------- ---------- ------- ---------- ------- -------- -------------
Balance at December 31, 1998 2,750,000 $68,750 36,438,535 $ 364 $407,833 $(2,006)
Issuance of common shares to
officers in lieu of cash bonus 98,824 1 987
Issuance of common shares to
directors in lieu of cash
compensation 9,235 80
Issuance of restricted common
stock to officers and directors 129,800 1 1,259 (1,260)
Repurchase of Treasury Stock 557,300 $(3,883)
Offering expenses (30)
Amortization of unearned officers'
and directors' compensation 891
Issuance of common shares upon
redemption of Units 632,129 7 6,266
Net income applicable to common
shareholders
Distributions ($1.24 per share)
Adjustments to minority interest from
purchase of treasury stock,
issuance of common shares and
partnership units (41)
--------- ------- ---------- ---- -------- ------- ------- -------
Balance at December 31, 1999 2,750,000 68,750 37,308,523 373 416,354 557,300 (3,883) (2,375)
Issuance of common shares to
officers in lieu of cash bonus 38,669 265
Issuance of common shares to
directors in lieu of cash
compensation 12,324 80
Issuance of restricted common
stock to officers and directors 71,450 1 481 (482)
Forfeiting of unvested shares by
an officer, upon resignation (7,010) (76) 76
Repurchase of Treasury Stock 190,300 (1,290)
Unrealized
Distributions Loss on
In Excess of Interest
Net Earnings Rate Swap Total
------------- ----------- --------
Balance at December 31, 1998 $ (43,677) $431,264
Issuance of common shares to
officers in lieu of cash bonus 988
Issuance of common shares to
directors in lieu of cash
compensation 80
Issuance of restricted common
stock to officers and directors 0
Repurchase of Treasury Stock (3,883)
Offering expenses (30)
Amortization of unearned officers'
and directors' compensation 891
Issuance of common shares upon
redemption of Units 6,273
Net income applicable to common
shareholders 22,785 22,785
Distributions ($1.24 per share) (46,075) (46,075)
Adjustments to minority interest from
purchase of treasury stock,
issuance of common shares and
partnership units (41)
--------- ------- --------
Balance at December 31, 1999 (66,967) 412,252
Issuance of common shares to
officers in lieu of cash bonus 265
Issuance of common shares to
directors in lieu of cash
compensation 80
Issuance of restricted common
stock to officers and directors 0
Forfeiting of unvested shares by
an officer, upon resignation 0
Repurchase of Treasury Stock (1,290)
29
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(in thousands, except share and per share data)
Unearned
Preferred Stock Common Stock Additional Treasury Stock Directors'
------------------ ------------------- Paid-In ----------------- and Officers'
Shares Dollars Shares Dollars Capital Shares Dollars Compensation
--------- ------- ---------- ------- ---------- ------- -------- -------------
Amortization of unearned officers'
and directors' compensation 927
Issuance of common shares upon
redemption of Units 74,703 1 675
Net income applicable to common
shareholders
Distributions ($1.06 per share)
Adjustments to minority interest from
purchase of treasury stock,
issuance of common shares and
partnership units (24)
--------- ------- ---------- ---- -------- ------- ------- -------
Balance at December 31, 2000 2,750,000 $68,750 37,498,659 375 417,755 747,600 (5,173) (1,854)
Issuance of common shares to
officers in lieu of cash bonus 39,722 1 245
Issuance of common shares to
directors in lieu of cash
compensation 10,000 77
Issuance of restricted common
shares to officers and directors 31,820 197 (197)
Amortization of unearned officers'
and directors' compensation 898
Issuance of common shares upon
redemption of Units 11,421 97
Net income applicable to common
shareholders
Distributions ($1.24 per share)
Unrealized loss on interest rate swap
Adjustments to minority interest from
issuance of common shares and
partnership units (20)
--------- ------- ---------- ---- -------- ------- ------- -------
Balance at December 31, 2001 2,750,000 $68,750 37,591,622 $376 $418,351 747,600 $(5,173) $(1,153)
========= ======= ========== ==== ======== ======= ======= =======
Unrealized
Distributions Loss on
In Excess of Interest
Net Earnings Rate Swap Total
------------- ----------- --------
Amortization of unearned officers'
and directors' compensation 927
Issuance of common shares upon
redemption of Units 676
Net income applicable to common
shareholders 9,809 9,809
Distributions ($1.06 per share) (38,909) (38,909)
Adjustments to minority interest from
purchase of treasury stock,
issuance of common shares and
partnership units (24)
--------- ------- --------
Balance at December 31, 2000 (96,067) 383,786
Issuance of common shares to
officers in lieu of cash bonus 246
Issuance of common shares to
directors in lieu of cash
compensation 77
Issuance of restricted common
shares to officers and directors 0
Amortization of unearned officers'
and directors' compensation 898
Issuance of common shares upon
redemption of Units 97
Net income applicable to common
shareholders 3,633 3,633
Distributions ($1.24 per share) (27,630) (27,630)
Unrealized loss on interest rate swap $(2,923) (2,923)
Adjustments to minority interest from
issuance of common shares and
partnership units (20)
--------- ------- --------
Balance at December 31, 2001 $(120,064) $(2,923) $358,164
========= ======= ========
The accompanying notes are an integral part of
these consolidated financial statements.
30
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2001 2000 1999
------- ------- -------
Cash flows from operating activities:
Net income $10,164 $16,340 $29,316
Adjustment to reconcile net income to net cash
provided by operating activities:
(Gain) loss on sale of hotel properties (83) 3,316 (1,130)
Depreciation and amortization 41,327 40,494 38,856
Amortization of loan costs 1,964 1,749 1,210
Change in accounting for corporate
organizational costs 133
Amortization of unearned directors' and
officers' compensation 898 927 891
Provision for doubtful accounts 125
Provision for write-off of notes receivable 3,304
Provision for land impairment 550
Directors' stock based compensation 77 80 80
Income tax benefit (3,452)
Minority interest 119 337 819
Changes in assets and liabilities:
Accounts receivable (2,659)
Due from Lessees 5,433 (471) 1,164
Notes receivable 75 (94) (99)
Deferred expenses 5
Deposits and other assets 2,571 (4,929) (1,089)
Accounts payable and accrued expenses 8,155 261 1,359
------- ------- -------
Net cash flow provided by operating
activities 68,568 58,010 71,515
------- ------- -------
Cash flows from investing activities:
Acquisitions of hotel properties (57,188)
Improvements and additions to hotel properties (22,176) (13,602) (32,800)
Cash paid for franchise applications (833) (234)
Proceeds from sale of hotel properties 1,251 12,234 28,323
------- ------- -------
Net cash flow used in investing activities (20,925) (2,201) (61,899)
------- ------- -------
Cash flows from financing activities:
Purchase of treasury stock (1,290) (2,815)
Payment of offering expenses (30)
Distributions paid to common and preferred shareholders
and unit holders (44,550) (49,114) (54,305)
Proceeds from borrowings 44,788 182,467 263,170
Payments on debt (44,025) (180,239) (213,320)
Cash paid for loan costs (290) (7,201) (2,286)
Payments on capital lease obligations (69)
------- ------- -------
Net cash flow used in financing activities (44,077) (55,377) (9,655)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 3,566 432 (39)
Cash and cash equivalents at beginning of year 793 361 400
------- ------- -------
Cash and cash equivalents at end of year $ 4,359 $ 793 $ 361
======= ======= =======
Supplemental cash flow information:
Cash paid for interest $31,426 $32,156 $27,537
The accompanying notes are an integral part of these
consolidated financial statements.
31
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Equity Inns, Inc. (the "Company") is a hotel real estate investment trust
("REIT") for federal income tax purposes. The Company, through its wholly owned
subsidiary, Equity Inns Trust (the "Trust"), is the sole general partner of
Equity Inns Partnership, L.P. (the "Partnership") and at December 31, 2001 owned
an approximate 96.8% interest in the Partnership.
At December 31, 2001, the Partnership and its affiliates owned 96 hotel
properties with a total of 12,284 rooms in 34 states (the "Hotels"). In order to
qualify as a REIT, the Company and the Partnership cannot operate hotels.
Effective January 1, 2001 (the "2001 Effective Date") under the federal REIT
Modernization Act (the "RMA"), the Company and its affiliates (1) terminated or
assigned all existing operating leases providing for payment of percentage rent
(the "Percentage Leases") between the Company and certain affiliates of
Interstate Hotels Corporation ("IHC") leasing 75 of the Hotels (the "Interstate
Lessees") and (2) terminated related lease guaranties with Interstate Hotels,
L.L.C. and Wyndham International, Inc. and (3) entered into new Percentage
Leases with wholly-owned taxable REIT subsidiaries of the Company (the "TRS
Lessees") for the lease of 77 hotels. The terms of the Percentage Leases with
the TRS Lessees are substantially identical to the Percentage Leases terminated
with the Interstate Lessees.
Through December 31, 2001, the Partnership and its affiliates continued to lease
19 AmeriSuites Hotels to wholly-owned subsidiaries (the "Prime Lessees") of
Prime Hospitality Corporation ("Prime"), with all payments due under those
Percentage Leases guaranteed by Prime. Effective as of January 1, 2002 (the
"2002 Effective Date"), the Company and its affiliates terminated (1) the
existing Percentage Leases between the Company and the Prime Lessees and (2) the
related lease guarantees. The Company also entered into new Percentage Leases
with its TRS Lessees for such 19 Hotels, on terms substantially identical to
those of the terminated leases.
Under the RMA, the TRS Lessees are required to enter into management agreements
with eligible independent contractors to manage the hotels. On the 2001
Effective Date, the TRS Lessees entered into new management agreements for the
77 Hotels as follows: Promus Hotels, Inc. ("Promus") for 20 Hotels; Crestline
Hotels & Resorts, Inc. ("Crestline") for two Hotels; and Crossroads Hospitality
Company, L.L.C., an IHC affiliate ("CHC") for 55 Hotels. On the 2002 Effective
Date, the TRS Lessees entered into new management agreements for the 19
AmeriSuites Hotels with Prime's subsidiaries and one of the TRS Lessees also
entered into a new management agreement with Waterford Hotel Group, Inc.
("Waterford") for the Company's hotel in Burlington, Vermont. Rents generated by
the Percentage Leases with the TRS Lessees are eliminated in consolidation,
while actual operating results of all of the Company's hotels leased by the TRS
Lessees are included in the Company's financial statements. Therefore, the
Company's consolidated results of operations with respect to the 77 hotels
managed by Promus, Crestline and CHC from the 2001 Effective Date are not
comparable to 2000 results.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Trust, the TRS Lessees and the Partnership and its affiliates. All significant
intercompany balances and transactions have been eliminated.
32
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Investment in Hotel Properties
The hotel properties are recorded at cost. Depreciation is computed using the
straight-line method over estimated useful lives of the assets which range from
5 to 40 years for buildings and components and 5 to 7 years for furniture and
equipment.
Maintenance and repairs of the leased hotels are the responsibility of the Prime
Lessees; major renewals and improvements are capitalized. Upon disposition, both
the asset and accumulated depreciation accounts are relieved, and the related
gain or loss is credited or charged to the income statement.
If there is an event or a change in circumstances that indicates that the basis
of the Company's investment in the hotel property may not be recoverable, the
Company's policy is to assess any impairment of value. Impairment is evaluated
based upon comparing the sum of the expected future cash flows (undiscounted and
without interest charges) to the carrying value of the asset. If the cash flow
is less, an impairment loss is recognized for the amount by which the carrying
value amount of the asset exceeds the fair value of the asset.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Deferred Expenses
Deferred expenses are recorded at cost and consist of initial fees paid to
franchisors and loan fees and other costs incurred in issuing debt. Amortization
of franchise fees is computed using the straight-line method over the lives of
the franchise agreements which range up to 20 years. Amortization of loan fees
and other costs incurred in issuing debt is computed using the straight-line
method, which approximates the interest method, over the term of the related
debt. Accumulated amortization of deferred expenses totaled $5.2 million and
$2.9 million at December 31, 2001 and 2000, respectively.
Deposits and Other Assets
Deposits include escrow deposits and other deposits relating to the Company's
mortgage debt.
Revenue Recognition
Percentage Lease revenue is recognized when earned from the Prime Lessees under
the Percentage Leases from the date of acquisition of each hotel property.
Revenue from operations of the Company's hotels not leased to third parties is
recognized when the services are provided.
33
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Net Income Per Common Share
Basic earnings per common share is computed by dividing net income less
dividends on preferred stock by the weighted average number of shares of common
stock and units outstanding. Diluted earnings per common share are computed by
dividing net income less dividends on preferred stock and units as adjusted for
potential dilutive securities, by the weighted average number of shares of
common stock outstanding plus other potentially dilutive securities.
Potential dilutive securities included in the Company's calculation of diluted
earnings per share include the potential conversion of partnership units and the
related elimination of minority interest. Potentially dilutive shares for the
purposes of this calculation (in thousands) were 1,203, 1,262 and 1,345 in 2001,
2000 and 1999, respectively. Minority interest eliminated for the purposes of
this calculation (in thousands) was $119, $337 and $819 in 2001, 2000 and 1999,
respectively.
Distributions
With the exception of the fourth quarter of 2001, the Company has paid regular
quarterly cash distributions to shareholders. These distributions are dependent
upon receipt of distributions from the Partnership.
Minority Interest
Minority interest in the Partnership represents the limited partners'
proportionate share of the equity of the Partnership. Income is allocated to
minority interest based on weighted average percentage ownership throughout the
year.
Income Taxes
The Company has elected to be treated as a REIT under the Internal Revenue Code.
Prior to January 1, 2001, the Company, as a REIT, was not subject to federal
income taxes. Under the Tax Relief Extension Act of 1999 that became effective
January 1, 2001, the Company leases its hotels to wholly-owned taxable REIT
subsidiaries that are subject to federal and state income taxes. The Company
accounts for income taxes in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS 109, the Company uses the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from net income reported for financial reporting
purposes primarily due to the differences for federal income tax purposes in the
estimated useful lives and methods used to compute depreciation. Distributions
made to shareholders in 2001, 2000 and 1999 are considered to be approximately
21%, 54% and 33% return of capital, respectively, for federal income tax
purposes.
34
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Concentration of Credit Risk
The Company maintains cash balances with financial institutions with high
ratings. The Company has not experienced any losses with respect to bank
balances in excess of government-provided insurance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
commercial mortgage bonds, line of credit borrowings, mortgage borrowings and an
interest rate swap contract. The carrying values of the Company's commercial
mortgage bonds and mortgage borrowings were estimated using discounted cash flow
analysis, based on the Company's incremental borrowing rate at December 31, 2001
and 2000 for similar types of borrowing arrangements and the carrying value of
such instruments are estimated to be above fair value by approximately $7.9
million and $3.5 million at December 31, 2001 and 2000, respectively. The
Company's line of credit borrowings bear interest at variable rates and
therefore cost approximates market value. The Company's interest rate swap
contract is carried at fair value in the financial statements. The fair value of
the interest rate swap is estimated using quotes from the market makers of these
instruments and represents the estimated amount the Company would expect to pay
to terminate the agreement.
Segment Reporting
The Company identifies its operating segments based on business activities and
management responsibility. The Company operates in a single business segment of
providing asset management to hotel properties it owns in the United States.
35
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Investment in Hotel Properties
Hotel properties consist of the following at December 31:
2001 2000
-------- --------
(in thousands)
Land $101,215 $101,532
Buildings and improvements 705,097 691,516
Furniture and equipment 110,340 110,458
Construction in progress 2,167 3,490
-------- --------
918,819 906,996
Less accumulated depreciation (166,928) (134,585)
-------- ---------
$751,891 $772,411
======== ========
In July 1998, the Company acquired an undeveloped parcel of land in Salt Lake
City, Utah for the purpose of constructing a hotel. During the fourth quarter of
2001, the Company made the decision to abandon the project and sell the
undeveloped land. The Company recorded an impairment charge of $550,000 to write
the land down to its estimated net realizable value at December 31, 2001. At
December 31, 2001 and 2000, the parcel of land was included in construction in
progress in the amount of $2.2 million and $2.7 million, respectively.
4. Notes Receivable
Notes receivable consist of the following at December 31:
2001 2000
------ ------
(in thousands)
Hudson Hotels Properties Corporation, a
subsidiary of Hudson Hotels Corporation $2,654 $2,634
Rosemont Hospitality Group, L.L.C. 650 141
Officers of the Company 739 633
------ ------
4,043 3,408
Allowance for doubtful accounts (3,304)
------ ------
$ 739 $3,408
====== ======
The note with Hudson Hotels Properties Corporation ("Hudson") is collateralized
by 666,667 shares of Hudson Hotels Corporation's common stock. The note with
Rosemont Hospitality Group, L.L.C. ("Rosemont") is uncollateralized. The Company
has determined that based on its current evaluation of the creditworthiness of
Hudson and Rosemont, it is probable that Hudson and Rosemont will be unable to
repay their notes. Consequently, the Company has fully reserved the notes as of
December 31, 2001.
Since January 1998, the Company has advanced loans annually to its executive
officers for taxes relating to annual bonuses taken in shares of the Company's
common stock. At December 31, 2001, the aggregate amount of notes receivable
from officers of the Company is $738,911. In January 2002, the Company
36
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Notes Receivable, (Continued)
advanced loans to its officers in the amount of $407,633 for taxes relating to
2001 bonuses taken in shares of common stock. All loans are collateralized by
all shares of common stock received as bonus compensation held by each officer,
are non-interest bearing and have an original term of one year. However, these
notes have historically been extended an additional year for each year in which
they are not repaid. All loans are due in full upon termination of employment or
upon retirement.
5. Debt
The following details the Company's debt outstanding at December 31, 2001 and
2000 (in thousands):
Principal Balance Collateral Net Book
----------------------- Interest # of Value at
12/31/01 12/31/00 Rate Maturity Hotels 12/31/01
-------- -------- ------------- -------- ----------- --------
Commercial Mortgage Bonds
Class A $ 10,336 $ 12,084 6.83% Fixed 11/20/06
Class B 50,600 50,600 7.37% Fixed 12/20/15
Class C 10,000 10,000 7.58% Fixed 02/20/17
-------- --------
70,936 72,684 21 $118,492
Line of Credit 102,000 96,525 LIBOR plus Variable Oct 2003 28 257,300
Percentage
Mortgage 94,031 95,360 8.37% Fixed July 2009 19 168,476
Mortgage 68,808 69,653 8.25% Fixed Nov 2010 16 109,891
Mortgage 35,550 35,964 8.25% Fixed Nov 2010 8 60,355
Mortgage 3,064 3,126 8.50% Fixed Nov 2005 1 7,156
Mortgage 5,872 6,062 10.00% Fixed Sept 2005 1 11,772
Mortgage 3,905 4,029 8.57% Fixed Nov 2016 1 8,039
-------- -------- --------
$384,166 $383,403 $741,481
======== ======== ========
In February 1997, the Company, through a subsidiary, issued $88 million of rated
Commercial Mortgage Bonds (the "Bonds") in a private placement transaction.
Principal payments are to be applied to each class of Bonds in order of their
respective maturities with no principal payment on any Bond until all Bonds in a
bond class with an earlier stated maturity have been paid in full. The Company
has the option to repay these Bonds in full within 10 years with no prepayment
penalty.
The Company's secured line of credit (the "Line of Credit") has a borrowing
capacity of $125 million and bears interest at a variable rate of LIBOR plus
1.5%, 1.75%, 2.0%, 2.25%, 2.5% or 2.75% as determined by the Company's
percentage of total debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA"), as defined in the loan agreement (the "Percentage").
The Percentage is reviewed quarterly and the interest rate is adjusted as
necessary. At December 31, 2001, the interest rate on the Line of Credit was
LIBOR (1.93% at December 31, 2001) plus 2.50%. Fees ranging from .25% to .55%,
as determined by the Company's ratio of total indebtedness to EBITDA, are paid
quarterly on the unused portion of the Line of Credit. The Line of Credit
contains various covenants including the maintenance of a minimum net worth,
minimum debt coverage and interest coverage ratios, and total indebtedness
limitations. At December 31, 2001, the Company was in compliance with all
covenants contained in the Line of Credit.
37
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Debt, Continued
Certain of the Company's loan agreements require a quarterly deposit into
separate room renovation accounts for the amount by which 4% of revenues at the
Company's hotels exceeds the amount expended by the Company during the year for
replacement of furniture, fixtures and equipment and capital improvements for
the hotels. For the year ended December 31, 2001, actual expenditures exceeded
the amounts required.
Future scheduled principal payments of debt obligations at December 31, 2001 are
as follows (in thousands):
Year Amount
---- ---------
2002 $ 5,100
2003 107,520
2004 5,927
2005 14,111
2006 6,699
Thereafter 244,809
--------
$384,166
========
6. Interest Rate Swap Contract
Effective January 16, 2001, the Company entered into an interest rate swap
agreement with a financial institution on a notional amount of $50 million. The
agreement effectively fixes the interest rate on the first $50 million of
floating rate debt outstanding under the Line of Credit at a rate of 6.4275%
plus the Percentage, thus reducing exposure to interest rate fluctuations. The
notional amount does not represent amounts exchanged by the parties, and thus is
not a measure of exposure to the Company. The term of the interest rate swap
agreement is through October 2003. The differences to be paid or received by
the Company under the interest rate swap agreement are recognized as an
adjustment to interest expense. The agreement is with a major financial
institution, which is expected to fully perform under the terms of the
agreement.
Effective January 1, 2001, the Company adopted SFAS 133. The interest rate swap
agreement described above is defined as a derivative instrument under SFAS 133.
The Company designated this swap agreement as a cash flow hedge and has applied
hedge accounting since its inception. Accordingly, the Company has recorded the
change in fair value of this agreement from inception to December 31, 2001 in
other comprehensive income.
7. Income Taxes
In years ending before January 1, 2001, the Company was not subject to federal
and state income tax because of its REIT status. Under the provisions of the Tax
Relief Extension Act of 1999 that became effective January 1, 2001, the Company
began leasing hotels to wholly-owned taxable REIT subsidiaries (TRSs) which are
subject to federal and state income taxes.
In order to qualify for REIT status under the Internal Revenue Code, the Company
must meet several requirements. One of these requirements is that the Company
must distribute at least 90% (95% for taxable years ending before January 1,
2001) of its taxable income in the form of a dividend to
38
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes, Continued
its shareholders. Generally, a REIT is not subject to federal taxes on the
income it distributes currently to its shareholders. If the Company fails to
meet the REIT qualification tests, it will be subject to federal (including any
alternative minimum tax) and state income tax and may not qualify as a REIT for
subsequent taxable years. Management intends for the Company to continue to meet
all of the REIT requirements.
The components of income tax expense (benefit) for the year ended December 31,
2001 are as follows:
Deferred:
Federal $(3,089)
State (363)
-------
Income tax benefit $(3,452)
=======
The deferred income tax benefit and related deferred tax asset was calculated
using an effective tax rate of 38% applied to the loss of the TRSs. The Company
believes that the TRSs will generate sufficient future taxable income to realize
in full this deferred tax asset. Accordingly, no valuation allowance has been
recorded at December 31, 2001.
A reconciliation of the Company's statutory tax rate to its effective tax rate
is as follows:
Statutory U.S. federal income tax rate 35%
State income tax (net of federal benefit) 3%
Non taxable REIT income (89%)
----
Effective tax rate (51%)
====
The following table reconciles GAAP net income and REIT taxable income for the
years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
------- ------- -------
GAAP net income (loss) $ 3,633 $ 9,809 $22,785
Plus GAAP net loss on taxable subsidiaries
included above 5,635 - 0
------- ------- -------
GAAP net income from REIT operations 9,268 9,809 22,785
Book/tax differences on depreciation and
amortization 8,269 3,240 (2,005)
Book/tax differences on gains/losses from
capital transactions 874 300 (767)
Guaranteed payment 6,531 6,531 6,531
Write-off of notes receivable 2,560 - -
Other book/tax differences, net (396) 361 343
------- ------- -------
Taxable income subject to distribution
requirement $27,106 $20,241 $26,887
======= ======= =======
39
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Related Party Transactions
All of the Company's hotels are operated under franchise agreements and are
licensed as Hampton Inn hotels (48), AmeriSuites hotels (19), Residence Inn
hotels (11), Homewood Suites hotels (9), Holiday Inn hotels (5), Comfort Inn
hotels (3), and Hampton Inn & Suites hotels (1). The franchisors approve the
transfer of the franchise licenses to the applicable lessee when the Partnership
acquires each hotel property. The franchise agreements require the payment of
fees based on a percentage of hotel room revenue.
The Company earned base rents of $20.1 million, $77.2 million, and $77.0 million
and percentage rents in excess of base rents of $4.8 million, $38.7 million, and
$39.5 million, respectively, for the years ended December 31, 2001, 2000 and
1999. The Percentage Lease revenue is based on a percentage of gross room
revenue, and, if applicable, food and beverage revenue of the hotels.
The Company's management agreements range in terms from 2 to 10 years. The
management fees consist of a base fee of 1-2% of gross receipts and an incentive
fee as defined by the management agreements. Base fees of $2.7 million and
incentive fees of $600,000 were earned by the management companies in 2001 and
are included in hotel operating expenses in the consolidated statement of
operations.
Under the Percentage Leases, the Partnership is obligated to pay the costs of
real estate and personal property taxes and to maintain underground utilities
and structural elements of the Hotels. In addition, the Percentage Leases
obligate the Partnership to fund the cost of periodic repair, replacement and
refurbishment of furniture, fixtures and equipment in the Hotels. The Company
also may be required by franchisors to fund certain capital improvements to
hotel properties, which are funded from borrowings, working capital, or the room
renovation account (Note 5). Capital improvements of $22.2 million, $13.6
million and $32.8 million in 2001, 2000, and 1999, respectively, were made to
the hotel properties.
Effective January 1, 2002, the Company formed a joint venture (the "Venture")
with one of its furniture and equipment contractors for the purpose of engaging
in the sale of furniture and equipment to third parties. The Company has a 45%
interest, and certain of its executive officers have a 5% interest in the
Venture. The Company will account for the Venture under the equity method of
accounting. The Company will provide certain management services for the Venture
for a fee of $550,000 in 2002. The Company provided similar services to its
joint venture partner in 2001 and was compensated $1.1 million for such services
which is included in other income in the consolidated statement of operations.
The Company has commitments under operating land leases through December 31,
2062, at eight hotel properties for payments as follows: 2002 -- $795,888; 2003
- -- $798,388; 2004 -- $801,138; 2005 -- $743,863; 2006 -- $622,234; thereafter --
$9.7 million.
The Company has commitments under a lease with an affiliate of Phillip H.
McNeill, Sr., the Company's Chairman of the Board, for the Company's office
space through December 2008 at monthly payments of $13,238.
9. Supplemental Disclosure of Noncash Operating, Investing and
Financing Activities
In 2001, the Company issued 39,722 shares of Common Stock valued at $6.62 per
share to its officers in lieu of cash to satisfy bonus compensation accrued at
December 31, 2000; 11,421 units of limited partnership interest in the
Partnership ("Units") were exchanged for shares of Common Stock by certain
limited partners; 31,820 restricted shares of Common Stock valued at $6.19 per
40
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Supplemental Disclosure of Noncash Operating, Investing and
Financing Activities, Continued
share were issued to the Company's officers; 10,000 shares of Common Stock at
prices ranging from $6.19 to $9.80 per share were issued to independent
directors of the Company in lieu of cash as directors' compensation.
The Company transferred $711,000 of deferred gain related to a transaction with
Hudson to its allowance for doubtful accounts on its note receivable from Hudson
(see Note 4).
In 2000, $145,000 of deferred franchise fees and corresponding payables were
determined not to be owed; the Company issued 38,669 shares of Common Stock
valued at $6.88 per share to its officers in lieu of cash to satisfy bonus
compensation accrued at December 31, 1999; 7,010 unvested, restricted shares of
common stock were forfeited by an officer of the Company; 74,703 Units were
exchanged for shares of Common Stock by certain limited partners; 71,450
restricted shares of Common Stock valued at $6.75 per share were issued to the
Company's officers; 12,324 shares of Common Stock at prices ranging from $5.50
to $6.88 per share were issued to independent directors of the Company in lieu
of cash as directors' compensation; and $9.5 million in distributions to common
shareholders and limited partners had been declared but not paid at December 31,
2000.
In 1999, the Company issued 98,824 shares of Common Stock valued at $10.00 per
share to its officers in lieu of cash to satisfy bonus compensation accrued at
December 31, 1998; 632,129 Units were exchanged for shares of Common Stock by
certain limited partners; 124,800 restricted shares of Common Stock valued at
$9.75 per share were issued to the Company's officers; 5,000 restricted shares
of Common Stock valued at $8.69 per share were issued to the Company's
independent directors; 9,235 shares of Common Stock at prices ranging from $6.31
to $9.63 were issued to independent directors of the Company in lieu of cash as
directors' compensation; 157,300 treasury shares valued at $6.79 per share were
traded in December 1999, but not settled at December 31, 1999; and $11.8 million
in distributions to common shareholders and limited partners had been declared
but not paid at December 31, 1999.
10. Capital Stock
The Board of Directors is authorized to provide for the issuance of up to ten
million shares of preferred stock in one or more series, to establish the number
of shares in each series and to fix the designation, powers, preferences, and
rights of each such series and the qualifications, limitations or restriction
thereof. On June 25, 1998, the Company issued 2,750,000 shares of its 9 1/2%
Series A Cumulative Preferred Stock, $.01 par value ("Series A Preferred
Stock"). The offering price was $25 per share, resulting in gross proceeds of
$68.8 million. The Company received approximately $66.3 million after
underwriters' discounts and offering expenses.
The outstanding Units are redeemable at the option of the holder for a like
number of shares of Common Stock, or at the option of the Company, the cash
equivalent thereof. Total Units outstanding at December 31, 2001 and 2000 were
1,198,650 and 1,210,071, respectively.
11. Stock Based Compensation Plans
The Company is authorized, under the 1994 Stock Incentive Plan (the "1994 Plan")
and the Directors' Compensation Plan (the "Directors Plan") (referred to
collectively as the "Plans"), to issue a total of 4,050,000 shares of common
41
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock Based Compensation Plans, Continued
stock to directors, officers and key employees of the Company in the form of
stock options, restricted stock, or performance stock. Under the 1994 Plan, the
total shares available for grant is 4,000,000, of which not more than 1,100,000
shares may be grants of restricted stock or performance stock. Under the
Directors Plan, the total shares available for grants of options is 50,000.
Awards of common stock may also be made, and directors may elect to receive
their meeting and retainer fees in the form of common stock.
Stock Options
All options to officers and key employees have 8 to 10 year contractual terms
and generally vest ratably over 5 years. A summary of the Company's stock
options as of December 31, 2001, 2000 and 1999 and the changes during the years
are presented below:
2001 2000 1999
------------------------- ------------------------ ------------------------
Weighted Weighted Weighted
# of Shares Average # of Shares Average # of Shares Average
of Underlying Exercise of Underlying Exercise of Underlying Exercise
Options Price Options Price Options Price
------------- -------- ------------- -------- ------------- --------
Outstanding at beginning
of year 586,000 $12.56 582,000 $12.60 568,000 $12.68
Granted 4,000 $ 9.32 4,000 $ 6.88 14,000 $ 9.24
Exercised
Forfeited
------- ------ ------- ------ ------- ------
Outstanding at end of year 590,000 $12.54 586,000 $12.56 582,000 $12.60
Exercisable at end of year 561,000 $12.54 529,000 $12.58 505,000 $12.55
Options Outstanding Options Exercisable
---------------------------------------- --------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
# Outstanding Remaining Exercise # Exercisable Remaining Exercise
Range of Exercise Prices at 12/31/01 Life Price at 12/31/01 Life Price
- ------------------------ -------------- --------- --------- ------------- --------- --------
$8.69 -- $13.69 590,000 1.71 $12.54 561,000 1.53 $12.54
The Company applies APB Opinion No. 25 and related interpretations in accounting
for the plans as permitted by FASB Statement No. 123. Consequently, no
compensation cost has been recognized under the Plans.
For the purposes of disclosures required by FASB Statement No. 123, the fair
value of each option granted during 2001, 2000 and 1999 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend of $0.75 for 2001, dividend of $1.06 for 2000 and
$1.24 for 1999; (2) expected volatility of .24 for 2001, .21 for 2000 and .19
for 1999; (3) a risk-free interest rate of 5.0% for 2001, 6.3% for 2000 and 6.0%
for 1999; and (4) expected life of six years for 2001, six years for 2000, ten
years for 1999.
42
EQUITY INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock Based Compensation Plans, Continued
Had compensation cost for the Company's 2001, 2000 and 1999 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's pro forma net income, and net income per common share for 2001, 2000
and 1999 would have decreased less than 1%.
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of the future effect, since additional SFAS 123 awards in future years are
anticipated.
Restricted Stock
A summary of the status of the Company's restricted stock grants made under the
Plans to officers and directors as of December 31, 2001, 2000 and 1999 and the
changes during the years are presented below:
2001 2000 1999
---------------------------- ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Fair Market Fair Market Fair Market
# of Value at # of Value at # of Value at
Shares Grant Shares Grant Shares Grant
--------- ----------- ------- ----------- ------ -----------
Outstanding at beginning
of year 386,300 $11.23 323,300 $11.64 193,500 $12.92
Granted:
With 5 year pro rata vesting 21,820 $ 6.19 51,450 $ 6.75 91,400 $ 9.69
With 4 year pro rata vesting
With 3 year pro rata vesting 10,000 $ 6.19 20,000 $ 6.75 38,400 $ 9.75
------- ------ ------- ------ ------- ------
Total granted 31,820 $ 6.19 71,450 $ 6.75 129,800 $ 9.71
Vested to former employee (1,440) $11.83
Forfeited (7,010) $10.93
------- ------ ------- ------ ------- ------
Outstanding at end of year 418,120 $10.40 386,300 $10.75 323,300 $11.64
Vested at end of year 218,086 $11.56 141,240 $12.06 71,300 $12.42
12. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") approved SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Asset." The
Statement requires that long- lived assets to be disposed of by sale be
considered held and used until they are disposed of. The Statement requires that
long-lived assets to be disposed of by sale be accounted for under the
requirements of SFAS No. 121 which requires that such assets be measured at the
lower of carrying amount or fair value less cost to sell and to cease
depreciation. SFAS No. 144 requires a probability-weighted cash flow estimation
approach with situations in which alternative courses of action to recover the
carrying amount of a long-lived asset are under consideration or a range of
possible future cash flow amounts are estimated. As a result, discontinued
operations will no longer be measured on a net realizable basis, and future
operating losses will no longer be recognized before they occur. Additionally,
goodwill will be removed from the scope of SFAS No. 144 and as a result will no
longer be required to be allocated to long-lived assets to be tested for
impairment. The Statement is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. The Company is currently not affected by the Statement's
requirements.
43
13. Subsequent Events
On the 2002 Effective Date, the Company terminated all 19 of its Percentage
Leases with the Prime Lessees. No remuneration was exchanged for the termination
of the leases. This action was precipitated by the recent enactment of the RMA,
which enables REITs such as the Company to gain greater control of their
properties by establishing taxable subsidiaries to function as lessees, with
hotel management provided by independent companies. On the 2002 Effective Date,
the Company entered into leases with the TRS Lessees for the 19 hotels, and the
TRS Lessees entered into management contracts on 19 of its hotels with
affiliates of Prime, which will expire on December 31, 2007 for 10 hotels and on
June 30, 2008 for 9 hotels. On the 2002 Effective Date, one of the TRS Lessees
also entered into a new management agreement with Waterford for the Company's
hotel in Burlington, Vermont for a term ending on December 31, 2003.
On January 25, 2002, the Company issued 51,704 shares of common stock valued at
$6.62 per share to its officers in lieu of cash to satisfy bonus compensation
accrued at December 31, 2001.
44
EQUITY INNS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands)
Allowance
for Doubtful
Account
-------------
Balance January 1, 1999 $ 0
Charged to costs and expenses -
Charged to other accounts -
Deductions -
------
Balance December 31, 1999 0
Charged to costs and expenses -
Charged to other accounts -
Deductions -
------
Balance December 31, 2000 0
Charged to costs and expenses 2,717
Charged to other accounts 712
Deductions -
------
Balance December 31, 2001 $3,429
======
45
EQUITY INNS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2001
(In Thousands)
Cost Capitalized Subsequent Gross Amount at Which
Initial Cost to Acquistion Carried at Close of Period Buildings
------------------------------- --------------------------- ----------------------------------------
Furniture Buildings Furniture Buildings Furniture
and and and and and
Description of Property Land Improvements Fixtures Land Improvements Fixtures Land Improvements Fixtures Total
- ----------------------- -------- ------------ --------- ---- ------------ --------- ------- ------------- --------- --------
Hampton Inn- Albany, New York $ 953 $ 9,897 $ 802 $ 618 $ 116 $ 953 $ 10,515 $ 918 $ 12,386
Hampton Inn-Cleveland, Ohio 820 4,428 217 678 375 820 5,106 592 6,518
Hampton Inn-College Station,
Texas 656 4,655 671 866 380 656 5,521 1,051 7,228
Hampton Inn-Columbus, Georgia 603 2,591 787 802 274 603 3,393 1,061 5,057
Hampton Inn-Ft. Worth, Texas 385 1,754 896 957 289 385 2,711 1,185 4,281
Hampton Inn-Louisville, Kentucky 395 2,406 919 722 238 395 3,128 1,157 4,680
Hampton Inn-Sarasota, Florida 553 3,389 753 760 210 553 4,149 963 5,665
Hampton Inn-Ann Arbor, Michigan 565 4,499 506 685 526 565 5,184 1,032 6,781
Hampton Inn-Gurnee, Illinois 630 3,397 277 1,046 748 630 4,443 1,025 6,098
Comfort Inn-Arlington, Texas 425 6,387 582 631 452 425 7,018 1,034 8,477
Residence Inn-Eagan, Minnesota 540 8,130 652 1,435 813 540 9,565 1,465 11,570
Residence Inn-Tinton Falls,
New Jersey 7,711 419 953 653 8,664 1,072 9,736
Hampton Inn-Milford,
Connecticut 759 5,689 467 891 773 759 6,580 1,240 8,579
Hampton Inn-Meriden, Connecticut 648 3,226 435 774 431 648 4,000 866 5,514
Hampton Inn-Beckley, West
Virginia 1,876 5,557 402 610 52 1,876 6,167 454 8,497
Holiday Inn-Bluefield, West
Virginia 1,661 6,141 342 1,578 1,260 1,661 7,719 1,602 10,982
Hampton Inn-Gastonia, North
Carolina 1,651 4,741 358 284 611 1,651 5,025 969 7,645
Hampton Inn-Morgantown, West
Virginia 1,573 4,311 324 $4 187 351 1,577 4,498 675 6,750
Holiday Inn-Oak Hill, West
Virginia 269 3,727 85 1.628 1,191 269 5,355 1,276 6,900
Holiday Inn Express-Wilkesboro,
North Carolina 269 2,778 177 1,147 655 269 3,925 832 5,026
Hampton Inn-Naperville, Illinois 678 6,455 396 913 744 678 7,368 1,140 9,186
Hampton Inn-State College,
Pennsylvania 718 7,310 525 423 473 718 7,733 998 9,449
Comfort Inn-Rutland, Vermont 359 3,683 354 355 322 359 4,038 676 5,073
Hampton Inn-Scranton,
Pennsylvania 403 7,017 720 227 353 403 7,244 1,073 8,720
Residence Inn-Omaha, Nebraska 953 2,650 162 6 1,773 853 959 4,423 1,015 6,397
Hampton Inn-Fayetteville, North
Carolina 403 5,043 148 17 800 880 420 5,843 1,028 7,291
Hampton Inn-Indianapolis,
Indiana 1,207 6,513 126 597 1,147 1,207 7,110 1,273 9,590
Hampton Inn-Jacksonville Florida 403 4,793 126 502 1,240 403 5,295 1,366 7,064
Holiday Inn-Mt. Pleasant, South
Carolina 888 7,874 247 2,392 1,760 888 10,266 2,007 13,161
Comfort Inn-Jacksonville Beach,
Florida 849 7,307 371 2 2,058 1,439 851 9,365 1,810 12,026
Hampton Inn-Austin, Texas 500 6,659 375 6 649 794 506 7,308 1,169 8,983
Hampton Inn-Knoxville, Tennessee 617 3,871 232 632 841 617 4,503 1,073 6,193
Hampton Inn-Glen Burnie, Maryland 5,075 322 597 667 5,672 989 6,661
Hampton Inn-Detroit, Michigan 1,207 5,785 526 672 412 1,207 6,457 938 8,602
Homewood Suites-Hartford,
Connecticut 2,866 7,660 915 1,189 318 2,866 8,849 1,233 12,948
Holiday Inn-Winston-Salem, North
Carolina 1,350 3,124 639 3,656 945 1,350 6,780 1,584 9,714
Hampton Inn-Scottsdale, Arizona 2,227 6,566 723 227 118 2,227 6,793 841 9,861
Hampton Inn-Chattanooga,
Tennessee 1,475 6,824 752 1,419 440 1,475 8,243 1,192 10,910
Homewood Suites-San Antonio,
Texas 907 6,661 1,029 116 87 907 6,777 1,116 8,800
Residence Inn-Burlington,
Vermont 678 6,677 342 1,003 701 678 7,680 1,043 9,401
Homewood Suites-Phoenix, Arizona 7,086 902 1,803 69 8,889 971 9,860
Residence Inn-Colorado Springs,
Colorado 1,350 7,638 740 1,462 534 1,350 9,100 1,274 11,724
Residence Inn-Oklahoma City,
Oklahoma 1,450 8,921 850 1,896 273 1,450 10,817 1,123 13,390
Residence Inn-Tucson, Arizona 832 7,078 705 1,230 767 832 8,308 1,472 10,612
Hampton Inn-Norfolk, Virginia 5,092 520 867 662 5,959 1,182 7,141
Hampton Inn-Pickwick, Tennessee 370 1,484 263 267 164 370 1,751 427 2,548
Hampton Inn-Overland Park,
Kansas 906 5,931 330 808 804 906 6,739 1,134 8,779
Hampton Inn-Addison, Texas 2,981 6,336 810 748 779 2,981 7,084 1,589 11,654
Hampton Inn-Atlanta-Northlake,
Georgia 6,905 600 605 621 7,510 1,221 8,731
Hampton Inn-Birmingham (Mountain
Brook), Alabama 7,988 687 780 345 8,768 1,032 9,800
Hampton Inn-Birmingham
(Vestavia), Alabama 1,057 5,162 541 426 555 1,057 5,588 1,096 7,741
Hampton Inn-Chapel Hill, North
Carolina 1,834 6,504 725 449 382 1,834 6,953 1,107 9,894
Hampton Inn-Charleston, South
Carolina 712 5,219 516 519 550 712 5,738 1,066 7,516
Hampton Inn-Colorado Springs,
Colorado 803 3,925 411 514 310 803 4,439 721 5,963
Hampton Inn-Columbia, South
Carolina 650 6,572 628 554 369 650 7,126 997 8,773
Accumulated Net Book
Depreciation Value Life Upon
Buildings and Buildings and Which
Improvements; Improvements; Depreciation
Furniture & Furniture & Date of In Statement
Description of Property Fixtures Fixtures Construction Is Computed
- ----------------------- ------------- ------------- ------------ ------------
Hampton Inn- Albany, New York $ 3,249 $ 9,137 1986 5-40 Yrs.
Hampton Inn-Cleveland, Ohio 1,615 4,903 1987 5-40 Yrs.
Hampton Inn-College Station,
Texas 1,939 5,289 1986 5-40 Yrs.
Hampton Inn-Columbus, Georgia 1,707 3,350 1986 5-40 Yrs.
Hampton Inn-Ft. Worth, Texas 1,300 2,981 1987 5-40 Yrs.
Hampton Inn-Louisville, Kentucky 2,135 2,545 1986 5-40 Yrs.
Hampton Inn-Sarasota, Florida 1,424 4,241 1987 5-40 Yrs.
Hampton Inn-Ann Arbor, Michigan 1,949 4,832 1986 5-31 Yrs.
Hampton Inn-Gurnee, Illinois 1,655 4,443 1988 5-31 Yrs.
Comfort Inn-Arlington, Texas 2,171 6,306 1985 5-31 Yrs.
Residence Inn-Eagan, Minnesota 3,209 8,361 1988 5-31 Yrs.
Residence Inn-Tinton Falls,
New Jersey 2,556 7,180 1988 5-31 Yrs.
Hampton Inn-Milford,
Connecticut 2,190 6,389 1986 5-31 Yrs.
Hampton Inn-Meriden, Connecticut 1,412 4,102 1988 5-31 Yrs.
Hampton Inn-Beckley, West
Virginia 1,558 6,939 1992 5-31 Yrs.
Holiday Inn-Bluefield, West
Virginia 2,657 8,325 1980 5-31 Yrs.
Hampton Inn-Gastonia, North
Carolina 1,749 5,896 1989 5-31 Yrs.
Hampton Inn-Morgantown, West
Virginia 1,475 5,275 1991 5-31 Yrs.
Holiday Inn-Oak Hill, West
Virginia 1,894 5,006 1983 5-31 Yrs.
Holiday Inn Express-Wilkesboro,
North Carolina 1,177 3,849 1985 5-31 Yrs.
Hampton Inn-Naperville, Illinois 2,393 6,793 1987 5-31 Yrs.
Hampton Inn-State College,
Pennsylvania 2,261 7,188 1987 5-31 Yrs.
Comfort Inn-Rutland, Vermont 1,391 3,682 1985 5-31 Yrs.
Hampton Inn-Scranton,
Pennsylvania 2,251 6,469 1994 5-31 Yrs.
Residence Inn-Omaha, Nebraska 1,286 5,111 1985 5-31 Yrs.
Hampton Inn-Fayetteville, North
Carolina 1,900 5,391 1986 5-31 Yrs.
Hampton Inn-Indianapolis,
Indiana 2,337 7,253 1987 5-31 Yrs.
Hampton Inn-Jacksonville Florida 1,910 5,154 1986 5-31 Yrs.
Holiday Inn-Mt. Pleasant, South
Carolina 2,387 10,774 1988 5-31 Yrs.
Comfort Inn-Jacksonville Beach,
Florida 2,741 9,285 1990 5-31 Yrs.
Hampton Inn-Austin, Texas 2,113 6,870 1987 5-31 Yrs.
Hampton Inn-Knoxville, Tennessee 1,413 4,780 1988 5-31 Yrs.
Hampton Inn-Glen Burnie, Maryland 1,532 5,129 1989 5-31 Yrs.
Hampton Inn-Detroit, Michigan 1,734 6,868 1989 5-31 Yrs.
Homewood Suites-Hartford,
Connecticut 1,939 11,009 1990 5-31 Yrs.
Holiday Inn-Winston-Salem, North
Carolina 1,605 8,109 1969 5-31 Yrs.
Hampton Inn-Scottsdale, Arizona 1,777 8,084 1996 5-31 Yrs.
Hampton Inn-Chattanooga,
Tennessee 1,608 9,302 1988 5-31 Yrs.
Homewood Suites-San Antonio,
Texas 1,940 6,860 1996 5-31 Yrs.
Residence Inn-Burlington,
Vermont 1,922 7,479 1988 5-31 Yrs.
Homewood Suites-Phoenix, Arizona 2,140 7,720 1996 5-31 Yrs.
Residence Inn-Colorado Springs,
Colorado 1,844 9,880 1984 5-31 Yrs.
Residence Inn-Oklahoma City,
Oklahoma 2,124 11,266 1982 5-31 Yrs.
Residence Inn-Tucson, Arizona 2,007 8,605 1985 5-31 Yrs.
Hampton Inn-Norfolk, Virginia 1,521 5,620 1990 5-31 Yrs.
Hampton Inn-Pickwick, Tennessee 506 2,042 1994 5-31 Yrs.
Hampton Inn-Overland Park,
Kansas 1,563 7,216 1991 5-31 Yrs.
Hampton Inn-Addison, Texas 1,850 9,804 1985 5-31 Yrs.
Hampton Inn-Atlanta-Northlake,
Georgia 1,710 7,021 1988 5-31 Yrs.
Hampton Inn-Birmingham (Mountain
Brook), Alabama 1,762 8,038 1987 5-31 Yrs.
Hampton Inn-Birmingham
(Vestavia), Alabama 1,396 6,345 1986 5-31 Yrs.
Hampton Inn-Chapel Hill, North
Carolina 1,604 8,290 1986 5-31 Yrs.
Hampton Inn-Charleston, South
Carolina 1,361 6,155 1985 5-31 Yrs.
Hampton Inn-Colorado Springs,
Colorado 1,055 4,908 1985 5-31 Yrs.
Hampton Inn-Columbia, South
Carolina 1,592 7,181 1985 5-31 Yrs.
46
EQUITY INNS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
AS OF DECEMBER 31, 2001
(In Thousands)
Cost Capitalized Subsequent Gross Amount at Which
Initial Cost to Acquistion Carried at Close of Period Buildings
------------------------------- --------------------------- ----------------------------------------
Furniture Buildings Furniture Buildings Furniture
and and and and and
Description of Property Land Improvements Fixtures Land Improvements Fixtures Land Improvements Fixtures Total
- ----------------------- -------- ------------ --------- ---- ------------ --------- ------- ------------- --------- --------
Hampton Inn-Aurora, Colorado 784 3,344 359 475 368 784 3,819 727 5,330
Hampton Inn-Detroit (Madison
Heights), Michigan 881 4,304 451 542 283 881 4,846 734 6,461
Hampton Inn-Dublin, Ohio 944 3,612 483 766 578 944 4,378 1,061 6,383
Hampton Inn-Kansas City, Kansas 585 4,294 425 343 408 585 4,637 833 6,055
Hampton Inn-Little Rock, Arkansas 898 5,520 558 831 397 898 6,351 955 8,204
Hampton Inn-Memphis (Poplar),
Tennessee 1,955 6,547 739 787 312 1,955 7,334 1,051 10,340
Hampton Inn-Memphis (Sycamore),
Tennessee 2,751 239 547 644 3,298 883 4,181
Hampton Inn-Nashville (Briley),
Tennessee 6,550 569 1,031 500 7,581 1,069 8,650
Hampton Inn-Richardson, Texas 1,750 5,252 609 617 664 1,750 5,869 1,273 8,892
Hampton Inn-St. Louis, Missouri 665 3,775 386 722 770 665 4,497 1,156 6,318
Homewood Suites-Germantown,
Tennessee 1,011 5,760 1,011 491 231 1,011 6,251 1,242 8,504
Homewood Suites-Augusta, Georgia 330 4,164 516 178 124 330 4,342 640 5,312
Residence Inn-Princeton, New
Jersey 1,920 15,875 1,500 1,432 427 1,920 17,307 1,927 21,154
AmeriSuites-Cincinnati (Blue
Ash), Ohio 900 6,241 466 328 275 900 6,569 741 8,210
AmeriSuites-Cincinnati (Forest
Park), Ohio 800 5,616 569 418 331 800 6,034 900 7,734
AmeriSuites-Columbus, Ohio 903 6,774 856 224 404 903 6,998 1,260 9,161
AmeriSuites-Flagstaff, Arizona 600 3,832 737 216 183 600 4,048 920 5,568
AmeriSuites-Jacksonville,
Florida 1,168 5,734 436 587 324 1,168 6,321 760 8,249
AmeriSuites-Indianapolis,
Indiana 700 4,775 800 206 232 700 4,981 1,032 6,713
AmeriSuites-Miami, Florida 1,500 9,387 900 233 72 1,500 9,620 972 12,092
AmeriSuites-Overland Park,
Kansas 1,300 7,030 900 347 301 1,300 7,377 1,201 9,878
AmeriSuites-Richmond, Virginia 1,772 9,640 921 378 292 1,772 10,018 1,213 13,003
AmeriSuites-Tampa, Florida 1,400 9,786 523 154 129 1,400 9,940 652 11,992
Hampton Inn-San Antonio, Texas 3,749 7,539 1,317 732 191 3,749 8,271 1,508 13,528
Homewood Suites-Sharonville,
Ohio 863 6,194 746 767 529 863 6,961 1,275 9,099
Residence Inn-Boise, Idaho 950 5,758 350 1,228 932 950 6,986 1,282 9,218
Residence Inn-Portland, Oregon 2,400 20,735 500 972 944 2,400 21,707 1,444 25,551
Hampton Inn & Suites-Memphis
(Bartlett), Tennessee 860 5,721 1,052 120 22 860 5,841 1,074 7,775
Residence Inn-Somers Point,
New Jersey 1,094 6,372 729 789 613 1,094 7,161 1,342 9,597
AmeriSuites-Albuquerque, New
Mexico 1,776 6,871 918 52 45 1,776 6,923 963 9,662
AmeriSuites-Baltimore, Maryland 659 8,514 898 46 34 659 8,560 932 10,151
AmeriSuites-Baton Rouge,
Louisiana 649 9,085 1,157 51 20 649 9,136 1,177 10,962
AmeriSuites-Birmingham, Alabama 1,066 5,871 758 60 21 1,066 5,931 779 7,776
AmeriSuites-Las Vegas, Nevada 4,126 13,056 1,965 49 142 4,126 13,105 2,107 19,338
AmeriSuites-Memphis (Wolfchase),
Tennessee 1,108 6,433 900 47 43 1.108 6,480 943 8,531
AmeriSuites-Miami (Kendall),
Florida 2,426 7,394 802 39 96 2,426 7,433 898 10,757
AmeriSuites-Minneapolis,
Minnesota 1,312 7,421 873 49 58 1,312 7,470 931 9,713
AmeriSuites-Nashville,
Tennessee 1,622 8,452 1,198 41 9 1,622 8,493 1,207 11,322
Homewood Suites-Seattle,
Washington 2,640 17,769 1,760 240 262 2,640 18,009 2,022 22,671
Homewood Suites-Chicago,
Illinois 29,052 2,801 3,542 31,853 3,542 35,395
Homewood Suites-Orlando,
Florida 4,250 17,015 164 2,841 4,250 17,179 2,841 24,270
Construction in Progress 2,167 2,167 2,167
Corporate Office--Memphis, TN 426 426 426
------- -------- ------- --- ------- ------- -------- -------- -------- --------
$103,347 $634,617 $59,205 $35 $70,480 $51,135 $103,382 $705,097 $110,340 $918,819
======== ======== ======= === ======= ======= ======== ======== ======== ========
Accumulated Net Book
Depreciation Value Life Upon
Buildings and Buildings and Which
Improvements; Improvements; Depreciation
Furniture & Furniture & Date of In Statement
Description of Property Fixtures Fixtures Construction Is Computed
- ----------------------- ------------- ------------- ------------ ------------
Hampton Inn-Aurora, Colorado 954 4,376 1985 5-31 Yrs.
Hampton Inn-Detroit (Madison
Heights), Michigan 1,101 5,360 1987 5-31 Yrs.
Hampton Inn-Dublin, Ohio 1,211 5,172 1988 5-31 Yrs.
Hampton Inn-Kansas City, Kansas 1,108 4,947 1987 5-31 Yrs.
Hampton Inn-Little Rock, Arkansas 1,234 6,970 1985 5-31 Yrs.
Hampton Inn-Memphis (Poplar),
Tennessee 1,626 8,714 1985 5-31 Yrs.
Hampton Inn-Memphis (Sycamore),
Tennessee 880 3,301 1984 5-31 Yrs.
Hampton Inn-Nashville (Briley),
Tennessee 1,493 7,157 1987 5-31 Yrs.
Hampton Inn-Richardson, Texas 1,548 7,344 1987 5-31 Yrs.
Hampton Inn-St. Louis, Missouri 1,271 5,047 1987 5-31 Yrs.
Homewood Suites-Germantown,
Tennessee 1,588 6,916 1986 5-31 Yrs.
Homewood Suites-Augusta, Georgia 967 4,345 1997 5-31 Yrs.
Residence Inn-Princeton, New
Jersey 3,314 17,840 1988 5-31 Yrs.
AmeriSuites-Cincinnati (Blue
Ash), Ohio 1,228 6,982 1990 5-31 Yrs.
AmeriSuites-Cincinnati (Forest
Park), Ohio 1,263 6,471 1992 5-31 Yrs.
AmeriSuites-Columbus, Ohio 1,554 7,607 1994 5-31 Yrs.
AmeriSuites-Flagstaff, Arizona 962 4,606 1993 5-31 Yrs.
AmeriSuites-Jacksonville,
Florida 1,215 7,034 1996 5-31 Yrs.
AmeriSuites-Indianapolis,
Indiana 1,182 5,531 1992 5-31 Yrs.
AmeriSuites-Miami, Florida 1,794 10,298 1996 5-31 Yrs.
AmeriSuites-Overland Park,
Kansas 1,600 8,278 1994 5-31 Yrs.
AmeriSuites-Richmond, Virginia 1,899 11,104 1992 5-31 Yrs.
AmeriSuites-Tampa, Florida 1,649 10,343 1994 5-31 Yrs.
Hampton Inn-San Antonio, Texas 1,755 11,773 1995 5-31 Yrs.
Homewood Suites-Sharonville,
Ohio 1,456 7,643 1990 5-31 Yrs.
Residence Inn-Boise, Idaho 1,180 8,038 1986 5-31 Yrs.
Residence Inn-Portland, Oregon 3,014 22,537 1990 5-31 Yrs.
Hampton Inn & Suites-Memphis
(Bartlett), Tennessee 1,255 6,520 1998 5-31 Yrs.
Residence Inn-Somers Point,
New Jersey 1,447 8,150 1998 5-31 Yrs.
AmeriSuites-Albuquerque, New
Mexico 1,246 8,416 1997 5-31 Yrs.
AmeriSuites-Baltimore, Maryland 1,424 8,727 1996 5-31 Yrs.
AmeriSuites-Baton Rouge,
Louisiana 1,615 9,347 1997 5-31 Yrs.
AmeriSuites-Birmingham, Alabama 1,052 6,724 1997 5-31 Yrs.
AmeriSuites-Las Vegas, Nevada 2,479 16,859 1998 5-31 Yrs.
AmeriSuites-Memphis (Wolfchase),
Tennessee 1,188 7,343 1996 5-31 Yrs.
AmeriSuites-Miami (Kendall),
Florida 1,265 9,492 1996 5-31 Yrs.
AmeriSuites-Minneapolis,
Minnesota 1,288 8,425 1997 5-31 Yrs.
AmeriSuites-Nashville,
Tennessee 1,560 9,762 1997 5-31 Yrs.
Homewood Suites-Seattle,
Washington 2,936 19,735 1998 5-31 Yrs.
Homewood Suites-Chicago,
Illinois 3,942 31,453 1999 5-31 Yrs.
Homewood Suites-Orlando,
Florida 2,509 21,761 1999 5-31 Yrs.
Construction in Progress 2,167 5-31 Yrs.
Corporate Office--Memphis, TN 180 246 7 Yrs.
-------- --------
$166,928 $751,891
======== ========
(a) Reconciliation of Real Estate:
Balance at December 31, 1999 $915,421
Additions during the period 9,791
Sales during the period (18,216)
--------
Balance at December 31, 2000 12,991
Additions during the period (1,168)
--------
Sales during the period
Balance at December 31, 2001 $918,819
========
(b) Reconciliation of Accumulated Depreciation:
Balance At December 31, 1999 $100,884
Depreciation expense during the period 36,455
Depreciation on sales during the period (2,754)
--------
Balance at December 31, 2000 134,585
Depreciation expense during the period 32,343
Depreciation on sales during the period 0
--------
Balance at December 31, 2001 $166,928
========
47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 2001 and through the date of this
report, there has been no change in the Company's independent accountants, nor
have any disagreements with such accountants or reportable events occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the section
entitled "The Election of Directors" in the Proxy Statement as to the Company's
directors. See also Item 1 -- "Business- Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the section
entitled "Executive Compensation" in the Proxy Statement. The matters labeled
"Performance Graph" contained in the Proxy Statement shall not be deemed to be
incorporated by reference into this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information required by this item is incorporated by reference from the sections
entitled "Ownership of Our Common Stock" and "The Election of Directors" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the section
entitled "Certain Relationships and Related Transactions" in the Proxy
Statement.
48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form 10-K:
(a) Financial Statements:
The following financial statements and financial statement schedules are located
in this report on the pages indicated:
Equity Inns, Inc. Page
Report of Independent Accountants 25
Consolidated Balance Sheets at December 31, 2001 and 2000 26
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 27
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2001, 2000 and 1999 28
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999 29
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 31
Notes to Consolidated Financial Statements 32
Schedule II -- Valuation and Qualifying Accounts for the years
enced December 31, 2001, 2000 and 1999 45
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 2001 46
All other schedules to the consolidated financial statements required by Article
7 of Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted from this report.
(b) Reports on Form 8-K:
Two (2) Current Reports on Form 8-K were filed by the Company with the SEC
during the fourth quarter of 2001: (1) on November 11, 2001 to report the
issuance of a press release as to the Company's operating results for the third
quarter of 2001; and (2) on December 12, 2001 to report certain modification and
waivers to the Line of Credit.
(c) Exhibits:
Exhibit
Number Description
- ------ -----------
3.1(a) -- Second Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K (Registration No. 01-12073) filed with the SEC
on October 23, 1997)
49
3.1(b) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to Exhibit
3.1 to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on May 28, 1998)
3.1(c) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to Exhibit
4.2 to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on June 24, 1998)
3.2 -- By-Laws of the Registrant (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-11
(Registration No. 33-73304)
4.1(a) -- Form of Share Certificate for the Company's Common Stock, $.01
par value (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-11 (Registration No.
33-73304))
4.1(b) -- Form of Share Certificate for the Company's 9 1/2% Series A
Cumulative Preferred Stock, $.01 par value (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-11 (Registration No. 33-73304))
4.2(a) -- Third Amended and Restated Agreement of Limited Partnership of
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
June 24, 1997 (Registration No. 01-12073) filed with the SEC on
July 10, 1997)
4.2(b) -- Amendment No. 1 to Third Amended and Restated Agreement of Limited
Partnership of Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form
8-K (Registration No. 01-12073) filed with the SEC on June 24,
1998)
4.3, 10.1 -- Indenture dated as of February 6, 1997 among EQI Financing
Partnership I, L.P. as Issuer, LaSalle National Bank as Trustee,
and ABN AMBRO Bank N.V. as Fiscal Agent (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
(Registration No. 01-12073) for the quarter ended March 31, 1997
and filed with the SEC on April 30, 1997)
10.2(a) -- Form of Lease Agreement, effective as of January 1, 2001
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01- 12073) filed with
the SEC on February 26, 2001)
10.2(b) -- Form of Consolidated Lease Agreement for the AmeriSuites hotels
leased by certain subsidiaries of Equity Inns TRS Holdings, Inc.
as lessees, and Equity Inns Partnership, L.P. as lessor, effective
as of January 1, 2002 (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on January 25, 2002)
10.3(a) -- Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29(a) to the Company's Registration
Statement on Form S-11 (Registration No. 33-80318))
10.3(b) -- Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29(b) to the Company's
Registration Statement on Form S-11 (Registration No. 33-80318))
50
10.4 -- Right of First Refusal Agreement between Wolf River Hotel, L.P.
and Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-3
(Registration No. 33-93158))
10.5 -- Right of First Refusal Agreement between SAHI I L.P. and Equity
Inns Partnership, L.P. (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-3 (Registration
No. 33-93158))
10.6(a) -- Loan Agreement, dated as of June 16, 1999, among EQI Financing
Partnership II, L.P. and EQI/WV Financing Partnership, L.P., as
Borrower Parties, and GMAC Commercial Mortgage Corporation, as
Lender (incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed with
the SEC on February 26, 2001)
10.6(b) -- Loan Affirmation and Modification Agreement dated as of December
31, 2000 by and among EQI Financing Partnership II, L.P., EQI/WV
Financing Partnership, L.P., ENN Leasing Company II, L.L.C.,
Equity Inns Partnership, L.P., Equity Inns, Inc., Norwest Bank
Minnesota, National Association, as trustee, and LaSalle Bank
National Association, as trustee (incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on February 26,
2001)
10.6(c) -- Loan Affirmation and Modification Agreement dated as of January 9,
2002 , 2001 by and among EQI Financing Partnership II, L.P.,
EQI/WV Financing Partnership, L.P., EQI Financing Partnership V,
L.P., ENN Leasing Company II, L.L.C., ENN Leasing Company V,
L.L.C., Equity Inns Partnership, L.P., Equity Inns, Inc., Equity
Inns Trust, Norwest Bank Minnesota, National Association, as
trustee, and LaSalle Bank National Association, as trustee
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed with
the SEC on January 25, 2002)
10.7 -- Loan Agreement, dated as of October 20, 2000, between EQI
Financing Partnership V, L.P., as Borrower, and GMAC Commercial
Mortgage Corporation, as Lender (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (Registration No. 01-12073) filed
with the SEC on March 23, 2001)
10.8 -- Loan Agreement, dated as of November 7, 2000, between EQI
Financing Partnership III, L.P., as Borrower, and General
Electric Capital Corporation, as Lender (incorporated by reference
to Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 (Registration No. 01-12073) filed
with the SEC on March 23, 2001)
10.9 -- Loan Agreement, dated as of November 7, 2000, by and among EQI
Financing Partnership IV, L.P. and EQI/WV Financing Partnership
II, L.P., as Borrowers, and General Electric Capital Corporation,
as Lender (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2000 (Registration No. 01-12073) filed with the SEC on March
23, 2001)
51
10.10(a) -- Secured Revolving Credit Agreement dated as of October 26, 2000,
by and among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P. and Equity Inns Partnership II, L.P. as
Borrower, Bank One, NA, Credit Lyonnais New York Branch, Bank of
America, N.A., National Bank of Commerce, AmSouth Bank and Union
Planters Bank, National Association, as Lenders, Bank One, NA, as
Administrative Agent, Banc One Capital Markets, Inc. as Co-Lead
Arranger/Book Manager, Credit Lyonnais New York Branch as
Syndication Agent and Co-Lead Arranger/Book Manager, and Bank of
America N.A. as Documentation Agent (incorporated by reference to
Exhibit 10.8 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on January 11,
2001)
10.10(b) -- Waiver and Amendment to Credit Agreement dated as of December 4,
2001 among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Bank One, NA, Credit Lyonnais New York
Branch, Bank of America, N.A., National Bank of Commerce, AmSouth
Bank and Union Planters Bank, National Association (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the SEC on
December 12, 2001)
10.11 -- Master Lease Termination Agreement dated as of December 20, 2001,
by and among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Equity Inns/West Virginia Partnership, L.P., EQI Financing
Partnership II, L.P., EQI Financing Partnership V, L.P., EQI/WV
Financing Partnership, L.P., ENN Leasing Company, Inc., ENN
Leasing Company II, L.L.C., ENN Leasing Company V, L.L.C., Prime
Hospitality Corp., Oradell Holding Corp., Wayne Holding Corp, and
Caldwell Holding Corp. (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on January 25, 2002)
10.12 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and Promus Hotels, Inc., effective
as of January 1, 2001 (incorporated by reference to Exhibit 10.6
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on February 26, 2001)
10.13 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and Crestline Hotels and Resorts,
Inc., effective as of January 1, 2001 (incorporated by reference
to Exhibit 10.7 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on February 26,
2001)
10.14 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and Crossroads Hospitality Company,
L.L.C., effective as of January 1, 2001 (incorporated by reference
to Exhibit 10.8 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on February 26,
2001)
10.15 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and certain affiliates of Prime
Hospitality Corp., effective as of January 1, 2002 (incorporated
by reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the SEC on January
25, 2002)
10.16 -- Form of Deed of Trust dated as of February 6, 1997 by EQI
Financing Partnership 1, L.P. in favor of LaSalle National Bank,
as Trustee (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q (Registration No.
01-12073) for the quarter ended March 31, 1997 and filed with the
SEC on April 30, 1997)
52
10.17 -- Commercial Lease dated as of December 17, 1998 between 64 LTD. LLC
and Equity Inns Services, Inc. (incorporated by reference to
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (Registration No. 01-12073) filed
with the SEC on March 23, 1999)
10.18 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Phillip H. McNeill, Sr.
(incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.19 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Howard A. Silver
(incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.20 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Donald H. Dempsey
(incorporated by reference to Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.21 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Phillip H. McNeill, Jr.
(incorporated by reference to Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.22* -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and J. Ronald Cooper**
10.23* -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Richard F. Mitchell**
10.24 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Michael K. Goforth
(incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(Registration No. 01-12073) filed with the SEC on March 17,
2000)**
10.25 -- Equity Inns, Inc. Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(Registration No. 01-12073) filed with the SEC on March 17,
2000)**
10.26 -- Master Lease Termination Agreement dated as of September 7, 2000,
by and among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Equity Inns/West Virginia Partnership, L.P., EQI Financing
Partnership I, L.P., EQI Financing Partnership II, L.P., EQI/WV
Financing Partnership, L.P., Equity Inns Partnership II, L.P.,
E.I.P. Orlando, L.P., Crossroads/Memphis Partnership, L.P.,
Crossroads/Memphis Financing Company, L.L.C., Crossroads/Memphis
Financing Company II, L.L.C., Crossroads Future Company, L.L.C.,
Crossroads Future Financing Company, L.L.C., Interstate Hotels,
LLC and Crossroads Hospitality Company, L.L.C. (incorporated by
reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Registration No. 01-12073) filed with the Securities and
Exchange Commission on January 11, 2001)
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of PricewaterhouseCoopers L.L.P.
- --------------
* Filed herewith.
** Management Contract or Compensatory Plan or Agreement.
(d) Financial Statements Schedules
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report on Form 10-K. See Item 14 (a).
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 on the 20th day of March,
2002.
EQUITY INNS, INC.
By: /s/Phillip H. McNeill, Sr.
--------------------------
Phillip H. McNeill, Sr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 20th day of March, 2002.
Signature Title Date
--------- ----- ----
/s/ Phillip H. McNeill, Sr. Chairman of the Board and March 20, 2002
- ---------------------------
Phillip H. McNeill, Sr. Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ Howard A. Silver President, Chief Operating March 20, 2002
- --------------------
Howard A. Silver Officer and Director
/s/ Donald H. Dempsey Executive Vice President, March 20, 2002
- ---------------------
Donald H. Dempsey Secretary, Treasurer, Chief
Financial Officer(Principal
Financial and Accounting
Officer) and Director
/s/ William A. Deupree, Jr. Director March 20, 2002
- ---------------------------
William A. Deupree, Jr.
/s/ Harry S. Hays Director March 20, 2002
- -----------------
Harry S. Hays
/s/ Joseph W. McLeary Director March 20, 2002
- ---------------------
Joseph W. McLeary
/s/ Raymond E. Schultz Director March 20, 2002
- ----------------------
Raymond E. Schultz
54
INDEX OF EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1(a) -- Second Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K (Registration No. 01-12073) filed with the SEC
on October 23, 1997)
3.1(b) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to Exhibit
3.1 to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on May 28, 1998)
3.1(c) -- Articles of Amendment to the Second Amended and Restated
Charter of the Registrant (incorporated by reference to Exhibit
4.2 to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on June 24, 1998)
3.2 -- By-Laws of the Registrant (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-11
(Registration No. 33-73304)
4.1(a) -- Form of Share Certificate for the Company's Common Stock, $.01
par value (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-11 (Registration No.
33-73304))
4.1(b) -- Form of Share Certificate for the Company's 9 1/2% Series A
Cumulative Preferred Stock, $.01 par value (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-11 (Registration No. 33-73304))
4.2(a) -- Third Amended and Restated Agreement of Limited Partnership of
Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated June
24, 1997 (Registration No. 01-12073) filed with the SEC on July
10, 1997)
4.2(b) -- Amendment No. 1 to Third Amended and Restated Agreement of Limited
Partnership of Equity Inns Partnership, L.P. (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form
8-K (Registration No. 01-12073) filed with the SEC on June 24,
1998)
4.3, 10.1 -- Indenture dated as of February 6, 1997 among EQI Financing
Partnership I, L.P. as Issuer, LaSalle National Bank as Trustee,
and ABN AMBRO Bank N.V. as Fiscal Agent (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
(Registration No. 01-12073) for the quarter ended March 31, 1997
and filed with the SEC on April 30, 1997)
10.2(a) -- Form of Lease Agreement, effective as of January 1, 2001
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01- 12073) filed with
the SEC on February 26, 2001)
55
10.2(b) -- Form of Consolidated Lease Agreement for the AmeriSuites hotels
leased by certain subsidiaries of Equity Inns TRS Holdings, Inc.
as lessees, and Equity Inns Partnership, L.P. as lessor, effective
as of January 1, 2002 (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on January 25, 2002)
10.3(a) -- Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29(a) to the Company's Registration
Statement on Form S-11 (Registration No. 33-80318))
10.3(b) -- Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29(b) to the Company's
Registration Statement on Form S-11 (Registration No. 33-80318))
10.4 -- Right of First Refusal Agreement between Wolf River Hotel, L.P.
and Equity Inns Partnership, L.P. (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-3
(Registration No. 33-93158))
10.5 -- Right of First Refusal Agreement between SAHI I L.P. and Equity
Inns Partnership, L.P. (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-3 (Registration
No. 33-93158))
10.6(a) -- Loan Agreement, dated as of June 16, 1999, among EQI Financing
Partnership II, L.P. and EQI/WV Financing Partnership, L.P., as
Borrower Parties, and GMAC Commercial Mortgage Corporation, as
Lender (incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed with
the SEC on February 26, 2001)
10.6(b) -- Loan Affirmation and Modification Agreement dated as of December
31, 2000 by and among EQI Financing Partnership II, L.P., EQI/WV
Financing Partnership, L.P., ENN Leasing Company II, L.L.C.,
Equity Inns Partnership, L.P., Equity Inns, Inc., Norwest Bank
Minnesota, National Association, as trustee, and LaSalle Bank
National Association, as trustee (incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on February 26,
2001)
10.6(c) -- Loan Affirmation and Modification Agreement dated as of January 9,
2002 , 2001 by and among EQI Financing Partnership II, L.P.,
EQI/WV Financing Partnership, L.P., EQI Financing Partnership V,
L.P., ENN Leasing Company II, L.L.C., ENN Leasing Company V,
L.L.C., Equity Inns Partnership, L.P., Equity Inns, Inc., Equity
Inns Trust, Norwest Bank Minnesota, National Association, as
trustee, and LaSalle Bank National Association, as trustee
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Registration No. 01-12073) filed with
the SEC on January 25, 2002)
10.7 -- Loan Agreement, dated as of October 20, 2000, between EQI
Financing Partnership V, L.P., as Borrower, and GMAC Commercial
Mortgage Corporation, as Lender (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (Registration No. 01-12073) filed
with the SEC on March 23, 2001)
56
10.8 -- Loan Agreement, dated as of November 7, 2000, between EQI
Financing Partnership III, L.P., as Borrower, and General
Electric Capital Corporation, as Lender (incorporated by reference
to Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 (Registration No. 01-12073) filed
with the SEC on March 23, 2001)
10.9 -- Loan Agreement, dated as of November 7, 2000, by and among EQI
Financing Partnership IV, L.P. and EQI/WV Financing Partnership
II, L.P., as Borrowers, and General Electric Capital Corporation,
as Lender (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2000 (Registration No. 01-12073) filed with the SEC on March
23, 2001)
10.10(a) -- Secured Revolving Credit Agreement dated as of October 26, 2000,
by and among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P. and Equity Inns Partnership II, L.P. as
Borrower, Bank One, NA, Credit Lyonnais New York Branch, Bank of
America, N.A., National Bank of Commerce, AmSouth Bank and Union
Planters Bank, National Association, as Lenders, Bank One, NA, as
Administrative Agent, Banc One Capital Markets, Inc. as Co-Lead
Arranger/Book Manager, Credit Lyonnais New York Branch as
Syndication Agent and Co-Lead Arranger/Book Manager, and Bank of
America N.A. as Documentation Agent (incorporated by reference to
Exhibit 10.8 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on January 11,
2001)
10.10(b) -- Waiver and Amendment to Credit Agreement dated as of December 4,
2001 among Equity Inns Partnership, L.P., Equity Inns/West
Virginia Partnership, L.P., Bank One, NA, Credit Lyonnais New York
Branch, Bank of America, N.A., National Bank of Commerce, AmSouth
Bank and Union Planters Bank, National Association (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the SEC on
December 12, 2001)
10.11 -- Master Lease Termination Agreement dated as of December 20, 2001,
by and among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Equity Inns/West Virginia Partnership, L.P., EQI Financing
Partnership II, L.P., EQI Financing Partnership V, L.P., EQI/WV
Financing Partnership, L.P., ENN Leasing Company, Inc., ENN
Leasing Company II, L.L.C., ENN Leasing Company V, L.L.C., Prime
Hospitality Corp., Oradell Holding Corp., Wayne Holding Corp, and
Caldwell Holding Corp. (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on January 25, 2002)
10.12 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and Promus Hotels, Inc., effective
as of January 1, 2001 (incorporated by reference to Exhibit 10.6
to the Company's Current Report on Form 8-K (Registration No.
01-12073) filed with the SEC on February 26, 2001)
10.13 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and Crestline Hotels and Resorts,
Inc., effective as of January 1, 2001 (incorporated by reference
to Exhibit 10.7 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on February 26,
2001)
57
10.14 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and Crossroads Hospitality Company,
L.L.C., effective as of January 1, 2001 (incorporated by reference
to Exhibit 10.8 to the Company's Current Report on Form 8-K
(Registration No. 01-12073) filed with the SEC on February 26,
2001)
10.15 -- Form of Management Agreement between certain subsidiaries of
Equity Inns TRS Holdings, Inc. and certain affiliates of Prime
Hospitality Corp., effective as of January 1, 2002 (incorporated
by reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K (Registration No. 01-12073) filed with the SEC on January
25, 2002)
10.16 -- Form of Deed of Trust dated as of February 6, 1997 by EQI
Financing Partnership 1, L.P. in favor of LaSalle National Bank,
as Trustee (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q (Registration No.
01-12073) for the quarter ended March 31, 1997 and filed with the
SEC on April 30, 1997)
10.17 -- Commercial Lease dated as of December 17, 1998 between 64 LTD. LLC
and Equity Inns Services, Inc. (incorporated by reference to
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (Registration No. 01-12073) filed
with the SEC on March 23, 1999)
10.18 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Phillip H. McNeill, Sr.
(incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.19 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Howard A. Silver
(incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.20 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Donald H. Dempsey
(incorporated by reference to Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.21 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Phillip H. McNeill, Jr.
(incorporated by reference to Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998
(Registration No. 01-12073) filed with the SEC on March 23,
1999)**
10.22* -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and J. Ronald Cooper**
10.23* -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Richard F. Mitchell**
58
10.24 -- Change in Control and Termination Agreement between Equity Inns
Services, Inc., Equity Inns, Inc. and Michael K. Goforth
(incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(Registration No. 01-12073) filed with the SEC on March 17,
2000)**
10.25 -- Equity Inns, Inc. Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(Registration No. 01-12073) filed with the SEC on March 17,
2000)**
10.26 -- Master Lease Termination Agreement dated as of September 7, 2000,
by and among Equity Inns, Inc., Equity Inns Partnership, L.P.,
Equity Inns/West Virginia Partnership, L.P., EQI Financing
Partnership I, L.P., EQI Financing Partnership II, L.P., EQI/WV
Financing Partnership, L.P., Equity Inns Partnership II, L.P.,
E.I.P. Orlando, L.P., Crossroads/Memphis Partnership, L.P.,
Crossroads/Memphis Financing Company, L.L.C., Crossroads/Memphis
Financing Company II, L.L.C., Crossroads Future Company, L.L.C.,
Crossroads Future Financing Company, L.L.C., Interstate Hotels,
LLC and Crossroads Hospitality Company, L.L.C. (incorporated by
reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Registration No. 01-12073) filed with the Securities and
Exchange Commission on January 11, 2001)
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of PricewaterhouseCoopers L.L.P.
- --------------
* Filed herewith.
** Management Contract or Compensatory Plan or Agreement.
59