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, 2000, 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
In order to qualify as a REIT, neither the Company nor the Partnership can operate hotels. The Company has implemented a strategy of utilizing multiple lessees and hotel management companies for its hotel properties. At December 31, 2000, the Partnership or its affiliates owned 96 hotel properties, with a total of 12,284 rooms in 34 states (the "Hotels"). During the year ended December 31, 2000 the Partnership or its affiliates, under operating leases providing for the payment of percentage rent (the "Percentage Leases"), leased 75 of the Company's hotels to affiliates of Interstate Hotels Corporation ("IHC"), which was recently divested from Wyndham International, Inc. ("Wyndham"). IHC is referred to herein as the "Interstate Lessee." All payments due under these Percentage Leases were guaranteed by Interstate Hotels, L.L.C., a subsidiary of IHC, and IHC (except for three hotels where Wyndham rather than IHC was the guarantor). The Partnership leased 19 hotels to wholly-owned subsidiaries of Prime Hospitality Corporation (collectively, the "Prime Lessee"). All payments due under these Percentage Leases are guaranteed by Prime Hospitality Corporation. The Interstate Lessee and the Prime Lessee are referred to herein collectively as the "Lessees", and individually as a "Lessee." During the year ended December 31, 2000, the Lessees operated and leased hotels owned by the Partnership and its affiliates pursuant to the Percentage Leases, which provide for rent payments equal to the greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent based on the revenues of the hotels ("Percentage Rent"). The remaining two hotels were operated pursuant to management agreements, one of which is operated by a subsidiary of IHC and one of which is operated by a wholly-owned subsidiary of MeriStar Hotels & Resorts, Inc.
Effective January 1, 2001 (the "Effective Date") and pursuant to the federal REIT Modernization Act (the "RMA") which took effect on the Effective Date, the Company and its affiliates (1) terminated or assigned the Percentage Leases between the Company and the Interstate Lessee, (2) terminated the lease guaranties with Interstate Hotels, L.L.C. and Wyndham and (3) terminated certain other agreements between the Company and the Interstate Lessee. As of the Effective Date, the Company entered into new Percentage Leases with wholly-owned taxable REIT subsidiaries of the Company (the "TRS Lessees") for the lease of 77 of the Hotels. The terms of the Percentage Leases with the TRS Lessees are substantially identical to the Percentage Leases terminated between the Company and the Interstate Lessee. The remaining 19 Hotels continue to be leased to the Prime Lessee. Under the RMA, the TRS Lessees are required to enter into management agreements with eligible independent contractors to manage the hotels. On the Effective Date, the TRS Lessees entered into new management agreements with Promus Hotels, Inc. ("Promus") (as to 20 Hotels), Crestline Hotels & Resorts, Inc. ("Crestline") (as to two Hotels) and Crossroads Hospitality Company, L.L.C., an affiliate of IHC ("CHC") (as to 55 Hotels). In future reporting periods, the rents generated by the Company's Percentage Leases with the TRS Lessees will be eliminated in consolidation, while the actual operating results of all the Company's hotels leased by the TRS Lessees will be included in the Company's financial statements.
The diversity of the Company's portfolio is such that, at December 31, 2000, 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.
Franchise Diversity
# of Hotel # of Rooms/ Franchise Affiliation Properties 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 == ======
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 growth strategy has been curtailed due to a variety of factors, including the difficulty in obtaining equity financing on terms deemed appropriate by management.
EMPLOYEES
At March 1, 2001, the Company employed, through a wholly-owned subsidiary, 14 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, 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 $13.6 million to its hotel properties in 2000, including approximately $1.3 million in renovations required by franchisors. In 2001, the Partnership expects to fund approximately $17 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 lease revenue to the extent that it receives Percentage Rent.
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 effective January 1, 2001, 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.
In December 1999, the RMA was signed into law. The RMA includes several REIT provisions (the "REIT Provisions"). The REIT Provisions generally will be effective January 1, 2001 and will overhaul the existing tax rules applicable to taxable subsidiaries of REITs. 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 allowed to enter into many new businesses. However, a TRS is not allowed to franchise or manage hotels. Each TRS is allowed 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 non-arm's length transactions between a TRS and its on affiliated REIT or the REIT's tenants.
As a result of the opportunities offered by the RMA, effective as of the Effective Date, the Company terminated or assigned the Percentage Leases between the Company and the Interstate Lessee and entered into new Percentage Leases with the TRS Lessees for the lease of 77 of the Hotels. On the Effective Date, the TRS Lessees also entered into new management agreements with CHC (for 55 Hotels), Promus (for 20 Hotels) and Crestline (for two Hotels).
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person that arranges for the disposal or transports for disposal or treatment a hazardous substance at a property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial and the presence of such substances, or the failure to promptly remediate them, may adversely affect the owner's ability to sell such real estate or to use such real estate as collateral.
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 that there are material environmental liabilities of which the Company is unaware.
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
Phillip H. McNeill, Sr. (age 62) is Chairman and Chief Executive Officer of the Company and has been Chairman of McNeill Hospitality Corporation since 1984. From 1963 to 1977, he served in various capacities, including President and Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President and Director of the Memphis Mortgage Bankers Association and the Tennessee State Mortgage Bankers Association. He has served as a member of the Board of Trustees of the University of Memphis Foundation and as a Director of First Commercial Bank of Memphis. He is currently serving as a member of the Boards of Directors of National Commerce Bancorporation and Interstate Hotels Corporation. Mr. McNeill holds both a B.S. and a J.D. degree from the University of Memphis and is a graduate of the Northwestern School of Mortgage Banking.
Howard A. Silver (age 46) is President and Chief Operating Officer of the Company and has been a certified public accountant since 1980. Mr. Silver joined the Company in May 1994 and has previously served as Executive Vice President of Finance, Secretary, Treasurer and Chief Financial Officer of the Company. From 1992 until joining the Company, Mr. Silver served as Chief Financial Officer of Alabaster Originals, L.P., Memphis, Tennessee, a fashion jewelry wholesaler. From 1978 to 1985, Mr. Silver was a certified public accountant with the national accounting firm of Coopers & Lybrand L.L.P., and from 1987 to 1992 Mr. Silver was employed as a certified public accountant with the national accounting firm of Ernst & Young. Mr. Silver holds a B.S. in Accounting from the University of Memphis.
Donald H. Dempsey (age 56) is Executive Vice President, Secretary, Treasurer and Chief Financial Officer of the Company. Prior to joining the Company in July 1998, Mr. Dempsey served as Executive Vice President and Chief Financial Officer of Choice Hotels International, Inc. from January 1998 to July 1998. From April 1995 to December 1997, Mr. Dempsey served as Senior Vice President and Chief Financial Officer of Promus Hotel Corporation, from October 1993 to April 1995 as Senior Vice President of Finance and Administration of the Hotel Division of The Promus Companies Incorporated, and from December 1991 to October 1993 as Vice President, Finance of the Hampton Inn/Homewood Suites Hotel Division of The Promus Companies Incorporated. Mr. Dempsey served in various other senior financial and development officer positions within the Hotel Division of The Promus Companies Incorporated and its predecessor companies from 1983 to 1991. From 1969 to 1983, Mr. Dempsey held various corporate and division financial management and administrative positions with Holiday Inns, Inc. Mr. Dempsey is currently serving on the Board of Directors of John Q. Hammons Hotels, Inc. Mr. Dempsey holds a B.S. in Accounting from Mississippi State University.
Phillip H. McNeill, Jr. (age 39) 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 52) 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.
ITEM 2.
ITEM 2. PROPERTIES
The following table sets forth certain information for the year ended December 31, 2000 with respect to the Hotels owned at December 31, 2000:
- ------------------------
(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.
(4) Hotel operated under a management contract; lease payment amount represents operating income after payment of management fees and other hotel operating expenses.
THE PERCENTAGE LEASES
Until December 31, 2000, all but two of the Hotels owned by the Partnership were separately leased to the Interstate Lessee and the Prime Lessee (and 77 to the TRS Lessees following the Effective Date) under Percentage Leases. All Percentage Leases with the Lessees have a non-cancelable initial term of ten to fifteen years, subject to earlier termination upon the occurrence of certain contingencies described in the Percentage Leases. During the term of each Percentage Lease, the Lessees are obligated to pay (i) the greater of Base Rent or Percentage Rent and (ii) certain other amounts, including interest accrued on any late payments or charges. Base Rent accrues and is required to be paid monthly. Percentage Rent is based on percentages of room revenues and to a lesser extent, food and beverage revenues, if any, for each of the Hotels. Both the Base Rent and the threshold room revenue amount in each Percentage Rent formula will be adjusted annually for changes in the CPI. The adjustment is calculated at the beginning of each lease year after a holding period of the first full calendar year of the lease, based upon the average change in the CPI during the prior 24 months. The adjustment in any lease year may not exceed 7% of the Base Rent and threshold room revenue amounts for the prior fiscal year. Percentage Rent is payable quarterly, on or before the 30th day following the end of each of the calendar quarters in each fiscal year.
At the Effective Date and pursuant to the RMA, the Company and its affiliates terminated or assigned the Percentage Leases between the Company and the Interstate Lessee. As of the Effective Date, the Company also entered into new Percentage Leases with the TRS Lessees for the lease of 77 of the Hotels. The terms of the Percentage Leases with the TRS Lessees are substantially identical to the Percentage Leases terminated betwen the Company and the Interstate Lessee. The remaining 19 Hotels continue to be leased to the Prime Lessee. Under the RMA, the TRS Lessees are required to enter into management agreements with eligible independent contractors to manage the hotels. On the Effective Date, the TRS Lessees entered into new management agreements with
Promus (as to 20 Hotels), Crestline (as to two Hotels) and CHC (as to 55 Hotels). In future reporting periods, the rents generated by the Company's Percentage Leases with the TRS Lessees will be eliminated in consolidation, while the actual operating results of all the Company's hotels managed by the TRS Lessees will be included in the Company's financial statements.
The following table summarizes the percentages of room revenues in excess of certain levels payable as Percentage Rent under the Percentage Leases as of January 1, 2001.
Range of Percentages of Room Revenue --------------------------------------- First Tier Top Tier -------------- ------------
Full Service (1) 28% to 38% 65% to 77%
Extended Stay 27% to 49.4% 65% to 75%
All-Suite 35.7% to 59.7% 69% to 76.1%
Limited Service 22% to 37% 62% to 74%
(1) Percentage Rent formula also includes 15%-30% of beverage revenue and 5%-15% of food revenue.
Other than real estate and personal property taxes and maintenance of underground utilities and structural elements, which are obligations of the Partnership, the Percentage Leases require the Lessees to pay insurance, utilities and all other costs and expenses incurred in the operation of the Hotels. The Percentage Leases also provide for rent reductions and abatements in the event of damage or destruction or a partial taking of any Hotel.
Maintenance and Modifications. Under the Percentage Leases, the Partnership is required to maintain the underground utilities and the structural elements of the improvements, including exterior and interior load bearing walls (excluding plate glass) and the roof of each Hotel. In addition, the Percentage Leases obligate the Partnership to fund certain capital expenditures at the Hotels pursuant to the capital budgets approved by the Partnership, when and as deemed necessary by the Lessees, up to an amount equal to 4% of annual room revenue, net of amounts actually expended for capital expenditures for each Hotel during any fiscal year. The Partnership's obligation will be carried forward to the extent that the Lessees have not expended such amount, and any unexpended amounts will remain the property of the Partnership upon termination of the Percentage Leases. Otherwise, the Lessees are required, at their expense, to maintain the Hotels in good order and repair, except for ordinary wear and tear, and to make non-structural, foreseen and unforeseen, and ordinary and extraordinary, repairs which may be necessary and appropriate to keep the Hotels in good order and repair.
Insurance and Property Taxes. The Partnership is responsible for paying real estate and personal property taxes on the Hotels (except to the extent that personal property associated with the Hotels is owned by the Lessee). The Lessees are required to keep in force and pay or reimburse the Partnership for all insurance on the Hotels, with extended coverage, including casualty, comprehensive general public liability, workers' compensation, earthquake, flood and other insurance appropriate and customary for properties similar to the Hotels and is required to name the Partnership as an additional named insured.
Indemnification. Under the Percentage Leases, the Lessees have agreed to indemnify the Partnership, for certain losses relating to the Hotels, including losses related to any accident or injury to person or property, certain environmental liability, taxes and assessments and the sale or consumption of alcoholic beverages.
Damage to Hotels. In the event of damage to or destruction of any Hotel covered by insurance which renders the Hotel unsuitable for the Lessee's use and occupancy, the Lessee, at its option, will be obligated to (i) repair, rebuild, or restore the Hotel or (ii) in the case of the Prime Lessee, it may offer to acquire the Hotel on the terms set forth in the applicable Percentage Lease. In the event that damage to or destruction of a Hotel which is covered by insurance does not render the Hotel wholly unsuitable for the Lessee's use and occupancy, the Lessee generally will be obligated to repair or restore the Hotel. In the event of damage to or destruction of any Hotel which is not covered by insurance, the Lessee will be obligated to either repair, rebuild, or restore the Hotel, or in the case of the Prime Lessee, offer to purchase the Hotel on the terms and conditions set forth in the Percentage Lease. The Percentage Lease shall remain in full force and effect during the period required for repair or restoration of any damaged or destroyed Hotel, with the Lessee to receive certain credits against rental payments and other charges.
Condemnation of Hotel. In the event of a total condemnation of a Hotel, the relevant Percentage Lease will terminate with respect to such Hotel as of the date of taking, and the Partnership and the Lessee will be entitled to their shares of the condemnation award under the Percentage Lease. In the event of a partial taking which does not render the Hotel unsuitable for the Lessee's use, the Lessee shall restore the untaken portion of the Hotel to a complete architectural unit and the Partnership shall contribute to the cost of such restoration. If the condemnation award is inadequate to restore the affected Hotel, either the Partnership or the Lessee shall have the right to terminate the lease.
Events of Default. "Events of Default" include the following:
(i) the occurrence of an Event of Default under any other lease between the Partnership and a Lessee or any affiliate of a Lessee;
(ii) the failure by a Lessee to pay Base Rent, Percentage Rent or any additional charges within 10 days after written notice that such has become due and payable;
(iii) the failure by a Lessee to observe or perform any other term of a Percentage Lease and the continuation of such failure for a period of 30 days after receipt by the Lessee of notice from the Partnership thereof, unless such failure cannot be cured within such period and the Lessee commences appropriate action to cure such failure within such period;
(iv) if a Lessee files a petition in bankruptcy or reorganization, is adjudicated a bankrupt, or makes an assignment for the benefit of creditors or similar bankruptcy or reorganization action occurs;
(v) if the Lessee voluntarily discontinues operations of a Hotel for more than 30 days, except as a result of damage, destruction, or condemnation; or
(vi) if the franchise agreement with respect to a Hotel is terminated as a result of any action or failure to act by the Lessee or its agents (other than certain failures to complete a capital improvement required by the franchisor.
Performance Standard in Prime Percentage Leases. Each Percentage Lease with the Prime Lessee contains the following performance standards:
(i) In the event the Hotel does not produce REVPAR in an amount at least equal to 90% of the estimated REVPAR under the applicable operating budget for any year, the Partnership has the option within 90 days after year-end to terminate the lease on 30 days notice of such termination to the Prime Lessee, unless during such period Lessee pays to Lessor, as additional rent, an amount equal to the sum the Partnership would have received as rent during such period had the Hotel maintained at least the required 90% of budgeted REVPAR minus the amount of rent previously received by the Partnership for such period.
(ii) In the event the "Competitive Set" REVPAR index, as reported by Smith Travel Research, is below certain levels for any fiscal year, then the Partnership has the option within 90 days of year- end to terminate the lease on 30 days notice, unless during such period the Prime Lessee pays as additional rent an amount equal to the amount of rent the Partnership would have received for such period had the Hotel's performance met the required criteria minus the amount of the rent the Partnership actually received for such period. In the event the Hotel does not meet or exceed the minimum REVPAR index for any fiscal year, then the threshold dollar amounts of Room Revenues then included in the revenues computations shall not be adjusted to reflect any changes in the CPI, but the Base Rent shall be so adjusted.
(iii) The Partnership has the right to terminate the applicable lease on 30 days notice if during any fiscal year the Prime Lessee actually expends or incurs less than 95% of the dollar amounts contained in the operating budget for sales and marketing expenses (excluding certain franchising and marketing expenses, and employee taxes and benefits), and normal and recurring property maintenance.
(iv) The Partnership has the right to terminate the lease on 30 days notice in the event any general manager or sales director of the Hotel is transferred to another hotel or similar property owned, leased, or managed by Prime, the Prime Lessee or an affiliate in the same market without the Partnership's reasonable consent and such person is not transferred back to the Hotel within 15 days notice from the Partnership.
The Partnership's sole remedy in the event of any failure to meet the above performance standards shall be the termination of the applicable Prime Percentage Lease. Neither the failure to meet any performance standard nor the termination of a lease by the Partnership solely upon the failure to meet a performance standard shall cause a default or Event of Default under any other lease. The Partnership shall not incur any termination payment as a result of a termination of the lease due to a breach of these performance standards.
Right of First Offer. If the Partnership desires to sell its interest in a Prime Hotel, the Partnership shall first offer to the Prime Lessee by written notice the opportunity to acquire the Hotel at the price at which the Partnership intends to offer the Hotel (the "Offer Price"), and if the Prime Lessee elects within 15 days after receipt of such notice to acquire the Hotel at the Offer Price, the Partnership will be obligated to sell the Hotel to the Prime Lessee or its nominee at the Offer Price. On such sale, the applicable Percentage Lease shall terminate.
Termination of Percentage Leases on Disposition of the Hotels. If the Partnership enters into an agreement to sell or otherwise transfer a Hotel and the Prime Lessee does not elect to acquire the Hotel in accordance with the right of first offer described above, the Partnership shall be permitted to sell the Hotel to a third party at a price equal to or greater than 95% of the offer price. As compensation for the early termination of the Prime Lessee's leasehold estate, the Partnership will have the right to terminate the Percentage Lease with respect to such Hotel upon either (i) paying the Prime Lessee the net present value of the Prime Lessee's leasehold interest in the remaining term of the Percentage Lease to be terminated as set forth in the lease agreement or (ii) offering to
lease to the Prime Lessee one or more substitute hotels on leasehold terms with a fair market value at least equal to the fair market value of the Prime Lessee's remaining leasehold interest under the terminating Percentage Lease.
Termination of Percentage Leases on Company's Termination of REIT Status. In the event that the Company terminates its REIT status or the Code provisions are amended so that REITs are permitted to operate hotels, the Partnership may elect to terminate the Percentage Leases. In such event, the Partnership shall be obligated to pay to the Prime Lessee and the TRS Lessees certain termination payments described in the Percentage Leases with the Prime Lessee and the TRS Lessees.
ITEM 3.
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.
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 2000, through the solicitation of proxies or otherwise.
ITEM 5.
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:
(b) Stockholder Information
On March 8, 2001, there were 1,007 record holders of the Company's Common Stock, including shares held in "street name" by nominees who are record holders, and approximately 23,500 beneficial owners.
(c) Distributions
In order to qualify as a REIT for federal income tax purposes, the Company must distribute to shareholders annually at least 90% of its taxable income. The Company's ability to make distributions is dependent on the receipt of distributions from the Partnership. The Partnership's primary source of revenue consists of rent payments from the Lessees under the Percentage Leases. The Company, as general partner of the Partnership through the Trust, intends to cause the Partnership to distribute to its partners sufficient amounts to permit the Company to make regular quarterly distributions to its shareholders in an annual amount necessary to maintain the Company's REIT status.
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 2000 and 1999 are considered to be approximately 54% and 33% return of capital, respectively, for federal income tax purposes.
Future distributions paid by the Company will be at the discretion of the Board of Directors of the Company and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the directors of the Company deem relevant.
(d) Recent Sales of Unregistered Securities
In the year ended December 31, 2000, the Company issued no securities which were not registered pursuant to the Securities Act of 1933, as amended, under either a registration statement on Form S-3 or Form S-8.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth (i) selected historical operating and other financial information for the years ended December 31, 2000, 1999, 1998, 1997, and 1996 and (ii) selected historical balance sheet data as of December 31, 2000, 1999, 1998, 1997, and 1996. The selected historical financial information has been derived from the historical financial statements of the Company audited by PricewaterhouseCoopers LLP, independent accountants.
The following selected financial information 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 included elsewhere in this report.
EQUITY INNS, INC SELECTED FINANCIAL DATA (in thousands, except per share data)
(1) Represents Funds from Operations ("FFO") of the Company on a consolidated basis. Industry analysts generally consider 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. For the periods presented, depreciation, minority interest, and the charge from write-off of deferred organizational costs were the Company's only adjustments to net income for the determination 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.
ITEM 7.
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, 2000 owned an approximate 96.8% interest in the Partnership.
At December 31, 2000, the Partnership or its affiliates owned 96 hotel properties, with a total of 12,284 rooms in 34 states. During the year ended December 31, 2000, the Partnership or its affiliates, under operating leases providing for the payment of percentage rent (the "Percentage Leases"), leased 75 of the Company's hotels to affiliates of Interstate Hotels Corporation ("IHC"), which was recently divested from Wyndham International, Inc. ("Wyndham"). IHC is referred to herein as the "Interstate Lessee." All payments due under these Percentage Leases were guaranteed by IHC and Interstate Hotels, L.L.C., a subsidiary of IHC (except for three hotels where Wyndham rather than IHC was the guarantor). Also, during the year ended December 31, 2000, the Partnership leased 19 hotels to wholly-owned subsidiaries of Prime Hospitality Corporation (collectively, the "Prime Lessee"). All payments due under these Percentage Leases were guaranteed by Prime Hospitality Corporation. The remaining two hotels were operated in 2000 pursuant to management agreements, one of which was operated by a subsidiary of IHC and one of which was operated by a wholly-owned subsidiary of MeriStar Hotels & Resorts, Inc.
In December 1999, the REIT Modernization Act (the "RMA") was signed into law, allowing the Company to own all of the stock in taxable REIT subsidiaries (the "TRS"). As a result of the opportunities offered by the RMA, effective on January 1, 2001, the Company terminated or assigned the Percentage Leases between the Company and the Interstate Lessee and terminated the guarantee with Interstate Hotels, L.L.C. and Wyndham and entered into new Percentage Leases with the taxable REIT subsidiaries of the Company (the "TRS Lessees") for the lease of 77 of the Company's hotels. The terms of the Percentage Leases with the TRS Lessees are substantially identical to the Percentage Leases terminated between the Company and the Interstate Lessee. The Interstate Lessee and the Prime Lessee are referred to herein collectively as the "Lessees", and individually as a "Lessee." The Lessees operate and lease hotels owned by the Partnership and its affiliates pursuant to the Percentage Leases, which provide for rent payments to the Partnership equal to the greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent based on the revenues of the hotels ("Percentage Rent"). In future reporting periods, the rents generated by the Percentage Leases with the TRS Lessees will be eliminated in consolidation, while the actual operating results of all the Company's hotels leased by the TRS Lessees will be included in the Company's financial statements.
Recent Highlights
Since its inception, the Company has taken steps to position itself for growth and stability. Several changes have occurred since December 31, 1999 which add significantly to these efforts. These events are as follows:
Acquisitions and Disposition of Hotels
Since the IPO, the Company has actively implemented its acquisition and disposition strategy. During 2000, 1999, and 1998, the Company acquired and disposed of the following types of hotels:
With the above-mentioned acquisitions and sales, the Company has reduced its exposure in the premium limited service segment from approximately 61% of revenues in 1997 to approximately 44% of revenues in 2000. The premium extended stay and all-suite segments now represent approximately 52% of the Company's revenues.
Debt Refinancing
During the fourth quarter of 2000, the Company financed $108.8 million with several financial institutions, at fixed rates ranging from 8.25% - 8.50%. The principal amounts of the various loans are amortized over periods ranging from 20 - 25 years, with the unpaid balances payable from November 2005 - November 2010. Proceeds from the completion of these loans were used to repay existing debt under its prior unsecured line of credit with Bank One, NA. In connection with these transactions, twenty-five of the Company's hotel properties with a carrying value of approximately $181.3 million collateralize the loans.
On November 9, 2000, the Company repaid the then outstanding balance under its prior unsecured line of credit with Bank One, NA with borrowings under a new $125 million secured line of credit with Bank One, NA (the "Line of Credit"). The Line of Credit 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. Currently, the interest rate on the Line of Credit is LIBOR (6.65% at December 31, 2000) plus 2.50%. In connection with these transactions, twenty-eight of the Company's hotel properties with a carrying value of approximately $267.3 million collateralize the loans. The Line of Credit has a three-year term, expiring on November 9, 2003.
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 the Percentage. The swap agreement will expire in November 2003.
Action Taken as a Result of Recent Legislation
The Company terminated all 75 of its Percentage Leases with the Interstate Lessee effective January 1, 2001. 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 January 1, 2001, 55 of the leases acquired from the Interstate Lessee were terminated and the TRS Lessees entered into management contracts with an affiliate of IHC, which later will expire on a staggered basis, beginning January 1, 2002 through 2005. Twenty of the leases were converted to management contracts with Promus Hotels, Inc., a subsidiary of Hilton Hotels Corporation, and two leases were converted to management contracts with Crestline Hotels and Resorts, Inc.
Results of Operations
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 Lessee, partially offset by (i) a .9% increase in revenue per available room ("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 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 $5.7 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 to the establishment of a taxable REIT subsidiary to serve as a lessee.
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.
Comparison of the Company's operating results for the year ended December 31, 1999 with the year ended December 31, 1998
For the year ended December 31, 1999, the Company had total revenues of $117.3 million, consisting substantially of Percentage Lease revenue. This compares with total revenue of $107.4 million for the year ended December 31, 1998.
Increases in revenue from hotel operations for the year ended December 31, 1999 as compared to 1998 are due to (i) an increased number of hotels being owned and leased by the Partnership throughout 1999, (ii) a full year of operation in 1999 of hotels acquired in 1998 and (iii) the recognition of the $2 million in percentage lease revenue applicable to the amendment of the Company's leases with the Interstate Lessee. Assuming all hotels which were in operation a full year in both 1999 and 1998 had been owned and leased as of January 1, 1998, REVPAR on a pro forma basis would have decreased 2.0% compared to 1998.
Real estate and personal property taxes and general and administration expenses in the aggregate remained fairly constant in 1999 as compared to 1998 as a percentage of total revenue. Interest expense increased to $27.9 million from $21.6 million in 1998 due primarily to borrowings incurred to finance the Company's acquisitions and slightly higher interest rates on the Company's variable rate borrowings. The Company's weighted average interest rates on outstanding borrowings during the years ended December 31, 1999 and 1998 were 7.74% and 7.46%, respectively. Net income applicable to common shareholders for 1999 was $22.8 million, or $0.61 per share, compared to $28.2 million, or $0.78 per share for 1998.
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. The Partnership receives cash payments from the Lessees pursuant to the Percentage Leases. The Company's liquidity, including its ability to make distributions to shareholders, is dependent upon the Lessees' ability to make payments under the Percentage Leases.
Cash and cash equivalents were $793,000 at December 31, 2000, compared to $361,000 at December 31, 1999. Excess cash balances are used to reduce the Company's outstanding debt. For the year ended December 31, 2000, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $58 million.
The Company intends to 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 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% 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 42.3% of its investments in hotels, at cost, at December 31, 2000.
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 2000, the Company invested $13.6 million, including $1.3 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 $17 million in 2001 for capital improvements.
The Company intends to fund such improvements out of future cash from operations, present cash balances and borrowings under its 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, 2000 and 1999, the amounts expended exceeded the amounts required under the loan covenants.
The Company elected to be taxed as a REIT commencing with its taxable year ended December 31, 1994, and expects to continue to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986. Accordingly, no provision for federal income taxes has been reflected in the financial statements.
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 2000, the Partnership distributed an aggregate of $40.2 million to its partners, or $1.06 per Unit (including $38.9 million of distributions to the Company to fund distributions to shareholders of $1.06 per share in 2000). During 1999, the Partnership distributed an aggregate of $47.7 million to its partners, or $1.24 per Unit (including $46.1 million of distributions to the Company to fund distributions to shareholders of $1.24 per share in 1999). For federal income tax purposes, approximately 54% of 2000 distributions represented a return of capital, compared with approximately 33% for 1999.
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.
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. Pursuant to 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, 2000, 74,703 Units were tendered for redemption. Pursuant to 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 has agreed to register such shares so as to be freely tradeable by the recipient.
Funds from Operations
Industry analysts generally consider 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, minority interest, the write- off of non-recurring merger expenses and the charge from write-off of deferred organization costs 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, 2000 1999 ------- ------- (in thousands, except per share and Unit data)
Net income $16,340 $29,316
Less: Gain on sale of hotel properties (1,130) Preferred stock dividends (6,531) (6,531)
Add: Minority interest 337 819 Depreciation of buildings, furniture and fixtures 40,267 38,573 Loss on sale of hotel properties 3,316 Change in accounting for corporate organization costs 133 ------- -------
Funds from Operations $53,729 $61,180 ======= =======
Weighted average number of common shares and Units outstanding 37,960 38,570 ====== ======
Inflation
Operators of hotels in general have the ability to adjust room rates quickly. However, competitive pressures may limit the Lessees' 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 lease revenues to the extent that it receives Percentage Rent.
Impact of Recently Issued Accounting Standards to be Adopted in 2001
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which provides guidance on revenue recognition. SAB 101 requires that a lessor not recognize contingent rental income until annual specified revenue levels have been achieved by the Lessees. During 1999 and prior years, the Company has recognized contingent rentals throughout the year since it was considered probable that the Lessees would exceed the annual specified hurdles. The Company has reviewed the terms of its Percentage Leases and has determined that the provisions of SAB 101 materially impact the Company's revenue recognition on an interim basis, effectively deferring the recognition of revenue from its Percentage Leases from
the first and second quarters of the calendar year to the third and fourth quarters. SAB 101 will not impact the Company's revenue recognition on an annual basis nor will it impact the Company's interim or annual cash flow or its FFO from its Lessees, and therefore will not effect its ability to pay dividends. The Company adopted SAB 101 as a change in accounting principle effective January 1, 2000.
In June 1998, the FASB issued SFAS No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended, which is required to be adopted in years beginning after June 15, 2000. SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income, until the hedged item is recognized in earnings. Any ineffective portion of a derivatives's change in fair value will be immediately recognized in earnings, and any derivatives that are not hedges must be adjusted to fair value through income. The Company adopted SFAS 133 in January 2001. The impact of adoption was immaterial and the Company expects the impact to continue to be immaterial in future periods.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains 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.
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, 2000, the Company's exposure to market risk for a change in interest rates is related solely to its debt outstanding under its $125 million Line of Credit. Total debt outstanding under the Line of Credit totaled $96.5 million at December 31, 2000 for which the Company was exposed to fluctuations in the market rate of interest.
The Company's operating results are affected by changes in interest rates, primarily as a result of borrowing under the Line of Credit. If interest rates increased by 25 basis points, the Company's annual interest expense would have increased by approximately $241,250, based on balances outstanding during the year ended December 31, 2000.
ITEM 8.
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 28 Consolidated Balance Sheets as of December 31, 2000 and 1999 29 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 30 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 34 Notes to Consolidated Financial Statements 35 Schedule III -- Real Estate and Accumulated Depreciation as of December 31, 2000 47
(b) Supplementary Data:
Quarterly Financial Information
Unaudited quarterly results for 2000 and 1999 are summarized as follows:
- ------------------------
(1) Acquisitions of hotel properties throughout both years, coupled with the seasonality of the hotels, have impacted the trend of quarterly results for the periods shown.
(2) For comparative purposes, pro forma information is presented to illustrate 1999 quarterly earnings in accordance with SAB 101, which was adopted January 1, 2000. SAB 101 provides that a lessor shall defer recognition of contingent rental income in interim periods until specified targets that trigger the contingent income are met. SAB 101 has significantly impacted the Company's current revenue recognition on a quarterly basis, but has no impact on the Company's annual Percentage Lease revenue, FFO or quarterly cash flow from its Lessees.
Report of Independent Accountants
To the Board of Directors and Shareholders of Equity Inns, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Equity Inns, Inc. at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, 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 accompanying index 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.
Memphis, Tennessee January 22, 2001, except as to Note 11, for which the date is January 25, 2001
EQUITY INNS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, December 31, 2000 1999 ------------ ------------
Assets: Investment in hotel properties, net $772,411 $814,537 Cash and cash equivalents 793 361 Due from Lessees 5,595 5,124 Notes receivable 3,408 3,314 Deferred expenses, net 12,843 7,019 Deposits and other assets 6,693 1,764 -------- --------
Total Assets $801,743 $832,119 ======== ========
Liabilities and Shareholders' Equity: Debt $383,403 $381,175 Accounts payable and accrued expenses 13,605 13,755 Distributions payable 10,579 12,929 Minority interest in Partnership 10,370 12,008 -------- --------
Total Liabilities 417,957 419,867 -------- --------
Commitments and contingencies (Note 6)
Shareholders' Equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, 2,750,000 issued and outstanding at December 31, 2000 and 1999 68,750 68,750 Common stock, $.01 par value, 50,000,000 shares authorized, 37,498,659 and 37,308,523 shares issued and outstanding at December 31, 2000 and 1999, respectively 375 373 Additional paid-in capital 417,755 416,354 Treasury stock, at cost, 747,600 shares and 557,300 shares issued and outstanding at December 31, 2000 and 1999, respectively (5,173) (3,883) Unearned directors' and officers' compensation (1,854) (2,375) Predecessor basis assumed (1,264) (1,264) Distributions in excess of net earnings (94,803) (65,703) -------- -------- Total Shareholders' Equity 383,786 412,252 -------- --------
Total Liabilities and Shareholders' Equity $801,743 $832,119 ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
EQUITY INNS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
For the Years Ended December 31, 2000 1999 1998 -------- -------- ---------
Revenue: Percentage lease revenues $115,875 $116,459 $106,661 Other income 935 835 775 -------- -------- -------- Total Revenue 116,810 117,294 107,436 -------- -------- --------
Expenses: Real estate and personal property taxes 14,085 12,756 10,411 Depreciation and amortization 40,494 38,856 32,665 Interest 32,323 27,947 21,587 Amortization of loan costs 1,749 1,210 834 General and administrative 5,721 5,150 4,650 Amortization of unearned directors' and officers' compensation 927 891 331 Rental expense 1,518 1,346 969 Merger expense 2,197 -------- -------- ------- Total Expenses 96,817 88,156 73,644 -------- -------- --------
Income before minority interest and other items 19,993 29,138 33,792
Minority interest (337) (819) (1,492) Gain (loss) on sale of hotel properties (3,316) 1,130 (705) Change in accounting for corporate organizational costs (133) -------- -------- -------- Net income 16,340 29,316 31,595
Preferred stock dividends 6,531 6,531 3,374 -------- -------- --------
Net income applicable to common shareholders $ 9,809 $ 22,785 $ 28,221 ======== ======== ========
Net income per common share, basic and diluted $ .27 $ .61 $ .78 ======== ======== ========
Weighted average number of common shares and units outstanding - diluted 37,960 38,570 38,001 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
EQUITY INNS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share and per share data)
EQUITY INNS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED) (in thousands, except share and per share data)
EQUITY INNS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED) (in thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
EQUITY INNS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
The accompanying notes are an integral part of these consolidated financial statements.
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, 2000 owned an approximate 96.8% interest in the Partnership.
At December 31, 2000, the Partnership or its affiliates owned 96 hotel properties, with a total of 12,284 rooms in 34 states. During the year ended December 31, 2000, the Partnership or its affiliates, under operating leases providing for the payment of percentage rent (the "Percentage Leases"), leased 75 of the Company's hotels to affiliates of Interstate Hotels Corporation ("IHC"), which was recently divested from Wyndham International, Inc. ("Wyndham"). IHC is referred to herein as the "Interstate Lessee." All payments due under these Percentage Leases were guaranteed by IHC and Interstate Hotels, L.L.C., a subsidiary of IHC (except for three hotels where Wyndham rather than IHC was the guarantor). Also, during the year ended December 31, 2000, the Partnership leased 19 hotels to wholly-owned subsidiaries of Prime Hospitality Corporation (collectively, the "Prime Lessee"). All payments due under these Percentage Leases were guaranteed by Prime Hospitality Corporation. The remaining two hotels were operated in 2000 pursuant to management agreements, one of which was operated by a subsidiary of IHC and one of which was operated by a wholly-owned subsidiary of MeriStar Hotels & Resorts, Inc.
In December 1999, the REIT Modernization Act (the "RMA") was signed into law, allowing the Company to own all of the stock in taxable REIT subsidiaries (the "TRS"). As a result of the opportunities offered by the RMA, effective on January 1, 2001, the Company terminated or assigned the Percentage Leases between the Company and the Interstate Lessee and terminated the guarantee with Interstate Hotels, L.L.C. and Wyndham and entered into new Percentage Leases with the Taxable REIT subsidiaries of the Company (the "TRS Lessees") for the lease of 77 of the Company's hotels. The terms of the Percentage Leases with the TRS Lessees are substantially identical to the Percentage Leases terminated between the Company and the Interstate Lessee. The Interstate Lessee and the Prime Lessee are referred to herein collectively as the "Lessees", and individually as a "Lessee." The Lessees operate and lease hotels owned by the Partnership and its affiliates pursuant to the Percentage Leases, which provide for rent payments to the Partnership equal to the greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent based on the revenues of the hotels ("Percentage Rent"). In future reporting periods, the rents generated by the Percentage Leases with the TRS Lessees will be eliminated in consolidation, while the actual operating results of all the Company's hotels leased by the TRS Lessees will be included in the Company's financial statements.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Trust and the Partnership. All significant intercompany balances and transactions have been eliminated.
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.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Maintenance and repairs are the responsibility of the 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.
The Company reviews the carrying value of each hotel property to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel property or that depreciation periods should be modified. If impairment is indicated, the carrying value of the hotel property will be adjusted to its fair market value. The Company does not believe that there are any current facts or circumstances indicating impairment of any of its investment in hotel properties.
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 $2.9 million and $3.4 million at December 31, 2000 and 1999, 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 Lessees under the Percentage Leases from the date of acquisition of each hotel property.
Net Income Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share" requires the presentation of basic and diluted earnings per share, replacing primary and fully diluted earnings per share previously required. A reconciliation of the numerator and denominator used in the basic earnings per share computation to the numerator and denominator used in the diluted earnings per share computation is presented below for the years ended December 31, 2000, 1999 and 1998, respectively.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies, Continued
Distributions
The Company pays regular quarterly cash distributions to shareholders which 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.
Stock-Based Compensation Plans
The Company applies APB Opinion No. 25 and related interpretations in its accounting for Stock Based Compensation Plans. Accordingly, the Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock- Based Compensation."
Income Taxes
The Company has qualified as a REIT under Sections 856 through 860 of the Internal Revenue Code, as amended. Accordingly, no provision for federal income taxes has been reflected in the financial statements.
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 2000 and 1999 are considered to be approximately 54% and 33% return of capital, respectively, for federal income tax purposes.
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.
Reclassifications
Certain reclassifications of the prior year amounts have been made to conform with the current year presentation.
3. Investment in Hotel Properties
Hotel properties consist of the following at December 31:
2000 1999 -------- -------- (in thousands) Land $101,532 $103,315 Buildings and improvements 691,516 695,923 Furniture and equipment 110,458 112,817 Construction in progress 3,490 3,366 -------- -------- 906,996 915,421 Less accumulated depreciation (134,585) (100,884) -------- --------
$772,411 $814,537 ======== ========
Fifty-two of the hotel properties are premium limited service hotels, five are full service hotels, twenty are premium extended stay hotels, and nineteen are all-suite hotels.
During 2000, the Company sold three hotels to third parties for an aggregate sales price of approximately $13 million. The Company realized a loss of approximately $3,300,000 as a result of these sales. The sales price was paid in cash.
During 1999, the Company acquired two hotels for approximately $56.7 million and sold five hotels to third parties for an aggregate sales price of approximately $29 million. The Company realized a gain of approximately $1,130,000 as a result of these sales.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Notes Receivable
Notes receivable consist of the following at December 31:
2000 1999 ------ ------ (in thousands) Hudson Hotels Properties Corporation, a subsidiary of Hudson Hotels Corporation $2,634 $2,634 Officers of the Company 633 539 Rosemont Hospitality Group, L.L.C. 141 141 ------ -------
$3,408 $3,314 ====== ======
On August 13, 1997, the Company sold nine Hampton Inn hotels to a subsidiary of Hudson Hotels Corporation ("Hudson") for a purchase price of approximately $46.25 million, $3.9 million of which was in the form of a two-year note bearing interest at an annual rate of 10%, and is secured by 666,667 shares of Hudson Hotels Corporation common stock. In 1998, the Company modified the repayment terms of the note and extended the term of the note by one year. On April 14, 2000, the Company, in connection with Hudson's overall financial restructuring, modified the repayment terms of the note and extended the term to mature on April 1, 2006. The modified terms require monthly payments of principal and interest, beginning in April 2001. The note continues to bear interest at an annual rate of 10%.
In December 1999, the Company assigned its obligation to purchase a Hawthorn Suites hotel in Chicago to Rosemont Hospitality Group, L.L.C. As a result, the Company received a one-year note receivable in the amount of $140,878 as reimbursement for expenses incurred in regard to the proposed acquisition of the hotel. In December 2000, the Company extended the term of the note by one year. The note bears interest at 12.25% and is due on 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, 2000, the aggregate amount of notes receivable from officers of the Company is $632,960. In January 2001, the Company advanced loans to its officers in the amount of $105,951 for taxes relating to 2000 bonuses taken in 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.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Debt
The following details the Company's debt outstanding at December 31, 2000 and 1999 (in thousands):
In February 1997, the Company, through a subsidiary, issued $88 million of rated Commercial Mortgage Bonds (the "Bonds") in a private placement transaction. The combined interest rate on the outstanding balances on all three issues of Bonds at December 31, 2000 is 7.25%. 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 expects to repay these Bonds in full within 10 years with no prepayment penalty.
During the fourth quarter of 2000, the Company converted approximately $109 million of its debt outstanding under its unsecured lines of credit to fixed rate debt with several financial institutions, at interest rates ranging from 8.25% - 8.50%. The principal amounts of the various loans are amortized over periods ranging from 20 - 25 years, with the unpaid balances payable from November 2005 - November 2010.
On November 9, 2000, the Company repaid the remaining outstanding balance under its prior unsecured line of credit with Bank One, NA with borrowings under a new $125 million secured line of credit with Bank One, NA (the "Line of Credit").
The Line of Credit 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, 2000, the interest rate on the Line of Credit was LIBOR (6.65% at December 31, 2000) 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, 2000, the Company was in compliance with all covenants contained in the Line of Credit.
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, 2000, actual expenditures exceeded the amounts required.
Future scheduled principal payments of debt obligations at December 31, 2000 are as follows (in thousands):
Year Amount ---- --------
2001 $ 4,712 2002 5,100 2003 102,045 2004 5,770 2005 14,138 Thereafter 251,638 --------
$383,403 ========
6. 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 which are paid by the Lessee.
The Company earned Base Rents of $77.2 million, $77.0 million, and $65.9 million and Percentage Rents in excess of Base Rents of $38.7 million, $39.5 million, and $40.8 million, respectively, for the years ended December 31, 2000, 1999 and 1998. The Percentage Lease revenue is based on a percentage of gross room revenue, and, if applicable, food and beverage revenue of the hotels.
The Prime Lessee has future lease commitments to the Company under the Percentage Leases for various terms extending through 2010. Minimum future rental income (Base Rents) under these non-cancelable operating leases is as follows (in thousands):
Year Amount ---- --------
2001 $ 20,140 2002 20,140 2003 20,140 2004 20,140 2005 20,140 Thereafter 85,836 --------
$186,536 ========
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Commitments and Related Party Transactions, Continued
The Percentage Leases range in terms from ten to fifteen years. Rental rates on all fifteen-year leases are required to be re-negotiated after ten years. Both the Base Rent and the threshold room revenue amount in each Percentage Rent formula are adjusted annually for changes in the U.S. Consumer Price Index ("CPI"). The adjustment is calculated on January 1 of each year, provided the lease has been in effect for a complete calendar year and is based upon the average change in the CPI during the prior 24 months. The adjustment in any lease year may not exceed 7%. Effective January 1, 2001, the Percentage Leases for the Prime Lessee were adjusted, resulting in a 3.13% increase in both Base Rent and threshold room revenue. As discussed in Note 1, the Company terminated or assigned the Percentage Leases with the Interstate Lessee, effective December 31, 2000.
At December 31, 2000, the Lessees owed the Company $5,595,000 representing fourth quarter Percentage Rent. All of the amounts due were collected prior to January 31, 2001.
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 $13.6 million, $32.8 million, and $26.0 million in 2000, 1999, and 1998, respectively, were made to the hotel properties, including those required by the franchisors at the acquisition of the property.
The Company has commitments under operating land leases through December 31, 2062, at eight hotel properties for payments as follows: 2001 -- $769,461; 2002 - -- $795,888; 2003 -- $798,388; 2004 -- $801,138; 2005 -- $743,863; thereafter -- $10.4 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.
As discussed in Note 4, the Company has $632,960 of non-interest bearing notes receivable from its officers for taxes relating to annual bonuses taken in common stock.
7. Supplemental Disclosure of Noncash Operating, Investing and Financing Activities
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 of limited partnership interest in the partnership ("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 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.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Supplemental Disclosure of Noncash Ooperating, Investing and Financing Activities, Continued
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.
In 1998, the Company issued 69,123 shares of Common Stock valued at $15.38 per share to its officers in lieu of cash to satisfy bonus compensation accrued at December 31, 1997; 49,074 Units were exchanged for shares of Common Stock by certain limited partners; 123,457 Units valued at $1.9 million and an assumption of a $6.5 million note payable were issued as part of the total acquisition cost of a hotel property; a $4.3 million note payable was assumed as part of the acquisition cost of a hotel property; 141,000 restricted shares of Common Stock valued from $13.50 to $13.56 per share were issued to the Company's officers; 20,000 restricted shares of Common Stock valued from $9.63 to $12.31 per share were issued to the Company's independent directors; 4,042 shares of Common Stock at prices ranging from $9.63 to $15.50 were issued to independent directors of the Company in lieu of cash as directors' compensation; 9,000 shares of Common Stock were issued to an officer upon exercise of options; and $11.9 million in distributions to common shareholders and limited partners had been declared but not paid at December 31, 1998.
8. Capital Stock
The Board of Directors is authorized to provide for the issuance of 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, 2000 and 1999 were 1,210,071 and 1,284,774, respectively.
In October 1999, the Board of Directors approved a stock repurchase program authorizing the Company to buy back up to $25 million of Common Stock on the open market over the next eighteen months, subject to certain market conditions and other factors. The Company expects to fund any stock repurchases primarily with proceeds from the sale of hotels which do not currently meet the Company's investment criteria. The Company believes that these repurchases, at current market prices, will enhance shareholder value. At December 31, 2000, 747,600 shares had been repurchased at a cost of approximately $5.2 million.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. 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 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, 2000, 1999 and 1998 and the changes during the years are presented below:
The Company applies APB Opinion No. 25 and related interpretations in accounting for the Plans. FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), was issued by the FASB in 1995 and, if fully adopted, changes the method for recognition of compensation cost on stock plans. Adoption of the expense recognition provisions of SFAS 123 is optional; however, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 in 1995 are presented below.
The fair value of each option granted during 2000, 1999 and 1998 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) dividend of $1.06 for 2000 and $1.24 for 1999 and 1998; (2) expected volatility of .21 for 2000 and .19 for 1999 and
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stock Based Compensation Plans, Continued
1998; (3) a risk-free interest rate of 6.3% for 2000, 6.0% for 1999, and 5.2% for 1998; and (4) expected life of six years for 2000, ten years for 1999, and eight years for 1998.
Had compensation cost for the Company's 2000, 1999 and 1998 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 2000, 1999 and 1998 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 to officers and directors as of December 31, 2000, 1999 and 1998 and the changes during the years are presented below:
In January 2001, 31,820 shares of restricted stock were issued to officers of the Company at a price of $6.19 per share, to vest ratably over 3 to 5 years.
EQUITY INNS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Significant Lessee Information
As discussed in Note 1, the Company's Prime Lessee guarantees Percentage Rent Leases relating to hotels accounting for more than 20% of the Company's assets. The following financial information as of December 31, 2000 is presented for the Prime Lessee:
Prime ----------- Miscellaneous Data:
Number of hotels owned, managed or leased 214 Number of rooms owned, managed or leased 27,871
Balance Sheet Data (in thousands): Investment in hotel real estate $1,015,997 Cash and short-term investments 5,060 Total assets 1,174,265 Total debt 345,689 Shareholders' equity 668,100
Income Statement Data (in thousands):
Total revenue $559,944 Net income 62,500
11. Subsequent Events
Effective January 1, 2001, the Company terminated or assigned all 75 of its Percentage Leases with the Interstate Lessee. No remuneration was exchanged for the termination of the leases. This action was precipitated by the recent enactment of the federal REIT Modernization Act, 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 January 1, 2001, the Company entered into management contracts on 55 of its hotels with an affiliate of IHC, which later will expire on a staggered basis, beginning January 1, 2002 through 2005. Also, the Company entered into management contracts on 20 of its hotels with Promus Hotels, Inc., a subsidiary of Hilton Hotels Corporation, and two of its hotels with Crestline Hotels and Resorts, Inc.
Effective 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 the Percentage. The swap agreement will expire in November 2003.
On January 25, 2001, the Company issued 39,722 shares of common stock valued at $6.19 per share to its officers in lieu of cash to satisfy bonus compensation accrued at December 31, 2000 and also issued 31,820 restricted shares of common stock valued at $6.19 per share to its officers.
EQUITY INNS, INC. SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2000 (In Thousands)
EQUITY INNS, INC. SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) AS OF DECEMBER 31, 2000 (In Thousands)
(a) Reconciliation of Real Estate: Balance at December 31, 1998 $858,607 Additions during the period 87,769 Sales during the period (30,955) -------- Balance at December 31, 1999 915,421 Additions during the period 9,791 Sales during the period (18,216) --------
Balance at December 31, 2000 $906,996 ========
(b) Reconciliation of Accumulated Depreciation: Balance At December 31, 1998 $ 68,475 Depreciation expense during the period 36,290 Depreciation on sales during the period (3,881) -------- 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 ========
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 2000 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.
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.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the section entitled "Executive Compensation" in the Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
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.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(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 28 Consolidated Balance Sheets at December 31, 2000 and 1999 29 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 30 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 34 Notes to Consolidated Financial Statements 35 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2000 47
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.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the last quarter of the period covered by this Annual Report on Form 10-K.
(c) Exhibits:
Exhibit Number Description - ------ -----------
3.1(a) -- Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration No. 33-73304)
3.1(b) -- Articles of Amendment to the Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (Registration No. 0-23290) filed with the Securities and Exchange Commission on April 27, 1995)
3.1(c) -- Articles of Amendment to the Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (Registration No. 0-23290) filed with the Securities and Exchange Commission on May 31, 1996)
3.1(d) -- 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 Securities and Exchange Commission on October 23, 1997)
3.1(e) -- 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 Securities and Exchange Commission on May 28, 1998)
3.1(f) -- 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 Securities and Exchange Commission 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) -- Second Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-90364)
4.2(b) -- 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 Securities and Exchange Commission on July 10, 1997
4.2(c) -- 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 Securities and Exchange Commission on June 24, 1998)
4.3(a), -- Indenture dated as of February 6, 1997 among EQI Financing 10.1(a) 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 Securities and Exchange Commission on April 30, 1997)
4.3(b), -- Agreement regarding indenture and mortgages dated as of January 10.2(b) 1, 2001 by and between LaSalle Bank National Association and EQI Financing Partnership I, L.P. (incorporated by reference to Exhibits 4.2 and 10.2 to the Company's Current Report on Form 8-K (Registration No. 01-12073) filed with the Securities and Exchange Commission on February 26, 2001)
10.2 -- Form of Lease Agreement, effective as of January 1, 2001(incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K (Registration No. 01-12073) filed with the Securities and Exchange Commission on February 26, 2001
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 Securities and Exchange Commission 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 Securities and Exchange Commission on February 26, 2001)
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
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
10.9* -- Loan Agreement, dated as of November 7, 2000, between EQI Financing Partnership IV, L.P. and EQI/WV Financing Partnership II, L.P., as Borrowers, and General Electric Corporation, as Lender
10.10 -- 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, Bone 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 Securities and Exchange Commission on January 11, 2001)
10.11 -- 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)
10.12 -- Form of Management Agreement between certain subsidiaries of Equity Inns TRS Holdings, Inc., as lessees, 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 Securities and Exchange Commission on February 26, 2001)
10.13 -- Form of Management Agreement between certain subsidiaries of Equity Inns TRS Holdings, Inc. as lessees, 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 Securities and Exchange Commission on February 26, 2001)
10.14 -- Form of Management Agreement between certain subsidiaries of Equity Inns TRS Holdings, Inc as lessees, 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 Securities and Exchange Commission on February 26, 2001)
10.15 -- Form of Deed of Trust dated as of February 6, 1997 by EQI Financing Partnership I, 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 Securities and Exchange Commission on April 30, 1997)
10.16 -- 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 Securities and Exchange Commission on March 23, 1999
10.17 -- 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 Securities and Exchange Commission on March 23, 1999)
10.18 -- Change in Control and Termination Agreement between Equity Inn 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 Securities and Exchange Commission on March 23, 1999)
10.19 -- 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 Securities and Exchange Commission on March 23, 1999)
10.20 -- 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 Securities and Exchange Commission on March 23, 1999)
10.21 -- Change in Control and Termination Agreement between Equity Inns Services, Inc., Equity Inns, Inc. and J. Ronald Cooper (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 23, 1999)
10.22 -- Change in Control and Termination Agreement between Equity Inns Services, Inc., Equity Inns, Inc. and Richard F. Mitchell (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 23, 1999)
10.23 -- 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 Securities and Exchange Commission on March 17, 2000)
10.24 -- Employment Agreement between Equity Inns Services, Inc., Equity Inns, Inc. and Donald H. Dempsey (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 23, 1999)
10.25 -- Equity Inns, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.27 to the Company Annual Report on From 10-K for the year ended December 31, 1999 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 17, 2000)
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of PricewaterhouseCoopers L.L.P.
- -------------- * Filed herewith.
(d) Financial Statement 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).
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 19th day of March, 2001.
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 19th day of March, 2001.
Signature Title Date --------- ----- ----
/s/ Phillip H. McNeill, Sr. Chairman of the Board and March 19, 2001 - --------------------------- Chief Executive Officer Phillip H. McNeill, Sr. (Principal Executive Officer) and Director
/s/ Howard A. Silver President, Chief Operating March 19, 2001 - -------------------- Officer and Director Howard A. Silver
/s/ Donald H. Dempsey Executive Vice President, March 19, 2001 - --------------------- Secretary, Treasurer, Donald H. Dempsey Chief Financial Officer (Principal Financial and Accounting Officer) and Director
/s/ William A. Deupree, Jr. Director March 19, 2001 - --------------------------- William A. Deupree, Jr.
/s/ Harry S. Hays Director March 19, 2001 - ----------------- Harry S. Hays
/s/ Joseph W. McLeary Director March 19, 2001 - --------------------- Joseph W. McLeary
/s/ Raymond E. Schultz Director March 19, 2001 - ---------------------- Raymond E. Schultz
INDEX OF EXHIBITS Exhibit Number Description - ------ -----------
3.1(a) -- Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration No. 33-73304)
3.1(b) -- Articles of Amendment to the Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (Registration No. 0-23290) filed with the Securities and Exchange Commission on April 27, 1995)
3.1(c) -- Articles of Amendment to the Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (Registration No. 0-23290) filed with the Securities and Exchange Commission on May 31, 1996)
3.1(d) -- 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 Securities and Exchange Commission on October 23, 1997)
3.1(e) -- 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 Securities and Exchange Commission on May 28, 1998)
3.1(f) -- 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 Securities and Exchange Commission 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) -- Second Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-90364)
4.2(b) -- 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 Securities and Exchange Commission on July 10, 1997
4.2(c) -- 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 Securities and Exchange Commission on June 24, 1998)
4.3(a), -- Indenture dated as of February 6, 1997 among EQI Financing 10.1(a) 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 Securities and Exchange Commission on April 30, 1997)
4.3(b), -- Agreement regarding indenture and mortgages dated as of January 10.2(b) 1, 2001 by and between LaSalle Bank National Association and EQI Financing Partnership I, L.P. (incorporated by reference to Exhibits 4.2 and 10.2 to the Company's Current Report on Form 8-K (Registration No. 01-12073) filed with the Securities and Exchange Commission on February 26, 2001)
10.2 -- Form of Lease Agreement, effective as of January 1, 2001(incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K (Registration No. 01-12073) filed with the Securities and Exchange Commission on February 26, 2001
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 Securities and Exchange Commission 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 Securities and Exchange Commission on February 26, 2001)
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
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
10.9* -- Loan Agreement, dated as of November 7, 2000, between EQI Financing Partnership IV, L.P. and EQI/WV Financing Partnership II, L.P., as Borrowers, and General Electric Corporation, as Lender
10.10 -- 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, Bone 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 Securities and Exchange Commission on January 11, 2001)
10.11 -- 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)
10.12 -- Form of Management Agreement between certain subsidiaries of Equity Inns TRS Holdings, Inc., as lessees, 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 Securities and Exchange Commission on February 26, 2001)
10.13 -- Form of Management Agreement between certain subsidiaries of Equity Inns TRS Holdings, Inc. as lessees, 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 Securities and Exchange Commission on February 26, 2001)
10.14 -- Form of Management Agreement between certain subsidiaries of Equity Inns TRS Holdings, Inc as lessees, 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 Securities and Exchange Commission on February 26, 2001)
10.15 -- Form of Deed of Trust dated as of February 6, 1997 by EQI Financing Partnership I, 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 Securities and Exchange Commission on April 30, 1997)
10.16 -- 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 Securities and Exchange Commission on March 23, 1999
10.17 -- 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 Securities and Exchange Commission on March 23, 1999)
10.18 -- 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 Securities and Exchange Commission on March 23, 1999)
10.19 -- 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 Securities and Exchange Commission on March 23, 1999)
10.20 -- 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 Securities and Exchange Commission on March 23, 1999)
10.21 -- Change in Control and Termination Agreement between Equity Inns Services, Inc., Equity Inns, Inc. and J. Ronald Cooper (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 23, 1999)
10.22 -- Change in Control and Termination Agreement between Equity Inns Services, Inc., Equity Inns, Inc. and Richard F. Mitchell (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 23, 1999)
10.23 -- Change in Control and Termination Agreement between Equity Inn 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 Securities and Exchange Commission on March 17, 2000)
10.24 -- Employment Agreement between Equity Inns Services, Inc., Equity Inns, Inc. and Donald H. Dempsey (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 23, 1999)
10.25 -- Equity Inns, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.27 to the Company Annual Report on From 10-K for the year ended December 31, 1999 (Registration No. 01-12073) filed with the Securities and Exchange Commission on March 17, 2000)
21.1* -- List of subsidiaries of Equity Inns, Inc.
23.1* -- Consent of PricewaterhouseCoopers L.L.P.
- -------------- * Filed herewith.