SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
- ---
X Annual Report Pursuant to Section 13 or 15(d) of
- --- The Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002 Commission File Number 01-12073
EQUITY INNS, INC.
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1550848
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
7700 Wolf River Boulevard, Germantown, Tennessee 38138
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(Address of Registrant's Principal Executive Office) (Zip Code)
(901) 754-7774
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
9 1/2% Series A Cumulative Preferred Stock, $.01 par value
----------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K _____.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No ____.
Aggregate market value of voting stock and non-voting common stock held by
nonaffiliates of the registrant as of June 28, 2002: $325,586,364. Number of
shares of Common Stock, $.01 par value, outstanding as of March 17, 2003:
40,519,819
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its 2003 Annual Meeting of
Shareholders to be held May 8, 2003 (the "Proxy Statement") are incorporated by
reference into Part III of this Report.
Exhibit Index beginning on Page 63.
Page 1 of 67
EQUITY INNS, INC
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2002
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 53
Part III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 53
Item 13. Certain Relationships and Related Transactions 53
Item 14. Controls and Procedures 54
PART IV
Item 15. Exhibits, Financial Statements, Schedules, and Reports on
Form 8-K 54
2
PART I
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains or incorporates by reference forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements containing the words, "believes", "anticipates",
"expects" and words of similar import. Such forward-looking statements relate to
future events, the future financial performance of the Company, and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company or industry results
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Readers should
specifically consider the various factors identified, or incorporated by
reference in this report including, but not limited to those discussed in the
sections entitled "Growth Strategy" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations", those discussed in the
Company's Current Report on Form 8-K filed on March 27, 2003 and in any other
documents filed by the Company with the Securities and Exchange Commission that
could cause actual results to differ. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
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, 2002, owned an approximate 97.1% interest in
the Partnership. The Company conducts its business through the Partnership and
its subsidiaries.
(b) Narrative Description of Business
At December 31, 2002, the Partnership and its affiliates owned 97 hotel
properties with a total of 12,460 rooms in 34 states (the "Hotels"). In order to
qualify as a REIT, the Company and the Partnership cannot operate hotels.
Therefore, all hotels were leased to taxable REIT subsidiaries of the Company
(the "TRS Lessees").
On January 1, 2001, the REIT Modernization Act ("RMA") went into effect. Among
other things, the RMA permits a REIT to form taxable REIT subsidiaries ("TRSs")
that lease hotels from the REIT, provided that the hotels continue to be managed
by unrelated third parties. Effective January 1, 2001, the Company completed
transactions that resulted in its newly formed TRSs acquiring leases for the 77
hotels that were previously leased by subsidiaries of Interstate Hotels
Corporation ("Interstate"). Effective January 1, 2002, the Company completed
transactions that resulted in its newly formed TRSs acquiring leases for the
remaining 19 hotels that were previously leased by subsidiaries of Prime
Hospitality Corporation ("Prime"). By acquiring these leases through its TRSs,
the Company acquired the economic benefits and risks of the operations of these
hotels and began reporting hotel revenues and expenses rather than percentage
lease revenues.
3
The managers of the Company's hotels are as follows:
# of
Hotels
------
Interstate Hotels Corporation 52
Promus Hotels, Inc. 20
Prime Hospitality Corporation 19
Other 6
The management agreements with Prime's subsidiaries are structured to provide
the TRS Lessees minimum net operating income at each of the 19 AmeriSuites
hotels. In addition, the management agreements specify a net operating income
threshold for each of the 19 AmeriSuites hotels. As the manager, the Prime
subsidiaries can earn an incentive management fee of 25% of hotel net operating
income above the threshold, to a maximum of 6.5% of gross hotel revenues. If the
management fee exceeds 6.5% of gross hotel revenue, the Prime subsidiaries may
earn an additional fee of 10% on any additional net operating income. If a hotel
fails to generate net operating income sufficient to reach the threshold,
Prime's subsidiaries are required to contribute 25% of the shortfall in net
operating income to the Company. Management records such shortfall contributions
as revenue when all contingencies related to such amounts have been resolved.
The result of this policy is that shortfall contributions, if any, are recorded
annually by the Company in the fourth quarter. The management contracts for the
Company's remaining 78 hotels have terms ranging from one to five years and
generally provide for payment of management fees equal to a percentage of hotel
revenues and an incentive fee consisting of a percentage of gross operating
profits in excess of budget.
4
The diversity of the Company's portfolio is such that, at December 31, 2002, 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
Courtyard by Marriott 1 176
-- ------
Sub-total 6 910
-- ------
Total 97 12,460
== ======
5
Geographical Diversity
Nuber 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 8.7%
Georgia 3 314 2.5%
Idaho 1 104 0.8%
Illinois 3 499 4.0%
Indiana 2 255 2.0%
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 1.9%
Nebraska 1 80 0.6%
Nevada 1 202 1.6%
New Jersey 3 424 3.4%
New Mexico 1 128 1.0%
New York 1 154 1.2%
North Carolina 5 614 4.9%
Ohio 6 736 5.9%
Oklahoma 1 135 1.1%
Oregon 1 168 1.3%
Pennsylvania 2 249 2.0%
South Carolina 3 404 3.2%
Tennessee 10 1,172 9.4%
Texas 9 1,281 10.3%
Vermont 2 200 1.6%
Virginia 2 245 2.0%
Washington 1 161 1.3%
West Virginia 4 455 3.7%
-- ------ -----
97 12,460 100.0%
== ====== =====
GROWTH STRATEGY
The Company's business objectives are to increase funds from operations and
dividends, while enhancing 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.
6
EMPLOYEES
At March 1, 2003, the Company employed, through a wholly-owned subsidiary, 17
employees.
COMPETITION
The hotel industry is highly competitive with various participants competing on
the basis of price, level of service and geographic location. Each of the Hotels
is located in a developed area that includes other hotel properties. The number
of competitive hotel properties in a particular area could have a material
adverse effect on occupancy, average daily rate ("ADR") and Revenue Per
Available Room ("REVPAR") of the Hotels or at hotel properties acquired in the
future. The Company believes that brand recognition, location, the quality of
the hotel, consistency of services provided, and price are the principal
competitive factors affecting the Company's hotels.
FRANCHISE AGREEMENTS
A part of the Company's asset management program is the licensing of all its
Hotels under nationally franchised brands. The Company believes that the
public's perception of quality associated with a franchisor is an important
feature in the operation of a hotel. The Company believes that franchised
properties generally have higher levels of occupancy and ADR than properties
which are unfranchised due to access to national reservation systems and
advertising and marketing programs provided by franchisors. The Company's
franchise agreements generally have terms ranging from 10 to 20 years and expire
beginning in 2003 through 2019. Renewal procedures are currently underway for
several hotels.
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 $8.9
million to its hotel properties in 2002. In 2003, the Partnership expects to
fund approximately $16 million of capital improvements for the Hotels.
SEASONALITY
The Hotels' operations historically have been seasonal in nature, generally
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in the Company's quarterly
results of operations.
TAX STATUS
The Company intends to operate so as to be taxed as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As long
as the Company qualifies for taxation as a REIT, with certain exceptions, the
Company will not be taxed at the corporate level on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it distribute
annually at least 90% (95% for taxable years ending before January 1, 2001) 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.
7
The RMA, which generally took effect on January 1, 2001, includes several REIT
provisions which revised extensively the tax rules applicable to TRSs. Under the
RMA provisions, the Company is now allowed to own all of the stock in TRSs. In
addition, a TRS is allowed to perform "non- customary" services for hotel guests
and is permitted to enter into many new businesses. However, a TRS is not
allowed to manage hotels. Each TRS is required to enter into management
contracts for the Company's hotels with independent third party management
companies. The use of TRSs, however, is subject to certain restrictions,
including the following:
o no more than 20% of the REIT's assets may consist of securities of its
TRSs;
o the tax deductibility of interest paid or accrued by a TRS to its
affiliated REIT is limited; and
o a 100% excise tax is imposed on non-arm's length transactions between a
TRS and its ffiliated REIT or the REIT's tenants.
As a result of the opportunities offered by the RMA, the Company has terminated
or assigned the Percentage Leases with the Interstate and Prime Lessees and
entered into new Percentage Leases with the TRS Lessees for all the Hotels. On
January 1, 2001, the TRS Lessees entered into new management agreements with
Interstate (for 55 Hotels), Promus (for 20 Hotels) and Crestline (for two
Hotels). On January 1, 2002, the TRS Lessees entered into new management
agreements with Prime's subsidiaries for 19 Hotels and with Waterford for the
Company's hotel in Burlington, Vermont which was previously managed by
Interstate. On October 1, 2002, the TRS Lessees entered into new management
agreements with Waterford for two of the Company's hotels in New Jersey which
were previously managed by Interstate. In December 2002, the TRS Lessees entered
into a management agreement with Wright Hospitality Management LLC to manage the
Company's newly acquired hotel in Houston, Texas.
ENVIRONMENTAL MATTERS
In connection with the Partnership's acquisition of the Hotels, Phase I
environmental site assessments ("ESAs") were obtained on all of the Hotels. The
Phase I ESAs included historical review of the Hotels, reviews of certain public
records, preliminary investigations of the sites and surrounding properties,
screenings for hazardous and toxic substances and underground storage tanks, and
the preparation and issuance of a written report. The Phase I ESAs did not
include invasive procedures to detect contaminants from former operations on the
Hotels or migrating from neighbors or caused by third parties. The Phase I ESAs
have not revealed any environmental liability that the Company believes would
have a material adverse effect on the Company's business, assets, results of
operations or liquidity, nor is the Company aware of any such liability or
material environmental issues.
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
8
Phillip H. McNeill, Jr. Executive Vice President of Development
J. Ronald Cooper Vice President, Assistant Secretary,
Assistant Treasurer and Controller
Certain biographical information required under this section for Messrs.
McNeill, Sr., Silver and Dempsey, as directors and executive officers of the
Company, is incorporated by reference from the section entitled "The Election of
Directors" in the Proxy Statement.
Phillip H. McNeill, Jr. (age 41) 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 54) 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.
AVAILABLE INFORMATION
The Company's Internet website address is: www.equityinns.com. The Company makes
available free of charge through its website its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable
after such documents are electronically filed with, or furnished to, the SEC.
The information on the Company's website is not, and shall not be deemed to be,
a part of this report or incorporated into any other filings it makes with the
SEC.
9
ITEM 2. PROPERTIES
The following table sets forth certain information for the year ended December
31, 2002 with respect to the Hotels owned by the Company for such period:
Year Ended December 31, 2002
Revenue
Number Average Per
Date Of Room Daily Available
Opened Rooms Revenue(1) Occupancy Rate Room (2)
------ ------ ---------- --------- --------- --------
Hampton Inn:
Albany, New York 1986 154 $ 3,860 68.7% $99.99 $68.67
Ann Arbor, Michigan 1986 150 2,825 65.2% $79.63 $51.95
Atlanta (Northlake), Georgia 1988 130 1,501 50.5% $63.15 $31.87
Austin, Texas 1987 122 1,781 59.2% $68.17 $40.33
Baltimore (Glen Burnie), Maryland 1989 116 2,599 73.0% $84.84 $61.91
Beckley, West Virginia 1992 108 2,261 84.0% $68.27 $57.36
Birmingham (Mountain Brook),
Alabama 1987 131 2,194 65.6% $70.52 $46.24
Birmingham (Vestavia), Alabama 1986 123 1,586 57.4% $61.52 $35.34
Chapel Hill, North Carolina 1986 122 2,010 65.9% $68.63 $45.23
Charleston, South Carolina 1985 125 1,846 74.1% $54.56 $40.46
Chattanooga, Tennessee 1988 168 2,840 73.4% $63.50 $46.59
Chicago (Gurnee), Illinois 1988 134 2,006 57.5% $71.35 $41.00
Chicago (Naperville), Illinois 1987 130 2,437 69.9% $74.64 $52.15
Cleveland, Ohio 1987 123 1,612 54.6% $65.75 $35.90
College Station, Texas 1986 135 2,204 69.5% $64.86 $45.07
Colorado Springs, Colorado 1985 128 1,493 49.1% $65.10 $31.95
Columbia, South Carolina 1985 121 1,574 56.2% $63.98 $35.94
Columbus, Georgia 1986 119 1,870 68.8% $63.10 $43.42
Columbus (Dublin), Ohio 1988 123 1,851 57.7% $71.50 $41.23
Dallas (Addison), Texas 1985 160 1,811 49.5% $63.11 $31.21
Dallas (Richardson), Texas 1987 130 1,554 51.8% $63.27 $32.75
Denver (Aurora), Colorado 1985 132 1,505 53.8% $58.52 $31.47
Detroit (Madison Heights),
Michigan 1987 124 2,374 64.3% $81.58 $52.46
Detroit (Northfield), Michigan 1989 125 2,433 60.5% $88.15 $53.32
Fayetteville, North Carolina 1986 122 1,784 69.5% $58.10 $40.40
Ft. Worth, Texas 1987 125 1,630 59.3% $60.26 $35.73
Gastonia, North Carolina 1989 109 1,378 58.8% $59.10 $34.74
Indianapolis, Indiana 1987 129 2,268 72.6% $66.32 $48.17
Jacksonville, Florida 1986 122 1,923 72.0% $60.46 $43.55
Kansas City (Overland Park),
Kansas 1991 134 2,237 63.0% $72.61 $45.74
Kansas City, Missouri 1987 120 2,175 62.9% $78.87 $49.65
Knoxville, Tennessee 1991 118 1,835 68.1% $62.53 $42.59
Little Rock (North), Arkansas 1985 123 1,364 51.8% $58.64 $30.37
Louisville, Kentucky 1986 119 1,553 57.0% $63.25 $36.05
Memphis (Poplar),Tennessee 1985 126 2,506 70.9% $77.44 $54.93
Memphis (Sycamore View), Tennessee 1984 117 1,390 61.7% $53.21 $32,83
Meriden, Connecticut 1988 125 2,446 64.9% $83.26 $54.05
Milford, Connecticut 1986 148 2,807 65.3% $79.52 $51.96
Morgantown, West Virginia 1991 108 2,177 73.5% $75.79 $55.68
Nashville (Briley Parkway),
Tennessee 1987 120 2,009 66.6% $69.50 $46.26
Norfolk, Virginia 1990 119 2,285 78.2% $68.06 $53.21
Pickwick, Tennessee 1994 50 607 48.4% $68.81 $33.27
San Antonio (Bowie), Texas 1995 169 3,769 70.3% $86.95 $61.10
Sarasota, Florida 1987 97 1,119 48.3% $65.50 $31.61
Scottsdale, Arizona 1996 126 1,560 42.7% $79.54 $33.93
Scranton, Pennsylvania 1994 129 2,680 74.3% $76.57 $56.91
State College, Pennsylvania 1987 120 2,190 60.7% $82.34 $50.00
St. Louis (Westport), Missouri 1987 122 1,963 60.0% $73.46 $44.08
Hampton Inn & Suites:
Memphis (Bartlett), Tennessee 1998 125 2,621 75.7% $75.83 $57.44
Courtyard by Marriott
Houston, Texas (3) 2002 176 214 55.9% $83.65 $46.78
10
Year Ended December 31, 2002
Revenue
Number Average Per
Date Of Room Daily Available
Opened Rooms Revenue(1) Occupancy Rate Room (2)
------ ------- ---------- --------- --------- --------
Comfort Inn:
Dallas (Arlington), Texas 1985 141 1,270 47.4% $52.00 $24.67
Jacksonville Beach, Florida 1973 177 3,907 65.6% $92.15 $60.47
Rutland, Vermont 1985 104 1,840 64.5% $75.10 $48.47
Residence Inn:
Boise, Idaho 1986 104 2,897 86.8% $87.93 $76.31
Burlington, Vermont 1988 96 2,247 79.2% $80.95 $64.12
Colorado Springs, Colorado 1984 96 2,377 83.3% $81.46 $67.83
Minneapolis (Eagan), Minnesota 1988 120 2,667 72.4% $84.16 $60.90
Oklahoma City, Oklahoma 1982 135 3,026 80.9% $75.89 $61.41
Omaha, Nebraska 1981 80 1,950 78.2% $85.43 $66.77
Portland, Oregon 1990 168 3,994 68.9% $94.50 $65.13
Princeton, New Jersey 1988 208 5,536 65.4% $111.48 $72.92
Somers Point, New Jersey 1988 120 4,227 82.6% $116.85 $96.50
Tinton Falls, New Jersey 1988 96 3,144 76.7% $116.94 $89.74
Tucson, Arizona 1985 128 3,270 88.3% $79.45 $70.18
Holiday Inn:
Bluefield, West Virginia 1980 120 2,036 71.7% $64.87 $46.48
Charleston (Mt. Pleasant),
South Carolina 1988 158 2,617 56.9% $79.68 $45.37
Oak Hill, West Virginia 1983 119 1,202 45.0% $61.45 $27.67
Wilkesboro, North Carolina 1985 101 1,467 61.9% $64.93 $40.18
Winston-Salem, North Carolina 1969 160 1,582 46.8% $58.25 $27.27
Homewood Suites:
Augusta, Georgia 1997 65 1,680 75.1% $94.30 $70.80
Chicago, Illinois 1999 235 8,784 78.6% $131.42 $103.28
Cincinnati (Sharonville), Ohio 1990 111 2,078 65.1% $78.81 $51.28
Hartford, Connecticut 1990 132 3,606 69.9% $107.10 $74.84
Memphis (Germantown), Tennessee 1996 92 1,996 72.7% $81.73 $59.45
Orlando, Florida 1999 252 5,865 79.5% $80.18 $63.76
Phoenix, Arizona 1996 124 3,026 70.2% $95.20 $66.86
San Antonio, Texas 1996 123 3,101 81.5% $84.74 $69.06
Seattle, Washington 1998 161 4,730 79.1% $101.75 $80.50
AmeriSuites:
Albuquerque, New Mexico 1997 128 2,770 88.3% $67.17 $59.30
Baltimore, Maryland 1996 128 3,171 76.9% $88.21 $67.87
Baton Rouge, Louisiana 1997 128 2,287 65.4% $74.82 $48.95
Birmingham, Alabama 1997 128 2,115 64.5% $70.22 $45.27
Cincinnati (Blue Ash), Ohio 1990 127 1,254 45.8% $59.02 $27.06
Cincinnati (Forest Park), Ohio 1992 126 1,608 47.8% $73.14 $34.97
Columbus, Ohio 1994 126 2,315 72.2% $69.74 $50.34
Flagstaff, Arizona 1993 117 1,834 66.6% $64.49 $42.94
Indianapolis, Indiana 1992 126 2,153 62.7% $74.71 $46.82
Jacksonville, Florida 1996 112 1,247 54.3% $56.14 $30.51
Las Vegas, Nevada 1998 202 4,313 79.8% $73.32 $58.50
Kansas City (Overland Park),
Kansas 1994 126 1,993 57.4% $75.56 $43.36
Memphis (Wolfchase), Tennessee 1996 128 1,718 52.0% $70.77 $36.77
Miami, Florida 1996 126 2,536 80.7% $68.30 $55.14
Miami (Kendall), Florida 1996 67 2,083 84.1% $101.28 $85.20
Minneapolis, Minnesota 1997 128 2,601 69.2% $80.39 $55.67
Nashville, Tennessee 1997 128 2,073 65.6% $67.61 $44.37
Richmond, Virginia 1992 126 1,671 58.7% $61.94 $36.36
Tampa, Florida 1994 126 2,639 71.5% $80.31 $57.40
------ -------- ---- ------ ------
Consolidated Totals/Weighted
Average for all Hotels 12,460 $229,020 66.3% $77.16 $51.14
====== ======== ==== ====== ======
- ------------------------
(1) Amounts in thousands.
(2) Determined by multiplying occupancy times the ADR. (3) Reflects results from
the date of acquisition.
11
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Partnership currently is involved in any material
litigation nor, to the Company's knowledge, is any material litigation currently
threatened against the Company or the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 2002, through the solicitation of proxies or otherwise.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, $.01 par value (the "Common Stock"), is traded on
the New York Stock Exchange (the "NYSE") under the symbol "ENN." The following
table sets forth for the indicated periods the high and low closing prices for
the Common Stock as traded through the facilities of the NYSE and the cash
distributions declared per share:
Price Range Distributions
----------- Declared Record
High Low Per Share Date
---- ------ -------------- ------------------
Year Ended December 31, 2001:
First Quarter $8.22 $6.31 $0.25 March 31, 2001
Second Quarter $9.87 $6.55 $0.25 June 29, 2001
Third Quarter $9.85 $6.01 $0.25 September 28, 2001
Fourth Quarter $8.72 $6.61 $0.00 N/A
Year Ended December 31, 2002:
First Quarter $8.34 $6.92 $0.12 March 29, 2002
Second Quarter $8.34 $6.92 $0.13 June 28, 2002
Third Quarter $7.59 $5.85 $0.13 September 30, 2002
Fourth Quarter $6.35 $5.03 $0.13 December 31, 2002
(b) Stockholder Information
On March 17, 2003, there were 786 record holders of the Company's Common Stock,
including shares held in "street name" by nominees who are record holders, and
approximately 17,000 beneficial owners.
(c) Distributions
The Company has adopted a policy of paying regular quarterly distributions on
its Common Stock, and cash distributions were paid on the Company's Common Stock
each quarter since its inception, through the third quarter of 2001. Due to the
economic impact of the events of September 11, 2001 on the lodging industry, the
Company did not declare or pay a dividend for the fourth quarter of 2001.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from net income reported for financial purposes
primarily due to the difference for federal tax purposes in the estimated lives
used to compute depreciation.
The Company expects to pay future quarterly dividends. The amount of future
dividends will be based upon operating results, economic conditions, capital
expenditure requirements and leverage restrictions imposed by the Company's line
of credit. Future distributions paid by the Company will
12
be at its Board of Directors' sole discretion and will depend on the Company's
actual cash flow, its financial condition, capital requirements, the Code's REIT
annual distribution requirements and other factors which the Board of Directors
deems relevant.
A portion of the distribution to shareholders is expected to represent a return
of capital for federal income tax purposes. The Company's distributions made in
2002 and 2001 are considered to be approximately 3% and 21% return of capital,
respectively, for federal income tax purposes.
(d) Recent Sales of Unregistered Securities
During the year ended December 31, 2002, the Company issued 2,566 shares of
Common Stock in transactions exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended, upon the redemption of Units in the
Partnership.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company that has been derived from the financial statements of the Company and
the notes thereto. Such data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
all of the financial statements and notes thereto.
EQUITY INNS, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Year Ended December 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Operating Data:
Revenue (1) $241,174 $226,060 $116,810 $117,294 $107,436
Income from continuing operations(1) 6,464 10,081 19,656 28,319 32,300
Net income (1) 6,464 10,164 16,340 29,316 31,595
Preferred stock dividends 6,531 6,531 6,531 6,531 3,374
Net income (loss) applicable to
common shareholders (67) 3,633 9,809 22,785 28,221
Net income (loss) from continuing
operations per common share,
basic and diluted .00 .10 .27 .62 .78
Net income (loss) per common
share, basic and diluted .00 .10 .27 .61 .78
Distributions declared per
common share and Unit .51 .75 1.06 1.24 1.24
Weighted average number of
common shares outstanding-diluted 39,628 36,834 36,698 37,225 36,094
Balance Sheet Data:
Investments in hotel properties,
net $740,146 $751,891 $772,411 $814,537 $790,132
Total assets 774,452 778,079 801,743 832,119 807,023
Debt 362,881 384,166 383,403 381,175 331,394
Minority interest in Partnership 8,782 9,512 10,370 12,008 19,070
Shareholders' Equity 366,267 358,164 383,786 412,252 431,264
Cash Flow Data:
Cash flows provided by operating
activities $43,804 $68,568 $58,010 $ 71,515 $69,386
Cash flows used in investing
activities (25,327) (20,925) (2,201) (61,899) (193,539)
Cash flows provided by (used in)
financing activities (16,920) (44,077) (55,377) (9,655) 124,363
Other Data:
Funds from operations (2) $40,885 $44,646 $53,729 $61,180 $64,985
13
(1) Beginning in 2001, the Company's consolidated results of operations
reflect (i) hotel-level revenues and operating costs and expenses for 75
hotels previously leased to the Interstate Lessees and two additional
hotels previously operated under management contracts and (ii) percentage
lease revenue from the Prime Lessee. Prior to 2001, the Company's
revenues consisted principally of lease revenue from its third party
lessees and did not reflect hotel-level revenues and operating costs and
expenses. Beginning in 2002, the Company's consolidated results of
operations reflect hotel-level revenues and operating expenses for all
the hotels owned during the year.
(2) Represents Funds from Operations ("FFO") of the Company on a consolidated
basis. The Company generally considers FFO to be an appropriate measure
of the performance of an equity REIT. In accordance with the resolution
adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), FFO represents net income (loss)
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from sales of property, plus depreciation,
and after adjustment for unconsolidated partnerships and joint ventures.
The Company's computation of FFO may not be comparable to the NAREIT
definition or to FFO reported by other REITs. 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. See also Funds From
Operations under 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,
2002 owned an approximate 97.1% interest in the Partnership. At December 31,
2002, the Partnership and its affiliates owned 97 hotel properties with a total
of 12,460 rooms in 34 states (the "Hotels").
On January 1, 2001, the REIT Modernization Act ("RMA") went into effect. Among
other things, the RMA permits a REIT to form TRSs that lease hotels from the
REIT, provided that the hotels continue to be managed by unrelated third
parties. Effective January 1, 2001, the Company completed transactions that
resulted in its newly formed TRSs acquiring leases for the 77 hotels that were
previously leased by subsidiaries of Interstate Hotels Corporation
("Interstate"). Effective January 1, 2002, the Company completed transactions
that resulted in its newly formed TRSs acquiring leases for the remaining 19
hotels that were previously leased by subsidiaries of Prime Hospitality
Corporation ("Prime"). By acquiring these leases through its TRSs, the Company
acquired the economic benefits and risks of the operations of these hotels and
began reporting hotel revenues and expenses rather than percentage lease
revenues.
14
The managers of the Company's hotels are as follows:
# of
Hotels
------
Interstate Hotels Corporation 52
Promus Hotels, Inc. 20
Prime Hospitality Corporation 19
Other 6
The management agreements with Prime's subsidiaries are structured to provide
the TRS Lessees minimum net operating income at each of the 19 AmeriSuites
hotels. In addition, the management agreements specify a net operating income
threshold for each of the 19 AmeriSuites hotels. As the manager, the Prime
subsidiaries can earn an incentive management fee of 25% of hotel net operating
income above the threshold, to a maximum of 6.5% of gross hotel revenues. If the
management fee exceeds 6.5% of gross hotel revenue, the Prime subsidiaries may
earn an additional fee of 10% on any additional net operating income. If a hotel
fails to generate net operating income sufficient to reach the threshold,
Prime's subsidiaries are required to contribute 25% of the shortfall in net
operating income to the Company. Management records such shortfall contributions
as revenue when all contingencies related to such amounts have been resolved.
The results of this policy is that shortfall contributions, if any, are recorded
annually by the Company in the fourth quarter. The management contracts for the
Company's remaining 78 hotels have terms ranging from one to five years and
generally provide for payment of management fees equal to a percentage of hotel
revenues and an incentive fee consisting of a percentage of gross operating
profits in excess of budget.
Recent Developments
Since its inception, the Company has taken steps to position itself for growth
and stability. Several changes have occurred since December 2001 which add
significantly to these efforts. These events are as follows:
Sale of Common Stock
On March 28, 2002, the Company sold 3,565,000 shares of its $.01 par value
Common Stock through an underwritten public offering. The offering price
was $8.00 per share, resulting in gross proceeds of $28,520,000. The
Company received approximately $26.9 million after the deduction of
underwriter's discounts and offering expenses.
Acquisition of Marriott Courtyard
On December 6, 2002, the Company acquired a 176-room Marriott Courtyard
hotel located in the Katy Freeway sub-market of Houston, Texas for
approximately $16.3 million. As part of the acquisition, the Company
entered into a three-year management agreement with Wright Hospitality
Management, LLC. This acquisition represents the first investment by the
Company in the Houston market.
Sale of Hampton Inn and Hampton Inn & Suites
In January 2003, the Company sold a 125-room Hampton Inn in Fort Worth,
Texas for $3.2 million and a 125-room Hampton Inn & Suites in Memphis
(Bartlett), Tennessee for $7.5 million, for an approximate gain of $1.3
million. These sales were part of the Company's long-term strategy of
maximizing hotel performance over time and disposing of assets when
management believes that the long-term cash flow of the property will no
longer increase shareholder value.
15
Results of Operations
During 2001, the Company's revenues primarily represented rental income from 19
hotels leased by the Prime Lessee and hotel level revenues from 77 hotels leased
to the TRS Lessees and operated under management contracts. Upon the termination
of the Percentage Leases with Prime, beginning in January 2002, all of the
Hotels were leased to the TRS Lessees and operated under management contracts.
Effective January 1, 2002, the Company's consolidated results of operations
reflect hotel- level revenues and operating costs and expenses for all 97 Hotels
and the TRS Lessees lease all 97 Hotels from the Partnership and its affiliates
under Percentage Leases. The hotels are managed pursuant to management contracts
between the TRS Lessees and third-party management companies. In order to show
comparability of the Company's results of operations, in addition to the
discussion of the historical results, we have also presented a recap of the
twelve months ended December 31, 2002 and 2001.
Because of the significant changes to our corporate structure as a result of the
termination of the Prime leases effective January 1, 2002, management believes
that a discussion of our pro forma results for the 19 hotels which were subject
to third-party leases in 2001 is meaningful and relevant to an investor's
understanding of the Company's present and future operations. The pro forma
adjustments required to reflect the termination of the Prime leases are to
record hotel-level revenues and expenses and reduce historical rental income
with respect to the 19 properties.
The following tables separately set forth (in thousands) a comparison of all the
Hotels leased to the TRS Lessees.
For the Twelve Months Ended
--------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
December 31, December 31, December 31, December 31, December 31, December 31,
2002 2001 2002 2001 2002 2001
------------- ------------ ------------ ------------ ------------ ------------
77 Hotels 19 Hotels (AmeriSuites) All Hotels
------------------------------ ------------------------------ -----------------------------
Hotel revenues $196,538 $199,090 $43,684 $47,037 $240,222 $246,127
Hotel operating
expenses 122,681 118,209 24,426 26,375 147,107 144,584
Management fees 4,643 3,258 (3,565) (1) (2,775) (1) 1,078 483
(1) The management agreements with Prime's subsidiaries are structured to
guarantee the Company minimum net operating income at each of the 19 AmeriSuites
hotels. In addition, the management agreements specify a net operating income
threshold for each of the 19 AmeriSuites hotels. If a hotel fails to generate
net operating income sufficient to reach the threshold, Prime's subsidiaries are
required to contribute 25% in net operating income to the Company. Contributions
of minimum net operating income and contributions of threshold shortfalls by
Prime are recorded as contra management fees in the Company's consolidated
financial statements.
Pro forma numbers presented represent the Company's historical revenues and
expenses, adjusted as described by pro forma changes below.
Pro forma adjustments:
(a) Total revenue adjustments consist of the changes in historical revenue from
the elimination of historical percentage lease revenue and the addition of
historical hotel operating revenues for the 19 AmeriSuites hotels.
(b) Total operating expense adjustments consist of: (i) the changes in
historical operating expense from the addition of historical hotel operating
expenses and the elimination of percentage lease expense for the 19 AmeriSuites
hotels; and (ii) the adjustment to record management fees at their new
contractual rates.
16
The pro forma financial information does not purport to represent what the
Company's results of operations or financial condition would actually have been
if the transactions had in fact occurred at the beginning of 2001 or to project
the Company's results of operations or financial condition for any future
period. The pro forma financial information is based upon available information
and upon assumptions and estimates that management believes are reasonable under
the circumstances.
Comparison of the Company's operating results for the year ended December 31,
2002 with the year ended December 31, 2001.
For the year ended December 31, 2002, the Company recorded net income of $6.5
million as compared to $10.2 million for the year ended December 31, 2001.
Included in expense for the year ended December 31, 2001 was $2.7 million of
provision for doubtful accounts on notes receivable from third parties and
$550,000 related to the impairment charge taken on a parcel of land which was
held for sale. Net income as adjusted for the exclusion of these charges would
have been approximately $13.4 million for the year ended December 31, 2001. The
principal components of the change in net income for 2002 as compared to 2001 as
adjusted for unusual charges was a decrease in hotel REVPAR of 2.1% and a
related contraction in hotel operating margins offset by an increase in the tax
benefit recorded in 2002 versus 2001 of $2.9 million.
On a historical basis, total revenue and total expenses increased $15,113,572
and $21,724,611, respectively, in 2002 over 2001, primarily as a result of
reporting hotel operating revenues and expenses in 2002 compared to reporting a
combination of hotel operating revenues and percentage lease revenues in 2001,
as a result of the aforementioned termination of the Prime leases on January 1,
2002. Hotel operating expenses, on a pro forma basis, increased by $2,522,621
due primarily to increases in insurance premiums and increased payroll and
employee benefits.
Management fees, on a pro forma basis, increased by $595,231 due primarily to
increases in base management fees over the comparable period in 2001.
Other income decreased by $1,088,203 as compared to the same period of the prior
year, due primarily to (1) a decrease in the income received from the provision
of certain management services to the Company's joint venture partner, GHII,
LLC, (2) a decrease in interest income due to a decline in rates earned on
temporary investments and (3) a one-time recognition of income in 2001 of
approximately $300,000 due to the recording of linen inventory received as a
result of assuming the third-party leases.
Real estate and personal property taxes increased by $225,464 over the
comparable period in 2001.
Depreciation and amortization decreased by $22,076, as compared to the
comparable period in 2001.
Interest expense decreased to $29.0 million from $31.0 million due primarily to
a decrease in average borrowings from $380.7 million to $361.1 million and a
decrease in weighted average interest rates from 8.14% to 8.03%.
General and administrative expenses decreased by $83,839 from the comparable
period in 2001. This change was primarily due to a reduction in the amount of
non-cash compensation paid to officers and directors offset by an increase in
salaries and employee benefits.
The income tax benefit for the year ended December 31, 2002 in the amount of
$6,325,000 was generated by the net operating losses created by the TRS Lessees'
operations during the year.
17
Comparison of the Company's operating results for the year ended December 31,
2001 with the year ended December 31, 2000
During 2000, the Company's revenue was primarily rental income from the
Interstate Lessees and the Prime Lessees. As a result of the termination of the
Interstate leases, beginning in 2001, the Company's consolidated results of
operations reflect hotel-level revenues and operating costs and expenses for 75
hotels previously leased to the Interstate Lessees and two additional hotels
previously operated under management contracts. In order to provide a clearer
understanding and comparability of the Company's results of operations, in
addition to the discussion of the historical results, the Company has presented
an unaudited recap of Percentage Lease revenue which compares the historical
results related to Percentage Lease revenue for the years ended December 31,
2000 and 2001. The Company has also presented the pro forma condensed
consolidated operating results of 77 hotels not subject to third-party leases
for the years ended December 31, 2000 and 2001. The pro forma recap of operating
results of the 77 hotels not subject to third party leases for the year ended
December 31, 2000 reflects the termination of the Interstate leases as if it
occurred on January 1, 2000, and a discussion of the results thereof compared to
the Company's historical results for the year ended December 31, 2001.
Because of the significant changes to the Company's structure as a result of the
termination of the Interstate leases effective January 1, 2001, management
believes that a discussion of the Company's 2001 historical results compared to
its 2000 actual results for the properties subject to the Prime Leases (see
"Recap of Percentage Lease Revenue" below) and pro forma results for the 77
hotels not subject to third party leases (see "Recap of Operating Results of 77
Hotels Not Subject to Third Party Leases" below) is meaningful and relevant to
an investor's understanding of the Company's present and future operations. The
2000 pro forma adjustments to reflect the termination of the Interstate leases
are as follows:
o record hotel-level revenues and expenses and eliminate historical percentage
lease revenue with respect to the 77 properties;
o record the minority interest effect related to the outside ownership in the
Partnership; o reverse the recording in operations of the deferred lease
revenue as a result of the termination of the Interstate leases; and
o record the tax provision attributable to the income of the TRS Lessees at an
effective tax rate of 38%.
The pro forma financial information does not purport to represent what the
Company's results of operations or financial condition would actually have been
if the transactions had in fact occurred at the beginning of 2000 or to project
the Company's results of operations or financial condition for any future
period. The pro forma financial information is based upon available information
and upon assumptions and estimates that management believes are reasonable under
the circumstances.
The following tables separately set forth a comparison of both the Company's
hotels leased to the Prime Lessees and the hotels leased to the TRS Lessees.
Recap of Percentage Lease Revenue
---------------------------------
(in thousands)
For the Years Ended
December 31,
------------------------
2001 2000
------- -------
Percentage rents collected or due from
Prime Lessee $23,545 $24,992
Recognition of deferred lease revenue from
termination of Interstate leases 1,386
------- -------
Percentage Lease Revenue $24,931 $24,992
======= =======
18
Recap of Hotel Revenue and Operating Expenses of 77 Hotels
Not Subject to Third Party Leases
----------------------------------------------------------
(in thousands)
For the Years Ended
December 31,
--------------------------
Pro Forma
2001 2000
-------- ---------
Hotel revenue $199,090 $204,146
Hotel operating expenses, including
management fees 121,467 120,031
The decrease in lease revenue from the 19 hotels leased to the Prime Lessees is
due primarily to a decrease in REVPAR of 7.4% over the comparable period in
2000. The decrease in hotel revenues from the 77 hotels not subject to third
party leases is due to a 2.0% decrease in REVPAR. On a same store and comparable
basis, REVPAR for all hotels owned by the Company throughout both periods
decreased by 3.1% from $54.00 to $52.23. The effect of the weakened national
economy and the dramatic national events that occurred on September 11, 2001 had
a material effect on the Company's REVPAR, particularly in the fourth quarter,
where REVPAR decreased by 8.2%.
Other income increased by $1.1 million over the comparable period in 2000. The
Company entered into an agreement with one of its furniture and equipment
contractors to form a joint venture for the purpose of engaging in the sale of
furniture and equipment to third parties. The Company provided certain
management services to its joint venture partner in 2001 and was compensated
$1.1 million for such services.
On a historical basis, total revenue and total expenses increased $109.2 million
and $122.5 million, respectively, in 2001 over 2000 as a result of reporting
hotel operating revenues and expenses in 2001 compared to reporting percentage
lease revenue in 2000 as a result of the aforementioned termination of the
Interstate leases on January 1, 2001. Hotel operating expenses, on a pro forma
basis, increased by $1.4 million. This increase in expenses for the period is
due primarily to increases in sales and marketing expenses.
Real estate and personal property taxes decreased approximately $1.4 million
over the comparable period in 2000 due to successful settlement of several
appeals on 2000 taxes, resulting in significant refunds of taxes paid in 2000.
Depreciation and amortization increased to $41.3 million in 2001 from $40.5
million in 2000, due primarily to capitalized renovation costs at certain
hotels.
Interest expense decreased to $31.0 million from $32.3 million in 2000 due
primarily to a decrease in weighted average interest rates from 8.44% to 8.14%
in 2001.
Amortization of loan costs increased to $2.0 million from $1.7 million in 2000,
reflecting a full year's amortization of costs associated with the refinancing
of a significant amount of the Company's variable rate debt with fixed rate debt
in late 2000.
General and administration expenses decreased by approximately $300,000 over the
comparable period in 2000. This decrease is primarily attributable to a decrease
in legal and professional fees as compared to 2000 which were incurred in the
conversion of the Company's leases to management contracts and to the
establishment of taxable REIT subsidiaries to serve as Lessees.
19
An impairment of long-lived assets of $550,000 was recorded in 2001 as the
Company made the decision to abandon a project to construct a hotel on an
undeveloped parcel of land in Salt Lake City, Utah and consequently, recorded an
impairment charge to write the land down to its estimated net realizable value
at December 31, 2001.
An allowance for doubtful accounts was established against the Company's notes
receivable from Hudson Hotel Properties Corporation and Rosemont Hospitality
Group, L.L.C. in the amount of $3.3 million based on the Company's current
evaluation of the creditworthiness of these parties. The allowance established
has fully reserved for the notes as of December 31, 2001.
Effective January 1, 2001, the Company leased 77 of its hotels to wholly-owned
taxable REIT subsidiaries that are subject to federal and state income taxes. In
years ending before January 1, 2001, the Company was not subject to federal and
state income tax because of its REIT status. Consequently, the Company recorded
a deferred federal income tax benefit in 2001 in the amount of $3.5 million
which is comprised of net operating loss carryforwards generated by the
Company's taxable REIT subsidiaries.
Net income applicable to common shareholders for 2001 was $3.6 million or $0.10
per share, compared to $9.8 million of $0.27 per share for 2000.
Liquidity and Capital Resources
The Company's principal source of cash to meet its requirements, including
distributions to its shareholders and repayments of indebtedness, is from the
results of operations of the Hotels. For the year ended December 31, 2002, net
cash flow provided by operating activities was $43.8 million and FFO was $40.9
million. The Company currently expects that its operating cash flow will be
sufficient to fund our continuing operations, including our required debt
service obligations (other than the maturity of the line of credit which we
expect to refinance in 2003 as discussed below) and distributions to
shareholders required to maintain our REIT status. The Company expects to fund
any short-term liquidity requirements above our operating cash flows through
short-term borrowings under our Line of Credit.
The Company currently anticipates that full year 2003 hotel portfolio REVPAR,
compared to 2002, will be in a range between -1.0% to 2.0%. FFO for 2003 is
expected to be within the range of $0.90 to $1.00 and EBITDA is expected to be
within the range of $70 million to $75 million.
The Company may make additional investments in hotel properties and may incur,
or cause the Partnership to incur, indebtedness to make such investments or to
meet distribution requirements imposed on a REIT under the Internal Revenue Code
of 1986 (the "Code") to the extent that working capital and cash flow from the
Company's investments are insufficient to make such distributions. The Company's
Board of Directors has adopted a policy limiting aggregate indebtedness to 45%
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 38.3% of its investments in hotels, at cost, at
December 31, 2002.
20
The following details our debt outstanding at December 31, 2002 (in thousands):
Principal Balance Collateral Net Book
----------------------- Interest # of Value at
12/31/02 12/31/01 Rate Maturity Hotels 12/31/02
-------- -------- --------- -------- ----------- --------
Commercial Mortgage Bonds
Class A $ 8,464 $ 10,336 6.83% Fixed 11/20/06
Class B 50,600 50,600 7.37% Fixed 12/20/15
Class C 10,000 10,000 7.58% Fixed 02/20/17
-------- --------
69,064 70,936 21 $113,174
Line of Credit 85,900 102,000 LIBOR plus Variable Oct 2003 28 250,472
Percentage
Mortgage 92,584 94,031 8.37% Fixed July 2009 19 162,161
Mortgage 67,890 68,808 8.25% Fixed Nov 2010 16 105,266
Mortgage 35,100 35,550 8.25% Fixed Nov 2010 8 58,231
Mortgage 2,996 3,064 8.50% Fixed Nov 2005 1 6,965
Mortgage 5,662 5,872 10.00% Fixed Sept 2005 1 11,357
Mortgage 3,685 3,905 6.37% Fixed Nov 2016 1 7,631
-------- -------- --------
$362,881 $384,166 $715,257
======== ======== ========
The Line of Credit has a borrowing capacity of $125 million. The weighted
average interest rate incurred by the Company in 2002 was 8.03%. Payment of
outstanding indebtedness under the Line of Credit is due at maturity in October
2003. This indebtedness must be refinanced on or before its maturity date.
Although the Company believes it will be successful in refinancing this
obligation prior to maturity, there can be no assurance that conditions will
permit the required refinancing, or that refinancing will be available on terms
that the Company considers to be in the best interest of its shareholders. If
the indebtedness is not refinanced, the Company will be in default, and the
holder of such indebtedness will be entitled to the remedies provided in the
debt instruments. Such an event would have a material adverse effect on the
Company's financial condition and results of operations. The Company's success
in refinancing this indebtedness will be dependent upon a number of factors,
including, for example, its operating performance, operating performance of
peers in the hospitality industry, general economic and political conditions and
the general condition of the capital markets.
On January 16, 2001, the Company entered into an interest rate swap agreement
with a financial institution on a notional principal amount of $50 million. The
agreement effectively fixes the interest rate on the Company's floating rate
Line of Credit at a rate of 6.4275% plus 1.50%, 1.75%, 2.00%, 2.25%, 2.50%,
2.75% or 3.0% as determined by the Percentage. The swap agreement will expire in
October 2003.
During 2002, the Company invested $8.9 million 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 $16 million in 2003 for capital improvements. The Company intends
to fund such improvements out of future cash from operations, present cash
balances and borrowings under the Line of Credit. Under certain of its loan
covenants, the Partnership is obligated to fund 4% of room revenues per quarter
on a cumulative basis, to a separate room renovation account for the ongoing
replacement or refurbishment of furniture, fixtures and equipment at the Hotels.
For the years ended December 31, 2002 and 2001, the amounts expended exceeded
the amounts required under the loan covenants.
In connection with its acquisition of a hotel in Chicago, Illinois, the Company
entered into a contract whereby the final installment of the purchase price for
the hotel would be adjusted based on a calculation of capitalized net operating
income, as defined in the agreement, for the results of the hotel in either
2002, 2003 or 2004. The agreement stipulates that the minimum amount to be paid
under this agreement by the Company to the seller is $4 million and the maximum
is $8 million. The Company has obtained a letter of credit in the amount of $5
million related to this agreement.
21
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 2002, the Partnership distributed an aggregate of $21.2 million to
its partners, or $.51 per Unit (including $20.6 million of distributions to the
Company to funds distributions to shareholders of $.51 per share in 2002).
During 2001, the Partnership distributed an aggregate of $28.5 million to its
partners, or $.75 per share. For federal income tax purposes, approximately 3%
of 2002 distributions represented a return of capital, compared with
approximately 21% for 2001. The Company's decision to pay a quarterly common
dividend will be determined each quarter based upon the operating results of
that quarter, economic conditions, and other operating trends. The Company
currently anticipates that it should be able to pay an aggregate of $0.52 to
$0.54 in dividends per common share during 2003, based on the low end of our
current FFO estimates.
The Company expects to meet its long-term liquidity requirements, such as
scheduled debt maturities and property acquisitions, through long-term secured
and unsecured borrowings, the issuance of additional equity securities of the
Company or, in connection with acquisitions of hotel properties, the issuance of
Partnership Units. Under the Partnership's limited partnership agreement (the
"Partnership Agreement"), subject to certain holding period requirements,
holders of Units in the Partnership have the right to require the Partnership to
redeem their Units. During the year ended December 31, 2002, 2,566 Units were
tendered for redemption. Under the Partnership Agreement, the Company has the
option to redeem Units tendered for redemption on a one-for-one basis for shares
of Common Stock or for an equivalent amount of cash. The Company anticipates
that it will acquire any Units tendered for redemption in the foreseeable future
in exchange for shares of Common Stock and, to date, has registered such shares
so as to be freely tradeable by the recipient.
The Company has obligations and commitments to make future payments under debt
and operating lease contracts. The following schedule details these obligations
at December 31, 2002 (in thousands):
Less than After
Total 1 year 1-3 years 4-5 years 5 years
-------- --------- --------- --------- ---------
Debt $362,881 $91,449 $20,091 $15,320 $236,021
Operating leases 13,789 965 1,845 1,537 9,442
Other 4,000 4,000
-------- ------- ------- ------- --------
Total contractual
obligations $380,670 $96,414 $21,936 $16,857 $245,463
======== ======= ======= ======= ========
Funds from Operations
The Company generally considers Funds from Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), FFO represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(or losses) from sales of property, plus depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. For the periods presented,
depreciation, gains and losses from sales of property and minority interest were
the Company's only adjustments to net income for the definition of FFO. The
Company's computation of FFO may not be comparable to the NAREIT definition or
to FFO reported by other REITs. 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.
22
The following reconciliation of net income to FFO illustrates the difference in
the two measures of operating performance:
For the Years Ended December 31,
2002 2001 2000
------- ------- -------
(in thousands, except per share and Unit data)
Net income $ 6,464 $10,164 $16,340
Less:
Gain on sale of hotel properties (83)
Preferred stock dividends (6,531) (6,531) (6,531)
Add:
Minority interest (2) 119 337
Depreciation of buildings,
furniture and fixtures 40,954 40,977 40,267
Loss on sale of hotel properties 3,316
------- ------- -------
Funds from Operations 40,885 44,646 53,729
Add non-recurring items:
Provision for doubtful accounts 2,592
Impairment of long-lived assets 550
------- ------- -------
Recurring Funds From Operations $40,885 $47,788 $53,729
======= ======= =======
Weighted average number of
common shares and Units
outstanding 40,825 38,036 37,960
======= ======= =======
Inflation
Operators of hotels in general have the ability to adjust room rates quickly.
However, competitive pressures may limit the Company's ability to raise room
rates in the face of inflation.
Seasonality
Hotel operations historically are seasonal in nature, generally reflecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in the Company's quarterly results of
operations.
Recent Accounting Pronouncements
Note 12 of the Notes to Consolidated Financial Statements discusses new
accounting policies adopted by the Company during 2002 and the expected impact
of accounting policies recently issued or proposed but not yet required to be
adopted. To the extent the adoption of new accounting standards affects the
Company's financial condition, results of operations or liquidity, the impacts
are discussed in the applicable section(s) of the Management's Discussion and
Analysis and the Notes to Consolidated Financial Statements.
23
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company's management to make estimates and judgments that affect the
reported amount of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.
On an on-going basis, all estimates are evaluated by the Company's management,
including those related to bad debts, carrying value of investments in hotel
properties, income taxes, contingencies and litigation. All estimates are based
upon historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers and other borrowers to make
required payments. If the financial condition of its customers or other
borrowers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.
The Company records an impairment charge when it believes an investment in
hotels has been impaired such that future undiscounted cash flows would not
recover the book basis of the investment in the hotel property. Future
adverse changes in market conditions or poor operating results of underlying
investments could result in losses or an inability to recover the carrying
value of the investments that may not be reflected in an investment's
carrying value, thereby possibly requiring an impairment charge in the
future.
The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. The Company's
management has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation
allowance. If management determines that the Company will not be able to
realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the
periods such determination was made.
24
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, 2002, the
Company's exposure to market risk for a change in interest rates is related
solely to its debt outstanding under the Line of Credit. Total debt outstanding
under the Line of Credit totaled $85.9 million at December 31, 2002.
The Company's Line of Credit bears interest at a variable rate of LIBOR plus
1.5%, 1.75%, 2.0%, 2.5%, 2.75% or 3.0% as determined by the Company's percentage
of total debt to earnings before interest, taxes, depreciation and amortization,
as defined in the loan agreement (the "Percentage"). At December 31, 2002, the
interest rate on the line of credit was LIBOR (1.42% at December 31, 2002) plus
2.75%. The Company's interest rate risk objective is to limit the impact of
interest rate fluctuations on earnings and cash flows and to lower its overall
borrowing costs. To achieve this objective, the Company manages its exposure to
fluctuations in market interest rates for its borrowings through the use of
fixed rate debt instruments to the extent that reasonably favorable rates are
obtainable through such arrangements and derivative financial instruments such
as interest rate swaps, to effectively lock the interest rate on a portion of
its variable rate debt. The Company does not enter into derivative or interest
rate transactions for speculative purposes. The Company regularly reviews
interest rate exposure on its outstanding borrowings in an effort to minimize
the risk of interest rate fluctuation.
On January 16, 2001, the Company entered into an interest rate swap agreement
with a financial institution on a notional principal amount of $50 million. The
agreement effectively fixes the interest rate on the first $50 million of
floating rate debt at 6.4275% plus the Percentage. The swap agreement will
expire in November 2003. Thus, at December 31, 2002, the Company had $35.9
million of variable rate debt outstanding under the Line of Credit that was
exposed to fluctuations in the market rate of interest.
The Company's Line of Credit matures in October of 2003. As discussed above, the
Company's Line of Credit bears interest at variable rates, and therefore, cost
approximates market value. As of December 31, 2002, the fair value liability of
the Company's interest rate swap was approximately $2.2 million.
The Company's operating results are affected by changes in interest rates,
primarily as a result of its borrowings under the line of credit. If interest
rates increased by 25 basis points, the Company's interest expense would have
increased by approximately $90,000, based on balances outstanding during the
year ended December 31, 2002.
25
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, 2002 and
2001 29
Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000 30
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2002, 2001 and 2000 31
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2002, 2001, and 2000 32
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000 34
Notes to Consolidated Financial Statements 35
Schedule II -- Valuation and Qualifying Accounts for the years
ended December 31, 2002, 2001 and 2000 50
Schedule III -- Real Estate and Accumulated Depreciation
as of December 31, 2002 51
26
(b) Supplementary Data:
Quarterly Financial Information
Unaudited quarterly results for 2002 and 2001 are summarized as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- -------- -------
(in thousands, except per share data)
2002 (1)
Revenue $55,532 $65,192 $65,050 $55,400
Net income (loss) applicable
to common shareholders (2,267) 2,105 2,090 (1,995)
Net income (loss) per common
share, basic and diluted (.06) .05 .05 (.05)
2001 (2)
Revenue $54,566 $60,569 $58,946 $51,979
Net income (loss) applicable
to common shareholders (390) 5,011 2,576 (3,564)
Net income (loss) per common
share, basic and diluted (.01) .14 .07 (.10)
- ------------------
(1) During 2002, the Company's consolidated results of operations reflect
hotel-level revenues and operating costs from all hotels owned.
(2) During 2001, the Company's results of operations reflect a combination of
hotel-level revenues and operating costs for 75 hotels previously leased to the
Interstate Lessees and two additional hotels previously operated under
management contracts and rental income from 19 hotels leased to the Prime
Lessees.
27
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 appearing under item 8(a) on page 26 present fairly, in all material
respects, the financial position of Equity Inns, Inc. at December 31, 2002 and
2001, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002, 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
appearing under item 8(a) on page 26 present fairly, in all material respects,
the information set forth therein, when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
February 12, 2003
28
EQUITY INNS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
2002 2001
------------ ------------
Assets:
Investment in hotel properties, net $740,146 $751,891
Cash and cash equivalents 5,916 4,359
Accounts receivable, net of doubtful
accounts of $150 and $125, respectively 4,143 2,534
Due from Lessees 162
Notes receivable, net 1,335 739
Deferred expenses, net 8,744 10,820
Deferred tax asset 9,777 3,452
Deposits and other assets 4,391 4,122
-------- --------
Total Assets $774,452 $778,079
======== ========
Liabilities and Shareholders' Equity:
Debt $362,881 $384,166
Accounts payable and accrued expenses 27,817 22,225
Distributions payable 6,506 1,089
Interest rate swap 2,199 2,923
Minority interest in Partnership 8,782 9,512
-------- --------
Total Liabilities 408,185 419,915
-------- --------
Commitments and contingencies (Note 9)
Shareholders' Equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
2,750,000 issued and outstanding
at December 31, 2002 and 2001 68,750 68,750
Common stock, $.01 par value,
100,000,000 shares authorized,
41,220,639 and 37,591,622 shares
issued and outstanding at December 31,
2002 and 2001, respectively 412 376
Additional paid-in capital 445,793 418,351
Treasury stock, at cost, 747,600 shares
at December 31, 2002 and 2001 (5,173) (5,173)
Unearned directors' and officers'
compensation (546) (1,153)
Distributions in excess of net earnings (140,770) (120,064)
Unrealized loss on interest rate swap (2,199) (2,923)
-------- --------
Total Shareholders' Equity 366,267 358,164
-------- --------
Total Liabilities and Shareholders' Equity $774,452 $778,079
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
29
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
2002 2001 2000
-------- -------- --------
Revenue:
Hotel revenues $240,222 $199,090
Percentage lease revenues 24,931 $115,875
Other income 952 2,039 935
-------- -------- --------
Total Revenue 241,174 226,060 116,810
-------- -------- --------
Expenses:
Hotel operating expenses 148,185 121,467
Real estate and personal property taxes 12,903 12,677 14,085
Depreciation and amortization 41,304 41,327 40,494
Interest 29,036 31,044 32,323
Amortization of loan costs 2,059 1,964 1,749
General and administrative expenses:
Stock based or non-cash compensation 680 975 1,007
Other general and administrative expenses 5,546 5,335 5,641
Impairment of long-lived assets 550
Provision for doubtful accounts 2,717
Rental expense 1,324 1,256 1,518
-------- -------- --------
Total Expenses 241,037 219,312 96,817
-------- -------- --------
Income from continuing operations before
minority interest and income taxes 137 6,748 19,993
Minority interest 2 (119) (337)
Income tax benefit 6,325 3,452
-------- -------- --------
Income from continuing operations 6,464 10,081 19,656
Gain (loss) on sale of hotel properties 83 (3,316)
-------- -------- --------
Net income 6,464 10,164 16,340
Preferred stock dividends 6,531 6,531 6,531
-------- -------- --------
Net income (loss) applicable to
common shareholders $ (67) $ 3,633 $ 9,809
======== ======== ========
Basic and diluted income per common share:
Income from continuing operations $ (.00) $ 0.10 $ 0.27
======== ======== ========
Net income (loss) $ (.00) $ .10 $ .27
======== ======== ========
Weighted average number of common
shares outstanding - diluted 39,628 36,834 36,698
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
30
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For the Years Ended December 31,
2002 2001 2000
------ ------- -------
Net income $6,464 $10,164 $16,340
Unrealized loss on interest rate swap (2,199) (2,923)
------ ------- -------
Comprehensive income $4,265 $ 7,241 $16,340
====== ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
31
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Preferred Stock Common Stock Additional Treasury Stock
--------------------- -------------------- Paid-In -----------------------
Shares Dollars Shares Dollars Capital Shares Dollars
------------ ------- ----------- ------- ---------- ---------- -----------
Balance at December 31, 1999 2,750,000 $68,750 37,308,523 $373 $416,354 557,300 $(3,883)
Issuance of common shares to
officers in lieu of cash bonus 38,669 265
Issuance of common shares to
directors in lieu of cash
compensation 12,324 80
Issuance of restricted common
stock to officers and directors 71,450 1 481
Forfeiting of unvested shares by
an officer, upon resignation (7,010) (76)
Repurchase of Treasury Stock 190,300 (1,290)
Amortization of unearned officers'
and directors' compensation
Issuance of common shares upon
redemption of Units 74,703 1 675
Net income applicable to common
shareholders
Distributions ($1.06 per share)
Adjustments to minority interest from
purchase of treasury stock,
issuance of common shares and
partnership units (24)
--------- ------- ---------- ---- -------- ------- -------
Balance at December 31, 2000 2,750,000 68,750 37,498,659 375 417,755 747,600 (5,173)
Issuance of common shares to
officers in lieu of cash bonus 39,722 1 245
Issuance of common shares to
directors in lieu of cash
compensation 10,000 77
Issuance of restricted common
shares to officers and directors 31,820 197
Amortization of unearned officers'
and directors' compensation
Unearned Unrealized
Directors' Distributions Loss on
and Officers' In Excess of Interest
Compensation Net Earnings Rate Swap Total
------------- ------------ ---------- --------
Balance at December 31, 1999 $(2,375) $(66,967) $412,252
Issuance of common shares to
officers in lieu of cash bonus 265
Issuance of common shares to
directors in lieu of cash
compensation 80
Issuance of restricted common
stock to officers and directors (482) 0
Forfeiting of unvested shares by
an officer, upon resignation 76 0
Repurchase of Treasury Stock (1,290)
Amortization of unearned officers'
and directors' compensation 927 927
Issuance of common shares upon
redemption of Units 676
Net income applicable to common
shareholders 9,809 9,809
Distributions ($1.06 per share) (38,909) (38,909)
Adjustments to minority interest from
purchase of treasury stock,
issuance of common shares and
partnership units (24)
------- -------- ------- --------
Balance at December 31, 2000
(1,854) (96,067) 383,786
Issuance of common shares to
officers in lieu of cash bonus
246
Issuance of common shares to
directors in lieu of cash
compensation
77
Issuance of restricted common
shares to officers and directors
(197) 0
Amortization of unearned officers'
and directors' compensation
898 898
32
EQUITY INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(in thousands, except share and per share data)
Preferred Stock Common Stock Additional Treasury Stock
--------------------- -------------------- Paid-In -----------------------
Shares Dollars Shares Dollars Capital Shares Dollars
------------ ------- ----------- ------- ---------- ---------- -----------
Issuance of common shares upon
redemption of Units 11,421 97
Net income applicable to common
shareholders
Distributions ($.75 per share)
Unrealized loss on interest rate swap
Adjustments to minority interest from
issuance of common shares and
partnership units (20)
--------- ------- ---------- ---- -------- ------- -------
Balance at December 31, 2001 2,750,000 68,750 37,591,622 376 418,351 747,600 (5,173)
Issuance of common shares, net of
offering expenses 3,565,000 36 26,909
Issuance of common share to
officers in lieu of cash bonus 51,704 342
Issuance of common share to
directors in lieu of cash
compensation 11,907 88
Forfeiting of unvested shares by
an officer upon resignation (2,160) (15)
Amortization of unearned officers'
and directors' compensation
Issuance of common shares upon
redemption of Units 2,566 20
Net income applicable to common
shareholders
Distributions ($.51 per share)
Unrealized loss on interest rate swap
Adjustments to minority interest from
issuance of common shares and
partnership units 98
--------- ------- ---------- ---- -------- ------- -------
Balance at December 31, 2002 2,750,000 $68,750 41,220,639 $412 $445,793 747,600 $(5,173)
========= ======= ========== ==== ======== ======= =======
Unearned Unrealized
Directors' Distributions Loss on
and Officers' In Excess of Interest
Compensation Net Earnings Rate Swap Total
------------- ------------- ----------- --------
Issuance of common shares upon
redemption of Units
97
Net income applicable to common
shareholders
3,633 3,633
Distributions ($.75 per share)
(27,630) (27,630)
Unrealized loss on interest rate swap
$(2,923) (2,923)
Adjustments to minority interest from
issuance of common shares and
partnership units
----- --------- ------- --------
Balance at December 31, 2001
(1,153) (120,064) (2,923) 358,164
Issuance of common shares, net of
offering expenses
26,945
Issuance of common share to
officers in lieu of cash bonus
342
Issuance of common share to
directors in lieu of cash
compensation
88
Forfeiting of unvested shares by
an officer upon resignation
15
Amortization of unearned officers'