IHT

Business Context and Reporting Period

Company: InnSuites Hospitality Trust (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: July 31, 2011
Operations: The Trust owns interests in five hotel properties (843 suites) in Arizona, California, and New Mexico. It also provides management and licensing services to affiliated and third-party hotels. The Trust is classified as a smaller reporting company.

Key Financial Metrics

Liquidity: Net cash provided by operating activities was $461,136 for the six months ended July 31, 2011, compared to a use of $293,792 in the prior year period. The Trust maintains a $500,000 revolving line of credit (undrawn as of July 31, 2011).

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 7.3% year-over-year, driven primarily by a 14.5% increase in room revenue due to higher occupancy.
• Occupancy and Rates: Occupancy rose to 64.9% (from 55.8% in the prior year), while Average Daily Rate (ADR) decreased slightly to $72.91. Revenue Per Available Room (REVPAR) increased 14.5% to $47.28.
• Profitability Improvement: The Trust moved from an operating loss of $176,758 in the prior year to an operating income of $337,061. Net loss attributable to controlling interests improved by 55% (from $(688,208) to $(308,881)).
• Expense Increases: Repairs and maintenance expenses increased 26.3% to $789,355 due to significant maintenance projects at Yuma and Tucson properties. General and administrative expenses rose 6.2%.
• Capital Structure: The Trust sold non-controlling interests in its Albuquerque and Tucson subsidiaries, generating $1.28 million in proceeds, which were recorded as equity adjustments rather than operating gains.

Outlook, Risks, and Contingencies

• Debt Maturity Risk (Ontario Property): The non-recourse mortgage note for the Ontario, California property matured on May 11, 2011, with a final principal payment of approximately $7.5 million due. The Trust did not make the final payment but obtained a six-month extension until November 11, 2011. Late fees of $10,671 were assessed for the quarter. Management is negotiating a two-year extension or refinance.
• Liquidity Concerns: Management projects that cash flows from operations alone may be insufficient to meet obligations for the remainder of fiscal year 2012. The Trust relies on the Ontario mortgage extension, proceeds from the sale of non-controlling interests, and its line of credit to meet obligations.
• Listing Compliance: The Trust is not in compliance with NYSE Amex listing standards due to shareholders' equity being below $4.0 million. A compliance plan was submitted to regain compliance within 18 months.
• Forward-Looking Statements: Management expects improving economic conditions to positively affect business levels but notes risks related to occupancy fluctuations, interest rates, and the ability to refinance debt.

Investor Verification Checklist

• Ontario Mortgage Status: Verify the outcome of negotiations for the Ontario property mortgage extension or refinance due November 11, 2011.
• Equity Compliance: Monitor progress on the plan to increase shareholders' equity above the $4.0 million threshold required for NYSE Amex listing.
• Debt Service Coverage: Assess whether operating cash flows and the $500,000 credit line are sufficient to cover the $8.2 million in principal payments due between August 1, 2011, and July 31, 2012.
• Related Party Transactions: Review the impact of related party payroll reimbursements ($1.1 million for six months) and management fees on net income.
• Capital Expenditures: Confirm the status of maintenance projects at Yuma and Tucson that drove the 26% increase in repairs and maintenance expenses.