Business Context and Reporting Period
Company: InnSuites Hospitality Trust (REIT)
Reporting Period: Nine months ended October 31, 2003 (Fiscal Year 2004)
Operations: The Trust owns eight hotels with 1,243 suites in Arizona, southern California, and New Mexico, operated by InnSuites Hotels, Inc. The Trust is the sole general partner of RRF Limited Partnership, holding a 51.31% interest as of October 31, 2003.
Key Financial Metrics
| Metric | Nine Months Ended Oct 31, 2003 | Nine Months Ended Oct 31, 2002 |
|---|---|---|
| Total Revenue | $13,378,811 | $14,670,469 |
| Operating Income (Loss) | $184,859 | $359,456 |
| Net Loss Attributable to Shares | $(1,618,723) | $(1,083,940) |
| Net Loss Per Share (Basic/Diluted) | $(0.80) | $(0.52) |
| Funds From Operations (FFO) | $(380,000) | $76,000 |
| Cash Provided by Operating Activities | $225,098 | $1,171,550 |
| Total Assets | $48,686,379 | $61,494,579 |
| Total Liabilities | $42,217,482 | $52,726,835 |
| Shareholders' Deficit | $(2,768,431) | $(1,250,182) |
| Cash and Cash Equivalents | $730,337 | $88,519 |
Debt Profile: Mortgage Notes Payable totaled $32,103,103. Notes and Advances Payable to Related Parties totaled $6,074,828. Bank notes payable were fully satisfied during the period.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 8.8% to $13.4 million, primarily due to the sale of the Scottsdale property in Q1 and a reduction in suites sold.
- Expense Reduction: Total operating expenses decreased 7.8% to $13.2 million, driven by the Scottsdale sale and lower occupancy. General and Administrative expenses dropped 13.3% due to reduced fees and the sale of the Scottsdale property.
- Asset Dispositions: The Trust sold three properties: Scottsdale (March 2003), Flagstaff (August 2003), and Buena Park (October 2003). Proceeds were used to pay down bank debt and related party notes.
- Debt Reduction: The Trust fully satisfied its $1.5 million bank term loan and $1.5 million bank line of credit using proceeds from property sales. Total interest expense decreased 7.1% to $2.0 million.
- Impairment: A loss on impairment of $328,976 was recorded for the Buena Park property to reduce its carrying value to the sales price.
Outlook, Risks, and Management Commentary
- Listing Status: The Trust received an extension from the American Stock Exchange (Amex) to regain compliance with listing standards, which it failed to meet due to recent losses. The Trust expects to regain compliance within 12 to 18 months through asset sales and expense reduction.
- Pending Sales: The San Diego property is under contract for $9.6 million with a closing expected before February 2004. The Tempe property has been reclassified as "held for sale."
- Liquidity: Cash flow from operations is projected to be sufficient to meet debt obligations. The Trust maintains a Capital Expenditures Fund (4% of revenue) for refurbishments.
- Accounting Changes: The Trust adopted SFAS No. 150 (no impact) and is evaluating FIN 46 regarding the consolidation of variable interest entities (Suite Hospitality Management and InnSuites Licensing).
- Risks: Key risks include fluctuations in occupancy rates, interest rate changes, competition, and the impact of economic conditions or terrorist acts on the hospitality industry.
Investor Verification Checklist
- Amex Compliance: Verify the Trust's progress in meeting the American Stock Exchange's continued listing standards to avoid delisting.
- Related Party Transactions: Review the significant volume of debt and transactions with affiliates of James F. Wirth, including the sale of properties to affiliates and the structure of related party notes.
- Asset Sales Execution: Confirm the closing of the pending San Diego property sale and the status of the Tempe property sale.
- FFO Trends: Monitor the negative Funds From Operations (FFO) of $(380,000) and the ability to generate positive cash flow from operations to sustain distributions.
- FIN 46 Impact: Assess the potential impact of consolidating Suite Hospitality Management and InnSuites Licensing under FIN 46 on future financial statements.