Humphrey Hospitality Trust, Inc. (Nasdaq: HUMP) today announced it is restructuring its leases and services agreements with Humphrey Hospitality Management, Inc.
The leases have been amended and simplified and provide for identical monthly percentage lease payment terms for all of the Company’s Hotels. One of the most significant changes in the lease terms involves transferring the financial responsibility of paying property taxes and insurance to Humphrey Hospitality Management, Inc., the Lessee. Currently, the Lessee pays all expenses directly related to the operations of the hotels except property taxes and insurance. The percentage lease revenue calculation, on the Company’s current portfolio of hotels, will be amended to reduce lease revenues by approximately $4 million annually. This reduction will permit the Lessee to pay property tax and insurance expenses on the current hotels of approximately $4 million annually.
Another change in the lease terms involves modifying the quarterly, semi-annual and annual lease payment calculations into identical monthly percentage lease amounts while maintaining current monthly base rent amounts. The new monthly percentage lease calculation is based upon 17.9% of room revenues for each hotel in the portfolio. This new lease structure should improve monthly cash flow for the Company and result in lower interest expense.
The amended lease terms are expected to go into effect January 1, 2001.
The Company has agreed to amend its current services agreement with Humphrey Hospitality Management, Inc. to expand the scope of the agreement to provide for additional real estate portfolio management services and to speed up the identification of acquisition properties. The Company has agreed to pay Humphrey Hospitality Management, Inc. an additional $750,000 in compensation annually for the expanded services and to compensate it for the additional services resulting from the merger with Supertel. The amended services agreement became effective January 1, 2000.
The Company expects the change to the service agreement to adversely affect funds from operations in the third quarter by approximately $.04 per share.
The Company recorded a one time non-recurring adjustment to interest expense in the third quarter of approximately $.04 per share due to the modification of its loan agreement with Marquette Capital Bank, N.A. and Bremer Bank, National Association.
The Company does not expect these changes to adversely affect future cash flow and does not anticipate any change in the current dividend.
“Both the Company and the Lessee will benefit from the new lease and service agreements, as the interests of the owner and manager converge and we concentrate more on hotel profitability and faster hotel acquisition growth,” said Paul J. Schulte, Chairman and CEO of Humphrey Hospitality Trust, Inc.
Humphrey Hospitality Trust, Inc. is a self-advised real estate investment trust specializing in limited-service lodging. The company owns 92 hotels in 19 midwestern and eastern states. More information on Humphrey Hospitality can be found at www.humphreyhospitality.com.
Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. These risks are discussed in the Company’s filings with the Securities and Exchange Commission.