Restructuring and New Strategic Plan Highlights
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Formation of taxable REIT subsidiary (TRS) to lease the REIT's hotels
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All of the REIT's existing hotel leases with Humphrey Hospitality Management,
Inc. ("HHM") to be transferred into the TRS in 2001
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Commencement of a search for a new President and senior management team
for the REIT
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HHM to continue to operate the REIT's hotels under management agreements
with the new TRS
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Eleven non-core hotels listed for sale
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Paul Schulte, Chairman and CEO of the REIT, will join HHM's Supertel subsidiary
and assume interim management responsibilities for the Midwest region
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New dividend policy of paying out approximately 100% of annual taxable
income commencing with the fourth quarter 2001
COLUMBIA, Md. - July 16, 2001 - Humphrey Hospitality Trust, Inc. (NASDAQ:HUMP),
a real estate investment trust (REIT), announced today that its committee
of independent directors has completed the initial review of strategic
alternatives with its financial advisor, Cohen & Steers Capital Advisors,
LLC.
As a result of this review, the independent committee of the Board of
Directors has approved the following:
| 1. The REIT will form a new taxable REIT subsidiary (100% owned by
the REIT) that will become the new lessee for the REIT's hotels. Immediately,
eleven hotels that have been designated as "assets held for sale" will
be converted from leases to management agreements with HHM. The remaining
eighty-one hotels will be leased to the TRS before year end 2001 and will
also be subject to management agreements with HHM. Subject to franchisor
approval, the TRS will become the franchisee for the REIT's hotels. Currently
HHM is the franchisee for all the hotels. The timing of the franchise transfers
will depend upon a number of factors including the cost of transfers. |
| 2. As consideration for HHM's assignment of the existing leases to
the TRS and termination of HHM's right of first refusal to lease hotels
acquired by the REIT in the future, the REIT will pay HHM $1.8 million. |
| 3. The REIT has commenced a search for a new President and other senior
personnel for the REIT. To date, the day-to-day operations of the REIT
have been conducted by HHM under an administrative services agreement,
which will terminate as the REIT hires its new management team. The new
REIT management team will be responsible for the services currently provided
by HHM under the administrative services agreement. |
| 4. Based on a Letter of Intent ("LOI") signed by the REIT and HHM,
the TRS will enter into new four-year management agreements with HHM to
manage the hotels. The TRS will be entitled to any operating profit after
payment of hotel operating expenses, rent to the REIT under the leases,
management fees to HHM and income taxes at the TRS level. The management
agreements are expected to give the REIT the opportunity for more upside
if RevPAR growth resumes from the current levels. The REIT hopes to complete
the transition to the TRS structure with management agreements as quickly
as possible. |
| 5. Under the direction of the new REIT management team, the REIT's
hotel portfolio will be actively reviewed to ensure that individual hotel
investments provide an acceptable long-term return for the REIT. Initially,
eleven non-core hotels have been listed for sale and the REIT intends to
use the sale proceeds to pay down debt, acquire new properties, and the
REIT may also consider instituting a stock repurchase program. |
| 6. The REIT intends to implement a new dividend policy of paying approximately
100% of annual REIT taxable income, payable on a quarterly basis.
The next dividend payment will be paid for the fourth quarter of 2001 and
will reflect this new dividend policy. Based on the dividends paid by the
REIT in 2001 to date and the REIT's current projections for the remainder
of 2001, which reflect extraordinary costs including the payment of $1.8
million resulting from the TRS transition, the REIT does not anticipate
a material quarterly dividend for the fourth quarter of 2001 to meet the
payout target of 100% of taxable income for 2001. Beginning in 2002,
the REIT expects to base its quarterly dividends on the general goal of
paying out approximately 100% of expected annual taxable income. The actual
amount of dividends will be determined by the board of directors at the
time of declaration and will be based on the REIT's actual results of operations,
economic conditions, capital expenditure requirements and other factors
that the board of directors deems relevant. Specific guidance as to the
level and timing of the fourth quarter dividend and future dividends will
be provided later in the year. |
"The Board wants to take aggressive action to rebuild shareholder value",
explained Paul Schulte, CEO. "By moving our leases and franchises
to a TRS and hiring a senior management team and staff at the REIT, we
will have more control over our assets, better financial information and
the REIT will become internally advised."
Schulte added, "In terms of dividend policy, the Board is committed
to paying a conservative and sustainable dividend to shareholders until
business conditions stabilize and improve. The dividend payout of 100%
of taxable income is in excess of the 90% minimum payout of taxable income
required under REIT regulations."
Mr. James Humphrey, Chairman and CEO of HHM, has asked Paul Schulte
to join HHM's board of directors and has also agreed to restructure the
HHM management team in order to allow Mr. Schulte's return to the daily
operational management of the REIT's mid-western hotels.
Mr. Schulte has accepted the interim position of President of HHM's
wholly owned subsidiary, Supertel Hospitality Management, Inc., and has
agreed to a total compensation package of one dollar ($1.00) annually.
The Eastern and Texas regions of the REIT's portfolio will continue to
be managed by HHM's existing management team, led by Mr. Humphrey.
The REIT expects to benefit from the combined significant management
expertise of both Mr. Humphrey and Mr. Schulte within HHM.
"Our mutual goal in the management business is to turn around the RevPAR
declines of the past few months by improving property operations", commented
Mr. Schulte. "With Jim Humphrey and I working closely together, we are
confident that we can improve property level performance."
Humphrey Hospitality Trust, Inc. is a real estate investment trust
specializing in limited-service lodging. The REIT owns 92 hotels
in 19 mid-western and eastern states. More information 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 certain of the REIT's filings with the
Securities and Exchange Commission.
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