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Nature of Operations and Basis of Presentation | 6 Months Ended
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Jul. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Nature of Operations and Basis of Presentation | 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION As of July 31, 2019, InnSuites Hospitality Trust (the “Trust”, “IHT”, “we”, “us” or “our”) is a publicly traded company with hotels IHT owns and hotels IHT manages. The Trust and its shareholders directly in and through a Partnership, own interests in two hotels with an aggregate of 267 suites in Arizona and New Mexico, both (the “Hotels”) operated under the federally trademarked name “InnSuites Hotels” or “InnSuites” as well as operating under the brand name “Best Western”. Hotel Operations: Our Tucson, Arizona Hotel and our Hotel located in Albuquerque, New Mexico are limited service hotels. Both hotels offer swimming pools, fitness centers, business centers, and complimentary breakfast. In addition the Hotels offer social areas and modest conference facilities. The Trust is the sole general partner of RRF Limited Partnership, a Delaware limited partnership (the “Partnership”), and owned a 74.94% and 74.80% interest in the Partnership as of July 31, 2019 and January 31, 2019 respectively. The Trust’s weighted average ownership for the six months ended July 31, 2019 and 2018 was 74.94% and 74.80%. As of July 31, 2019, the Partnership owned a 51.01% interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 20.53% interest in an InnSuites® hotel located in Albuquerque, New Mexico. InnSuites Hotels Inc.(“IHI”), a subsidiary, manages the Hotels’ daily operations under 5 management agreements. The Trust also provides the use of the “InnSuites” trademark to the Hotels through wholly-owned IHI. All expenses and reimbursements between the Trust, IHI and the Partnership have been eliminated in consolidation. The Trust classified the Hotels as operating assets, but, these assets are being marketed for sale. At this time, the Trust is unable to predict when, and if, any of these will be sold. The Trust has listed the Tucson Hotel with a local real estate hotel broker. The Albuquerque Hotel is not currently listed but the Trust is willing to consider offers for the Hotel. Each of the Hotels is being marketed at a price that management believes is reasonable in relation to its current fair value. On October 24, 2018, the Yuma Hospitality Properties LLLP (the “Yuma entity”) was sold to an unrelated third party for $16,050,000 (see Note 18). PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION These consolidated financial statements have been prepared by management in accordance with accounting principles in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include all assets, liabilities, revenues and expenses of the Trust and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. Certain items have been reclassified to conform to the current fiscal year presentation. The Trust exercises unilateral control over the Partnership and the entities listed below. Therefore, the financial statements of the Partnership and the entities listed below are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated.
|  | IHT OWNERSHIP % |
ENTITY |  | DIRECT |  |  | INDIRECT (i) |
Albuquerque Suite Hospitality, LLC |  |  | 20.53 | % |  |  | - |
Tucson Hospitality Properties, LLLP |  |  | - |  |  |  | 51.01 | %
RRF Limited Partnership |  |  | 74.94 | % |  |  | - |
InnSuites Hotels Inc. |  |  | 100.00 | % |  |  | - |
(i) Indirect ownership is through the Partnership PARTNERSHIP AGREEMENT The Partnership Agreement of the Partnership provides for the issuance of two classes of Limited Partnership units, Class A and Class B. Class A and Class B Partnership units are identical in all respects, except that each Class A Partnership unit is convertible into one newly-issued Share of Beneficial Interest of the Trust at any time at the option of the limited partner holding the units. The Class B Partnership units may only become convertible, each into one newly-issued Share of Beneficial Interest of the Trust, with the approval of the Board of Trustees, in its sole discretion. On July 31, 2019 and January 31, 2019, 211,708 Class A Partnership units were issued and outstanding, representing 1.67% of the total Partnership units, respectively. Additionally, as of July 31, 2019 and January 31, 2019, 2,974,038 Class B Partnership units were outstanding to and owned by James Wirth, the Trust’s Chairman and Chief Executive Officer, and Mr. Wirth’s affiliates. If all of the Class A and B Partnership units were converted on July 31, 2019 and January 31, 2019, the limited partners in the Partnership would receive 3,185,746 Shares of Beneficial Interest of the Trust. As of July 31, 2019 and January 31, 2019, the Trust owns 9,527,448 general partner units in the Partnership, representing 74.94% and 74.94% of the total Partnership units, respectively. LIQUIDITY The Trust’s principal source of cash to meet its cash requirements, including distributions to its shareholders, is our share of the RRF quarterly distributions coming from the Tucson Hotel as well as cash flow, quarterly distributions and cash flow from the Albuquerque, New Mexico property, repayments of intercompany loans for the Tucson and Albuquerque Hotels, and more recently, sales of certain of our Hotels. The Partnership’s principal source of cash flow is quarterly distributions from the Tucson, Arizona property. The Trust’s liquidity, including our ability to make distributions to its shareholders, will depend upon the ability of the Trust and the Partnership’s ability to generate sufficient cash flow from hotel operations and to service debt, as well as to generate funds from repayment of loans and sale of assets. As of July 31, 2019, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount receivable of approximately $232,000. The Demand/Revolving Line of Credit/Promissory Note accrues interest at 7.0% per annum and requires interest only payments. The Demand/Revolving Line of Credit/Promissory Note has a maximum borrowing capacity to $1,000,000, which is available through December 31, 2019. As of September 1, 2019, the outstanding net balance receivable on the Demand/Revolving Line of Credit/Promissory Note was $243,000. As of July 31, 2019, the Trust had an Advance to Affiliate credit facilities with an aggregate maximum borrowing capacity of $1,000,000, which is available through December 31, 2019. As of July 31, 2019, the Trust had an amount receivable of the Advances to Affiliate credit facility of approximately $986,000. As of September 1, 2019, the amount receivable from the Advance to Affiliate credit facility was approximately $903,000. As of July 31, 2019, the Trust had a Revolving line of Credit of $150,000 with the Republic Bank of Arizona. The line had a zero balance as of July 31, 2019. With approximately $2,101,000 of cash and short term investments, as of July 31, 2019, the availability of a $1,000,000 related party Demand/Revolving Line of Credit/Promissory Note, the availability of the combined $1,000,000 Advance to Affiliate credit facilities, and the Revolving Line of Credit with Republic Bank, the Trust believes that it will have enough cash on hand to meet all of the financial obligations as they become due for at least the next year. In addition, management is analyzing other strategic options available to the Trust, including the sale of one or both Hotel properties. However, such transactions may not be available on terms that are favorable to the Trust, or at all. There can be no assurance that the Trust will be successful selling properties, refinancing debt or raising additional or replacement funds, or that these funds may be available on terms that are favorable to it. If the Trust is unable to raise additional or replacement funds, it may be required to sell certain of our assets to meet liquidity needs, which may not be on terms that are favorable. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by the Trust in accordance with GAAP for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Trust believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended July 31, 2019 are not necessarily indicative of the results that may be expected for the year ending January 31, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended January 31, 2019. The Company has evaluated subsequent events through the date of the filing of its Form 10-K with the Securities and Exchange Commission. Other than those events disclosed in Note 21 the Company is not aware of any other significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Trust’s financial statements. As sole general partner of the Partnership, the Trust exercises unilateral control over the Partnership, and the Trust owns all of the issued and outstanding classes of shares of InnSuites Hotels Inc. Therefore, the financial statements of the Partnership and InnSuites Hotels Inc. are consolidated with the Trust, and all significant intercompany transactions and balances have been eliminated. Under Accounting Standards Codification (“ASC”) Topic 810-10-25, Albuquerque Suite Hospitality, LLC and Yuma Hospitality Properties LLLP have been determined to be variable interest entities with the Partnership as the primary beneficiary (see Note 4 – “Variable Interest Entity”). Therefore, the financial statements of Albuquerque Suite Hospitality, LLC and Yuma Hospitality Properties, LLP, prior to its sale on October 24, 2018, are consolidated with the Partnership and the Trust, and all significant intercompany transactions and balances have been eliminated. SEASONALITY OF THE HOTEL BUSINESS The Hotels’ operations historically have been somewhat seasonal. The Tucson Arizona Hotel experiences the highest occupancy in the first fiscal quarter (the winter season) and, to a lesser extent, the fourth fiscal quarter. The second fiscal quarter tends to be the lowest occupancy period at this Arizona Hotel. This seasonality pattern can be expected to cause fluctuations in the Trust’s quarterly revenues. The Hotel located in Albuquerque, New Mexico historically experience their most profitable periods during the second and third fiscal quarters (the summer season), providing some balance to the general seasonality of the Trust’s hotel business. The seasonal nature of the Trust’s business increases its vulnerability to risks such as labor force shortages and cash flow issues. Further, if an adverse event such as an actual or threatened terrorist attack, international conflict, data breach, regional economic downturn or poor weather should occur at either of its two hotels, the adverse impact to the Trust’s revenues and profit could be significant. RECENTLY ISSUED ACCOUNTING GUIDANCE The Company adopted ASU No. 2016-02 as of February 1, 2019, using the modified retrospective approach wherein entities were allowed to initially apply the new leases standard at adoption date which had no effect to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to February 1, 2019 were presented in accordance with the previous ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. The Company elected the package of practical expedients permitted under the new standard which, among other things, allowed the Company to not reassess the lease classification, the lease identification and the initial direct costs for any existing leases. Further, as permitted by the standard, the Company made an accounting policy election not to record ROU assets or lease liabilities for leases with a term of 12 months or less. Instead, consistent with legacy accounting guidance, the Company will recognize payments for such leases in the consolidated statement of operations on a straight-line basis over the lease term. With adoption on February 1, 2019, this standard resulted in the recognition of additional assets of $2,821,410 and liabilities of $2,913,568 upon adoption on its accompanying condensed consolidated balance sheet. The new standard did not have a material impact on the Company’s results of operations or cash flows. In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how the entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual or interim periods beginning after December 15, 2019. The Trust is still in the process of completing the analysis on the impact this guidance will have on the consolidated financial statements and related disclosures, and the Trust does not expect the impact to be material. In June 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this ASU will become effective for us beginning February 1, 2019, and early adoption is permitted. The Trust has adopted this ASU which did not have a material effect on the consolidated financial statements.

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