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Nature of Operations and Basis of Presentation | 3 Months Ended
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Apr. 30, 2020
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 April 30, 2020, InnSuites Hospitality Trust (the “Trust”, “IHT”, “we”, “us” or “our”) is a publicly traded unincorporated Ohio real estate investment trust (REIT) 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 270 hotel 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”. The Trust and its shareholders hold a $1 million 6% convertible debenture in UniGen Power Inc., (“UPI”), and hold warrants to make further UPI Investments in the future. 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 75.89% interest in the Partnership as of April 30, 2020 and January 31, 2020, respectively. The Trust’s weighted average ownership for the three months ended April 30, 2020 and 2019 was 75.89%. As of April 30, 2020, the Partnership owned a 51.01 % interest in an InnSuites® hotel located in Tucson, Arizona. The Trust owns a direct 20.17 % interest in an InnSuites® hotel located in Albuquerque, New Mexico. InnSuites Hotels Inc.(“IHI”), a subsidiary, manages the Hotels’ daily operations under 3 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 available for sale. At this time, the Trust is unable to predict when, and if, any of these will be sold. Neither the Tucson Hotel nor the Albuquerque Hotel is 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. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION These unaudited condensed 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 subsidiaries, as listed in the table below. 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 unaudited condensed financial statements of the Partnership and the entities listed below are consolidated with the Trust, and all intercompany transactions and balances have been eliminated.
|  | IHT OWNERSHIP % |
ENTITY |  | DIRECT |  |  | INDIRECT (i) |
Albuquerque Suite Hospitality, LLC |  |  | 20.17 | % |  |  | - |
Tucson Hospitality Properties, LLLP |  |  | - |  |  |  | 51.01 | %
RRF Limited Partnership |  |  | 75.89 | % |  |  | - |
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 April 30, 2020 and January 31, 2020, 211,708 Class A Partnership units were issued and outstanding, representing 1.60% of the total Partnership units, respectively. Additionally, as of April 30, 2020 and January 31, 2020, 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 the Class A and B Partnership units were converted on April 30, 2020 and January 31, 2020, the limited partners in the Partnership would receive 3,185,746 Shares of Beneficial Interest of the Trust. As of April 30, 2020, and January 31, 2020, the Trust owns 10,025,771 general partner units in the Partnership, representing 75.89% and 75.89% 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 Partnership quarterly distributions coming from the Tucson Hotel as well as cash flow; quarterly distributions and cash flow from the Albuquerque, New Mexico property, management fees charged to Trust and Affiliate hotels, repayments of intercompany loans for the Tucson and Albuquerque Hotels and more recently, sales and/or refinance of certain 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. The Covid-19 Virus (the “Virus”) has disrupted the quarterly distributions from both the Albuquerque and Tucson hotels. Another principal source of cash is derived from the management fees of the Albuquerque, Tucson, and Tempe Hotels. As of April 30, 2020, the Trust had a related party Demand/Revolving Line of Credit/Promissory Note with an amount receivable of approximately $25,000. 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, 2020, and renews annually. As of April 30, 2020, the outstanding net balance receivable on the Demand/Revolving Line of Credit/Promissory Note was $25,000. As of April 30, 2020, the Trust had Advance to Affiliate credit facilities with an aggregate maximum borrowing capacity of $1,000,000, which is available through December 31, 2020, and renews annually. As of April 30, 2020, the Trust had an amount receivable of the Advances to Affiliate credit facility of approximately $1,000,000. As of April 30, 2020, 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 April 30, 2020. The Trust is owed approximately $3.6 million intercompany loan from the Tucson Hotel. The Trust is in the process of refinancing the Tucson Hotel property, which would facilitate repayment of approximately $2.5 million of the Tucson Hotel loan. We anticipate this will be completed in the first quarter of 2022. An affiliate of the Trust has sold the Tempe Hotel on December 18, 2020. The Trust has received the full repayment of the approximately $1 million intercompany loan to Tempe. In addition, Rare Earth Financial (“REF”), an Affiliated Member of the Tempe Hotel has repaid approximately $800,000 intercompany loan to the Trust. With approximately $580,000 of cash and short term investments, as of April 30, 2020, 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 $150,000 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 twelve months from the date of filing this 10-Q. In addition, management is analyzing other strategic options available to the Trust, including the sale or refinance 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 or refinance 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 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 three months ended April 30, 2020 are not necessarily indicative of the results that may be expected for the year ending January 31, 2021. 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, 2020. The Company has evaluated subsequent events through the date of the filing of its Form 10-Q with the Securities and Exchange Commission. Other than those events disclosed indicating the Covid-19 Virus shutdown of economic and business activity, 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 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 has been determined to be a variable interest entity with the Partnership as the primary beneficiary (see Note 4 – “Variable Interest Entity”). Therefore, the financial statements of Albuquerque Suite Hospitality, LLC, are consolidated with the Partnership and the Trust, and all significant intercompany transactions and balances have been eliminated. The financial statements of the Partnership and Tucson Hospitality Properties, LLLP 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 virus pandemic, 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 Trust 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 Trust elected the package of practical expedients permitted under the new standard which, among other things, allowed the Trust 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 Trust 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 Trust will recognize payments for such leases in the condensed 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 Trust’s results of operations or cash flows. 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 unaudited condensed consolidated financial statements.

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