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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-24568



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INNKEEPERS USA TRUST

(Exact name of registrant as specified in its charter)



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|
|

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 65-0503831                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)
|                                                               | 
|340 Royal Poinciana Way, Suite 306, Palm Beach, Florida        |  | 33480                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (561) 835-1800

N/A

(former name)



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Indicate by check mark whether
the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report),
and (ii) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x.     Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes ̈No  x

The number of common shares of beneficial interest, $.01 par value, outstanding on May 1, 2006, was 43,187,646.



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##### Table of Contents

TABLE OF CONTENTS



|              |  |                       |  |                                                                                          |  |     
|------------- |  | --------------------- |  | ---------------------------------------------------------------------------------------- |  | ----
|              |  |                       |  |                                                                                          |  | Page
|Part I        |  | Financial Information |  |                                                                                         
|              |  |                       | 
|              |  | Item 1.               |  | Financial Statements (unaudited)                                                         |  | 2   
|              |  |                       | 
|              |  |                       |  | Consolidated Balance Sheets at March 31, 2006 and December 31, 2005                      |  | 2   
|              |  |                       | 
|              |  |                       |  | Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 |  | 3   
|              |  |                       | 
|              |  |                       |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 |  | 4   
|              |  |                       | 
|              |  |                       |  | Notes to Consolidated Financial Statements                                               |  | 5   
|              |  |                       | 
|              |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 11  
|              |  |                       | 
|              |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 18  
|              |  |                       | 
|              |  | Item 4.               |  | Controls and Procedures                                                                  |  | 19  
|              |  |                      
|Part II.      |  | Other Information     |  | 20                                                                                      
|              |  |                       | 
|              |  | Item 6.               |  | Exhibits                                                                                 |  | 20  
|              | 
|Signature     |  | 21                   
|              | 
|Exhibit Index |  | 22                   



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##### Table of Contents

PART I  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

Innkeepers USA Trust

Consolidated Balance Sheets

(in thousands, except share and per share data)



|                                                                                                                              |  |               |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                              |  | March 31,2006 |           |   | December 31,2005 |  
|                                                                                                                              |  | (unaudited)   |           |   | (audited)        |  
|ASSETS                                                                                                                        |  |               |           |   |                  |   |           |  
|Investment in hotels:                                                                                                         |  |               |           |   |                  |   |           |  
|Land and improvements                                                                                                         |  | $             | 150,079   |   |                  | $ | 150,375   |  
|Buildings and improvements                                                                                                    |  |               | 754,178   |   |                  |   | 754,131   |  
|Furniture and equipment                                                                                                       |  |               | 107,005   |   |                  |   | 106,944   |  
|Renovations in process                                                                                                        |  |               | 12,537    |   |                  |   | 4,534     |  
|Hotels under development                                                                                                      |  |               | 4,749     |   |                  |   | 4,413     |  
|                                                                                                                              |  |               |           |   |                  |   |           |  
|                                                                                                                              |  |               | 1,028,548 |   |                  |   | 1,020,397 |  
|Accumulated depreciation                                                                                                      |  |               | (239,297  | ) |                  |   | (230,139  | )
|                                                                                                                              |  |               |           |   |                  |   |           |  
|Net investment in hotels                                                                                                      |  |               | 789,251   |   |                  |   | 790,258   |  
|                                                                                                                              |  |              
|Cash and cash equivalents                                                                                                     |  |               | 23,190    |   |                  |   | 11,897    |  
|Restricted cash and cash equivalents                                                                                          |  |               | 7,288     |   |                  |   | 6,675     |  
|Accounts receivable, net                                                                                                      |  |               | 5,763     |   |                  |   | 6,124     |  
|Prepaid and other                                                                                                             |  |               | 2,141     |   |                  |   | 2,478     |  
|Deferred and other                                                                                                            |  |               | 19,142    |   |                  |   | 19,546    |  
|                                                                                                                              |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                  |  | $             | 846,775   |   |                  | $ | 836,978   |  
|                                                                                                                              |  |               |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                          |  |               |           |   |                  |   |           |  
|Debt                                                                                                                          |  | $             | 280,475   |   |                  | $ | 269,426   |  
|Accounts payable and accrued expenses                                                                                         |  |               | 17,688    |   |                  |   | 15,956    |  
|Payable to manager                                                                                                            |  |               | 510       |   |                  |   | 236       |  
|Franchise conversion fee obligations                                                                                          |  |               | 10,593    |   |                  |   | 10,714    |  
|Distributions payable                                                                                                         |  |               | 9,636     |   |                  |   | 9,645     |  
|                                                                                                                              |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                             |  |               | 318,902   |   |                  |   | 305,977   |  
|                                                                                                                              |  |              
|Minority interest in Partnership                                                                                              |  |               | 47,147    |   |                  |   | 47,982    |  
|                                                                                                                              |  |              
|Shareholders equity:                                                                                                         |  |               |           |   |                  |   |           |  
|Preferred shares, $0.01 par value, 20,000,000 shares authorized, 5,800,000 shares issued and outstanding                      |  |               | 145,000   |   |                  |   | 145,000   |  
|Common shares, $0.01 par value, 100,000,000 shares authorized, 43,027,146 and 42,939,086 issued and outstanding, respectively |  |               | 430       |   |                  |   | 429       |  
|Additional paid-in capital                                                                                                    |  |               | 459,894   |   |                  |   | 460,873   |  
|Unearned compensation                                                                                                         |  |               |          |   |                  |   | (1,939    | )
|Distributions in excess of earnings                                                                                           |  |               | (124,598  | ) |                  |   | (121,344  | )
|                                                                                                                              |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                    |  |               | 480,726   |   |                  |   | 483,019   |  
|                                                                                                                              |  |               |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                    |  | $             | 846,775   |   |                  | $ | 836,978   |  
|                                                                                                                              |  |               |           |   |                  |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



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Innkeepers USA Trust

Consolidated Statements of Operations(unaudited)

(in thousands, except share and per share data)



|                                                    |  |                              |            |   |      |   |            |  
|--------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                    |  | Three Months Ended March 31, |           
|                                                    |  | 2006                         |            |   | 2005 |  
|Revenue:                                            |  |                              |            |   |      |   |            |  
|Hotel operating                                     |  |                              |            |   |      |   |            |  
|Rooms                                               |  | $                            | 60,545     |   |      | $ | 53,031     |  
|Food and beverage                                   |  |                              | 2,078      |   |      |   | 299        |  
|Telephone                                           |  |                              | 361        |   |      |   | 392        |  
|Other                                               |  |                              | 1,509      |   |      |   | 1,271      |  
|Corporate                                           |  |                              |            |   |      |   |            |  
|Other                                               |  |                              | 109        |   |      |   | 106        |  
|                                                    |  |                              |            |   |      |   |            |  
|Total revenue                                       |  |                              | 64,602     |   |      |   | 55,099     |  
|                                                    |  |                              |            |   |      |   |            |  
|Expenses:                                           |  |                              |            |   |      |   |            |  
|Hotel operating                                     |  |                              |            |   |      |   |            |  
|Rooms                                               |  |                              | 12,648     |   |      |   | 11,200     |  
|Food and beverage                                   |  |                              | 1,584      |   |      |   | 236        |  
|Telephone                                           |  |                              | 747        |   |      |   | 683        |  
|Other                                               |  |                              | 730        |   |      |   | 595        |  
|General and administrative                          |  |                              | 6,400      |   |      |   | 5,690      |  
|Franchise and marketing fees                        |  |                              | 4,124      |   |      |   | 3,773      |  
|Amortization of deferred franchise conversion       |  |                              | 292        |   |      |   | 363        |  
|Advertising and promotions                          |  |                              | 2,250      |   |      |   | 1,688      |  
|Utilities                                           |  |                              | 3,449      |   |      |   | 2,961      |  
|Repairs and maintenance                             |  |                              | 2,761      |   |      |   | 2,424      |  
|Management fees                                     |  |                              | 1,956      |   |      |   | 1,792      |  
|Amortization of deferred lease acquisition          |  |                              | 131        |   |      |   | 131        |  
|Insurance                                           |  |                              | 414        |   |      |   | 387        |  
|Corporate                                           |  |                              |            |   |      |   |            |  
|Depreciation                                        |  |                              | 9,217      |   |      |   | 8,502      |  
|Amortization of franchise fees                      |  |                              | 18         |   |      |   | 17         |  
|Ground rent                                         |  |                              | 138        |   |      |   | 129        |  
|Interest                                            |  |                              | 5,049      |   |      |   | 4,908      |  
|Amortization of loan origination fees               |  |                              | 218        |   |      |   | 210        |  
|Property taxes and insurance                        |  |                              | 3,026      |   |      |   | 2,893      |  
|General and administrative                          |  |                              | 2,462      |   |      |   | 2,038      |  
|Amortization of unearned compensation               |  |                              | 358        |   |      |   | 97         |  
|Other (income) charges                              |  |                              | (495       | ) |      |   | 2,698      |  
|                                                    |  |                              |            |   |      |   |            |  
|Total expenses                                      |  |                              | 57,477     |   |      |   | 53,415     |  
|                                                    |  |                              |            |   |      |   |            |  
|Income before minority interest                     |  |                              | 7,125      |   |      |   | 1,684      |  
|Minority interest, common                           |  |                              | (55        | ) |      |   | 20         |  
|Minority interest, preferred                        |  |                              | (1,045     | ) |      |   | (1,068     | )
|                                                    |  |                              |            |   |      |   |            |  
|Income from continuing operations                   |  |                              | 6,025      |   |      |   | 636        |  
|Income (loss) from discontinued operations          |  |                              |           |   |      |   | (54        | )
|Gain on sale of assets from discontinued operations |  |                              | 75         |   |      |   | 1,490      |  
|                                                    |  |                              |            |   |      |   |            |  
|Net income                                          |  |                              | 6,100      |   |      |   | 2,072      |  
|Preferred share dividends                           |  |                              | (2,900     | ) |      |   | (2,900     | )
|                                                    |  |                              |            |   |      |   |            |  
|Net income (loss) applicable to common shareholders |  | $                            | 3,200      |   |      | $ | (828       | )
|                                                    |  |                              |            |   |      |   |            |  
|Earnings (loss) per share data:                     |  |                              |            |   |      |   |            |  
|Basic  continuing operations                       |  | $                            | 0.07       |   |      | $ | (0.06      | )
|                                                    |  |                              |            |   |      |   |            |  
|Basic                                               |  | $                            | 0.07       |   |      | $ | (0.02      | )
|                                                    |  |                              |            |   |      |   |            |  
|Basic  weighted average shares                     |  |                              | 42,864,826 |   |      |   | 39,902,804 |  
|                                                    |  |                              |            |   |      |   |            |  
|Diluted  continuing operations                     |  | $                            | 0.07       |   |      | $ | (0.06      | )
|                                                    |  |                              |            |   |      |   |            |  
|Diluted                                             |  | $                            | 0.07       |   |      | $ | (0.02      | )
|                                                    |  |                              |            |   |      |   |            |  
|Diluted  weighted average shares                   |  |                              | 43,298,181 |   |      |   | 39,902,804 |  
|                                                    |  |                              |            |   |      |   |            |  
|Per share dividends to common shareholders          |  | $                            | 0.15       |   |      | $ | 0.06       |  
|                                                    |  |                              |            |   |      |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



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Innkeepers USA Trust

Consolidated Statements of Cash Flows(unaudited)

(in thousands)



|                                                                                  |  |                             |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                  |  | 2006                        |        |   | 2005 |  
|Cash flows from operating activities:                                             |  |                             |        |   |      |   |         |  
|Net income                                                                        |  | $                           | 6,100  |   |      | $ | 2,072   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                     |  |                             | 9,217  |   |      |   | 8,502   |  
|Amortization of deferred costs                                                    |  |                             | 659    |   |      |   | 721     |  
|Amortization of unearned compensation                                             |  |                             | 358    |   |      |   | 97      |  
|Minority interests                                                                |  |                             | 1,100  |   |      |   | 1,048   |  
|Gain on sale of hotels                                                            |  |                             | (75    | ) |      |   | (1,490  | )
|Changes in operating assets and liabilities:                                      |  |                             |        |   |      |   |         |  
|Accounts receivable, net                                                          |  |                             | 361    |   |      |   | (2,501  | )
|Prepaid and other                                                                 |  |                             | 336    |   |      |   | 464     |  
|Deferred expenses and other                                                       |  |                             | (246   | ) |      |   | 3,226   |  
|Accounts payable and accrued expenses                                             |  |                             | 1,546  |   |      |   | 55      |  
|Payable to manager                                                                |  |                             | 273    |   |      |   | 220     |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 19,629 |   |      |   | 12,414  |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                             |        |   |      |   |         |  
|Investment in hotels, net of insurance proceeds                                   |  |                             | (8,559 | ) |      |   | (31,762 | )
|Proceeds from sale of assets                                                      |  |                             | 425    |   |      |   | 20,789  |  
|Net (deposits) withdrawals into restricted cash                                   |  |                             | (613   | ) |      |   | 1,119   |  
|Payment of franchise fees                                                         |  |                             |       |   |      |   | (45     | )
|Repayment of advances                                                             |  |                             |       |   |      |   | 150     |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash used in investing activities                                             |  |                             | (8,747 | ) |      |   | (9,749  | )
|                                                                                  |  |                             |        |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                             |        |   |      |   |         |  
|Proceeds from debt issuance                                                       |  |                             | 12,500 |   |      |   | 46,000  |  
|Payments on debt                                                                  |  |                             | (1,451 | ) |      |   | (95,657 | )
|Payments on franchise conversion fee obligations                                  |  |                             | (120   | ) |      |   | (686    | )
|Distributions paid to unit holders                                                |  |                             | (1,168 | ) |      |   | (1,135  | )
|Distributions paid to shareholders                                                |  |                             | (9,341 | ) |      |   | (5,178  | )
|Proceeds from issuance of shares                                                  |  |                             |       |   |      |   | 59,585  |  
|Loan origination fees and costs paid                                              |  |                             | (9     | ) |      |   | (23     | )
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash provided by financing activities                                         |  |                             | 411    |   |      |   | 2,906   |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net increase in cash and cash equivalents                                         |  |                             | 11,293 |   |      |   | 5,571   |  
|Cash and cash equivalents at beginning of period                                  |  |                             | 11,897 |   |      |   | 22,837  |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                           | 23,190 |   |      | $ | 28,408  |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Supplemental cash flow information:                                               |  |                             |        |   |      |   |         |  
|Interest paid                                                                     |  | $                           | 4,907  |   |      | $ | 4,818   |  

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Supplemental
disclosure of non-cash information 

|1. | Common unit holders in the Companys operating partnership redeemed 83,060 and 407,656 common units for common shares in the three months ended March 31, 2006 and 2005,
respectively.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | The Company capitalized interest of $50 and $42 for the three months ended March 31, 2006 and 2005, respectively.
|-- | -----------------------------------------------------------------------------------------------------------------

|3. | During 2005, an adjustment of $742 for future obligations under the Marriott Takeback Transaction was recorded in Deferred and other and Franchise conversion fee obligations. See
Note 1 for a description of the Marriott Takeback Transaction.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | During 2005, the Company transferred $1,704 of costs associated with completed hotel acquisitions from deferred and other to investment in hotels.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial statements.



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Innkeepers USA Trust

Notes to Consolidated Financial Statements(dollar amounts in thousands)

1. Organization and Recent Developments

Innkeepers USA Trust (Innkeepers) is a self-administered real estate investment trust (REIT), which at March 31, 2006, owned 70 hotels with an aggregate of 8,816 rooms/suites (the Hotels) through its
partnership interests in Innkeepers USA Limited Partnership (with its subsidiary partnerships, the Partnership). The Company has a series of indirect, wholly-owned taxable REIT subsidiaries that lease the Hotels from the Partnership (the
TRSs, and collectively with Innkeepers and the Partnership, the Company). Innkeepers Hospitality Management Inc. (the IH Manager) manages 67 of the Hotels for Innkeepers and a third party manages one of the
Hotels. Two of the Companys hotels, comprising a total of 393 rooms, are closed for substantial renovation and re-branding, and upon re-opening, these hotels will be managed by the IH Manager.

The Company focuses primarily on upscale extended-stay hotels and mid-priced limited service hotels. Forty-nine of the hotels are in the upscale
extended-stay market and operate under brands such as Residence Inn by Marriott, Homewood Suites by Hilton or Summerfield Suites. The upscale extended-stay hotels typically have the following characteristics: (i) their principal customer base
is business travelers who are on assignment for executive training and consulting, project assignment and corporate relocations; (ii) their service and amenities include complimentary breakfast and evening hospitality hour, limited meeting
space, daily linen and room cleaning service, 24-hour front desk, guest grocery services, and an on-site maintenance staff; and (iii) their physical facilities include large suites, quality construction, full separate kitchens in each guest
suite, quality room furnishings, pool, and exercise facilities. Our mid-priced hotels operate under brands such as Hampton Inn and TownePlace Suites, which offer services and amenities such as complimentary breakfast, high-speed internet access,
local calls, an in-room movie channel, and daily linen and room cleaning service.

All but one of the Companys hotels were managed by
the IH Manager under management agreements with the TRSs at March 31, 2006. The TRSs are responsible for paying all hotel operating expenses, including all personnel costs, franchise royalties and related fees, the Conversion Fee payable in
connection with the Marriott Takeback Transaction (see   Management Conversion of Marriott-Managed Hotels below), utility costs, and general repairs and maintenance. The TRSs are also responsible for all management fees payable to
the IH Manager, including base and incentive fees. The Company remains responsible for ownership costs such as property taxes and insurance, ground rent, and capital expenditures. Hotel-level revenue is reflected in the Companys financial
statements as Hotel operating revenue and hotel-level expense is reflected as Hotel operating expense. The Companys TRSs may pay corporate level income tax and may retain any after-tax income.

Management Conversion of Marriott-Managed Hotels. In 2003, the Company, the entities to which the Company leased substantially all of its hotels
(the IH Lessee), and Marriott International, Inc. and various affiliates thereof (collectively, Marriott) completed a transaction under which the IH Lessee (1) converted the agreements under which 17 of the
Companys hotels were franchised and managed by Marriott into long-term franchise agreements with Marriott and (2) became the manager of the hotels. The TRSs subsequently assumed the IH Lessees obligations under the agreements
executed in connection with this transaction. Under those agreements, the TRSs will pay Marriott (1) a franchise fee of 6.5% of room revenues for the first ten years of each franchise agreement and a 5% royalty thereafter and (2) $850,000
plus 50% of aggregate available cash flow (as defined in the agreement with Marriott) in excess of a specified threshold each year for 10 years, beginning in 2004 (the Conversion Fee). We refer to this transaction as the Marriott
Takeback Transaction.

Issuance of Common Shares

During the three months ended March 31, 2006, the Company granted two employees a total of 30,000 restricted shares. A common unit holder in the Companys operating partnership redeemed 83,060 common units
in exchange for 83,060 common shares during the three months ended March 31, 2006.

2. Basis of Presentation

These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the
SEC) and should be read in conjunction with the financial statements and notes thereto of the Company included in the Companys Annual Report on Form 10-K for the year ended



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December 31, 2005 (the 10-K). The notes to the financial statements included herein highlight significant changes to the notes included in
the 10-K and present interim disclosures required by the SEC. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of any interim period
are not necessarily indicative of results for the full year.

3. Share Based Compensation

Effective January 1, 2006, the Company adopted the accounting provisions of SFAS No. 123R, Accounting for Share-Based Payment (SFAS
123R). Under this method, the Company applies the fair value recognition provisions of SFAS 123R to all employee awards granted, modified, or settled on or after January 1, 2006, which has resulted in compensation expense being recorded
based on the fair value of the awards. Prior to January 1, 2006, the Company followed Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25), and related interpretations in
accounting. Under APB 25, because the exercise price of the employee share options equaled the market price of the underlying share on the date of grant, no compensation expense was recognized.

The Companys share incentive plan for employees and officers (the 1994 Plan) reserves 4,700,000 common shares for issuance
(a) upon the exercise of incentive share options and non-qualified options or (b) as restricted shares and performance shares. Options granted under the 1994 Plan expire not more than ten years from the date of grant. The Company may grant
up to 2,200,000 restricted shares and performance shares under the 1994 Plan. Restricted shares issued to date have voting and dividend rights from the date granted. At March 31, 2006, 1,073,362 shares remained available for issuance in the
form of restricted or performance shares under the employees plan and 1,043,315 restricted shares were vested. The Company issues new shares upon the exercise of common share options.

The following table summarizes the activity for the Companys restricted shares under the 1994 plan for the quarter ended March 31, 2006.



|                                           |  |                 |   |  |                                     |      
|------------------------------------------ |  | --------------- | - |  | ----------------------------------- | -----
|Restricted shares                          |  | Number ofShares |   |  | WeightedaverageGrant-DateFair Value
|Shares outstanding as of December 31, 2005 |  | 200,063         |   |  | $                                   | 12.01
|Shares granted                             |  | 30,000          |   |  |                                     | 17.33
|Shares vested                              |  | (46,687         | ) |  |                                     | 6.57 
|Shares cancelled                           |  | (25,000         | ) |  |                                     | 15.64
|                                           |  |                 |   |  |                                     |      
|Shares outstanding as of March 31, 2006    |  | 158,376         |   |  | $                                   | 14.15
|                                           |  |                 |   |  |                                     |      

The exercise price of common share options may not be less than fair market value of the common
shares at the date of grant. The table below delineates information concerning common share options granted under the 1994 plan for the quarter ended March 31, 2006.



|                                   |  |                                    |                 |                               |   |      
|---------------------------------- |  | ---------------------------------- | --------------- | ----------------------------- | - | -----
|                                   |  | Number of SharesUnderlying Options |                 | WeightedAverageExercise Price
|Outstanding at December 31, 2005   |  |                                    | 1,003,000       |                               | $ | 11.99
|Granted                            |  |                                    | 12,500          |                               | $ | 16.00
|Exercised                          |  |                                    |                |                               |   |     
|Cancelled                          |  |                                    |                |                               |   |     
|Forfeited                          |  |                                    |                |                               |   |     
|                                   |  |                                    |                 |                               |   |      
|Outstanding at March 31, 2006      |  |                                    | 1,015,500       |                               | $ | 12.04
|                                   |  |                                    |                 |                               |   |      
|Exercisable at March 31, 2006      |  |                                    | 1,003,000       |                               | $ | 11.99
|                                   |  |                                    |                 |                               |   |      
|Price range of shares under option |  | $                                  | 9.75 to $ 16.00 |                               |   |      
|                                   |  |                                    |                 |                               |   |      



6



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##### Table of Contents

The Company had 1,015,500 common share options outstanding as of March 31, 2006. Of those, 4,500 are
incentive share options and 1,011,000 are non-qualified options. The options vest over varying periods not exceeding ten years. In the table, all but the 12,500 common share options granted in 2006 are fully vested and exercisable and have a
weighted average remaining contractual term of three years. As of March 31, 2006, the aggregate intrinsic value of fully vested common share options was $4,978.

The Companys 1994 non-employee trustee share incentive plan provided for the granting of up to 200,000 share options and restricted shares to trustees. Restricted shares have voting and dividend rights from the
date granted. Options granted under the 1994 trustees plan expire not more than ten years from the date of grant. The Company has granted to trustees an aggregate of 100,000 non-qualified options to acquire common shares, with exercise prices
ranging from $6.93 to $16.69. As of March 31, 2006, 85,000 of these options, with a weighted average exercise price of $9.81, were vested, 15,000 options had been exercised and no options had been forfeited or terminated. The Company has also
granted to its non-employee trustees an aggregate of 75,053 restricted shares at a weighted average grant date fair value per share of $10.99, which vest over varying periods not to exceed five years. At March 31, 2006, 71,677 of these
restricted shares were vested.

The Company has granted performance awards that contain a market condition (defined as a vesting condition
based in whole or in part upon the Companys share price) and may result in the issuance of 237,500 common shares and 225,000 common share equivalents (the equivalents may settle in cash). The common shares and equivalents will only be issued
if the Companys compounded annual total shareholder return (share price appreciation plus dividends) exceeds a targeted threshold over a measuring period. The measuring period ends May 30, 2008 or upon the termination without cause, death
or disability of the employee, or a change of control of the Company. Any common shares or equivalents issued at the end of the measuring period will vest 50% at issuance and 25% on the first two anniversaries of issuance, or earlier if the employee
is terminated without cause, dies or is disabled, or if a change of control occurs. The fair value of the market condition awards is determined through the use of a financial model that considers the applicable risk free interest rate, expected
dividend yield, the volatility factor of the expected market price of the Companys common share and the term over which the performance conditions must be met to result in vesting of the awards. The resulting value is amortized to compensation
expense over the service term of the award. Total amortization of compensation expense in relation to share based compensation under SFAS No. 123R was $358 as of March 31, 2006. Total compensation expense for non-vested awards not yet
recognized is approximately $2,585 and will be recognized over the next four years. The fair value of each share option is estimated on the date of grant using the following assumptions: (1) common dividend yield of 4.1%, (2) expected
volatility in the Companys common share price of 25.5%, (3) a risk-free interest rate of 4.37% and (4) an expected option life of four years and expected performance awards life of five years.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and
unvested awards in each period presented (in thousands except for per share data):



|                                                                                                                               |  |                                             |       |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------- | ----- | -
|                                                                                                                               |  | Three Months Ended March 31, 2005 Pro Forma |      
|Net income (loss) applicable to common shareholders                                                                            |  | $                                           | (828  | )
|Deduct: Total share-based compensation expense determined under the fair value method for all awards, net of minority interest |  |                                             |      |  
|                                                                                                                               |  |                                             |       |  
|Pro forma net income (loss) applicable to common shareholders                                                                  |  | $                                           | (828  | )
|                                                                                                                               |  |                                             |       |  
|Basic earnings per share  as reported                                                                                         |  | $                                           | (0.02 | )
|Basic earnings per share  pro forma                                                                                           |  | $                                           | (0.02 | )
|Diluted earnings per share  as reported                                                                                       |  | $                                           | (0.02 | )
|Diluted earnings per share  as reported                                                                                       |  | $                                           | (0.02 | )
|                                                                                                                               |  |                                             |       |  



7



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##### Table of Contents

4. Recently Issued Accounting Pronouncements

In March 2005, FASB Interpretation (FIN 47) Accounting for Conditional Asset Retirement Obligations was issued to clarify that the term
conditional asset retirement obligation as used in FASB Statement No. 143 (SFAS 143), Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or)
method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred-generally upon acquisition, construction, or development and (or) through
the normal operation of the asset. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Statement
143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The Company has adopted FIN 47 and determined that it had no impact as March 31, 2006. The Company will continue to analyze the impact, if any, of FIN 47 on a regular basis.

5. Allowance for Doubtful Accounts

The Company
provides an allowance for doubtful accounts equal to the estimated uncollectible amounts of recorded accounts receivable. That estimate is based on historical collection experience, current economic and market conditions and a review of the current
status of accounts receivable. The allowance for doubtful accounts was $120 as of March 31, 2006 and $96 as of December 31, 2005.

6. Earnings
(loss) per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share for the three months
ended March 31, 2006 and 2005 (in thousands, except share and per share data):



|                                                                                                             |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                             |  | Three Months Ended March 31, |           
|                                                                                                             |  | 2006                         |            |   | 2005 |  
|Numerator:                                                                                                   |  |                              |            |   |      |   |            |  
|Income from continuing operations                                                                            |  | $                            | 6,025      |   |      | $ | 636        |  
|Preferred share dividends                                                                                    |  |                              | (2,900     | ) |      |   | (2,900     | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Net income (loss) applicable to common shareholders from continuing operations                               |  |                              | 3,125      |   |      |   | (2,264     | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Gain on sale of assets in discontinued operations                                                            |  |                              | 75         |   |      |   | 1,490      |  
|Discontinued operations                                                                                      |  |                              |           |   |      |   | (54        | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Net income (loss) applicable to common shareholders                                                          |  | $                            | 3,200      |   |      | $ | (828       | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Denominator:                                                                                                 |  |                              |            |   |      |   |            |  
|Denominator for basic earnings per share  weighted average shares                                           |  |                              | 42,864,826 |   |      |   | 39,902,804 |  
|Effect of dilutive securities:                                                                               |  |                              |            |   |      |   |            |  
|Share options                                                                                                |  |                              | 349,596    |   |      |   |           |  
|Restricted shares                                                                                            |  |                              | 83,759     |   |      |   |           |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Denominator for diluted earnings (loss) per share  adjusted weighted average shares and assumed conversions |  |                              | 43,298,181 |   |      |   | 39,902,804 |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Earnings (loss) per share data:                                                                              |  |                              |            |   |      |   |            |  
|Basic-continuing operations                                                                                  |  | $                            | 0.07       |   |      | $ | (0.06      | )
|Basic-discontinued operations                                                                                |  | $                            | 0.00       |   |      | $ | 0.04       |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Basic                                                                                                        |  | $                            | 0.07       |   |      | $ | (0.02      | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Diluted-continuing operations                                                                                |  | $                            | 0.07       |   |      | $ | (0.06      | )
|Diluted-discontinued operations                                                                              |  | $                            | 0.00       |   |      | $ | 0.04       |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Diluted                                                                                                      |  | $                            | 0.07       |   |      | $ | (0.02      | )
|                                                                                                             |  |                              |            |   |      |   |            |  



8



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##### Table of Contents

7. Dividends Declared and Paid

The Company declared common share dividends of $0.15 per share and $0.06 per share for the three months ended March 31, 2006 and 2005, respectively. The Company paid common share dividends of $6,454 and $2,566
for the three months ended March 31, 2006 and 2005, respectively.

8. Other Charges

Other charges for the three months ended March 31, 2006 and 2005 include the following (in thousands):



|                       |  |                              |      |   |      |   |      
|---------------------- |  | ---------------------------- | ---- | - | ---- | - | -----
|                       |  | Three Months Ended March 31,
|                       |  | 2006                         |      |   | 2005
|Transaction costs      |  | $                            | 250  |   |      | $ |     
|Other income           |  |                              | (745 | ) |      |   |     
|Extinguishment of debt |  |                              |     |   |      |   | 2,698
|                       |  |                              |      |   |      |   |      
|                       |  | $                            | (495 | ) |      | $ | 2,698
|                       |  |                              |      |   |      |   |      

Other income includes business interruption insurance proceeds for the Sheraton Four Points, Fort
Walton Beach, FL, which had a substantial number of rooms out of service for an extended period following hurricanes in September 2004. Transaction costs include legal costs associated with the Companys exploration of a possible sale of the
Company. Extinguishment of debt includes prepaid interest, loan origination fees and other costs associated with the partial defeasance of outstanding debt of $16,500 encumbering three hotels that were sold during the first quarter of 2005.

9. Discontinued Operations

The
Company classified three hotels as held for sale at December 31, 2004. The Company sold the three hotels in the first quarter of 2005, and recognized a net gain on the sale of those hotels of $1,490 as of March 31, 2005.

The results of operations from the three hotels classified as held for sale were recognized as discontinued operations for the three months ended
March 31, 2005. During the three months ended March 31, 2006, the Company sold one land site in Binghamton, NY and recognized a gain of $75 on the sale. The Company had no hotels classified as held for sale as of March 31, 2006.

The following table sets forth the components of income from discontinued operations for the three months ended March 31, 2006 and
2005 (in thousands):



|                                    |  |                              |    |      |   |       |  
|----------------------------------- |  | ---------------------------- | -- | ---- | - | ----- | -
|                                    |  | Three Months Ended March 31, |   
|                                    |  | 2006                         |    | 2005 |  
|Hotel operating revenue             |  | $                            |   |      | $ | 923   |  
|Other revenue                       |  |                              |   |      |   | 28    |  
|Hotel operating expenses            |  |                              |   |      |   | (926  | )
|Amortization of franchise fees      |  |                              |   |      |   | (2    | )
|Property taxes and insurance        |  |                              |   |      |   | (77   | )
|Gain on sale of assets              |  |                              | 75 |      |   | 1,490 |  
|                                    |  |                              |    |      |   |       |  
|Income from discontinued operations |  | $                            | 75 |      | $ | 1,436 |  
|                                    |  |                              |    |      |   |       |  



9



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##### Table of Contents

10. Income Taxes

The Companys TRSs are subject to federal and state income taxes. The TRSs have cumulative future income tax deductions of approximately $5,421 (related primarily to accumulated net operating losses) at
March 31, 2006 and the gross deferred tax asset associated with these future tax deductions was approximately $2,064. The TRSs have recorded a valuation allowance equal to 100% of the gross deferred tax asset due to the uncertainty of realizing
the benefit of this asset due to the TRSs limited operating history and the taxable losses incurred by the TRSs since their inception.

The
components of the deferred taxes recognized in the accompanying consolidated balance sheets at March 31, 2006 and December 31, 2005 are as follows (dollars in thousands):



|                     |  |      |        |   |      |   |        |  
|-------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                     |  | 2006 |        |   | 2005 |  
|Deferred tax assets: |  |      |        |   |      |   |        |  
|Net operating loss   |  | $    | 1,680  |   |      | $ | 1,468  |  
|Lease termination    |  |      | 384    |   |      |   | 432    |  
|Valuation allowance  |  |      | (2,064 | ) |      |   | (1,900 | )
|                     |  |      |        |   |      |   |        |  
|Total                |  | $    | 0      |   |      | $ | 0      |  
|                     |  |      |        |   |      |   |        |  

Net operating loss carry forwards for federal and state income tax purposes amounting to $3,883
and $530 expiring in 2024 and 2026, respectively.

11. Insurance Recovery

The Company received net insurance proceeds of $1,238 during the three months ended March 31, 2006 for the Ft. Walton Beach, FL hotel, which had a
substantial number of rooms out of service for an extended period following hurricanes in September 2004. Of this amount, $745 relates to proceeds from business interruption claims and $493 relates to amounts reimbursed for previously incurred
repairs and maintenance expense.

12. Subsequent Events

The Company declared a common share dividend of $0.15 per share for the second quarter of 2006 and declared a regular dividend of $0.50 per share Series C Cumulative preferred share.



10



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##### Table of Contents

ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(in thousands)

General

The following discussion and analysis should be read in conjunction with (a) the financial statements and
accompanying notes included in this report and (b) Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes thereto included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2005 (the 10-K). Capitalized terms used but not defined in this section have the meanings ascribed in the notes to the consolidated financial statements included in this
Report on Form 10-Q. An investment in the Company is subject to significant risks, which the Company discloses in reports filed from time to time with the SEC, including a discussion of Risk Factors included in the Form 10-K. The
Companys 2005 annual report (including the 10-K) is posted on the Companys website at www.innkeepersusa.com, and the Form 10-K may be found at the SECs EDGAR website at www.sec.gov.

The following chart sets forth certain information with respect to the Hotels at March 31, 2006:



|                                |  |                 |  |                      
|------------------------------- |  | --------------- |  | ---------------------
|Franchise Affiliation           |  | Number ofHotels |  | Number ofRooms/Suites
|Upscale Extended-Stay           |  |                 |  |                      
|Residence Inn by Marriott       |  | 42              |  | 5,044                
|Summerfield Suites              |  | 5               |  | 650                  
|Homewood Suites by Hilton       |  | 1               |  | 146                  
|Sunrise Suites (1)              |  | 1               |  | 96                   
|                                |  |                 |  |                      
|                                |  | 49              |  | 5,936                
|                                |  |                 |  |                      
|Upscale                         |  |                 |  |                      
|Doubletree Guest Suites         |  | 1               |  | 105                  
|Four Points by Sheraton         |  | 1               |  | 216                  
|Courtyard by Marriott (2)       |  | 3               |  | 529                  
|Westin (3)                      |  | 1               |  | 224                  
|Clarion (Bulfinch  Boston, MA) |  | 1               |  | 80                   
|                                |  |                 |  |                      
|                                |  | 7               |  | 1,154                
|                                |  |                 |  |                      
|Mid-Priced                      |  |                 |  |                      
|Hampton Inn                     |  | 13              |  | 1,631                
|TownePlace Suites               |  | 1               |  | 95                   
|                                |  | 14              |  | 1,726                
|                                |  |                 |  |                      
|                                |  | 70              |  | 8,816                
|                                |  |                 |  |                      

---

|(1) | This hotel is operated independently of any franchise.
|--- | ------------------------------------------------------

|(2) | Two of these hotels (with a total of 393 rooms) are closed for renovation and conversion to the Courtyard by Marriott brand.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(3) | This is a full-service upper-upscale hotel.
|--- | -------------------------------------------



11



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##### Table of Contents

Hotel occupancy, average daily rate (ADR) and revenue per available room (RevPAR)
results are presented in the following table.



|                          |  |                              |        |   |                               |   |        |   |  |      |  
|------------------------- |  | ---------------------------- | ------ | - | ----------------------------- | - | ------ | - |  | ---- | -
|                          |  | Three Months Ended March 31, |        |   | Percentageincrease (decrease) |  
|                          |  | 2006                         |        |   | 2005                          |   |       
|Portfolio (1)             |  |                              |        |   |                               |   |        |   |  |      |  
|ADR                       |  | $                            | 109.59 |   |                               | $ | 102.58 |   |  | 6.8  | %
|Occupancy                 |  |                              | 73.09  | % |                               |   | 72.33  | % |  | 1.1  |  
|RevPAR                    |  | $                            | 80.09  |   |                               | $ | 74.20  |   |  | 7.9  |  
|                          |  |                              |       
|By Price Segment          |  |                              |        |   |                               |   |        |   |  |      |  
|Upscale Extended Stay (2) |  |                              |        |   |                               |   |        |   |  |      |  
|ADR                       |  | $                            | 109.35 |   |                               | $ | 101.81 |   |  | 7.4  | %
|Occupancy                 |  |                              | 76.21  | % |                               |   | 75.14  | % |  | 1.4  |  
|RevPAR                    |  | $                            | 83.34  |   |                               | $ | 76.50  |   |  | 8.9  |  
|Upscale (3)               |  |                              |        |   |                               |   |        |   |  |      |  
|ADR                       |  | $                            | 127.79 |   |                               | $ | 119.35 |   |  | 7.1  | %
|Occupancy                 |  |                              | 70.16  | % |                               |   | 68.96  | % |  | 1.7  |  
|RevPAR                    |  | $                            | 89.66  |   |                               | $ | 82.31  |   |  | 8.9  |  
|Mid Price (4)             |  |                              |        |   |                               |   |        |   |  |      |  
|ADR                       |  | $                            | 104.65 |   |                               | $ | 100.70 |   |  | 3.9  | %
|Occupancy                 |  |                              | 61.99  | % |                               |   | 62.54  | % |  | (0.9 | )
|RevPAR                    |  | $                            | 64.87  |   |                               | $ | 62.97  |   |  | 3.0  |  

---

|(1) | Includes 65 hotels, and excludes three hotels closed for renovation and conversion during part or all of the periods presented, and two hotels acquired during 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 49 hotels.
|--- | -------------------

|(3) | Includes three hotels, and excludes two hotels closed for renovation and conversion during part or all of the periods presented, and two hotels acquired in 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 13 hotels, and excludes the Hampton Inn hotel in Louisville, KY that was closed for renovation and conversion and re-opened in August, 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

Results of Operations

Of the Companys 70 owned
hotels at March 31, 2006, 65 hotels with a total of 7,396 rooms are deemed Comparable Hotels whose operations are reflected in the Statements of Operations for the three months ended March 31, 2006 and 2005. The five hotels
excluded, with 1,429 rooms, consist of three hotels closed for renovation and conversion during part or all of the periods presented, and two hotels acquired during 2005.

Comparison of the Three Months Ended March 31, 2006 (2006) to the Three Months Ended March 31, 2005 (2005)

The Company had total revenue for 2006 of $64,602, consisting of $64,493 of hotel operating revenue and $109 of other revenue, compared to total revenue
of $55,099 for 2005, consisting of $54,993 of hotel operating revenue and $106 of other revenue.

Room revenue increased $7,514, or 14.2%,
to $60,545 in 2006 from $53,031 for 2005. Room revenue for the Comparable Hotels increased $4,248, or 8.0%, to $57,279 in 2006 from $53,031 in 2005. This increase was due to a 7.9% RevPAR increase which was driven mainly by a 6.8% increase in
average daily rate (ADR). These increases are reflective of the industry strength which is driven by the surging economy, hotel room demand, and historically low supply generators. The remaining increase of $3,266 in 2006 was primarily
due to the hotels acquired in 2005.

Food and beverage revenue increased $1,779 to $2,078 in 2006 from $299 in 2005. Food and beverage
revenue for the Comparable Hotels increased $40 to $197 in 2006 from $157 in 2005. The remaining increase of $1,739 in 2006 was primarily due to the acquisition of the full service Westin Governor Morris hotel in Morristown, NJ in 2005.



12



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##### Table of Contents

The Company had hotel operating expenses (excluding amortization of deferred franchise conversion and
lease acquisition) for 2006 of $37,063 compared to hotel operating expenses in 2005 of $31,429. Hotel operating expenses for the Comparable Hotels increased $1,464, or 4.6%, to $33,445 in 2006 from $31,981 in 2005. This increase was due primarily
due to increases in room costs of $425 of which $250 related to a workers compensation claim deductible, franchise fees of $286, and management fees of $120 which were due to the increase in revenue, and an increase in repair and maintenance
expenses of $160. Hotel operating expenses as a percentage of revenue for the Comparable Hotels remained constant at 56.5% in 2006 and 2005. The remaining increase of $4,170 was primarily due to the Hotels acquired in 2005.

Depreciation, amortization of franchise fees, amortization of loan origination fees, amortization of deferred franchise conversion fees, amortization of
deferred lease acquisition cost, and amortization of unearned compensation increased $914 in 2006 to $10,234 in the aggregate in 2006 from $9,320 in 2005. This increase is primarily due to a $771 increase in depreciation due to hotels acquired in
2005, and a $280 increase in unearned compensation due to the adoption of SFAS 123 (R) for the Companys share based compensation effective January 1, 2006.

Interest expense increased $141 to $5,049 in 2006 from $4,908 for 2005. The weighted average interest rate on the Companys line of credit increased
to 6.3% in 2006 from 5.1% in 2005, and average borrowings outstanding on the line of credit increased $46,000 from $30,574 in 2005 to $76,574 in 2006.

Property taxes and insurance increased $133 in 2006 to $3,026 from $2,893 for 2005. This increase was primarily due to new insurance policies and taxes for hotels acquired in 2005 of $238 offset by successful property
tax appeals.

Corporate general and administrative expenses increased $424 to $2,462 in 2006 from $2,038 in 2005. This increase was
primarily due to an increase in salaries, benefits, and recruiting, as well as costs associated with complying with certain Sarbanes-Oxley rules.

Gain on sale of assets of $75 was due to a sale of excess land in Binghamton, NY.

Preferred share dividends remained constant at
$2,900 in 2006 and 2005.

Net income applicable to common shareholders for 2006 was $3,200, or $0.07 per diluted share, compared with net
loss applicable to common shareholders of $(828), or $(0.02) per diluted share, for 2005. This increase was due primarily to the factors discussed previously.

Liquidity and Capital Resources

The Companys principal source of liquidity is derived from hotel operations. The
Company expects that its cash from hotel operations during 2006 will be adequate to meet its liquidity and capital expenditure needs during the year, excluding acquisitions, development, and re-branding projects. The Company currently expects to
fund its acquisitions, development, and re-branding projects primarily with the Companys current cash on hand and by borrowing on its line of credit or accessing the capital markets, if feasible.

Cash Flow Analysis

Cash and cash equivalents at
March 31, 2006 and 2005 were $23,190 and $28,408, respectively. Net cash provided by operating activities for the three months ended March 31, 2006 and 2005 was $19,629 and $12,414, respectively. The increase in net cash provided by
operating activities was primarily the result of an increase in accounts payable and a decrease in cash provided by the change in accounts receivable, supplemented by an increase in net income of $4.0 million due to improved hotel operations.

Net cash used in investing activities was $8,747 for the three months ended March 31, 2006. This was comprised primarily of
investment in hotels and capital expenditures of $8,559, offset by proceeds from a sale of excess land of $425.

Net cash used in investing
activities was $9,749 for the three months ended March 31, 2005. This was comprised primarily of proceeds from the sales of hotels of $20,789 offset by the acquisition of two hotels for $26,300 and capital expenditures of $6,200.



13



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##### Table of Contents

Net cash provided by financing activities was $411 for the three months ended March 31, 2006,
consisting primarily of borrowings on the line of credit of $12,500, offset by the payments on the line of credit of $1,451 and distributions paid of $10,509.

Net cash provided by financing activities was $2,906 for the three months ended March 31, 2005, consisting primarily of the proceeds from issuance of common shares of $59,585 and borrowing on the line of credit
of $46,000, reduced by proceeds from debt issuance of $95,657 and distributions paid of $6,313.

Distributions/Dividends

The Company has paid regular quarterly distributions on its common shares and common units since its inception. Distributions for the 2006 first quarter
were $0.15 per common share or common unit. Quarterly preferred distributions of $0.275 and $0.289 are payable on each Class B Preferred Unit (depending on the level of common share dividend paid). The first quarter 2006 distribution was $0.275 per
class B Preferred Unit. Dividends of $0.50 were paid on each Series C Preferred Share for the first quarter of 2006. The first quarter distributions were paid on April 25, 2006 to shareholders of record on March 31, 2006. The timing and
amount of any future distributions will be determined by the Companys Board of Trustees in its sole discretion based on factors it deems relevant and no assurance can be given that the current distributions levels will be sustained. Under
federal income tax law provisions applicable to REITs, the Company is required to distribute at least 90% of its taxable income to maintain its REIT status.

Financing

In making future investments in hotels, the Company may incur additional indebtedness. The Company may also incur
indebtedness to meet distribution requirements imposed on a REIT under the Internal Revenue Code, to fund its renovation and upgrade program or to fund any other liquidity needs to the extent that working capital and cash flow from the
Companys operations are insufficient to fund such needs. The Companys Declaration of Trust limits aggregate indebtedness to 50% of the Companys investment in hotels, at cost, after giving effect to the Companys use of
proceeds from any indebtedness. As of March 31, 2006 the Companys debt to investment at cost was 27.3%. The interest rate on the Companys $135.0 million unsecured line of credit is LIBOR plus 122.5 to 225 basis points, depending on
certain financial ratios. At March 31, 2006, the interest rate spread was 150 basis points. The interest rate was approximately 6.06% at March 31, 2006. The line of credit matures on July 23, 2007. The actual amount that can be
borrowed under the line of credit is subject to borrowing base availability and certain other conditions described in the loan agreement. At March 31, 2006, the Company (i) had $76.6 million of borrowings outstanding under the line of
credit and (ii) had available approximately $46.9 million under the line of credit (assuming the proceeds were used for the acquisition of hotel properties). At March 31, 2006, the Company was in compliance with all financial covenants
contained in all of its various loan agreements.

In the future, the Company may seek to increase or decrease the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt instruments, all in compliance with the Companys debt limitation. Any debt incurred or issued by the Company may be secured or unsecured, short-term or long-term, bear
a fixed or variable interest rate and may be subject to such other terms as management or the Board of Trustees of the Company deems prudent. The Company has no interest rate hedging instruments, financial derivatives or forward equity commitments.

Capital Expenditures

The Company
leases all of its hotels to TRS under separate percentage leases (Percentage Leases). The Percentage Leases with the TRSs generally require the Company to make available an amount equal to 4% or 5% of room revenues from the Hotels, per
month on a cumulative basis, for the periodic replacement or refurbishment of furniture, fixtures and equipment and certain other capital expenditures at the Hotels. Each of the Companys term loans require that the Company make available for
such purposes, at the Hotels collateralizing those loans, amounts up to 5% of gross revenues from such Hotels. The Company intends to cause the expenditure of amounts in excess of such obligated amounts, if necessary, to comply with the reasonable
requirements of any franchise agreement and otherwise to the extent that the Company deems such expenditures to be in the best interests of the Company.



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Management believes that the amounts required to be made available by the Company under the Percentage
Leases will be sufficient to meet most of the routine expenditures for furniture, fixtures and equipment at the hotels. However, in the past, the Company has spent substantially more on capital expenditures than the Percentage Leases require.
Management believed these additional expenditures were necessary to meet competitive pressures from other hotels, many of which are newly constructed. In many cases, the expenditures were also required by franchisors of the hotels. Management
believes that for the foreseeable future the Company will continue to spend substantially more on capital expenditures than it is required to make available to the TRSs under the Percentage Leases or loan agreements. The extent to which the actual
expenditures exceed the amounts required to be made available will vary from year to year, based on a number of factors. Those factors include, for any given year, market and franchisor requirements, the point in the normal recurring upgrade cycle
the hotels are at in that year, and the revenue of the hotels for that year. To the extent that the Company spends more on capital expenditures than is available from the Companys operations, the Company intends to fund capital expenditures
with available cash and borrowings under the line of credit.

Related Party Transactions

The Company has entered into a number of transactions and arrangements that involve conflicts of interest. For a description of these transactions and
arrangements, please see Risk Factors  Conflicts of Interest and Related Party Transactions beginning on page R-2 in the Form 10-K. See also Notes 10, 11 and 12 to the Companys financial statements beginning on page F-1 in
the Form 10-K.

Jeffrey H. Fisher, the Companys Chief Executive Officer, President and Chairman of the Board of Trustees, controls
the IH Manager.

Contractual Obligations and Commercial Commitments

During the normal course of business, the Company enters into acquisition agreements for the purchase and sale of property, which are subject to customary conditions and due diligence, and agreements for the
construction and renovation of hotels.

In the three months ended March 31, 2006, there were no significant changes, outside the
normal course of business, in the contractual obligations and commercial commitments disclosed in the Form 10-K.

Seasonality of Hotel Business

The hotel industry is seasonal in nature. Historically, the Companys hotels operations have generally reflected higher
occupancy rates and ADR during the second and third quarters. To the extent that cash flow for a quarter is insufficient to fund all of the hotel operating expenses and distributions for such quarter due to seasonal and other factors, the Company
may fund quarterly hotel operating expenses and distributions with available cash and borrowings under the line of credit.

Inflation

Operators of hotels, including the IH Manager, generally possess the ability to adjust room rates quickly. However, competitive pressures and other
factors have limited and may in the future limit the ability of the IH Manager to raise room rates in response to inflation. There can be no assurance that recent modest inflation levels will not increase in future years or that the effects of
inflation can be offset by raising hotel room rates.

Funds From Operations

The National Association of Real Estate Investment Trusts (NAREIT) adopted the definition of funds from operations (FFO) in order
to promote an industry standard measure of REIT financial and operating performance. The Company believes that the presentation of FFO (defined below) provides useful supplemental information to investors regarding the Companys financial
condition and results of operations. FFO facilitates



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##### Table of Contents

comparisons of operating performance between periods and between other equity REITs. FFO was developed by NAREIT as a
relative measure of performance and liquidity of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. Many other real estate companies use FFO as a measure of
their financial and operating performance, which provides another basis of comparison for management. FFO, as defined, adds back historical cost depreciation. Historical cost depreciation assumes the value of real estate assets diminishes
predictably over a certain period of time. In fact, real estate asset values have historically increased or decreased with market conditions. Additionally, FFO per share targets have historically been used to determine a significant portion of the
incentive compensation of the Companys senior management.

NAREIT defines FFO as net income (loss) (computed in accordance with
generally accepted accounting principles (GAAP)), excluding gains (losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO in
compliance with the NAREIT definition. FFO and FFO per share should not be considered as an alternative to net income, diluted net income per share, cash flow provided by operating activities, or any other financial and operating performance measure
prescribed by GAAP. These measures should only be used in conjunction with GAAP measures.

The following presents the Companys
calculations of FFO and the denominator for FFO per share for the three months ended Mach 31, 2006 and 2005 (in thousands, except share and per share data):



|                                                                  |  |                              |            |   |      |   |            |  
|----------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                  |  | Three Months Ended March 31, |           
|                                                                  |  | 2006                         |            |   | 2005 |  
|Net income (loss) applicable to common shareholders               |  | $                            | 3,200      |   |      | $ | (828       | )
|Depreciation                                                      |  |                              | 9,217      |   |      |   | 8,502      |  
|Minority interest, common                                         |  |                              | 55         |   |      |   | (20        | )
|Loss (gain) on sale of hotels included in discontinued operations |  |                              | (75        | ) |      |   | (1,490     | )
|                                                                  |  |                              |            |   |      |   |            |  
|Basic FFO                                                         |  | $                            | 12,397     |   |      | $ | 6,164      |  
|                                                                  |  |                              |            |   |      |   |            |  
|Minority interest, preferred                                      |  |                              | 1,045      |   |      |   |           |  
|                                                                  |  |                              |            |   |      |   |            |  
|Diluted FFO                                                       |  | $                            | 13,442     |   |      | $ | 6,164      |  
|                                                                  |  |                              |            |   |      |   |            |  
|Denominator for basic earnings per share                          |  |                              | 42,864,826 |   |      |   | 39,902,804 |  
|Effect of dilutive securities:                                    |  |                              |            |   |      |   |            |  
|Stock options                                                     |  |                              | 349,596    |   |      |   | 108,478    |  
|Restricted shares                                                 |  |                              | 83,759     |   |      |   | 45,345     |  
|Weighted average:                                                 |  |                              |            |   |      |   |            |  
|Common Units                                                      |  |                              | 666,891    |   |      |   | 976,640    |  
|Preferred Units (1)                                               |  |                              | 3,801,409  |   |      |   |           |  
|                                                                  |  |                              |            |   |      |   |            |  
|Denominator for diluted FFO per share                             |  |                              | 47,766,481 |   |      |   | 41,033,267 |  
|                                                                  |  |                              |            |   |      |   |            |  
|Diluted FFO per share                                             |  | $                            | 0.28       |   |      | $ | 0.15       |  
|                                                                  |  |                              |            |   |      |   |            |  



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Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws including, without limitation, statements containing the words estimates, projects,
anticipates, should, expects and words of similar import. Such forward-looking statements relate to future events and the future financial performance of the Company and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from the results or achievements expressed or implied by such forward-looking statements. The Company is not
obligated to update any such factors or to reflect the impact of actual future events or developments or such forward-looking statements.

Cautionary statements set forth in reports filed by the company from time to time with the SEC discuss important factors impacting, or that could impact, the company and its results or forecasted results. These factors include, without
limitation, (i) the operational risks of the hotel business (including decreasing hotel revenues and increasing hotel expenses), (ii) risks that war, terrorism or similar activities, widespread health alerts, disruption in oil imports or
higher oil prices or changes in domestic or international political environments negatively affect the travel industry and the company, (iii) risk of declines in the performance and prospects of businesses and industries (e.g., technology,
automotive, aerospace, pharmaceuticals) that are important hotel demand generators in the companys key markets (e.g. the Silicon Valley, CA, Washington, DC, etc.), (iv) risk that poor, declining and/or uncertain international, national,
regional and/or local economic conditions will, among other things, negatively affect demand for the companys hotel rooms and the availability and terms of financing, (v) risk that the companys ability to maintain its properties in
competitive condition becomes prohibitively expensive, (vi) risk that pricing in the hotel acquisition market becomes prohibitively expensive or non-financeable and that potential acquisitions or developments do not perform in accordance with
expectations, (vii) risk that the Company may invest in hotels of a size or nature (e.g., upscale full service or resort) different than those it has focused on historically (e.g., upscale extended-stay, and mid-scale limited service);
(viii) risks related to an increasing focus on development, including permitting risks, increasing the proportion of Company assets not producing revenue at a given time and risks that projects cost more, take longer to complete or do not
perform as anticipated; (ix) changes in travel patterns or the prevailing means of commerce (i.e., e-commerce) may reduce demand for hotels in general or the Companys hotels in particular, (x) the complex tax rules that the company
must satisfy to qualify as a REIT and the potentially severe consequences of failing to satisfy such requirements, and (xi) governmental regulation that may increase the companys cost of doing business or otherwise negatively effect its
business or its attractiveness as an investment and create risk of liability for non-compliance (e.g., changes in laws affecting taxes or dividends, compliance with the Americans with Disabilities Act, workers compensation law changes, the
Sarbanes-Oxley law, etc.).



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INNKEEPERS USA TRUST

ITEM 3 - QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

The
Companys primary market risk exposure is to changes in interest rates on its line of credit and other debt. The Companys interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and
to lower its overall borrowing costs. To achieve these objectives, the Company manages its exposure to fluctuations in market interest rates for a portion of its borrowings through the use of fixed rate debt instruments. The Company may enter into
derivative financial instruments such as interest rate swaps or caps and treasury options or locks to mitigate its interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of its variable rate debt.
Currently, the Company has no derivative financial instruments. The Company does not enter into derivative or interest rate transactions for speculative purposes. The Company regularly reviews interest rate exposure on its outstanding borrowings in
an effort to minimize the risk of interest rate fluctuations. The Companys operating results may be affected by changes in interest rates primarily as a result of borrowings under its line of credit.

For debt obligations outstanding at March 31, 2006, the following table presents principal repayments and related weighted average interest rates by
expected maturity dates (in thousands):



|                               |  |      |       |   |      |   |        |      |  |   |       |   |  |      |        |   |             |   |        |       |  |   |            |   |  |   |         |   |  |   |        
|------------------------------ |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | - |  | ---- | ------ | - | ----------- | - | ------ | ----- |  | - | ---------- | - |  | - | ------- | - |  | - | -------
|                               |  | 2006 |       |   | 2007 |   |        | 2008 |  |   | 2009  |   |  | 2010 |        |   | There-after |   |        | Total |  |   | Fair Value
|Debt:                          |  |      |       |   |      |   |        |      |  |   |       |   |  |      |        |   |             |   |        |       |  |   |            |   |  |   |         |   |  |   |        
|Fixed Rate (1)                 |  | $    | 4,311 |   |      | $ | 26,875 |      |  | $ | 5,267 |   |  | $    | 74,642 |   |             | $ | 37,329 |       |  | $ | 45,477     |   |  | $ | 193,901 |   |  | $ | 188,787
|Weighted Average Interest Rate |  |      | 8.08  | % |      |   | 8.15   | %    |  |   | 8.05  | % |  |      | 7.60   | % |             |   | 8.02   | %     |  |   | 7.75       | % |  |   | 7.82    |   |  |   |       
|Variable Rate (2)              |  |      |      |   |      | $ | 76,574 |      |  |   |      |   |  |      |       |   |             |   |       |       |  | $ | 10,000     |   |  | $ | 86,574  |   |  | $ | 86,574 
|Weighted Average Interest Rate |  |      |      |   |      |   | 6.25   | %    |  |   |      |   |  |      |       |   |             |   |       |       |  |   | 3.02       | % |  |   | 5.88    | % |  |   |       

---

|(1) | For purposes of disclosure, the Company calculates the fair value of its debt. The Company discounts the difference between the future contractual interest payments on its debt and
the future interest payments it would make on its debt calculated using a current market interest rate. In determining the current market interest rate, the Company adds its estimate of a market spread to the quoted yields on federal government
treasury securities with maturities similar to its debt.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | An increase of one percent in the interest rate on the Companys variable rate debt would have increased interest expense approximately $217 for the three months ended
March 31, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The table incorporates only those exposures that existed as of March 31, 2006 and does not
consider exposures or positions that could arise after that date. As a result, the Companys ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the future period, prevailing
interest rates, and the Companys hedging strategies at that time. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and the Companys financing requirements.



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##### Table of Contents

INNKEEPERS USA TRUST

ITEM 4  CONTROLS AND PROCEDURES

The Company evaluated, under the supervision and with the participation of the Companys management (including its chief executive officer and chief
financial officer), the effectiveness of the design and operation of its disclosure controls and procedures as defined in Exchange Act Rule 13a  15(e).

Based on their evaluation of such disclosure controls and procedures, the Companys chief executive officer and chief financial officer have concluded that such controls were effective as of March 31, 2006.

There has been no change in the Companys internal control over financial reporting during the quarter ended March 31, 2006 that
has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

INNKEEPERS USA TRUST

PART II - OTHER INFORMATION

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.

On January 1, 2006, the Company issued 83,060 common shares in redemption of 83,060 common units of Innkeepers USA Limited Partnership, in reliance on Section 4(2) of the Securities Act of 1933, as amended,
the common shares are covered by an effective of shelf registration statement.

Item 6 - Exhibits



|        |  |                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                         
|3.1(a)  |  | Amended and Restated Declaration of Trust of the Registrant (previously filed as Exhibit 3.1 to the Companys Registration Statement on Form S-11, Registration No. 33-81362, and
incorporated herein by reference). *              
|        | 
|3.1(b)  |  | Form of Articles Supplementary to the Declaration of Trust of Innkeepers USA Trust (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form 8- A filed with
the Commission on December 17, 2003). *
|        | 
|3.2     |  | Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Companys Registration Statement on Form S-11, Registration No. 33-81362, and incorporated herein by reference).
*                                                 
|        | 
|4.1(a)  |  | Form of Common Share Certificate (previously filed as Exhibit 4.1 to the Companys Registration Statement on Form S-11, Registration No. 33-81362, and incorporated herein by reference).
*                                         
|        | 
|4.1(b)  |  | Form of Preferred Share Certificate for 8.0% Series C Preferred Shares (previously filed as Exhibit 4.1 to the Companys Current Report on Form 8-K filed January 21, 2004, and incorporated
herein by reference). *                
|        | 
|10.2    |  | Indemnification Agreement between Innkeepers USA Trust and Dennis M. Craven, dated as of March 31, 2006.                                                                                                                            
|        | 
|10.3    |  | Innkeepers USA Trust 1994 Share Incentive Plan (Amended and Restated).                                                                                                                                                              
|        | 
|10.4    |  | 2006 Innkeepers USA Trust Non-Employee Trustees Share Incentive Plan.                                                                                                                                                              
|        | 
|31.1    |  | CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|        | 
|31.2    |  | CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|        | 
|32.1    |  | CEO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|        | 
|32.2    |  | CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        

---

|* | Incorporated by reference
|- | -------------------------



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



|            |  |                        
|----------- |  | -----------------------
|            |  | INNKEEPERS USA TRUST   
|            | 
|            |  | /s/ Dennis M. Craven   
|May 9, 2006 |  | Dennis M. Craven       
|            |  | Chief Financial Officer



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EXHIBIT INDEX



|
|

|        |  |                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                         
|        | 
|3.1(a)  |  | Amended and Restated Declaration of Trust of the Registrant (previously filed as Exhibit 3.1 to the Companys Registration Statement on Form S-11, Registration No. 33-81362, and
incorporated herein by reference). *              
|        | 
|3.1(b)  |  | Form of Articles Supplementary to the Declaration of Trust of Innkeepers USA Trust (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form 8- A filed
with the Commission on December 17, 2003). *
|        | 
|3.2     |  | Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Companys Registration Statement on Form S-11, Registration No. 33-81362, and incorporated herein by reference).
*                                                 
|        | 
|4.1(a)  |  | Form of Common Share Certificate (previously filed as Exhibit 4.1 to the Companys Registration Statement on Form S-11, Registration No. 33-81362, and incorporated herein by
reference). *                                         
|        | 
|4.1(b)  |  | Form of Preferred Share Certificate for 8.0% Series C Preferred Shares (previously filed as Exhibit 4.1 to the Companys Current Report on Form 8-K filed January 21, 2004, and
incorporated herein by reference). *                
|        | 
|10.2    |  | Indemnification Agreement between Innkeepers USA Trust and Dennis M. Craven, dated as of March 31, 2006.                                                                                                                            
|        | 
|10.5    |  | Innkeepers USA Trust 1994 Share Incentive Plan (Amended and Restated).                                                                                                                                                              
|        | 
|10.6    |  | 2006 Innkeepers USA Trust Non-Employee Trustees Share Incentive Plan.                                                                                                                                                              
|        | 
|31.1    |  | CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|        | 
|31.2    |  | CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|        | 
|32.1    |  | CEO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|        | 
|32.2    |  | CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        

---

|* | Incorporated by reference
|- | -------------------------



22