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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, 2005



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.)
|                                                               | 
|306 Royal Poinciana Way, 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No ̈



The number of common shares of beneficial interest, $.01 par value, outstanding on May 10, 2005, was 42,774,412.



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##### Table of Contents

TABLE OF CONTENTS



|              |  |                       |  |                                                                                          |  |     
|------------- |  | --------------------- |  | ---------------------------------------------------------------------------------------- |  | ----
|              |  |                       |  |                                                                                          |  | Page
|Part I        |  | Financial Information |  |                                                                                         
|              |  |                       | 
|              |  | Item 1.               |  | Financial Statements (unaudited)                                                         |  |     
|              |  |                       | 
|              |  |                       |  | Consolidated Balance Sheets at March 31, 2005 and December 31, 2004                      |  | 2   
|              |  |                       | 
|              |  |                       |  | Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 |  | 3   
|              |  |                       | 
|              |  |                       |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 |  | 4   
|              |  |                       | 
|              |  |                       |  | Notes to Consolidated Financial Statements                                               |  | 5   
|              |  |                       | 
|              |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 10  
|              |  |                       | 
|              |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 17  
|              |  |                       | 
|              |  | Item 4.               |  | Controls and Procedures                                                                  |  | 18  
|              |  |                      
|Part II.      |  | Other Information     |  |                                                                                         
|              |  |                       | 
|              |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                              |  | 19  
|              |  |                       | 
|              |  | Item 6.               |  | Exhibits and Reports in Form 8-K                                                         |  | 19  
|              | 
|Signature     |  | 20                   
|              | 
|Exhibit Index |  | 21                   



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##### Table of Contents

PART I  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS (UNAUDITED)



Innkeepers USA Trust

Consolidated Balance Sheets

(in thousands, except share and per share data)



|                                                                                                                              |  |               |          |   |                  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                              |  | March 31,2005 |          |   | December 31,2004 |  
|ASSETS                                                                                                                        |  |               |          |   |                  |   |          |  
|Investment in hotels:                                                                                                         |  |               |          |   |                  |   |          |  
|Land and improvements                                                                                                         |  | $             | 136,228  |   |                  | $ | 127,392  |  
|Buildings and improvements                                                                                                    |  |               | 705,849  |   |                  |   | 687,754  |  
|Furniture and equipment                                                                                                       |  |               | 104,278  |   |                  |   | 101,909  |  
|Renovations in process                                                                                                        |  |               | 6,597    |   |                  |   | 2,794    |  
|Hotels under development                                                                                                      |  |               | 4,029    |   |                  |   | 3,864    |  
|Hotels held for sale                                                                                                          |  |               |         |   |                  |   | 19,299   |  
|                                                                                                                              |  |               |          |   |                  |   |          |  
|                                                                                                                              |  |               | 956,981  |   |                  |   | 943,012  |  
|Accumulated depreciation                                                                                                      |  |               | (216,355 | ) |                  |   | (207,853 | )
|                                                                                                                              |  |               |          |   |                  |   |          |  
|Net investment in hotels                                                                                                      |  |               | 740,626  |   |                  |   | 735,159  |  
|                                                                                                                              |  |              
|Cash and cash equivalents                                                                                                     |  |               | 28,408   |   |                  |   | 22,837   |  
|Restricted cash and cash equivalents                                                                                          |  |               | 9,662    |   |                  |   | 10,781   |  
|Accounts receivable                                                                                                           |  |               | 7,078    |   |                  |   | 4,577    |  
|Prepaid and other                                                                                                             |  |               | 2,075    |   |                  |   | 2,539    |  
|Deferred and other                                                                                                            |  |               | 18,301   |   |                  |   | 20,099   |  
|                                                                                                                              |  |               |          |   |                  |   |          |  
|Total assets                                                                                                                  |  | $             | 806,150  |   |                  | $ | 795,992  |  
|                                                                                                                              |  |               |          |   |                  |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                          |  |               |          |   |                  |   |          |  
|Debt                                                                                                                          |  | $             | 239,906  |   |                  | $ | 286,865  |  
|Accounts payable and accrued expenses                                                                                         |  |               | 12,718   |   |                  |   | 12,663   |  
|Payable to manager                                                                                                            |  |               | 429      |   |                  |   | 209      |  
|Franchise conversion fee obligations                                                                                          |  |               | 11,135   |   |                  |   | 10,825   |  
|Distributions payable                                                                                                         |  |               | 5,713    |   |                  |   | 5,450    |  
|Minority interest in Partnership                                                                                              |  |               | 48,409   |   |                  |   | 51,088   |  
|                                                                                                                              |  |               |          |   |                  |   |          |  
|Total liabilities                                                                                                             |  |               | 318,310  |   |                  |   | 367,100  |  
|                                                                                                                              |  |              
|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, 42,774,412 and 37,966,756 issued and outstanding, respectively |  |               | 428      |   |                  |   | 380      |  
|Additional paid-in capital                                                                                                    |  |               | 458,828  |   |                  |   | 396,631  |  
|Unearned compensation                                                                                                         |  |               | (351     | ) |                  |   | (448     | )
|Distributions in excess of earnings                                                                                           |  |               | (116,065 | ) |                  |   | (112,671 | )
|                                                                                                                              |  |               |          |   |                  |   |          |  
|Total shareholders equity                                                                                                    |  |               | 487,840  |   |                  |   | 428,892  |  
|                                                                                                                              |  |               |          |   |                  |   |          |  
|Total liabilities and shareholders equity                                                                                    |  | $             | 806,150  |   |                  | $ | 795,992  |  
|                                                                                                                              |  |               |          |   |                  |   |          |  



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



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Innkeepers USA Trust

Consolidated Statements of Operations

(in thousands, except share and per share data)



|                                                                             |  |                              |            |   |      |   |            |  
|---------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                             |  | Three Months Ended March 31, |           
|                                                                             |  | 2005                         |            |   | 2004 |  
|Revenue:                                                                     |  |                              |            |   |      |   |            |  
|Hotel operating                                                              |  |                              |            |   |      |   |            |  
|Rooms                                                                        |  | $                            | 53,031     |   |      | $ | 34,447     |  
|Food and beverage                                                            |  |                              | 299        |   |      |   | 77         |  
|Telephone                                                                    |  |                              | 392        |   |      |   | 414        |  
|Other                                                                        |  |                              | 1,271      |   |      |   | 654        |  
|Corporate                                                                    |  |                              |            |   |      |   |            |  
|Percentage lease                                                             |  |                              |           |   |      |   | 5,073      |  
|Other                                                                        |  |                              | 106        |   |      |   | 89         |  
|                                                                             |  |                              |            |   |      |   |            |  
|Total revenue                                                                |  |                              | 55,099     |   |      |   | 40,754     |  
|                                                                             |  |                              |            |   |      |   |            |  
|Expenses:                                                                    |  |                              |            |   |      |   |            |  
|Hotel operating                                                              |  |                              |            |   |      |   |            |  
|Rooms                                                                        |  |                              | 11,200     |   |      |   | 7,796      |  
|Food and beverage                                                            |  |                              | 236        |   |      |   | 77         |  
|Telephone                                                                    |  |                              | 683        |   |      |   | 448        |  
|Other                                                                        |  |                              | 595        |   |      |   | 297        |  
|General and administrative                                                   |  |                              | 5,690      |   |      |   | 3,417      |  
|Franchise and marketing fees                                                 |  |                              | 3,773      |   |      |   | 2,569      |  
|Amortization of deferred franchise conversion                                |  |                              | 363        |   |      |   | 226        |  
|Advertising and promotions                                                   |  |                              | 1,688      |   |      |   | 1,160      |  
|Utilities                                                                    |  |                              | 2,961      |   |      |   | 1,670      |  
|Repairs and maintenance                                                      |  |                              | 2,424      |   |      |   | 1,944      |  
|Management fees                                                              |  |                              | 1,792      |   |      |   | 1,146      |  
|Amortization of deferred lease acquisition                                   |  |                              | 131        |   |      |   | 120        |  
|Insurance                                                                    |  |                              | 387        |   |      |   | 255        |  
|Corporate                                                                    |  |                              |            |   |      |   |            |  
|Depreciation                                                                 |  |                              | 8,502      |   |      |   | 7,811      |  
|Amortization of franchise fees                                               |  |                              | 17         |   |      |   | 10         |  
|Ground rent                                                                  |  |                              | 129        |   |      |   | 127        |  
|Interest                                                                     |  |                              | 4,908      |   |      |   | 4,494      |  
|Amortization of loan origination fees                                        |  |                              | 210        |   |      |   | 269        |  
|Property taxes and insurance                                                 |  |                              | 2,893      |   |      |   | 2,778      |  
|General and administrative (excluding amortization of unearned compensation) |  |                              | 2,038      |   |      |   | 1,631      |  
|Amortization of unearned compensation                                        |  |                              | 97         |   |      |   | 227        |  
|Other charges                                                                |  |                              | 2,698      |   |      |   | 371        |  
|                                                                             |  |                              |            |   |      |   |            |  
|Total expenses                                                               |  |                              | 53,415     |   |      |   | 38,843     |  
|                                                                             |  |                              |            |   |      |   |            |  
|Income before minority interest                                              |  |                              | 1,684      |   |      |   | 1,911      |  
|Minority interest, common                                                    |  |                              | 20         |   |      |   | 157        |  
|Minority interest, preferred                                                 |  |                              | (1,068     | ) |      |   | (1,068     | )
|                                                                             |  |                              |            |   |      |   |            |  
|Income from continuing operations                                            |  |                              | 636        |   |      |   | 1,000      |  
|Discontinued operations                                                      |  |                              | 1,436      |   |      |   | 833        |  
|                                                                             |  |                              |            |   |      |   |            |  
|Net income                                                                   |  |                              | 2,072      |   |      |   | 1,833      |  
|Series A Preferred Share issuance costs                                      |  |                              |           |   |      |   | (4,249     | )
|Preferred share dividends                                                    |  |                              | (2,900     | ) |      |   | (2,789     | )
|                                                                             |  |                              |            |   |      |   |            |  
|Net loss applicable to common shareholders                                   |  | $                            | (828       | ) |      | $ | (5,205     | )
|                                                                             |  |                              |            |   |      |   |            |  
|Earnings (loss) per share data:                                              |  |                              |            |   |      |   |            |  
|Basic  continuing operations                                                |  | $                            | (0.06      | ) |      | $ | (0.16      | )
|                                                                             |  |                              |            |   |      |   |            |  
|Basic                                                                        |  | $                            | (0.02      | ) |      | $ | (0.14      | )
|                                                                             |  |                              |            |   |      |   |            |  
|Basic  weighted average shares                                              |  |                              | 39,902,804 |   |      |   | 37,430,579 |  
|                                                                             |  |                              |            |   |      |   |            |  
|Diluted  continuing operations                                              |  | $                            | (0.06      | ) |      | $ | (0.16      | )
|                                                                             |  |                              |            |   |      |   |            |  
|Diluted                                                                      |  | $                            | (0.02      | ) |      | $ | (0.14      | )
|                                                                             |  |                              |            |   |      |   |            |  
|Diluted  weighted average shares                                            |  |                              | 39,902,804 |   |      |   | 37,430,579 |  
|                                                                             |  |                              |            |   |      |   |            |  



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



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Innkeepers USA Trust

Consolidated Statements of Cash Flows

(in thousands)



|                                                                                  |  |                             |         |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                  |  | Three Months EndedMarch 31, |        
|                                                                                  |  | 2005                        |         |   | 2004 |  
|Cash flows from operating activities:                                             |  |                             |         |   |      |   |          |  
|Net income                                                                        |  | $                           | 2,072   |   |      | $ | 1,833    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |         |   |      |   |          |  
|Depreciation and amortization                                                     |  |                             | 9,320   |   |      |   | 9,266    |  
|Extinguishment of debt                                                            |  |                             | 2,698   |   |      |   |         |  
|Interest on franchise conversion fee obligations                                  |  |                             | 254     |   |      |   |         |  
|Other charges                                                                     |  |                             | 274     |   |      |   |         |  
|Minority interests                                                                |  |                             | 1,048   |   |      |   | 911      |  
|Gain on sale of hotel included in discontinued operations                         |  |                             | (1,490  | ) |      |   | (1,029   | )
|Changes in operating assets and liabilities:                                      |  |                             |         |   |      |   |          |  
|Accounts receivable (excluding allowance)                                         |  |                             | (2,962  | ) |      |   | 2,398    |  
|Allowance for doubtful accounts                                                   |  |                             | 461     |   |      |   |         |  
|Prepaid and other                                                                 |  |                             | 464     |   |      |   | 402      |  
|Accounts payable and accrued expenses                                             |  |                             | 55      |   |      |   | 4,319    |  
|Payable to manager                                                                |  |                             | 220     |   |      |   | (452     | )
|                                                                                  |  |                             |         |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                             | 12,414  |   |      |   | 17,648   |  
|                                                                                  |  |                             |         |   |      |   |          |  
|Cash flows from investing activities:                                             |  |                             |         |   |      |   |          |  
|Investment in hotels                                                              |  |                             | (32,544 | ) |      |   | (6,964   | )
|Proceeds from property insurance                                                  |  |                             | 782     |   |      |   |         |  
|Proceeds from sale of hotels                                                      |  |                             | 20,789  |   |      |   | 4,028    |  
|Net withdrawals (deposits) into restricted cash and cash equivalents              |  |                             | 1,119   |   |      |   | (323     | )
|Lease acquisitions                                                                |  |                             |        |   |      |   | (1,336   | )
|Payment of franchise fees                                                         |  |                             | (45     | ) |      |   |         |  
|Repayment of advances                                                             |  |                             | 150     |   |      |   |         |  
|                                                                                  |  |                             |         |   |      |   |          |  
|Net cash used in investing activities                                             |  |                             | (9,749  | ) |      |   | (4,595   | )
|                                                                                  |  |                             |         |   |      |   |          |  
|Cash flows from financing activities:                                             |  |                             |         |   |      |   |          |  
|Proceeds from debt issuance                                                       |  |                             | 46,000  |   |      |   |         |  
|Payments on debt                                                                  |  |                             | (95,657 | ) |      |   | (1,202   | )
|Payments on franchise conversion fee obligations                                  |  |                             | (686    | ) |      |   | (91      | )
|Distributions paid to unit holders                                                |  |                             | (1,135  | ) |      |   | (1,103   | )
|Distributions paid to shareholders                                                |  |                             | (5,178  | ) |      |   | (3,400   | )
|Redemption of shares or units                                                     |  |                             |        |   |      |   | (115,730 | )
|Proceeds from issuance of common and preferred shares                             |  |                             | 59,585  |   |      |   | 140,300  |  
|Loan origination fees and costs paid                                              |  |                             | (23     | ) |      |   | (34      | )
|                                                                                  |  |                             |         |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                             | 2,906   |   |      |   | 18,740   |  
|                                                                                  |  |                             |         |   |      |   |          |  
|Net increase in cash and cash equivalents                                         |  |                             | 5,571   |   |      |   | 31,793   |  
|Cash and cash equivalents at beginning of year                                    |  |                             | 22,837  |   |      |   | 9,586    |  
|                                                                                  |  |                             |         |   |      |   |          |  
|Cash and cash equivalents at end of year                                          |  | $                           | 28,408  |   |      | $ | 41,379   |  
|                                                                                  |  |                             |         |   |      |   |          |  
|Supplemental cash flow information:                                               |  |                             |         |   |      |   |          |  
|Interest paid                                                                     |  | $                           | 4,818   |   |      | $ | 4,331    |  



Supplemental
disclosure of non-cash information 

See Note 1 for a description of the Marriott Takeback Transaction

A common unit holder in the Companys operating partnership converted 407,656 common units into common shares during the three months ended March 31,
2005.



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



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Innkeepers USA Trust

Notes to Consolidated Financial Statements



1. Organization and Recent Developments



Innkeepers USA Trust (Innkeepers) is a self-administered real
estate investment trust (REIT), which at March 31, 2005, owned 68 hotels with an aggregate of 8,521 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 Hotels for Innkeepers and a third party manages one of the Hotels.



TRS Transaction.From January 1, 2003 through November 30, 2003, 60 of the Hotels were leased to Innkeepers
Hospitality, Inc. or its affiliates (collectively, the IH Lessee) under separate percentage leases (collectively, the Percentage Leases) providing for rent equal to (a) a fixed base amount or, (b) if greater, percentage lease
rent based on the room revenues of the Hotel. The IH Lessee operated 44 of the Hotels for that entire 11-month period. Affiliates of Marriott International, Inc. (Marriott) operated 17 of the Hotels for part of 2003, under management
agreements with the IH Lessee. At various times during April 2003 to July 2003, the IH Lessee terminated the Marriott management agreements for those 17 Hotels and began managing those Hotels directly. (see  Management Conversion of
Marriott-Managed Hotels below). A Hotel acquired in June 2003 was leased by the Company to a TRS of the Company, and the TRS engaged the IH Manager to manage the Hotel. As of December 1, 2003, TRSs of the Company acquired from the IH Lessee
the Percentage Leases for 23 of the Hotels, and simultaneously entered into management agreements with the IH Manager to manage those 23 Hotels. The IH Lessee continued to lease and manage the 37 Hotels under Percentage Leases for the remainder of
2003. Between December 31, 2003 and March 1, 2004, TRSs acquired the Percentage Leases on the remaining 37 Hotels leased by the IH Lessee, and the TRSs entered into management agreements with the IH Manager to manage those Hotels as those Percentage
Leases were acquired. All of the IH Lessees Percentage Leases were acquired by the TRSs without any modification to existing rent formulas or other economic terms. This transaction is referred to as the TRS Transaction.



Wyndham Lease Termination Transaction.During 2003, six of the
Companys Hotels were leased to affiliates of Wyndham International, Inc. (Wyndham and the Summerfield Lessee), and affiliates of the Summerfield Lessee operated those Hotels. The IH Lessee and the Summerfield Lessee are
sometimes referred to as the Lessees. Between March 1, 2004 and April 1, 2004, the Company (i) terminated the Percentage Leases (and related agreements) with the Summerfield Lessee, (ii) entered into new Percentage Leases with its TRSs
on economic terms substantially similar to those in the terminated Percentage Leases, (iii) caused the TRSs to enter into management agreements with the IH Manager (with terms similar to the management agreements entered into with the IH Manager in
connection with the TRS Transaction) and (iv) caused the TRSs to enter into franchise agreements with an affiliate of Wyndham with respect to the five Hotels operating under the Summerfield Suites by Wyndham brand. No consideration was paid to the
Summerfield Lessee or its affiliates in connection with the termination of the Summerfield Lessees Percentage Leases. This transaction is referred to as the Wyndham Lease Termination Transaction.



All but one of the Companys Hotels are managed by the IH Manager under
management agreements with the TRSs at March 31, 2005. 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. As a result of theTRS transaction, Hotel-level revenue is reflected in the Companys financial
statements as Hotel operating revenue and Hotel-level expense is reflected in the Companys financial statements as Hotel operating expense. The Company had Hotels operating under the previous structure during the three
months ended March 31, 2004 and therefore the accompanying statements of operation for the three months ended March 31, 2004 reflect percentage lease revenue.



Management Conversion of Marriott-Managed Hotels. Between April 2003 and July 2003, the Company, the IH Lessee, Marriott and various affiliates thereof completed a
transaction under which the IH Lessee (1) converted the agreements under which 17 of our Hotels were franchised and managed by Marriott into long-term franchise agreements with Marriott and (2) became the manager of the Hotels. The TRSs 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



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##### Table of Contents

and a 5% royalty thereafter (as compared to 5% of gross revenues under the previous agreements with Marriott) 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). A portion of the Conversion Fee will be
waived for a year if the converted Hotels room revenues decline below certain levels and certain other conditions are met. The Conversion Fee was subject to an aggregate credit of $750,000 from Marriott; the Company applied $375,000 of the
credit to the $850,000 Conversion Fee due for 2004. Other than the fees discussed above, the fees required under the franchise agreements are generally similar to the fees (other than management fees) that were required by the previous Marriott
management agreements. This transaction is referred to as the Marriott Takeback Transaction.



Jeffrey H. Fisher, the Companys Chief Executive Officer, President and Chairman of the Board of Trustees, controlled the IH Lessee and controls the
IH Manager. Rolf E. Ruhfus, a trustee of the Company, is also a director of Wyndham.



Acquisitions and Sales of Hotels



In January 2005, the Company acquired an existing 83-room Hampton Inn Hotel in Columbia, Maryland for a gross amount of $10 million, including closing costs and anticipated capital expenditures.



In January 2005, the Company acquired an existing 190-room Hotel in Montvale,
NJ, for a gross amount of $23 million, including closing costs and anticipated capital expenditures. The Company closed the Hotel to begin a $5 million renovation to convert the Hotel to a Courtyard which is expected to open in 2006.



In February 2005, the Company sold a 112-suite Residence Inn Hotel in
Portland, OR for a gross amount of $8.5 million and a 120-suite Residence Inn Hotel in Vancouver, WA for a gross amount of $6.4 million.



In March 2005, the Company sold a 204-room Holiday Inn Express Hotel in Lexington, MA for a gross amount of $6.4 million.



Issuance of Common Share



In February 2005, the Company completed a public offering of 4.4 million
common shares at $13.71 per share. The net proceeds from the offering of $59.6 million were used to pay down a portion of the Companys outstanding indebtedness under its unsecured line of credit.



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 December 31, 2004 (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. Stock Based Compensation



The Company accounts for share option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations. Under APB 25, no compensation expense is recognized for employee share option grants because the exercise price of the options granted to
date has equaled the market price of the underlying shares on the date of grant (the intrinsic value method).



4. Recently Issued Accounting Pronouncements



On March 29, 2005, the SEC published Staff Accounting Bulletin No. 107. The interpretations in this staff accounting bulletin (SAB)
express views of the staff regarding the interaction between Statement of Financial Accounting Standards Statement No. 123 (revised 2004), Share-Based Payment (Statement 123R or



6



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##### Table of Contents

the Statement) and certain Securities and Exchange Commission (SEC) rules and regulations and
provide the staffs views regarding the valuation of share-based payment arrangements for public companies. In particular, this SAB provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic
to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of
compensation expense, non-GAAP financial measures, first-time adoption of Statement 123R in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based
payment arrangements upon adoption of Statement 123R, the modification of employee share options prior to adoption of Statement 123R and disclosures in Managements Discussion and Analysis (MD&A) subsequent to adoption of
Statement 123R. The Company is reviewing the statement and evaluating the impact, if any, of this statement.



5. Allowance for Doubtful Accounts



The Company provides an allowance for doubtful accounts 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 Company increased the allowance for doubtful accounts from $58,000 at December 31, 2004 to $519,000 at March 31, 2005. See Note 10.



6. Earnings per Share



The following table sets forth the computation of basic and diluted earnings (loss) per share for the three months ended
March 31, 2005 and 2004 (in thousands, except share and per share data):



|                                                                                                             |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                             |  | Three Months Ended March 31, |           
|                                                                                                             |  | 2005                         |            |   | 2004 |  
|Numerator:                                                                                                   |  |                              |            |   |      |   |            |  
|Income from continuing operations                                                                            |  | $                            | 636        |   |      | $ | 1,000      |  
|Series A Preferred Share issuance costs                                                                      |  |                              |           |   |      |   | (4,249     | )
|Preferred share dividends                                                                                    |  |                              | (2,900     | ) |      |   | (2,789     | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Loss applicable to common shareholders from continuing operations                                            |  |                              | (2,264     | ) |      |   | (6,038     | )
|Discontinued operations                                                                                      |  |                              | 1,436      |   |      |   | 833        |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Net loss applicable to common shareholders                                                                   |  | $                            | (828       | ) |      | $ | (5,205     | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Denominator:                                                                                                 |  |                              |            |   |      |   |            |  
|Denominator for basic earnings (loss) per share  weighted average shares                                    |  |                              | 39,902,804 |   |      |   | 37,430,579 |  
|Effect of dilutive securities:                                                                               |  |                              |            |   |      |   |            |  
|Share options                                                                                                |  |                              |           |   |      |   |           |  
|Restricted shares                                                                                            |  |                              |           |   |      |   |           |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Denominator for diluted earnings (loss) per share  adjusted weighted average shares and assumed conversions |  |                              | 39,902,804 |   |      |   | 37,430,579 |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Earnings (loss) per share data:                                                                              |  |                              |            |   |      |   |            |  
|Basic-continuing operations                                                                                  |  | $                            | (0.06      | ) |      | $ | (0.16      | )
|Basic-discontinued operations                                                                                |  |                              | 0.04       |   |      |   | 0.02       |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Basic                                                                                                        |  | $                            | (0.02      | ) |      | $ | (0.14      | )
|                                                                                                             |  |                              |            |   |      |   |            |  
|Diluted-continuing operations                                                                                |  | $                            | (0.06      | ) |      | $ | (0.16      | )
|Diluted-discontinued operations                                                                              |  |                              | 0.04       |   |      |   | 0.02       |  
|                                                                                                             |  |                              |            |   |      |   |            |  
|Diluted                                                                                                      |  | $                            | (0.02      | ) |      | $ | (0.14      | )
|                                                                                                             |  |                              |            |   |      |   |            |  



The conversion of
Common Units into common shares has no effect on earnings (loss) per share. The conversion of Class B Preferred Units and outstanding options are anti-dilutive (i.e. assuming conversion into common shares would increase earnings per share or
decrease loss per share) and, therefore, are not included in the calculation of diluted earnings (loss) per share.



7



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7. Other Charges



Other charges for the three months ended March 31, 2005 and 2004 include the following (in thousands):



|                              |  |                             |       |      |   |    
|----------------------------- |  | --------------------------- | ----- | ---- | - | ---
|                              |  | Three Months EndedMarch 31,
|                              |  | 2005                        |       | 2004
|Advisory services             |  |                             |      |      |   | 32 
|TRS Transaction costs         |  |                             |      |      |   | 89 
|Marriott Takeback Transaction |  |                             |      |      |   | 250
|Extinguishment of Debt        |  |                             | 2,698 |      |   |   
|                              |  |                             |       |      |   |    
|                              |  | $                           | 2,698 |      | $ | 371
|                              |  |                             |       |      |   |    



The advisory services
(which included legal fees to the special committee of the Board of Trustees) and TRS Transaction costs are related to the TRS Transaction. The Company reimbursed the IH Manager for expenses incurred for the transition of 17 hotels managed by
Marriott to the IH Manager as part of the Marriott Takeback Transaction. Extinguishment of debt includes prepaid interest, loan origination fees and other costs associated with the partial defeasance of outstanding debt of $16.5 million encumbering
three Hotels that were sold during the three months ended March 31, 2005.



8. Discontinued Operations



The Company
classified three Hotels as held for sale at December 31, 2004. The Company recognized an impairment loss of $11.4 million in 2003 relating to two of these three Hotels and an additional impairment loss of $380,000 was recognized in 2004 relating to
one of those two Hotels. The Company recognized a loss of $246,000 relating to the third hotel in 2004. The three Hotels were sold in February 2005 and March 2005 for a gain on the sales of $1,490,000.



The Company sold a Hotel in January 2004 and recognized a gain on the sale of
$1,029,000. The Company recognized an impairment loss of $6.5 million relating to this hotel in 2002. The Company sold a Hotel in July 2004 and recognized a loss on the sale of $247,000. The Company recognized an impairment loss of $3.8 million
relating to this hotel in 2002.



The results of operations from
the three hotels classified as held for sale at December 31, 2004 are recognized as discontinued operations for the three months ended March 31, 2005. The results of operations for all five hotels are classified as discontinued operation for the
three months ended March 31, 2004. Previously reported results of operations for these Hotels have been reclassified to reflect that these Hotels are held for sale (or were held for sale prior to being sold).



The following table sets forth the components of discontinued operations for
the three months ended March 31, 2005 and 2004 (in thousands):



|                               |  |                             |       |   |      |   |        |  
|------------------------------ |  | --------------------------- | ----- | - | ---- | - | ------ | -
|                               |  | Three Months EndedMarch 31, |      
|                               |  | 2005                        |       |   | 2004 |  
|Hotel operating revenue        |  | $                           | 923   |   |      | $ | 2,001  |  
|Percentage Lease revenue       |  |                             |      |   |      |   | 74     |  
|Other revenue                  |  |                             | 28    |   |      |   | 22     |  
|Hotel operating expenses       |  |                             | (926  | ) |      |   | (1,520 | )
|Depreciation                   |  |                             |      |   |      |   | (600   | )
|Amortization of franchise fees |  |                             | (2    | ) |      |   | (4     | )
|Property taxes and insurance   |  |                             | (77   | ) |      |   | (167   | )
|General and administrative     |  |                             |      |   |      |   | (2     | )
|Gain on sale of hotels         |  |                             | 1,490 |   |      |   | 1,029  |  
|                               |  |                             |       |   |      |   |        |  
|                               |  | $                           | 1,436 |   |      | $ | 833    |  
|                               |  |                             |       |   |      |   |        |  



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##### Table of Contents

9. Income Taxes



The Companys TRSs are subject to federal and state income taxes. The TRSs have cumulative future income tax deductions of approximately $5,693,000
(related primarily to accumulated net operating losses) at March 31, 2005 and the gross deferred tax asset associated with these future tax deductions was approximately $2,569,000. 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.



10. Uncertainty



The Company recorded a $431,000 charge for the three months ended March 31, 2005 to reflect the estimated loss from
misappropriation of receipts on hotel accounts receivable by an employee at one of the 68 Hotels. The Company believes that some or all the misappropriation occurred prior to December 31, 2004 based on the results of the Companys Investigation
to date. The Companys investigation is continuing to determine whether, how and to what extent misappropriation occurred. The Company has an insurance policy under which it believes that it will recover substantially all of the loss, however,
there can be no assurance that recovery under such insurance policy will be obtained.



11. Subsequent Events



In May 2005, the
Company acquired an existing 224-room Westin Hotel in Morristown, NJ for a gross amount of $35 million.



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##### Table of Contents

ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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, 2004 (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 10-K. The Companys 2004 annual report (including the 10-K) is posted on the Companys website at www.innkeepersusa.com, and the 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, 2005:



|                              |  |                 |  |                      
|----------------------------- |  | --------------- |  | ---------------------
|Franchise Affiliation         |  | Number ofHotels |  | Number ofRooms/Suites
|Upscale Extended Stay         |  |                 |  |                      
|Residence Inn                 |  | 42              |  | 5,044                
|Summerfield Suites by Wyndham |  | 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 (2)                 |  | 3               |  | 529                  
|                              |  |                 |  |                      
|                              |  | 5               |  | 850                  
|                              |  |                 |  |                      
|Mid Price                     |  |                 |  |                      
|Hampton Inn (3)               |  | 13              |  | 1,640                
|TownePlace Suites             |  | 1               |  | 95                   
|                              |  |                 |  |                      
|                              |  | 14              |  | 1,735                
|                              |  |                 |  |                      
|                              |  | 68              |  | 8,521                
|                              |  |                 |  |                      

---

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

|(2) | Two of these Hotels are closed for renovation and conversion to a Courtyard.
|--- | ----------------------------------------------------------------------------

|(3) | One of these Hotels is closed for renovation and conversion to a Hampton Inn.
|--- | -----------------------------------------------------------------------------



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##### Table of Contents

Occupancy, average daily rate (ADR) and revenue per available room (RevPAR) for
65 of the Hotels are presented in the following table.



|                          |  |                             |        |   |                               |   |        |   |  |       |  
|------------------------- |  | --------------------------- | ------ | - | ----------------------------- | - | ------ | - |  | ----- | -
|                          |  | Three Months EndedMarch 31, |        |   | Percentageincrease (decrease) |  
|                          |  | 2005                        |        |   | 2004                          |   |       
|Portfolio (1)             |  |                             |        |   |                               |   |        |   |  |       |  
|ADR                       |  | $                           | 102.58 |   |                               | $ | 95.70  |   |  | 7.2   | %
|Occupancy                 |  |                             | 72.33  | % |                               |   | 71.23  | % |  | 1.5   |  
|RevPAR                    |  |                             | 74.20  |   |                               |   | 68.17  |   |  | 8.9   |  
|                          |  |                             |       
|By Price Segment          |  |                             |        |   |                               |   |        |   |  |       |  
|Upscale Extended Stay (2) |  |                             |        |   |                               |   |        |   |  |       |  
|ADR                       |  | $                           | 101.81 |   |                               | $ | 96.17  |   |  | 5.9   | %
|Occupancy                 |  |                             | 75.14  | % |                               |   | 74.01  | % |  | 1.5   |  
|RevPAR                    |  |                             | 76.50  |   |                               | $ | 71.18  |   |  | 7.5   |  
|Upscale (3)               |  |                             |        |   |                               |   |        |   |  |       |  
|ADR                       |  | $                           | 119.35 |   |                               | $ | 102.95 |   |  | 15.9  | %
|Occupancy                 |  |                             | 68.96  | % |                               |   | 77.70  | % |  | (11.3 | )
|RevPAR                    |  |                             | 82.31  |   |                               | $ | 79.99  |   |  | 2.9   |  
|Mid Price (4)             |  |                             |        |   |                               |   |        |   |  |       |  
|ADR                       |  | $                           | 100.70 |   |                               | $ | 90.60  |   |  | 11.2  | %
|Occupancy                 |  |                             | 62.54  | % |                               |   | 58.66  | % |  | 6.6   |  
|RevPAR                    |  |                             | 62.97  |   |                               | $ | 53.15  |   |  | 18.5  |  

---

|(1) | Includes 65 hotels, excludes three hotels closed for renovation and conversion
|--- | ------------------------------------------------------------------------------

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

|(3) | Includes 3 hotels, excludes two hotels closed for renovation and conversion
|--- | ---------------------------------------------------------------------------

|(4) | Includes 13 hotels, excludes one hotel closed for renovation and conversion
|--- | ---------------------------------------------------------------------------



Results of Operations



Comparison of the Three Months Ended March 31, 2005 (2005) to the Three Months Ended March 31, 2004 (2004)



The Company had total revenue for 2005 of $55,099,000 consisting of $0 of
percentage lease revenue from the Lessees, $54,993,000 of Hotel operating revenue and $106,000 of other revenue compared to total revenue of $40,754,000 for 2004, consisting of $5,073,000 of percentage lease revenue from the Lessees, $35,592,000 of
Hotel operating revenue and $89,000 of other revenue. The increase in Hotel operating revenue and decline in percentage lease revenue from 2004 to 2005 was due to the completion of the TRS Transaction and the Wyndham Lease Termination Transaction.



Room revenue increased $3,767,000 resulting from a 8.9% RevPAR
increase (8.9% RevPAR increase) at 65 (excludes three Hotels closed for renovation and conversion) of our Hotels on a comparable basis (comparing a Hotels room revenue from 2004 to 2005). A portion of the room revenue in 2004 was used to calculate
percentage lease revenue which was remitted to the Company from the Lessees. Room revenue in 2005 was recognized by the Company due to the completion of the TRS Transaction and the Wyndham Lease Termination Transaction.



The Company acquired a Hotel in January 2005 which is included in the 8.9%
RevPAR increase. This Hotel contributed $543,000 of room revenue recognized in 2005. The Company acquired another Hotel in January 2005 which is closed for renovation and conversion and is not included in the 8.9% RevPAR increase. This Hotel had no
impact on the room revenue comparison from 2004 to 2005.



The
Company acquired a Hotel in December 2004 which is included in the 8.9% RevPAR increase. This Hotel contributed $1,195,000 in room revenue recognized in 2005. The Company acquired a Hotel in June 2004 which is closed for renovation and conversion
and is not included in the 8.9% RevPAR increase. This Hotel had no impact on the room revenue comparison from 2004 to 2005. The Company acquired two Hotels in May 2004 which are included in the 8.9% RevPAR increase. These two Hotels contributed
$2,311,000 of room revenue recognized in 2005. The Company acquired a Hotel in June 2003 which is closed for renovation and conversion and is not included in the 8.9% RevPAR increase. This hotel contributed $552,000 of room revenue recognized in
2004.



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##### Table of Contents

The Company sold three Hotels in February and March 2005 which are not included in the 8.9% RevPAR
increase, Room revenue decreased $618,000 from 2004 to 2005 from the sale of these three Hotels.



The Company sold a Hotel in January 2004 and another Hotel in July 2004 which are not included in the 8.9% RevPAR increase. Room revenue decreased
$529,000 from 2004 to 2005 from the sale of these two Hotels.



The increase in room revenue resulting from the 8.9% RevPAR increase at 61 of our Hotels (excludes four Hotels acquired in 2005 and 2004 and three Hotels closed for renovation and conversion, of which two were acquired in 2005 and 2004) is
$3,650,000 with the exclusion of the seven Hotel acquisitions and five Hotel dispositions discussed above.



The net result from the 8.9% RevPAR increase at 61 of our Hotels and the acquisition and disposition of Hotels was an increase in room revenue of
$6,000,000. Room revenue in 2004 was used to calculate percentage lease revenue which was remitted to the Company from the Lessees. Room revenue in 2005 was recognized by the Company due to the completion of the TRS Transaction and the Wyndham Lease
Termination Transaction



The Company had Hotel operating
expenses (excluding discontinued operations) for 2005 of $31,923,000 compared to Hotel operating expenses in 2004 of $21,125,000. The increase in Hotel operating expenses from 2004 to 2005 was due to the completion of the TRS Transaction and the
Wyndham Lease Termination Transaction.



Hotel operating
expenses increased $2,419,000 from 2004 to 2005 at 55 of our Hotels (Excludes from this discussion are six Hotels which were leased to and managed by Wyndham in 2004) on a comparable basis. The increase was due to increased management fees to the IH
Manager in 2005, expenses as a result of increased occupancy in 2005, and increased franchise and marketing fees as a result of increased room revenue in 2005 and fees associated with the Marriott Takeback transaction in 2005.



The Hotel acquired in January 2005 incurred $278,000 in Hotel operating
expenses. The Hotel acquired in January 2005 which is closed for renovation and conversion incurred $21,000 in Hotel operating expenses. The Hotel acquired in December 2004 incurred $644,000 in Hotel operating expenses in 2005. The Hotel acquired in
June 2004 which is closed for renovation and conversion incurred $158,000 Hotel operating expenses in 2005. The two Hotels acquired in May 2004 incurred $1,060,000 in Hotel operating expenses in 2005. The Hotel acquired in June 2003 which is closed
for renovation and conversion had a decrease in operating expenses of $392,000 from 2004 to 2005.



The three Hotels sold in 2005 had a decrease of $282,000 in Hotel operating expenses from 2004 to 2005. The two hotels sold in 2004 incurred Hotel
operating expenses of $429,000 in 2004.



The net result of the
increase in Hotel operating expenses at 55 of our Hotels and the acquisition and disposition of Hotels was an increase in Hotel operating expenses of $3,477,000. A portion of the Hotel operating expenses incurred in 2004 were the responsibility of
the Lessees and were not recognized by the Company. Hotel operating expenses incurred in 2005 was recognized by the Company due to the TRS Transaction and Wyndham Lease Termination Transaction.



The Companys TRS incurred a net loss of $1,703,000 in 2005 compared to
a net loss of $1,734,000 in 2004. The Company recognized Hotel operating revenue and expenses on 23 Hotels in 2004. The Company acquired the remaining leasehold interests on 43 Hotels from the Lessees in the first quarter of 2004 and recognized
Hotel operating revenue and expenses on these Hotels after the leasehold acquisition and recognized percentage lease revenue remitted to the Company from the Lessees on the 43 Hotels during a portion of the first quarter 2004.



Depreciation, amortization of franchise fees, amortization of loan
origination fees, amortization of deferred franchise conversion, amortization of deferred lease acquisition, and amortization of unearned compensation (Depreciation and Amortization) (includes depreciation in discontinued operations)
remained relatively constant 2005 at $9,320,000 in the aggregate for 2005 compared to $9,263,000 for 2004.



12



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##### Table of Contents

Interest expense for 2005 was $4,908,000 compared to $4,494,000 for 2004. This increase was due primarily
to the Companys $135 million unsecured line of credit (the Line of Credit) having an outstanding balance of $30,574,000 at March 31, 2005 and $59,574,000 at December 31, 2004 resulting in increased interest expense. The Line of
Credit had an outstanding balance of $0 for 2004.



Property
taxes and insurance (includes discontinued operations) remained relatively constant in 2005 at $2,970,000 compared to $2,945,000 for 2004.



Corporate general and administrative expenses increased $407,000, to $2,038,000 in 2005 from $1,631,000 in 2004. This increase was due primarily to an
increase in salaries and benefits and fees associated with complying with certain of Sarbanes-Oxley rules.



Other charges in 2005 increased $2,327,000 to $2,698,000 compared to $371,000 in 2004. This increase is due to an extinguishment of debt which incurred
$2,698,000 in interest, fees and costs in 2005 and a decrease in TRS Transaction costs and advisory services of $121,000 and $250,000 paid to the IH Manager for the transition of 17 hotel properties managed by Marriott to the IH Manager as a part of
the Marriott Takeback Transaction.



Discontinued operations
increased $603,000 from income of $833,000 in 2004 to income of $1,436,000 in 2005. The increase is due primarily to a gain on the sale of Hotels recognized in 2005 of $1,490,000 compared to a gain on the sale of Hotels recognized in 2004 of
$1,029,000.



Preferred share dividends decreased $4,138,000 to
$2,900,000 from $7,038,000 due primarily to $4,249,000 in issuance costs recognized when the Series A preferred shares were redeemed in January 2004.



Net loss applicable to common shareholders for 2004 was $5,205,000 or $(0.14) per diluted share, compared with a net loss of $828,000 or $(0.02) per
diluted share for 2005. This change 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 2005 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 (including restricted
cash and restricted cash equivalents) at March 31, 2005 and 2004 were $38,070,000 and $49,288,000, including $0 and $199,000, respectively, which the Company was required, under the Percentage Leases, to make available to the Lessee for the
replacement and refurbishment of furniture and equipment and certain other capital expenditures. Additionally, cash and cash equivalents included $9,662,000 and $7,710,000 at March 31, 2005 and 2004, respectively, that was held in escrow by lenders
to pay for insurance, taxes, debt service, and capital expenditures for certain Hotels.



Net cash provided by operating activities for the three months ended March 31, 2005 and 2004 was $12,414,000 and $17,648,000, respectively. The decrease in net cash provided by operating activities was primarily the
result of an increase in accounts receivable, and decrease in accounts payable and accrued expenses.



Net cash used in investing activities was $9,749,000 for the three months ended March 31, 2005. This was comprised primarily of proceeds from the sales of
hotels of $20,789,000 offset by the acquisition of two hotels for $26,300,000 and capital expenditures of $6,200,000.



Net cash used in investing activities was $4,595,000 for the three months ended March 31, 2004. This was comprised primarily of (a) renovations at certain
hotels for $6,805,000, (b) the acquisition of leases from the IH Lessee for $1,336,000, (c) net deposits of $323,000 into certain restricted cash accounts, and (d) deposits and costs of $159,000 incurred in connection with the potential acquisition
of a hotel, which were partially offset by the net proceeds from the sale of the Residence Inn by Marriott located in Eden Prairie, NM of $4,028,000.



13



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##### Table of Contents

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



Net cash provided by financing activities was $18,740,000 for the three
months ended March 31, 2004, consisting primarily of the proceeds from the issuance of the Series C preferred shares of $140,300,000, partially offset by (a) the redemption of the Series A Preferred Shares of $115,730,000, (b) distributions paid of
$4,503,000, (c) loan costs paid of $34,000, (d) franchise fee obligation principal payments of $91,000.



Distributions/Dividends



The Company has paid regular quarterly distributions on its common shares and Common Units since its inception. The 2005 first quarter distribution was $0.06 per common share or unit. Quarterly preferred distributions of between $0.275 and
$0.28875 are payable on each Class B Preferred Unit (depending on the level of common share dividend paid), and the 2005 first quarter distribution was $0.275 per Class B Preferred Unit Dividend and $0.50 were paid on each Series C Preferred Share
for the first quarter of 2005. The timing and amount of any future dividends 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 dividend
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. The interest rate on Companys $135,000,000 unsecured Line of Credit is LIBOR plus 122.5 to 225 basis points, depending on certain financial ratios. 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, 2005, the Company (i) had $30.6 million of borrowings outstanding under the Line of
Credit and (ii) had available to it approximately $95 million under the Line of Credit (assuming the proceeds were used for the acquisition of hotel properties). At March 31, 2005, the Company was in compliance with the financial covenants contained
all of in 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
instrument exposure, financial derivatives or forward equity commitments.



Capital Expenditures



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.



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



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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. In 2005, management expects to spend approximately $17 million on capital expenditures. 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 10-K. See also Notes 10, 11 and 12
to the Companys financial statements beginning on page F-1 in the 10-K.



Contractual Obligations and Commercial Commitments



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



There were no significant changes, outside the normal course of business, in
the contractual obligations and commercial commitments disclosed in the 10-K except for the acquisition commitments described in Note 1 to the accompanying financial statements.



Seasonality of Hotel Business



The hotel industry is seasonal in nature. Historically, the 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. Management believes that the presentation of FFO (defined below) provides useful supplemental information to investors regarding the Companys financial
condition and results of operations, particularly in reference to the Companys ability to service debt, fund capital expenditures and pay cash dividends. Many other real estate companies use FFO as a measure of their financial and operating
performance, which provides another basis for 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 historically have increased or decreased with market conditions. Consequently, FFO may be a useful supplemental measures in evaluating financial and operating performance by disregarding, or adding back,
historical cost depreciation in the calculation of FFO. 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.



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None of these measures should be considered as an alternative to net income, net cash 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 March 31, 2005 and 2004 (in thousands, except share and per share data):



|                                                           |  |                              |            |   |      |   |            |  
|---------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                           |  | Three Months Ended March 31, |           
|                                                           |  | 2005                         |            |   | 2004 |  
|Net loss applicable to common shareholders                 |  | $                            | (828       | ) |      | $ | (5,205     | )
|                                                           |  |                             
|Depreciation                                               |  |                              | 8,502      |   |      |   | 7,811      |  
|                                                           |  |                             
|Depreciation included in discontinued operations           |  |                              |           |   |      |   | 600        |  
|                                                           |  |                             
|Minority interest, common                                  |  |                              | (20        | ) |      |   | (157       | )
|Gain on sale of hotels included in discontinued operations |  |                              | (1,490     | ) |      |   | (1,029     | )
|                                                           |  |                              |            |   |      |   |            |  
|FFO                                                        |  | $                            | 6,164      |   |      | $ | 2,020      |  
|                                                           |  |                              |            |   |      |   |            |  
|Denominator for diluted earnings per share                 |  |                              | 39,902,804 |   |      |   | 37,430,579 |  
|Effect of dilutive securities:                             |  |                              |            |   |      |   |            |  
|Stock options                                              |  |                              | 108,478    |   |      |   | 4,188      |  
|Restricted shares                                          |  |                              | 45,345     |   |      |   | 49,746     |  
|Weighted average:                                          |  |                              |            |   |      |   |            |  
|Common Units                                               |  |                              | 976,640    |   |      |   | 1,167,236  |  
|                                                           |  |                              |            |   |      |   |            |  
|Denominator for diluted FFO per share                      |  |                              | 41,033,267 |   |      |   | 38,651,749 |  
|                                                           |  |                              |            |   |      |   |            |  
|Diluted FFO per share                                      |  | $                            | 0.15       |   |      | $ | 0.05       |  
|                                                           |  |                              |            |   |      |   |            |  



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) under the companys taxable REIT subsidiary structure, (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 that the performance and prospects of
businesses and industries that are important hotel demand generators in the companys key markets decline (e.g., technology, automotive, aerospace, pharmaceuticals), (iv) risk that 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) changes in
travel patterns or the prevailing means of commerce (i.e., e-commerce), (viii) the complex tax rules that the company must satisfy to qualify as a REIT, and (ix) 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 to the extent that reasonably favorable rates are obtainable with such arrangements. 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.



For debt obligations outstanding at March 31, 2005, the
following table presents principal repayments and related weighted average interest rates by expected maturity dates (in thousands):



|                      |  |      |       |   |      |   |       |      |  |   |        |   |  |            |       |   |       |   |         |            |  |   |         |   |  |   |         |    
|--------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | - |  | ---------- | ----- | - | ----- | - | ------- | ---------- |  | - | ------- | - |  | - | ------- | ---
|                      |  | 2005 |       |   | 2006 |   |       | 2007 |  |   | 2008   |   |  | Thereafter |       |   | Total |   |         | Fair Value | 
|Debt:                 |  |      |       |   |      |   |       |      |  |   |        |   |  |            |       |   |       |   |         |            |  |   |         |   |  |   |         | (1)
|Fixed Rate            |  | $    | 3,635 |   |      | $ | 5,194 |      |  | $ | 26,272 |   |  | $          | 4,624 |   |       | $ | 157,850 |            |  | $ | 197,575 |   |  | $ | 199,332 |    
|Average Interest Rate |  |      | 7.70  | % |      |   | 7.71  | %    |  |   | 8.07   | % |  |            | 7.57  | % |       |   | 7.49    | %          |  |   | 7.58    | % |  |   |        |    
|Variable Rate         |  |      |      |   |      |   |      |      |  | $ | 30,574 |   |  |            |      |   |       | $ | 10,000  |            |  | $ | 40,574  |   |  | $ | 40,574  |    
|Average Interest Rate |  |      |      |   |      |   |      |      |  |   | 5.27   | % |  |            |      |   |       |   | 3.30    | %          |  |   | 3.89    | % |  |   |        |    

---

|(1) | A mortgage has a balance outstanding at March 31, 2005 of $13 million with a stated interest rate of 10.35%. The fair value market interest rate for this mortgage is 7.0%. The
adjustment to reflect a fair value market interest rate of 7.0% is an increase to the mortgage balance outstanding of $1.8 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The table incorporates only those exposures that existed as of March 31, 2005 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.



At March 31, 2005, the Company had
$30,574,000 in outstanding borrowings under its Line of Credit, which matures in July 2007.



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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, 2005, are operating as designed and will alert them on a timely basis to any material information relating to the
Company required to be included in the Companys periodic SEC filings.



There has been no change in the Companys internal control over financial reporting during the quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. The Company evaluated specifically the internal control policies relating to hotel accounts receivable in light of the possible misappropriation referred to in Note 10 to the Companys
financial statements for the three months ended March 31, 2005. The Company has made certain changes to its policies. The Company does not believe that these changes have materially affected or are reasonably likely to materially affect the
Companys internal control over financial reporting. The Company is continuing its investigation of this matter. As additional facts come to light, the Company will assess whether more changes to internal control policies are warranted.





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INNKEEPERS USA TRUST

PART II - OTHER INFORMATION



ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds



In February 2005, the Company completed a public offering of 4.4 million common shares at $13.71 per share. The net proceeds from the offering of $59.6
million were used to pay down a portion of the Companys outstanding indebtedness under its unsecured line of credit.



ITEM 6  Exhibits and Reports in Form 8-K



|        |  |                                                                             
|------- |  | ----------------------------------------------------------------------------
|Exhibit |  | Description                                                                 
|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





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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/ David Bulger                                 
|May 10, 2005 |  | David Bulger                                     
|             |  | Executive Vice President, Chief Financial Officer
|             |  | And Treasurer                                    





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EXHIBIT INDEX



|        |  |                                                                             
|------- |  | ----------------------------------------------------------------------------
|Exhibit |  | Description                                                                 
|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



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