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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1996.
or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission file number: 0-23536
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SUPERTEL HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0774097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
309 NORTH 5TH STREET
NORFOLK, NEBRASKA 68701
(Address of principal executive offices)
Telephone number: (402) 371-2520
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past ninety days:
Yes ( X ) No ( )
As of June 30, 1996, there were 4,840,000 common shares of the registrant
outstanding.
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PART I: FINANCIAL INFORMATION
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, December 31,
Assets 1996 1995
----------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,155,509 $ 6,724,172
Accounts receivable 792,170 622,498
Prepaid expenses 733,926 231,564
Recoverable income taxes - 241,969
----------- -----------
Total current assets 2,681,605 7,820,203
----------- -----------
Property and equipment, at cost 83,732,502 71,309,946
Less accumulated depreciation 13,733,238 12,888,707
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Net property and equipment 69,999,264 58,421,239
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Other assets:
Intangible assets 1,270,825 1,213,698
Deferred income taxes 123,513 333,700
Other assets 143,311 138,681
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Total other assets 1,537,649 1,686,079
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$74,218,518 $67,927,521
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,357,694 $ 1,433,186
Accrued expenses:
Real estate taxes 1,029,036 925,331
Other 1,626,702 922,649
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Total accrued expenses 2,655,738 1,847,980
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Income taxes payable 277,206 -
Current installments of long-term debt 1,120,571 1,070,370
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Total current liabilities 5,411,209 4,351,536
----------- -----------
Long-term debt, excluding current installments 41,944,485 38,188,302
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized
1,000,000 shares; none issued - -
Common stock, $0.01 par value. Authorized 10,000,000
shares; issued and outstanding 4,840,000 shares 48,400 48,400
Additional paid-in capital 18,346,529 18,346,529
Retained earnings 8,467,895 6,992,754
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Total stockholders' equity 26,862,824 25,387,683
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Commitments and contingency
----------- -----------
$74,218,518 $67,927,521
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
Motel revenues:
Lodging revenues $9,175,328 $8,112,963 $16,160,830 $14,336,866
Other lodging activities 293,964 288,263 565,781 537,600
---------- ---------- ----------- -----------
Total motel revenues 9,469,292 8,401,226 16,726,611 14,874,466
---------- ---------- ----------- -----------
Direct operating expenses:
Payroll and payroll taxes 2,206,649 1,913,787 4,087,251 3,588,503
Royalties and advertising fund 604,555 530,042 1,060,798 932,641
Other lodging 2,490,147 2,087,871 4,625,664 3,980,898
---------- ---------- ----------- -----------
Total lodging expense 5,301,351 4,531,700 9,773,713 8,502,042
Other lodging activities 217,786 195,726 411,346 375,818
Depreciation and amortization 778,843 563,744 1,328,591 1,090,255
General and administrative 631,332 534,721 1,308,861 1,035,630
---------- ---------- ----------- -----------
Total direct operating expenses 6,929,312 5,825,891 12,822,511 11,003,745
---------- ---------- ----------- -----------
Operating income 2,539,980 2,575,335 3,904,100 3,870,721
---------- ---------- ----------- -----------
Other expenses:
Interest 765,216 603,369 1,439,549 1,171,682
Miscellaneous 24,998 28,994 5,983 3,170
---------- ---------- ----------- -----------
790,214 632,363 1,445,532 1,174,852
---------- ---------- ----------- -----------
Income before income taxes 1,749,766 1,942,972 2,458,568 2,695,869
Income tax expense (note 3) 699,906 792,726 983,427 1,099,908
---------- ---------- ----------- -----------
Net income $1,049,860 $1,150,246 $ 1,475,141 $ 1,595,961
========== ========== =========== ===========
Net income per share $ .22 $ .24 $ .31 $ .33
========== ========== =========== ===========
Weighted average shares outstanding 4,840,000 4,840,000 4,840,000 4,840,000
========== ========== =========== ===========
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
-------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 1,475,141 $ 1,595,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,245,601 1,012,132
Amortization 82,990 78,123
Loss on sale of property and equipment 50,262 60,213
Deferred income taxes 210,187 154,000
(Increase) decrease in current assets:
Accounts receivable (169,672) (254,553)
Prepaid expenses (502,362) (526,167)
Recoverable income taxes 241,969 172,344
Increase (decrease) in current liabilities:
Accounts payable (75,492) 350,510
Accrued expenses 807,758 805,532
Income taxes payable 277,206 400,004
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Net cash provided by operating activities 3,643,588 3,848,099
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Cash flows from investing activities:
Additions to property and equipment (12,880,684) (8,559,258)
Increase in intangibles and other assets (144,747) (101,973)
Proceeds from sale of property and equipment 6,796 112,588
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Net cash used in investing activities (13,018,635) (8,548,643)
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Cash flows from financing activities:
Repayments on long-term debt (521,842) (583,925)
Proceeds from long-term debt 4,328,226 3,239,866
Repayments of notes payable to banks - (70,200)
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Net cash provided by financing activities 3,806,384 2,585,741
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Net decrease in cash and cash equivalents (5,568,663) (2,114,803)
Cash and cash equivalents at beginning of period 6,724,172 2,601,747
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Cash and cash equivalents at end of period $ 1,155,509 $ 486,944
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 1996 and the
condensed consolidated statements of income and cash flows for the three
months and six months ended June 30, 1996 and 1995 have been prepared by
Supertel Hospitality, Inc. (the "Company"), without audit. In the opinion
of management, all necessary adjustments (which include normal recurring
adjustments) have been made to present fairly the financial position at
June 30, 1996 and for all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
Annual Report for the year ended December 31, 1995. The results of
operations for the three months and six months ended June 30, 1996 are not
necessarily indicative of the operating results for the full year.
(2) Net Income Per Share
For the three months and six months ended June 30, 1996 and 1995, the
net income per share was calculated based on the weighted average number of
common shares outstanding.
(3) Income Taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
The Company does not expect the effective tax rate or the components of
income tax expense to cause variation from the expected statutory Federal
and state income tax rates totaling 40 percent. A valuation allowance for
deferred tax assets has not been provided since all tax benefits are
expected to be used to offset future taxable income.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Total motel revenues for the second quarter were $9,469,292, an
increase of $1,068,066 or 12.7% over total revenues of $8,401,226 for the
second quarter of 1995. Total motel revenues for the first six months
were $16,726,611, an increase of $1,852,145 or 12.5% over the total
revenues of $14,874,466 for the first six months of 1995. The increase
for the second quarter was primarily due to an increase of $1,062,365 in
revenues from lodging operations and $5,701 from other lodging activities
(which consist of telephone and vending revenue). The increase for the
first six months was primarily due to an increase of $1,823,964 in revenue
from lodging operations and $28,181 from other lodging activities.
The increase in revenues from lodging operations for the second
quarter resulted primarily from renting 225,571 rooms in 1996 compared to
211,636 rooms in the second quarter of 1995, an increase of 13,935 or
6.6%. The increase in revenues from lodging operations for the first six
months resulted primarily from renting 405,773 rooms in 1996 compared to
383,138 rooms rented in the first six months of 1995, an increase of
22,635 or 5.9%.
The increase in rooms rented resulted from the acquisition of two
properties with an aggregate of 109 rooms in the second quarter of 1996, a
35 room addition to a Nebraska property in June 1996, and the opening of
five new properties in Texas. Two Texas properties with a total 182 rooms
opened in the fourth quarter of 1995 and three Texas properties with 286
rooms opened in the second quarter of 1996. Revenues were also impacted by
an increase in the average daily room rate in the second quarter of 1996.
An average daily room rate of $41.98 was achieved compared to $39.70 for
the second quarter of 1995 and increase of $2.28 or 5.7%. For the first
six months, the average daily room rate was $41.22 in 1996 compared to
$38.82 for the first six months of 1995, an increase of $2.40 or 6.2%.
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Revenue per available room for the second quarter of 1996 increased
to $29.74 from $29.28, an increase of $.46 or 1.6%. Revenue per available
room for the first six months of 1996 increased to $27.00 from $26.65, an
increase of $.35 or 1.3%.
Motel revenue was also impacted by changes in occupancy. Occupancy
as a percentage of rooms available for the second quarter of 1996
decreased to 73.8% from 70.8% in the second quarter of 1995. The decrease
in the occupancy percentage resulted primarily from the opening of two
large properties in late 1995 in Plano and McKinney, Texas, and the
opening of three large properties in the second quarter of 1996 in Denton,
Grapevine and Wichita Falls, Texas. The initial occupancy rates at these
larger properties were below expectations but have improved. The
occupancy percentage in seasoned properties (those owned/opened over one
year) decreased from 75.6% in the second quarter of 1995 to 72.9% in the
second quarter of 1996. Occupancy decreased from 68.6% for the first six
months of 1995 to 65.5% for the first six months of 1996. The occupancy
percentage in seasoned properties decreased from 70.2% for the first six
months 1995 to 67.0% for the first six months of 1996. Supertel's
"seasoned" properties include three motels in Texas where occupancy has
been below expectations and three properties where occupancy has dropped
following room additions aggregating 72 rooms in 1996. Exclusive of the
results from these six "seasoned" properties, occupancy for seasoned
properties was 75.1% in the second quarter of 1996 compared to 75.2% in
the same quarter of 1995 and 67.9% in the first half of 1996 compared to
69.6% in the first six months of 1995. Occupancy is seasonal. Occupancy
is lowest in the first quarter, increases in the second, peaks in the
third and then drops down again in the fourth quarter. The increases in
revenue from other lodging activities resulted from the increase in the
number of rooms rented.
Lodging expenses for the second quarter of 1996 were $5,301,351
compared to $4,531,700 for the second quarter of 1995, an increase of
$769,651 or 17.0%. Lodging expenses for the first six months of 1996 were
$9,773,713 compared to $8,502,042 for the first six months 1995, an
increase of $1,271,671 or 15.0%. The increase in lodging expenses was due
primarily to the increase in the number of rooms available to rent and
rooms rented. Lodging expenses as a percentage of motel
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revenues increased to 56.0% for the second quarter of 1996 from 53.9% in
the second quarter of 1995. Lodging expenses as a percentage of motel
revenues increased to 58.4% for the first six months of 1996 from 57.2%
for the first six months of 1995. These increases are primarily due to
operating costs increasing at a slightly higher rate than revenue
increased.
Depreciation and amortization expenses for the second quarter of 1996
were $778,843 compared to $563,744 for the second quarter of 1995, an
increase of $215,099 or 38.2%. Depreciation and amortization expenses for
the first six months of 1996 were $1,328,591 compared to $1,090,255 for
the first six months of 1995, an increase of $238,336 or 21.9%. The
higher level of depreciation is associated with newly constructed
properties and is expected to have a similar impact on third and fourth
quarter comparisons.
General and administrative expenses for the second quarter of 1996
were $631,332 compared to $534,721 in the second quarter of 1995, an
increase of $96,611 or 18.1%. General and administrative expenses as a
percent of sales increased in the second quarter of 1996 to 6.7% from 6.4%
of sales in the second quarter of 1995. General and administrative
expenses for the first six months of 1996 were $1,308,861 compared to
$1,035,630 for the first six months 1995, an increase of $273,231 or
26.4%. General and administrative expenses as a percent of sales
increased in the first six months of 1996 to 7.8% from 7.0% of sales in
the first six months of 1995. The increase in general and administrative
expenses was due primarily to increased expenses associated with the
Company's higher level of acquisition and development efforts as well as
the expansion of staff to handle current and anticipated motel growth.
Interest expense increased by $161,847 for the second quarter of 1996
from $603,369 for the second quarter of 1995 to $765,216 in 1996 or 26.8%.
Interest expense increased by $267,867 for the first six months of 1996
from $1,171,682 in 1995 to $1,439,549 in 1996 or 22.9%. The increase was
primarily due to the new borrowings for acquisitions and new
constructions. Average bank borrowings for the second quarter of 1996
increased to $40,421,800 from $27,791,995 for the comparable period in
1995, an increase of $12,629,805 or 45.4%. Bank borrowings at June 30,
1996 were $43,065,056.
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As a result of the aforementioned operating factors and general
business conditions, net income for the second quarter of 1996 from
continuing operations was $1,049,860 or $.22 per share versus net income
of $1,150,246 or $.24 per share for the corresponding period in 1995.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the second quarter of 1996, were $3,293,825, an increase of $183,740
or 5.9% over EBITDA of $3,110,085 for the second quarter of 1995.
Net income for the six months of 1996 from continuing operations was
$1,475,141 or $.31 per share versus net income of $1,595,961 or $.33 per
share, for the corresponding period in 1995. EBITDA for the first six
months of 1996 were $5,226,708, an increase of $268,902 or 5.4% over
EBITDA of $4,957,806 for the first six months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Supertel's growth has been financed through a combination of cash
provided from operations and long-term debt financing. Cash provided from
operations was approximately $3,644,000 for the first six months of 1996
and $3,848,000 for the first six months of 1995. Supertel requires
capital principally for the construction, acquisition and improvement of
lodging facilities. Capital expenditures for such purposes were
approximately $12,881,000 in the first six months of 1996 and
approximately $8,559,000 in the first six months of 1995.
Long-term debt (excluding current installments of long-term debt) was
$41,944,485 at June 30, 1996 and $38,188,302 at December 31, 1995.
Supertel's current installments of long-term debt were $1,120,571 at June
30, 1996 and $1,070,370 at December 31, 1995. Supertel's loan agreements
contain certain restrictions and covenants related to, among other things,
minimum debt service, maximum debt per motel room, and maximum debt to
tangible net worth. At June 30, 1996, Supertel was in compliance with
these covenants.
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Supertel has increased its line of credit from $15,000,000 to
$25,000,000 during the second quarter of 1996, with an outstanding balance
of $17,743,879 (classified as long-term debt) at June 30, 1996.
Supertel's ratio of long-term debt (including current installments) to
long-term debt and stockholders' equity was 61.6% at June 30, 1996,
compared to 60.8% at December 31, 1995.
Supertel previously reported its plan to construct/acquire
approximately 400-600 motel rooms in 1996 with approximately $13,000,000 -
$15,000,000 of capital funds necessary to finance such development.
During the first six months Supertel has acquired two motels, a 48-room
property in Parsons, Kansas, and a 61-room property in Portage, Wisconsin;
and opened three new motels in Texas which added 286 rooms. Supertel also
completed the reconfiguration of its Bullhead City, Arizona property from
120 rooms to 76 rooms, which created larger but fewer rooms consistent
with motels and casinos in the area. Supertel had 3,760 rooms in
operation as of June 30, 1996 compared to 3,153 rooms in operation as of
June 30, 1995, an increase of 607 rooms or 19.3%.
Subsequent to June 30, 1996, Supertel has acquired four additional
motels in Wisconsin, consisting of two existing Super 8 motels totaling
107 rooms and two Comfort Inn motels totaling 110-rooms. A new 116-room
motel under construction in Bedford, Texas is expected to open in the
third quarter of 1996.
Supertel has revised its plan for the balance of 1996 and now intends
to construct/acquire between 700 and 900 motel rooms in 1996 with
approximately $13,000,000 - $27,000,000 of capital funds necessary to
finance such development.
In addition to planned development expenditures, Supertel has
principal payments totaling $1,070,370 due under existing debt obligations
during 1996. Supertel believes that a combination of cash flow from
operations, borrowings available under its line of credit, securing new
short- and long-term facilities and the ability to leverage three
unencumbered properties will be sufficient to fund scheduled development
and debt repayment.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Supertel's annual meeting of stockholders was held on May 3, 1996. The
stockholders elected four directors and ratified the appointment of independent
public accountants. Voting on these matters was as follows:
1. ELECTION OF DIRECTORS.
FOR WITHHELD
Paul Schulte.............. 4,058,662 4,225
Steve Borgmann............ 5,058,662 4,225
Joseph Caggiano........... 4,059,162 3,725
Loren Steele.............. 4,059,162 3,725
2. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK AS
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 1996:
FOR....................4,039,123
AGAINST................ 3,540
ABSTAIN................ 20,224
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
10.1 Revolving Term Promissory Note and Loan Agreement
(modified and extended) dated May 28, 1996 between the Company
and First Bank National Association
B. Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the calendar quarter for which this report is filed.
SIGNATURES
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.
SUPERTEL HOSPITALITY, INC.
/s/ Ronald L. Boettcher
By:____________________________
Ronald L. Boettcher
Senior Vice President and
Chief Financial Officer
DATED this ___ day of August, 1996.