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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 March 31, 1997.
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 March 31, 1997, 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
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 520,152 $ 6,487,764
Accounts receivable 1,022,333 1,018,045
Prepaid expenses 404,091 319,862
Recoverable income taxes 67,903 204,803
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Total current assets 2,014,479 8,030,474
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Property and equipment, at cost 101,116,165 97,574,480
Less accumulated depreciation 15,826,515 15,131,485
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Net property and equipment 85,289,650 82,442,995
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Other assets:
Intangible assets 1,601,936 1,644,939
Other assets 164,968 157,299
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Total other assets 1,766,904 1,802,238
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$89,071,033 $92,275,707
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,722,031 $786,456
Accrued expenses:
Real estate taxes 1,119,686 1,295,240
Other 1,718,871 1,418,633
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Total accrued expenses 2,838,557 2,713,873
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Current installments of long-term debt 6,088,280 1,067,023
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Total current liabilities 10,648,868 4,567,352
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Deferred income taxes 54,900 54,900
Long-term debt, excluding current installments 49,390,975 58,894,525
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 10,581,361 10,364,001
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Total stockholders' equity 28,976,290 28,758,930
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Commitments and contingency
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$89,071,033 $92,275,707
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See accompanying notes to condensed consolidated financial statements.
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
THREE-MONTH PERIOD
ENDED MARCH 31,
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1997 1996
Motel revenues:
Lodging revenues $8,737,244 $6,985,502
Other lodging activities 328,436 271,817
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Total motel revenues 9,065,680 7,257,319
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Direct operating expenses:
Payroll and payroll taxes 2,374,762 1,880,602
Royalties and advertising fund 574,756 456,243
Other lodging 2,902,973 2,135,517
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Total lodging expense 5,852,491 4,472,362
Other lodging activities 235,121 193,560
Depreciation and amortization 901,336 549,748
General and administrative 720,634 677,529
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Total direct operating expenses 7,709,582 5,893,199
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Operating income 1,356,098 1,364,120
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Other income (expense):
Interest expense (1,050,937) (674,333)
Miscellaneous income/expense 57,097 19,015
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(993,840) (655,318)
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Income before income taxes 362,258 708,802
Income tax expense 144,898 283,521
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Net income $ 217,360 $ 425,281
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Net income per share $ .05 $ .09
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Weighted average shares outstanding 4,840,000 4,840,000
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See accompanying notes to condensed consolidated financial statements.
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THREE-MONTH PERIOD
ENDED MARCH 31,
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1997 1996
Cash flows from operating activities:
Net income $ 217,360 $ 425,281
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 822,126 508,700
Amortization 79,210 41,048
(Gain) loss on sale of property and equipment (3,395) 7,227
Deferred income taxes - 23,000
Changes in assets and liabilities:
Accounts receivable (4,288) (165,347)
Prepaid expenses (84,229) (435,791)
Recoverable income taxes 136,900 232,607
Accounts payable 935,575 531,959
Accrued expenses 124,684 338,166
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Net cash provided by operating activities 2,223,943 1,506,850
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Cash flows from investing activities:
Additions to property and equipment (3,674,845) (5,583,791)
Additions to intangibles and other assets (43,876) (63,183)
Proceeds from sale of property and equipment 9,459 4,120
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Net cash used in investing activities (3,709,262) (5,642,854)
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Cash used in financing activities -
Payments of long-term debt (4,482,293) (1,506,930)
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Net decrease in cash and cash equivalents (5,967,612) (5,642,934)
Cash and cash equivalents at beginning of period 6,487,764 6,724,172
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Cash and cash equivalents at end of period $ 520,152 $ 1,081,238
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See accompanying notes to condensed consolidated financial statements.
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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 March 31, 1997 and the
condensed consolidated statements of income and cash flows for the
three-month periods ended March 31, 1997 and 1996 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
March 31, 1997 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 consolidated
financial statements and notes thereto included in the Company's Form 10-K
Annual Report for the year ended December 31, 1996. The results of
operations for the three-month period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year.
2. NET INCOME PER SHARE
For the three-month periods ended March 31, 1997 and 1996, 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 in effect for the year in
which the temporary 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
This report contains certain forward-looking statements and information
relating to Supertel that are based on the beliefs of Supertel management as
well as assumptions made by and information currently available to Supertel
management. Such statements reflect the current views of Supertel with respect
to future events and are subject to certain risks, uncertainties and
assumptions, including the business factors described in Supertel's 1996 Form
10-K. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as believed, estimated or expected.
RESULTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 31, 1997 AND 1996
Total motel revenues for the first quarter of 1997 were $9,065,680, an
increase of $1,808,361 or 24.9%, over total revenues of $7,257,319 for the
first quarter of 1996. The increase was primarily due to an increase of
$1,751,742 in revenues from lodging operations. Revenues from other lodging
activities, which consist of telephone and vending revenues, increased $56,619.
Revenue increases were affected by the opening of four new motels in Texas,
the acquisition of six properties in Wisconsin and additions to two existing
properties. The Company's room count was 4,153 at the end of the first
quarter.
The increase in revenues from lodging operations for the first quarter of
1997 resulted primarily from renting 219,081 rooms, an increase of 38,879 or
21.6%, over the 180,202 rooms rented in the first quarter of 1996. Rooms
available in the first quarter of 1997 were 373,888, an increase of 72,906 or
24.2% over rooms available of 300,982 in the first quarter of 1996. Occupancy
as a percentage of rooms available during the comparable three-month periods
decreased from 59.9% to 58.6%.
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Occupancy as a percentage of rooms available in seasoned properties (those
owned/opened over one year) decreased from 60.6% in the first quarter of 1996
to 60.0% in the first quarter of 1997. Occupancy for the economy motel segment
was below expectations in the quarter. Management believes the factors
contributing to lower occupancy in the first quarter include severe winter
weather and the challenging supply/demand conditions generally within the
limited service lodging industry.
The revenue increase also reflected an increase in the average daily room
rate. An average daily room rate of $41.38 was achieved for the first quarter
of 1997 compared to $40.27 for the first quarter of 1996, an increase of $1.11
or 2.8% per rented room. The increase in revenues from other lodging
activities resulted from the increase in the number of rooms rented. Revenue
per available room for the first quarter of 1997 increased to $24.25 from
$24.11, an increase of $.14 or .6%.
Lodging expenses for the first quarter of 1997 were $5,852,491, an
increase of $1,380,129 or 30.9%, over the $4,472,362 for the first quarter of
1996. The increase in lodging expenses was due primarily to the increase in
the number of rooms rented. Lodging expense as a percentage of motel revenues
increased from 61.6% to 64.6% during the comparable three-month periods. This
increase resulted from the decrease in occupancy and overall expense increases
that were not offset by the increase in the average daily rate (ADR).
Depreciation and amortization expense for the first quarter of 1997 was
$901,336, an increase of $351,588 or 64.0%, from the $549,748 for the first
quarter of 1996. This increase was due to an increase in the number of motel
properties.
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General and administrative expenses for the first quarter of 1997 were
$720,634, an increase of $43,105 or 6.4%, over general and administrative
expenses of $677,529 for the first quarter of 1996. General and administrative
expenses as a percentage of motel revenue decreased to 7.9% in the first
quarter of 1997 from 9.3% in the first quarter of 1996. The percentage
decrease was due primarily to adding revenue and already having the incremental
overhead to support the growth.
Interest expense for the first quarter of 1997 was $1,050,937, an increase
of $376,604 or 55.8%, over $674,333 for the first quarter of 1996. Average
borrowings for the first quarter of 1997 increased to $54,782,072 from
$35,360,612 in the same quarter 1996, an increase of $19,421,460 or 54.9%. The
increase was primarily due to borrowing for the construction of new properties,
acquisitions and site development activities. Long-term debt (including
current installments) at March 31, 1997 was $55,479,255.
Net income for the first quarter of 1997 from continuing operations was
$217,360, or $.05 per share versus net income of $425,281, or $.09 per share,
for the corresponding period in 1996. Net income in the first quarter of 1997
was impacted by the decrease in occupancy and the use of introductory room
rates in the state of Texas. Earnings before interest, taxes, depreciation and
amortization (EBITDA) for the first quarter of 1997 were $2,314,531, an
increase of $381,648 or 19.7% over EBITDA of $1,932,883 for the first quarter
of 1996.
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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 $2,223,943 for the first quarter of 1997 and $1,506,850 for the first
quarter of 1996. Supertel requires capital principally for the construction,
acquisition and improvement of lodging facilities. Capital expenditures for
such purposes were $3,674,845 in the first quarter of 1997 and $5,583,791 in
the first quarter of 1996.
Long-term debt (excluding current installments of long-term debt) was
$49,390,975 at March 31, 1997 and $58,894,525 at December 31, 1996. Long-term
debt increased over the past four quarters to finance Supertel's construction,
acquisition and site development activities. Supertel's current installments
of long-term debt were $6,088,280 at March 31, 1997 and $1,067,023 at December
31, 1996. 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 March 31, 1997,
Supertel was in compliance with these covenants.
Supertel maintains a $40,000,000 line of credit, with an outstanding
balance of $27,024,927 (classified as long-term debt) at March 31, 1997.
Supertel's ratio of long-term debt (including current installments) to
long-term debt and stockholders' equity was 65.7% at March 31, 1997, compared
to 67.6% at December 31, 1996.
Supertel plans to construct and/or acquire an aggregate of approximately
400 - 600 motel rooms in 1997 and expects approximately $14,000,000 -
$19,000,000 of capital funds will be necessary to finance such construction.
Supertel believes that a combination of cash flow from operations, the use of
funds from its line of credit, securing new short- and long-term facilities and
the ability to leverage unencumbered properties will be sufficient to fund
scheduled development and debt repayments.
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NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for Supertel's fiscal year
ending December 31, 1997. Retroactive application will be required. Supertel
believes the adoption of Statement No. 128 will not have a significant effect
on its reported income per share.
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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 2, 1997. The
stockholders elected five directors, ratified the appointment of independent
public accountants, and approved the Supertel 1997 Stock Plan. Voting on these
matters was as follows:
1. ELECTION OF DIRECTORS:
FOR WITHHELD
Paul Schulte.............. 3,871,981 5,600
Steve Borgmann............ 3,871,681 5,900
Joseph Caggiano........... 3,870,016 7,565
Loren Steele.............. 3,871,981 5,600
Rich Herink............... 3,871,981 5,600
2. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK AS
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 1997:
FOR....................... 3,870,331
AGAINST................... 6,750
ABSTAIN................... 500
3. APPROVAL OF SUPERTEL 1997 STOCK PLAN:
FOR....................... 3,354,150
AGAINST................... 42,183
ABSTAIN................... 7,100
NON-VOTES.................. 474,148
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
None
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.
By: /s/ Troy M. Beatty
____________________________
Troy M. Beatty
Senior Vice President and
Chief Financial Officer
DATED this 13th day of May, 1997.