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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,
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 June 30, 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
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 903,903 $6,487,764
Accounts receivable 1,446,155 1,018,045
Prepaid expenses 609,911 319,862
Recoverable income taxes - 204,803
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Total current assets 2,959,969 8,030,474
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Property and equipment, at cost 106,198,863 97,574,480
Less accumulated depreciation 16,612,196 15,131,485
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Net property and equipment 89,586,667 82,442,995
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Other assets:
Intangible assets 1,643,214 1,644,939
Other assets 176,386 157,299
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Total other assets 1,819,600 1,802,238
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$ 94,366,236 $92,275,707
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,274,776 $ 786,456
Accrued expenses:
Real estate taxes 1,281,172 1,295,240
Other 3,264,645 1,418,633
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Total accrued expenses 4,545,817 2,713,873
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Current installments of long-term debt 1,774,753 1,067,023
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Total current liabilities 7,595,346 4,567,352
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Deferred income taxes 255,900 54,900
Long-term debt, excluding current installments 56,194,099 58,894,525
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized
1,000,000 shares; none issued - -
Common stock, $0.01 par value. Authorized 10,000,000
shares; issued and outstanding 4,840,000 shares 48,400 48,400
Additional paid-in capital 18,346,529 18,346,529
Retained earnings 11,925,962 10,364,001
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Total stockholders' equity 30,320,891 28,758,930
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Commitments and contingency
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$ 94,366,236 $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 MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1997 1996 1997 1996
Motel revenues:
Lodging revenues $11,926,389 $9,175,328 $20,663,633 $16,160,830
Other lodging activities 390,862 293,964 719,298 565,781
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Total motel revenues 12,317,251 9,469,292 21,382,931 16,726,611
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Direct operating expenses:
Payroll and payroll taxes 2,797,275 2,206,649 5,172,037 4,087,251
Royalties and advertising fund 794,540 604,555 1,369,296 1,060,798
Other lodging 3,141,102 2,490,147 6,044,075 4,625,664
----------- ---------- ----------- -----------
Total lodging expense 6,732,917 5,301,351 12,585,408 9,773,713
Other lodging activities 261,237 217,786 496,358 411,346
Depreciation and amortization 1,009,835 778,843 1,911,171 1,328,591
General and administrative 871,167 631,332 1,591,801 1,308,861
----------- ---------- ----------- -----------
Total direct operating expenses 8,875,156 6,929,312 16,584,738 12,822,511
----------- ---------- ----------- -----------
Operating income 3,442,095 2,539,980 4,798,193 3,904,100
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Other income (expense):
Interest expense (1,184,905) (765,216) (2,235,842) (1,439,549)
Miscellaneous income/expense (16,189) (24,998) 40,908 (5,983)
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(1,201,094) (790,214) (2,194,934) (1,445,532)
----------- ---------- ----------- -----------
Income before income taxes 2,241,001 1,749,766 2,603,259 2,458,568
Income tax expense 896,400 699,906 1,041,298 983,427
----------- ---------- ----------- -----------
Net income $ 1,344,601 $1,049,860 $ 1,561,961 $ 1,475,141
=========== ========== =========== ===========
Net income per share $ .28 $ .22 $ .32 $ .31
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Weighted average shares outstanding 4,840,000 4,840,000 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)
SIX MONTHS ENDED
JUNE 30,
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1997 1996
Cash flows from operating activities:
Net income $1,561,961 $1,475,141
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,746,626 1,245,601
Amortization 164,545 82,990
Loss on sale of property and equipment 21,463 50,262
Deferred income taxes 201,000 210,187
Changes in assets and liabilities:
Accounts receivable (428,110) (169,672)
Prepaid expenses (290,049) (502,362)
Recoverable income taxes 204,803 241,969
Accounts payable 488,320 (75,492)
Accrued expenses 1,373,692 807,758
Income taxes payable 458,252 277,206
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Net cash provided by operating activities 5,502,503 3,643,588
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Cash flows from investing activities:
Additions to property and equipment (8,928,492) (12,880,684)
Additions to intangibles and other assets (181,907) (144,747)
Proceeds from sale of property and equipment 16,731 6,796
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Net cash used in investing activities (9,093,668) (13,018,635)
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Cash flows from financing activities:
Repayments on long-term debt (21,628,415) (521,842)
Proceeds from long-term debt 19,635,719 4,328,226
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Net cash provided by (used in) financing activities (1,992,696) 3,806,384
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Net decrease in cash and cash equivalents (5,583,861) (5,568,663)
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 $ 903,903 $1,155,509
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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 June 30, 1997 and the
condensed consolidated statements of income and cash flows for the three
months and six months ended June 30, 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
June 30, 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
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 months and six months ended June 30, 1997 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, 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 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
This report contains certain forward-looking statements and
information relating to Supertel that are based on the beliefs of
Supertel's management as well as assumptions made by and information
currently available to Supertel's 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 SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Total motel revenues for the second quarter were $12,317,251, an
increase of $2,847,959 or 30.1% over total revenues of $9,469,292 for the
second quarter of 1996. Total motel revenues for the first six months
were $21,382,931, an increase of $4,656,320 or 27.8% over the total
revenues of $16,726,611 for the first six months of 1996. The increase
for the second quarter was primarily due to an increase of $2,751,061 in
revenues from lodging operations and $96,898 from other lodging activities
(which consist of telephone, vending and movie revenue). The increase for
the first six months was primarily due to an increase of $4,502,803 in
revenue from lodging operations and $153,517 from other lodging
activities.
The increase in revenues from lodging operations for the second
quarter resulted primarily from renting 274,250 rooms in 1997 compared to
225,571 rooms in the second quarter of 1996, an increase of 48,679 or
21.6%. The increase in revenues from lodging operations for the first six
months resulted primarily from renting 493,331 rooms in 1997 compared to
405,773 rooms rented in the first six months of 1996, an increase of
87,558 or 21.6%.
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The increase in rooms rented resulted primarily from the opening of
four new properties and the acquisition of seven existing properties since
May 1996. These openings and acquisitions added 867 rooms. Revenues were
also impacted by an increase in the average daily room rate in the second
quarter of 1997. An average daily room rate of $44.91 was achieved
compared to $41.98 for the second quarter of 1996, an increase of $2.93 or
7.0%. For the first six months, the average daily room rate was $43.34 in
1997 compared to $41.22 for the first six months of 1996, an increase of
$2.12 or 5.1%.
Revenue per available room for the second quarter of 1997 increased
to $31.13 from $29.74, an increase of $1.39 or 4.7%. Revenue per
available room for the first six months of 1997 increased to $27.78 from
$27.00, an increase of $.78 or 2.9%.
Motel revenue was also impacted by changes in occupancy. Occupancy
as a percentage of rooms available for the second quarter of 1997
decreased to 69.3% from 70.8% in the second quarter of 1996. The
occupancy percentage in seasoned properties (those owned/opened over one
year) decreased from 72.9% in the second quarter of 1996 to 70.4% in the
second quarter of 1997. Occupancy decreased from 65.5% for the first six
months of 1996 to 64.1% for the first six months of 1997. The occupancy
percentage in seasoned properties decreased from 67.0% for the first six
months of 1996 to 65.3% for the first six months of 1997. 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 1997 were $6,732,917
compared to $5,301,351 for the second quarter of 1996, an increase of
$1,431,566 or 27.0%. Lodging expenses for the first six months of 1997
were $12,585,408 compared to $9,773,713 for the first six months of 1996,
an increase of $2,811,695 or 28.8%. 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 revenues
decreased to 54.7% for the second quarter of 1997 from 56.0% in the second
quarter of 1996. Lodging expenses as a percentage of motel revenues
increased to 58.9% for the first six months of 1997 from 58.4% for the
first six months of 1996.
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Depreciation and amortization expenses for the second quarter of 1997
were $1,009,835 compared to $778,843 for the second quarter of 1996, an
increase of $230,992 or 29.7%. Depreciation and amortization expenses for
the first six months of 1997 were $1,911,171 compared to $1,328,591 for
the first six months of 1996, an increase of $582,580 or 43.8%. 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 1997
were $871,167 compared to $631,332 in the second quarter of 1996, an
increase of $239,835 or 38.0%. General and administrative expenses as a
percent of sales increased in the second quarter of 1997 to 7.1% from 6.7%
of sales in the second quarter of 1996. General and administrative
expenses for the first six months of 1997 were $1,591,801 compared to
$1,308,861 for the first six months of 1996, an increase of $282,940 or
21.6%. General and administrative expenses as a percent of sales
decreased in the first six months of 1997 to 7.4% from 7.8% of sales in
the first six months of 1996.
Interest expense increased by $419,689 or 54.8% for the second
quarter of 1997 from $765,216 for the second quarter of 1996 to $1,184,905
in 1997. Interest expense increased by $796,293 for the first six months
of 1997 from $1,439,549 in 1996 to $2,235,842 in 1997 or 55.3%. The
increase was primarily due to the new borrowings for acquisitions and new
constructions. Average bank borrowings for the second quarter of 1997
increased to $58,297,477 from $40,421,800 for the comparable period in
1996, an increase of $17,875,677 or 44.2%. Bank borrowings at June 30,
1997 were $57,968,852.
As a result of the aforementioned operating factors and general
business conditions, net income for the second quarter of 1997 from
continuing operations was $1,344,601 or $.28 per share versus net income
of $1,049,860 or $.22 per share for the corresponding period in 1996.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the second quarter of 1997, were $4,435,740, an increase of $1,141,915
or 34.7% over EBITDA of $3,293,825 for the second quarter of 1996.
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Net income for the six months of 1997 from continuing operations was
$1,561,961 or $.32 per share versus net income of $1,475,141 or $.31 per
share, for the corresponding period in 1996. EBITDA for the first six
months of 1997 were $6,750,272, an increase of $1,523,564 or 29.1% over
EBITDA of $5,226,708 for the first six months of 1996.
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 $5,503,000 for the first six months of 1997
and $3,644,000 for the first six months of 1996. Supertel requires
capital principally for the construction, acquisition and improvement of
lodging facilities. Capital expenditures for such purposes were
approximately $8,928,000 in the first six months of 1997 and approximately
$12,881,000 in the first six months of 1996.
Long-term debt (excluding current installments of long-term debt) was
$56,194,099 at June 30, 1997 and $58,894,525 at December 31, 1996.
Supertel's current installments of long-term debt were $1,774,753 at June
30, 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 June 30, 1997, Supertel was in compliance with
these covenants.
Supertel entered into a new ten-year $14,745,500 term loan agreement
with a bank in May 1997. At the same time, Supertel decreased its line of
credit from $40,000,000 to $25,000,000. The line of credit had an
outstanding balance of $15,164,412 (classified as long-term debt) at June
30, 1997. Supertel's ratio of long-term debt (including current
installments) to long-term debt and stockholders' equity was 65.7% at June
30, 1997, compared to 67.6% at December 31, 1996.
Supertel previously reported its plan to construct/acquire
approximately 400-600 motel rooms in 1997 with approximately $14,000,000 -
$19,000,000 of capital funds necessary to finance such development.
During the first six months Supertel has acquired one motel, an 81-room
property in
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Menomonie, Wisconsin, and opened one new hotel in the Las Colinas area of
Irving, Texas, and completed a 22 room addition in Lincoln, Nebraska. In
addition, a new 101 room property in Houston, Texas is scheduled to open
in August 1997. Supertel had 4,359 rooms in operation as of June 30, 1997
compared to 3,760 rooms in operation as of June 30, 1996, an increase of
599 rooms or 15.9%.
In addition to planned development expenditures, Supertel has
principal payments totaling $1,067,023 due under existing debt obligations
during 1997. 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 four
unencumbered properties will be sufficient to fund scheduled development
and debt repayment.
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 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
10.1 Term Loan Agreement dated May 9, 1997 between
Supertel 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.
By: /s/ Troy M. Beatty
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Troy M. Beatty
Senior Vice President and
Chief Financial Officer
DATED this 12th day of August, 1997.