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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, 1998.
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, 1998, there were 4,840,000 common shares of the registrant
outstanding.
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
===============================================================================
March 31,
1998 December 31,
ASSETS (Unaudited) 1997
- -------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 764,834 9,532,430
Accounts receivable 1,203,959 1,157,372
Prepaid expenses 895,536 492,998
Recoverable income taxes - 148,925
- -------------------------------------------------------------------------------
Total current assets 2,864,329 11,331,725
- -------------------------------------------------------------------------------
Property and equipment, at cost 109,213,544 108,740,409
Less accumulated depreciation 19,319,248 18,365,073
- -------------------------------------------------------------------------------
Net property and equipment 89,894,296 90,375,336
- -------------------------------------------------------------------------------
Other assets:
Intangible assets 1,468,413 1,515,858
Other assets 163,227 182,725
- -------------------------------------------------------------------------------
Total other assets 1,631,640 1,698,583
- -------------------------------------------------------------------------------
$ 94,390,265 103,405,644
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,336,570 771,569
Accrued expenses:
Real estate taxes 1,356,984 1,702,126
Income taxes payable 155,210 -
Other 1,886,555 1,631,142
- -------------------------------------------------------------------------------
Total accrued expenses 4,735,319 4,104,837
- -------------------------------------------------------------------------------
Current installments of long-term debt 2,205,435 1,942,380
- -------------------------------------------------------------------------------
Total current liabilities 6,940,754 6,047,217
- -------------------------------------------------------------------------------
Deferred income taxes 583,400 514,900
Long-term debt, excluding current installments 52,983,773 63,534,321
Other long-term liabilities 440,278 448,611
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 15,047,131 14,465,666
- -------------------------------------------------------------------------------
Total stockholders' equity 33,442,060 32,860,595
Commitments and contingency
- -------------------------------------------------------------------------------
$ 94,390,265 103,405,644
===============================================================================
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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1998 1997
- -------------------------------------------------------------------------------
Motel revenues:
Lodging revenues $ 10,533,617 8,737,244
Other lodging activities 370,675 328,436
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Total motel revenues 10,904,292 9,065,680
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Direct operating expenses:
Payroll and payroll taxes 2,779,867 2,374,762
Royalties and advertising fund 645,635 574,756
Other lodging 3,044,067 2,902,973
- -------------------------------------------------------------------------------
Total lodging expenses 6,469,569 5,852,491
Other lodging activities 269,530 235,121
Depreciation and amortization 1,113,272 901,336
General and administrative 999,863 720,634
- -------------------------------------------------------------------------------
Total direct operating expenses 8,852,234 7,709,582
- -------------------------------------------------------------------------------
Operating income 2,052,058 1,356,098
- -------------------------------------------------------------------------------
Other income (expenses):
Interest expense (1,101,009) (1,050,937)
Miscellaneous income and other expenses 18,051 57,097
- -------------------------------------------------------------------------------
(1,082,958) (993,840)
- -------------------------------------------------------------------------------
Income before income taxes 969,100 362,258
Income tax expense 387,635 144,898
- -------------------------------------------------------------------------------
Net income $ 581,465 217,360
===============================================================================
Net income per share - basic and diluted $ .12 .05
===============================================================================
Weighted average shares outstanding 4,840,000 4,840,000
===============================================================================
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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1998 1997
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 581,465 217,360
Adjustments to reconcile net income to net cash
provided by operating activties
Depreciation 1,029,113 822,126
Amortization 84,159 79,210
(Gain) loss on sale of property
and equipment 18,802 (3,395)
Deferred income taxes 68,500 -
(Increase) decrease in current assets:
Accounts receivable (46,587) (4,288)
Prepaid expenses (402,538) (84,229)
Recoverable income taxes 148,925 136,900
Increase in current liabilites:
Accounts payable 565,001 935,575
Accrued expenses 65,481 124,684
- -------------------------------------------------------------------------------
Net cash provided by operating activities 2,112,321 2,223,943
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (569,086) (3,674,845)
Additions to intangibles and other assets (17,216) (43,876)
Proceeds from sale of property and equipment 2,211 9,459
- -------------------------------------------------------------------------------
Net cash used in investing ativities (584,091) (3,709,262)
- -------------------------------------------------------------------------------
Cash used in financing activities -
Repayments of long-term debt and other
financing sources (10,295,826) (4,482,293)
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (8,767,596) (5,967,612)
Cash and cash equivalents at beginning of year 9,532,430 6,487,764
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 764,834 520,152
===============================================================================
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, 1998 and the
condensed consolidated statements of income and cash flows for the
three-month periods ended March 31, 1998 and 1997 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, 1998 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, 1997. The results of
operations for the three-month period ended March 31, 1998 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, 1998 and 1997, basic net income
per share was calculated based on the weighted average number of common
shares outstanding during the period. Diluted net income per share was
computed using the weighted average number of common shares outstanding
during the period and dilutive potential common shares outstanding during
the period.
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 "Certain Business Factors" described in Supertel's 1997
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, 1998 AND 1997
Total motel revenues for the first quarter of 1998 were $10,904,292, an
increase of $1,838,612 or 20.3%, over total revenues of $9,065,680 for the
first quarter of 1997. The increase was primarily due to an increase of
$1,796,373 in revenues from lodging operations. Revenues from other lodging
activities, which consist of telephone, vending and movie revenues, increased
$42,239. Revenue increases were affected by the opening of two new motels in
Texas, the acquisition of one property in Wisconsin and an addition to one
existing property in Nebraska. The Company's room count was 4,454 at the end
of the first quarter.
The increase in revenues from lodging operations for the first quarter of
1998 resulted primarily from renting 241,060 rooms, an increase of 21,979 or
10.0%, over the 219,081 rooms rented in the first quarter of 1997. Rooms
available in the first quarter of 1998 were 400,927, an increase of 27,008 or
7.2% over rooms available of 373,919 in the first quarter of 1997. Occupancy
as a percentage of rooms available during the comparable three-month periods
increased from 58.6% to 60.1%.
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Occupancy as a percentage of rooms available in seasoned properties (those
owned/opened over one year) was essentially unchanged at 60.1% versus 60.0% for
the same period last year. Management believes the factors contributing to
higher occupancy in the first quarter include the success of initiatives
introduced in 1997, including the open-book management system, a strong economy
and winter weather.
The revenue increase also reflected an increase in the average daily room
rate. An average daily room rate of $45.23 was achieved for the first quarter
of 1998 compared to $41.38 for the first quarter of 1997, an increase of $3.85
or 9.3% 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 1998 increased to $27.20 from
$24.25, an increase of $2.95 or 12.2%.
Lodging expenses for the first quarter of 1998 were $6,469,569, an
increase of $617,078 or 10.5%, over the $5,852,491 for the first quarter of
1997. 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
decreased from 64.6% to 59.3% during the comparable three-month periods. This
decrease resulted from the success of initiatives introduced in 1997, including
the open-book management system.
Depreciation and amortization expense for the first quarter of 1998 was
$1,113,272, an increase of $211,936 or 23.5%, from the $901,336 for the first
quarter of 1997. This increase was due to an increase in the number of motel
properties.
General and administrative expenses for the first quarter of 1998 were
$999,863, an increase of $279,229 or 38.7%, over general and administrative
expenses of $720,634 for the first quarter of 1997. General and administrative
expenses as a percentage of motel revenue increased to 9.2% in the first
quarter of 1998 from 7.9% in the first quarter of 1997. The percentage
increase was due primarily to writing off some development expenses in the
first quarter. These were costs associated with acquisition due diligence for
properties that will not be acquired.
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Interest expense for the first quarter of 1998 was $1,101,009, an increase
of $50,072 or 4.8%, over $1,050,937 for the first quarter of 1997. Average
borrowings for the first quarter of 1998 increased to $55,667,035 from
$54,782,072 in the same quarter 1997, an increase of $884,963 or 1.6%. 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, 1998 was $52,983,773.
Net income for the first quarter of 1998 from continuing operations was
$581,465, or $.12 per share versus net income of $217,360, or $.05 per share,
for the corresponding period in 1997. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the first quarter of 1998 were
$3,183,381, an increase of $868,850 or 37.5% over EBITDA of $2,314,531 for the
first quarter of 1997.
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 $2,112,321 for the first quarter of 1998 and $2,223,943 for the first
quarter of 1997. Supertel requires capital principally for the construction,
acquisition and improvement of lodging facilities. Capital expenditures for
such purposes were $569,086 in the first quarter of 1998 and $3,674,845 in the
first quarter of 1997.
Long-term debt (excluding current installments of long-term debt) was
$52,983,773 at March 31, 1998 and $63,534,321 at December 31, 1997. Supertel's
current installments of long-term debt were $2,205,435 at March 31, 1998 and
$1,942,380 at December 31, 1997. 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, 1998, Supertel was in compliance with these covenants.
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Supertel maintains a $25,000,000 line of credit, with an outstanding
balance of $13,762,961 (classified as long-term debt) at March 31, 1998.
Supertel's ratio of long-term debt (including current installments) to
long-term debt and stockholders' equity was 62.3% at March 31, 1998, compared
to 66.6% at December 31, 1997.
Supertel plans to construct and/or acquire an aggregate of approximately
400 - 600 motel rooms in 1998 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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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 1, 1998. The
stockholders elected five directors and ratified the appointment of independent
public accountants. Voting on these matters was as follows:
1. ELECTION OF DIRECTORS:
FOR WITHHELD
Paul Schulte................................ 4,298,762 11,524
Steve Borgmann.............................. 4,298,762 11,524
Joseph Caggiano............................. 4,298,762 11,524
Loren Steele................................ 4,298,762 11,524
Rich Herink................................. 4,298,762 11,524
2. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK AS INDEPENDENT
ACCOUNTANTS FOR FISCAL YEAR 1998:
FOR......................................... 4,300,237
AGAINST..................................... 9,224
ABSTAIN..................................... 825
ITEM 5. OTHER INFORMATION
On March 18, 1998, Supertel announced that it was engaged in discussions
regarding a possible business combination with a publicly-traded company
pursuant to which Supertel stockholders would receive cash and common stock of
the other company. Supertel announced on April 27, 1998 that such discussions
were continuing, and such discussions continue as of the date of this report.
The completion of a definitive agreement and consummation of a transaction are
subject to a number of uncertainties, including results of due diligence by
both companies, and would be subject to approval by Supertel's board of
directors and stockholders. There can be no assurance an agreement can be
reached, or that if an agreement is entered into, that any transaction will be
consummated.
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
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Troy M. Beatty
DATED this 13th day of May 1998. Chief Financial Officer
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