<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - - - - - - - - - - - -
FORM 10-Q
- - - - - - - - - - - - - -
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 1996.
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number: 0-23536
-------------
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 September 30, 1996, there were 4,840,000 common shares of the registrant
outstanding.
1
<PAGE> 2
PART I: FINANCIAL INFORMATION
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995
------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,601,187 $ 6,724,172
Accounts receivable 1,041,020 622,498
Prepaid expenses 573,057 231,564
Recoverable income taxes 143,251 241,969
----------- -----------
Total current assets 3,358,515 7,820,203
----------- -----------
Property and equipment, at cost 95,050,635 71,309,946
Less accumulated depreciation 14,432,375 12,888,707
----------- -----------
Net property and equipment 80,618,260 58,421,239
----------- -----------
Other assets:
Intangible assets 1,663,311 1,213,698
Deferred income taxes 85,553 333,700
Other assets 143,313 138,681
----------- -----------
Total other assets 1,892,177 1,686,079
----------- -----------
$85,868,952 $67,927,521
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,336,093 $ 1,433,186
Accrued expenses:
Real estate taxes 1,183,512 925,331
Other 1,980,506 922,649
----------- -----------
Total accrued expenses 3,164,018 1,847,980
----------- -----------
Current installments of long-term debt 6,104,580 1,070,370
----------- -----------
Total current liabilities 10,604,691 4,351,536
----------- -----------
Long-term debt, excluding current installments 47,120,288 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 9,749,044 6,992,754
----------- -----------
Total stockholders' equity 28,143,973 25,387,683
----------- -----------
Commitments and contingency
----------- -----------
$85,868,952 $67,927,521
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Motel revenues:
Lodging revenues $11,104,753 $8,749,137 $27,265,583 $23,086,003
Other lodging activities 337,386 300,419 903,167 838,019
----------- ---------- ----------- -----------
Total motel revenues 11,442,139 9,049,556 28,168,750 23,924,022
----------- ---------- ----------- -----------
Direct operating expenses:
Payroll and payroll taxes 2,616,166 2,027,644 6,703,417 5,616,147
Royalties and advertising fund 754,566 570,382 1,815,364 1,503,023
Other lodging 3,055,680 2,218,436 7,681,344 6,199,334
----------- ---------- ----------- -----------
Total lodging expense 6,426,412 4,816,462 16,200,125 13,318,504
Other lodging activities 246,958 206,695 658,304 582,513
Depreciation and amortization 875,299 570,311 2,203,890 1,660,566
General and administrative 738,843 607,151 2,047,704 1,642,781
----------- ---------- ----------- -----------
Total direct operating expenses 8,287,512 6,200,619 21,110,023 17,204,364
----------- ---------- ----------- -----------
Operating income 3,154,627 2,848,937 7,058,727 6,719,658
----------- ---------- ----------- -----------
Other income (expense):
Interest expense (1,018,911) (577,952) (2,458,460) (1,749,634)
Miscellaneous income/expense (463) 30,162 (6,446) 26,992
----------- ---------- ----------- -----------
(1,019,374) (547,790) (2,464,906) (1,722,642)
----------- ---------- ----------- -----------
Income before income taxes 2,135,253 2,301,147 4,593,821 4,997,016
Income tax expense (note 3) 854,104 898,898 1,837,531 1,998,806
----------- ---------- ----------- -----------
Net income $ 1,281,149 $1,402,249 $ 2,756,290 $ 2,998,210
=========== ========== =========== ===========
Net income per share $ .26 $ .29 $ .57 $ .62
=========== ========== =========== ===========
Weighted average shares outstanding 4,840,000 4,840,000 4,840,000 4,840,000
=========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,756,290 $ 2,998,210
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,042,246 1,542,537
Amortization 161,644 118,029
Loss on sale of property and equipment 65,073 76,991
Deferred income taxes 248,147 236,000
(Increase) decrease in current assets:
Accounts receivable (418,522) (375,799)
Prepaid expenses (341,493) (286,164)
Recoverable income taxes 98,718 172,344
Increase (decrease) in current liabilities:
Accounts payable (97,093) 377,051
Accrued expenses 1,316,038 906,638
Income taxes payable - 358,787
------------ ------------
Net cash provided by operating activities 5,831,048 6,124,624
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (24,319,967) (12,974,129)
Increase in intangibles and other assets (615,889) (108,436)
Proceeds from sale of property and equipment 15,627 132,616
------------ ------------
Net cash used in investing activities (24,920,229) (12,949,949)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt (822,388) (17,958,738)
Proceeds from long-term debt 14,788,584 22,369,962
Repayments of notes payable to banks - (70,200)
------------ ------------
Net cash provided by financing activities 13,966,196 4,341,024
------------ ------------
Net decrease in cash and cash equivalents (5,122,985) (2,484,301)
Cash and cash equivalents at beginning of period 6,724,172 2,601,747
------------ ------------
Cash and cash equivalents at end of period $ 1,601,187 $ 117,446
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of September 30, 1996 and the
condensed consolidated statements of income for the three months and nine
months ended September 30, 1996 and 1995 and condensed consolidated
statements of cash flows for the nine months ended September 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 September 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 state-
ments and notes thereto included in the Company's Annual Report to
Shareholders incorporated by reference in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995. The results of
operations for the period ended September 30, 1996 are not necessarily
indicative of the operating results for the full year.
(2) Net Income Per Share
For the three months and nine months ended September 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.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total motel revenues for the third quarter were $11,442,139, an increase
of $2,392,583, or 26.4%, over total revenues of $9,049,556 for the third
quarter of 1995. Total motel revenues for the first nine months were
$28,168,750, an increase of $4,244,728, or 17.7%, over the total revenues of
$23,924,022 for the first nine months of 1995. The increase for the third
quarter was primarily due to an increase of $2,355,616 in revenue from lodging
operations and $36,967 from other lodging activities (which consist of
telephone and vending revenue). The increase for the first nine months was
primarily due to an increase of $4,179,580 in revenue from lodging operations
and $65,148 from other lodging activities.
The increase in revenues from lodging operations for the third quarter
resulted primarily from renting 267,308 rooms in 1996 compared to 225,859 rooms
rented in third quarter of 1995, an increase of 41,449, or 18.4%. Rooms
available in the third quarter of 1996 were 374,572, an increase of 88,303, or
30.8%, over rooms available of 286,269 in the third quarter of 1995. The
increase in revenues from lodging operations for the first nine months resulted
primarily from renting 673,081 rooms in 1996 compared to 608,997 rooms rented
in the first nine months of 1995, an increase of 64,084, or 10.5%. Rooms
available for the first nine months of 1996 were 993,978, an increase of
149,540, or 17.7%, over rooms available of 844,438 for the first nine months of
1995.
6
<PAGE> 7
RESULTS OF OPERATIONS, CONTINUED
The increase in rooms available during 1996 resulted from the opening of
the 14-room addition to Marshall, Missouri property in February 1996, the
acquisition of a 48-room existing property in Parsons, Kansas in the first
quarter 1996, the acquisition of a 61-room existing property in Portage,
Wisconsin in the second quarter of 1996, a 35-room addition to a Nebraska
property in the second quarter 1996, the opening of three large Texas
properties with 286 rooms in the second quarter 1996, the completion of
reconfiguring the Bullhead City, Arizona property from 120 rooms to 76 rooms
(56 rooms available at December 31, 1995), the opening of a new 116-room Super
8 motel in Bedford, Texas in the third quarter 1996 and the acquisition of five
properties in Wisconsin consisting of three existing Super 8 motels totaling
171 rooms and two Comfort Inn motels totaling 110 rooms in the third quarter
1996. The company's room count was 4,157 at the end of the third quarter 1996,
a net increase of 862 rooms, or 26.2%, over the room count of 3,295 rooms at
December 31, 1995.
Revenues were impacted by an increase in the average daily room rate in
the third quarter of 1996. An average daily room rate of $42.81 was achieved
compared to $40.07 for the third quarter of 1995, an increase of $2.74, or
6.8%. For the first nine months, the average daily room rate was $41.85 in
1996 compared to $39.28 for the first nine months of 1995, an increase of
$2.57, or 6.5%.
Revenues per available room for the third quarter 1996 decreased from
$31.61 for the third quarter 1995 to $30.55, a decrease of $1.06, or 3.4%.
Revenue per available room for the first nine months of 1996 increased to
$28.34 from $28.33.
7
<PAGE> 8
RESULTS OF OPERATIONS, CONTINUED
Motel revenue was also impacted by changes in occupancy. Occupancy as a
percentage of rooms available decreased from 78.9% in the third quarter of 1995
to 71.4% in the third quarter 1996. The decrease in the occupancy percentage
resulted primarily from the opening of two large properties in late 1995 in
Plano and McKinney, Texas, the opening of three large properties in the second
quarter of 1996 in Denton, Grapevine and Wichita Falls, Texas and the opening
of a large property in Bedford, Texas in the third quarter 1996. 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 79.0% in the third quarter of 1995 to 75.6% in
the third quarter of 1996. Total occupancy decreased from 72.1% for the first
nine months of 1995 to 67.7% for the first nine months of 1996. The occupancy
percentage in seasoned properties decreased from 73.3% for the first nine
months of 1995 to 69.7% for the first nine months of 1996. Supertel's
"seasoned" properties included 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. Occupancy is seasonal and 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 third quarter 1996 were $6,426,412 compared to
$4,816,462 for the third quarter of 1995, an increase of $1,609,950, or 33.4%.
Lodging expenses for the first nine months of 1996 were $16,200,125 compared to
$13,318,504 for the first nine months of 1995, an increase of $2,881,621, or
21.6%. The increase in lodging expenses was due primarily to the increase in
the number
8
<PAGE> 9
RESULTS OF OPERATIONS, CONTINUED
of rooms available to rent and rooms rented. Lodging expenses as a percentage
of lodging revenues increased from 55.1% for the third quarter of 1995 to 57.9%
in the third quarter of 1996. Lodging expenses as a percentage of lodging
revenues increased from 57.7% for the first nine months of 1995 to 59.4% in the
first nine months of 1996. The increase in expenses for the third quarter and
the first nine months resulted from increased expenses incurred in connection
with the properties acquired/opened in the fourth quarter 1995 and first nine
months of 1996. The increase in lodging expense as a percentage of lodging
revenues was impacted by the decrease in occupancy which resulted in lower
total revenue to cover the fixed costs for both the quarter and nine-month
period.
Depreciation and amortization expenses for the third quarter of 1996 were
$875,299 compared to $570,311 for the third quarter of 1995, an increase of
$304,988, or 53.5%. Depreciation and amortization expenses for the first nine
months of 1996 were $2,203,890 compared to $1,660,566, an increase of $543,324,
or 32.7%. This increase was primarily due to an increase in the number of
motel properties. General and administrative expenses for the third quarter of
1996 (which includes the write-off of $49,415 of costs associated with a land
acquisition for a motel site in Dallas, Texas which was not completed) were
$738,843 compared to $607,151 in the third quarter of 1995, an increase of
$131,692, or 21.7%. General and administrative expenses as a percent of motel
revenue decreased in the third quarter of 1996 to 6.5% from 6.7% of motel
revenue in the third quarter of 1995. General and administrative expenses for
the first nine months of 1996 were $2,047,704 compared to $1,642,781 for the
first nine months of 1995, an increase of $404,923, or 24.6%. General and
administrative expenses as a percent of motel revenue increased in the first
nine months of 1996 to 7.3% from 6.9% of motel
9
<PAGE> 10
RESULTS OF OPERATIONS, CONTINUED
revenue in the first nine months of 1995. The increase in general and
administrative expenses was due primarily to increased expenses associated with
Supertel's higher level of acquisition and development efforts, the write-off
of the land acquisition cost mentioned previously, marketing and sales efforts
in Texas, as well as the expansion of staff to handle current and anticipated
motel growth. The increase in general and administrative expenses as a percent
of motel revenue was also impacted unfavorably by the decrease in occupancy
which resulted in lower total revenue to cover the fixed costs for both the
quarter and nine-month period.
Interest expense increased by $440,959 for the third quarter of 1996 from
$577,952 for the third quarter of 1995 to $1,018,911 in 1996, or 76.3%.
Interest expense increased by $708,826 for the first nine months of 1996 from
$1,749,634 in 1995 to $2,458,460 in 1996, or 40.5%. The increase was primarily
due to the new borrowings for acquisitions and new construction. Average bank
borrowings for the third quarter of 1996 increased to $51,252,580 from
$28,306,037 for the comparable period in 1995, an increase of $22,946,543, or
81.1%. Bank borrowings at September 30, 1996 were $53,224,868.
As a result of the aforementioned operating factors and general business
conditions, net income for the third quarter of 1996 from continuing operations
was $1,281,149, or $.26 per share, versus net income of $1,402,249, or $.29 per
share, for the corresponding period in 1995, a 8.6% decrease.
Net income for the nine months of 1996 from continuing operations was
$2,756,290, or $.57 per share, versus net income of $2,998,210, or $.62 per
share, for the corresponding period of 1995, a 8.1% decrease. Earnings before
interest, taxes, depreciation and amortization (EBITDA) for the third quarter
of 1996, were $4,029,463, an increase of $580,053, or 16.8%, over EBITDA of
$3,449,410 for the third quarter of 1995. EBITDA for the first nine months of
1996 were $9,256,171, an increase of $848,955, or 10.1%, over EBITDA of
$8,407,216 for the first nine months of 1995.
10
<PAGE> 11
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 $5,831,000 for the first nine months of 1996 and $6,125,000
for the first nine months of 1995. Supertel required capital principally for
the construction, acquisition and improvement of lodging facilities. Capital
expenditures for such purposes were approximately $24,320,000 in the first nine
months of 1996 and approximately $12,974,000 in the first nine months of 1995.
Long-term debt (excluding current installments of long-term debt) was
$47,120,288 at September 30, 1996 and $38,188,302 at December 31, 1995.
Supertel's current installments of long-term debt were $6,104,580 at September
30, 1996 (approximately $277,000 due during the fourth quarter) 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 September 30,
1996, Supertel was in compliance with these covenants.
Supertel increased its line of credit from $15,000,000 to $25,000,000
during the second quarter of 1996. The outstanding balance of $23,204,237 was
classified as long-term debt at September 30, 1996. Supertel secured a
$7,000,000 short-term loan in the third quarter, from a major bank, to fund
acquisitions/construction activities during the second half of 1996. The
outstanding balance at September 30, 1996 was $5,000,000 (classified as
short-term debt). The loan is due February 28, 1997. Supertel's ratio of
long-term debt (including current installments) to long-term debt and
stockholders' equity was 65.4% at September 30, 1996, compared to 60.8% at
December 31, 1995.
Supertel, early in the year, 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 nine months of 1996, Supertel added a net of 862 rooms and expended
approximately $24,320,000 of capital funds for such development.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
Supertel currently has two Wingate motels under construction in Texas, one
located in the Las Colinas area of Irving, Texas, and the other in Houston,
Texas located near the Intercontinental Airport. Both properties will consist
of 101 rooms. One is expected to open in the first quarter of 1997 and the
other in the second quarter.
In addition to planned development expenditures, Supertel had 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 lines of credit, securing new short- and long-term
facilities and the ability to leverage four unencumbered existing properties
and the two properties under construction will be sufficient to fund scheduled
development and debt repayment, including the $5,000,000 classified as
short-term debt.
12
<PAGE> 13
PART II - OTHER INFORMATION
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/ Ronald L. Boettcher
--------------------------
Ronald L. Boettcher
Senior Vice President and
Chief Financial Officer
DATED this 4th day of November 1996.
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,601,187
<SECURITIES> 0
<RECEIVABLES> 1,041,020
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,358,515
<PP&E> 95,050,635
<DEPRECIATION> 14,432,375
<TOTAL-ASSETS> 85,868,952
<CURRENT-LIABILITIES> 10,604,691
<BONDS> 47,120,288
<COMMON> 48,400
0
0
<OTHER-SE> 28,095,573
<TOTAL-LIABILITY-AND-EQUITY> 85,868,952
<SALES> 28,168,750
<TOTAL-REVENUES> 28,168,750
<CGS> 0
<TOTAL-COSTS> 16,858,429
<OTHER-EXPENSES> 4,251,594
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,458,460
<INCOME-PRETAX> 4,593,821
<INCOME-TAX> 1,837,531
<INCOME-CONTINUING> 2,756,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,756,290
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
