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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 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 Identification No.)
incorporation of organization)
309 NORTH 5TH STREET
NORFOLK, NEBRASKA 68701
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (402) 371-2520
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
________________
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 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ------
The number of shares of common stock outstanding as of March 14, 1997 was
4,840,000 shares. The aggregate market value of the common stock held by
non-affiliates of the registrant as of March 14, 1997 was $34,818,000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
----
Documents incorporated by reference include portions of the Company's Annual
Report to Stockholders for the year ended December 31, 1996 ("1996 Annual
Report") incorporated by reference into Parts I and II, and portions of the
Company's Proxy Statement for the May 2, 1997 Annual Stockholders' Meeting
("1997 Proxy Statement") incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS.
General
Supertel is one of the largest franchisees of Super 8 motels based on the
number of motels owned and total rooms rented. The Company develops, acquires,
constructs and operates economy-class motels as a franchisee of Super 8 Motels,
Inc. and at February 1, 1997 owned 56 Super 8 motels located primarily in
Nebraska, Kansas, Iowa Missouri and Texas. Supertel is one of the few
multiple-location franchisees of Super 8 motels that both owns and operates
motels. Supertel also owned two Comfort Inn motels and one River Valley Suites
motel at February 1, 1997 and held rights to develop five Wingate Inns in the
Dallas/Ft. Worth and Houston areas.
Current Operations. Supertel is a vertically-integrated motel construction,
development and operations company that (i) identifies potential sites for the
construction of new motels and analyzes existing motels that are available for
acquisition, (ii) develops and constructs new motel properties and renovates
existing motels it acquires and (iii) manages its own motel properties.
Certain historical information concerning Supertel's operations is set forth in
the following table.
<TABLE>
<CAPTION>
YEAR-END INFORMATION 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of Motels 34 36 41 48 59
- ------------------------------------------------------------------------------------------------------------------------
Total Rooms Rented 563,418 603,367 667,545 793,151 903,643
- ------------------------------------------------------------------------------------------------------------------------
Motel Revenues $19,337,000 $21,603,000 $25,161,000 $31,362,000 $37,832,388
- ------------------------------------------------------------------------------------------------------------------------
ProForma Net Income After
Taxes $1,386,000 $2,142,000 $3,077,000 $3,624,000 $3,371,247
- ------------------------------------------------------------------------------------------------------------------------
Average Occupancy Rate 70.0% 70.5% 69.4% 69.6% 65.7%
- ------------------------------------------------------------------------------------------------------------------------
Average Room Rate (1) $34.32 $35.80 $37.69 $39.54 $41.87
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes telephone and vending revenues.
History. Paul J. Schulte and Steve H. Borgmann developed their first Super 8
motel as a franchisee of Super 8 Motels, Inc. in 1978. From 1978 through
October 1990, Messrs. Schulte and Borgmann developed by acquisition or
construction an additional 26 motels in the states of Nebraska, Iowa, Missouri,
Kansas and Arizona through a series of limited partnerships and corporations.
These various entities were combined into Spartan "8" Limited Partnership
("Spartan") in October 1990. Messrs. Schulte and Borgmann continued as the
general partners of Spartan which acquired or developed nine additional motel
properties in Nebraska, Kansas, Missouri and Arkansas between October 1990 and
February 1994.
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Simplex, Inc. ("Simplex") has been involved in the motel management business
for Spartan and its predecessors since 1980. Motel Developers, Inc. ("MDI") or
its predecessors have acted as a general contractor for motel properties
developed by Messrs. Schulte and Borgmann since 1977. Supertel was organized
in December 1993 to act as the successor to businesses operated by Spartan, MDI
and Simplex, at which time Simplex and MDI became wholly-owned subsidiaries of
Supertel. Supertel completed an initial public offering in April 1994.
Spartan, MDI and Simplex are sometimes referred to as the "Predecessor
Companies". The narrative description and financial information herein have
been prepared as if Supertel owned and operated the properties throughout the
periods described herein.
Lodging Industry Overview
The lodging industry can be divided into four broad segments based on price
and chain affiliation. These segments are: upscale, midscale, economy, and
small chains or independent motels. Each of the first three categories are
further divided into two subcategories based on price: upper and lower. Super
8 motels are in the lower economy segment, together with Motel 6, Budgetel,
Ramada Limited, EconoLodge, Roadway Inn, Sleep Inn and others. Wingate Inns
are in the upper midscale segment, together with Hampton Inns and Courtyard by
Marriott.
Lower economy-class motels appeal to family, senior citizen and business
travelers seeking comfortable lodging at low cost. Supertel believes the
geographic location and cost structure of its economy motels results in higher
margins than are obtained in other segments of the lodging industry. Upper
mid-scale hotels appeal to the business traveler looking for extended benefits.
The following table illustrates certain comparative information regarding
average occupancy and daily rates:
<TABLE>
<CAPTION>
Average Occupancy Rates Average Daily Rate(3)
--------------------------- -------------------------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Industry-wide(1)......................... 65.2% 65.5% 65.7% $63.63 $67.34 $71.66
Lower economy segment(1)........... 62.1 62.9 62.0 33.49 34.86 36.49
All Super 8 motels(2)................... 65.9 65.0 64.6 38.23 38.87 40.04
Supertel-owned motels.................. 69.4 69.6 65.7 36.32 38.16 40.51
</TABLE>
(1) Source: Smith Travel Accommodation Reports.
(2) Source: Super 8 Motels, Inc.
(3) Average daily rate excludes telephone and vending revenues.
Motel Operations
Supertel's Super 8 motels are economy lodging facilities containing
between 40 and 135 guest rooms. The guest rooms contain between 220 and 290
square feet of space and are furnished with either king or queen size or two
double beds, dresser, table and chairs
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or recliner and a remote controlled color television (frequently with cable or
satellite hook ups). The motels provide continental breakfasts, wake up calls
and 24-hour desk service. The typical motel is of an English-tudor style
design and is located near restaurants operated by third parties.
Supertel's personnel have extensive experience in conducting site
selection. Site selection typically consists of reviewing area demographics,
conducting market research and comparing the proposed site to other potential
expansion locations. The Company acts as its own general contractor in
constructing Super 8 motels. In the conduct of general contractor duties,
Supertel's personnel purchase building materials and award contracts for
plumbing, concrete, concrete finishing, electrical, heating and air
conditioning, carpentry, finish carpentry and specialized equipment such as
computer equipment and telephone equipment.
Each of Supertel's 59 motels has an on-site manager. The manager is
generally a resident of the local community. Supertel management is in daily
contact with each motel manager. Supertel's motels with 80 or fewer rooms
employ an average of 12 housekeeping and maintenance employees and its motels
with more than 80 rooms employ an average of 16 housekeeping and maintenance
employees.
Supertel's training personnel conducts training of all motel staff
members including motel managers, motel desk clerks and motel housekeepers.
Supertel's employee training emphasizes its guest safety programs which include
room key control, outside lighting and security cameras for monitoring motel
premises.
Customers and Marketing
During 1996, the Company rented 903,643 rooms. Over 53% of its guests
were members of the VIP Club, a popular guest program developed by Super 8
Motels, Inc. The members of the VIP Club receive room discounts upon
presentation of their club card at check-in and check cashing privileges in
addition to other benefits. Supertel's marketing efforts include VIP Club
enrollment drives and VIP enrollment contests among desk clerks.
Supertel's marketing efforts also include negotiating and renewing
billboards and developing and renewing yellow page advertising. Specific
on-site marketing sales programs for individual motels are implemented and
planned by Company personnel. In addition, Supertel participates in various
community campaigns in support of the local area at each motel location.
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Service and Quality Assurance
Supertel believes it ranks among the best Super 8 motels for quality
and service. Super 8 Motels, Inc. conducts surveys of guests of Super 8 motels
through the use of in-room guest comment cards. Guests are requested to
complete and mail the self-addressed cards to Super 8 Motels, Inc. following a
stay in a Super 8 motel. The comment card covers nine areas: appearance, room
cleanliness, room comfort, room furnishings, bathroom, price value perception,
employee friendliness, employee efficiency and employee response. The
following chart reflects the average guest responses on the Super 8 surveys,
which use a scale of 1.00 to 4.00 with the best score being 1.00.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
All Super 8 motels ................. 1.43 1.43 1.34
Supertel-owned motels .............. 1.16 1.17 1.15
</TABLE>
Super 8 Motels, Inc. also conducts four unannounced inspections of
each motel per year, one each quarter. The inspection scores shown below are
the average for the year. A score of 0 to 50 is graded as excellent, 51 to 300
is graded good, 301 to 500 is graded average and above 500 is graded
unacceptable.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
All Super 8 motels ................. 201 173 187
Supertel-owned motels (all motels).. 50 52 61
Supertel-owned motels (properties
owned/opened more than one year).. 50 38 61
</TABLE>
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MOTEL PROPERTIES
Certain information for the 59 motels owned by Supertel at February 1,
1997 is set forth below. All motels are Super 8 motels except as noted.
<TABLE>
<CAPTION>
Location Date Opened Rooms in Motel
- -------- ----------- --------------
<S> <C> <C>
Nebraska
- --------
Columbus 12/31/81 64
O'Neill 7/30/82 53
Omaha 2/18/83 116
Lincoln purchased 8/1/83 61
Lincoln 10/29/83 135
Omaha 5/23/86 74
Wayne 6/8/92 41
Omaha 12/29/93 102
Norfolk purchased 11/2/94 66
Iowa
- ----
Creston 9/19/78 83
Keokuk 2/2/85 62
Iowa City 12/21/85 87
Oskaloosa 12/31/85 51
Burlington 12/30/86 63
Clinton 1/25/88 63
Mt. Pleasant 8/29/88 55
Pella 3/15/90 41
Storm Lake 10/11/90 59
Muscatine purchased 1/4/95 63
Ft. Madison purchased 1/4/95 42
Kansas
- ------
Hays 5/31/87 78
Pittsburg 8/14/87 64
Manhattan 11/23/87 87
Wichita 2/17/89 120
Lenexa 12/22/89 101
Garden City purchased 6/1/91 61
El Dorado 1/16/92 49
Wichita purchased 11/7/94 60
Parsons purchased 3/15/96 48
</TABLE>
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<TABLE>
<CAPTION>
Location Date Opened Rooms in Motel
- -------- ----------- --------------
<S> <C> <C>
Missouri
- --------
Kirksville 8/28/86 64
Sedalia 3/6/87 87
Moberly purchased 8/1/87 60
Marshall 5/6/88 54
Kingdom City 6/6/89 62
West Plains 11/5/90 49
Jefferson City 7/2/91 80
Texas
- -----
College Station 6/21/94 90
Waco 6/21/94 78
Irving 2/10/95 104
Plano 10/3/95 102
McKinney 12/21/95 80
Denton 4/11/96 80
Wichita Falls 6/4/96 104
Grapevine 6/4/96 102
Bedford 8/15/96 114
South Dakota
- ------------
Watertown purchased 7/15/94 58
Illinois
- --------
Macomb purchased 1/17/95 41
Jacksonville purchased 3/22/95 43
Arkansas
- --------
Russellville 3/21/91 63
Mountain Home 4/13/92 41
Batesville 10/6/92 49
Fayetteville 5/17/93 84
</TABLE>
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<TABLE>
<CAPTION>
Location Date Opened Rooms in Motel
- -------- ----------- --------------
<S> <C> <C>
Arizona
- -------
Bullhead City 4/28/84 76
Wisconsin
- ---------
Portage purchased 6/13/96 61
Antigo purchased 7/2/96 52
Shawano purchased 7/2/96 55
Minocqua (Comfort Inn) purchased 7/2/96 51
Sheboygan (Comfort Inn) purchased 7/30/96 59
Tomah purchased 8/14/96 64
-----
4,156
</TABLE>
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Relationship with Super 8 Motels, Inc.
Supertel's motel properties are each operated pursuant to a franchise
agreement with Super 8 Motels, Inc. Super 8 Motels, Inc., with corporate
offices located in Aberdeen, South Dakota, is a subsidiary of Hospitality
Franchise Systems, Inc., a publicly-owned franchisor of hotels and motels,
including Days Inn, Howard Johnson, Knights Inn, Ramada, Travelodge, Villager
Lodge, Wingate Inn and Super 8. There were 1,492 Super 8 motels operating as
of December 31, 1996.
Benefits to Supertel. Supertel's franchisee relationship allows the
use of the nationally recognized service mark "Super 8" in its motel
operations. Super 8 Motels, Inc. conducts national print and media advertising
promoting the service mark and Super 8 motels. Quality and consistency among
Super 8 motels is monitored by Super 8 Motels, Inc. through four unannounced
annual inspections of each Super 8 motel for compliance with facility and
service standards. Super 8 Motels, Inc. also assists franchisees in
advertising, design and development, market research and trade show
participation.
Super 8 Motels, Inc. operates a 24-hour reservation system. Travelers
can use an 800 telephone number through the reservation system to reserve rooms
nationwide at Super 8 motels. In addition to the reservation service, an
international directory of Super 8 motels is published twice annually and Super
8 Motels, Inc. prepares and delivers a special directory for tour groups to
travel agencies.
Members of Super 8 Motels, Inc.'s VIP Club program rented over 53% of
Supertel's motel rooms during 1996. The 4,331,412 members of the VIP Club
receive room rate discounts upon presentation of their club card at check-in
and check cashing privileges in addition to other benefits. Super 8 guarantees
any losses that Supertel may incur from checks written by VIP Club cardholders.
Super 8 Motels, Inc. provides Supertel with a central source for
purchasing of items used in the motel operations. The Company believes that
volume purchasing from a central source results in overall lower purchase
costs. As a franchisee of Super 8 Motels, Inc., Supertel also receives rebates
on long distance telephone charges and premium television charges through its
relationship with the franchisor.
Franchise Agreements. Supertel pays a monthly franchise fee ranging
from 4% to 7% of each motel's gross receipts from room revenues of which 1% to
3% is contributed to an advertising fund administered by Super 8 Motels, Inc.
to finance its national advertising program. Supertel has also agreed to
contribute an additional 1% of
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gross receipts through December 31, 1997 for a national media fund. An initial
franchise fee of $20,000 is required upon the execution of a franchise
agreement for a new location.
Super 8 Motels, Inc. has agreed not to franchise additional Super 8
motels within a specific radius (which varies from five to thirty miles
depending upon the location) of each motel. Each franchise agreement has a
twenty year term. Super 8 Motels, Inc. has the right to terminate a franchise
agreement, subject to the Supertel's right to correct the condition giving rise
to the right to terminate, if Supertel violates the agreement, becomes
insolvent, or permits an attachment or execution to be levied on the subject
motel.
Supertel may own and operate motels not subject to a franchise
agreement with Super 8 Motels, Inc. In addition, in the event a franchise
agreement with respect to a motel is not renewed or is terminated, Supertel may
operate such motel independently or pursuant to an agreement with another
franchisor while continuing to operate its other motels under franchise
agreements with Super 8 Motels, Inc.
Area Development Rights. Super 8 Motels, Inc. has granted Supertel
exclusive rights to develop motels within the city limits of Omaha, Nebraska
and in a portion of the Kansas City metropolitan area located in Kansas.
Supertel and Super 8 Motels, Inc. are parties to a territorial development
agreement under which Supertel has the exclusive right to develop Super 8
motels in the Dallas/Ft. Worth metropolitan area. The territorial development
agreement expires December 31, 1997.
Relationship With Wingate Inns, L.P.
Supertel signed an agreement with Wingate Inns, L.P. in December 1995
which provides rights for Supertel to develop five Wingate Inns in the
Dallas/Ft. Worth and Houston metropolitan areas through June 30, 1998. Wingate
Inns, L.P. is an affiliate of Hospitality Franchise Systems, Inc., a
publicly-held corporation. Super 8 Motels, Inc. is also an affiliate of
Hospitality Franchise Systems, Inc.
Wingate Inns is a limited service hotel chain which features
comfortable suite-like rooms focused on business travelers. Wingate Inns
hotels are in the upper mid-scale segment of the lodging industry. See
"Business - Lodging Industry Overview". Supertel will pay a monthly franchise
fee of 8.5% of each Wingate Inns gross receipts from room revenues, of which 4%
will be contributed to an advertising fund administered by Wingate Inns, L.P.
A minimum initial franchise fee of $35,000 is required upon the execution of a
franchise agreement for a new location, with an additional initial fee of $350
for each room in excess of 100 rooms at the location. Subject to certain
conditions,
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Wingate Inns, L.P. will advance $250,000 to Supertel for each new Wingate Inn;
one-fifteenth of the advance will be forgiven without payment annually
following the motel opening if Supertel complies with the terms of the
franchise agreement.
Competition
There is significant competition in the lodging industry. There are
numerous lodging chains that operate on a national or regional basis, as well
as other motels, motor inns and independent lodging establishments throughout
the United States. Many of the Company's competitors have recognized trade
names, greater resources and longer operating histories than the Company.
Supertel's motels also compete directly with other economy motel chains that
employ concepts similar to Super 8 motels and compete for the same type of
cost-conscious traveler. The number of available rooms in these economy motels
has grown rapidly.
Government Regulation
Supertel is subject to various federal, state and local laws,
regulations and administrative practices affecting its business. Supertel's
motel facilities must comply with regulations related to health, sanitation and
safety standards, equal employment, minimum wages, building codes and zoning
ordinances and licenses to operate motel facilities. Supertel believes it is
in substantial compliance with all such regulations.
Environmental Matters
Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. Such
laws often impose such liability without regard to whether the owner knew of,
or was responsible for, the presence of hazardous or toxic substances. The
cost of remediation or removal of such substances may be substantial, and the
presence of such substances, or the failure to promptly remediate such
substances, may adversely affect the owner's ability to sell such real estate
or to borrow using such real estate as collateral.
Supertel believes that the motel properties are in compliance in all
material respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters.
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Insurance
Supertel has insurance for risks such as fire, personal injury and
property damage claims in connection with the operation of the motels as its
management deems appropriate and in accordance with prudent risk management,
taking into consideration the availability and cost thereof. The motels are
insured for other risks, such as business interruption insurance covering six
months of each motel's revenues, in amounts deemed adequate by Supertel.
Employees
As of December 31, 1996 Supertel had 1,057 employees. The corporate
staff consisted of 57 employees involved in development/construction,
operations/training, and purchasing and accounting. The motel-level employees
included 68 managers and assistant managers/relief managers, 394 desk clerks,
481 housekeepers and shuttle drivers, 48 maintenance employees, and 9
construction employees. Approximately 46% of the desk clerks and housekeepers
are part-time employees. The number of Supertel employees varied during 1996
from a low of 877 employees to a high of 1,303 employees due to the seasonal
nature of the motel business and the addition of motels during the year. None
of the employees is covered by a collective bargaining agreement. Supertel
considers its relations with employees to be good.
Financial Information about Foreign Operations and Export Sales
Supertel has no foreign locations or export sales.
Executive Officers of Supertel
The executive officers of Supertel at February 28, 1997 are listed
below, together with their ages and all Company positions and offices held by
them.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Paul J. Schulte 63 Director, President and Treasurer
Steve H. Borgmann 51 Director, Executive Vice
President and Chief Operating Officer
Richard L. Herink 43 Director, Executive Vice President
Troy Beatty 32 Senior Vice President and Chief
Financial Officer
</TABLE>
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Paul Schulte founded a predecessor of Supertel and was a controlling
shareholder, director and president of the predecessor's operations since 1974.
Mr. Schulte has extensive experience in acquiring, developing, owning, managing
and operating economy motels for Supertel or its predecessors since 1978.
Steve Borgmann was a controlling shareholder, director and officer of
the predecessor's operations since 1983. Mr. Borgmann has extensive experience
in acquiring, developing, owning, managing and operating economy motels for
Supertel or its predecessors since 1978.
Richard Herink became executive vice president of Supertel in August
1995. From April 1993 to August 1995, he was executive vice president of
FirsTier Bank, N.A., Norfolk. Prior to April 1993, he was a division president
with Farm Credit Services of the Midlands.
Troy Beatty became chief financial officer of Supertel in December
1996. From March 1994 to December 1996, Mr. Beatty was division controller
with Raytheon Corp. in Amana, Iowa; from March 1990 to March 1994 was assistant
controller with Cooper Industries; and from August 1987 to March 1990 was
senior associate with Coopers & Lybrand.
CERTAIN BUSINESS FACTORS
This 10-K 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 this 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.
Lodging Industry Risks. The lodging industry in general, including
Super 8, Comfort Inns and Wingate Inns, may be adversely affected by such
factors as changes in national and regional economic conditions (particularly
in geographic areas in which the Company has a high concentration of motels),
changes in local market conditions, oversupply of motel space or a reduction in
local demand for rooms and related services, changes in interest rates and the
availability of financing.
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Operating factors affecting the lodging industry generally, including
the Company, include (i) competition from other motels and hotels, (ii)
demographic changes, (iii) the recurring need for renovations, refurbishment
and improvements of motels and increased expenses related to motel security,
(iv) restricted changes in zoning and similar land use laws, and regulations
relating to health, safety, disability and employment laws, (v) changes in
government regulations that influence or determine wages, prices or
construction costs, (vi) changes in the characteristics of motel locations,
(vii) the inability to secure property and liability insurance to fully protect
against all losses or to obtain such insurance at reasonable costs, (viii)
changes in real estate tax rates and other operating costs, (ix) changes in
travel patterns which may be affected by increases in transportation costs or
gasoline prices, weather patterns or construction of highways, and (x) changes
in brand identity and reputation.
Unexpected or adverse changes in any of the foregoing factors could
have a material adverse effect on Supertel's financial condition or results of
operations.
Expansion Risks. Supertel has adopted a strategy to increase the
number of lodging facilities through the development of new motels and hotels
and the acquisition of existing motels. The Company's ability to expand
depends on a number of factors, including the selection and availability of
suitable locations at acceptable prices, the hiring and training of
sufficiently skilled management and personnel, and the availability of
financing. There can be no assurance that financing, or desirable locations
for acquisitions or new development will be available, or if available, will be
on terms acceptable to Supertel. There can be no assurance that the Company's
expansion plans will be completed successfully or that the nature of such
expansion will not be modified to reflect future events or economic conditions.
New motel development is subject to a number of additional risks
including construction delay or cost overruns, risks that properties will not
achieve anticipated occupancy levels or sustain expected room rate levels, and
commencement risks such as receipt of zoning, occupancy and other required
governmental permits and authorizations, which in each case could adversely
affect Supertel's financial performance. Supertel has historically incurred
significant costs relating to pre-opening activities and operating expenses
prior to reaching stabilized levels of occupancy and average daily room rates.
Consequently, as the Company develops new motel properties, the costs
associated therewith may negatively impact Supertel's results of operations.
Acquisitions entail risks that the new properties will fail to perform
in accordance with expectations and that the anticipated costs of renovation or
conversion will prove inaccurate, as well as general investment risks
associated with any new real estate investment. Certain of the properties
acquired by Supertel may not operate as Super 8
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franchisees, and the Company may incur financial and guest acceptance risks in
converting such properties to Super 8 motels or operating such properties under
a franchise agreement with a different motel franchisor.
Risks of Leverage. Supertel's business is capital intensive and the
Company will have significant capital requirements in the future. In the event
Supertel's cash flow and working capital are not sufficient to fund its
expenditures or to service its indebtedness, the Company would be required to
raise additional funds through the sale of additional equity securities, the
refinancing of all or part of its indebtedness, the incurrence of additional
indebtedness, or the sale of assets. There can be no assurance that any of
these sources of funds would be available in amounts sufficient for Supertel to
meet its obligations. Furthermore, Supertel's leveraged capital structure
could limit its ability to finance its acquisition strategy and other capital
expenditures, or to compete effectively or to operate successfully under
adverse economic conditions. In addition, adverse economic conditions could
result in higher interest rates which could increase debt service requirements
on Supertel's floating rate debt and thereby reduce the amounts available for
acquisition and development of lodging facilities.
Management of Growth. Supertel has experienced rapid growth in the
number of motel rooms owned and operated. Such growth has resulted in, and is
expected to continue to create, increased responsibilities for management
personnel, as well as added demands on the Company's operating and financial
systems. In addition, as the Company continues to pursue its growth strategy,
new motels and hotels will be opened in geographic markets in which Supertel
has limited or no previous operating or franchise experience. If the Company
is unable to manage its growth effectively, the Company's financial condition
and results of operations could be materially and adversely affected.
Lodging Industry Competition. The economy segment of the lodging
industry is highly competitive. The success of an economy motel in its market,
in large part, will be dependent upon its ability to compete in such areas as
reasonableness of room rates, quality of accommodations, service level and
convenience of location. Supertel's motels compete with existing motel and
hotel facilities in their geographic markets, as well as future motel and hotel
facilities in proximity to Supertel's properties. The Company's motels
generally operate in areas that contain numerous competitors. Demographic,
geographic or other changes in one or more of the Company's markets could
impact the convenience or desirability of the sites of certain motels, which
would adversely affect the operations of those motels. There can be no
assurance that new or existing competitors will not significantly lower rates
or offer greater convenience, services or amenities or significantly expand or
improve facilities in a market in which the Company's motels compete. In
addition, competition generally reduces the number of suitable motel
acquisition opportunities offered to the Company and increases the
-15-
<PAGE> 16
bargaining power of property owners seeking to sell, which could adversely
affect the availability of or price paid for existing properties acquired by
Supertel.
Seasonality. The motel industry is seasonal in nature. Generally,
motel revenues are greater in the second and third quarters than in the first
and fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the Company's revenues. Quarterly earnings also may be
adversely affected by factors beyond the Company's control, including weather
conditions and economic factors.
Loss of Franchises or Certain Franchisor Services. Each Super 8 motel
owned by Supertel will be subject to a franchise agreement in the form provided
by Super 8 Motels, Inc. Similarly, each Wingate Inn hotel owned by Supertel
will be subject to a franchise agreement with Wingate Inns, L.P. The
continuation of each franchise agreement will be subject to specified operating
standards and other terms and conditions. The failure of Supertel to maintain
such standards or adhere to such other terms and conditions with respect to a
motel or hotel could result in the loss or cancellation of the franchise
agreement covering that property and may have an adverse effect upon the
profitability of a covered property. In addition, the failure of the
franchisor to perform its obligations under each Franchise Agreement may have
an adverse effect on Supertel. See "Business - Relationship With Super 8
Motels, Inc." and "Business - Relationship with Wingate Inns, L.P."
Dependence on Senior Management. Supertel's continued success will
depend to a significant extent upon the efforts and abilities of its senior
management team, including Paul J. Schulte, Steve H. Borgmann and Richard L.
Herink. The loss of their services could have a material adverse affect upon
Supertel's business. Supertel has employment agreements with each of these
individuals.
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the cost of removal or remediation of certain hazardous substances
released on or in its property. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. The presence of such substances, or the
failure to properly remediate any contamination from such substances, may
adversely affect the owner's ability to sell the real estate or to borrow using
the real estate as collateral. In addition to clean-up actions brought by the
federal, state and local agencies, the presence of hazardous waste or materials
on a property could result in personal injury or similar claims by private
plaintiffs. Neither Supertel nor its predecessors have been notified by any
governmental authority of any liability or other claim in connection with any
of its motels and Supertel is not aware of any other
-16-
<PAGE> 17
environmental condition with respect to any of its motels that could be
material to its results of operations. See "Business - Environmental Matters."
ITEM 2. PROPERTIES.
Supertel's executive, training and administrative operations are
located in an owned building containing approximately 18,000 square feet of
space in Norfolk, Nebraska.
The Company's motel properties are all owned. See "Business - Motel
Properties" and "Business - Motel Operations".
ITEM 3. LEGAL PROCEEDINGS.
Supertel from time to time is involved in litigation relating to
claims arising out of its operations in the normal course of business. In the
opinion of management, the ultimate disposition of all litigation involving
Supertel will not have a material impact on Supertel's consolidated financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of stockholders of Supertel during
the fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
The sections entitled "Quarterly Financial Information (Unaudited)" on
page 6 and "Common Stock" on page 25 of the 1996 Annual Report are incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The section entitled "Selected Financial Statement Data" on page 6 of
the 1996 Annual Report is incorporated herein by reference.
-17-
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 7 through 10 of the
1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Supertel Hospitality, Inc.
and subsidiaries, and the independent auditors' report thereon, are
incorporated herein by reference to pages 11 through 24 of the 1996 Annual
Report. Certain supplementary data is incorporated herein by reference to the
section entitled "Quarterly Financial Information (Unaudited)" on page 6 of the
1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in Supertel's independent accountants during
the two most recent fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The section entitled "Election of Directors" in the 1997 Proxy
Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The sections entitled "Director Meetings and Compensation", "Summary
Compensation Table", "Option Grants in 1996", and "Option Exercises in Fiscal
1996 and Year-End Values" in the 1997 Proxy Statement are incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The section entitled "Certain Stockholders" in the 1997 Proxy
Statement is incorporated herein by reference.
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<PAGE> 19
ITEM 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS.
The section entitled "Certain Agreements and Transactions" in the 1997
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) (1) Financial Statements. The consolidated financial
statements of Supertel, and the independent auditors' report
thereon, have been incorporated by reference as set forth in
Item 8 above.
(a) (2) Financial Statement Schedules. No financial
statement schedules are required pursuant to this item.
(a) (3) Exhibits. The Exhibit Index, set forth below, is
incorporated herein by reference.
(b) Reports on Form 8-K. Supertel did not file any reports on
Form 8-K during the last quarter of its fiscal year ended
December 31, 1996.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Norfolk, State of Nebraska, on the ___ day of March, 1997.
Supertel Hospitality, Inc.
By: /s/ Paul J. Schulte
-------------------------------
Paul J. Schulte, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Supertel
Hospitality, Inc. and in the capacities indicated on the ___ day of March,
1997.
<TABLE>
<S> <C>
/s/ Paul J. Schulte
- ------------------------- Director and Chief Executive Officer
Paul J. Schulte
/s/ Steve H. Borgmann
- ------------------------- Director, Executive Vice President and
Steve H. Borgmann Chief Operating Officer
/s/ Richard Herink
- ------------------------- Director and Executive Vice President
Richard Herink
/s/ Troy Beatty
- ------------------------- Senior Vice President (Chief Financial
Troy Beatty Officer and Principal Accounting Officer)
/s/ Joseph Caggiano
- ------------------------- Director
Joseph Caggiano
/s/ Loren Steele
- ------------------------- Director
Loren Steele
</TABLE>
-20-
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C>
3.1 Certificate of Incorporation of Supertel,
incorporated herein by reference to the
Company's Registration Statement on Form
S-1 (Reg. No. 33-75796) filed with the
Securities and Exchange Commission on
March 1, 1994 (the "Registration Statement").
3.2 Bylaws of Supertel, incorporated herein by
reference to the Registration Statement.
4.1 Revolving Term Promissory Note and Loan
Agreement (Modified and Extended) dated
December 30, 1996 between Supertel and
First Bank National Association.................. *
4.2 Loan Agreement dated October 13, 1994
between Supertel and Iowa State Savings
Bank, incorporated herein by reference
to the Company's quarterly report on
Form 10-Q for the quarter ended
September 30, 1994.
10.1 Form of Super 8 Franchise Agreement,
incorporated herein by reference to the
Registration Statement.
10.2 Amendment dated March 4, 1996 to Super 8
Franchise Agreements incorporated herein by
reference to the Company's annual report on
Form 10-K for the year ended December 31,
1995.
10.3 Form of Wingate Inn Franchise Agreement
incorporated herein by reference to the
Company's annual report on Form 10-K for the
year ended December 31, 1995.
10.4 Amended and Restated Territorial
Development Agreement dated June 30,
1994 between Supertel and Super 8 Motels,
Inc., incorporated herein by reference
to the Company's quarterly report on
Form 10-Q for the quarter ended June 30,
1994.
10.5 Amendment dated May 31, 1995 to Amended
and Restated Territorial Development Agreement
between Supertel and Super 8 Motels, Inc.,
incorporated herein by reference to the
Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1995.
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C>
10.6 Supertel's 1994 Stock Option Plan,
incorporated herein by reference to the
Registration Statement.
10.7 Employment Agreements dated May 1, 1995 between
Supertel and each of Paul J. Schulte and Steve H.
Borgmann, incorporated herein by reference to the
Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1995.
10.8 Employment Agreement dated November 6, 1995
between Supertel and Richard L. Herink,
incorporated herein by reference to the
Company's annual report on Form 10-K for the
year ended December 31, 1995.
13.1 Supertel's Annual Report to Stockholders
for the fiscal year ended December 31, 1996...... *
21.1 List of Subsidiaries............................. *
23.1 Consent of KPMG Peat Marwick LLP................. *
</TABLE>
* Filed Herewith
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with
respect to long-term debt are not filed with this annual report on Form 10-K.
Supertel will furnish a copy of any such long-term debt agreement to the
Securities and Exchange Commission upon request.
Management contracts and compensatory plans are set forth as exhibits
10.6 through 10.8.
<PAGE> 1
EXHIBIT 4.1
REVOLVING TERM PROMISSORY NOTE AND LOAN AGREEMENT
(Modified and Extended)
$40,000,000.00 December 30, 1996
For value received Supertel Hospitality, Inc., a Delaware corporation
(hereinafter referred to as "Borrower"), promises to pay to the order of First
Bank, National Association (hereinafter referred to as "Bank"), at its offices
located at 233 South 13th Street, Lincoln, Nebraska 68508, or such other place
as the holder hereof may, from time to time, designate in writing, the
principal sum of Forty Million Dollars ($40,000,000.00) or so much thereof as
is actually advanced hereunder, from time to time, or upon repayment,
readvanced to the Borrower and unpaid, together with interest on the unpaid
principal balance hereof. The rate of interest on the unpaid principal balance
shall be adjusted daily based upon the then current Reference Rate. The
interest rate on unpaid principal balances of Twenty-Five Million Dollars
($25,000,000.00) or less shall be the Reference Rate less One- Fourth of One
Percent (-1/4%). The interest rate on unpaid principal balances in excess of
Twenty-Five Million Dollars ($25,000,000.00) shall be as follows: a) the
Reference Rate less One Fourth of One Percent (-1/4%) effective from the date
hereof through March 31, 1997, b) increased to the Reference Rate plus One
Fourth of One Percent (+1/4%) effective April 1, 1997 through June 30, 1997 and
c) increased to the Reference Rate plus Three Fourths of One Percent (+3/4%)
effective July 1, 1997 and thereafter. Said interest shall be calculated daily
on the unpaid principal balance disbursed hereunder on the basis of a year of
360 days and shall be payable on the first day of each month hereafter until
February 1, 1998, at which time the entire unpaid principal balance hereof, all
accrued interest thereon and any other sums hereunder shall be due and payable
in full.
"Reference Rate", as used herein, at the time of any determination
means the rate of interest per annum which has been publicly announced by First
Bank National Association in Minneapolis, Minnesota ("FBNA") as its "reference
rate", which may be a rate at, above or below the rate or rates at which the
Bank or FBNA lends to other parties. FBNA may, in its sole discretion, change
the Reference Rate. FBNA and Bank are not obligated to give Borrower notice to
any such changes. Adjustments in the interest rate shall be made daily to
reflect increases or decreases in the Reference Rate. In the event the FBNA
ceases the foregoing interest rate index, the interest rate shall be based upon
an alternative comparable rate index selected by Bank, in its sole discretion.
No representation is made that the Reference Rate is either the lowest, the
best or favored rate.
<PAGE> 2
This Note evidences a revolving credit line in the maximum principal
amount of $40,000,000.00 at any one time outstanding in favor of the Borrower.
The sole purpose of this loan is for the refinancing and acquisition of motels,
capital assets and other general corporate purposes. The obligation of the
Bank to loan, and upon repayment, reloan funds hereunder shall at all times be
subject to the limitation that the total principal amount of funds outstanding
hereunder shall not exceed at any one time in the aggregate 70% of the
appraised value of the real estate subject to the Collateral Security (as
hereinafter defined). The foregoing limitation is hereafter sometimes referred
to as the "LTV Ratio".
The Borrower may at anytime, prepay this Note in full or make partial
prepayments therein, without penalty or premium. The borrower agrees that it
shall pay to the Bank beginning January 1, 1997, and continuing on the first
day of each and every third calendar month thereafter during the term of this
Note an unused commitment fee in arrears on the average daily amount of unused
but available credit hereunder during the three calendar month period
immediately preceding the date such payment is due. The fee shall be computed
as follows: on the amount of daily average of unused available credit a sum
equal to 1/4 of one percent per annum. Unused available credit shall mean the
difference between $40,000,000.00 ($25,000,000.00 from October 1, 1996 to the
date of this Note) and the outstanding principal balance of funds disbursed to
Borrower hereunder at any time.
Borrower covenants that the Loan Debt Service Coverage Ratio shall not
be less than 1.50 at all times. Loan Debt Service Coverage Ratio as used
herein shall be defined as EBITDA (earnings from the real estate subject to
Collateral Security before interest expense, income tax, depreciation and
amortization)/(the principal and interest payable on this loan during the next
twelve months determined as if this loan required equal monthly payments
amortized over fifteen years) measured quarterly based on the last four
quarters; provided, Borrower's proforma income and expenses shall be used for
the first twelve months following the acquisition date of properties acquired
hereafter or the placed-in- service date of newly constructed properties, with
actual EBITDA information replacing the comparable proforma information at the
end of each quarter during such twelve month period.
Borrower covenants that the Consolidated Debt Service Ratio shall not
be less than 1.50 at all times. Consolidated Debt Service Coverage Ratio as
used here shall be defined as EBITDA (all earnings of Borrower from all assets
before interest expense, income tax, depreciation and amortization)/(all
indebtedness of Borrower determined as if repayment required equal monthly
payments amortized over fifteen years) measured quarterly based on the last
four quarters; provided, Borrower's proforma income and expenses shall be used
for the first twelve months following the acquisition date of properties
acquired hereafter or the placed-in-service date of newly constructed
properties, with actual EBITDA information
2
<PAGE> 3
replacing the comparable proforma information at the end of each quarter during
such twelve month period. For purposes of this covenant, the terms
"indebtedness" and "debt" shall refer only to the current portion and long-term
portion of borrower's debt for borrowed money.
Borrower covenants that any motel owned and operated by Borrower shall
not have debt per room in excess of the following amounts: a) Super 8 facility
$15,000.00 debt per room maximum, b) Comfort Inn facility $16,000.00 debt per
room maximum and c) Wingate Inn facility $25,000.00 debt per room maximum. The
foregoing is hereafter referred to as the Debt Per Room Limits. For purposes
of this covenant, the terms "indebtedness" and "debt" shall refer only to the
current portion and long-term portion of Borrower's debt for borrowed money.
The obligations of Bank to make the initial advance or future advances
hereunder shall be subject to the conditions that Bank shall have received at
the time of such advance or at the time of any previous advance:
1) Delivery of Deeds of Trust (or Mortgages if preferred by
Bank), Assignment of Leases and Rents and Financing Statements
and Security Agreements (collectively referred to in this
Agreement as the "Collateral Security"), in form satisfactory
to Bank granting Bank a first and paramount lien upon real
estate operated as motels by Borrower and all furniture,
fixtures, equipment, personal property, located thereon and
all income, rents and accounts therefrom, such motels to be
selected by Borrower and acceptable by Bank and having an
aggregate appraised value sufficient to satisfy the LTV ratio.
2) Current appraisals of the real estate subject to the
Collateral Security showing that the total principal amount of
funds outstanding hereunder including such advance would not
exceed the LTV Ratio. The appraisals shall be completed by a
designated appraiser acceptable to Bank conforming to Uniform
Standard Professional Appraisal Practice (USPAP) standards.
The loan amount shall not exceed 70% of the appraisal amount.
The appraisal will be directed to and for the benefit of the
Bank with Borrower being responsible for the cost of the
appraisal. Appraisals accepted by Bank on property subject to
Collateral Security on prior advances do not need to be
updated for subsequent advances.
3) Certified copies of all corporate action taken by the Borrower
authorizing the execution of this Note, the Collateral
Security contemplated herein and the transaction contemplated
hereby and such other documents relating thereto as Bank may
reasonably request.
3
<PAGE> 4
4) A copy of the Certificate of Incorporation and a copy of the
Bylaws of the Borrower currently certified by Borrower's
secretary or other appropriate officer.
5) Favorable written opinion of the counsel to Borrower addressed
to Bank, in form and substance acceptable to Bank, relating to
Sections 1, 2, 3 and 4 of the representations and warranties
set forth hereinbelow, provided that as to the matter set out
in Sections 3 and 4 that opinion may be limited to matters of
which counsel has knowledge.
6) Delivery of Phase 1 Environmental Assessment on all real
estate serving as collateral and, if requested by Bank, or
upon the recommendation of Borrower's environmental
consultant, a Phase 2 Environmental Assessment, with findings
of Assessments acceptable to Bank, and indemnifications of
Bank for any loss as a result of environmental matters in form
satisfactory to Bank.
7) Delivery of an acceptable survey on all real estate assets
serving as collateral.
8) A Mortgage Title Insurance Commitment and Policy in the full
amount of the loan value of each property issued by insurers
acceptable to Bank reflecting fee simple indefeasible title of
the real estate subject to the Collateral Security in the name
of the Borrower and insuring Bank's Collateral Security to be
a valid first lien on the real estate with standard exceptions
deleted and such other exceptions only as satisfactory to Bank
with such endorsements as Bank may reasonably request.
9) Documentary evidence from the Borrower satisfactory to Bank
that the Loan Debt Service Coverage Ratio and Consolidated
Debt Service Ratio will not be less than 1.50.
10) Documentary evidence from the Borrower satisfactory to the
Bank that the Debt Per Room Limits will not be exceeded.
The obligation of the Bank to make each subsequent advance hereunder is subject
to the following and further conditions precedent at the time of each borrowing
hereunder:
1) Borrower shall not be in default hereunder and shall have
complied in all material respects with all of the terms,
covenants and conditions set forth herein.
2) The representations and warranties contained herein shall be
true with the same effect as though such
4
<PAGE> 5
representations and warranties had been made at the
time of the making of such advance.
3) Bank having received from Borrower the items set forth in
paragraph 1 through 9 for the initial advance as stated above
and further receiving the items set forth in paragraph 1, 2,
6, 7 and 8 thereof as to any additional real estate or
personal property that will be subject to the Collateral
Security and the execution of documents incident thereto not
previously provided.
4) Documentary evidence from the Borrower satisfactory to Bank
that the Loan Debt Service Coverage Ratio and Consolidated
Debt Service Ratios will not be less than 1.50.
5) Documentary evidence from the Borrower satisfactory to the
Bank that the Debt Per Room Limits will not be exceeded.
Borrower hereby represents and warrants:
1) Borrower is a corporation duly organized and existing under
the laws of the State of Delaware without limit as to the
duration of its existence, and is authorized and in good
standing to do business in the State of Nebraska and in any
and all states in which the property subject to the Collateral
Security is located; the Borrower has corporate powers,
adequate authority, rights and franchises to own property and
to carry on its business as now conducted, and is duly
qualified and in good standing in each state where the
property subject to the Collateral Security is located, where
such qualification is required; and Borrower has the corporate
power and adequate authority to make and carry out this Note
and to execute and deliver the Collateral Security.
2) The execution, delivery and performance of this Note and other
documents provided for herein, are duly authorized by all
requisite action on the part of Borrower and do not require
the consent or approval of any governmental body or other
regulatory authority; are not in contravention of or conflict
with any applicable law or regulation which Borrower is aware
of or any term or provision of Borrower's Certificate of
Incorporation or Bylaws; and this Note is, and other documents
provided for herein, when delivered for value received will be
the valid, binding and legally enforceable obligation of
Borrower and in accordance with their terms, except to the
extent enforcement may be limited by bankruptcy, insolvency,
or laws affecting creditors rights generally and subject to
general principles of equity.
5
<PAGE> 6
3) The execution, delivery and performance of this Note and the
execution and delivery of the other documents provided herein,
are not in contravention of or conflict with any agreement,
indenture or undertaking to which the Borrower is a party or
any of its property and does not cause any lien, charge or
other encumbrance to be created or imposed upon any such
property other than the lien granted to Bank under the
Collateral Security.
4) There is no litigation or other proceeding pending or
threatened against Borrower which would have a materially
adverse affect upon the transactions contemplated herein or
Borrower's ability to perform its obligations hereunder and
Borrower is not in default with respect to any order, writ,
injunction, decree or demand of any court or other
governmental or regulatory authority or any financial
obligations in excess of $250,000.00.
5) The balance sheet of Borrower as of September 30, 1996 and the
related financial information of the three month period ended
on that date, and the Form 10-Q for the quarter ended
September 30, 1996, copies of which have heretofore been
delivered to Bank by Borrower, and all of the statements and
data submitted in writing by Borrower to Bank in connection
with the request for the credit granted by this Note are true
and correct in all material respects; said balance sheet and
financial information fairly present the financial condition
of Borrower for the period covered thereby in all material
respects, and have been prepared in accordance with generally
accepted accounting principles on a basis consistently
maintained. Since September 30, 1996, there have been no
changes in the assets or the liabilities or financial
condition of Borrower, other than changes in the ordinary
course of business and such changes as have not been
materially adverse changes except as previously disclosed in
writing to Bank. Borrower has no knowledge of any
liabilities, contingent or otherwise, required to be reflected
in said balance sheet and not so reflected, and Borrower has
not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet,
(other than in the ordinary and normal course of its business)
which may have a materially adverse affect upon its financial
condition, operation or business as now conducted except as
previously disclosed in writing to Bank.
6) Borrower has good title to its assets, and the same are not
subject to any liens or encumbrances other than those set
forth in the financial information as of September 30, 1996,
or previously disclosed to Bank in writing.
6
<PAGE> 7
7) Borrower has filed when due all applicable federal, state and
local tax returns. Borrower has paid all taxes and
governmental charges assessed on or existing against the
property or the business of Borrower other than taxes or
charges:
i) The payment of which is not yet due, or if due, are
not yet delinquent; or
ii) Which have not yet been determined or which are being
contested in good faith with adequate reserve for
payment acceptable to Bank.
To the best knowledge of Borrower there are currently no Internal Revenue
audits or review proceedings pending, threatened or proposed against Borrower.
Borrower agrees that so long as any credit hereunder shall be available and
until payment in full of all sums due hereunder, Borrower shall, unless Bank
shall otherwise consent in writing:
1) Do all things necessary to maintain and keep in full force and
effect its corporate existence, its right to do business and
own property and keep in full force and effect its material
franchises, licenses, permits, governmental authorizations,
and other authority adequate for the conduct of its business;
comply in all material respects with all applicable laws and
regulations; maintain its properties, equipment and facilities
in good repair, working order and condition, excepting the
effects of the ordinary wear and depreciation arising from
lapse of time or use with appropriate maintenance or arising
from damage by fire, other casualties, and make or cause to be
made all necessary and proper repairs thereto and their
replacements thereof; and conduct its business in an orderly
manner without voluntary interruption.
2) Pay and discharge, before the same become delinquent and
before penalties accrue thereon, all taxes assessments and
governmental charges upon or against it or any of its
properties, and all its other tax liabilities at any time
existing, except to the extent and so long as:
i) The same are being contested in good faith and by
appropriate proceedings in such manner as not to
cause any materially adverse affect upon its
financial condition or the loss of any right of
redemption from any sale thereunder; and
ii) It shall have set aside on its books reserves
(segregated to the extent required by sound
7
<PAGE> 8
accounting practice) acceptable by Bank as adequate
with respect thereto.
3) Maintain a system of accounting in accordance with generally
accepted accounting principles on a basis consistently
maintained; permit representatives of Bank to have access to
and to examine its properties, account books and records at
all reasonable times; and furnish Bank:
i) As soon as available, and in any event within 90 days
after the close of each fiscal year of Borrower, an
audit quality financial statement of Borrower as of
the close of and for such fiscal year, all in
reasonable detail and stating in comparative form the
figures at the close of and for the previous fiscal
year, with the opinion of a certified public
accountant satisfactory to Bank;
ii) Within 45 days after the end of each calendar
quarter, Borrower prepared financial statements;
iii) Promptly upon the receipt thereof by Borrower, copies
of any detailed audit reports submitted to Borrower
by independent accountants in connection with each
annual or interim audit or the accounts of Borrower;
iv) Promptly upon the request of Bank, such monthly
financial information as may be reasonably requested
by Bank and prepared by personnel of the Borrower;
and
v) Promptly, with all credit, financial and other
information respecting the business, properties, or
condition or operations, financial or otherwise of
Borrower as Bank may from time to time reasonably
request.
4) Permit any officer and duly authorized employees or
representatives of Bank to visit and inspect any of its
properties and to discuss its affairs, finances and accounts
with its officers, all as often as Bank may reasonably
request, and so long as such does not significantly interfere
with normal operations. The cost associated with inspections
shall be paid by Borrower.
5) Maintain and provide for adequate property, liability,
workmen's compensation, flood and other forms of insurance, in
good and responsible insurance companies, for all insurable
property owned by Borrower including all collateral set forth
in the Collateral Security, against all liability, loss or
damage from fire or such
8
<PAGE> 9
other hazards or risks as are customarily insured against by
companies similarly situated and operating like property.
Borrower will provide Bank with appropriate certificates of
insurance with loss payable in favor of Bank showing Borrower
and Bank as insureds as their interest may appear in
connection with the items of collateral subject to the
Collateral Security.
6) Pay any reasonable legal fees associated with the drafting of
documents, preparation of Collateral Security, title
insurance, costs of perfection of security interests and the
like in connection with this loan.
7) Pay all reasonable costs and expense of Bank, including but
not limited to appraisal, title insurance, filing fees,
mortgage registration fees, legal and travel associated with
the closing of this loan or any advances hereunder.
8) Maintain at all time a Loan Debt Service Coverage Ratio and
Consolidated Debt Service Coverage Ratio of at least 1.50.
9) Maintain at all times debt per room less than the Debt Per
Room Limits.
Each of the following shall constitute an Event of Default:
1) failure to pay any sum due under this Note within fifteen days
of the due date thereof; or
2) failure to comply with the Loan Debt Service Coverage Ratio or
Consolidated Debt Service Coverage Ratio covenants; or
3) if Borrower merges with another organization, company,
corporation, partnership or other entity, or acquires any of
the same, without the Bank's prior written approval, unless
Borrower is the surviving entity; or
4) if Borrower fails to correct non-compliance with the Americans
with Disabilities Act (ADA) within six months after date of
notification of non-compliance on any real estate subject to
the Collateral Security; or
5) if Borrower fails to cure a default in the performance of any
of the other covenants, or conditions, or representations of
this Note or the Collateral Security within thirty days after
written notice from Bank; or
6) if any statement or certificate at any time given in writing
pursuant hereto or in connection herewith, shall
9
<PAGE> 10
be false in a material respect, and if such matter is
correctable, it is not corrected within fifteen days after
notice from Bank; or
7) if Borrower should become insolvent, or admit in writing its
inability to pay its debts generally as they become due or,
make an assignment for the benefit of creditors; or, apply for
or consent to the appointment of a receiver or trustee for it
or for a substantial part of its property or business; or,
such a receiver or trustee shall otherwise be appointed and
shall not be discharged for sixty days after such appointment;
or
8) if bankruptcy, insolvency or reorganization or liquidation
proceedings or the proceedings for the relief under any
bankruptcy law, code; or, any law for the relief of debtors
shall be instituted by or against Borrower and, if instituted
against, shall be consented to or shall not be dismissed
within sixty days after such institution; or
9) if Borrower fails to cure within thirty days any default under
a financial obligation with any other entity or person and
such financial obligation involves $250,000.00 or more; or
10) failure to comply with the Debt Per Room Limits.
Upon the occurrence of an Event of Default then, or any time thereafter, at the
option of the holder hereof, the Bank or said holder hereof may terminate all
credit hereunder and all obligations of Bank to make any advances hereunder;
and, in addition, at the option of Bank or the holder hereof, make all sums of
principal and interest then remaining unpaid hereunder immediately due
and payable in full, all without demand, present or notice, all of which hereby
are waived. From and after the maturity of this Note or from and after an
Event of Default the entire principal then remaining unpaid shall bear interest
at the rate of three percent (3%) per annum above the note rate then in effect
until the same is paid. Failure to exercise any of the foregoing options or
any other right the Bank may be entitled to in the Event of Default, shall not
constitute a waiver of the right to exercise such option, or any other right,
in the event of any subsequent Event of Default, whether the same or different
in nature.
In the event the monthly payments of interest or the quarterly
payments of unused commitment fees are not paid within fifteen days of the due
date thereof, a late charge of five percent (5%) of the amount of the
delinquent payment may be assessed by the Bank to cover the extra expense in
handling the delinquent payment. The Bank shall not be obligated to accept any
late payments unless
10
<PAGE> 11
accompanied by the full amount of the late charge assessed by the Bank as
provided for herein.
Borrower hereby acknowledges that Bank shall have, at all times, a
security interest in and a right of setoff against any deposit balances, or the
property of the Borrower, or any endorser or guarantors hereof, in the
possession of the Bank or the holder hereof; and Bank may at any time, without
notice, apply the same against payment of this Notice or any obligations of the
Borrower, or any guarantor or endorser to the Bank, regardless of the existence
of or amount of any other collateral held by Bank.
The holder hereof may, without notice and without release of the
liability of any maker, endorser, surety or guarantor, add or release one or
more such parties or release any security in whole or in part. The holder
hereof shall not be liable for, or be prejudiced by, failure to collect or the
lack of diligence in bringing suit upon this Note or any modification hereof.
The Borrower, endorser, sureties and guarantors of this Note, as well
as all persons becoming liable hereon, severally waive presentment for payment,
demand, protest, notice of protest, and notice of dishonor.
As herein used, the word "holder" shall mean the payee or other
endorsee of this Note who is in possession, or the bearer hereof if this Note
is at any time payable to bearer.
Borrower agrees to pay, to the extent permitted by law, all costs,
charges, legal fees, and costs incurred by Bank in collecting or enforcing this
Note, or the Collateral Security. This Note shall be deemed to be made under,
and construed in accordance with and governed by, the laws of the state of
Nebraska.
Borrower acknowledges that the Bank may, at its option, grant a
participation interest in, or assign all or a part of, the obligation evidenced
hereby to such parties as Bank shall determine in its sole discretion;
provided, (i) prior to an event of default Bank shall act as the agent for
participants for the purposes of servicing and administration of the loan, (ii)
such participation shall be in compliance with any laws applicable to Bank and
(iii) such participation shall be made only to FDIC insured institutions or
their affiliates.
This Note constitutes a modification, extension and renewal of that
certain Revolving Term Promissory Note and Loan Agreement dated December 22,
1994, and the Revolving Term Promissory Note and Loan Agreement (Modified and
Extended) dated December 1, 1995, each in the original principal amount of
$15,000,000.00 and the Revolving Term Promissory Note and Loan Agreement dated
May 28, 1996 (Modified and Extended) in the original principal amount of
$25,000,000.00 (herein collectively referred to as "Prior Notes"). This Note
is executed and delivered not in payment of the Prior
11
<PAGE> 12
Notes but for the purpose of modifying, extending and renewing the Prior Notes
upon the terms and conditions herein stated. All existing Collateral Security
for the Prior Notes shall secure this Note as well.
Borrower acknowledges that this Note is to be secured by assets in
various states evidenced by various Collateral Security documents filed in each
state and that the Bank's remedies in the event of a default may differ under
varying state laws and procedures. Borrower agrees that the Bank shall have
the greatest flexibility, collection rights and alternatives available.
Without limiting or otherwise restricting any other rights of the Bank,
pursuant to the Collateral Security documents or applicable law, the Borrower
agrees to the following. In the event of a default, Bank shall have the
option: 1) to seek recovery of the collateral by foreclosure (judicial or
nonjudicial), exercise of power of sale, replevin, self help, appointment of
receiver or as otherwise permitted in the Collateral Security documents or
under applicable law (any of which is hereinafter referred to as "foreclosure")
and/or, 2) to enforce payment of this Note by suit, deficiency proceedings or
any other legal remedies allowable (any of which is herein referred to as
"payment proceedings"). Bank shall have the option to pursue foreclosure of
all, any, or none of the properties pledged as collateral concurrently, at
differing times, or any time, in its sole discretion and Bank may in each or
any foreclosure, seek recovery of all or any part of the unpaid amount of this
Note, in Bank's sole discretion. If Bank pursues foreclosure against property
for an amount in excess of the amount realized by Bank from the foreclosure of
said property and if there are any restrictions or limitations on pursuing a
deficiency, the restriction or limitation shall not prevent or preclude Bank
from seeking recovery of the unpaid amount in foreclosure against other
properties or payment proceedings in any other jurisdictions, it being the
intention of the parties that the Note be fully cross-collateralized by all
Collateral Security. Borrower agrees that any statute of limitations on
deficiency actions for payment proceedings shall be tolled and suspended until
ninety days after Bank has completed the last of any foreclosures that Bank
elects to pursue. Notwithstanding the fact that Bank may maintain foreclosures
each seeking recovery of the full unpaid amount of this Note or amounts in the
aggregate exceeding the total amount owed, the Bank's total recovery from all
foreclosures or payment proceedings or any other legal or equitable remedies
shall not exceed the total amount of all amounts owing under this Note.
This Agreement inures to the benefit of, and binds the Borrower and
Bank and their successors and assigns.
If any provisions of this Note or any other document issued in
connection herewith should be unenforceable or invalid, such provisions shall
be deleted and the reminder of the provisions shall be enforced just as if the
deleted provisions had never been made a part hereof or such other document.
12
<PAGE> 13
SUPERTEL HOSPITALITY, INC.,
A Delaware Corporation
BY: /s/ Paul J. Schulte
-------------------
Paul J. Schulte, President
STATE OF NEBRASKA )
) ss.
COUNTY OF MADISON )
The foregoing instrument was acknowledged before me this 30th day of
December, 1996, by Paul J. Schulte, President of Supertel Hospitality, Inc., a
Delaware corporation, on behalf of the corporation.
/s/ Patricia Milander
---------------------------------
Notary Public
<PAGE> 1
EXHIBIT 13.1
<PAGE> 2
EXHIBIT 13
[SUPERTEL HOSPITALITY, INC. LOGO]
SUPERTEL
HOSPITALITY, INC.
A leading developer/owner/operator
of limited-service lodging properties
1996 ANNUAL REPORT
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
1996 1995 1994(1)
-----------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 37,832 $ 31,362 $ 25,161
Operating income 9,101 8,386 6,576
Net income 3,371 3,624 2,925
Net income per share $ 0.70 $ 0.75 $ 0.70
Weighted average common shares outstanding 4,840,000 4,840,000 4,206,575
Number of motels (at year end) 59 48 41
Number of motel rooms (at year end) 4,156 3,295 2,846
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes pro forma after tax nonrecurring gain of $131,333, or $0.03 per
share, and an $860,706 benefit, or $0.21 per share resulting from the
change in accounting for income taxes.
[THREE BAR GRAPHS]
<TABLE>
<CAPTION>
ROOMS RENTED AVERAGE DAILY ROOM RATE OCCUPANCY RATE
<S> <C> <C> <C>
92 563,418 $34.32 70.0%
93 603,367 35.80 70.5%
94 667,545 37.69 69.4%
95 793,151 39.54 69.6%
96 903,413 41.37 65.7%
</TABLE>
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 1
<PAGE> 4
FELLOW STOCKHOLDERS:
1996 was a year of substantial growth and change for Supertel. Revenues were up
strongly and we continued to generate healthy profitability. Earnings, however,
declined from the prior year due to the costs associated with an accelerated
property development program.
FINANCIAL RESULTS
For the year ended December 31, 1996, total lodging revenues increased 20.6
percent to $37.8 million from $31.4 million in 1995. Operating income
comparisons were also positive -- ahead 8.6 percent to $9.1 million -- but
increased less than revenue growth. While most of the expense items expanded
roughly in line with sales growth, depreciation and amortization increased 38.0
percent, due to the high level of property additions. Earnings before interest,
taxes and depreciation (EBITDA) -- an important measure of our ability to
generate cash -- increased 15.1 percent.
Due to higher debt levels, higher interest expense and lower occupancy,
net income declined 7.0 percent to $3.4 million in 1996 and $3.6 million in
1995. Earnings per share were $0.70 compared to $0.75 in 1995.
Occupancy rates were down year-over-year. For all properties, occupancy
declined to 65.7 percent in 1996 from 69.6 percent in 1995. For seasoned
properties -- those owned and operated for more than one year -- occupancy was
68.3 percent versus 70.7 percent.
Lower occupancy rates were offset by a higher average daily room rate
(ADR), which increased 5.9 percent to $41.87. As a result, revenue per
available room (REVPAR) was essentially flat at $27.49 in 1996 compared with
$27.52 in 1995.
The pressure on earnings in 1996 was largely the result of the high
level of new property development in Texas. However, progress made during the
year confirms our belief that the expansion program in Texas was and continues
to be a sound strategic move.
In 1996, we opened four Super 8 motels in Texas, bringing our total
number of properties in that state to nine. Our rapid expansion in Texas meant
that we had a larger number of unseasoned properties that were new competitors
in the marketplace. Yet, we see many favorable trends in the Texas market. As a
group, newer Texas
[PHOTO]
Supertel's management team --
(left to right), Steve Borgmann,
Paul Schulte, Richard Herink
and Troy Beatty.
2 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 5
additions are performing at a higher level than did our first two Texas
properties in College Station and Waco when they opened in 1994. Super 8 VIP
card sales are strong, which bodes well for our ability to generate repeat
business. In addition, industry data support the fact that the Dallas area is
still a favorable market in terms of the supply/demand outlook for lodging
properties.
[TEXAS MAP]
We have increased our marketing initiatives, including more advertising and
direct selling efforts in Texas. As a result, business has improved
significantly. Fourth quarter occupancy rates at our Texas properties were
approximately 10 percentage points higher than in the year-ago period. If fourth
quarter trends continue, Texas should contribute positively to earnings in 1997.
[WISCONSIN MAP]
- - Supertel Hospitality Lodging
SIGNIFICANT DEVELOPMENTS
In last year's annual report, we indicated that our goal was to add 400 to 600
new rooms in 1996. At mid-year 1996, we raised that goal to 700 to 900 rooms. By
year-end 1996, we had added 861 rooms, bringing the total count to 4,156 rooms,
an increase of 26.1 percent for the year.
In 1996, we expanded into Wisconsin, our tenth Midwestern state. Supertel
acquired six properties in that state -- two Comfort Inns and four Super 8
motels. All of these properties are of "Supertel quality," with well-maintained
facilities in good locations. With less than one-half year under our ownership,
the group contributed positively to earnings in 1996 and, with a full year in
1997, we project an even greater contribution.
In 1996 we also acquired a 48-room Super 8 in Parsons, Kansas. The Parsons
location fits nicely into our existing cluster of Kansas motels and, as a
result, has allowed us to generate synergies in management and marketing.
Another success for us in 1996 was the completion of two property
additions. We added 35 rooms to our "Cornhusker" Super 8 motel in Lincoln,
Nebraska, and 14 rooms to our Marshall, Missouri, Super 8. The economics of
property additions are quite favorable, and risks are minimized by our
existing presence in and knowledge of the market. Furthermore, the incremental
cost per room of an addition is less than the construction of new property. At
Lincoln and Marshall, cash flow increased significantly after the room
additions.
A NEW POSITIONING
As you can see from the front cover of this annual report, we have changed the
way we are positioning the company. As a result, new opportunities are now open
to us. In the past, we described ourselves as one of the largest franchisees of
the Super 8 economy motel chain. Today, we are the second largest Super 8
franchisee. Additionally, we are becoming a leading developer, owner and opera-
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 3
<PAGE> 6
add 400 to 600 new rooms in 1997. That plan includes 202 rooms at the two
Wingate Inns.
Acquiring existing properties continues to be part of our growth
strategy. We continue to see good opportunities to acquire quality properties
at attractive prices. But as always, we will remain very selective and rigorous
in our evaluation process.
An expanding supply of properties made 1996 a challenging year for the
limited-service lodging industry. We anticipate another competitive year in
1997 in terms of industry-wide supply/demand conditions. Nonetheless, as we
have done successfully in the past, we will continue to focus on balancing
occupancy and the ADR in a way that maximizes REVPAR and cash flow from each
property.
For Supertel, the talent and dedication of our employees is the driving
force behind our success. While we have always known that, it is rewarding when
such performance is recognized by others. Every year, the Super 8 chain selects
a "Manager of the Year." Of the more than 1,400 Super 8 motels nationwide,
Supertel managers have been named Manager of the Year in three of the past 10
years, including last year when Nona West, manager of our Lincoln "Cornhusker"
Super 8, was selected for this important honor. Congratulations, Nona.
Finally, thank you to our fellow shareholders. With your support, we
have been able to pursue an expansion strategy that we expect will generate
significant benefits in terms of our long-term growth and profitability.
Paul J. Schulte
- --------------------------------
Paul J. Schulte
President and CEO
Steve H. Borgmann
- --------------------------------
Steve H. Borgmann
Executive Vice President and COO
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 3
<PAGE> 7
SELECTED FINANCIAL STATEMENT DATA
& QUARTERLY FINANCIAL INFORMATION
Supertel Hospitality, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL STATEMENT DATA
(Dollars in thousands, except per share data)
1996 1995 1994(1) 1993(1) 1992(1) 1991(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $37,832 $31,362 $25,161 $ 21,603 $19,337 $16,638
Operating Income 9,104 8,386 6,576 5,864 4,789 3,888
Net income before nonrecurring
gain and accounting change 3,371 3,624 2,925(2) 2,142 1,386 717
Net income 3,371 3,624 3,937 2,142 1,386 717
Net income per share before
nonrecurring gain and
accounting change $ 0.70 $ 0.75 $ 0.70(2) $ 0.71 $ 0.46 $ 0.24
Net income per share 0.70 0.75 0.94 0.71 0.46 0.24
Cash dividends per share -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA;
Working capital (deficit) $ 3,463 $ 3,468 $ 454 $(13,967) $(5,526) $(3,408)
Total assets 92,276 67,928 48,846 37,781 33,603 31,402
Long-term debt (excluding
current portion) 58,895 38,188 24,045 19,207 25,220 24,993
Stockholders' equity 28,759 25,388 21,783 2,337 918 791
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (Unaudited)
(Dollars in thousands, except per share data)
Stock market prices
Motel Operating Net Net income -------------------
revenues income income per share Shares High Low
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
First $ 7,257 $1,364 $ 426 $0.09 4,840 $11.25 $ 9.75
Second 9,469 2,540 1,050 0.22 4,840 11.75 8.77
Third 11,442 3,155 1,281 0.26 4,840 11.00 9.00
Fourth 9,664 2,045 614 0.13 4,840 9.63 8.88
- -----------------------------------------------------------------------------------------------------------------------------------
Year 37,832 9,104 3,371 0.70 4,840 11.75 8.77
- -----------------------------------------------------------------------------------------------------------------------------------
1995
First 6,473 1,295 446 0.09 4,840 14.25 12.25
Second 8,401 2,575 1,150 0.24 4,840 14.25 12.25
Third 9,050 2,849 1,402 0.29 4,840 13.50 12.00
Fourth 7,438 1,667 626 0.13 4,840 13.88 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Year 31,362 8,386 3,624 0.75 4,840 14.25 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income per share is computed independently for each of the quarters.
Therefore, the sum of the quarterly income per share may not equal the total
for the year.
(1) Supertel's predecessors were taxed as either Subchapter S corporations or as
partnerships prior to the initial public offering in May 1994. Accordingly,
their historical financial statements contain no provision for federal and
state income taxes. Pro forma net income and per share data reflect a combined
federal and state tax rate of 40% prior to the date of the IPO.
(2) Excludes pro forma after-tax nonrecurring gain on involuntary conversion of
$151,333, or $0.03 per share, and an $860,706 benefit, or $0.21 per share,
resulting from the change in accounting for income taxes.
The Company has not paid any cash dividends on the common stock and does not
expect to pay any dividends in the near future. The Company anticipates that any
cash flow generated from operations will be used to expand the Company's
business.
6 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Supertel Hospitality, Inc. and Subsidiaries
OVERVIEW
Supertel revenues are derived primarily from motel operations. The following
table sets forth, for the periods indicated, certain data as percentages of
motel revenues:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Motel revenue:
Lodging revenues 96.8% 96.5% 96.4%
Other lodging activities 3.2 3.5 3.6
-----------------------------------------
Total motel revenues 100.0 100.0 100.0
-----------------------------------------
Operating expenses:
Payroll and payroll taxes 23.9 23.7 23.4
Royalties and advertising fund 6.4 6.3 6.3
Other lodging 27.9 26.4 26.2
-----------------------------------------
Total lodging expenses 58.2 56.4 55.9
Other lodging activities 2.4 2.5 2.5
Depreciation and amortization 8.3 7.2 7.7
General and administrative 7.0 7.2 7.8
-----------------------------------------
Total operating expenses 75.9 73.3 73.9
-----------------------------------------
Operating income 24.1 26.7 26.1
-----------------------------------------
Other income (expense):
Interest expense (9.3) (7.6) (7.1)
Miscellaneous income -- -- 1.4
-----------------------------------------
(9.3) (7.6) (5.7)
-----------------------------------------
Net income before taxes 14.8% 19.1% 20.4%
-----------------------------------------
</TABLE>
RESULTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
Total motel revenues for 1996 were $37,832,388, an increase of $6,470,875 or
20.6% over total revenues of $31,361,513 for 1995. The increase were primarily
due to an increase of $6,344,901 in revenue from lodging operations. Revenues
from other lodging activities, which consist of telephone and vending revenues,
increased $125,974.
The increase in revenue from lodging operations resulted primarily from renting
903,643 rooms in 1996 compared to 793,151 rooms rented in 1995, an increase of
110,492 or 13.9%. The increase in revenue from other lodging activities
resulted from the increase in the number of rooms rented. The increase in rooms
rented resulted primarily from the number of rooms added during the year. The
Company opened four new Super 8 motels in Texas, purchased four existing Super
8 motels in Wisconsin and purchased one Super 8 motel in Kansas. In addition,
two Comfort Inn motels were purchased in Wisconsin.
Revenues from lodging operations were favorably impacted by an increase in the
average daily room rate. The average daily room rate was $41.87 for 1996
compared to $39.54 for 1995, an increase of $2.33 or 5.9%.
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Supertel Hospitality, Inc. and Subsidiaries
Motel revenues were also impacted by a decrease in occupancy. Occupancy as a
percentage of rooms available decreased to 65.7% in 1996 from 69.6% in 1995.
New motels generally have lower occupancy rates than those experienced by
seasoned properties. The occupancy rate for seasoned properties (properties
owned more than one year) in 1996 was 68.3% versus 70.7% for 1995. Revenue per
available room (REVPAR) for 1996 decreased to $27.49 from $27.52 in the prior
year.
Lodging expenses for 1996 were $22,023,380 compared to $17,693,355 for 1995, an
increase of $4,330,025 or 24.5%. The increase in lodging expenses was due
primarily to the increase in number of rooms available to rent and rooms
rented. Lodging expenses as a percentage of motel revenues for 1996 increased
to 58.2% from 56.4% for 1995. The increase in expenses resulted from expenses
incurred in connection with the properties acquired/opened in the fourth
quarter of 1995 and with those opened in 1996. The increase in lodging expense
as a percentage of lodging revenue was impacted by the decrease in occupancy,
which resulted in lower total revenue to cover fixed costs.
Depreciation and amortization expenses for 1996 were $3,132,866 compared to
$2,269,604 for 1995, an increase of $863,262 or 38.0%. The increase was
primarily due to an increase in the number of motel properties.
General and administrative expenses for 1996 were $2,665,794 compared to
$2,243,505 for 1995, an increase of $422,289 or 18.8%. The increase in general
and administrative expenses was due primarily to the expansion of staff to
handle current and anticipated motel growth.
Interest expense increased by 48.5% or $1,158,266 to $3,545,296 for 1996 from
$2,387,030 in 1995. The increase was primarily due to the additional borrowings
for acquisitions and construction. Average bank borrowings for 1996 increased
to $45,320,603 from $29,217,517 for 1995, an increase of $16,103,086 or 55.1%.
For the reasons described above, net income decreased 7.0% to $3,371,247 for
1996 from $3,624,307 for 1995. Net income per share from continuing operations
for 1996 was $0.70 compared to $0.75 for 1995. Weighted average shares
outstanding stayed constant at 4,840,000.
For the Years Ended December 31, 1995 and 1994
Total motel revenues for 1995 were $31,361,513, an increase of $6,200,402 or
24.6% over total revenues of $25,161,111 for 1994. The increase was primarily
due to an increase of $6,017,822 in revenue from lodging operations. Revenues
from other lodging activities increased $182,580.
The increase in revenue from lodging operations resulted primarily from renting
793,151 rooms in 1995 compared to 667,545 rooms rented in 1994, an increase of
125,606 or 18.8%. The increase in revenue from other lodging activities
resulted from the increase in the number of rooms rented. The increase in rooms
rented resulted primarily from the opening of three new motels in Dallas,
Texas, in February, October and late December 1995. In addition, the Company
purchased four existing Super 8 motels in the first quarter of 1995, two in
Iowa and two in Illinois. The openings and purchases added 513 rooms during
1995. During the remodeling of the Bullhead City, Arizona, facility, which
began in the third quarter of 1995, 64 rooms were taken out of service.
8 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Supertel Hospitality, Inc. and Subsidiaries
Revenues from lodging operations were favorably impacted by an increase in the
average daily room rate. The average daily room rate was $39.54 for 1995
compared to $37.69 for 1994, an increase of $1.85 or 4.9%.
Motel revenues were also impacted by an increase in occupancy.
Occupancy as a percentage of rooms available increased to 69.6% in 1995 from
69.4% in 1994. The occupancy rate for seasoned properties (properties owned
more than one year) in 1995 was 70.7% versus 71.3% for 1994. REVPAR for 1995
increased to $27.52 from $26.16 for the prior year, an increase of $1.36 or
5.2%.
Lodging expenses for 1995 were $17,693,355 compared to $14,059,790 for 1994, an
increase of $3,633,565 or 25.8%. The increase in lodging expenses was due
primarily to the increase in number of rooms available to rent and rooms
rented. Lodging expenses as a percentage of motel revenues for 1995 increased
to 56.4% from 55.9% for 1994. The comparison reflects the impact of new
acquisitions and the opening of new properties during the year.
Depreciation and amortization expenses for 1995 were $2,269,604 compared to
$1,932,512 for 1994, an increase of $337,092 or 17.4%. The increase was
primarily due to an increase in the number of motel properties.
General and administrative expenses for 1995 were $2,243,505 compared to
$1,953,384 for 1994, an increase of $290,121 or 14.9%. The increase in general
and administrative expenses was due primarily to the expansion of staff to
handle current and anticipated motel growth. Key positions added were an
executive vice president, a vice president of marketing and an assistant vice
president of computer installation and training.
Interest expense increased by 33.1% or $593,742 to $2,387,030 for 1995 from
$1,793,288 for 1994. The increase was primarily due to the additional
borrowings for acquisitions and construction. Interest expense was, however,
positively affected by the decrease in the prime rate during 1995 and the
negotiating of a lower rate on the line of credit. Average bank borrowings for
1995 increased to $29,217,517 from $24,582,254 in 1994, an increase of
$4,635,263 or 18.9%.
Supertel adopted the provisions of Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, during the second quarter of 1994. The adoption resulted in a deferred
tax benefit of $860,706 or $0.21 per share. Supertel recorded a nonrecurring
gain on involuntary conversion of a company-owned aircraft during the first
quarter of 1994 in the amount of $252,222, or $151,333 pro forma after-tax
effect ($0.03 per share pro forma net income effect for fiscal year 1994).
For the reasons described above, pro forma net income from continuing
operations increased 17.8% to $3,624,307 for 1995 from $3,076,565 for 1994. The
1994 amount includes $151,333 from the nonrecurring gain in the first quarter.
Excluding the 1994 nonrecurring gain, pro forma net income from operations for
1995 increased 23.9%. Pro forma net income per share from continuing operations
for 1995 was $0.75 compared to $0.73 for 1994 (including $0.03 per share from
the nonrecurring gain). Weighted average shares outstanding increased 15.1%
from 4,206,575 in 1994 to 4,840,000 in 1995.
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 9
<PAGE> 11
[PHOTO OF SUPER 8, PLANO, TEXAS]
[CAPTION]
The Super 8 in Plano, Texas, represents the design prototype used in all of
Supertel's new construction in Texas.
[PHOTO OF WINGATE INN]
[CAPTION]
Supertel plans to open its first two Wingate Inns in 1997.
[PHOTO OF COMFORT IN, MINOCQUA, WISCONSIN]
[CAPTION]
Supertel now owns and operates two Comfort Inns, including this property in
Minocqua, Wisconsin.
tor of limited-service lodging properties. The difference is more than one of
semantics. We believe that we can now leverage our abilities in the
limited-service segment of the lodging industry -- as demonstrated by our
successful history as a developer, owner and operator of Super 8 motels --
across other brands.
During the past year, we also strengthened Supertel's management team.
Troy Beatty, who joined us at year-end as senior vice president and chief
financial officer, will play a key role in business development, strategic
planning and financial communications. And we welcomed Nancy Hales, vice
president of marketing, who brings to us 14 years of experience in sales and
marketing in the hospitality industry.
OUTLOOK FOR 1997
During the first half of 1997, we plan to open two Wingate Inns in
Texas, one in the Las Colinas area of Irving and the other in Houston. Wingate
is a new limited-service, mid-market hotel chain that has been developed by
HFS, Inc. It represents, in our opinion, the best researched new lodging
product on the market. Indications -- based on the early results of the four
Wingate Inns already opened by other developers -- are that it will be a
success.
For 1997, we expect the pace of new property additions to slow somewhat
from 1996 levels. Our plan is to
4 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Supertel Hospitality, Inc. and Subsidiaries
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
$6,769,441 for 1996 and $7,333,254 for 1995. The decrease in cash provided from
operations resulted from an increase in lodging expenses and the payment of
capital expenditures accrued for at December 31, 1995. Supertel requires
capital principally for the construction, acquisition and improvement of
lodging facilities plus expenditures for future site development. Capital
expenditures for such purposes were approximately $27,000,000 in 1996 and
$17,300,000 in 1995. Long-term debt (excluding current installments of
long-term debt) was $58,894,525 at December 31, 1996 and $38,188,302 at
December 31, 1995.
Long-term debt increased in 1996 to finance Supertel's construction,
acquisition and site development activities. Supertel's current installments of
long-term debt were $1,067,023 at December 31, 1996 and $1,070,370 at December
31, 1995.
Supertel's financing for construction, acquisition and site development
activities is provided by a long-term revolving line of credit for $40,000,000
and long-term debt with four banks aggregating approximately $26,100,000 and
maturing in 1998 through 2004. Approximately $8,760,000 remained available on
the line of credit as of 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
December 31, 1996, Supertel was in compliance with these covenants. Supertel's
ratio of long-term debt (including current installments) to long-term debt and
stockholders' equity was 67.6% at December 31, 1996 compared to 60.7% at
December 31, 1995. The increase was due to additional borrowing for new capital
expenditures.
The Company's current ratio during the past three years and its working capital
are as shown in the following table:
Year ended December 31,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
Working capital $3,463,122 $3,468,667 $ 453,685
-----------------------------------------------
Current ratio 1.76 1.80 1.15
-----------------------------------------------
During 1996, Supertel constructed 471 motel rooms and acquired 390 rooms, for a
total of 861 rooms. Capital and other expenditures for such development totaled
$27,015,120. Supertel plans to construct or acquire a total of approximately
400-600 motel rooms in 1997 and expects that approximately $14,000,000 -
$19,000,000 of capital funds will be necessary to finance such development.
Supertel also has principal payments totaling $1,067,023 due under existing
long-term debt obligations during 1997. 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 three
unencumbered properties will be sufficient to fund scheduled development and
debt repayments.
10 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SUPERTEL HOSPITALITY, INC.
We have audited the accompanying consolidated balance sheets of Supertel
Hospitality, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Supertel
Hospitality, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
During 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
Omaha, Nebraska
January 31, 1997
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 11
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
Supertel Hospitality, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---------------------------
<S> <C> <C>
ASSETS
Currents assets:
Cash, including cash equivalents of $5,566,573 in 1996 and $6,098,263 in 1996 $ 6,487,764 $ 6,724,172
Accounts receivable 1,018,045 622,498
Prepaid expenses 319,862 231,564
Recoverable income taxes 204,803 241,969
---------------------------
Total current assets
---------------------------
Property and equipment, at cost (notes 2 and 3) 97,574,480 71,309,946
Less accumulated depreciation 15,131,485 12,888,707
---------------------------
Net property and equipment 82,442,995 58,421,239
---------------------------
Other assets:
Intangible assets, less amortization of $811,677 in 1996 and $542,201 in 1995 1,644,939 1,213,698
Deferred income taxes (note 4) -- 333,700
Other assets 157,299 138,681
---------------------------
Total other assets 1,802,238 1,686,079
---------------------------
$92,275,707 $67,927,521
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3) $ 1,067,023 $ 1,070,370
Accounts payable 786,456 1,433,186
Accrued expenses:
Real estate taxes 1,295,240 925,331
Sales and lodging taxes 326,749 242,317
Payroll and payroll taxes 470,990 331,082
Royalty fees 258,185 126,495
Interest 362,709 217,961
Other -- 4,794
---------------------------
Total accrued expenses 2,713,873 1,847,980
---------------------------
Total current liabilities 4,567,352 4,351,536
---------------------------
Deferred income taxes (note 4) 54,900 --
Long-term debt, excluding current installments (note 3) 58,894,525 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 (note 1) 48,400 48,400
Additional paid-in capital (notes 1 and 11) 8,346,529 18,346,529
Retained earnings (note 11) 10,364,001 6,992,754
---------------------------
Total stockholders' equity 28,758,930 25,387,683
---------------------------
Commitments and contingency (notes 5 and 6)
---------------------------
$92,275,707 $67,927,521
--------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
12 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
Supertel Hospitality, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Motel revenues:
Lodging revenues $36,609,035 $30,264,134 $24,246,312
Other lodging activities 1,223,353 1,097,379 914,799
-------------------------------------------
Total motel revenues 37,832,388 31,361,513 25,161,111
-------------------------------------------
Direct operating expenses:
Payroll and payroll taxes 9,030,390 7,437,509 5,893,608
Royalties and advertising fund 2,415,065 1,970,521 1,578,730
Other lodging 10,577,925 8,285,325 6,587,452
-------------------------------------------
Total lodging expenses 22,023,380 17,693,355 14,059,790
Other lodging activities 906,058 769,335 639,243
Depreciation and amortization 3,132,866 2,269,604 1,932,512
General and administrative 2,665,794 2,243,505 1,953,384
-------------------------------------------
Total direct operating expenses 28,728,098 22,975,799 18,584,929
-------------------------------------------
Operating income 9,104,290 8,385,714 6,576,182
Other income (expenses): -------------------------------------------
Interest expense (3,545,296) (2,387,030) (1,793,288)
Miscellaneous income and other expenses 27,753 (377) 99,255
Gain on involuntary conversion -- -- 252,222
-------------------------------------------
(3,517,543) (2,387,407) (1,441,811)
-------------------------------------------
Income before income taxes and cumulative
effect of change in accounting principle 5,586,747 5,998,307 5,134,371
Income tax expense (note 4) 2,215,500 2,374,000 1,687,000
-------------------------------------------
Income before cumulative effect of
change in accounting principle 3,371,247 3,624,307 3,447,371
Cumulative effect of change in accounting for
income taxes (note 4) -- -- 860,706
-------------------------------------------
Net income $ 3,371,247 $ 3,624,307 $ 4,308,077
-------------------------------------------
Pro forma information (note 4):
Income before cumulative effect of change in accounting
principle 3,371,247 3,624,307 3,447,371
Pro forma income taxes -- -- 370,806
-------------------------------------------
Pro forma income before cumulative effect of
change in accounting principle $ 3,371,247 $ 3,624,307 $ 3,076,565
-------------------------------------------
Net income 3,371,247 3,624,307 4,308,077
Pro forma income taxes -- -- 370,806
-------------------------------------------
Pro forma net income $ 3,371,247 $ 3,624,307 $ 3,937,271
-------------------------------------------
Pro forma net income per share:
Continuing operations $0.70 $0.75 $0.73
Cumulative effect of change in accounting for income taxes -- -- 0.21
-------------------------------------------
Pro forma net income per share $0.70 $0.75 $0.94
-------------------------------------------
Weighted average shares outstanding 4,840,000 4,840,000 4,206,575
-------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 13
<PAGE> 16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
Supertel Hospitality, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Additional Total
Preferred Common paid-in Retained stockholders'
stock stock capital earnings equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ -- $ -- $ -- $ 2,337,253 $ 2,337,253
Issuance of 3,000,000 shares
of common stock upon
consolidation -- 30,000 -- -- 30,000
Net proceeds from public
offering of 1,840,000
shares of common stock -- 18,400 16,664,356 -- 16,682,756
Net income -- -- -- 4,308,077 4,308,077
Distributions -- -- -- (1,594,710) (1,594,710)
---------------------------------------------------------------------------
Balance, December 31, 1994
as previously reported -- 48,400 16,664,356 5,050,620 21,763,376
Reclassify undistributed
earnings (note 11) -- -- 1,682,173 (1,682,173) --
---------------------------------------------------------------------------
Balance, December 31, 1994,
as restated -- 48,400 18,346,529 3,368,447 21,763,376
Net income -- -- -- 3,624,307 3,624,307
---------------------------------------------------------------------------
Balance, December 31, 1995 -- 48,400 18,346,529 6,992,754 25,387,683
Net income -- -- -- 3,371,247 3,371,247
---------------------------------------------------------------------------
Balance, December 31, 1996 $ -- $48,400 $18,346,529 $10,364,001 $28,758,930
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,371,247 $ 3,624,307 $ 4,308,077
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,862,390 2,112,265 1,698,622
Amortization 270,476 157,339 233,890
Gain on involuntary conversion -- -- (252,222)
Loss on sale of property and equipment 104,244 120,394 41,985
Deferred income taxes 388,600 349,000 (682,700)
(Increase) decrease in current assets:
Accounts receivable (395,547) (169,019) (75,927)
Prepaid expenses (88,298) 30,995 (164,832)
Recoverable income taxes 37,166 (69,625) (172,344)
Increase (decrease) in current liabilities:
Accounts payable (646,730) 743,508 (23,032)
Accrued expenses 865,893 434,090 374,130
------------------------------------------
Net cash provided by operating activities 6,769,441 7,333,254 5,285,647
------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (27,015,120) (17,316,104) (10,676,905)
Increase in intangibles and other assets (720,335) (344,051) (466,280)
Proceeds from sale of property and equipment 26,730 169,512 6,708
------------------------------------------
Net cash used in investing activities (27,708,725) (17,490,643) (11,136,477)
------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of stock, net of offering
costs (note 1) -- -- 16,712,756
Repayments of long-term debt (48,262,058) (27,467,597) (31,044,805)
Proceeds from long-term debt 68,964,934 41,817,611 22,914,076
Repayments of notes payable to banks -- (70,200) (400,000)
Proceeds from notes payable to banks -- -- 70,200
Distributions to partners (note 1) -- -- (1,594,710)
------------------------------------------
Net cash provided by financing activities 20,702,876 14,279,814 6,657,517
------------------------------------------
Net increase (decrease) in cash and cash equivalents (236,408) 4,122,425 806,687
Cash and cash equivalents at beginning of year 6,724,172 2,601,747 1,795,060
------------------------------------------
Cash and cash equivalents at end of year $ 6,487,764 $ 6,724,172 $ 2,601,747
==========================================
Supplemental Cash Flow Information
Cash paid during the year for:
Interest (including amounts capitalized of $214,577
in 1996, $137,681 in 1995 and $83,191 in 1994) $ 3,615,125 $ 2,390,365 $ 1,902,170
Income taxes 1,789,734 2,094,625 1,681,350
==========================================
Noncash Financing Activities
Long-term debt totaling $3,555,191 in 1994
was refinanced.
</TABLE>
See accompanying notes to consolidated financial statements.
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 13
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Supertel Hospitality, Inc. ("Supertel" or the "Company") owns,
operates and constructs limited-service lodging facilities under
the Super 8 and Comfort Inn brand names. The Company has 59
properties throughout the Midwest and Texas. Supertel is a
vertically integrated motel construction, development and
operations company that (i) identifies potential sites for the
construction of new motels and analyzes existing motels that are
available for acquisition, (ii) develops and constructs new
motel properties and renovates existing motels it acquires, and
(iii) manages its own motel properties.
(b) BASIS OF PRESENTATION
(i) Consolidation
Concurrent with the effective date (April 30, 1994) of an
initial public offering ("IPO") of the Company's common
stock, Spartan "8", a limited partnership ("Spartan"),
transferred all assets and liabilities to the Company in
exchange for common stock. In addition, the shareholders of
Simplex, Inc. ("Simplex") and Motel Developers, Inc.
("MDI") exchanged shares of common stock of Simplex and
MDI for common shares of the Company, resulting in
Simplex and MDI becoming wholly-owned subsidiaries of the
Company. During 1994 and prior to the IPO, the Company
paid distributions of $1,594,710 of the Company's
partnership and S corporation income to cover partner and
shareholder tax liabilities and to distribute the
undistributed earnings of Simplex and MDI. The
consolidated financial statements have been prepared
giving effect to the consolidation for all periods
presented.
All significant intercompany balances and transactions
have been eliminated in consolidation.
(ii) Pro Forma Net Income Per Share
The pro forma net income per share in 1994 includes the
3,000,000 shares outstanding resulting from the above-noted
consolidation and the 1,840,000 shares issued in the IPO in
calculating the weighted average number of common shares
outstanding.
(c) PROPERTY AND EQUIPMENT
The Company records its property and equipment at cost. Major
improvements and betterments to existing property and equipment
are capitalized. Expenditures for repairs and maintenance that
do not extend the life of the applicable asset are charged to
expense as incurred. The Company computes depreciation on a
straight-line and declining balance method over the estimated
useful lives of the related assets as follows:
Buildings 40 years
Furniture, fixtures and equipment 5 to 7 years
Vehicles 5 years
16 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
(d) INTANGIBLE ASSETS
The Company has 20-year franchise agreements with Super
8 Motels, Inc. and Choice Hotels International expiring from
1998 to 2016. Connected with these agreements is the
requirement that the Company pay to the franchisor royalties,
advertising fees and reservation service fees amounting to 5%
to 8.05% of motel revenues.
The Company amortizes its intangible assets on the
straight-line method over the following years:
Franchise fees 20 years
Organization costs 5 years
Loan origination fees Period of loan
Noncompete agreements 5 years
(e) INCOME TAXES
Spartan was treated as a partnership for federal and
state income tax purposes, and Simplex and MDI had elected to
be treated as S corporations. As a partnership or an S
corporation, the earnings of Spartan, Simplex and MDI were
reported by the individual partners or shareholders and the
companies were not responsible for federal or state income
taxes.
The Company is now taxed as a C corporation and,
accordingly, incurs federal and state taxes at the entity
level. The accompanying consolidated statements of income
reflect provisions for income taxes on a pro forma basis as if
the Company were liable for federal and state income taxes as
taxable corporate entities throughout 1994 at a consolidated
rate of 40%.
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
The cumulative effect of the change in accounting for
income taxes of $860,706 or $0.21 per share was determined as
of May 1, 1994 and was reported separately in the consolidated
statement of income in 1994.
(f) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments with
maturities of less than 90 days to be cash equivalents.
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
(g) INCOME PER SHARE
Net income per share is computed using the weighted average
number of common and common equivalent shares outstanding
during the period. Fully diluted net income per share is not
presented as it is not materially different from primary net
income per share.
(h) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(i) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate
fair value because of the short maturity of these instruments.
The carrying amounts of each of the Company's long-term debt
instruments also approximate fair value because the interest
rate is variable and tied to various market rates.
(j) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted the Financial Accounting Standards Board's Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123. See Note 7.
(k) RECLASSIFICATIONS
Certain consolidated balance sheet and statement of income
amounts have been reclassified to conform with the 1996
presentation.
18 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
(l) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS
TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's
financial position, results of operations or liquidity.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Land $15,458,137 $12,619,923
Buildings 63,709,733 44,436,488
Furniture, fixtures and equipment 14,304,883 11,299,816
Vehicles 264,809 190,083
Construction in progress 3,836,918 2,763,636
-----------------------------
97,574,480 71,309,946
Less accumulated depreciation 15,131,485 12,888,707
-----------------------------
Net property and equipment $82,442,995 $58,421,239
=============================
</TABLE>
(3) LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Iowa and Nebraska Finance Authority Bonds,
currently ranging from 8.61% to 9.79%,
due in monthly installments of $12,927
including interest, with maturities through
December 2006. Secured by real estate $ 980,203 $ 1,040,194
Notes payable at 7.75% to 9.50% (with blended
rate of 8.24% at December 31, 1996), due in
variable installments with maturities through
November 2009. Secured principally by
motel properties and assignment of rents 58,981,345 38,218,478
-----------------------------
Total long-term debt 59,961,548 39,258,672
Less current installments of long-term debt 1,067,023 1,070,370
-----------------------------
Long-term debt, excluding
current installments $58,894,525 $38,188,302
=============================
</TABLE>
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
The Company has a $40,000,000 line of credit with a bank to fund future
acquisitions and construction of motel facilities. The line bears interest at
the prime rate less 1/4 of 1% (8.00% at December 31, 1996) on funds advanced
and matures on February 1, 1998. Approximately $8,760,000 remains available on
this line of credit at December 31, 1996. The Company must pay an annual
commitment fee of 1/4 of 1% on the unused portion of the commitment. The
Company paid commitment fees of approximately $13,260 in 1996 and $20,750 in
1995.
Borrowings under this line of credit are classified as long-term debt since the
maturity is longer than one year and the Company has the intent to maintain
borrowings of at least the same amount for the next year.
The Company's loan agreements contain certain restrictions and covenants
related to, among others, minimum debt service, maximum debt per motel room and
maximum debt to tangible net worth. At December 31, 1996, the Company was in
compliance with these covenants. At December 31, 1996, all of the Company's
retained earnings were unrestricted and available for the payment of dividends
under the most restrictive terms of the agreements.
The aggregate maturities of long-term debt for the years following 1996 are as
follows:
1997 $ 1,067,023
1998 37,729,398
1999 1,455,156
2000 1,323,684
2001 1,440,562
Thereafter 16,945,725
-----------
$59,961,548
===========
20 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
(4) INCOME TAXES
The income tax expense and pro forma income tax expense in the consolidated
statement of income for the year ended December 31, 1994 includes an actual
tax provision of $1,687,000 for the period subsequent to the IPO (May 1, 1994
to December 31, 1994) and a pro forma tax provision of $370,806 for the period
prior to the date of the IPO (January 1, 1994 to April 30, 1994).
Income tax expense for the years ended December 31, 1996, 1995 and
1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ------------------------------- -------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $1,480,000 305,000 1,785,000 $1,635,000 278,000 1,913,000 $1,203,994 142,006 1,346,000
State 346,900 83,600 430,500 390,000 71,000 461,000 305,000 36,000 341,000
------------------------------- ------------------------------- -------------------------------
$1,826,900 388,600 2,215,500 $2,025,000 349,000 2,374,000 $1,508,994 178,006 1,687,000
=============================== =============================== ===============================
</TABLE>
Income tax expense is reconciled with income taxes computed at the federal
statutory rate of 34% for the years ended December 31, 1996, 1995 and 1994
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Tax expense computed at federal statutory rate $1,899,494 $2,039,424 $1,745,686
State income tax, net of federal tax effect 284,130 304,260 271,095
Pro forma income taxes -- -- (370,806)
Other 31,876 30,316 41,025
------------------------------------------
$2,215,500 $2,374,000 $1,687,000
==========================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Tax basis over book basis on
property and equipment $ -- $ 337,001 $ 683,519
Other 34,400 -- 3,009
------------------------------------------
Total deferred tax assets 34,400 337,001 686,528
------------------------------------------
Deferred tax liabilities:
Book basis over tax basis on
property and equipment 76,157 -- --
Book basis over tax basis on other assets 13,143 3,301 3,828
------------------------------------------
Total deferred tax liabilities 89,300 3,301 3,828
------------------------------------------
Net deferred tax assets (liability) $ (54,900) $ 333,700 $ 682,700
==========================================
</TABLE>
There was no valuation allowance required for deferred tax assets at
December 31, 1996, 1995 or 1994.
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax-planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods that the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
(5) LEASES
The Company has leases for outdoor advertising signs and various other items
under noncancelable one to 10-year agreements. Rental payments are expensed
when incurred and charged to advertising expense. Future minimum lease payments
required under noncancelable operating lease agreements at December 31, 1996
are as follows:
1997 $418,396
1998 289,455
1999 102,634
2000 27,288
2001 20,863
Thereafter 50,490
--------
$909,126
========
Rent expense incurred was $529,311 in 1996, $391,082 in 1995 and $343,333
in 1994.
(6) LITIGATION
MDI was a defendant to several lawsuits arising out of a mid-air collision on
July 30, 1993 involving an aircraft owned by MDI. All such lawsuits were
resolved by October 1996 with no loss to the Company.
The Company is involved in various litigation incurred in the normal course of
business. In the opinion of management, the ultimate disposition of this
litigation will not have a material impact on the Company's consolidated
financial statements.
(7) STOCK OPTION PLAN
The Company adopted a stock option plan in 1994 whereby stock options may be
offered at the discretion of the compensation committee of the Board of
Directors to key employees to purchase shares of common stock of the Company.
Also, each nonemployee director annually receives an option to acquire 1,500
shares of common stock. Options for an aggregate of 150,000 common shares may
be granted and all shares subject to options may be purchased at a price not
less than its fair market value at the date the options are granted. At
December 31, 1996, there were 77,100 additional shares available for grant
under the plan.
22 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supertel Hospitality, Inc. and Subsidiaries
The per share weighted-average fair value of stock options granted during 1996
and 1995 was $7.32 and $6.66, respectively, on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1996 -- expected dividend yield - 0%, risk-free interest rate of
6.5%, and an expected life of 10 years; 1995 -- expected dividend yield - 0%,
risk-free interest rate of 6.0%, and an expected life of 10 years.
The Company applies APB Opinion No. 25 in accounting for its plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
1996 1995
--------------------------
Net income:
As reported $3,371,247 $3,624,307
Pro forma 3,210,566 3,493,314
--------------------------
Net income per share:
As reported $ 0.70 $ 0.75
Pro forma 0.66 0.72
--------------------------
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of 12
months and compensation cost for options granted prior to January 1, 1995 is
not considered.
The changes in the outstanding stock options during the three years ended
December 31, 1996 are summarized below:
<TABLE>
<CAPTION>
Option price
Number of options per share range
----------------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1993 -- $ --
Granted 4,500 10.00 to 13.50
Exercised -- --
Cancelled -- --
-----------
Options outstanding at December 31, 1994 4,500 10.00 to 13.50
Granted 33,200 10.00 to 13.75
Exercised -- --
Cancelled (400) 13.50
-----------
Options outstanding at December 31, 1995 37,300 10.00 to 13.75
Granted 36,600 10.00 to 11.125
Exercised -- --
Cancelled (1,000) 13.50
-----------
Options outstanding at December 31, 1996 72,900 $10.00 to 13.75
----------- ----------------
Options exercisable at December 31, 1996 33,600 $10.00 to 13.75
----------- ----------------
</TABLE>
SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT 23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
(8) RELATED PARTY TRANSACTION
The Company leased an airplane from a company owned by certain officers of the
Company. The Company paid approximately $-0- in 1996, $14,000 in 1995 and
$156,000 in 1994 related to this lease. The lease was terminated in 1995.
(9) PROFIT-SHARING PLAN
Beginning in July 1996, the Company began sponsoring a nonstandardized 401(k)
profit-sharing plan and trust covering certain eligible full-time employees. The
Company contributions provided for by the plan equal 50% of the participants'
contributions not to exceed 4% of the participants' compensation. The Company
contributed and expensed approximately $18,000 in 1996.
(10) ACQUISITION OF OPERATING PROPERTIES
During the year, the Company acquired for cash seven motel operating
properties. For consolidated financial statement purposes, the acquisitions
were accounted for as purchases. The following unaudited pro forma consolidated
results of operations have been prepared as if the acquisitions had occurred at
the beginning of fiscal 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
(Unaudited)
-----------------------------
<S> <C> <C>
Pro forma:
Net revenue $39,610,881 $35,427,266
Net income 3,504,152 3,985,713
Net income per share 0.72 0.82
-----------------------------
</TABLE>
The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been in effect for the periods
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
(11) STOCKHOLDERS' EQUITY
In accordance with Staff Accounting Bulletin Topic 4B issued by the staff of the
Securities and Exchange Commission, the Company reclassified the undistributed
earnings as of the date of the 1994 consolidation discussed in note 1(b) to
additional paid-in capital. The December 31, 1994 additional paid-in capital and
retained earnings have been restated to reflect this reclassification. retained
earnings, as restated, reflect only net income since the consolidation.
24 SUPERTEL HOSPITALITY, INC. 1996 ANNUAL REPORT
<PAGE> 27
CORPORATE OFFICE
Supertel Hospitality, Inc.
309 North 5th Street
P.O. Box 1448
Norfolk, NE 68702-1448
Telephone 402-371-2520
Fax 402-371-4229
ANNUAL MEETING
The 1997 annual meeting of stockholders will be held on May 2, 1997 at 2 p.m.
central time at the Red Lion Hotel, 1616 Dodge Street, Omaha, NE 68102.
AVAILABILITY OF 10-K REPORT
Stockholders may obtain a copy of Supertel's Form 10-K Annual Report for 1996
by writing the investor relations contact at the corporate office.
INVESTOR RELATIONS CONTACT
Troy M. Beatty
Chief Financial Officer
Telephone 402-371-2520
Fax 402-371-4229
COMMON STOCK
The common stock is traded on the NASDAQ National Market System under the
symbol SPPR. On March 15, 1997, there were approximately 1,225 beneficial
owners of the Company's common stock.
STOCK TRANSFER AGENT
First National Bank of Omaha, Omaha, NE
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Omaha, NE
LEGAL COUNSEL
McGrath, North, Mullin & Kratz, PC
Omaha, NE
DIRECTORS
Joseph Caggiano
Vice Chairman Emeritus
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
Loren Steele
Director, Super 8 Motels, Inc.
Chairman, International Franchise Association
Paul Schulte
President and Chief Executive Officer
Steve Borgmann
Executive Vice President and Chief Operating Officer
Richard Herink
Executive Vice President
OFFICERS
Paul Schulte
President and Chief Executive Officer
Steve Borgmann
Executive Vice President and Chief Operating Officer
Richard Herink
Executive Vice President
Troy M. Beatty
Senior Vice President and Chief Financial Officer
Steve Gilbert
Senior Vice President of Purchasing
Bill Roe
Senior Vice President of Development
Karen Schulte
Senior Vice President of Administration
<PAGE> 28
CORPORATE OFFICE Supertel Hospitality, Inc. Norfolk, NE Telephone 402-371-2520
309 North 5th Street 68702-1448 Fax 402-371-4229
SUPERTEL HOSPITALITY LODGING:
- ---------------------------------------------
ARIZONA BULLHEAD CITY
RIVER VALLEY SUITES
520-754-4851
- ---------------------------------------------
ARKANSAS BATESVILLE/SUPER 8
501-793-5888
FAYETTEVILLE/SUPER 8
501-521-8866
MOUNTAIN HOME/SUPER 8
501-424-6600
RUSSELLVILLE/SUPER 8
501-968-8898
- ---------------------------------------------
ILLINOIS JACKSONVILLE/SUPER 8
217-479-0303
MACOMB/SUPER 8
309-836-8888
- ---------------------------------------------
IOWA BURLINGTON/SUPER 8
319-752-9806
CLINTON/SUPER 8
319-242-8870
CORALVILLE/SUPER 8
319-337-8388
CRESTON/SUPER 8
515-782-6541
FORT MADISON/SUPER 8
319-372-8500
KEOKUK/SUPER 8
319-524-3888
MT. PLEASANT/SUPER 8
319-385-8888
MUSCATINE/SUPER 8
319-263-9100
OSKALOOSA/SUPER 8
515-673-8481
PELLA/SUPER 8
515-628-8181
STORM LAKE/SUPER 8
712-732-3063
- ---------------------------------------------
KANSAS EL DORADO SUPER 8
316-321-4889
GARDEN CITY/SUPER 8
316-275-9625
HAYS/SUPER 8
913-625-8048
LENEXA/SUPER 8
913-888-8899
MANHATTAN/SUPER 8
913-537-8468
PARK CITY/SUPER 8
316-744-2071
PARSONS/SUPER 8
316-421-8000
PITTSBURG/SUPER 8
316-232-1881
WICHITA/SUPER 8
316-686-3888
- ---------------------------------------------
MISSOURI JEFFERSON CITY/SUPER 8
573-636-5456
KINGDOM CITY/SUPER 8
573-642-2888
KIRKSVILLE/SUPER 8
816-665-8826
MARSHALL/SUPER 8
816-886-3359
MOBERLY/SUPER 8
816-263-8862
SEDALIA/SUPER 8
816-827-5890
WEST PLAINS/SUPER 8
417-256-8088
- ---------------------------------------------
NEBRASKA COLUMBUS/SUPER 8
402-563-3456
LINCOLN/SUPER 8
402-476-8887
LINCOLN/SUPER 8
402-467-4488
NORFOLK/SUPER 8
402-379-2220
OMAHA/SUPER 8
402-339-2250
OMAHA/SUPER 8
402-390-0700
OMAHA/SUPER 8
402-492-8845
O'NEILL/SUPER 8
402-336-3100
WAYNE/SUPER 8
402-375-4898
- ---------------------------------------------
SOUTH DAKOTA WATERTOWN/SUPER 8
605-882-1900
- ---------------------------------------------
TEXAS BEDFORD/SUPER 8
817-545-8108
COLLEGE STATION/SUPER 8
409-846-8800
DENTON/SUPER 8
817-380-8888
GRAPEVINE/SUPER 8
817-329-7222
HOUSTON
WINGATE INN
OPENING IN 1997
IRVING/SUPER 8
972-257-1810
LAS COLINAS (IRVING)
WINGATE INN
OPENING IN 1997
MCKINNEY/SUPER 8
972-548-8880
PLANO/SUPER 8
972-423-8300
WACO/SUPER 8
817-754-1023
WICHITA FALLS/SUPER 8
817-322-8880
- ---------------------------------------------
WISCONSIN ANTIGO/SUPER 8
715-623-4188
MINOQUA
COMFORT INN
715-358-2588
PORTAGE/SUPER 8
608-742-8330
SHAWANO/SUPER 8
715-526-6688
SHEBOYGAN
COMFORT INN
414-457-7724
TOMAH/SUPER 8
608-372-3901
- ---------------------------------------------
For Reservations:
Super 8 1-800-800-8000
Comfort Inn 1-800-228-5150
Wingate Inn 1-800-228-1000
- ---------------------------------------------
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Supertel Hospitality, Inc. owns 100% of the voting securities of the
corporations listed below.
Subsidiary Jurisdiction of Incorporation
Simplex, Inc. Nebraska
Motel Developers, Inc. Nebraska
<PAGE> 1
EXHIBIT 23.1
KPMG PEAT MARWICK LLP
Two Central Park Plaza, Suite 1501
Omaha, NE 68102
(402) 348-1450
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
of Supertel Hospitality, Inc.:
We consent to incorporation by reference in the Registration Statement No.
33-80462 on Form S-8 of Supertel Hospitality, Inc. of our report, dated January
31, 1997, relating to the consolidated balance sheets of Supertel Hospitality,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,487,764
<SECURITIES> 0
<RECEIVABLES> 1,018,045
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,030,474
<PP&E> 97,574,480
<DEPRECIATION> 15,131,485
<TOTAL-ASSETS> 92,275,707
<CURRENT-LIABILITIES> 4,567,352
<BONDS> 58,894,525
0
0
<COMMON> 48,400
<OTHER-SE> 28,710,530
<TOTAL-LIABILITY-AND-EQUITY> 92,275,707
<SALES> 37,832,388
<TOTAL-REVENUES> 37,832,388
<CGS> 22,929,438
<TOTAL-COSTS> 22,929,438
<OTHER-EXPENSES> 5,798,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,545,296
<INCOME-PRETAX> 5,586,747
<INCOME-TAX> 2,215,500
<INCOME-CONTINUING> 3,371,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,371,247
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
