<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - - - - - - - - - - - -
FORM 10-Q
- - - - - - - - - - - - - -
(MARK ONE)
( X ) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 1997.
OR
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission file number: 0-23536
----------------------
SUPERTEL HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0774097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
309 NORTH 5TH STREET
NORFOLK, NEBRASKA 68701
(Address of principal executive offices)
Telephone number: (402) 371-2520
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past ninety days:
Yes ( X ) No ( )
As of September 30, 1997, there were 4,840,000 common shares of the registrant
outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 918,462 $ 6,487,764
Accounts receivable 1,082,610 1,018,045
Prepaid expenses 524,290 319,862
Recoverable income taxes - 204,803
------------ ------------
Total current assets 2,525,362 8 ,030,474
------------ ------------
Property and equipment, at cost 108,265,121 97,574,480
Less accumulated depreciation 17,469,530 15,131,485
------------ ------------
Net property and equipment 90,795,591 82,442,995
------------ ------------
Other assets:
Intangible assets 1,590,772 1,644,939
Other assets 181,658 157,299
------------ ------------
Total other assets 1,772,430 1,802,238
------------ ------------
$ 95,093,383 $ 92,275,707
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,035,476 $ 786,456
Accrued expenses:
Real estate taxes 1,415,340 1,295,240
Other 3,664,273 1,418,633
------------ ------------
Total accrued expenses 5,079,613 2,713,873
------------ ------------
Current installments of long-term debt 1,807,675 1,067,023
------------ ------------
Total current liabilities 7,922,764 4,567,352
------------ ------------
Deferred income taxes 383,900 54,900
Long-term debt, excluding current installments 54,734,586 58,894,525
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized
1,000,000 shares; none issued - -
Common stock, $0.01 par value. Authorized 10,000,000
shares; issued and outstanding 4,840,000 shares 48,400 48,400
Additional paid-in capital 18,346,529 18,346,529
Retained earnings 13,657,204 10,364,001
------------ ------------
Total stockholders' equity 32,052,133 28,758,930
------------ ------------
Commitments and contingency
------------ ------------
$ 95,093,383 $ 92,275,707
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Motel revenues:
Lodging revenues $ 13,050,616 $ 11,104,753 $ 33,714,249 $ 27,265,583
Other lodging activities 412,984 337,386 1,132,282 903,167
------------- ------------- ------------- -------------
Total motel revenues 13,463,600 11,442,139 34,846,531 28,168,750
------------- ------------- ------------- -------------
Direct operating expenses:
Payroll and payroll taxes 3,040,142 2,616,166 8,212,179 6,703,417
Royalties and advertising fund 875,714 754,566 2,245,010 1,815,364
Other lodging 3,491,529 3,055,680 9,535,604 7,681,344
------------- ------------- ------------- -------------
Total lodging expense 7,407,385 6,426,412 19,992,793 16,200,125
Other lodging activities 281,652 246,958 778,010 658,304
Depreciation and amortization 1,045,867 875,299 2,957,038 2,203,890
General and administrative 720,684 738,843 2,312,485 2,047,704
------------- ------------- ------------- -------------
Total direct operating expenses 9,455,588 8,287,512 26,040,326 21,110,023
------------- ------------- ------------- -------------
Operating income 4,008,012 3,154,627 8,806,205 7,058,727
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (1,147,081) (1,018,911) (3,382,923) (2,458,460)
Miscellaneous income/expense 24,473 (463) 65,381 (6,446)
------------- ------------- ------------- -------------
(1,122,608) (1,019,374) (3,317,542) (2,464,906)
------------- ------------- ------------- -------------
Income before income taxes 2,885,404 2,135,253 5,488,663 4,593,821
Income tax expense 1,154,162 854,104 2,195,460 1,837,531
------------- ------------- ------------- -------------
Net income $ 1,731,242 $ 1,281,149 $ 3,293,203 $ 2,756,290
============= ============= ============= =============
Net income per share $ .36 $ .26 $ .68 $ .57
=== === === ====
Weighted average shares outstanding 4,840,000 4,840,000 4,840,000 4,840,000
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,293,203 $ 2,756,290
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,708,647 2,042,246
Amortization 248,391 161,644
Loss on sale of property and equipment 38,675 65,073
Deferred income taxes 329,000 248,147
Changes in assets and liabilities:
Accounts receivable (64,565) (418,522)
Prepaid expenses (204,428) (341,493)
Recoverable income taxes 204,803 98,718
Accounts payable 249,020 (97,093)
Accrued expenses 2,365,740 1,316,038
-------------- -------------
Net cash provided by operating activities 9,168,486 5,831,048
-------------- -------------
Cash flows from investing activities:
Additions to property and equipment (11,120,157) (24,319,967)
Increase in intangibles and other assets (218,583) (615,889)
Proceeds from sale of property and equipment 20,239 15,627
-------------- -------------
Net cash used in investing activities (11,318,501) (24,920,229)
-------------- -------------
Cash flows from financing activities:
Repayments of long-term debt (23,055,006) (822,388)
Proceeds from long-term debt 19,635,719 14,788,584
-------------- -------------
Net cash provided by (used in) financing activities (3,419,287) 13,966,196
-------------- -------------
Net decrease in cash and cash equivalents (5,569,302) (5,122,985)
Cash and cash equivalents at beginning of period 6,487,764 6,724,172
-------------- -------------
Cash and cash equivalents at end of period $ 918,462 $ 1,601,187
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 1997 and the
condensed consolidated statements of income and cash flows for the three
months and nine months ended September 30, 1997 and 1996 have been
prepared by Supertel Hospitality, Inc. (the "Company"), without audit. In
the opinion of management, all necessary adjustments (which include normal
recurring adjustments) have been made to present fairly the
financial position at September 30, 1997 and for all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
Annual Report for the year ended December 31, 1996. The results of
operations for the three months and nine months ended September 30, 1997
are not necessarily indicative of the operating results for the full year.
2. NET INCOME PER SHARE
For the three months and nine months ended September 30, 1997 and 1996,
the net income per share was calculated based on the weighted average
number of common shares outstanding.
3. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
The Company does not expect the effective tax rate or the components of
income tax expense to cause variation from the expected statutory Federal
and state income tax rates totaling 40 percent. A valuation allowance for
deferred tax assets has not been provided since all tax benefits are
expected to be used to offset future taxable income.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total motel revenues for the third quarter were $13,463,600, an increase
of $2,021,461, or 17.7%, over total revenues of $11,442,139 for the third
quarter of 1996. Total motel revenues for the first nine months were
$34,846,531, an increase of $6,677,781, or 23.7%, over the total revenues of
$28,168,750 for the first nine months of 1996. The increase for the third
quarter was primarily due to an increase of $1,945,863 in revenue from lodging
operations and $75,598 from other lodging activities (which consist of
telephone, vending and movie revenue). The increase for the first nine months
was primarily due to an increase of $6,448,666 in revenue from lodging
operations and $229,115 from other lodging activities.
The increase in revenues from lodging operations for the third quarter
resulted primarily from renting 294,569 rooms in 1997 compared to 267,308 rooms
rented in the same period of 1996, an increase of 27,261, or 10.2%. Rooms
available in the third quarter of 1997 were 404,906, an increase of 30,334, or
8.1%, over rooms available of 374,572 in the third quarter of 1996. The
increase in revenues from lodging operations for the first nine months resulted
primarily from renting 787,900 rooms in 1997 compared to 673,081 rooms rented
in the same period of 1996, an increase of 114,819, or 17.1%. Rooms available
for the first nine months of 1997 were 1,174,559, an increase of 180,581, or
18.2%, over rooms available of 993,978 for the first nine months of 1996.
6
<PAGE> 7
RESULTS OF OPERATIONS, CONTINUED
The increase in rooms rented resulted primarily from the opening of three
new properties, the addition to an existing property and the acquisition of six
existing properties since July 1996. These openings, additions and
acquisitions added 701 rooms. The company's room count was 4,459 at the end of
the third quarter 1997, a net increase of 303 rooms, or 7.3%, over the room
count of 4,156 rooms at December 31, 1996.
Revenues were impacted by an increase in the average daily room rate in
the third quarter of 1997. An average daily room rate of $45.71 was achieved
compared to $42.81 for the third quarter of 1996, an increase of $2.90, or
6.8%. For the first nine months, the average daily room rate was $44.23 in
1997 compared to $41.85 for the first nine months of 1996, an increase of
$2.38, or 5.7%.
Revenues per available room for the third quarter 1997 increased from
$30.55 for the third quarter 1996 to $33.25, an increase of $2.70, or 8.8%.
Revenue per available room for the first nine months of 1997 increased to
$29.67 from $28.34, an increase of $1.33, or 4.7%.
Motel revenue was also impacted by changes in occupancy. Occupancy as a
percentage of rooms available increased from 71.4% in the third quarter of 1996
to 72.7% in the third quarter 1997. The increase in the occupancy percentage
resulted primarily from the continued seasoning of our Texas properties. The
occupancy percentage in seasoned properties (those owned/opened over one year)
decreased from 75.6% in the third quarter of 1996 to 73.8% in the third quarter
of 1997. Total occupancy decreased from 67.7% for the first nine months of
1996 to 67.1% for the first nine months of 1997. The occupancy percentage in
seasoned properties decreased from 70.0% for the first nine months of 1996 to
68.5% for the first nine months of 1997. Occupancy is seasonal and is lowest
in the first quarter, increases in the second, peaks in the third and then
drops down again in the fourth quarter. The increases in revenue from other
lodging activities resulted from the increase in the number of rooms rented.
7
<PAGE> 8
RESULTS OF OPERATIONS, CONTINUED
Lodging expenses for the third quarter 1997 were $7,407,385 compared to
$6,426,412 for the third quarter of 1996, an increase of $980,973, or 15.3%.
Lodging expenses for the first nine months of 1997 were $19,992,793 compared to
$16,200,125 for the first nine months of 1996, an increase of $3,792,668, or
23.4%. The increase in lodging expenses was due primarily to the increase in
the number of rooms available to rent and rooms rented. Lodging expenses as a
percentage of lodging revenues decreased from 57.9% for the third quarter of
1996 to 56.8% in the third quarter of 1997. Lodging expenses as a percentage
of lodging revenues decreased from 59.4% for the first nine months of 1996 to
59.3% in the first nine months of 1997. The percentage decrease for the third
quarter and the first nine months resulted from better cost controls
implemented from our open book management program and a larger base of revenue
to cover fixed costs.
Depreciation and amortization expenses for the third quarter of 1997 were
$1,045,867 compared to $875,299 for the third quarter of 1996, an increase of
$170,568, or 19.5%. Depreciation and amortization expenses for the first nine
months of 1997 were $2,957,038 compared to $2,203,890, an increase of $753,148,
or 34.2%. This increase was primarily due to an increase in the number of
motel properties. General and administrative expenses for the third quarter of
1997 were $720,684 compared to $738,843 (which includes the write-off of
$49,415 of costs associated with a land acquisition for a motel site in Dallas,
Texas which was not completed) in the third quarter of 1996, a decrease of
$18,159, or 2.5%. General and administrative expenses as a percent of motel
revenue decreased in the third quarter of 1997 to 5.4% from 6.5% of motel
revenue in the third quarter of 1996. General and administrative expenses for
the first nine months of 1997 were $2,312,485 compared to $2,047,704 for the
first nine months of 1996, an increase of $264,781, or 12.9%. General and
administrative expenses as a percent of motel revenue decreased in the first
nine months of 1997 to 6.6% from 7.3% of motel revenue in the first nine months
of 1996. The decrease in general and administrative expenses was due primarily
to experiencing increased revenues without adding incremental overhead to
support the revenue growth.
8
<PAGE> 9
RESULTS OF OPERATIONS, CONTINUED
Interest expense increased by $128,170 for the third quarter of 1997 from
$1,018,911 for the third quarter of 1996 to $1,147,081 in 1997, or 12.6%.
Interest expense increased by $924,463 for the first nine months of 1997 from
$2,458,460 in 1996 to $3,382,923 in 1997, or 37.6%. The increase was primarily
due to the new borrowings for acquisitions and new construction. Average bank
borrowings for the third quarter of 1997 increased to $56,424,950 from
$51,252,580 for the comparable period in 1996, an increase of $5,172,370, or
10.1%. Bank borrowings at September 30, 1997 were $56,542,261.
As a result of the aforementioned operating factors and general business
conditions, net income for the third quarter of 1997 from continuing operations
was $1,731,242, or $.36 per share, versus net income of $1,281,149, or $.26 per
share, for the corresponding period in 1996, a 35.1% increase.
Net income for the nine months of 1997 from continuing operations was
$3,293,203, or $.68 per share, versus net income of $2,756,290, or $.57 per
share, for the corresponding period of 1996, a 19.5% increase. Earnings before
interest, taxes, depreciation and amortization (EBITDA) for the third quarter
of 1997, were $5,078,352, an increase of $1,048,889, or 26.0%, over EBITDA of
$4,029,463 for the third quarter of 1996. EBITDA for the first nine months of
1997 were $11,828,624, an increase of $2,572,453, or 27.8%, over EBITDA of
$9,256,171 for the first nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Supertel's growth has been financed through a combination of cash provided
from operations and long-term debt financing. Cash provided from operations
was approximately $9,168,000 for the first nine months of 1997 and $5,831,000
for the first nine months of 1996. Supertel required capital principally for
the construction, acquisition and improvement of lodging facilities. Capital
expenditures for such purposes were approximately $11,120,000 in the first nine
months of 1997 and approximately $24,320,000 in the first nine months of 1996.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
Long-term debt (excluding current installments of long-term debt) was
$54,734,586 at September 30, 1997 and $58,894,525 at December 31, 1996.
Supertel's current installments of long-term debt were $1,807,675 at September
30, 1997 and $1,067,023 at December 31, 1996. Supertel's loan agreements
contain certain restrictions and covenants related to, among other things,
minimum debt service, maximum debt per motel room and maximum debt-to-tangible
net worth. At September 30, 1997, Supertel was in compliance with these
covenants.
Supertel has a $25,000,000 line of credit. The line of credit had an
outstanding balance of $14,169,412 (classified as long-term debt) at September
30, 1997. Supertel's ratio of long-term debt (including current installments)
to long-term debt and stockholders' equity was 63.8% at September 30, 1997,
compared to 67.6% at December 31, 1996.
During the first nine months of 1997, Supertel has added a net of 303
rooms, including a new 101-room property in Houston, Texas that opened in
August 1997. The company does not expect to add additional rooms in
calendar-year 1997 and has expended approximately $11,120,000 of capital funds
for such development.
In addition to planned development expenditures, Supertel had principal
payments totaling $1,067,023 due under existing debt obligations during 1997.
Supertel believes that a combination of cash flow from operations, borrowings
available under its lines of credit, securing new short- and long-term
facilities and the ability to leverage four unencumbered properties will be
sufficient to fund scheduled development and debt repayment.
10
<PAGE> 11
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, EARNINGS PER SHARE, which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for Supertel's fiscal year
ending December 31, 1997. Retroactive application will be required. Supertel
believes the adoption of Statement No. 128 will not have a significant effect
on its reported income per share.
In March 1997, the FASB issued Statement 129, DISCLOSURES OF INFORMATION
ABOUT CAPITAL STRUCTURE, which clarifies disclosure requirements related to the
type, and nature, of securities contained in an entity's capital structure.
Supertel is required to adopt Statement 129 effective December 31, 1997. The
Company believes the adoption of Statement 129 will not have a significant
effect on its capital structure disclosure.
In June 1997, the FASB issued Statement 130, REPORTING COMPREHENSIVE
INCOME, which establishes standards for reporting and display of comprehensive
income and its components in a financial statement with the same prominence as
other financial statements. Comprehensive income is defined as net income
adjusted for changes in shareholders' equity resulting from events other than
net income or transactions related to an entity's capital instruments.
Supertel is required to adopt Statement 130 effective January 1, 1998, with
reclassification of financial statements for earlier years required. Supertel
has not yet determined what impact Statement 130 may have on its reported
comprehensive income.
In June 1997, the FASB issued Statement 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, which establishes standards for
reporting information about operating segments. Generally, Statement 131
requires that financial information be reported on the basis that is used
internally for evaluating performance. Supertel is required to adopt Statement
131 effective January 1, 1998, and comparative information for earlier years
must be restated. Supertel has not yet determined what impact Statement 131
may have on its current reporting structure.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
None.
B. Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the calendar quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUPERTEL HOSPITALITY, INC.
By: /s/ Troy Beatty
---------------------------
Mr. Troy Beatty
Chief Financial Officer
DATED this 13th day of November 1997.
----
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 918,462
<SECURITIES> 0
<RECEIVABLES> 1,082,610
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,525,362
<PP&E> 108,265,121
<DEPRECIATION> 17,469,530
<TOTAL-ASSETS> 95,093,383
<CURRENT-LIABILITIES> 7,922,764
<BONDS> 54,734,586
0
0
<COMMON> 48,400
<OTHER-SE> 32,003,733
<TOTAL-LIABILITY-AND-EQUITY> 95,093,383
<SALES> 34,846,531
<TOTAL-REVENUES> 34,846,531
<CGS> 0
<TOTAL-COSTS> 20,770,803
<OTHER-EXPENSES> 5,269,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,382,923
<INCOME-PRETAX> 5,488,663
<INCOME-TAX> 2,195,460
<INCOME-CONTINUING> 3,293,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,293,203
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
