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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q /A
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(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 1998.
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number: 0-23536
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SUPERTEL HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0774097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
309 NORTH 5TH STREET
NORFOLK, NEBRASKA 68701
(Address of principal executive offices)
Telephone number: (402) 371-2520
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
Yes (X) No ( )
As of September 30, 1998, there were 4,843,400 common shares of the registrant
outstanding.
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PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. Supertel Hospitality, Inc. hereby amends Item 2 of its Form 10-Q
for the quarter ended September 30, 1998 to read as follows:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements and information
relating to Supertel Hospitality, Inc. (the "Company") that are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions, including the business
factors described in the Company's 1997 Form 10-K. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
believed, estimated, or expected.
RECENT DEVELOPMENT
On October 15, 1998, the Company announced that the June 3, 1998 Agreement
and Plan of Merger between the Company and PMC Commercial Trust had been
terminated by mutual agreement. In conjunction with the Agreement and Plan of
Merger, the Company has incurred legal, accounting, investment banking,
environmental and title expenses of approximately $700,000 to $800,000 which
will be reflected as a charge to income in the fourth quarter of 1998.
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RESULTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Total motel revenues for the third quarter were $14,656,945, an increase of
$1,193,345, or 8.86%, over total revenues of $13,463,600 for the third quarter
of 1997. Total motel revenues for the first nine months were $39,098,605, an
increase of $4,252,074, or 12.20%, over total revenues of $34,846,531 for the
first nine months of 1997. The increase for the third quarter was primarily due
to an increase of $1,180,588 in revenue from lodging operations with the
remaining $12,757 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 $4,189,703 in revenue from lodging operations
with the remaining $62,371 from other lodging activities.
The increase in revenues from lodging operations for the third quarter
resulted primarily from renting 304,927 rooms in 1998 compared to 294,569 rooms
rented in the same period of 1997, an increase of 10,358, or 3.5%. Rooms
available in the third quarter of 1998 were 410,402, an increase of 5,496, or
1.4%, over rooms available of 404,906 in the third quarter of 1997. The increase
in revenues from lodging operations for the first nine months resulted primarily
from renting 832,542 rooms in 1998 compared to 787,900 rooms rented in the same
period of 1997, an increase of 44,642, or 5.7%. Rooms available for the first
nine months of 1998 were 1,218,478, an increase of 43,919, or 3.7%, over rooms
available of 1,174,559 for the first nine months of 1997.
The Company's room count was 4,526 at the end of the third quarter 1998, a
net increase of 67 rooms, or 1.5%, over the room count of 4,459 rooms at
December 31, 1997.
Revenues were impacted by an increase in the average daily room rate in the
third quarter of 1998. An average daily room rate of $48.07 was achieved
compared to $45.71 for the third quarter of 1997, an increase of $2.36, or 5.2%.
For the first nine months, the average daily room rate was $46.96 in 1998
compared to $44.23 for the first nine months of 1997, an increase of $2.73, or
6.2%.
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RESULTS OF OPERATIONS, CONTINUED
Revenues per available room for the third quarter 1998 increased from
$33.25 for the third quarter 1997 to $35.54, an increase of $2.29, or 6.9%.
Revenue per available room for the first nine months of 1998 increased to $32.09
from $29.67, an increase of $2.42, or 8.2%.
Motel revenue was also impacted by changes in occupancy. Occupancy as a
percentage of rooms available increased from 72.7% in the third quarter of 1997
to 73.9% in the third quarter 1998. The increase in the occupancy percentage
resulted primarily from the continued seasoning of the Texas properties. The
occupancy percentage in seasoned properties (those owned/opened over one year)
increased from 73.8% in the third quarter of 1997 to 74.2% in the third quarter
of 1998. Total occupancy increased from 67.1% for the first nine months of 1997
to 68.3% for the first nine months of 1998. The occupancy percentage in seasoned
properties increased from 68.5% for the first nine months of 1997 to 68.7% for
the first nine months of 1998. Occupancy is seasonal and is lowest in the first
quarter, increases in the second, peaks in the third and then drops down again
in the fourth quarter. The increases in revenue from other lodging activities
resulted from the increase in the number of rooms rented.
Lodging expenses for the third quarter 1998 were $7,960,381 compared to
$7,407,385 for the third quarter of 1997, an increase of $552,996, or 7.5%.
Lodging expenses for the first nine months of 1998 were $21,611,071 compared to
$19,992,793 for the first nine months of 1997, an increase of $1,618,278, or
8.1%. 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 56.8% for the third quarter of
1997 to 55.9% in the third quarter of 1998. Lodging expenses as a percentage of
lodging revenues decreased from 59.3% for the first nine months of 1997 to 57.0%
in the first nine months of 1998. The percentage decrease for the third quarter
and the first nine months resulted from better cost controls implemented from
the open book management program and a larger base of revenue to cover fixed
costs.
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RESULTS OF OPERATIONS, CONTINUED
Depreciation and amortization expenses for the third quarter of 1998 were
$1,110,089 compared to $1,045,867 for the third quarter of 1997, an increase of
$64,222, or 6.1%. Depreciation and amortization expenses for the first nine
months of 1998 were $3,299,683 compared to $2,957,038, an increase of $342,645,
or 11.6%. This increase was primarily due to an increase in the number of motel
properties. General and administrative expenses for the third quarter of 1998
were $992,443 compared to $720,684 (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 1997, an increase of $271,759, or
37.7%. General and administrative expenses as a percent of motel revenue
increased in the third quarter of 1998 to 6.7% from 5.4% of motel revenue in the
third quarter of 1997. General and administrative expenses for the first nine
months of 1998 were $3,151,969 compared to $2,312,485 for the first nine months
of 1997, an increase of $839,484, or 36.3%. General and administrative expenses
as a percent of motel revenue increased in the first nine months of 1998 to 8.1%
from 6.6% of motel revenue in the first nine months of 1997. The increase in
general and administrative expenses was due primarily to experiencing increased
revenues without adding incremental overhead to support the revenue growth.
Interest expense decreased by $169,501 for the third quarter of 1998 from
$1,147,081 for the third quarter of 1997 to $977,580 in 1998, or 14.7%. Interest
expense decreased by $254,148 for the first nine months of 1998 from $3,382,923
in 1997 to $3,128,775 in 1998, or 7.5%. The decrease was primarily due to
reduced development and acquisition activity resulting from fewer acceptable
development opportunities and acquisition candidates. Average bank borrowings
for the third quarter of 1998 decreased to $51,667,802 from $56,424,950 for the
comparable period in 1997, a decrease of $4,757,148, or 8.4%. Bank borrowings at
September 30, 1998 were $51,070,684.
As a result of the aforementioned operating factors and general business
conditions, net income for the third quarter of 1998 from continuing operations
was $1,995,142, or $.41 per share, versus net income of $1,731,242, or $.36 per
share, for the corresponding period in 1997, a 15.2% increase.
Net income for the nine months of 1998 from continuing operations was
$4,249,339, or $.88 per share, versus net income of $3,293,203, or $.68 per
share, for the corresponding period of 1997, a 29.0%
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RESULTS OF OPERATIONS, CONTINUED
increase. Earnings before interest, taxes, depreciation, and amortization
(EBITDA) for the third quarter of 1997 were $5,412,914, an increase of $334,562,
or 6.6%, over EBITDA of $5,078,352 for the third quarter of 1997. EBITDA for the
first nine months of 1998 were $13,510,695, an increase of $1,682,071, or 14.2%,
over EBITDA of $11,828,624 for the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth has been financed through a combination of cash
provided from operations and long-term debt financing. Cash provided from
operations was approximately $9,739,061 for the first nine months of 1998 and
$9,168,000 for the first nine months of 1997. The Company required capital
principally for the construction, acquisition, and improvement of lodging
facilities. Capital expenditures for such purposes were approximately $4,155,000
in the first nine months of 1998 and approximately $11,120,000 in the first nine
months of 1997.
Long-term debt (excluding current installments of long-term debt) was
$48,820,545 at September 30, 1998 and $63,982,932 at December 31, 1997. The
Company's current installments of long-term debt were $2,250,139 at September
30, 1998 and $1,942,380 at December 31, 1997. The Company'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, 1998, the Company was in compliance with these
covenants.
The Company's ratio of long-term debt (including current installments) to
long-term debt and stockholders' equity was 57.9% at September 30, 1998,
compared to 66.6% at December 31, 1997.
The Company has constructed/acquired approximately 77 motel rooms to date
in 1998 at a cost of approximately $2,200,000. The Company does not anticipate
any further motel development in 1998. The Company believes that a combination
of cash flow from operations, borrowings available under its line of credit,
securing new short- and long-term facilities and the ability to leverage
unencumbered properties will be sufficient to fund scheduled development and
debt repayment.
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LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
The Company had 4,526 rooms in operation as of September 30, 1998 compared
to 4,460 rooms in operation as of September 30, 1997, a net increase of 66 rooms
or 1.5%.
YEAR 2000 ISSUES
In 1998, the Company began preparing its computer-based systems for Year
2000 ("Y2K") computer software compliance issues. Historically, certain computer
programs were written using two digits rather than four to define the applicable
year. As a result, software may recognize a date using the two digits "00" as
1900 rather than the year 2000. Computer programs that do not recognize the
proper date could generate erroneous data or cause systems to fail. The
Company's Y2K project covers both traditional computer systems and
infrastructure ("IT Systems") and computer based hardware and software,
facilities, and equipment ("Non-IT Systems").
The Company has completed an assessment of its IT and Non-IT Systems and is
in the process of replacing noncompliant systems. Approximately 60% of the
systems are compliant. The Company expects to replace any noncompliant systems
by the end of the second quarter of 1999. The Company does not have any material
suppliers or customers and the Y2K noncompliance of any particular supplier
should not materially affect the Company.
The Company has incurred approximately $225,000 of Y2K project expense to
date. Future expenses are estimated to include approximately $375,000 of
additional costs. Such cost estimates are based upon presently available
information and may change as the Company continues with its Y2K project.
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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
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Mr. Troy Beatty
Senior Vice President and
Chief Financial Officer
DATED this 25th day of November, 1998.
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