<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 March 31, 1999.
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 March 31, 1999 there were 4,843,400 common shares of the registrant
outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
Assets 1999 1998
----------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- 11,520,593
Accounts receivable 1,450,666 1,428,531
Prepaid expenses and other 801,126 388,409
----------------- -------------
Total current assets 2,251,792 13,337,533
----------------- -------------
Property and equipment, at cost 115,236,014 113,530,994
Less accumulated depreciation (23,060,756) (22,122,750)
----------------- -------------
Net property and equipment 92,175,258 91,408,244
----------------- -------------
Other assets:
Intangible assets 1,261,283 1,312,828
Other assets 184,128 180,174
----------------- -------------
Total other assets 1,445,411 1,493,002
----------------- -------------
Total assets $ 95,872,461 106,238,779
================= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,053,076 2,437,936
Accounts payable 1,919,546 1,370,408
Income taxes payable 350,000 207,900
Accrued expenses 3,269,303 3,738,309
----------------- -------------
Total current liabilities 7,591,925 7,754,553
Deferred income taxes 1,051,166 926,075
Long-term debt, excluding current installments 48,281,214 59,223,649
Other long-term liabilities 406,944 415,278
----------------- -------------
Total liabilities 57,331,249 68,319,555
----------------- -------------
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 4,843,400 shares in 1998 and 4,840,000 shares in 1997 48,434 48,434
Additional paid-in capital 18,387,933 18,387,933
Retained earnings 20,104,845 19,482,857
----------------- -------------
Total stockholders' equity 38,541,212 37,919,224
Commitments and contingency
----------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 95,872,461 106,238,779
================= =============
</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
MARCH 31,
-----------------------------
1999 1998
-------------- -----------
<S> <C> <C>
Motel revenues:
Lodging revenues $ 10,896,061 10,533,617
Other lodging activities 367,698 370,675
-------------- -----------
Total motel revenues 11,263,759 10,904,292
-------------- -----------
Direct operating expenses:
Payroll and payroll taxes 3,168,077 2,779,867
Royalties and advertising fund 694,582 645,635
Other lodging 3,207,940 3,044,067
-------------- -----------
Total lodging expense 7,070,599 6,469,569
Other lodging activities 268,696 269,530
Depreciation and amortization 1,135,160 1,113,272
General and administrative 870,838 999,863
-------------- -----------
Total direct operating expenses 9,345,293 8,852,234
-------------- -----------
Operating income 1,918,466 2,052,058
-------------- -----------
Other income (expense):
Interest expense (889,769) (1,101,009)
Miscellaneous income 7,950 18,051
-------------- -----------
(881,819) (1,082,958)
-------------- -----------
Income before income taxes 1,036,647 969,100
Income tax expense 414,659 387,635
-------------- -----------
Net income $ 621,988 581,465
============== ===========
Net income per share $ .13 .12
============== ===========
Weighted average shares outstanding 4,843,400 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>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 621,988 581,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,083,615 1,029,113
Amortization 51,545 84,159
Loss on sale of property and equipment -- 18,802
Deferred income taxes 125,091 68,500
Changes in assets and liabilities:
Accounts receivable (22,135) (46,587)
Prepaid expenses and other assets (416,671) (402,538)
Recoverable income taxes -- 148,925
Accounts payable 549,138 565,001
Income taxes payable 142,100 --
Accrued expenses and other liabilities (477,340) 65,481
------------ ----------
Net cash provided by operating activities 1,657,331 2,112,321
------------ ----------
Cash flows from investing activities:
Additions to property and equipment (1,850,629) (569,086)
Decrease in intangible assets -- (17,216)
Proceeds from sale of property and equipment -- 2,211
------------ ----------
Net cash used in investing activities (1,850,629) (584,091)
------------ ----------
Cash flows from financing activities:
Repayments of long-term debt (20,255,769) (10,295,826)
Proceeds from long-term debt 8,928,474 --
------------ ----------
Net cash used in financing activities (11,327,295) (10,295,826)
------------ ----------
Net decrease in cash and cash equivalents (11,520,593) (8,767,596)
Cash and cash equivalents at beginning of period 11,520,593 9,532,430
------------ ----------
Cash and cash equivalents at end of period $ -- 764,834
============ ==========
</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 March 31, 1999 and the
condensed consolidated statements of income and cash flows for the three
months ended March 31, 1999 and 1998 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 and
results of operations for all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Form 10-K Annual Report for the year ended December 31, 1998.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the operating results for the full year.
(2) NET INCOME PER SHARE
For the three months ended March 31, 1999 and 1998, the net income per
share was calculated based on the weighted average number of common
shares outstanding.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements and information
relating to Supertel that are based on the beliefs of Supertel management as
well as assumptions made by and information currently available to Supertel
management. Such statements reflect the current views of Supertel with respect
to future events and are subject to certain risks, uncertainties and
assumptions, including "Certain Business Factors" described in Supertel's 1998
Form 10-K. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as believed, estimated or expected.
RESULTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 31, 1999 AND 1998
Total motel revenues for the first quarter of 1999 were $11,263,759, an
increase of $359,467 or 3.3%, over total revenues of $10,904,292 for the first
quarter of 1998. The increase was primarily due to an increase of $362,444 in
revenues from lodging operations. Revenues from other lodging activities, which
consist of telephone, vending and movie revenues, decreased $2,977. The lodging
revenue increase was affected by an addition to one existing property in Iowa,
an addition to one existing property in Nebraska, and the acquisition of one
property in Missouri. The Company's room count was 4,559 at the end of the first
quarter of 1999, compared to 4,454 at the end of the first quarter of 1998.
The increase in revenues from lodging operations for the first quarter of
1999 resulted primarily from renting 244,130 rooms, an increase of 3,070 or
1.3%, over the 241,060 rooms rented in the first quarter of 1998. Rooms
available in the first quarter of 1999 were 407,678, an increase of 6,751 or
1.7% over rooms available of 400,927 in the first quarter of 1998. Occupancy as
a percentage of rooms available during the comparable three-month periods
decreased from 60.1% to 59.9%.
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<PAGE> 7
Occupancy as a percentage of rooms available in seasoned properties (those
owned/opened over one year) was essentially unchanged at 59.7% versus 60.1% for
the same period last year. There was only one unseasoned property at the end of
the first quarter, 1999.
The revenue increase also reflected an increase in the average daily room
rate. An average daily room rate of $46.14 was achieved for the first quarter of
1999 compared to $45.23 for the first quarter of 1998, an increase of $0.91 or
2.0% per rented room. The decrease in revenues from other lodging activities
resulted from the decrease in telephone revenue. Revenue per available room for
the first quarter of 1999 increased to $27.63 from $27.20, an increase of $0.43
or 1.6%.
Lodging expenses for the first quarter of 1999 were $7,070,599, an increase
of $601,030 or 9.3%, over the $6,469,569 for the first quarter of 1998. The
increase in lodging expenses was due in part to the increase in the number of
rooms rented and an increase in payroll and payroll tax expense. Lodging expense
as a percentage of motel revenues increased from 59.3% to 62.8% during the
comparable three-month periods. The increase in payroll and payroll tax expense
resulted from wage rate pressure and increased hours worked related to training.
Depreciation and amortization expense for the first quarter of 1999 was
$1,135,160, an increase of $21,888 or 2.0%, from the $1,113,272 for the first
quarter of 1998. This increase was due to an increase in the number of motel
properties.
General and administrative expenses for the first quarter of 1999 were
$870,838, a decrease of $129,025 or 12.9%, over general and administrative
expenses of $999,863 for the first quarter of 1998. General and administrative
expenses as a percentage of motel revenue decreased to 7.7% in the first quarter
of 1999 from 9.2% in the first quarter of 1998. The percentage decrease was due
primarily to a reduced bonus.
7
<PAGE> 8
Interest expense for the first quarter of 1999 was $889,769, a decrease of
$211,240 or 19.2%, over $1,101,009 for the first quarter of 1998. Average
borrowings for the first quarter of 1999 decreased to $50,513,230 from
$55,667,035 in the same quarter 1998, a decrease of $5,153,805 or 9.3%. The
decrease was primarily due to using cash flow from operations to pay down debt.
Long-term debt (including current installments) at March 31, 1999 was
$50,334,290.
Net income for the first quarter of 1999 from continuing operations was
$621,988, or $.13 per share versus net income of $581,465, or $.12 per share,
for the corresponding period in 1998. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the first quarter of 1999 were
$3,061,576, an decrease of $121,805 or 3.8% over EBITDA of $3,183,381 for the
first quarter of 1998.
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
$1,657,331 for the first quarter of 1999 and $2,112,321 for the first quarter of
1998. Supertel requires capital principally for the construction, acquisition
and improvement of lodging facilities. Capital expenditures for such purposes
were $1,850,629 in the first quarter of 1999 and $569,086 in the first quarter
of 1998.
Long-term debt (excluding current installments of long-term debt) was
$48,281,214 at March 31, 1999 and $59,223,649 at December 31, 1998. Supertel's
current installments of long-term debt were $2,053,076 at March 31, 1999 and
$2,437,936 at December 31, 1998. Supertel's loan agreements contain certain
restrictions and covenants related to, among other things, minimum debt service,
maximum debt per motel room and maximum debt to tangible net worth. At March 31,
1999, Supertel was in compliance with these covenants.
8
<PAGE> 9
Supertel maintains a $25,000,000 line of credit, with an outstanding
balance of $11,183,641 (classified as long-term debt) at March 31, 1999.
Supertel's ratio of long-term debt (including current installments) to long-term
debt and stockholders' equity was 56.6% at March 31, 1999, compared to 61.9% at
December 31, 1998.
Supertel plans to add an aggregate of approximately 200 - 300 motel rooms
in 1999 and expects approximately $6,000,000 - $11,000,000 of capital funds will
be necessary to finance such acquisitions. Supertel believes that a combination
of cash flow from operations, the use of funds from its line of credit, securing
new short- and long-term facilities and the ability to leverage unencumbered
properties will be sufficient to fund acquisitions and debt repayments.
YEAR 2000
In 1998, Supertel 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. Supertel's
Y2K project covers both traditional computer systems and infrastructure ("IT
Systems") and computer based hardware and software, facilities, and equipment
("Non-IT Systems").
Supertel has completed an assessment of its IT and Non-IT Systems and
is in the process of replacing noncompliant systems. Approximately 75% of the
systems are compliant. Supertel expects to replace any noncompliant systems by
the end of the second quarter of 1999. Supertel does not have any material
suppliers or customers and the Y2K noncompliance of any particular supplier
should not materially affect Supertel.
Supertel has incurred approximately $225,000 of Y2K project expense to
date. Future expenses are estimated to include approximately $75,000 of
additional costs. Such cost estimates are based upon presently available
information and may change as Supertel continues with its Y2K project.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is effective January 1, 2000. Management does not
believe adoption of this Statement will have a material impact on Supertel's
financial position, results of operations or cash flows.
9
<PAGE> 10
ITEM 3(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in Supertel's interest rate exposure
subsequent to December 31, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A complaint filed on June 16, 1998 against Supertel, the members of
the Supertel board of directors and PMC Commercial Trust, with respect to a
merger agreement and related agreements between Supertel and PMC Commercial
Trust (which merger agreement was terminated in October 1998), was dismissed
with prejudice by the Delaware Court of Chancery in New Castle County on April
23, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Supertel's annual meeting of stockholders was held on April 23, 1999.
The stockholders elected five directors and ratified the appointment of
independent public accountants. Voting on these matters was as follows:
1. ELECTION OF DIRECTORS:
FOR WITHHELD
Paul Schulte .............................. 4,318,662 3,112
Steve Borgmann ............................ 4,318,662 3,112
Joseph Caggiano ........................... 4,318,162 3,912
Loren Steele .............................. 4,318,162 3,912
Rich Herink ............................... 4,317,652 4,422
2. RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT
AUDITORS FOR FISCAL YEAR 1999:
FOR ....................................... 4,313,181
AGAINST ................................... 1,938
WITHHELD................................... 6,955
ITEM 5. OTHER INFORMATION
None.
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
None.
B. Reports on Form 8-K.
None
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/ Mr. Troy Beatty
-----------------------------
Mr. Troy Beatty
Chief Financial Officer
DATED this 14 day of May, 1999.
--
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,450,666
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,251,792
<PP&E> 115,236,014
<DEPRECIATION> 23,060,756
<TOTAL-ASSETS> 95,872,462
<CURRENT-LIABILITIES> 7,241,925
<BONDS> 48,281,214
0
0
<COMMON> 48,434
<OTHER-SE> 38,492,778
<TOTAL-LIABILITY-AND-EQUITY> 95,872,462
<SALES> 11,263,759
<TOTAL-REVENUES> 11,263,759
<CGS> 0
<TOTAL-COSTS> 7,339,295
<OTHER-EXPENSES> 2,005,998
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<INTEREST-EXPENSE> 889,769
<INCOME-PRETAX> 1,036,647
<INCOME-TAX> 414,659
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</TABLE>
