-- Completed an offering of 332,500 shares of 10% Series B Cumulative
Preferred Stock (NASDAQ : SPPRO ) with net proceeds of $7.7 million and
additional cash used to pay an acquisition-related bridge loan.
-- Converted the variable interest rate on four mortgage loans payable to
GECC totaling $64.6 million to an average annual fixed rate of 5.9% for the
remaining term of 8.8 years; about 68 percent of the company's debt is now
fixed at favorable long-term rates.
Operating Results
"The first two months of the quarter were generally in line with our
expectations but took a noticeable downturn in June, reflecting the
worsening economy," said Paul J. Schulte, Supertel's chairman, president
and CEO. "Our portfolio as a whole held its own, with same store revenue
per available room (RevPAR) down 0.6 percent in the quarter.
"We had mixed RevPAR results in our three segments, reflecting economic and
weather conditions. Our 56 same store economy hotels, which account for
about 60 percent of our same store portfolio, performed quite well, with
RevPAR up a strong 3.9 percent, compared to an industry decline of 2.0
percent for that segment, according to Smith Travel Research. Average daily
rate (ADR) improved 1.1 percent and occupancy rose 2.8 percent. Our
leisure travel remained strong throughout the quarter, while business and
construction-related travel softened."
The company's 30 same store midscale without food and beverage properties'
RevPAR declined 4.4 percent, with ADR down 1.7 percent and occupancy off
2.7 percent. "Our seven same store extended stay properties were hardest
hit. RevPAR was down 6.9 percent, with occupancy declining 2.0 percent and
ADR off 5.0 percent. The lower results at our extended stay properties
were largely due to the sharp drop-off in construction and contract
activity, which together account for a substantial portion of our guest
base for those hotels, especially in the Southeast. We believe that this
base of business will return to more normal levels once this economic
slowdown works through its cycle."
Schulte said that in the second quarter of 2007 the company added
approximately 2,900 rooms, the majority of which were located in the South
Atlantic region. "The performance of these acquisitions in the 2008 second
quarter occurred in a slow economic environment, with a fairly robust
economic environment in effect for the same quarter of 2007. The sluggish
economy in 2008 compared to last year impacted operating performance and
resulted in the total portfolio RevPAR being down 5.0 percent driven
largely by a 4.2 percent decline in occupancy. Again, we are confident the
guest base for our South Atlantic properties will revert to more historic
norms once the current economic slowdown runs through its cycle."
"With a decline in top line revenues, it was difficult maintaining our
margins, but our operators did a good job, with same store margins
declining slightly from 32.7 percent to 32.3 percent," he said. "We have
made improvements in controlling our variable labor costs, but fixed labor
costs are a factor even in a period of slower revenue growth, and we
continue to experience rising energy costs. Our operators worked very hard
to control variable costs, and overall performed well in difficult economic
conditions. The recent decline in oil prices has not had a material impact
on energy costs, but a continuation of falling oil prices would be a
positive. We continue to evaluate energy-saving solutions and are sharing
best practices among our hotels."
Hotel and property operations expenses in the 2008 second quarter increased
15.6 percent due to acquisitions made in the past 12 months. Interest
expense was flat, despite an additional $22 million in debt used to acquire
10 hotels. The lower relative interest was due to more attractive interest
rates on a quarter to quarter comparative basis. Second quarter 2008
depreciation and amortization expense increased $0.7 million, compared to
the prior year's same period, also primarily related to hotel acquisitions.
Property operating income (POI), defined as revenue from room rentals and
other hotel services less hotel and property operations expenses, improved
5.9 percent to $10.8 million, principally from the new hotel acquisitions.
The company believes POI is a useful measure of its hotels' operating
efficiencies.
General and administrative expense for the 2008 second quarter was
essentially flat, up $0.1 million.
Balance Sheet
The company strengthened its balance sheet during the 2008 second quarter
with two separate transactions. In May, the company converted $64.6
million of variable rate debt to an average annual fixed rate of 5.9
percent. "This transaction locks in attractive rates for the next eight
years and adds stability to our balance sheet," said Donavon A. Heimes,
chief financial officer.
Also in the quarter, the company completed an offering of 332,500 shares of
10% Series B Cumulative Preferred Stock (
As of
June 30, December 31,
2008 2007
----------- -----------
(unaudited)
ASSETS
Investments in hotel properties $ 404,931 $ 376,240
Less accumulated depreciation 82,520 75,295
----------- -----------
322,411 300,945
Cash and cash equivalents 1,432 1,166
Accounts receivable 2,840 2,242
Prepaid expenses and other assets 4,059 4,725
Deferred financing costs, net 1,844 1,947
----------- -----------
$ 332,586 $ 311,025
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable, accrued expenses and other
liabilities $ 16,890 $ 12,401
Long-term debt 210,963 196,840
----------- -----------
227,853 209,241
----------- -----------
Minority interest in consolidated partnerships,
redemption value $8,086 and $9,544 9,936 10,178
Redeemable preferred stock
Series B, 800,000 shares authorized; $.01 par
value, 332,500 shares outstanding,
liquidation preference of $8,312 7,684 -
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, 40,000,000 shares authorized;
Series A, 2,500,000 shares authorized, $.01
par value, 826,089 and 932,026 shares
outstanding, liquidation preference of
$8,261 and $9,320 8 9
Common stock, $.01 par value, 100,000,000
shares authorized; 20,883,634 and 20,696,126
shares outstanding. 209 207
Additional paid-in capital 112,793 112,792
Distributions in excess of retained earnings (25,897) (21,402)
----------- -----------
87,113 91,606
----------- -----------
COMMITMENTS AND CONTINGENCIES
$ 332,586 $ 311,025
=========== ===========
The following table sets forth the Company's unaudited results of
operations for the three and six months ended June 30, 2008 and 2007,
respectively, (in thousands, except per share data).
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
REVENUES
Room rentals and other hotel
services $ 34,644 $ 30,820 $ 62,620 $ 50,167
-------- -------- -------- --------
EXPENSES
Hotel and property operations 23,802 20,582 45,220 35,258
Depreciation and amortization 3,741 3,018 7,320 5,602
General and administrative 1,040 927 1,996 1,850
-------- -------- -------- --------
28,583 24,527 54,536 42,710
-------- -------- -------- --------
EARNINGS BEFORE NET GAIN (LOSS)
ON DISPOSITIONS OF ASSETS,
OTHER INCOME, INTEREST EXPENSE,
MINORITY INTEREST AND INCOME
TAXES 6,061 6,293 8,084 7,457
Net gain (loss) on dispositions of
assets (1) - 1 -
Other income 32 42 63 77
Interest expense (3,441) (3,392) (7,101) (5,491)
Minority interest (194) (99) (181) (142)
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 2,457 2,844 866 1,901
Income tax (expense) benefit (334) (438) 364 112
-------- -------- -------- --------
NET INCOME 2,123 2,406 1,230 2,013
Preferred stock dividends (236) (248) (422) (538)
NET INCOME AVAILABLE
TO COMMON SHAREHOLDERS -------- -------- -------- --------
$ 1,887 $ 2,158 $ 808 $ 1,475
======== ======== ======== ========
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS
EPS Basic $ 0.09 $ 0.11 $ 0.04 $ 0.07
======== ======== ======== ========
EPS Diluted $ 0.09 $ 0.11 $ 0.04 $ 0.07
======== ======== ======== ========
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Unaudited - In thousands, except per share data:
Three months Six months
ended June 30, ended June 30,
2008 2007 2008 2007
-------- -------- -------- --------
Weighted average shares outstanding
for:
calculation of earnings per share -
basic 20,826 20,083 20,764 19,866
======== ======== ======== ========
calculation of earnings per share -
diluted 20,826 20,105 20,764 19,888
======== ======== ======== ========
Weighted average shares outstanding
for:
calculation of FFO per share - basic 20,826 20,083 20,764 19,866
======== ======== ======== ========
calculation of FFO per share -
diluted 22,346 22,356 22,347 22,335
======== ======== ======== ========
Reconciliation of Weighted average
number of shares for EPS diluted to
FFO per share diluted:
EPS diluted shares 20,826 20,105 20,764 19,888
Common stock issuable upon exercise or
conversion of:
Warrants - 32 - 23
Series A Preferred Stock 1,520 2,219 1,583 2,424
-------- -------- -------- --------
FFO per share diluted shares 22,346 22,356 22,347 22,335
======== ======== ======== ========
Reconciliation of net income to FFO
Net income available to common
shareholders $ 1,887 $ 2,158 $ 808 $ 1,475
Depreciation and amortization 3,741 3,018 7,320 5,602
Net (gain) loss on disposition of
assets 1 - (1) -
-------- -------- -------- --------
FFO available to common shareholders $ 5,629 $ 5,176 $ 8,127 $ 7,077
======== ======== ======== ========
FFO per share - basic $ 0.27 $ 0.26 $ 0.39 $ 0.36
======== ======== ======== ========
FFO per share - diluted $ 0.26 $ 0.24 $ 0.38 $ 0.34
======== ======== ======== ========
FFO is a non-GAAP financial measure. We consider FFO to be a market
accepted measure of an equity REIT's operating performance, which is
necessary, along with net earnings (loss), for an understanding of our
operating results. FFO, as defined under the National Association of Real
Estate Investment Trusts (NAREIT) standards, consists of net income
computed in accordance with accounting principles generally accepted in the
United States of America ("GAAP"), excluding gains (or losses) from sales
of real estate assets, plus depreciation and amortization of real estate
assets. We believe our method of calculating FFO complies with the NAREIT
definition. FFO does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. FFO should
not be considered as an alternative to net income (loss) (computed in
accordance with GAAP) as an indicator of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our ability
to pay dividends or make distributions. All REITs do not calculate FFO in
the same manner; therefore, our calculation may not be the same as the
calculation of FFO for similar REITs.
We use FFO as a performance measure to facilitate a periodic evaluation of
our operating results relative to those of our peers, who, like us, are
typically members of NAREIT. We consider FFO a useful additional measure
of performance for an equity REIT because it facilitates an understanding
of the operating performance of our properties without giving effect to
real estate depreciation and amortization, which assume that the value of
real estate assets diminishes predictably over time. Since real estate
values have historically risen or fallen with market conditions, we believe
that FFO provides a meaningful indication of our performance.
Unaudited-In thousands
Three months Six months
ended June 30, ended June 30,
2008 2007 2008 2007
--------- --------- -------- --------
RECONCILIATION OF NET INCOME
TO ADJUSTED EBITDA
Net income available to common
shareholders $ 1,887 $ 2,158 $ 808 $ 1,475
Interest 3,441 3,392 7,101 5,491
Income tax expense (benefit) 334 438 (364) (112)
Depreciation and amortization 3,741 3,018 7,320 5,602
Minority interest 194 99 181 142
Preferred stock dividends 236 248 422 538
--------- --------- -------- --------
Adjusted EBITDA $ 9,833 $ 9,353 $ 15,468 $ 13,136
========= ========= ======== ========
Adjusted EBITDA is a non-GAAP financial measure. We calculate Adjusted
EBITDA by adding back to net earnings (loss) available to common
shareholders certain non-operating expenses and non-cash charges which are
based on historical cost accounting and we believe may be of limited
significance in evaluating current performance. We believe these
adjustments can help eliminate the accounting effects of depreciation and
amortization and financing decisions and facilitate comparisons of core
operating profitability between periods, even though Adjusted EBITDA also
does not represent an amount that accrues directly to common shareholders.
In calculating Adjusted EBITDA, we also add back preferred stock dividends,
which are a cash charge.
Adjusted EBITDA doesn't represent cash generated from operating activities
determined by GAAP and should not be considered as an alternative to net
income, cash flow from operations or any other operating performance
measure prescribed by GAAP. Adjusted EBITDA is not a measure of our
liquidity, nor is Adjusted EBITDA indicative of funds available to fund our
cash needs, including our ability to make cash distributions. Neither
measurement reflects cash expenditures for long-term assets and other items
that have been and will be incurred. Adjusted EBITDA may include funds that
may not be available for management's discretionary use due to functional
requirements to conserve funds for capital expenditures, property
acquisitions, and other commitments and uncertainties. To compensate for
this, management considers the impact of these excluded items to the extent
they are material to operating decisions or the evaluation of our operating
performance. Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures of other companies.
The following table sets forth the operations of the Company's hotel
properties for the three and six months ended June 30, 2008 and 2007,
respectively. The Company owned 125 and 115 hotels at June 30, 2008 and
2007, respectively. This presentation includes non-GAAP financial measures.
The Company believes that the presentation of hotel property operating
results (POI) is helpful to investors, and represents a more useful
description of its core operations, as it better communicates the
comparability of its hotels' operating results.
Unaudited-In thousands, except
statistical data: Three months Six months
ended June 30, ended June 30,
2008 2007 2008 2007
------- ------- ------- -------
Same Store:
Revenue per available room (RevPAR):
Midscale w/o F&B $ 49.48 $ 51.76 $ 44.45 $ 46.47
Economy $ 34.41 $ 33.12 $ 30.04 $ 28.64
Extended Stay $ 17.07 $ 18.34 $ 17.30 $ 17.44
------- ------- ------- -------
Total $ 36.46 $ 36.67 $ 32.63 $ 32.58
======= ======= ======= =======
Average daily room rate (ADR):
Midscale w/o F&B $ 72.91 $ 74.16 $ 71.34 $ 72.52
Economy $ 49.04 $ 48.50 $ 48.42 $ 48.11
Extended Stay $ 25.21 $ 26.55 $ 25.11 $ 26.55
------- ------- ------- -------
Total $ 52.78 $ 53.24 $ 51.59 $ 52.54
======= ======= ======= =======
Occupancy percentage:
Midscale w/o F&B 67.9% 69.8% 62.3% 64.1%
Economy 70.2% 68.3% 62.0% 59.5%
Extended Stay 67.7% 69.1% 68.9% 65.7%
------- ------- ------- -------
Total 69.1% 68.9% 63.2% 62.0%
======= ======= ======= =======
Unaudited-In thousands, except statistical data:
Three months Six months
ended June 30, ended June 30,
2008 2007 2008 2007
-------- -------- -------- --------
Total Hotels:
Revenue per available room
(RevPAR): $ 34.04 $ 35.82 $ 30.72 $ 32.77
Average daily room rate
(ADR): $ 51.59 $ 52.00 $ 49.90 $ 51.53
Occupancy percentage: 66.0% 68.9% 61.6% 63.6%
Revenue from room rentals and
other hotel services consists
of:
Room rental revenue $ 33,722 $ 29,991 $ 60,860 $ 48,726
Telephone revenue 92 135 191 246
Other hotel service revenues 830 694 1,569 1,195
-------- -------- -------- --------
Total revenue from room
rentals and other hotel
services $ 34,644 $ 30,820 $ 62,620 $ 50,167
======== ======== ======== ========
Room rentals and other hotel
services
Same Store locations $ 24,665 $ 24,855 $ 41,351 $ 41,147
Acquisitions 9,979 5,965 21,269 9,020
-------- -------- -------- --------
Total room rental and other
hotel services $ 34,644 $ 30,820 $ 62,620 $ 50,167
======== ======== ======== ========
Hotel and property operations
expense
Same Store locations $ 16,709 $ 16,723 $ 29,698 $ 29,531
Acquisitions 7,093 3,859 15,522 5,727
-------- -------- -------- --------
Total hotel and property
operations expense $ 23,802 $ 20,582 $ 45,220 $ 35,258
======== ======== ======== ========
Property Operating Income
("POI")
Same Store locations $ 7,956 $ 8,132 $ 11,653 $ 11,616
Acquisitions 2,886 2,106 5,747 3,293
-------- -------- -------- --------
Total property operating
income $ 10,842 $ 10,238 $ 17,400 $ 14,909
======== ======== ======== ========
POI as a percentage of revenue
from room rentals and other
hotel services
Same Store locations 32.3% 32.7% 28.2% 28.2%
Acquisitions 28.9% 35.3% 27.0% 36.5%
-------- -------- -------- --------
Total POI as a percentage of
revenue 31.3% 33.2% 27.8% 29.7%
======== ======== ======== ========
Same Store reflects 88 hotels owned as of January 1, 2007, for the six
months ended June 30, 2008 and 2007, and 93 hotels owned as of April 1,
2007 for the three months ended June 30, 2008 and 2007.
Unaudited-In thousands
Three months Six months
ended June 30, ended June 30,
2008 2007 2008 2007
-------- -------- -------- --------
RECONCILIATION OF NET
INCOME TO POI
Net income $ 2,123 $ 2,406 $ 1,230 $ 2,013
Depreciation and amortization 3,741 3,018 7,320 5,602
Net (gain) loss on disposition
of assets 1 - (1) -
Other income (32) (42) (63) (77)
Interest expense 3,441 3,392 7,101 5,491
Minority interest 194 99 181 142
General and administrative
expense 1,040 927 1,996 1,850
Income tax expense
(benefit) 334 438 (364) (112)
-------- -------- -------- --------
POI $ 10,842 $ 10,238 $ 17,400 $ 14,909
======== ======== ======== ========
Contact Information: Contact: Donavon A. Heimes Supertel Hospitality Chief financial officer 402.371.2520 Jerry Daly Carol McCune Daly Gray (Media Contact) 703.435.6293