-- Continued to outperform the hotel industry in revenue per available
room (RevPAR) with a decline of 12.2 percent, compared to an industry-wide
decline of 19.5 percent, according to Smith Travel Research data.
-- Completed the disposition of one hotel, resulting in a net gain of
approximately $1.1 million, while as of June 30, 2009, six additional
properties are being marketed for sale.
Operating Results
"Consistent with the trends in the economy and our industry, Supertel
experienced another challenging quarter," said Kelly A. Walters, Supertel's
president and chief executive officer. "Nevertheless, we are encouraged
about how our portfolio has performed relative to the competition. During
the second quarter, Supertel reported a 12.2 percent decline in RevPAR
which compares well to the industry-wide decrease of 19.5 percent,
according to Smith Travel Research data. Nearly all of our RevPAR decline
was due to a 9.1 percent drop in occupancy, and our average daily room rate
(ADR) declined by only 3.5 percent while the industry as a whole
experienced a 9.7 percent decrease in ADR. Despite our strong relative
statistical performance, the management team is not satisfied with our
results, and we remain committed to improving our operating results over
the remainder of the year.
"Our managers again proved to be successful at procuring new sources of
business, but the entire industry is pursuing the same tactic, which has
forced room rates lower for everyone in our competitive set," he said.
"Given the difficult operating environment, we believe our operators are
competing well in the search for new business."
Walters continued, "Although occupancy softness is being felt throughout
the industry, there seems to be ample anecdotal evidence that a turnaround
is not far off. Our seasoned team of general managers indicate that the
attitudes of our guests and prospective guests seem to be more positive
than in the previous few quarters, but we have not yet seen the impact of
improved attitudes in the occupancy numbers. We know this down cycle will
end, but we are uncertain as to when the upturn will officially begin."
RevPAR for the company's 77 same store economy hotels, which account for
about two-thirds of the same store portfolio, declined 12.0 percent,
compared to a 16.1 percent decline for the segment, according to Smith
Travel Research. Average daily rate (ADR) declined 2.1 percent, and
occupancy was off 10.2 percent. RevPAR for the company's 30 same store
midscale without food and beverage properties declined 14.4 percent,
compared to 16.5 percent for the segment, with ADR down 4.4 percent and
occupancy off 10.5 percent. The company's eight extended-stay properties
reported a 2.5 percent decline in RevPAR, occupancy remained essentially
flat at 65.0 percent and ADR dropped 1.7 percent.
Revenues from continuing operations for the 2009 second quarter decreased
$3.9 million or 12.3 percent to $27.9 million, compared to the 2008 second
quarter. Lower occupancy was attributable to unfavorable economic
conditions. Hotel and property operations expense from continuing
operations for the 2009 second quarter decreased $1.9 million, or 8.6
percent, to $19.9 million, compared to the 2008 second quarter. The
decline resulted primarily from lower occupancy levels, with payroll
expense down $0.4 million, hotel franchise related expenses down $0.5
million, room and office supplies down $0.3 million, utilities expense down
$0.2 million, management fees down $0.2 million, and miscellaneous expenses
down $0.3 million.
Interest expense from continuing operations did not experience a material
change, compared to the year-ago period. Depreciation and amortization
expense from continuing operations increased $0.1 million for the 2009
second quarter, compared to the year-ago period. This is primarily related
to capital expenditures made on the hotels. The general and administrative
expenses from continuing operations for the same period did not change
materially.
Property operating income (POI), defined as revenue from room rentals and
other hotel services less hotel and property operating expenses, decreased
$2.1 million from the year ago period to $8 million. "We continue to work
closely with our operators and their managers, focusing on both revenue
enhancement and controlling costs," Walters said. "Our operators have been
diligent in controlling variable costs such as labor, but in this declining
occupancy environment there are fewer opportunities to affect fixed costs,
which led to the erosion in operating margins."
Dispositions
Supertel began marketing eight hotels for sale in the 2009 first quarter,
placing them in discontinued operations. In March 2009, the company sold a
Super 8 hotel, located in Charles City, Iowa for $1.1 million, with a
nominal net gain, and in May 2009 the company sold a Holiday Inn Express
hotel in Gettysburg, Pennsylvania for $2.6 million with a $1.1 million net
gain. Subsequent to quarter end, in July 2009, the company sold a Masters
Inn in Kissimmee, Florida for $1.6 million with a nominal net gain. "We
are actively marketing the remaining five properties and have received
positive buyer interest," said Donavon A. Heimes, chief financial officer.
"Financing remains a challenge for buyers; however, we have found that
qualified buyers for properties priced under $5.0 million can generally
obtain loans from local banks and other sources."
Balance Sheet
During the second quarter, the company paid off a $9.0 million, 8.4 percent
note payable to First National Bank of Omaha, which was scheduled to mature
in November 2009. The loan was refinanced using a $10 million facility
provided by Great Western Bank. The new facility bears interest at 5.5
percent and matures in May 2012. The refinancing left approximately $1.0
million available for support of general operations and also unencumbered
five continuing operations hotels from mortgage debt.
Supertel's remaining near-term debt maturity is a $9.5 million note payable
to Wells Fargo Bank in September 2009 which the company intends to
refinance or repay using other financing, funds from operations or proceeds
from sale of hotels.
Dividend
The company did not declare a common stock dividend for the 2009 second
quarter. The company will monitor requirements to maintain its REIT status
and will regularly evaluate the dividend policy.
Outlook
"The economy remains in recession, and it is difficult to have clarity over
the short term, but we are confident that America will indeed recover on
the heels of the stimulus package," Walters commented. "We also fully
understand that hospitality companies typically lag the general market by
sometimes as much as six months. So, we are far from out of the woods, but
I want to emphasize that we are comfortable with our position within the
industry.
"Some forecasts indicate that the hotel industry will begin to stabilize in
the latter part of the second half of the year and post a basically flat to
down slightly RevPAR in 2010. Regardless of the timing of the recovery,
our operations focus will remain on building revenues while restraining
costs.
"The unprecedented economic conditions have prompted us to find new ways to
operate our hotels smarter at lower cost, a trend we intend to continue
during the expected coming rebound. We will continue to benefit from these
savings when the economy begins to turn around.
"We remain clearly focused on preserving capital and strengthening our
balance sheet," he said. "Concurrently, we are looking to the future and
are reviewing our strategies to prepare for the economic rebound."
About Supertel Hospitality, Inc.
As of August 6, 2009, Supertel Hospitality, Inc. (
As of
June 30, December 31,
2009 2008
----------- ------------
(unaudited)
ASSETS
Investments in hotel properties $ 381,583 $ 380,604
Less accumulated depreciation 88,409 81,549
----------- ------------
293,174 299,055
Cash and cash equivalents 750 712
Accounts receivable 2,375 2,401
Prepaid expenses and other assets 4,937 2,903
Deferred financing costs, net 1,495 1,580
Investment in hotel properties, held for
sale, net 12,155 14,826
----------- ------------
$ 314,886 $ 321,477
=========== ============
LIABILITIES AND EQUITY
LIABILITIES
Accounts payable, accrued expenses and other
liabilities $ 13,934 $ 13,697
Debt related to hotel properties held for sale 9,442 10,849
Long-term debt 188,453 191,957
----------- ------------
211,829 216,503
----------- ------------
Redeemable noncontrolling interest in
consolidated partnership,
at redemption value 1,778 1,778
Redeemable preferred stock
Series B, 800,000 shares authorized; $.01
par value, 332,500 shares outstanding,
liquidation preference of $8,312 7,662 7,662
EQUITY
Shareholders' equity
Preferred stock, 40,000,000 shares
authorized;
Series A, 2,500,000 shares authorized,
$.01 par value, 803,270 shares
outstanding, liquidation preference of
$8,033 8 8
Common stock, $.01 par value, 100,000,000
shares authorized; 21,880,017 and
20,924,677 shares outstanding. 219 209
Additional paid-in capital 119,693 112,804
Distributions in excess of retained earnings (27,353) (25,551)
----------- ------------
Total shareholders' equity 92,567 87,470
Noncontrolling interest
Noncontrolling interest in consolidated
partnership, redemption value $510 and
$2,101 1,050 8,064
----------- ------------
Total equity 93,617 95,534
----------- ------------
COMMITMENTS AND CONTINGENCIES
$ 314,886 $ 321,477
=========== ============
The following table sets forth the Company's unaudited results of
operations for the three and six months ended June 30, 2009 and 2008,
respectively (in thousands, except per share data).
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
REVENUES
Room rentals and other hotel
services $ 27,889 $ 31,812 $ 50,955 $ 57,339
-------- -------- -------- --------
EXPENSES
Hotel and property operations 19,936 21,806 38,573 41,432
Depreciation and amortization 3,594 3,455 7,190 6,741
General and administrative 1,047 1,040 2,018 1,996
-------- -------- -------- --------
24,577 26,301 47,781 50,169
-------- -------- -------- --------
EARNINGS BEFORE NET GAIN (LOSS)
ON DISPOSITIONS OF ASSETS,
OTHER INCOME, INTEREST EXPENSE
AND INCOME TAXES 3,312 5,511 3,174 7,170
Net gain (loss) on dispositions of
assets (49) (1) (116) 1
Other income 34 32 72 63
Interest expense (3,145) (3,193) (6,125) (6,600)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 152 2,349 (2,995) 634
Income tax (expense) benefit 49 (309) 1,006 353
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 201 2,040 (1,989) 987
Earnings from discontinued
operations 1,142 277 907 424
-------- -------- -------- --------
NET INCOME (LOSS) 1,343 2,317 (1,082) 1,411
Noncontrolling interest (69) (194) 17 (181)
-------- -------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
CONTROLLING INTERESTS 1,274 2,123 (1,065) 1,230
Preferred stock dividends (369) (236) (737) (422)
-------- -------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON SHAREHOLDERS $ 905 $ 1,887 $ (1,802) $ 808
======== ======== ======== ========
NET EARNINGS (LOSS) PER COMMON
SHARE - BASIC AND DILUTED
EPS from continuing operations $ (0.01) $ 0.08 $ (0.12) $ 0.02
======== ======== ======== ========
EPS from discontinued operations $ 0.05 $ 0.01 $ 0.04 $ 0.02
======== ======== ======== ========
EPS Basic and Diluted $ 0.04 $ 0.09 $ (0.08) $ 0.04
======== ======== ======== ========
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Unaudited - In thousands, except per share data:
Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
-------- --------- -------- --------
Weighted average shares outstanding
for:
calculation of earnings per share
- basic 21,812 20,826 21,371 20,764
======== ========= ======== ========
calculation of earnings per share
- diluted 21,812 20,826 21,371 20,764
======== ========= ======== ========
Weighted average shares outstanding
for:
calculation of FFO per share -
basic 21,812 20,826 21,371 20,764
======== ========= ======== ========
calculation of FFO per share -
diluted 21,812 22,346 21,371 22,347
======== ========= ======== ========
Reconciliation of Weighted average
number of shares for EPS diluted
to FFO per share diluted:
EPS diluted shares 21,812 20,826 21,371 20,764
Common stock issuable upon exercise
or conversion of:
Options - - - -
Series A Preferred Stock - 1,520 - 1,583
-------- --------- -------- --------
FFO per share diluted shares 21,812 22,346 21,371 22,347
======== ========= ======== ========
Reconciliation of net income (loss)
to FFO
Net income (loss) attributable to
common shareholders $ 905 $ 1,887 $ (1,802) $ 808
Depreciation and amortization 3,594 3,741 7,311 7,320
Net (gain) loss on disposition of
assets (1,024) 1 (964) (1)
-------- --------- -------- --------
FFO available to common
shareholders $ 3,475 $ 5,629 $ 4,545 $ 8,127
======== ========= ======== ========
FFO per share - basic $ 0.16 $ 0.27 $ 0.21 $ 0.39
======== ========= ======== ========
FFO per share - diluted $ 0.16 $ 0.26 $ 0.21 $ 0.38
======== ========= ======== ========
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 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, except
statistical data: Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
-------- --------- -------- --------
RECONCILIATION OF NET INCOME (LOSS)
TO ADJUSTED EBITDA
Net income (loss) attributable to
common shareholders $ 905 $ 1,887 $ (1,802) $ 808
Interest expense, including disc
ops 3,283 3,441 6,406 7,101
Income tax (benefit) expense,
including disc ops (15) 334 (1,058) (364)
Depreciation and amortization,
including disc ops 3,594 3,741 7,311 7,320
-------- --------- -------- --------
EBITDA 7,767 9,403 10,857 14,865
Noncontrolling interest 69 194 (17) 181
Preferred stock dividend 369 236 737 422
-------- --------- -------- --------
ADJUSTED EBITDA $ 8,205 $ 9,833 $ 11,577 $ 15,468
======== ========= ======== ========
Adjusted EBITDA is a financial measure that is not calculated in accordance
with accounting principles generally accepted in the United States of
America ("GAAP"). 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 and noncontrolling interests, which are
cash charges.
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 does
the measurement reflect 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 statistics of the Company's same store
continuing operations hotel properties for the three and six months ended
June 30, 2009 and 2008, respectively.
Unaudited-In thousands, except Three months Six months
statistical data: ended June 30, ended June 30,
2009 2008 2009 2008
------- ------- ------- -------
Same Store (115 hotels):
Revenue per available room
(RevPAR):
Midscale w/o F&B $ 41.61 $ 48.59 $ 37.79 $ 43.10
Economy $ 28.19 $ 32.04 $ 25.86 $ 28.64
Extended Stay $ 16.27 $ 16.69 $ 15.64 $ 17.14
------- ------- ------- -------
Total $ 29.79 $ 33.94 $ 27.33 $ 30.54
======= ======= ======= =======
Average daily room rate (ADR):
Midscale w/o F&B $ 69.53 $ 72.73 $ 67.84 $ 70.66
Economy $ 46.90 $ 47.90 $ 46.19 $ 46.71
Extended Stay $ 25.05 $ 25.48 $ 24.94 $ 25.21
------- ------- ------- -------
Total $ 49.13 $ 50.89 $ 48.16 $ 49.20
======= ======= ======= =======
Occupancy percentage:
Midscale w/o F&B 59.8% 66.8% 55.7% 61.0%
Economy 60.1% 66.9% 56.0% 61.3%
Extended Stay 65.0% 65.5% 62.7% 68.0%
------- ------- ------- -------
Total 60.6% 66.7% 56.8% 62.1%
======= ======= ======= =======
The following presentation includes some non-GAAP financial measures. The
Company believes that the presentation of hotel property operating results
(POI) for the three and six months ended June 30, 2009 and 2008
respectively, 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 for all of the company's
continuing operations hotel properties.
Unaudited-In thousands, except
statistical data: Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
--------- --------- --------- ---------
Revenue from room rentals and
other hotel services consists
of:
Room rental revenue $ 27,092 $ 30,934 $ 49,444 $ 55,663
Telephone revenue 80 90 155 186
Other hotel service revenues 717 788 1,356 1,490
--------- --------- --------- ---------
Total revenue $ 27,889 $ 31,812 $ 50,955 $ 57,339
========= ========= ========= =========
Hotel and property operations
expense
Total hotel and property
operations expense $ 19,936 $ 21,806 $ 38,573 $ 41,432
========= ========= ========= =========
Property Operating Income
("POI")
Total property operating
income $ 7,953 $ 10,006 $ 12,382 $ 15,907
========= ========= ========= =========
RECONCILIATION OF INCOME (LOSS)
FROM CONTINUING OPERATIONS TO
POI
Income (loss) from continuing
operations $ 201 $ 2,040 $ (1,989) $ 987
Depreciation and amortization 3,594 3,455 7,190 6,741
Net (gain) loss on disposition
of assets 49 1 116 (1)
Other income (34) (32) (72) (63)
Interest expense 3,145 3,193 6,125 6,600
General and administrative
expense 1,047 1,040 2,018 1,996
Income tax (benefit) expense (49) 309 (1,006) (353)
--------- --------- --------- ---------
POI $ 7,953 $ 10,006 $ 12,382 $ 15,907
========= ========= ========= =========
Income (loss) from continuing
operations as a percentage
of total revenue 0.7% 6.4% -3.9% 1.7%
========= ========= ========= =========
POI as a percentage of total
revenue 28.5% 31.5% 24.3% 27.7%
========= ========= ========= =========
The following table presents our RevPAR, ADR and Occupancy, by region, for
the three months ended June 30, 2009 and 2008, respectively. The
comparisons of same store operations (excluding Held For Sale hotels) are
for 115 hotels owned as of April 1, 2008.
Three months ended Three months ended
June 30, 2009 June 30, 2008
----------------------- -----------------------
Same Store* Room Room
Region Count RevPAR Occupancy ADR Count RevPAR Occupancy ADR
------- ------- ------ ------- ------- ------- ------ -------
Mountain 214 $ 35.28 65.8% $ 53.62 214 $ 41.52 79.3% $ 52.38
West North
Central 2,928 30.71 63.1% 48.70 2,928 34.15 69.7% 48.97
East North
Central 1,081 36.84 60.7% 60.66 1,081 44.57 70.4% 63.29
Middle
Atlantic/
New England 205 38.01 56.8% 66.94 205 46.11 66.7% 69.16
South
Atlantic 4,038 26.58 60.1% 44.25 4,038 30.73 65.7% 46.76
East South
Central 1,070 31.19 58.0% 53.75 1,070 32.65 57.5% 56.77
West South
Central 456 26.12 55.5% 47.09 456 29.84 63.0% 47.39
------- ------- ------ ------- ------- ------- ------ -------
Total Same
Store 9,992 $ 29.79 60.6% $ 49.13 9,992 $ 33.94 66.7% $ 50.89
------- ------- ------ ------- ------- ------- ------ -------
States included in the Regions
Mountain Idaho and Montana
West North Central Iowa, Kansas, Missouri, Nebraska and South Dakota
East North Central Indiana and Wisconsin
Middle Atlantic/
New England Maine and Pennsylvania
South Atlantic Delaware, Florida, Georgia, Maryland, North Carolina,
South Carolina, Virginia and West Virginia
East South Central Alabama, Kentucky and Tennessee
West South Central Arkansas and Louisiana
* Same Store reflects 115 hotels (excluding Held for Sale hotels).
The following table presents our RevPAR, ADR and Occupancy, by region, for
the six months ended June 30, 2009 and 2008, respectively. The comparisons
of same store operations (excluding Held For Sale hotels) are for 105
hotels owned as of January 1, 2008 and ten hotels acquired as of January 2,
2008.
Six months ended Six months ended
June 30, 2009 June 30, 2008
----------------------- -----------------------
Same Store* Room Room
Region Count RevPAR Occupancy ADR Count RevPAR Occupancy ADR
------- ------- ------ ------- ------- ------- ------ -------
Mountain 214 $ 31.03 60.8% $ 51.00 214 $ 36.43 73.3% $ 49.69
West North
Central 2,928 27.42 57.5% 47.69 2,928 29.93 62.4% 47.96
East North
Central 1,081 33.71 56.1% 60.07 1,081 39.05 63.2% 61.83
Middle
Atlantic/
New England 205 32.23 50.6% 63.74 205 36.70 56.0% 65.48
South
Atlantic 4,038 24.88 57.3% 43.46 4,038 28.53 63.6% 44.89
East South
Central 1,070 28.81 54.4% 52.96 1,070 29.93 54.0% 55.47
West South
Central 456 25.99 55.4% 46.91 456 27.94 60.7% 46.00
------- ------- ------ ------- ------- ------- ------ -------
Total Same
Store 9,992 $ 27.33 56.8% $ 48.16 9,992 $ 30.54 62.1% $ 49.20
------- ------- ------ ------- ------- ------- ------ -------
States included in the Regions
Mountain Idaho and Montana
West North Central Iowa, Kansas, Missouri, Nebraska and South Dakota
East North Central Indiana and Wisconsin
Middle Atlantic/
New England Maine and Pennsylvania
South Atlantic Delaware, Florida, Georgia, Maryland, North Carolina,
South Carolina, Virginia and West Virginia
East South Central Alabama, Kentucky and Tennessee
West South Central Arkansas and Louisiana
* Same Store reflects 115 hotels (excluding Held For Sale hotels).
The same store includes ten hotels acquired as of January 2, 2008.
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