News for the Hospitality Executive
NORFOLK, NE--(Marketwire - Nov 14, 2011) - Supertel
Hospitality, Inc. (
Revenues from continuing operations for the 2011 third quarter decreased 0.4 percent to $23.4 million, compared to the same year-ago period. Net loss attributable to common shareholders was $(1.8) million, or $(0.08) per diluted share, for the 2011 third quarter, compared to a net loss of $(0.5) million, or $(0.02) per diluted share, in the 2010 same quarter. The 2011 third quarter loss includes an impairment charge of $2.7 million, taken against 14 held for sale properties. Of this, $0.7 million was taken on 13 of the hotels due to market changes, and $2.0 million was taken on one other hotel due to changes in its projected holding period. There also was a recovery of previously recorded impairment on two sold properties and one held for sale hotel in the amount of $0.1 million. Twenty hotels were classified as held for sale during the 2011 third quarter. The 2010 third quarter loss included a net $0.9 million impairment charge.
The company reported a loss of $(0.5) million, or $(0.02) per diluted share, in funds from operations (FFO) in the 2011 third quarter, compared to a gain of $2.4 million, or $0.10 per diluted share, in the same 2010 period. Funds from operations without impairment, a non-cash item (FFO without impairment) in the 2011 third quarter was $2.1 million, or $0.09 per diluted share, compared with $3.3 million, or $0.15 per diluted share in the same period of 2010. Of the $0.06 decrease, $0.04 was due to discontinued operations.
Earnings before interest, taxes, depreciation and amortization, non-controlling interest and preferred stock dividends (Adjusted EBITDA) decreased to $4.4 million, compared to $5.8 million for the third quarter of 2010. Of the $1.4 million decrease, $2.3 million was due to discontinued operations.
Third Quarter Highlights
"We continue to make steady progress in our transition from two to four management companies, including the sale of our corporate office building which was previously leased to the former management company," said Kelly A. Walters, Supertel president and CEO. "We anticipate that all of the major components of transition will be completed by year-end, and we will begin to see the positive fruits of this strategic decision. Most of the one-time fees and costs associated with the transition are behind us, and we are focused on fully ramping up the new management teams."
Third Quarter Results
The company reported a net loss of $(1.4) million for the 2011 third quarter, compared to a net loss of $(0.1) million for the same 2010 period. All income and expenses related to sold and held for sale hotels are classified as discontinued operations. "As we continue to divest our portfolio of the underperforming hotels shown in discontinued operations, we expect overall operations and cash flows will improve and will be reflected in improved measures such as earnings per share, FFO and EBITDA," said Connie Scarpello, the company's chief financial officer.
After non-controlling interest and recognition of dividends for preferred stock shareholders, the net loss attributable to common shareholders was $(1.8) million, or $(0.08) per diluted share, for the 2011 third quarter, compared with net loss attributable to common shareholders of $(0.5) million, or $(0.02) per diluted share, for the same 2010 period.
Third quarter 2011 revenues from continuing operations declined $0.1 million, or 0.4 percent, primarily due to lower occupancy, largely offset by a higher average daily rate (ADR).
The portfolio of 81 hotels in continuing operations in the 2011 third quarter reported a decrease of 4.2 percent in occupancy, and a 3.9 percent increase in ADR, compared with the same period a year earlier.
Extended Stay Hotels
"Industry-wide, many of the hotels in smaller, tertiary markets have not achieved the same robust growth as experienced in larger cities, and a substantial number of our markets remain soft," Walters said. "The Southern and Southeast regions continue to struggle economically, which has particularly impacted the construction and oil drilling industries, significant contributors to our business traveler occupancy in those markets. We are working closely with our operators to focus on rebuilding this lost occupancy, while optimizing room rate as much as possible. Each property is continuously adjusting to find the optimum mix between rate and occupancy.
"We have larger field sales efforts under way now than at any time in the past," he noted. "It will take a while to build momentum, but we are beginning to see improvements in a growing number of markets. Top-line revenue growth is a priority.
"Supertel continues to outperform the industry in occupancy and RevPAR in the midscale and economy segments," he added. "Our RevPAR index improved in every month of the quarter according to Smith Travel Research, and we believe there is continued opportunity."
Hotel and property operations expenses from continuing operations for the 2011 third quarter increased 1.7 percent to $17.0 million, compared with the like 2010 period. The major contributors to the increase were payroll expenses, breakfast costs and room supplies.
Interest expense from continuing operations for the quarter decreased by $0.1 million to $2.2 million. Depreciation and amortization expense from continuing operations decreased by $0.3 million from the 2010 third quarter to $2.3 million. General and administration expense from continuing operations for the 2011 third quarter increased $0.1 million, compared to the prior period.
For the 2011 third quarter, POI from continuing operations decreased $0.4 million, or 5.6 percent, compared to the same year-ago period. POI is calculated as revenue from room rentals and other hotel services less hotel and property operations expenses. The decrease in POI over the prior year's third quarter is largely due to slightly lower revenues and higher operating expenses. See attached chart (Property Operating Income as a Percent of Sales).
"The low POI at our discontinued operations hotels further validates our decision to sell those properties," said Scarpello. "As we continue to rebalance our portfolio in an orderly fashion, concentrating on the lowest performing hotels first, the quality of our portfolio continues to improve."
The company listed four additional hotels as held for sale in the third quarter, including one which was purchased in 2007 that had an impairment loss of $2.0 million, bringing to 20 the number of properties in this category. "The vast majority of these assets were acquired at the peak of the market, between 2005 and 2008. They have not fared nearly as well as our core portfolio, which has resulted in approximately $37.9 million in impairment charges in the past three years," Scarpello added.
The company sold the 87-room Masters Inn in Marietta, Ga. and the 119-room Masters Inn in Charleston, S.C., for a total of approximately $5.1 million. Proceeds were used to pay down direct debt with GE Capital Corporation.
The company as of September 30, 2011 had total debt of $164.5 million, down from a peak of $221.2 million at the close of the 2008 first quarter. Outstanding debt on hotels in continuing operations totaled $136.4 million, and has an average term to maturity of 3.4 years and a weighted average annual interest rate of 6.1 percent. The company's current 20 held for sale properties have $28.2 million of associated debt.
"The Company has significant indebtedness maturing over the next seven months, including the following loans with Great Western Bank: a $9.9 million term loan maturing December 5, 2011, a $20 million revolving credit facility maturing February 22, 2012 and a $9.3 million term loan maturing May 5, 2012. If we are not successful in negotiating the refinancing of this debt, or finding alternate sources of financing in a difficult borrowing environment, we will be unable to meet the Company's near-term liquidity requirements," Walters said.
The company did not declare a common stock dividend for the 2011 third quarter. Preferred dividends continue uninterrupted. The board of directors continues to monitor requirements to maintain the company's REIT status on a quarterly basis.
"We continue to make progress and we are seeing momentum starting to build in our turn-around plan," Walters said. "We believe that it will take at least through the 2011 fourth quarter before we start seeing a noticeable positive impact from the new operators' influence on the portfolio, but we firmly believe that our transition to the new structure effectively places us on the path toward a solid recovery with a more aggressive growth trajectory.
"We have a much stronger sales and marketing emphasis. We have continued to improve our balance sheet and to evaluate financing options. We are in the process of reviewing proposed property level budgeting for 2012 and are encouraged by a notable increase in sales efforts to build revenues during this critical stage of our transition."
About Supertel Hospitality, Inc.
As of September 30, 2011, Supertel Hospitality, Inc. (
Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. These risks are discussed in the Company's filings with the Securities and Exchange Commission.
SELECTED FINANCIAL DATA:
The following table sets forth the Company's balance sheet as
of September 30, 2011 and December 31, 2010. The Company owned 101
hotels at September 30, 2011 and 106 hotels as of December 31, 2010.
The following table sets forth the Company's results of
operations for the three and nine months ended September 30, 2011 and
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Unaudited-In thousands, except per share data:
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.
FFO without impairment, a non-cash item, ("FFO without impairment") is a non-GAAP financial measure. As a result of a significant downturn in hotel and lodging fundamentals that took place in 2008 and 2009 and the related decrease in hotel and real estate valuations, we decided that FFO available to common shareholders did not provide all of the information that allows us to better evaluate our operating performance.
To arrive at FFO without impairment, we adjust FFO available to common shareholders, to exclude the following items:
We believe that these items are driven by factors relating to the fundamental disruption in the global financial and real estate markets, rather than factors specific to the company or the performance of our properties or investments.
The impairment losses on hotel properties that were recognized in 2009 and 2010 were primarily based on valuations of hotels, which had declined due to market conditions that we no longer expected to hold for long-term investment, and/or for which we have reduced our prior expected holding periods. In order to enhance liquidity, we have declared certain properties as held for sale and may declare other properties held for sale. To the extent these properties are expected to be sold at a loss, we record an impairment loss when the loss is known. We have recognized certain of these impairment losses in several quarters in 2009 and 2010 and in the nine months ending September 30, 2011, and we believe it is reasonably likely that we will recognize similar charges and recovery in the near future.
However, we believe that as the financial markets stabilize, the potential for impairment losses on our hotel properties will diminish. We believe FFO without impairment provides investors with an additional measure to evaluate our operating performance as we emerge from this period of fundamental disruption in the global financial and real estate markets.
We analyze our operating performance primarily by revenues from our hotel properties, net of operating, administrative and financing expenses which are not directly impacted by short term fluctuations in the market value of our hotel properties. As a result, although these non-cash impairment losses have had a material impact on our financial results and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties.
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 operations of the Company's same store hotel properties for the three and nine months ended September 30, 2011 and 2010, respectively.
This presentation includes non-GAAP financial measures. The Company believes that the presentation of hotel property operating income (POI) is helpful to investors, and represents a more useful description of its operations, as it better communicates the comparability of its hotels' operating results.
Same Store reflects 81 hotels in continuing operations for the three months and year to date ended September 30, 2011 and 2010.
The following unaudited table presents our RevPAR, ADR and Occupancy, by region, for the three months ended September 30, 2011 and 2010, respectively. The comparisons of same store operations are for 81* hotels in continuing operations as of July 1, 2010.
The following unaudited table presents our RevPAR, ADR and Occupancy, by region, for the nine months ended September 30, 2011 and 2010, respectively. The comparisons of same store operations are for 81* hotels in continuing operations as of January 1, 2010.
* The following properties have been moved from the same store portfolio during the reporting period and classified as held for sale: Shreveport, LA, Days Inn; Omaha (Aksarben), NE, Super 8; Antigo, WI, Super 8; and Columbus, NE, Super 8.
Ms. Krista Arkfeld
Director of Corporate Communications
Jerry Daly, Carol McCune
|Also See:||Supertel Hospitality Inc., a REIT located in Norfolk, Nebraska., Has Bought 44 Motels Since September 2005 / May 2007|
|Supertel Hospitality Sales Three Budget Hotels for a Combined Net Proceeds of $3.02 million or Approximately $14,700 per room / July 2010|