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Supertel Hospitality Inc., a REIT located in Norfolk, Nebraska.,
Has Bought 44 Motels Since September 2005
By Steve Jordon, Omaha World-Herald, Neb.McClatchy-Tribune Regional News

May 25, 2007 - A Norfolk, Neb., company's appetite for acquisitions is becoming a popular "exit strategy" for motel owners who want to upgrade to fancier digs or leave the lodging business altogether.

Supertel Hospitality Inc., which had its annual shareholders meeting Thursday at the Doubletree Hotel in Omaha, has bought 44 such motels since September 2005 and, when its pending purchases are completed, will have 10,650 rooms in 24 states.

Motel owners keep calling Paul Schulte, the company's founder and a veteran of the lodging business, with offers to sell.

"They're ready to move on to something else," Schulte said. "We're in it forever."

He said he has no specific goal of acquiring a certain number of motels, but rather will be "opportunistic," completing deals as they come up. Many recent purchases have been in the Southeast and Midwest, but also in Maine, Idaho and Montana. "That's where the opportunities happened to present themselves," he said.

As a publicly traded company, Supertel has an advantage because it can afford to buy groups of motels, so sellers don't have to find buyers for one property at a time, he said. Supertel also can offer cash or tax-deferred units that can later be converted into stock.

Once there's an offer and Schulte is interested, Supertel makes a thorough inspection of each property, including a list of needed improvements.

"We can fix about anything," he said. "But you can't fix a really bad location."

Some recent sellers are using the money to build upscale resorts. But Supertel's business is providing motels with "limited service," which means there's no on-site restaurant.

The key to bringing customers back, Schulte said, is clean rooms, friendly service and affordable prices.

But nearly every limited service motel these days offers a free continental breakfast, and a growing number have swimming pools -- "amenities creep," Schulte said. It's expensive to keep a motel lounge stocked with cereal, bagels and juice, he said, and often a motel can't raise its room rates to cover the cost.

Supertel's properties carry a wide range of brands, including Super 8, Comfort Inn, Hampton Inn and Ramada Limited.

Supertel is focusing on cost-control, Schulte said, and has had success in the past year. This week the quarterly dividend rate rose to 11.5 cents per share from 11.25 cents the previous quarter and 10 cents a year ago, with the first payment July 31 to people who own shares June 30.

As a real estate investment trust, Supertel is required to return 90 percent of its net income to shareholders as dividends. Counting dividends and stock Price, Supertel posted a 50 percent return on stockholder equity last year, said Donavon Heimes, chief financial officer.

Because of the dividend payments, Schulte said, Supertel at some point will have to sell additional shares of stock to the public to pay for future acquisitions. There is no specific stock sale pending or planned, however.

The company asked shareholders to increase the number of shares it can issue from 25 million to 100 million. The company has issued 19.9 million, including the sale of 7.5 million shares in December.

The proposal did not receive a majority of shares voted so far, so Schulte did not adjourn the annual meeting, attended by about 35 people, but rather recessed it for a month, waiting for additional votes to be cast.

He said many shares, especially those held by brokers for the individual owners, did not return votes on the stock proposal.


Copyright (c) 2007, Omaha World-Herald, Neb.

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