Company Results

Supertel Hospitality 2014 First Quarter Net Loss Down

Reduced net loss attributable to common shareholders by $3.5 million to $(1.4) million for the first quarter of 2014 compared to the same period in 2013.

Supertel Hospitality

Supertel Hospitality, Inc. (NASDAQ: SPPR), a real estate investment trust (REIT), yesterday announced its results for the first quarter ended March 31, 2014.

2014 First Quarter Key Events

  • Increased occupancy at the same store hotels by 0.6 percent from the prior year.
  • Reduced net loss attributable to common shareholders by $3.5 million to $(1.4) million for the first quarter of 2014 compared to the same period in 2013.
  • Sold the 55-room Super 8 hotel in Shawano, Wisconsin in the first quarter and two hotels following the close of the quarter.
  • Reported revenues from continuing operations of $11.8 million for the 2014 first quarter, essentially unchanged compared to the same period in 2013.
  • Recorded a 1.3 percent decline in same store revenue per available room (RevPAR) to $31.19 partially due to weakness of the Washington DC market.

First Quarter Operating and Financial Results

First quarter 2014 revenues from continuing operations were $11.8 million, essentially unchanged compared to the same year-ago period. The effects of rebranding at two of the four reflagged hotels and the performance of four hotels hampered by softness in the Washington DC market continue to impact revenue.

Supertel had a 2014 first quarter net loss attributable to common shareholders of $(1.4) million, or $(0.47) per diluted share, compared to a net loss of $(4.9) million or $(1.70) per diluted share, a $3.5 million improvement for the same 2013 period.

Funds from operations (FFO) was $0.2 million for the 2014 first quarter, compared to $(2.4) million in the same 2013 period. Adjusted funds from operations (AFFO), which is FFO adjusted to exclude gains and losses on derivative liabilities, acquisition and termination expense, and terminated equity transactions expense, in the 2014 first quarter was $(1.9) million, compared to $(2.0) million in the same 2013 period.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $2.5 million for the 2014 first quarter, compared to a net loss of $(0.4) million in the same year-ago period. Adjusted EBITDA, which is EBITDA before noncontrolling interest, net gain/loss on disposition of assets, impairment, preferred stock dividends, unrealized gain/loss on derivatives, acquisition and termination expense and terminated equity transactions expense, was $1.1 million, down from $1.3 million for the 2013 first quarter.

In the first quarter 2014, the 50-hotel same store portfolio had a 0.6 percent improvement in occupancy to 52.9 percent, offset by a decline in revenue per available room (RevPAR) of 1.3 percent to $31.19, and a 1.9 percent decline in average daily rate (ADR) to $58.94, compared to the 2013 first quarter. The results were impacted by several factors including rebranding at four core hotels. While two of four properties which were rebranded in 2013 have stabilized and are beginning to show improvement, the other two continue to adjust operations and costs to align with the lower daily rates for the new brands. Supertel's four hotels in the Washington DC market were also impacted by the general weakness in this market. Offsetting improvements occurred at six hotels which had significant capital investments during 2012 and 2013.

The hotel industry is seasonal in nature. Generally, occupancy rates, revenues and operating results for hotels operating in the geographic areas in which Supertel operates are greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of Supertel's hotel located in Florida, which experiences peak demand in the first and fourth quarters of the year.

Disposition Program

In the 2014 first quarter the company sold the 55-room Super 8 in Shawano, Wisconsin for $1.1 million. Proceeds were used to reduce debt and lower overall debt service.

Following the close of the 2014 first quarter, the company sold the 65-room Baymont Inn and Suites in Brooks, Kentucky for $1.7 million and the 101-room Super 8 hotel in Omaha, West Dodge, Nebraska for $1.6 million. Proceeds were used to retire debt.

As of March 31, 2014, the company is marketing 18 hotels for sale and expects to generate approximately $40.5 million in gross proceeds to be used primarily to pay off the underlying loans and provide capital to reinvest in existing core properties.

Capital Reinvestment

The company invested $0.4 million in capital improvements in the 2014 first quarter to upgrade its properties and maintain brand standards. During 2014 the company expects to invest approximately $6.0 million in its hotels for capital improvements and renovations.

Balance Sheet

As of March 31, 2014, Supertel had $91.0 million in outstanding debt on its continuing operations hotels with an average term of 2.5 years and weighted average annual interest rate of 6.3 percent.

Dividends

The company did not declare a dividend on common stock in the 2014 first quarter. The company's board of directors elected to suspend the payment of monthly dividends commencing December 31, 2013 on the outstanding shares of its 8.00% Series A Cumulative Convertible Preferred Stock (NASDAQ: SPPRP), quarterly dividends on the outstanding shares of its 10.00% Series B Preferred Cumulative Stock (NASDAQ: SPPRO), and the quarterly dividends on the outstanding shares of its 6.25% Series C Cumulative Convertible Preferred Stock to preserve capital and improve liquidity. The board of directors will continue to monitor the dividend policy.

Outlook 2014

"While our top line first quarter results were clearly hampered by franchisor driven reflagging, and the overall weakness in the greater DC market area where some of our largest properties are located, the plan to transform Supertel into a leaner and more agile hotel owner continues," Walters said. "Our debt levels continue to decrease, our operators are responding to our more active management style instituted by our new COO, and the outlook for the economy chain scale segment is positive as it has been since the recovery started in 2010."

About Supertel Hospitality, Inc.

Supertel Hospitality, Inc. (NASDAQ: SPPR) is a self-administered real estate investment trust that specializes in the ownership of select-service hotels. The company currently owns 66 hotels comprising 5,843 rooms in 21 states. Supertel's hotels are franchised by a number of the industry's most well-regarded brand families including Hilton, Choice and Wyndham. 

   
   
SELECTED FINANCIAL DATA:  
Supertel Hospitality, Inc.  
Balance Sheet  
As of March 31, 2014 and December 31, 2013  
             
             
    As of  
    March 31,     December 31,  
    2014     2013  
    (unaudited)        
             
ASSETS                
  Investments in hotel properties   $ 199,903     $ 201,857  
  Less accumulated depreciation     69,227       69,897  
        130,676       131,960  
                   
  Cash and cash equivalents     401       45  
  Accounts receivable, net of allowance for doubtful accounts of $17 and $20     1,550       1,083  
  Prepaid expenses and other assets     3,962       4,000  
  Deferred financing costs, net     2,356       2,601  
  Investment in hotel properties, held for sale, net     31,382       32,396  
    $ 170,327     $ 172,085  
                 
LIABILITIES AND EQUITY                
LIABILITIES                
  Accounts payable, accrued expenses and other liabilities   $ 8,600     $ 7,745  
  Derivative liabilities, at fair value     3,943       5,907  
  Debt related to hotel properties held for sale     26,843       27,425  
  Long-term debt     91,049       90,620  
        130,435       131,697  
                   
  Redeemable preferred stock                
    10% 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;                
    8% Series A, 2,500,000 shares authorized, $.01 par value, 803,270 shares outstanding, liquidation preference of $8,033     8       8  
    6.25% Series C, 3,000,000 shares authorized, $.01 par value, 3,000,000 shares outstanding, liquidation preference of $30,000     30       30  
    Common stock, $.01 par value, 200,000,000 shares authorized; 2,898,286 and 2,897,539 shares outstanding     29       29  
  Additional paid-in capital     135,302       135,293  
  Distributions in excess of retained earnings     (103,251 )     (102,747 )
    Total shareholders' equity     32,118       32,613  
Noncontrolling interest                
  Noncontrolling interest in consolidated partnership, redemption value $25 and $87     112       113  
                 
    Total equity     32,230       32,726  
                 
COMMITMENTS AND CONTINGENCIES                
    $ 170,327     $ 172,085  
                 
                 
   
   
Supertel Hospitality, Inc.  
Statement of Operations  
For the three months ended March 31, 2014 and 2013  
(Dollars in thousands, except per share data)  
             
       
    Three Months Ended  
    March 31,  
    2014     2013  
REVENUES                
  Room rentals and other hotel services   $ 11,785     $ 11,895  
                 
EXPENSES                
  Hotel and property operations     10,348       10,326  
  Depreciation and amortization     1,660       1,655  
  General and administrative     985       1,059  
  Acquisition and termination expense     0       21  
  Terminated equity transactions     69       0  
      13,062       13,061  
                 
                 
EARNINGS (LOSS) BEFORE NET LOSS ON DISPOSITIONS OF ASSETS, OTHER INCOME, INTEREST EXPENSEAND INCOME TAXES     (1,277 )     (1,166 )
                 
Net loss on dispositions of assets     (25 )     (29 )
Other income (loss)     2,146       (297 )
Interest expense     (1,802 )     (1,443 )
Loss on debt extinguishment     (9 )     (91 )
Impairment     119       0  
                 
                 
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES     (848 )     (3,026 )
                 
Income tax expense     0       0  
                 
                 
EARNINGS (LOSS) FROM CONTINUING OPERATIONS     (848 )     (3,026 )
                 
Gain (loss) from discontinued operations, net of tax     343       (1,039 )
                 
NET EARNINGS (LOSS)     (505 )     (4,065 )
                 
Earnings (loss) attributable to noncontrolling interest     1       7  
                 
                 
NET EARNINGS (LOSS) ATTRIBUTABLE TO CONTROLLING INTERESTS     (504 )     (4,058 )
                 
Preferred stock dividends declared and undeclared     (847 )     (837 )
                 
                 
NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ (1,351 )   $ (4,895 )
                 
                 
NET EARNINGS (LOSS) PER COMMON SHARE- BASIC AND DILUTED                
EPS from continuing operations - Basic   $ (0.59 )   $ (1.34 )
EPS from discontinued operations - Basic   $ 0.12     $ (0.36 )
EPS Basic   $ (0.47 )   $ (1.70 )
EPS Diluted   $ (0.47 )   $ (1.70 )
                 
                 
   
   
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
   
(Unaudited - In thousands, except per share data)  
             
    Three months  
    ended March 31,  
    2014     2013  
Weighted average shares outstanding for:                
  calculation of earnings per share - basic     2,892       2,888  
  calculation of earnings per share - diluted     2,892       2,888  
                 
Weighted average shares outstanding for:                
  calculation of FFO per share - basic     2,892       2,888  
  calculation of FFO per share - diluted     4,210       2,888  
                 
                 
Reconciliation of Weighted average number of shares for EPS basic to FFO per share diluted:                
EPS basic shares     2,892       2,888  
  Restricted Stock     11       -  
  Series C Preferred Stock     1,307       -  
FFO per share diluted shares     4,210       2,888  
                 
Reconciliation of net loss to FFO                
Net loss attributable to common shareholders   $ (1,351 )   $ (4,895 )
Depreciation and amortization     1,676       1,961  
Net (gain) loss on disposition of assets     (143 )     53  
Impairment     (28 )     507  
FFO   $ 154     $ (2,374 )
Unrealized (gain) loss on derivatives     (2,115 )     317  
Acquisition and termination expense     -       21  
Terminated equity transaction     69       -  
Adjusted FFO   $ (1,892 )   $ (2,036 )
                 
FFO per share - basic   $ 0.05     $ (0.82 )
Adjusted FFO per share - basic   $ (0.65 )   $ (0.71 )
FFO per share - diluted   $ 0.05     $ (0.82 )
Adjusted FFO per share - diluted   $ (0.65 )   $ (0.71 )
                 
                 

FFO and Adjusted FFO ("AFFO") are non-GAAP financial measures. We consider FFO and AFFO to be market accepted measures of an equity REIT's operating performance, which are 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 and impairment of real estate assets, plus depreciation and amortization. We believe our method of calculating FFO complies with the NAREIT definition. AFFO is FFO adjusted to exclude gains or losses on derivative liabilities, which are non-cash charges against income and which do not represent results from our core operations. AFFO also adds back acquisition and termination expense and terminated equity transaction. FFO and AFFO do 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 and AFFO should not be considered as alternatives to net income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. All REITs do not calculate FFO and AFFO in the same manner; therefore, our calculation may not be the same as the calculation of FFO and AFFO for similar REITs.

Diluted FFO per share and diluted Adjusted FFO per share are computed after adjusting the numerator and denominator of the basic computation for the effects of any dilutive potential common shares outstanding during the period. The Company's outstanding stock options and certain warrants to purchase common stock would be antidilutive and are not included in the dilution computation.

We use FFO and AFFO as performance measures to facilitate a periodic evaluation of our operating results relative to those of our peers. We consider FFO and AFFO to be useful additional measures 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 and AFFO provide a meaningful indication of our performance.

   
   
EBITDA and Adjusted EBITDA  
   
(Unaudited - In thousands)  
             
    Three months  
    ended March 31,  
    2014     2013  
RECONCILIATION OF NET EARNINGS (LOSS) TO ADJUSTED EBITDA                
Net earnings (loss) attributable to common shareholders   $ (1,351 )   $ (4,895 )
Interest expense, including discontinued operations     2,180       2,230  
Loss on debt extinguishment     9       283  
Income tax expense (benefit), including discontinued operations     0       0  
Depreciation and amortization, including discontinued operations     1,676       1,961  
  EBITDA     2,514       (421 )
Noncontrolling interest     (1 )     (7 )
Net gain on disposition of assets     (143 )     53  
Impairment     (28 )     507  
Preferred stock dividend     847       837  
Unrealized (gain) loss on derivatives     (2,115 )     317  
Acquisition and termination expense     0       21  
Terminated equity transactions     69       0  
  ADJUSTED EBITDA   $ 1,143     $ 1,307  
                 
                 

EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We calculate EBITDA and 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 EBITDA and Adjusted EBITDA also do not represent an amount that accrues directly to common shareholders. In calculating Adjusted EBITDA, we add back noncontrolling interest, net (gain) loss on disposition of assets, preferred stock dividends, acquisition and termination expense and terminated equity transactions which are cash charges. We also add back impairment and unrealized gain or loss on derivatives, which are non-cash charges.

EBITDA and Adjusted EBITDA do not represent cash generated from operating activities determined by GAAP and should not be considered as alternatives to net income, cash flow from operations or any other operating performance measure prescribed by GAAP. EBITDA and Adjusted EBITDA are not measures of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make cash distributions. Neither do the measurements reflect cash expenditures for long-term assets and other items that have been and will be incurred. EBITDA and 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. EBITDA and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

Property Operating Income (POI) - Continuing and Discontinued Operations

This presentation includes non-GAAP financial measures, and should not be considered as an alternative to loss from continuing operations or loss from discontinued operations, net of tax. The company believes that the presentation of hotel property operating income (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. Same store results for the quarter are for 50 hotels in continuing operations.

                         
                         
      Three months  
      ended March 31,  
      2014       2013  
Total Continuing Operations:                
  Revenue per available room (RevPAR):   $ 31.19     $ 31.61  
  Average daily room rate (ADR):   $ 58.94     $ 60.08  
  Occupancy percentage:     52.9 %     52.6 %
                 
Revenue from room rentals and other hotel services consists of:                
Room rental revenue   $ 11,316     $ 11,469  
Telephone revenue     3       3  
Other hotel service revenues     466       423  
  Total revenue from room rentals and other hotel services   $ 11,785     $ 11,895  
                 
Hotel and property operations expense                
  Total hotel and property operations expense   $ 10,348     $ 10,326  
                 
Property Operating Income ("POI")                
  Total property operating income   $ 1,437     $ 1,569  
                 
POI as a percentage of revenue from room rentals and other hotel services                
  Total POI as a percentage of revenue     12.2 %     13.2 %
                 
Discontinued Operations                
                 
Room rentals and other hotel services                
  Total room rental and other hotel services   $ 3,754     $ 6,283  
                 
Hotel and property operations expense                
  Total hotel and property operations expense   $ 3,094     $ 5,506  
                 
Property Operating Income ("POI")                
  Total property operating income   $ 660     $ 777  
                 
POI as a percentage of revenue from room rentals and other hotel services                
  Total POI as a percentage of revenue     17.6 %     12.4 %
                 
                 
             
             
(Unaudited - In thousands, except statistical data)            
             
    POI from continuing operations is reconciled to net loss as follows:            
             
    Three months  
    ended March 31,  
    2014     2013  
                 
                 
Net earnings (loss) from continuing operations   $ (848 )   $ (3,026 )
Depreciation and amortization     1,660       1,655  
Net loss on disposition of assets     25       29  
Other (income) expense     (2,146 )     297  
Interest expense     1,802       1,443  
Loss on debt extinguishment     9       91  
General and administrative expense     985       1,059  
Acquisition and termination expense     0       21  
Terminated equity transactions     69       0  
Impairment expense     (119 )     0  
POI - continuing operations   $ 1,437     $ 1,569  
                 
                 

POI from discontinued operations is reconciled to loss from discontinued operations, net of tax, as follows:

       
       
    Three months  
    ended March 31,  
    2014     2013  
Gain (loss) from discontinued operations   $ 343     $ (1,039 )
Depreciation and amortization from discontinued operations     16       306  
Net gain on disposition of assets from discontinued operations     (168 )     24  
Interest expense from discontinued operations     378       787  
Loss on debt extinguishment     0       192  
Impairment losses from discontinued operations     91       507  
POI - discontinued operations   $ 660     $ 777  
                 
                 
             
             
    Three months  
    ended March 31,  
    2014     2013  
                 
POI--continuing operations     1,437       1,569  
POI--discontinued operations     660       777  
Total - POI   $ 2,097     $ 2,346  
                 
Total POI as a percentage of revenues     13.5 %     12.9 %
                 
                 

The comparisons of same store operations are for 50 hotels in continuing operations as of January 1, 2013 for the three months ended March 31, 2014 and exclude 18 properties held for sale.

 
 
Supertel Hospitality, Inc.
Operating Statistics by Region
For three months ended March 31, 2014 and 2013
 
(Unaudited - except per share data)
 
    Three months ended March 31, 2014   Three months ended March 31, 2013

Region

  Room

Count

 

RevPAR

 

Occupancy

   

ADR

  Room

Count

 

RevPAR

 

Occupancy

   

ADR

Mountain   106   $ 32.57   60.6 %   $ 53.76   106   $ 30.83   58.5 %   $ 52.72



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