-- Acquired 27 hotels with 3,387 rooms in 2007 located in ten states,
resulting in a 30.7 percent increase in the overall number of hotels, and
further geographically dispersing the portfolio;
-- Engaged a second independent management company, HLC Hotels Inc., to
operate 15 recently acquired Masters Inns;
-- Increased the quarterly common stock dividend each quarter in 2007 for
a total of $.4625 per share in 2007, a 26.7 percent improvement over 2006.
The Company has increased the dividend 13 times since the 2003 first
quarter.
"Our portfolio experienced significant growth last year, and we are
completing the absorption of those properties as we move through the 2008
first quarter," said Paul J. Schulte, Supertel's chairman, president and
CEO. "The integration of these new assets into our portfolio by our
primary management company did not go as smoothly as we anticipated,
however, we have and are continuing to work closely with them to improve
integration of new assets into our portfolio. They have responded
positively by implementing better operating systems and adding significant
depth and expertise to their management team. We believe they have made
good progress, and expect to begin seeing the benefits of those efforts
especially beginning with the 2008 second quarter.
"We remain very focused on margins. We believe there are opportunities to
reduce other operating costs, especially labor. Energy costs have also
risen significantly and we are working with our management companies to
find ways to reduce those costs," he said. "Nonetheless, we believe our
portfolio is solid and in good shape and that our management companies are
on the right path for improvement. Our confidence in our portfolio's
stability and its future is evidenced by the four increases in our common
stock dividend in 2007."
Schulte noted that the Company is closely watching economic conditions
around the country. "We believe our hotels are in a good defensive
position, as historically, guests tend to trade down to less expensive
hotels during economic slowdowns. Our same-store economy hotels generated
strong revenue per available room (RevPAR), up nearly 11 percent in the
2007 fourth quarter, our same-store extended-stay properties were up nearly
9 percent, while our same-store midscale without food and beverage hotels
held steady. At this time, we do not foresee any significant drop-off in
occupancy and we anticipate room rates will continue to have some upward
trending. We have not seen a lot of new development or overbuilding in
our smaller markets, most of the new development and over supply have been
targeted to the larger markets. We have significantly diversified our
portfolio geographically in the past 2.5 years, which should give us added
resilience should a recession occur. We remain cautiously optimistic about
the outlook for the year, especially beginning with the second quarter."
Fourth Quarter Results
Reflecting the seasonal pattern of lower results in the fourth quarter on
the Company's larger hotel portfolio in 2007, the Company had a net loss of
$0.4 million for the 2007 fourth quarter, compared to net income of $0.1
million for the same 2006 period. After recognition of dividends for
preferred stock shareholders, the net loss available to common shareholders
was $0.6 million, or $0.03 per diluted share, for the 2007 fourth quarter,
compared with a net loss of $0.2 million, or $0.02 per diluted share, for
the same 2006 period.
Fourth quarter 2007 revenues increased $8.5 million, or 45.1 percent, of
which $7.6 million was due to an increased number of properties related to
acquisitions and $0.9 million to revenue improvements from the same-store
portfolio.
The Company's same-store 50 economy hotels posted a strong 10.9 percent
improvement in RevPAR to $29.25 in the 2007 fourth quarter, led by a 10.0
percent increase in occupancy to 61.6 percent and a 0.8 percent increase in
average daily rate (ADR) to $47.48. The Company's same-store 6 extended
stay hotels reported an 8.7 percent improvement in RevPAR, as a result of a
3.7 percent increase in occupancy to 70.6 percent, and a 4.9 percent rise
in ADR to $25.05.
Fourth quarter RevPAR for the Company's same-store 29 midscale without
food and beverage hotels was essentially flat, with RevPAR lower by 0.8
percent. The same-store portfolio of 85 hotels in the 2007 fourth quarter,
compared with the same period a year earlier, had a 5.5 percent increase in
occupancy and a 5.2 percent increase in RevPAR.
Hotel and property operations expenses for the 2007 fourth quarter rose
$6.7 million, or 48.9 percent, of which $6.1 million was related to new
hotel acquisitions, and $0.6 million was from the same-store portfolio.
Interest expense increased by $1.2 million, due primarily to new debt
incurred for hotel acquisitions. Depreciation and amortization expense
rose $1.0 million in the 2007 fourth quarter over the same period in 2006.
This increase is primarily related to hotel acquisitions.
The Company believes property operating income (POI) is a useful measure of
its hotels' operating efficiencies. POI is calculated as revenue from room
rentals and other hotel services less hotel and property operations
expenses. For the 2007 fourth quarter, POI increased $1.9 million, or 35.4
percent, compared to the year ago period of which $1.6 million was added
from new hotel acquisitions.
General and administration expense for the 2007 fourth quarter rose
$323,000, or 43.1 percent, compared to the year-ago period. This increase
is primarily related to increases in professional fees associated with
internal audit and the Section 404 compliance review of the Sarbanes-Oxley
Act of 2002 and due diligence costs related to reviewing potential
acquisitions.
Acquisitions
During 2007, the Company acquired 27 hotels with 3,387 rooms in five
transactions at a total cost of $110.5 million. The properties are located
in ten states under five different brands. Louisiana, Alabama, Maine,
Montana and Idaho were new states added to the Company's portfolio during
2007.
During January 2008, the Company acquired 10 hotels with 736 rooms for
approximately $21.8 million. The properties include two Days Inns in Sioux
Falls, South Dakota; a Super 8 in Green Bay, Wisconsin; and seven hotels in
Kentucky, consisting of two Comfort Inns, a Comfort Suites, two Days Inns,
a Sleep Inn and a Quality Inn.
"To date these 10 new properties have transitioned well, and are performing
in line with our expectations," Schulte said. "The seven Kentucky hotels
were particularly attractive because it gives us significant economies of
scale when added to the three other hotels we own in the state. These are
solid assets that we believe will be strong performers."
"We continue to have a healthy appetite for acquisitions," he noted.
"However, given the uncertainties in the economy and our absorption of a
significant number of hotels in the past 14 months, we will likely be more
cautious in the first half of the year. Having said that, we will remain
opportunistic. We believe an increasing number of properties will be
coming to the market and that cap rates may rise slowly, making for some
attractive acquisition opportunities as the year progresses."
Dividends
Supertel increased its dividend in each quarter in 2007, from $0.11 at
year-end 2006, to $0.1275 in the 2007 fourth quarter. "The board remains
comfortable with our dividend policy," Schulte said. "We will continue to
evaluate dividends each quarter and make adjustments as appropriate."
About Supertel Hospitality, Inc.
As of February 27, 2008, Supertel Hospitality, Inc. (
December 31, December 31,
Unaudited
2007 2006
------------ ------------
ASSETS
Investments in hotel properties $ 376,240 $ 254,241
Less accumulated depreciation 75,295 63,509
------------ ------------
300,945 190,732
Cash, accounts receivable, prepaid expenses,
deferred financing and other assets 10,080 11,416
------------ ------------
$ 311,025 $ 202,148
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable, accrued expenses and other
liabilities $ 12,401 $ 8,905
Long-term debt 196,840 94,878
------------ ------------
209,241 103,783
------------ ------------
Minority interest in consolidated partnerships 10,178 3,528
------------ ------------
SHAREHOLDERS' EQUITY
Shareholders' equity 91,606 94,837
------------ ------------
$ 311,025 $ 202,148
============ ============
The following table sets forth the Company's results of operations for the
three-month periods ended December 31, 2007 and 2006, respectively, and the
years ended December 31, 2007 and 2006, respectively.
In thousands, except per share data:
Three months Twelve months
ended December 31, ended December 31,
-------------------- --------------------
Unaudited Unaudited Unaudited
2007 2006 2007 2006
--------- --------- --------- ---------
REVENUES
Room rentals and other hotel
services $ 27,406 $ 18,885 $ 111,631 $ 77,134
--------- --------- --------- ---------
EXPENSES
Hotel and property operations 20,319 13,649 78,697 53,591
Depreciation and amortization 3,334 2,351 12,211 8,680
General and administrative 1,073 750 3,864 2,842
--------- --------- --------- ---------
24,726 16,750 94,772 65,113
--------- --------- --------- ---------
EARNINGS BEFORE NET GAINS
(LOSSES) ON DISPOSITIONS OF
ASSETS, OTHER INCOME, INTEREST
EXPENSE, MINORITY INTEREST
AND INCOME TAX BENEFIT 2,680 2,135 16,859 12,021
Net gains (losses) on
dispositions of assets (4) 3 (17) (3)
Other income 62 77 177 185
Interest expense (3,658) (2,451) (12,908) (8,255)
Minority interest (28) (61) (337) (334)
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME
TAXES (948) (297) 3,774 3,614
Income tax benefit 533 368 304 107
--------- --------- --------- ---------
NET EARNINGS (LOSS) (415) 71 4,078 3,721
Preferred stock dividend (199) (302) (948) (1,215)
NET EARNINGS (LOSS) AVAILABLE --------- --------- --------- ---------
TO COMMON SHAREHOLDERS $ (614) $ (231) $ 3,130 $ 2,506
========= ========= ========= =========
--------- --------- --------- ---------
NET EARNINGS (LOSS) PER SHARE -
BASIC: $ (0.03) $ (0.02) $ 0.15 $ 0.20
========= ========= ========= =========
NET EARNINGS (LOSS) PER SHARE -
DILUTED: $ (0.03) $ (0.02) $ 0.15 $ 0.20
========= ========= ========= =========
In thousands, except per share data:
Three months Twelve months
ended December 31, ended December 31,
-------------------- ---------------------
unaudited unaudited unaudited
2007 2006 2007 2006
--------- --------- ---------- ----------
Weighted average number of
shares outstanding for EPS:
basic 20,600 12,836 20,197 12,261
diluted 20,600 12,836 20,217 12,272
Weighted average number of
shares outstanding for FFO:
basic 20,600 12,836 20,197 12,261
diluted 22,358 15,529 22,343 14,960
Reconciliation of Weighted
average number of shares for
EPS diluted to FFO diluted:
EPS diluted shares 20,600 12,836 20,217 12,272
Common stock issuable upon
exercise or conversion of:
Options 12 11 - -
Warrants - - 8 -
Series A Preferred Stock 1,746 2,682 2,118 2,688
--------- --------- ---------- ----------
FFO diluted shares 22,358 15,529 22,343 14,960
========= ========= ========== ==========
Reconciliation of net earnings
(loss) to FFO-Unaudited
Net earnings (loss) available
to common shareholders $ (614) $ (231) $ 3,130 $ 2,506
Depreciation and amortization 3,334 2,351 12,211 8,680
Net (gains) losses on
disposition of assets 4 (3) 17 3
--------- --------- ---------- ----------
FFO $ 2,724 $ 2,117 $ 15,358 $ 11,189
========= ========= ========== ==========
FFO per share - basic $ 0.13 $ 0.16 $ 0.76 $ 0.91
========= ========= ========== ==========
FFO per share - diluted $ 0.13 $ 0.16 $ 0.73 $ 0.83
========= ========= ========== ==========
FFO is a non-GAAP financial measure. The Company considers FFO to be a
market accepted measure of an equity REIT's operating performance, which is
necessary, along with net earnings, for an understanding of the Company's
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, and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes its 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 the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to pay dividends or make distributions.
All REITs do not calculate FFO in the same manner; therefore, the Company's
calculation may not be the same as the calculation of FFO for similar
REITs.
The Company uses FFO as a performance measure to facilitate a periodic
evaluation of its operating results relative to those of its peers, who
like Supertel Hospitality, Inc., are typically members of NAREIT. The
Company considers FFO a useful additional measure of performance for an
equity REIT because it facilitates an understanding of the operating
performance of its properties without giving effect to real estate
depreciation and amortization, which assumes that the value of real estate
assets diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, the Company believes
that FFO provides a meaningful indication of our performance.
Unaudited, In thousands:
Three months Twelve months
ended December 31, ended December 31,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
RECONCILIATION OF NET EARNINGS
(LOSS) TO EBITDA
Net earnings (loss) available to
common shareholders $ (614) $ (231) $ 3,130 $ 2,506
Interest expense 3,658 2,451 12,908 8,255
Income tax benefit (533) (368) (304) (107)
Depreciation and amortization 3,334 2,351 12,211 8,680
Minority interest 28 61 337 334
Preferred stock dividend 199 302 948 1,215
-------- -------- -------- --------
EBITDA $ 6,072 $ 4,566 $ 29,230 $ 20,883
======== ======== ======== ========
EBITDA is a non-GAAP financial measure. With respect to EBITDA, the Company
believes that excluding the effect of non-operating expenses and non-cash
charges, all of which are also based on historical cost accounting and may
be of limited significance in evaluating current performance, can help
eliminate the accounting effects of depreciation and amortization, and
financing decisions and facilitate comparisons of core operating
profitability between periods and between REITs, even though EBITDA also
does not represent an amount that accrues directly to common shareholders.
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. EBITDA is not a measure of the Company's
liquidity, nor is EBITDA indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
Neither measurement reflects cash expenditures for long-term assets and
other items that have been and will be incurred. 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 the Company's operating performance.
The following table sets forth the operations of the Company's hotel
properties for the three and twelve months ended December 31, 2007 and
2006, respectively. The Company owned 115 hotels at December 31, 2007.
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 Twelve months
ended December 31, ended December 31,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Same Store:
Revenue per available room
(RevPAR):
Midscale w/o F&B $ 41.97 $ 42.32 $ 48.96 $ 48.80
Economy $ 29.25 $ 26.37 $ 30.11 $ 28.50
Extended Stay $ 17.69 $ 16.27 $ - $ -
Total $ 31.86 $ 30.29 $ 37.29 $ 36.24
Average daily room rate (ADR):
Midscale w/o F&B $ 71.61 $ 71.83 $ 74.84 $ 72.19
Economy $ 47.48 $ 47.08 $ 47.92 $ 47.52
Extended Stay $ 25.05 $ 23.89 $ - $ -
Total $ 51.48 $ 51.57 $ 58.44 $ 57.62
Occupancy percentage:
Midscale w/o F&B 58.6% 58.9% 65.4% 67.6%
Economy 61.6% 56.0% 62.8% 60.0%
Extended Stay 70.6% 68.1% - -
Total 61.9% 58.7% 63.8% 62.9%
-------- -------- -------- --------
Total Hotels:
Revenue per available room
(RevPAR): $ 28.46 $ 30.11 $ 32.32 $ 34.92
Average daily room rate (ADR): $ 48.17 $ 51.26 $ 50.71 $ 55.18
Occupancy percentage: 59.1% 58.7% 63.7% 63.3%
Revenue from room rentals and other
hotel services consists of:
Room rental revenue $ 26,582 $ 18,301 $108,445 $ 75,011
Telephone revenue 91 96 466 244
Other hotel service revenues 733 488 2,720 1,879
-------- -------- -------- --------
Total revenue from room rentals and
other hotel services $ 27,406 $ 18,885 $111,631 $ 77,134
======== ======== ======== ========
Room rentals and other hotel
services
Same Store locations * $ 19,636 $ 18,745 $ 74,741 $ 72,814
Acquisitions 7,770 140 36,890 4,320
-------- -------- -------- --------
Total room rental and other
hotel services $ 27,406 $ 18,885 $111,631 $ 77,134
======== ======== ======== ========
Hotel and property operations
expense
Same Store locations * $ 14,191 $ 13,564 $ 52,804 $ 50,439
Acquisitions 6,128 85 25,893 3,152
-------- -------- -------- --------
Total hotel and property
operations expense $ 20,319 $ 13,649 $ 78,697 $ 53,591
======== ======== ======== ========
Property Operating Income ("POI")
Same Store locations * $ 5,445 $ 5,181 $ 21,937 $ 22,375
Acquisitions 1,642 55 10,997 1,168
-------- -------- -------- --------
Total property operating income $ 7,087 $ 5,236 $ 32,934 $ 23,543
======== ======== ======== ========
POI as a percentage of revenue from
room rentals and other hotel
services
Same Store locations * 27.7% 27.6% 29.4% 30.7%
Acquisitions 21.1% 39.3% 29.8% 27.0%
Total POI as a percentage of
revenue 25.9% 27.7% 29.5% 30.5%
* Same Store reflects 85 hotels owned as of October 1, 2006 for the three
months ended December
31, 2007 and 2006, and 76 hotels owned as of January 1, 2006 for YTD 2007,
and 2006. Hotel acquisitions which were excluded from same store
calculations for the three months ended December 31, 2007 and 2006 were MOA
(5), BMI (6), Masters (15), Savannah (1) and independent (3). Hotel
acquisitions which were excluded from same store calculations for the
twelve months ended December 31, 2007 and 2006 were MOA (5), BMI (6),
Masters (15), Savannah (7) and independent (6). The excluded properties
were not owned by the Company throughout each of the periods presented and
therefore are excluded from the same store calculations.
RECONCILIATION OF NET EARNINGS
(LOSS) TO POI-UNAUDITED: Three months Twelve months
ended December 31, ended December 31,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net earnings (loss) $ (415) $ 71 $ 4,078 $ 3,721
Depreciation and amortization 3,334 2,351 12,211 8,680
Net(gains) losses on disposition of
assets 4 (3) 17 3
Other income (62) (77) (177) (185)
Interest expense 3,658 2,451 12,908 8,255
Minority interest 28 61 337 334
General and administrative expense 1,073 750 3,864 2,842
Income tax benefit (533) (368) (304) (107)
-------- -------- -------- --------
POI $ 7,087 $ 5,236 $ 32,934 $ 23,543
======== ======== ======== ========
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