Supertel Hospitality Reports 2015 First Quarter Results

NORFOLK, NE--(Marketwired - May 07, 2015) - Supertel Hospitality, Inc. (NASDAQ: SPPR), a real estate investment trust (REIT), today announced its results for the first quarter ended March 31, 2015. 

2015 First Quarter Highlights 

• Property Operating Income (POI) from hotels in continuing operations in the first quarter was $2.4 million compared to $1.5 million the prior year, an increase of 60.6 percent.
• Reported net earnings attributable to common shareholders of $2.3 million, compared to a loss of $(1.4) million for the 2014 first quarter.
• Revenue from continuing operations in the first quarter was $12.3 million, compared to $11.3 million for the prior year, an increase of 9.3 percent over the same period.
• Revenue per available room (RevPAR) for the continuing operations hotels in the first quarter was $35.19, an increase of 9.9 percent over the same 2014 period.
• Adjusted EBITDA was $1.6 million for the quarter, compared to $1.1 million in the first quarter 2014, an increase of 37.2 percent.
• Adjusted funds from operations ("AFFO") was $(1.0) million for the quarter, compared to $(1.9) million in the first quarter 2014.
• Sold four non-core hotels in the first quarter and three hotels following the close of the quarter.

First Quarter Operating and Financial Results

Supertel's first quarter 2015 revenue from continuing operations rose 9.3 percent to $12.3 million compared to the same year-ago period. Revenue per available room (RevPAR) improved by 9.9 percent to $35.19 over the RevPAR for the first quarter 2014. The improved revenue and RevPAR greatly improved POI from continuing operations to $2.4 million compared to $1.5 million in the prior year, a 60.6 percent increase over 2014. Improving overall market conditions in the Washington D.C. market, increased construction activity in the Midwest portfolio and significant capital investments in core hotels have all contributed to the revenue growth.

The company reported net earnings attributable to common shareholders of $2.3 million, or $0.48 and $(0.09) per basic and diluted share, respectively, for the 2015 first quarter, compared to a net loss of $(1.4) million or $(0.47) per basic and diluted share for the same 2014 period. The results reflect a non-cash increase of $2.7 million in unrealized derivative gain related to derivative liabilities. When the value of the derivatives increases, a loss is recorded and when it decreases, a gain is recorded. One of the key drivers of the value of the derivatives is the market value of the common stock price.

Funds from operations (FFO) was $3.8 million for the 2015 first quarter, compared to $0.2 million in the same 2014 period. Adjusted funds from operations (AFFO), which is FFO adjusted to exclude gains and losses on derivative liabilities, acquisition and termination expense, and the terminated equity transactions expense, in the 2015 first quarter was $(1.0) million, compared to $(1.9) million in the same 2014 period, a 47.1 percent increase over the prior year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $5.7 million for the 2015 first quarter, compared to $2.5 million in the same year-ago period, an increase of $3.2 million over the prior year. Adjusted EBITDA was $1.6 million, compared to $1.1 million for the 2014 first quarter. Adjusted EBITDA is EBITDA before noncontrolling interest, net gain/loss on disposition of assets, impairment, preferred stock dividends declared and undeclared, unrealized gain/loss on derivatives, acquisition and termination expense, gain on debt conversion and the expenses of the terminated equity transactions.

In the first quarter 2015, the 46-hotel same store portfolio reported a strong increase in RevPAR of 9.9 percent to $35.19, driven by a 5.2 percent improvement in occupancy to 56.2 percent, coupled with a 4.4 percent increase in average daily rate (ADR) to $62.63, compared to the 2014 first quarter. 

Disposition Program

In the 2015 first quarter, the company sold four hotels with an aggregate of 296 rooms for combined gross proceeds of $7.5 million. The proceeds were used to pay off underlying loans.

The four sold hotels include:

• Super 8 in West Plains, MO, sold January 15, 2015, for $1.5 million
• Super 8 in Green Bay, WI, sold January 29, 2015, for $2.2 million
• Super 8 in Columbus, GA, sold March 16, 2015, for $0.9 million
• Sleep Inn & Suites in Omaha, NE, sold March 19, 2015, for $2.9 million

As of March 31, 2015, the company had ten hotels held for sale. Following the close of the 2015 first quarter, the company sold the following hotels:

• Savannah Suites in Chamblee, GA, sold April 1, 2015, for $4.4 million
• Savannah Suites in Augusta, GA, sold April 1, 2015, for $3.4 million
• Super 8 in Batesville, AR, sold April 30, 2015, for $1.5 million

Currently, the company is marketing seven hotels for sale and expects to generate approximately $14.5 million in net proceeds after associated debt repayments. 

Subsequent Events

On April 13, 2015, following the close of the 2015 first quarter, the company entered into an agreement to sell two hotels located in Alexandria, Virginia, for a purchase price of $19.0 million. The sale is subject to the completion of the inspection period, without termination by the purchaser and customary closing conditions. Provided the closing conditions are met, the company expects to complete the sale in late spring or early summer.

Capital Reinvestment

The company invested $0.8 million in capital improvements throughout the portfolio in the first quarter 2015 to upgrade its properties and maintain brand standards. Notable capital improvements in the first quarter included the initial phase of renovations at the Rocky Mount, Virginia, Comfort Inn and the Morgantown, West Virginia, Comfort Inn, coupled with upgrades at the newly reflagged Quality Inn in Culpeper, Virginia.

Balance Sheet

The company continued to improve its balance sheet through mortgage debt reduction and loan-term extensions. During the 2015 first quarter, the company reduced debt by $7.0 million to $85.7 million, primarily through amortization and the sale of non-core assets. 

As of March 31, 2015, the company had $36.3 million of debt maturing in 2015 and expects the obligations to be met with the proceeds from the sale of hotels and through refinancing with current or future lenders. No debt matures in 2016.

On February 17, 2015, the company entered into a modification agreement with GE Capital Franchise Finance LLC (GE) to extend the maturity date of the $7.8 million loan to December 15, 2015.

As of March 31, 2015, Supertel had $64.5 million in outstanding debt on its held for use hotels with an average term of 1.9 years and weighted average annual interest rate of 5.8 percent. 

Dividends

The company did not declare a dividend on common stock in 2015 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

"The improvement of RevPAR that we pointed out in our fourth quarter 2014 announcement continued in the first quarter 2015 as our same store hotel portfolio experienced growth of 9.9 percent compared to 8.0 percent RevPAR increase for the total industry," said Bill Blackham, Supertel's Chief Executive Officer. "With increased property operating income margins, the flow through caused expanding property operating income and that is driving the increased EBITDA and increased debt service coverage and, more importantly, causing higher hotel values both in our same store hotel portfolio and in the hotels held for sale.

"The company is actively seeking acquisitions as we expand the efforts to recycle capital into newer hotels with higher margins in sectors and markets with characteristics having the potential to create higher shareholder value," said Blackham. "As this effort is underway, the underlying hotel portfolio appears to be on track to deliver an increased contribution and that should help to accelerate growing the company during this time of transition."

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 49 hotels comprising 4,161 rooms in 19 states. Supertel's hotels are franchised by a number of the industry's most well-regarded brand families including Hilton, Choice and Wyndham. For more information or to make a hotel reservation, visit www.supertelinc.com.

Forward Looking Statement

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.

* The number of weighted average shares of common stock for the three months ended March 31, 2015 is significantly higher than the outstanding shares at March 31, 2014 due to the issuance of common stock from the rights offering during the last month of the second quarter of 2014.

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. Our interpretation of the NAREIT definition is that noncontrolling interest in net earnings (loss) should be added back to (deducted from) net earnings (loss) as part of reconciling net earnings loss to FFO. 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 transactions. 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 earnings (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 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 46 hotels in continuing operations.

(Unaudited - In thousands, except statistical data)

POI from continuing operations is reconciled to net loss as follows:

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