InnSuites Hospitality Trust — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2021. The filing was signed May 14, 2021. The company operates two moderate-service hotels with 270 suites in Tucson, Arizona, and Albuquerque, New Mexico, and provides hotel management and trademark services. It is taxed as a C-corporation rather than as a federal tax REIT.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $4.203 million | $6.568 million | Down 36% |
| Room revenue | $3.905 million | $6.278 million | Down 38% |
| Operating expenses | $7.015 million | $8.421 million | Down 17% |
| Operating loss | $(2.812) million | $(1.853) million | Loss increased 52% |
| Interest expense | $361,000 | $567,000 | Down 36% |
| Consolidated net loss | $(2.828) million | $(1.978) million | Loss increased 43% |
| Net loss attributable to controlling interests | $(1.626) million | $(1.742) million | Improved 7% |
| Basic and diluted loss per share | $(0.31) | $(0.21) | Worsened |
| Cash used in operating activities | $(807,000) | $(953,000) | Improved by $145,000 |
| Adjusted EBITDA | $(633,000) | $(714,000) | Improved by $81,000 |
| FFO | $(1.997) million | $(1.077) million | Worsened |
Revenue fell primarily because of COVID-19-related travel restrictions and reduced demand. The implied operating margin declined to approximately (66.9%) from approximately (28.2%). Management reported occupancy of 57.05% versus 82.00%, ADR of $70.16 versus $80.68, and RevPAR of $41.35 versus $65.31.
Liquidity, debt and capital resources
- Cash and cash equivalents were $1.703 million at January 31, 2021, compared with $1.201 million a year earlier.
- Total liabilities were $12.884 million versus $11.078 million; total equity declined to $2.510 million from $5.918 million.
- Mortgage debt was $5.938 million, consisting principally of Tucson debt at 4.69% and Albuquerque debt at 4.90%.
- Other notes payable totaled approximately $1.048 million, and related-party notes payable totaled $1.595 million, principally under a 7% demand/revolving line of credit with Rare Earth Financial, an affiliate of Chairman and CEO James Wirth.
- Scheduled debt payments are approximately $216,000 in fiscal 2022 and $1.178 million in fiscal 2023. The company also had substantial long-term operating lease obligations.
- The company stated that cash, available credit facilities and related-party financing should be sufficient for obligations due during the 12 months after filing; however, it cautioned that refinancing, additional borrowing and asset sales may not be available on favorable terms.
- Capital expenditures were $37,000, down from $324,000, as major hotel refurbishment work had substantially been completed.
Material changes and unusual items
- COVID-19 caused a substantial deterioration in occupancy, room rates, RevPAR, revenue and operating results.
- An $844,000 sales and occupancy tax liability was recorded in FY2021 for a prior-period discrepancy involving the Tucson and Albuquerque hotels. Management stated that the amount is not expected to recur and that no additional assessments had occurred since September 2020.
- The company recorded no additional impairment on its IBC note receivable in FY2021, but the note remains subject to delayed payments. Its carrying value was approximately $1.925 million after a prior $825,000 impairment.
- The Tempe, Arizona affiliated hotel was sold in December 2020, eliminating related management-fee revenue after the sale.
- The company invested $1.0 million in secured convertible debentures of UniGen Power, Inc., held $60,000 of UniGen stock and held warrants. The investment is illiquid and valued using Level 3 or cost-based measures; future value is uncertain.
- Three PPP loans totaling approximately $504,000 were received. Approximately $86,700 was forgiven in January 2021, and the remaining approximately $228,602 and $187,685 loans were forgiven in March 2021. Additional PPP loans of $253,253 and $297,601 were received after year-end, with forgiveness expected but not guaranteed.
- The company repurchased 233,569 shares during FY2021 for approximately $247,000 and subsequently repurchased an additional 201,676 shares for approximately $211,000 after year-end.
- The annual dividend remained $0.02 per share, paid as two semiannual $0.01 distributions. Future dividends depend substantially on hotel cash flow and asset sales.
Outlook, strategy and risks
Management expects a slow recovery in travel and hospitality during fiscal 2022, with moderately higher occupancy, generally flat ADR and relatively flat RevPAR. Cost controls and completed refurbishments are expected to support gross operating profit as demand recovers.
The company intends to market one or both remaining hotels for sale over approximately 12 to 36 months and may seek to refinance the Tucson property. Reported asking prices were $7.995 million for Albuquerque and $16.600 million for Tucson, but these are management estimates rather than appraisals, and there is no assurance that either property will sell at those prices or within the expected timeframe.
- Principal risks include continued COVID-19 effects, travel restrictions, weak occupancy and room rates, competition and additional hotel supply.
- Liquidity depends on hotel operations, distributions from hotel subsidiaries, management fees, refinancing, related-party funding and potential property sales.
- The company has significant related-party transactions, guarantees and financing arrangements involving Mr. Wirth and his affiliates.
- The IBC note receivable is dependent on the buyer’s ability to restore hospitality-related operations and begin payments in November 2021; the note matures in June 2024.
- UniGen is a speculative private-company investment in the research and development stage. Management anticipated a prototype by late 2021 and profitability 18–24 months later, but these are forward-looking expectations.
- The company disclosed that disclosure controls and internal control over financial reporting were not effective as of January 31, 2021. Management identified staffing, segregation-of-duties, technical accounting, documentation and review deficiencies and expected remediation during FY2022.
- The company had previously been delinquent in SEC filings and received an NYSE American noncompliance notice, but stated that all delayed reports had been filed and compliance was restored by March 25, 2021.
Important facts for investors to verify
- Whether hotel occupancy, ADR, RevPAR and operating cash flow recovered during fiscal 2022.
- The status and terms of the Tucson refinancing and any planned sale of the Tucson or Albuquerque hotels.
- Whether the remaining PPP loans and subsequent PPP loans received full forgiveness.
- The collectability and payment status of the $1.925 million IBC note receivable.
- The company’s ability to meet the $1.178 million of scheduled fiscal 2023 debt payments and related-party financing obligations.
- Progress in remediating the disclosed material weaknesses in internal controls and whether future filings remain timely.
- The fair value, conversion terms, dilution potential and operating progress of the UniGen investment.
- The effect of the $844,000 occupancy-tax assessment and whether any further assessments or penalties are possible.
- The sustainability of dividends and share repurchases given recurring operating losses and negative operating cash flow.