InnSuites Hospitality Trust — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2020. The filing is an annual report, not a quarterly filing; the requested “2019 Q4” corresponds to the fiscal-year-end period. The filing was signed August 14, 2020.
Business Context
InnSuites Hospitality Trust owns interests in two moderate-service hotels totaling 270 suites in Tucson, Arizona, and Albuquerque, New Mexico; manages those hotels and one affiliated Tempe, Arizona hotel; and provides InnSuites trademark and licensing services. The Trust is taxed as a C-corporation rather than as a federal REIT. Management continues to market the Tucson and Albuquerque hotels for sale, with a stated target of selling one or both within approximately 24 months.
The Trust reported one continuing operating segment: hotel operations and corporate overhead. The previously owned Yuma hotel and IBC technology business were sold in prior periods and are reflected as discontinued operations for comparative purposes.
Financial Performance and Position
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue from continuing operations | $6.568 million | $6.169 million | Up 6.5% |
| Operating expenses | $8.421 million | $7.474 million | Up 13% |
| Operating loss | $(1.853) million | $(1.305) million | Loss increased $548,000 |
| Interest expense | $567,000 | $381,000 | Up 49% |
| Net loss from continuing operations | $(1.978) million | $(1.986) million | Essentially unchanged |
| Net loss attributable to controlling interests | $(1.742) million | $1.420 million income | Turned to loss |
| Total basic and diluted loss per share | $(0.21) | $1.20 income | Declined $1.41 |
| Adjusted EBITDA | $(714,000) | $2.946 million | Declined $3.660 million |
| FFO | $(1.077) million | $(1.621) million | Improved $544,000 |
Room revenue increased 7.1% to approximately $6.278 million. Food and beverage revenue increased 36% to approximately $68,000, while management and trademark fee revenue decreased approximately 1.2% to $170,000 and other revenue declined approximately 40% to $52,000.
Combined hotel occupancy was 80.45%, compared with 80.65% in FY2019. Average daily rate increased 5.46% to $81.18, and revenue per available room increased 4.71% to $65.31. Albuquerque occupancy and REVPAR improved, while Tucson occupancy declined despite higher ADR and REVPAR.
The FY2020 operating loss included an $825,000 impairment of the note receivable from the prior IBC sale. Excluding depreciation, amortization and this impairment, management reported a continuing-operations loss of approximately $138,000, compared with approximately $1.184 million in FY2019.
Cash Flow, Liquidity and Debt
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net cash used in operating activities | $(953,000) | $(1.799) million |
| Net cash provided by investing activities | $1.305 million | $8.372 million |
| Net cash provided by/(used in) financing activities | $99,000 | $(10.399) million |
| Cash and cash equivalents at year-end | $1.201 million | $749,000 |
| Total assets | $16.995 million | $17.200 million |
| Total liabilities | $11.078 million | $8.451 million |
| Total equity | $5.918 million | $8.749 million |
FY2020 investing cash flow benefited from the redemption of marketable securities, partially offset by hotel capital expenditures and the investment in UniGen Power. The Trust invested $600,000 through January 31, 2020 in secured convertible debentures and related warrants; a further $400,000 was paid on February 3, 2020.
Mortgage debt totaled approximately $6.106 million at January 31, 2020, including approximately $4.709 million secured by the Tucson property and $1.397 million secured by the Albuquerque property. The Albuquerque mortgage was established in December 2019. Total debt, including notes payable to banks and other notes, was approximately $7.326 million, excluding lease liabilities.
Scheduled FY2021 debt payments were approximately $1.146 million, including $161,000 of mortgage payments, $161,000 of related-party notes, $17,000 of bank notes and $807,000 of other notes. The Trust also reported net operating lease liabilities of approximately $2.422 million and finance lease liabilities of approximately $107,000.
Management stated that approximately $1.2 million of cash and short-term investments, a $1 million related-party revolving facility and approximately $1 million of affiliate credit facilities should provide sufficient liquidity for at least twelve months from issuance of the financial statements. The filing also states that refinancing or additional financing may not be available on favorable terms or at all.
Material Changes, Outlook and Risks
- Hotel operating metrics generally improved through January 31, 2020, supported by completed Tucson and Albuquerque renovations and stronger room rates.
- Operating expenses grew faster than revenue, primarily because of the $825,000 note-receivable impairment, higher interest expense, lease accounting adoption, and increased hotel operating costs.
- The Trust reduced hotel capital expenditures to approximately $324,000 in FY2020 from approximately $937,000 in FY2019 and expects lower spending in FY2021 because major renovations were substantially completed.
- Management expected significantly lower occupancy, ADR and REVPAR during FY2021 because of COVID-19-related reductions in travel and hospitality demand, followed by a gradual recovery. The filing anticipates potential offset from forgiveness of approximately $504,000 of SBA Paycheck Protection Program loans, but states that forgiveness is not assured.
- The Trust continues to pursue sales of the remaining hotels and a potential reverse merger with a larger private entity. Neither a hotel sale nor a merger is assured, and the listed hotel asking prices are not based on appraisals.
- The IBC note receivable had a $2.750 million face amount and was impaired by $825,000 because of collectability concerns, limited information regarding the buyer, and COVID-19 exposure to the travel technology business.
- The Trust paid $0.02 per share in FY2020 and stated its intention to maintain a conservative dividend policy while reducing debt. A $0.01 dividend payable July 31, 2020 was approved after year-end.
- Material weaknesses in internal control over financial reporting remained unremediated. Management cited inadequate entity-level and system controls, insufficient segregation of duties, limited GAAP expertise, and inadequate information-technology access controls. The filing states that disclosure controls were not effective as of January 31, 2020.
- The Trust received a July 1, 2020 NYSE American notice of noncompliance because it had not timely filed the FY2020 Form 10-K. Continued listing remains a stated risk.
- Related-party exposure is significant: affiliates of Chairman and CEO James Wirth own approximately 61% of the Trust’s outstanding shares, and the Trust has related-party management, financing, guarantee and affiliate receivable arrangements.
Most Important Facts to Verify
- COVID-19’s actual effect on occupancy, ADR, REVPAR, revenue and cash flow after January 31, 2020.
- Whether the approximately $504,000 of PPP loans was forgiven and the resulting accounting treatment.
- Liquidity and compliance with the approximately $1.146 million of FY2021 scheduled debt payments, including short-term other notes.
- Status, valuation and collectability of the impaired $2.750 million IBC note receivable.
- Progress and achievable pricing for the planned Tucson and Albuquerque hotel sales.
- Remediation of the disclosed material weaknesses and the Trust’s continuing compliance with NYSE American listing standards.
- Terms, valuation and performance of the $1 million UniGen Power investment and related warrants.
- Current terms and collectability of the approximately $1 million affiliate advance and other related-party transactions.