InnSuites Hospitality Trust — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2022; filed May 27, 2022. The filing covers two moderate-service hotels totaling 270 suites in Tucson, Arizona, and Albuquerque, New Mexico. The Trust owns a 75.98% general-partner interest in RRF Limited Partnership, which controls the Tucson hotel, and directly owns 21% of the Albuquerque hotel. The Trust is taxed as a C-corporation rather than as a REIT for federal income tax purposes.
Key Financial Metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $6.410 million | $4.203 million | +53% |
| Room revenue | $6.208 million | $3.905 million | +59% |
| Operating loss | $(303,335) | $(2.812 million) | Improved |
| Total operating expenses | $6.713 million | $7.015 million | Decreased |
| Consolidated net income | $1.540 million | $(2.828 million) | Improved by $4.368 million |
| Net income attributable to controlling interests | $254,144 | $(1.626 million) | Turned profitable |
| Basic and diluted EPS | $0.03 | $(0.31) | Improved |
| Cash flow from operations | $263,457 | $(807,398) | Turned positive |
| Adjusted EBITDA | $1.285 million | $(633,000) | Improved |
| FFO | $2.265 million | $(1.997 million) | Improved |
The filing contains an inconsistent management summary that reports consolidated net income of approximately $741,735 and operating expenses of $6.713 million with an incorrect percentage calculation. The audited consolidated statements report consolidated net income of $1,539,735, which is used above.
Operating Performance and Margins
- Combined occupancy increased to 75.60% from 57.05%; ADR increased to $83.34 from $70.16; and RevPAR increased to $63.00 from $41.35.
- Albuquerque occupancy increased to 83.44% from 56.50%, with RevPAR increasing 89.79% to $71.19.
- Tucson occupancy increased to 70.04% from 57.60%, with RevPAR increasing 34.31% to $57.19.
- Operating expenses declined primarily because of cost controls, lower general and administrative expenses, reduced depreciation, and the reversal of approximately $798,000 of previously recorded sales and occupancy tax liabilities.
- Room, food and beverage, hospitality, utility, repair and maintenance expenses increased with higher occupancy. Labor availability and wage pressure remained concerns.
- Room revenue represented approximately 97% of total revenue. Food and beverage revenue remained approximately $56,000, while management and trademark fee revenue declined to approximately $21,000 following the December 2020 sale of the affiliated Tempe hotel.
Liquidity, Debt and Capital Resources
- Cash was $1.224 million at January 31, 2022, compared with $1.703 million at January 31, 2021.
- Total liabilities were $10.570 million and total equity was $4.132 million at year-end.
- Mortgage debt totaled $5.757 million, consisting primarily of Tucson debt at 4.69% and Albuquerque debt at 4.90%. Mortgage debt is secured by the hotels.
- Other notes payable totaled approximately $571,000, and related-party notes payable totaled approximately $978,000, bearing interest at 7% under a revolving demand facility with a maximum capacity of $2 million.
- Scheduled FY2023 debt payments were approximately $746,000, including $175,000 of mortgage payments and $571,000 of other notes payable. The related-party balance of approximately $978,000 was scheduled for FY2024 in the debt table.
- The Trust reported $250,000 of bank revolving lines with zero balance and stated that available cash, credit facilities, affiliate advances and potential asset transactions should cover obligations for at least twelve months. Management cautioned that refinancing or asset sales may not be available on favorable terms.
- Cash used in investing activities was $117,377, including $116,207 of hotel improvements and $213,750 invested in UniGen-related securities. Cash used in financing activities was $624,455, including debt repayments, dividends and share repurchases.
- The Trust paid $0.02 per share in annual dividends, consisting of two $0.01 semiannual dividends, and stated that it intended to continue this policy.
Material Changes and Unusual Items
- Results improved materially as COVID-19 travel restrictions eased and domestic lodging demand recovered.
- PPP loan forgiveness contributed approximately $967,000 of other income in FY2022. An employee retention credit of approximately $351,000 was also recognized.
- The reversal of approximately $798,000 in sales and occupancy tax liabilities was nonrecurring, according to management.
- The Trust retired approximately 9.6 million treasury shares during FY2022 and ended the year with 9.080 million shares outstanding. It also repurchased 44,076 shares during the year.
- The Trust invested in UniGen Power, Inc. through a $1 million convertible debenture, common stock and warrants. At January 31, 2022, the balance sheet included a $1 million convertible note receivable and $273,750 of private-company stock; the investment is illiquid and valued using significant unobservable inputs.
- The Trust amended the IBC secured note receivable to defer payments until May 2023. The note had a carrying value of $1.925 million and matures June 1, 2024. Management concluded that no additional impairment was required, but collectability remains dependent on the buyer’s recovery.
Guidance, Outlook and Risks
- Management expects modest occupancy growth, higher room rates and improved revenue and profits in FY2023, while acknowledging that results remain dependent on the continued recovery of travel and the broader economy.
- The Trust intends to market one or both hotels for sale over the next 12 to 36 months. Stated asking prices totaled $26.545 million against combined hotel book value of $7.527 million and mortgage balances of $5.757 million; the asking prices are not based on appraisals and may not be achieved.
- A March 30, 2022 subsequent-event refinancing of the Tucson hotel was described as an $8.4 million loan used to refinance existing debt and intercompany advances. The filing also reported record combined February and March 2022 hotel results, but these are subsequent-period results and are not included in FY2022.
- COVID-19 remains a material risk despite the reported recovery. Other principal risks include hotel competition, demand and rate volatility, seasonality, labor shortages and wage inflation, regulatory and environmental requirements, cybersecurity and privacy exposure, interest rates, limited access to financing, and the ability to refinance or sell assets.
- The NYSE American notified the Trust in November 2021 that it did not meet certain continued-listing financial requirements. The Trust submitted a remediation plan and received until May 2023 to regain compliance.
- Management concluded that disclosure controls and internal control over financial reporting were not effective as of January 31, 2022. Remediation efforts include additional accounting personnel, enhanced technical accounting expertise, formalized controls and improved oversight.
Investor Verification Checklist
- Reconcile the filing’s conflicting consolidated net income figures and other apparent management-summary calculation errors with the audited financial statements.
- Verify the status and terms of the NYSE American compliance plan and the May 2023 deadline.
- Assess the sustainability of operating cash flow and dividends excluding PPP forgiveness, employee retention credits and the nonrecurring tax-liability reversal.
- Review debt maturities, related-party financing terms, guarantees and the impact of the subsequent Tucson refinancing.
- Evaluate the collectability and collateral supporting the $1.925 million IBC note receivable, including the May 2023 payment deferral.
- Assess the valuation, liquidity and execution risk of the UniGen investment and warrants.
- Confirm whether the hotels can be sold within 12 to 36 months and whether proceeds would cover debt, minority interests and transaction costs.
- Monitor remediation of the reported material weaknesses in internal control over financial reporting.