InnSuites Hospitality Trust — Q1 FY2021 Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended April 30, 2020, InnSuites Hospitality Trust’s first fiscal quarter of 2021. The Trust owns interests in two limited-service hotels totaling 270 suites in Tucson, Arizona, and Albuquerque, New Mexico, and manages those properties plus an affiliated Tempe hotel. The hotels operate under the InnSuites and Best Western brands.
The filing was signed January 11, 2021. The company reported that it had not filed all required Exchange Act reports during the preceding 12 months and was not current with certain SEC and NYSE American filings.
Financial performance and position
| Metric | Three months ended April 30, 2020 | Prior comparable period |
|---|---|---|
| Total revenue | $1.446 million | $2.093 million |
| Operating expenses | $1.729 million | $2.243 million |
| Operating loss | $(283,000) | $(150,000) |
| Consolidated net loss | $(353,000) | $(270,000) |
| Net loss attributable to controlling interests | $(142,000) | $(329,000) |
| Basic and diluted loss per share | $(0.04) | $(0.03) |
| Cash flow from operations | $(373,000) | $532,000 |
Revenue declined approximately 31%. The operating margin was approximately negative 19.6%, compared with negative 7.2% in the prior period. The consolidated net margin was approximately negative 24.4%, compared with negative 12.9% previously.
- Room revenue declined approximately 36%, to $1.282 million from $1.995 million. Food and beverage revenue declined to $15,000 from $18,000.
- Management and trademark fee revenue increased to $103,000 from $64,000, while other revenue increased to $47,000 from $16,000.
- Interest expense declined to $88,000 from $123,000, partly offsetting the operating deterioration.
- At April 30, 2020, cash and cash equivalents were $547,000, short-term investments were $32,000, and total current assets were $2.411 million versus current liabilities of $2.181 million.
- Total assets were $16.388 million and total liabilities were $10.931 million. Total shareholders’ equity was $5.457 million, including negative non-controlling interest of $2.547 million.
- Debt payments scheduled for fiscal 2021 totaled approximately $950,000, including $123,000 of mortgage payments, $77,000 of related-party notes, and $749,000 of other notes.
Material changes versus the prior comparable period
- COVID-19 travel restrictions and reduced lodging demand materially reduced hotel activity. Reported occupancy declined at Albuquerque to 59.6% from 98.0% and at Tucson to 67.6% from 76.9%.
- Operating cash flow shifted from $532,000 provided to $373,000 used, and ending cash declined by $653,000 during the quarter to $547,000.
- Investing cash use increased to $432,000 from $145,000, primarily because of an additional $400,000 investment in UniGen Power, bringing the stated investment to $1.0 million.
- Financing activities provided $151,000 compared with $376,000 used in the prior period. The improvement primarily reflected approximately $503,000 of Paycheck Protection Program loans received by the Trust and its hotels.
- Capital expenditures were approximately $242,000, compared with $779,000 in the prior-year quarter, as major Tucson property improvements had largely been completed.
- The Trust repurchased 17,074 shares for approximately $21,000 and issued 18,000 restricted shares to its three independent trustees for services.
Outlook, risks, contingencies, and unusual items
Management expects occupancy and average daily rates to partially recover as travel restrictions ease, but identifies COVID-19-related economic and travel recovery as the principal challenge for fiscal 2021. No formal quantitative revenue or earnings guidance was provided.
- Management believes available cash, short-term investments, credit facilities, and expected financing or intercompany-loan repayments will cover obligations for at least twelve months. It also acknowledges that asset sales, refinancing, or additional financing may not be available on favorable terms or at all.
- The Trust is marketing both hotels for sale and intends to sell the remaining properties over approximately two years. Listed asking prices totaled $24.0 million, but were not based on appraisals and may not be realized.
- The filing states that the COVID-19 pandemic materially harmed operations, financial results, liquidity, occupancy, and room demand, with the duration and magnitude of recovery uncertain.
- The Trust received PPP loans totaling approximately $503,000 and expected forgiveness, subject to SBA approval. The filing does not establish that forgiveness was final as of the reporting period.
- The IBC note receivable had a carrying value of $1.926 million after a prior $825,000 impairment. Payments were deferred to November 2021 because of COVID-19 impacts; management recorded no additional impairment during the quarter.
- The Trust’s $1.0 million UniGen investment consisted of approximately $424,000 of note receivable and $576,000 of warrant value. It is a Level 3 valuation and involves significant execution, financing, and technology risks.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective due to material weaknesses involving records, entity-level controls, systems and manual controls, segregation of duties, accounting expertise, and information-technology controls.
- The Trust disclosed NYSE American noncompliance related to late SEC filings and stated that it planned to bring its filings into compliance. Continued listing and filing timeliness remain material risks.
- The company reported no legal proceedings expected to have a material adverse effect, but remains exposed to ordinary-course litigation, Best Western membership requirements, lease obligations, debt maturities, and mortgage guarantees.
Important facts for investors to verify
- Whether hotel occupancy, room rates, revenue, and operating cash flow recovered after April 30, 2020 and whether COVID-19 effects caused further impairment or liquidity pressure.
- The status, forgiveness, repayment terms, and accounting treatment of the approximately $503,000 of PPP loans.
- Actual maturity, covenant, and refinancing risk for approximately $7.5 million of scheduled debt, including approximately $950,000 due in fiscal 2021.
- Collectability and revised payment timing of the $1.926 million IBC note receivable and the approximately $1.0 million related-party advance.
- Whether either hotel was sold or refinanced, and whether the stated $24.0 million aggregate asking price was supported by independent appraisals or completed transactions.
- Progress in remediating material weaknesses in internal control and restoring timely SEC and NYSE American filings.
- The reliability of operating-statistic percentages in the filing, which contain apparent presentation or calculation inconsistencies in certain occupancy, ADR, and REVPAR change figures.