InnSuites Hospitality Trust — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2024, filed April 8, 2024. The Trust owns interests in and manages two moderate-service hotels totaling 270 suites in Tucson, Arizona and Albuquerque, New Mexico. It is taxed as a C-corporation rather than as a federal REIT and reports one segment: hotel ownership and management services.
Financial performance and operating metrics
| Metric | FY2024 | FY2023 | Change |
|---|---|---|---|
| Total revenue | $7.484 million | $7.146 million | +$339,000, or 5% |
| Room revenue | $7.292 million | $6.974 million | +5% |
| Operating expenses | $8.205 million | $7.443 million | +10% |
| Operating loss | $(721,000) | $(297,000) | Loss increased $424,000 |
| Interest expense | $502,000 | $530,000 | Down $29,000 |
| Consolidated net income | $277,000 | $737,000 | Down 62% |
| Net income attributable to controlling interests | $204,000 | $523,000 | Down 61% |
| Basic and diluted EPS | $0.02 | $0.06 | Down $0.04 |
| Cash flow from operations | $1.432 million | $54,000 | Increase of $1.378 million |
| Adjusted EBITDA | $1.335 million | $1.687 million | Down 21% |
| FFO | $956,000 | $1.439 million | Down 34% |
Reported net income included a $1.403 million Employee Retention Credit in both years. Excluding non-cash depreciation, management reported approximately $883,000 of operating income before depreciation in FY2024 versus $1.226 million in FY2023. Approximate operating margin was negative 9.6% in FY2024, compared with negative 4.2% in FY2023; net margin was approximately 3.7% versus 10.3%.
- Combined occupancy increased to 75.91% from 73.96%; ADR increased to $97.46 from $95.66; and RevPAR increased to $73.98 from $70.75.
- Albuquerque occupancy was 84.86% and RevPAR was $84.84. Tucson occupancy was 69.56% and RevPAR was $66.28.
- Room expenses increased 14% to $2.525 million, general and administrative expenses increased 11% to $2.470 million, and property taxes, insurance and ground rent increased 29% to $553,000.
- Cash and cash equivalents were $1.325 million at January 31, 2024, down from $2.111 million.
- Total assets were $15.680 million and total liabilities were $13.025 million. Trust shareholders’ equity was $6.167 million, while non-controlling interest was negative $3.512 million.
Debt, liquidity and capital allocation
- Mortgage debt was $9.251 million at January 31, 2024, consisting primarily of approximately $8.046 million secured by the Tucson property and $1.204 million secured by Albuquerque.
- Other notes payable totaled $470,000, comprising $200,000 due on demand or June 30, 2024 and $270,000 extended to June 30, 2024. Revolving bank lines totaling $250,000 and the $2.0 million related-party revolving facility had zero balances at year-end.
- Management stated that cash, available credit facilities and expected operating cash flow should cover obligations for at least the next twelve months, but cautioned that refinancing, asset sales or additional financing may not be available on favorable terms.
- Investing cash uses included $521,000 of hotel improvements and $45,000 invested in UniGen. Financing cash uses included $224,000 of mortgage principal payments, $180,000 of dividends, $692,000 of distributions to non-controlling holders and $455,000 of share repurchases.
- The Trust paid $0.02 per share in annual dividends and stated that it intends to maintain its semiannual $0.01-per-share policy. It has paid annual dividends since 1971.
Material changes versus the prior period
- Hotel demand continued to recover, with higher occupancy, ADR, RevPAR and room revenue. Management described both hotels as achieving record gross operating profit and record FY2024 results.
- Despite revenue growth, operating expenses rose faster than revenue, causing the operating loss to widen and adjusted EBITDA and FFO to decline.
- Operating cash flow improved substantially, primarily reflecting working-capital and Employee Retention Credit-related changes, while ending cash declined because of debt repayment, distributions, dividends, repurchases and capital expenditures.
- The Trust repurchased 265,087 shares during FY2024 at an average price of $1.72 per share, compared with 106,604 shares at $2.69 in FY2023.
- Employee Retention Credit receivable declined to $1.234 million from $1.754 million. Management reported receiving approximately $2.25 million and expected an additional approximately $475,000.
Outlook, strategic initiatives and risks
- Management expects FY2025 to benefit from continued travel-industry recovery, stable high occupancy, higher room rates, completed refurbishments and cost-control measures. It reported combined hotel revenue above $1.5 million for February and March 2024.
- The Trust plans to market the Tucson and Albuquerque hotels for sale over the next 12 to 36 months. Management cited estimated asking prices of $18.5 million for Tucson and $9.5 million for Albuquerque, versus aggregate book value of $7.015 million and mortgage balances of $9.251 million. These are management estimates, not appraisals, and no assurance exists that either property will sell at those prices or within that timeframe.
- UniGen Power remains a high-risk, privately held clean-energy investment. The Trust reported approximately $1.0 million of convertible debentures, $633,750 of common stock and warrants that could produce ownership of approximately 20% or more on a fully diluted basis. UniGen has paused engineering while seeking additional capital.
- The $1.925 million IBC note receivable is matured and subject to discussions regarding further extension or modification. Management concluded that no additional impairment was required, but collectability remains a material consideration.
- Key risks include hotel competition and supply, seasonality, inflation and labor costs, interest rates, refinancing and debt-service capacity, ability to sell hotels, collectability of receivables, Best Western membership requirements, regulatory and environmental liabilities, cybersecurity, travel disruptions, and the uncertain value and financing prospects of UniGen.
- The filing states that disclosure controls and internal control over financial reporting were fully effective as of January 31, 2024. The auditor issued an unqualified opinion and reported no critical audit matters.
Investor verification points
- Verify the sustainability of hotel-level profitability and operating cash flow excluding the Employee Retention Credit and other unusual items.
- Review near-term maturities and extensions for the $470,000 of other notes payable, mortgage covenants, guarantees and refinancing requirements.
- Assess whether the proposed hotel sale prices are supported by independent valuations and whether proceeds would adequately cover debt and ownership obligations.
- Confirm the timing and collectability of the remaining Employee Retention Credit and the $1.925 million IBC note receivable.
- Evaluate UniGen’s capital requirements, paused engineering activities, valuation methodology and potential dilution or impairment.
- Review related-party ownership, financing, guarantees and transactions, including the substantial voting control held by James F. Wirth and affiliates.
- Reconcile the filing’s references to hotel ownership percentages, management-fee arrangements and dividend history, which contain some inconsistent descriptions across sections.