Business Context and Reporting Period
InnSuites Hospitality Trust is an Ohio REIT owning and managing interests in two moderate-service hotels with 270 suites in Tucson, Arizona, and Albuquerque, New Mexico. The hotels operate under the InnSuites and Best Western brands. This Form 10-Q covers the three months ended April 30, 2023, the first quarter of fiscal 2024, with comparisons to April 30, 2022.
Financial Highlights
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $2.206 million | $2.136 million | +3% |
| Operating income | $186,280 | $145,140 | +28% |
| Operating margin | 8.4% | 6.8% | Improved |
| Net income | $465,445 | $376,187 | +24% |
| Net income attributable to controlling interests | $236,608 | $188,115 | +26% |
| Basic and diluted earnings per share | $0.03 | $0.02 | Improved |
| Net cash from operating activities | $37,036 | $92,445 | Decreased |
| Adjusted EBITDA | $477,000 | $479,000 | Slightly lower |
| FFO | $634,000 | $548,000 | +16% |
Room revenue increased approximately 4% to $2.178 million. Combined occupancy rose to 88.17% from 82.02%, while combined ADR declined to $102.79 from $105.45. Combined REVPAR increased to $90.64 from $86.50.
Consolidated net income included a $350,791 Employee Retention Credit in both periods. Excluding that credit, income before the credit was $114,654 in Q1 FY2024 versus $25,396 in Q1 FY2023. The filing does not present a separate adjusted margin excluding the credit.
Balance Sheet, Debt and Liquidity
- Cash was $1.704 million at April 30, 2023, down from $2.111 million at January 31, 2023.
- Total assets were $17.007 million and total liabilities were $12.989 million. Total equity was $4.018 million, including negative non-controlling interest of $2.814 million.
- Mortgage debt was approximately $9.431 million, consisting primarily of the Tucson refinancing and the Albuquerque mortgage. Other notes payable totaled approximately $470,000, and operating lease liabilities totaled approximately $2.272 million.
- Scheduled fiscal 2024 debt payments were approximately $693,680, including $223,680 of mortgage payments and $470,000 of other notes payable.
- Operating cash flow was only $37,036, while investing activities used $123,290 and financing activities used $320,844. Capital expenditures were $108,290, and distributions to non-controlling interest holders were $149,439.
- Management stated that approximately $1.7 million of cash, a $2.0 million related-party revolving facility, and $250,000 of bank credit availability should be sufficient to meet obligations for at least twelve months. The filing also warns that refinancing, asset sales, or additional financing may be required if conditions deteriorate.
Material Changes Versus the Prior Comparable Period
- Revenue increased 3%, primarily from higher occupancy and recovering travel demand.
- Operating expenses increased only 1% to $2.020 million. Room expense increased 11%, hospitality expense increased 55%, and general and administrative expense increased 3%; sales and marketing expense decreased 35%.
- Interest expense declined 34% to $90,032, largely reflecting lower other-notes interest.
- Operating cash flow declined by approximately $55,000 despite higher net income, reflecting working-capital changes and the non-cash Employee Retention Credit adjustment.
- Investing cash usage decreased from $160,332 to $123,290, primarily because UniGen investment funding was lower than in the prior year.
- The filing reports no hotel impairment. Hotel properties were available for sale, with management targeting potential sales over the next 12–36 months, but neither property was currently listed and no sale was assured.
Guidance, Outlook, Risks and Unusual Items
Management expects fiscal 2024 to remain strong, with continued travel-industry recovery, higher occupancy and room rates, and improved profitability. Management also expects record hotel results for fiscal 2024, although these statements are forward-looking and subject to substantial uncertainty.
- Key risks include seasonality, inflation, labor and operating-cost increases, interest-rate changes, competition, travel disruptions, economic recession, cybersecurity events, natural disasters, and the ability to refinance or service debt.
- The filing states that COVID-19 is no longer considered a major factor for fiscal 2024, but future travel disruptions could still materially affect results.
- UniGen remains a high-risk, privately held clean-energy investment. At April 30, 2023, IHT held a $1.0 million convertible note, approximately $603,750 of UniGen stock, and related warrants. The investment is valued using Level 3 inputs and depends on UniGen raising capital and completing prototype development.
- IHT holds a $1.925 million note receivable from IBC Hospitality Technologies, maturing June 1, 2024. No interest or principal payments were due through May 2023, and collectability depends on the borrower’s financial condition and future financing.
- The Trust intends to continue paying approximately $0.02 per share annually through two semiannual dividends, subject to Board approval and available funds.
- Management reported fully effective disclosure controls and internal controls as of April 30, 2023, while continuing remediation and staffing enhancements related to prior control deficiencies.
- The cover page indicates “No” for filing all required Exchange Act reports during the preceding twelve months and “No” for required Interactive Data Files; investors should verify the significance and status of these certifications.
Important Facts to Verify
- Whether the $350,791 quarterly Employee Retention Credit is collectible and sustainable, and how results perform excluding this benefit.
- The liquidity and refinancing plan for approximately $693,680 of fiscal 2024 debt payments and the $1.925 million IBC note maturity in 2024.
- The collectability and valuation support for the IBC note receivable and Level 3 UniGen investment.
- Whether the planned hotel sales can occur within 12–36 months at or near management’s estimated $28 million combined asking price.
- The filing contains inconsistent treasury-stock repurchase disclosures: the financial statements show no Q1 FY2024 repurchases, while Item 2 references 15,795 shares in the comparative presentation. This should be reconciled.
- The status and implications of the cover-page “No” certifications regarding timely Exchange Act filings and Interactive Data Files.