InnSuites Hospitality Trust: Form 10-Q Summary
Business Context and Reporting Period
InnSuites Hospitality Trust is an Ohio REIT operating one reportable segment: hotel ownership and management services. As of July 31, 2022, it owned or controlled interests in two Best Western/InnSuites hotels with 270 suites in Tucson, Arizona, and Albuquerque, New Mexico. The filing covers the three and six months ended July 31, 2022, compared with the corresponding 2021 periods. The financial statements are unaudited.
The Trust owned 75.98% of RRF Limited Partnership, which indirectly owned 51.01% of the Tucson hotel; the Trust directly owned 21% of the Albuquerque hotel. The Trust also held a $1.0 million convertible debenture and $398,750 of private-company stock in UniGen Power, Inc.
Financial Metrics
| Metric | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | Change |
|---|---|---|---|
| Total revenue | $3.835 million | $3.069 million | 25% |
| Operating income (loss) | $154 thousand | $(244) thousand | Improved by $398 thousand |
| Operating margin | 4.0% | (8.0)% | Improved |
| Consolidated net income | $629 thousand | $559 thousand | 13% |
| Net income attributable to controlling interests | $284 thousand | $(166) thousand | Improved by $449 thousand |
| Net income attributable to controlling interests margin | 7.4% | (5.4)% | Improved |
| Net cash provided by operating activities | $129 thousand | $184 thousand | Down $55 thousand |
| Adjusted EBITDA | $854 thousand | $(605) thousand | Improved |
| FFO, as calculated by management | $974 thousand | $921 thousand | Up $53 thousand |
| Quarterly Metric | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 |
|---|---|---|
| Total revenue | $1.699 million | $1.670 million |
| Operating income (loss) | $16 thousand | $(38) thousand |
| Operating margin | 0.9% | (2.2)% |
| Consolidated net income | $260 thousand | $402 thousand |
| Net income attributable to controlling interests | $103 thousand | $(59) thousand |
Six-month room revenue increased 27% to $3.750 million. Combined occupancy was 77.00%, compared with 78.85% in 2021, while average daily rate increased 33% to $99.21 and REVPAR increased 29% to $76.39. Albuquerque occupancy increased to 85.10%, while Tucson occupancy declined to 71.26%.
At July 31, 2022, cash was $3.224 million, compared with $1.224 million at January 31, 2022. Total assets were $17.451 million and total liabilities were $13.393 million. Total equity was $4.058 million, including $(2.487) million of non-controlling interest.
Mortgage notes payable totaled approximately $9.578 million, including approximately $8.305 million secured by the Tucson hotel and $1.285 million secured by the Albuquerque hotel. Current other notes payable totaled approximately $575 thousand. Scheduled debt payments were approximately $680 thousand in fiscal 2023 and $224 thousand in fiscal 2024. Operating lease liabilities totaled approximately $2.291 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected recovery in travel demand, higher room rates, and benefits from completed hotel refurbishments.
- Operating income improved despite an 11% increase in operating expenses, primarily from higher occupancy-related room costs, corporate staffing, sales and marketing, hospitality, and utility expenses.
- Interest expense increased 57% for the six-month period to $258 thousand, principally because of higher mortgage debt following the Tucson refinancing.
- Six-month 2022 results included a $701,582 employee retention credit; the comparable 2021 period included $967,141 of PPP loan forgiveness. These non-recurring or unusual items materially affect year-over-year net income comparisons.
- Cash flow from operations declined despite higher reported income because the employee retention credit was recorded as a receivable and because of working-capital changes.
- On March 29, 2022, the Tucson hotel refinanced approximately $4.5 million of prior mortgage debt and approximately $3.8 million of intercompany advances with an $8.4 million mortgage loan at 4.99% interest and 25-year amortization.
- The Trust repurchased 53,159 shares during the six months for $161,400 and paid $91,175 of dividends. It paid the scheduled $0.01-per-share semiannual dividend on July 29, 2022.
- The hotel distributions that had been suspended during the pandemic were reinstated on February 15, 2022.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expects continued recovery in occupancy, room rates, revenues, and operating margins during fiscal 2023, with modest additional improvements in occupancy and rates. Management expects lower capital spending because major refurbishments at both hotels have been completed. The Trust is seeking to sell one or both hotels over the next 12 to 36 months and is also evaluating strategic alternatives, including a merger.
Management reported approximately $3.2 million of cash, $2.0 million of availability under a related-party revolving facility, and $250 thousand of bank credit lines, and believes liquidity is sufficient to meet obligations for at least twelve months from the filing date. This conclusion depends on hotel cash flow, debt service capacity, potential asset sales or refinancing, and continued access to credit.
The hotels remain exposed to seasonality, inflation, labor and utility costs, interest-rate changes, competition, travel disruptions, renewed pandemic effects, adverse economic conditions, cybersecurity events, and natural disasters. Management states that neither hotel is currently listed for sale, although both are available for offers. The estimated asking prices total $26.545 million, but are not based on appraisals and may not be realized.
UniGen remains a speculative investment in the research and development phase. Management reported supply-chain and funding risks, a targeted prototype within approximately six months, and a potential additional $300 thousand IHT commitment, including $175 thousand expected to be funded later in 2022. The filing does not establish a reliable timetable or valuation for commercial success.
The $1.925 million secured note receivable from the former IBC technology subsidiary has no scheduled payments through May 2023 under an extension and matures June 1, 2024. Management concluded that no further impairment was required, but collectability depends on the buyer's financial condition and the recovery of the hospitality industry.
The Trust reported no material legal proceedings and no off-balance-sheet financing arrangements. Management stated that disclosure controls and internal control over financial reporting were effective as of July 31, 2022, while also describing ongoing remediation of previously identified material weaknesses, accounting-staff turnover, and continuing efforts to strengthen technical accounting and segregation of duties.
The filing's cover page indicates that the Trust had not filed all required reports during the preceding twelve months. Elsewhere, management states that the Trust became current and that NYSE American confirmed full compliance with applicable continued-listing equity requirements on August 29, 2022. This apparent inconsistency should be reviewed against the filing history.
Most Important Facts for Investors to Verify
- Reconcile the filing's earnings-per-share disclosures: the financial statements report $0.03 per share attributable to controlling interests for the six months, while management discusses approximately $0.07 per share based on consolidated net income.
- Confirm the status and collectability of the $1.052 million employee retention credit receivable and the broader estimated credit of approximately $2.9 million.
- Assess near-term liquidity against approximately $575 thousand of current other notes payable, fiscal 2023 debt payments of approximately $680 thousand, and the timing of other demand or maturing obligations.
- Review the Tucson refinancing terms, guarantees, mortgage balance, covenants, and exposure to interest-rate changes.
- Evaluate whether the proposed hotel asking prices are supported by independent valuations and whether asset sales can occur within the stated 12-to-36-month period.
- Determine the extent to which reported earnings depend on employee retention credits, PPP forgiveness in the prior period, non-controlling interests, and other unusual items.
- Review the status of internal-control remediation and the discrepancy between the cover-page filing-status response and management's statement that the Trust is current and NYSE American compliant.
- Evaluate the speculative nature of UniGen, including additional funding needs, supply-chain delays, warrant exercises, potential dilution, and the absence of established commercial operations.