InnSuites Hospitality Trust — Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
InnSuites Hospitality Trust is an Ohio REIT reporting for the three and nine months ended October 31, 2021. It owns interests in and manages two Best Western-branded InnSuites hotels totaling 270 suites in Tucson, Arizona, and Albuquerque, New Mexico. The filing was signed December 27, 2021. The company identifies as a smaller reporting company.
Key Financial Metrics
| Metric | Three Months 2021 | Three Months 2020 | Nine Months 2021 | Nine Months 2020 |
|---|---|---|---|---|
| Total revenue | $1.694 million | $0.953 million | $4.763 million | $3.324 million |
| Operating loss | $(0.104) million | $(0.679) million | $(0.348) million | $(2.195) million |
| Consolidated net income (loss) | $(0.168) million | $(0.768) million | $0.391 million | $(2.388) million |
| Net loss attributable to controlling interests | $(0.266) million | $(0.481) million | $(0.432) million | $(1.288) million |
| Loss per share | $(0.03) | $(0.05) | $(0.05) | $(0.14) |
| Adjusted EBITDA | $0.042 million | $(0.185) million | $0.404 million | $(0.461) million |
| FFO | $0.411 million | $(0.134) million | $0.969 million | $(1.754) million |
Nine-month operating margin improved to approximately negative 7.3% from negative 66.1%; three-month operating margin improved to approximately negative 6.2% from negative 71.2%. The nine-month consolidated net margin was approximately 8.2%, but was materially affected by $967,141 of PPP loan forgiveness recorded as other income. The three-month consolidated net margin was approximately negative 9.9%.
- Room revenue increased 53% for the nine months and 88% for the quarter, reflecting higher occupancy and recovering travel demand.
- Nine-month total occupancy increased to 77.18% from 56.06%; ADR increased to $81.08 from $75.88; and REVPAR increased to $62.58 from $42.53.
- Albuquerque occupancy was 85.00% versus 53.85%, while Tucson occupancy was 71.33% versus 57.06%.
- Cash provided by operating activities was $125,017 versus cash used of $720,718 in the prior-year period.
- Cash used in investing activities was $311,608, including $213,750 invested in UniGen and $119,024 of hotel improvements.
- Cash used in financing activities was $364,216. Cash declined by $550,807 to $1.152 million at October 31, 2021, from $1.703 million at January 31, 2021.
Balance Sheet, Debt, and Liquidity
| Balance Sheet Item | October 31, 2021 | January 31, 2021 |
|---|---|---|
| Total assets | $14.455 million | $15.393 million |
| Total liabilities | $11.552 million | $12.884 million |
| Total equity | $2.904 million | $2.510 million |
| Cash and equivalents | $1.152 million | $1.703 million |
- Scheduled debt totaled approximately $7.434 million, consisting of $5.799 million of mortgage debt, $0.582 million of other notes, and $1.053 million owed to a related party.
- The related-party demand/revolving note bears interest at 7%, has a $2.0 million maximum capacity, and had approximately $947,000 of stated availability according to the filing.
- Three Republic Bank revolving credit lines totaling $250,000 had no outstanding balance.
- Management expects available cash and borrowing capacity to cover obligations for at least 12 months, but states that refinancing, asset sales, or additional financing may be required if conditions deteriorate.
- Fiscal-year debt payments were approximately $63,939 in 2022 and $1.788 million in 2023, including the related-party balance scheduled in 2023.
Material Changes Versus the Prior Comparable Period
- Revenue increased 43% for the nine months and 78% for the quarter, primarily due to recovery in hotel occupancy and travel demand following COVID-19 disruptions.
- Operating expenses declined 7% for the nine months, primarily because prior-period sales and occupancy tax expense did not recur, although room, food and beverage, hospitality, utilities, repairs, insurance, and property taxes generally increased with higher occupancy and costs.
- The nine-month results included $967,141 of PPP loan forgiveness; this nonrecurring item was a major contributor to the consolidated profit.
- Management and trademark fee revenue fell to zero after the December 2020 sale of the Tempe hotel.
- The company retired 9,613,138 treasury shares at a cost of $13.937 million during the quarter, substantially changing the presentation of shares and equity. It also repurchased 23,775 shares for $88,443.
- The company amended the IBC note receivable arrangement, extending the payment schedule to May 2023; the note had a $1.925 million carrying amount and matures June 1, 2024.
Guidance, Outlook, Risks, and Unusual Items
Management expects continued recovery in occupancy, room rates, revenues, and operating margins through fiscal 2022, supported by recovering travel demand, completed hotel refurbishments, and cost controls. Management expects lower capital expenditures after completion of major improvements. No formal quantitative revenue or earnings guidance was provided.
- The company plans to market the Tucson and Albuquerque hotels and seeks to sell one or both within 12 to 36 months. Stated estimated asking prices total $25.395 million, but are not based on appraisals and may not be achieved.
- Management is considering refinancing, additional asset sales, and a potential reverse merger with a private company seeking NYSE American access.
- UniGen exposure includes a $1.0 million convertible debenture, approximately $273,750 of common stock, and warrants that could result in ownership of up to approximately 25% on a fully diluted basis. The investment remains speculative and UniGen was still in the research and development phase.
- COVID-19, travel restrictions, labor shortages, supply-chain disruption, inflation, competition, seasonality, interest rates, refinancing availability, property sale execution, and hotel demand remain key risks.
- The company received an NYSE American deficiency notice on November 15, 2021, with an expected 18-month period through May 2023 to regain compliance with financial listing standards. The company submitted a compliance plan.
- Disclosure controls and internal control over financial reporting were reported as not fully effective. Management cited staffing, segregation-of-duties, technical accounting, documentation, and oversight deficiencies and described remediation efforts.
- The filing indicates that the company had not filed all reports required under the Exchange Act during the preceding 12 months, based on the applicable Form 10-Q certification.
Most Important Facts for Investors to Verify
- Whether the hotel recovery continues and produces sustainable positive operating cash flow without PPP forgiveness or other unusual income.
- The maturity, renewal, and repayment terms of the $1.053 million related-party note and the approximately $1.8 million of fiscal-year 2023 debt obligations.
- Whether the company can maintain NYSE American listing compliance by May 2023.
- Whether the hotel properties can be sold or refinanced at management’s stated values and within the expected 12-to-36-month timeframe.
- The collectability and revised repayment schedule of the $1.925 million IBC note receivable.
- The valuation, funding requirements, commercialization progress, and dilution implications of the UniGen investment.
- Whether management’s internal-control remediation resolves the reported deficiencies and whether future filings are timely and complete.