GENERAL
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes appearing elsewhere in this Form 10-Q and our Form 10-K for the year ended
FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q, including statements containing the phrases "believes," "intends," "expects," "anticipates," "predicts," "projects," "will be," "should be," "looking ahead," "may" or similar words, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend that such forward-looking statements be subject to the safe harbors created by such Acts. These forward-looking statements include statements regarding our intent, belief or current expectations in respect of (i) the declaration or payment of dividends; (ii) the leasing, management or operation of the Hotels; (iii) the adequacy of reserves for renovation and refurbishment; (iv) our financing plans; (v) our position regarding investments, acquisitions, developments, financings, conflicts of interest and other matters; (vi) expansion ofUniGen ; (vii) our plans and expectations regarding future sales of hotel properties; and (viii) trends affecting our or any Hotel's financial condition or results of operations. These forward-looking statements reflect our current views in respect of future events and financial performance, but are subject to many uncertainties and factors relating to the operations and business environment of the Hotels that may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties include, but are not limited to: ? Virus Pandemic and its effect on the Travel Industry; ? inflation and economic recession; ? terrorist attacks or other acts of war; ? local, national or international, political economic and business conditions, including, without limitation, conditions that may, or may
continue to affect government securities markets in general, hospitality
industry or the markets in which we operate or will operate;
? available cash, supply chain issues, and increased labor costs for
diversified clean energy development and production;
? fluctuations in hotel occupancy rates;
? changes in room rental rates that may be invoiced by
response to market rental rate changes or otherwise;
? seasonality of our hotel operations business;
? our ability to sell any of our Hotels at market value, or at all;
? interest rate fluctuations;
? changes or reinterpretations of government regulations, including,
but not limited to, environmental and other regulations, Americans
with Disability Act, Covid-19 restrictions, and federal income tax laws
and regulations;
? competition including supply and demand for hotel rooms and hotel
properties;
? availability of credit or other financing;
? our ability to meet present and future debt service obligations;
? our ability to refinance or extend the maturity of debt to, before,
or after the time it matures;
? any changes in our financial condition or operating results due to
acquisitions or dispositions of hotel properties;
? concentration of our investments in the InnSuites Hotels® brand;
? loss of membership contracts;
? the financial condition of franchises, brand membership companies and travel
related companies;
? ability to develop and maintain positive relationships with “Best Western” and
potential future franchises or brands;
? real estate and hospitality market conditions;
? hospitality industry factors;
? our ability to carry out our strategy, including our strategy regarding
diversification and investments;
? the Trust's ability to remain listed on the NYSE American;
? effectiveness of the Trust's software and cyber security;
24
? the need to periodically repair and renovate our hotels at a cost equal to or equal to
excess of our standard 4% reserve; ? tariffs and health travel restrictions may affect trade and travel;
? our ability to profitably integrate any acquisition with the Trust into a
in right time ;
? increased cost and availability of labor, energy, health care, insurance
and other operating expenses due to inflation, or have changed or increased
regulation, or otherwise; ? terrorist attacks or other acts of war;
? communicable disease outbreaks attributed to our hotels or impacting
hospitality in general;
? natural disasters, including adverse climate change in areas where we
have or serve hotels; ? airline strikes; ? transportation and fuel price increases;
? adequacy of insurance coverage and rising cost of healthcare coverage
for employees and potential government health care regulations
cover;
? data breaches or cybersecurity attacks, including breaches
the integrity and security of employee and guest data; and
? loss of key personnel and uncertainties in interpretation and application
of ever-changing tax laws. We do not undertake any obligation to update publicly or revise any forward-looking statements whether as a result of new information, future events or otherwise except as may be required by law. Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of 1934, as amended, the qualifications set forth hereinabove are inapplicable to any forward-looking statements in this Form 10-K relating to the operations of the Partnership. OVERVIEW
We are engaged in the ownership and operation of hotel properties. OnJuly 31, 2022 the Trust had two moderate service hotels inTucson, Arizona andAlbuquerque, New Mexico with 270 hotel suites. Both of our Hotels are branded through membership agreements with Best Western, and both are also trademarked as "InnSuites". We are also involved in various operations incidental to the operation of hotels, such as the operation of a restaurant and bar, and meeting/banquet room rentals.
To
Our operations consist of one reportable segment -Hotel Ownership & Hotel Management Services .Hotel Ownership Operations derives its revenue from the operation of the Trust's two hotel properties with an aggregate of 270 hotel suites inArizona andNew Mexico . Hotel management services, provides management services for the Trust's two Hotels. As part of our management services, we also provide trademark and licensing services. Our results are significantly affected by the overall economy and travel, occupancy and room rates at the Hotels, our ability to manage costs, changes in room rates, and changes in the number of available suites caused by the Trust's disposition activities. Results are also significantly impacted by overall economic conditions and conditions in the hotel and travel industries. Although hotel operations have now bounced back, virus-related travel slowdown in the Fiscal Year 2021, (February 1, 2020 toJanuary 31, 2021 ), and Fiscal Year 2022, (February 1, 2021 toJanuary 31, 2022 ), negatively impacted hotel room demand and pricing, which reduced our profit margins. Increases in supply or decline in demand could result in increased competition, which could have an adverse effect on the rates and occupancy revenue of the Hotels in their respective markets. 25
Over time, we expect our
We expect the current Fiscal Year 2023 to be continued recovery of the travel industry, continued recovery of our Hotel's occupancy levels, continued recovery of room rates, as well as continuation of current cost control all leading to improved profitability of our hotels. We believe that we have positioned the Hotels to remain competitive through our now fully completedTucson andAlbuquerque hotel refurbishments, by offering fully refurbished studios and two-room suites at each location, and by maintaining complementary guest items, including complimentary breakfast and free Internet access. Our strategic plan is to continue to obtain the full benefit of our real estate equity, by ultimately obtaining full market value for our two Hotels at market value which is believed by management to be substantially higher than lower book values, over the next 12-36 months. In addition, the Trust is seeking a larger private reverse merger partner that may benefit from a merger that would afford that partner access to our listing on the NYSE AMERICAN. In the process of reviewing merger opportunities, the Trust identified inDecember 2019 , and invested$1 million inUniGen Power, Inc. ("UniGen"), an innovative efficient clean energy power generation company. The Trust has invested$1 million in debentures convertible into 1 million shares ofUniGen Power Inc. , and in addition has acquired warrants to purchase approximately an additional 2 millionUniGen shares over the next approximately three years, which could result up to 25% ownership inUniGen . For more information on our strategic plan, including information on our progress in disposing of our hotel properties and expanding energy diversification, see "Future Positioning" in this Management Discussion and Analysis of Financial Condition and Results
of
Operations
HOTEL OPERATIONS
Our expenses consist primarily of property taxes, insurance, corporate overhead,
interest on mortgage debt, professional fees, depreciation of the Hotels and
hotel operating expenses. Hotel operating expenses consist primarily of payroll,
guest and maintenance supplies, marketing, and utilities expenses. Under the
terms of its Partnership Agreement, the Partnership is required to reimburse us
for all such expenses. Accordingly, management believes that a review of the
historical performance of the operations of the Hotels, particularly with
respect to occupancy, which is calculated as rooms sold divided by total rooms
available, average daily rate ("ADR"), calculated as total room revenue divided
by number of rooms sold, and revenue per available room ("REVPAR"), calculated
as total room revenue divided by number of rooms available, is appropriate for
understanding revenue from the Hotels.
The following tables show historical financial and other information for the
periods indicated:
For the Six Months Ended
Albuquerque July 31,
2022 2021 Change %-Incr/Decr
Occupancy 85.10 % 78.60 % 6.50 % 8.27 %
Average Daily Rate (ADR) $ 100.37 $ 68.08 $ 32.29 47.43 %
Revenue Per Available Room (REVPAR)$ 85.42 $ 53.50 $ 31.92
59.66 %
For the Six Months Ended
Tucson July 31,
2022 2021 Change %-Incr/Decr
Occupancy 71.26 % 79.00 % -7.74 % -9.80 %
Average Daily Rate (ADR) $ 98.22 $ 76.89 $ 21.33 27.74 %
Revenue Per Available Room (REVPAR)$ 69.99 $ 60.74 $ 9.25
15.23 %
For the Six Months Ended
Combined July 31,
2022 2021 Change %-Incr/Decr
Occupancy 77.00 % 78.85 % -1.85 % -2.35 %
Average Daily Rate (ADR) $ 99.21 $ 74.84 $ 24.37 32.56 %
Revenue Per Available Room (REVPAR)$ 76.39 $ 59.01 $ 17.38
29.45 % No assurance can be given that occupancy, ADR and/or REVPAR will not increase or decrease as a result of changes in national or local economic or hospitality industry conditions.
We enter into transactions with certain related parties from time to time. For more information on these related party transactions, see the following:
? For a discussion of management and license agreements with certain
parties, see “Note 2 to our unaudited condensed consolidated financial statements
Disclosures – Summary of Important Policies – Revenue Recognition – Hotel
Operations”
? For a discussion of the guarantees of our mortgage notes payable by certain
related parties, see Note 6 to our unaudited condensed consolidated financial statements.
Statements – “Mortgage bills payable.”
? For a discussion of our stock sales and restructuring agreements involving
certain related parties, see note 3 of our unaudited condensed consolidated financial statements
Financial statements – “Sale of interests in subsidiaries”.
? For an analysis of other related party transactions, see note 11 of our
Unaudited Condensed Consolidated Financial Statements - "Related Party Transactions." 26
RESULTS OF OPERATIONS FOR THE TWELVE FINANCIAL MONTHS ENDED
COMPARED TO THE TWELVE FINANCIAL MONTHS ENDED
A summary of the Trust’s total operating results for the twelve month periods ended
FY 2022/2023 FY 2021/2022 Change % Change
Total Revenues $ 7,175,813 $ 4,900,965 $ 2,274,848 46 %
Operating Expenses 7,081,308 6,440,691 640,617 10 %
Operating Income (Loss) 94,505 (1,539,726 ) 1,634,231 106 %
Interest Income and Other 126,194 1,179,431 (1,053,237 ) (89 )%
Interest Expense (460,767 ) (357,239 ) (103,528 ) (29 )%
Employee Retention Benefit 1,052,373 - 1,052,373 100 %
Income Tax Benefit 50 68,661 (68,611 ) (100 )%
Consolidated net income (net loss) 812,355 (648,873) 1,461,228
125 %
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
A summary of the Trust’s total operating results for the six months ended
2022 2021 Change % Change
Total Revenues $ 3,835,202 $ 3,069,189 $ 766,013 25 %
Operating Expenses 3,681,510 3,313,337 368,173 11 %
Operating Income (Loss) 153,692 (244,148 ) 397,840 163 %
Interest Income and Other 32,193 967,463 (935,270 ) (97 )%
Interest Expense (258,122 ) (164,590 ) (93,532 ) (57 )%
Employee Retention Benefit 701,582 - 701,582 100 %
Consolidated Net Income 629,345 558,725 70,620 13 %
The Trust operations are comprised of one reportable segment, Hotel Ownership &
Hotel Management Services (continuing operations) segment that performs
management services and has ownership interest in two hotel properties with an
aggregate of 270 suites in Arizona and New Mexico .
The Trust has chosen to concentrate its hotel investments in the south-west region of
REVENUE: For the six months endedJuly 31, 2022 , we had total revenue of approximately$3.84 million compared to approximately$3.07 million for the six months endedJuly 31, 2021 , an increase of approximately$0.8 million . In the prior fiscal years endedJanuary 31, 2022 , 2020 and 2019, we made significant improvements to ourAlbuquerque, New Mexico andTucson, Arizona hotels. During the six months endedJuly 31, 2022 , we had an increase in total revenue resulting from the recovery of demand after the virus related travel restrictions imposed due to COVID-19, and benefitting from prior refurbishments. Total Consolidated Net Income for the six months endedJuly 31, 2022 was approximately$629,000 compared to approximately$559,000 for the six months endedJuly 31, 2021 , an increase of approximately$70,000 . Earnings Per Share based on this Consolidated Net Income amount were$0.07 , up$0.01 from the prior year of$0.06 , which is an increase of 13%, and also far exceeding their pre-Covid counterpart of Fiscal Year 2020. Earnings Per Share based on net income (loss) attributable to Controlling Interest was$0.03 , up from the prior year similar three month period of ($0.02 ). Total Trust Equity increased to approximately$4,058,000 at the end of Fiscal First Quarter 2023, up approximately$0.9 million , from the approximately$3,159,000 reported at the end of the 6 months in the prior fiscal year 2022. Net Income before non-cash depreciation expense was approximately$974,000 for the six months endedJuly 31 2022 , compared to approximately$922,000 for the six months endedJuly 31, 2021 , which is an increase of approximately$52,000 . 27 We realized a 27% increase in room revenues during the six months endedJuly 31, 2022 as room revenues were approximately$3.75 million for the six months endingJuly 31, 2022 as compared to approximately$2.95 million for the six months endingJuly 31, 2021 . During Fiscal Year 2023, we expect modest additional improvements in occupancy, rates, and food and beverage revenues. EXPENSES:
Total expenses net of interest expense was approximately$3.68 million for the six months endedJuly 31, 2022 reflecting an increase of approximately$0.37 million , or 11%, compared to total expenses net of interest expense of approximately$3.31 million for the six months endedJuly 31, 2021 . The increase was primarily due to an increase in operating expenses related to increased occupancy and revenues at the hotel properties. Room expenses consisting of salaries and related employment taxes for property management, front office, housekeeping personnel, reservation fees and room supplies were approximately$1.11 million for the six months endedJuly 31, 2022 compared to approximately$0.92 million in the prior year six month period for an increase of approximately$193,000 , or 21%. Room expenses increased as occupancy at the hotels increased, and increased expenses were incurred with the increased occupancy.
Food and beverage expenses included food and beverage costs, personnel and miscellaneous costs to provide banquet events. For the six months endedJuly 31, 2022 , food and beverage expenses increased approximately$11,000 , or 12%, to approximately$106,000 for the six months endedJuly 31, 2022 , compared to approximately$95,000 for the six months endedJuly 31, 2021 . The increase in cost relative to the increase in food and beverage revenue is due to increasing food and beverage purchasing costs. General and administrative expenses include overhead charges for management, accounting, shareholder and legal services. General and administrative expenses of approximately$1.12 million for the six months endedJuly 31, 2022 , increased approximately$169,000 from approximately$0.95 million for the six months endedJuly 31, 2021 primarily due to higher charges in corporate staffing in support of the hotels and property sales efforts. Sales and marketing expense increased approximately$62,000 , or 33%, to approximately$247,000 for the six months endedJuly 31, 2022 from approximately$185,000 for the six months endedJuly 31, 2021 . Increased focus on sales and marketing due to the rebound in hotel occupancy drove the increase. Repairs and maintenance expense remained relatively flat from approximately$194,000 reported for the six months endedJuly 31, 2021 compared to approximately$192,000 for the six months endedJuly 31, 2022 . Having completed the property improvements at ourTucson, Arizona hotel Management anticipates the improvements which complies with the increasing Best Western standards, will (after the adverse effects of travel restrictions and slowdown), lead to improvement in guest satisfaction and will drive additional revenue growth through increased occupancy and increased rates. Hospitality expense increased by approximately$57,000 , or 55%, from$105,000 for the six months endedJuly 31, 2021 to approximately$162,000 for the six months endedJuly 31, 2022 . The increase was primarily due to COVID-19 regulations minimizing and reducing food service availability, restricting our complimentary breakfast and social hour offerings.
Spending on utilities increased by approximately
Hotel property depreciation expenses decreased by approximately$19,000 from approximately$363,000 reported for the six months endedJuly 31, 2021 compared to approximately$344,000 for the six months endedJuly 31, 2022 . Decreased depreciation resulted from the capital expenditures being fully depreciated. Real estate and personal property taxes, Insurance and Ground Rent expenses decreased approximately$92,000 , or 37%, to approximately$160,000 reported for the six months endedJuly 31, 2022 compared with approximately$252,000 for the six months endedJuly 31, 2021 due to adjustments in our operating lease accounts. 28
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