InnSuites Hospitality Trust (IHT)
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This spring, InnSuites Board of
Trusties terminated their REIT status and purchased its management contracts and trademark
contracts to become a full service hotel company
InnSuites Hotels, a wholly owned subsidiary of InnSuites Hospitality Trust offers management, licensing and reservation services by calling toll-free 1-888-INNSUITES or 1-800-842-4242 or by visiting www.innsuites.com.
The Chairman, President and Chief Executive Officer is James Wirth with Ramada Hotel background. The Executive Vice President is Mark Berg, with banking and management background. The Chief Financial Officer is Anthony Waters with financial, accounting and computer background.
CEOCFOinterviews: Mr. Wirth, you are the founder and have been with InnSuites for a long time, what was the original vision and how have you changed over the years to adapt to changing times?
Mr. Wirth: Our vision was to build a strong regional hotel company and the events of 9/11 have put a different perspective on that situation. Most recently we have sold a number of hotels as opposed to purchasing them, although we continue to have the vision of building a regional hotel chain with a mixture of ownership, management and trademark licensing.
CEOCFOinterviews: Mr. Berg, what originally attracted you to InnSuites?
Mr. Berg: Back in the late eighties, there were some challenges in the business. I had the talents to meet these challenges. It was a meeting of the minds and a meeting of means and abilities that work together. Jim and I work as a team; Jim is the entrepreneur and I focus his vision. I liked the idea that Jim was a risk taker. I have a banking background and I felt it was a good move for me because it let me expand my creativity. Hospitality is a dynamic business and I thought it was the right place at the right time to join someone that had a future vision of a company with substance.
CEOCFOinterviews: What are the holdings today of InnSuites?
Mr. Wirth: InnSuites has six core hotels, which are our most successful hotels. During the last year, we sold our less productive hotels and concentrated on our six core hotels, which are in the Los Angeles/Ontario, California area, Yuma and Phoenix, Arizona, two in Tucson, Arizona and one in Albuquerque, New Mexico at the airport. Those are the key areas that have been profitable for us. They tend to be larger metro areas, and airport locations and larger properties.
CEOCFOinterviews: Will you explain the focus of InnSuites?
Mr. Wirth: The name InnSuites is trademarked by our company and we refer to a Studio InnSuite, which is a larger one room sleeping unit with a king-sized bed and convertible sofa bed. It has a small kitchenette, microwave, refrigerator, coffee maker and hair dryer. Often times we have a wet bar or dry bar in the unit. In addition, we have family/executive suites with a separate bedroom, living room and kitchenette. We have quite a number of presidential Jacuzzi suites, which is a two room suite with the addition of a two person therapeutic tub. The Suites is something that we founded our company on back in 1980. Suites were relatively new then and they have become popular over the years. There are many other suite products out there today, but when we started, we were one of the few. In addition, we have our motto Your Suite Choice value and we provided a value in terms of good pricing and extra amenities including a hot breakfast buffet, free social hour and now, hard wired high speed internet.
CEOCFOinterviews: Why are people coming to InnSuites?
Mr. Wirth: The amenities are one of the things that draw people and the fact that we do not nickel and dime someone. Most of the amenities are included with no additional charge. The Suite Choice is another reason they come. The business people have a chance to do business in the living room and on the weekends we can rent the same unit to families. Virtually everyone likes the high speed internet and the fact that it is free and quality; it is not like the wireless that sometimes works and sometimes does not.
Mr. Berg: It is not what the people come for, it is the fact that they come back for it and that is when you start having a business that you can work with and people know what to expect. Once you have consistency and value it is not hard to have repeat business.
Mr. Wirth: We have good repeat business, although we are only known at this point in the southwestern part of the United States. We are working to build our visibility elsewhere throughout the country.
CEOCFOinterviews: How do you do that?
Mr. Wirth: One of the ways we do that is by buying additional hotels. That slowed down after 9/11. The other way is by providing trademark, management and reservation services to other hotels that have similar concepts. We are currently doing that successfully with two hotels and we look forward to building that. In addition, we have our website and as it turns out, the internet is a great leveler among many businesses including hotels. The larger international system hotels use to have a major advantage over a small regional hotel company. The internet has leveled the playing field. We have our own toll-free number, 1-888-InnSuites, and our website www.InnSuites.com. We have other marketing efforts we do including travel shows and good repeat business.
CEOCFOinterviews: Do people tend to go to more than one of your hotels?
Mr. Wirth: Yes, that is the reason we try to concentrate our hotels together in one region, because it is very good synergy between the hotels. Phoenix, Tucson are two major feeder markets to one another and Los Angeles, San Diego are major feeder markets. The Grand Canyon and Flagstaff and Yuma, Arizona with government and military are also feeder markets out of our Phoenix headquarters. It is like a hub in the middle of the wheel with spokes going out to the various locations all within a few hours drive of Phoenix.
CEOCFOinterviews: How did you spring back after 9/11? How badly were you hurt and where are you now?
Mr. Wirth: We were bloodied up by 9/11 as was the case with many hotels in the hotel industry. We were recovering and then a year ago the Iraq war set us back again. Since October 2003, we have been on a very solid up trend as far as revenues and profitability. Some of the factors that worked against us previously are now working for us. For example, in our industry occupancy is key. After 9/11, in order to maintain our occupancy we had to dramatically lower our rates and that was a double negative in terms of our profitability. Now, after October of 2003, our occupancy has gone up and we have been able to raise our rates. Our occupancies continue to go up as a result of a double benefit is coming toward us. As an example of that, in the first quarter our operating profits were up 28.9% and revenue went up 12.6%. This shows the leverage working in our favor as opposed to what was happening in the three years that it was working against us.
CEOCFOinterviews: Are extended stays a big feature for you?
Mr. Wirth: Traditionally they were not but we are increasingly getting into the extended stay business. We are a natural because we have both kitchenettes and full kitchens in our studios and two of our suites. We are currently pushing towards ten percent extended stay business defined as seven days or longer. Some of our properties are as high as sixteen or eighteen percent. We are a regular full service hotel but we have sixteen to eighteen percent of our business as extended stay. We are much more than an extended stay hotel because we have 24-hour desk service, room service, free high-speed internet and free breakfast; a number of things that the extended stay hotels do not offer.
CEOCFOinterviews: Hotels tend to show wear and tear rather quickly; how do you keep up with that, particularly after a hard economic time?
Mr. Wirth: One of the decisions that we made was that we chose not to operate our company based on short-term earnings but operate it the way it needed to be operated long-term. As a result, even during the tough times, we did a substantial amount of refurbishment, typically one to two million dollars a year on a relatively small chain. As a result, we are in relatively good shape compared to many of our competitors that chose to put a freeze on their refurbishment and upgrading during those tough times. We have also tended to concentrate on the areas where we get the biggest bang for the buck; like adding the free high-speed internet, new carpet, bedspreads and new wall vinyl.
CEOCFOinterviews: Will you tell us about the REIT structure and how that works to your advantage?
Mr. Wirth: About a year ago, we were notified by the AMEX that we needed to increase our equity and our earnings and as a result, we have taken a number of steps to do that. First, we sold a number of under performing hotels and we have dramatically reduced our debt. Our profitability has not been reduced nearly in proportion to the amount of assets we have sold. Secondly, we are in the process of putting out a proxy that will allow us to pay off some debt with stock that will increase our equity. The trust is exploring the possibility of purchasing minority interest in one of our hotels that will further increase our equity and our profitability.
CEOCFOinterviews: You mentioned handling reservations for other hotels; will you explain that for us?
Mr. Wirth: Up until this spring, we were a real estate investment trust and the benefit of a REIT is that we avoid double taxation. The detriment is that it would limit the number of activities that we are able to go into. The Board of Trusties gave up our REIT status this spring and purchased our management contracts and trademark contracts and the trademark for the name Innsuites, so we are now what I would refer to as a full service hotel company. We took the same step that Starwood Hotel & Resorts Worldwide, Inc. took several years ago, which was to give up the REIT status in exchange for a C corporation status and more flexibility. The difference between Starwood and us, however, is that we had a substantial tax loss carry forward left over from the prior merger. The tax situation will not be detrimental to us into the foreseeable future, and we will be able to increase our profitability by providing services in house including reservations management and so forth. In addition, we now provide services including management and reservations to other hotels. Because we have the infrastructure of a larger hotel, we are able to provide these services economically on a marginal basis.
CEOCFOinterviews: Do you see that as a growing area for you?
Mr. Wirth: We see that as one of the many potential growth areas for out company going forward, particularly in the trademark licensing area because it requires very little expenditure of funds or stretching out of our staff. The resources it takes to expand the trademark are limited. The trademark benefits new companies coming in and existing hotels because hotels send reservations back and forth. Asset appreciation also continues to offer growth potential.
CEOCFOinterviews: What are the challenges you see on the horizon and how are you ready?
Mr. Wirth: One of the challenges is that we are too small of a company. We need to grow in terms of total assets and revenues. We are looking at the possibilities of mergers or bringing additional equity to the table. In addition, we look at areas that are not capital intensive like the trademark licensing. For capital intensive areas such as investing in new hotels, the industry is just now getting to the point where that may be attractive in the future. After 9/11, the number of new hotels dropped off dramatically and the demand dropped off. The demand is now coming back but the new supply is not necessarily coming back as fast. In the next three years or so, our industry should be in very good situation with respect to supply and demand. At some point during that three-year cycle, it would make sense to buy and build hotels and at some point after that, the hotel industry will typically get over supplied again. Over next several years, the hotel industry in general should be favorably impacted by the supply and demand equation.
CEOCFOinterviews: Why should potential investors be interested now and what should they realize that they do not see when they look at the company?
Mr. Wirth: For one thing, when people look at the company, they look at our earnings. In the past, they have seen losses. It is important to understand when you are dealing with a real estate company, whether it is a real estate investment trust or a company that has heavy real estate as we do, a substantial amount of earnings or lack thereof is the non- cash depreciation expense. Non-cash depreciation expense tends to cut taxes and it improves cash flow, but it also hurts earnings and Wall Street is not very favorable for that situation. What we have is a number of assets that are worth more than what the book value indicates. A good example of that is our recent sale of our San Diego hotel, which we sold at a value of roughly twice of what we carried it on the books. We believe we have other hotels whose value exceeds what they are carried on the books at. Our company is currently selling at a price that is about 1.2 times our primary earnings of the first quarter alone! That anomaly occurred because of the profits that we made on the sale of one hotel. Our company should be interesting to a patient long-term investor who wants to see the safety and stability of real estate and the value of real estate grow over time. At the same time that our real estate is going up, our cash flow is allowing us to reduce our debt and we and many other real estate companies will turn out to be excellent long term investments. Our dividend record is thirty-two years. Our dividends are modest as compared to a REIT, but they are not so modest compared to most corporations. As time goes by we see our dividend potential improving.
CEOCFOinterviews: In closing, what have you learned from the whole downturn after 9/11, and are there checks and balances that you can put into place now so that the future will not be as hard for you?
Mr. Wirth: We had gone through a difficult real estate period in the early nineteen nineties and immediately after 9/11 we took steps to reduce our overhead. We reduced staff and hours. One of the things we learned before and we relearned is that you need to move quickly to adjust your expenses to your revenues. Secondly, we learned that our industry is vulnerable to the terrorist situation and many others have learned that as well. In a sense there is a silver lining in this because the new supplies coming on in the hotel industry is moderated by this extra risk that takes place. We also learned, because of the strengthened stability of our real estate, that a company like ours and many other real estate companies are able to weather the storm. We have strong assets. We are not highly leveraged compared to all real estate companies. We have actually been taking steps to become less leveraged and that is another lesson we have learned about rebuilding our equity and reducing our debt.
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