NORFOLK, Nebraska—With a fresh injection of capital close at hand, Supertel Hospitality is on the verge of radically altering its business plan.
Real Estate Strategies LP, an investment arm of Argentinean-based real-estate company Inversiones y Representaciones Sociedad Anónima, last week informed Supertel it wants to increase its total investment in the real-estate investment trust by purchasing an additional 1 million preferred shares for US$10 million. IRSA in November previously said it would purchase 2 million shares for US$20 million.
IRSA has no stake in the company now but would control 34% if the investment is approved.
If the deal is approved by Supertel’s shareholders, it would allow the REIT to reverse what has been a three-year run of selling assets and move into the new business of buying midscale and upper-midscale properties, said Kelly A. Walters, Supertel’s president and CEO. Supertel, historically an acquirer of economy hotels, sold approximately 25 hotels during that time frame and now has 99 hotels in its portfolio.
“We were late to make this change,” Walters said of the move to midscale and upper-midscale acquisitions. “We were very committed to the economy business. It served us well and it still does, but we know it’s time to make this move.”
Of the US$30 million invested by IRSA, approximately US$20 million will be used to begin acquiring hotels under flags within the familes of Marriott International, Hilton Worldwide and and Hyatt Corp. in the United States, he said. Three to five such properties could be bought with the IRSA money, Walters said. The remainder of the US$30 million will be used to pay down debt.
As for geographic areas, Supertel will focus on markets outside the top 10 in the U.S., except for those markets where Supertel has a presence (such as Washington, D.C., and Atlanta.)
Walters said he hopes to get shareholder approval for the deal by the company’s annual shareholder meeting on 31 January. Officials at IRSA could not be reached for comment prior to deadline.
Supertel in September received a notice from the Nasdaq Stock Market that its stock had closed below US$1 per share for 30 consecutive business days, which put it at risk of Nasdaq delisting. Supertel’s stock closed at 77 cents per share on 16 November when the purchase agreement with IRSA was announced. The stock finished trading on 20 January at 84 cents.
Walters said while the company was engaged in conversations with IRSA, due to the U.S. Securities and Exchange Commission rules, Supertel was barred from raising needed equity capital, which strained liquidity.
“This investment allows us to carry out the business plan we put together a couple years ago,” he said.
While acquiring hotels will be a point of emphasis, Supertel still has some house-cleaning to do. Last week, for instance, Supertel sold its 83-room Super 8 hotel in Fayetteville, Arkansas, hotel for US$1.56 million to an undisclosed buyer.
“We’re already in 23 states, which is far too many,” Walters said.
The company’s strategy is to offload first those hotels that have underperformed. Supertel also is looking to create a younger portfolio. The hotels under the Supertel umbrella have an average age of 22 years, which, Walters said, “is a little longer in the tooth than we would like to be.”
Asked whether Supertel would be a net buyer or net seller during 2012, Walters responded, “It depends on how you mean, ‘net.’” The company likely is to sell more hotel properties than it acquires, but also will likely buy more in dollar volume than it sells.”