Supertel Hospitality Inc. shareholders authorized a reverse stock split Tuesday, a step that would be intended to improve demand for its shares as the Norfolk, Neb., company makes the transition from owning mostly economy motels to upscale hotels.
“We’re behind, but we’re staying on plan,” said CEO Kelly Walters. He presided over the company’s annual shareholders meeting, attended by about 50 people at the Durham Museum in Omaha.
Walters said he couldn’t predict whether the company would return to profitability in 2013 after four years of losses that totaled $73.2 million, including $13.4 million last year. But Supertel has trimmed its debt from $202 million in 2008 to $131 million and reduced the percentage of its motels in the low-margin economy category to 60 percent from 67 percent in 2009.
Under the plan approved by shareholders, the reverse common stock split could take place any time within the next year and reduce the number of issued shares from the current 23,151,912 to between one-fourth and one-eighth as many — as few as 2,893,989.
A reverse split raises the per-share price of a stock by the same proportion, all other things being equal. Supertel’s share price was as low as 73 cents in the past year, and for a time it was removed from the Nasdaq exchange because of the low price.
With shareholder approval in hand, Supertel’s board of directors could declare a reverse split anywhere between 1 for 4 and 1 for 8 shares, raising the per-share price to between $4.20 and $8.40, at Tuesday’s closing price.
The total value of the shares would remain the same, but having a higher per-share price might be a psychological boost that would attract buyers. At the same time, a reverse-split often is considered a sign of weak finances.
Walters said some institutional investment groups have rules that prohibit them from buying shares priced less than $1 a share. “Right now they can’t buy it even if they want to,” he said. Individual brokers sometimes can’t or won’t recommend shares known as “penny stocks” when the price falls below $1 a share.
Having the higher price also would avoid potential de-listing by Nasdaq, a status which also discourages potential investors.
On the positive side, Walters said motel occupancy and average room rates have improved in the lodging industry. Supertel sold 19 economy-class motels in 2012 and early 2013 for a total of $32 million, which was used to reduce debt. The company recently paid $11.5 million for a 100-room Hilton hotel in Dowell, Md., that fits its new strategy.
Walters became CEO in 2009 and heads a new management team that took over as the lodging industry was suffering from the 2008-2009 recession.
He said Supertel had planned to buy some upscale hotels in 2012, but creditors wanted the company to reduce debt by selling motels and using part of a $30 million investment by an Argentine company.
Supertel has agreed to purchase six upscale hotels, operated by Hilton or Marriott, in the third quarter this year. Walters declined to discuss the prices but said Supertel could use cash from selling other motels, could borrow or could use shares of stock for purchases.
Also at the meeting, shareholders re-elected the nine members of Supertel’s board of directors and approved resolutions that would let shareholders vote on the company’s executive pay plan every three years. The “say-on-pay” vote would be only advisory.
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