Omaha World-Herald - With its Stock at Less than $1 a Share, Condor Hospitality Hopes Shift to Swankier Digs Will Give it a Lift
Steve Jordon, Omaha World-Herald
Condor’s last Nebraska property, the Super 8 in O’Neill, which is being sold.
Condor Hospitality Trust’s stock price isn’t soaring like its namesake.
For the past eight trading days, the Norfolk, Nebraska, hotel and motel owner’s stock price has remained below $1 per share, down from a 2015 peak of $3.07 last April.
If the price remains in the penny zone for 30 trading days in a row, Condor risks being removed from the Nasdaq exchange, meaning fewer potential investors and possibly more downward pressure. It closed Wednesday at 89 cents a share.
The stock price reflects the Condor’s recent past and the challenges facing Chief Executive William Blackham, who will mark his first anniversary on the job next month after more than 30 years’ experience in finance and real estate elsewhere.
With stiff competition in the lodging industry, Blackham is steering Condor into the “upscale and upper-midscale” lodging markets, and away from the Super 8-style economy properties that were the company’s mainstay since its founding in 1978.
The company name, in fact, shows its aspirations. Last summer Blackham dropped the old budget-affiliated Supertel Hospitality title and adopted Condor Hospitality to show “a dynamic new direction for the company.”
Blackham’s office said he couldn’t comment for this story because the company is preparing its 2015 financial report.
But he has outlined a strategy illustrated by the recent purchase of three newer, higher-quality, higher-profit properties in large markets — one each in Atlanta, San Antonio and Jacksonville, Florida — for $42.5 million.
Those properties are “a glimpse of what the portfolio of the company will look like in the future,” Blackham said in a video posted last August. Rather than Super 8s, he envisions owning hotels with brands such as Hampton Inn, Marriott Courtyard and Hilton Garden Inn.
He has whittled down Condor’s properties, from 54 when he arrived to 39, with 12 of them for sale or in the sale process. The last Nebraska motel, the Super 8 along Highway 275 in O’Neill, is under a sale contract.
Blackham plans to “recycle the capital” from selling those motels and combine it with loans and other sources of capital to buy better hotels.
The timing of Condor’s quality improvement strategy seems just right, said John Hach, a senior analyst for New York City-based TravelClick, which analyzes trends in the hospitality industry.
The hotel industry is making good gains in occupancy and room rates, Hach said, which means revenue coming in to hotel owners like Condor. Selling off the legacy economy motels is also favorable for Condor.
“It’s a viable strategy, with a very good upside to it,” he said, and appealing to the millennial generation.
Hach said part of the challenge for lodging owners is picking the right markets and the right hotels. San Antonio, Jacksonville and Atlanta are “excellent markets ... very vibrant,” he said, and the brands of Condor’s three new hotels — Marriott’s Courtyard and Springhill Suites, and the Hotel Indigo — are high-quality.
Blackham himself has outlined the challenges.
In the video last August, he urged investors who purchased preferred stock in the company over the past several years to accept Condor’s offer to exchange their shares for common stock, a step that he said would make raising new capital easier.
But a month later, the company dropped the offer, citing volatile stock market conditions and Condor’s low stock price. Blackham said in the video that the share swap was an important part of its growth strategy.
Since then, the price has faltered, saying below $1 since Feb. 5.
In 2011 and 2012 the company risked a similar de-listing, but the price per share rallied. In 2013, to avoid falling below $1 a share, the company carried out a 1-for-8 reverse stock split, making each share worth eight times as much by reducing the number of shares by a factor of 8.
Now it’s below $1 per share again, which means some buyers, such as investment funds with rules against “penny stocks,” can’t or won’t buy its shares.
It’s a big come-down from a company that at one time was purchasing hotels in “clusters” and owned 125 lodging properties, mostly in the Midwest and South.
In 2008 lenders were happy to finance Supertel’s purchases, including 10 in January that year and 50 over the previous 30 months. Founder Paul Schulte, CEO at the time, said the chain would be “opportunistic” in its purchases and told shareholders that net income for 2007 was up 47 percent from 2006.
Then came the Great Recession, which put a damper on tourism and the construction industry, both heavy users of low-cost motels like those owned by Supertel. The financial credit crunch also hit Supertel’s lenders, who no longer looked favorably on loans as room vacancies grew and per-night rates dropped.
As a real estate investment trust, Supertel enjoyed some tax advantages, but it also was required to have a third party manage its properties. The management firms it hired couldn’t keep rooms filled, even at reduced prices.
Competing with owner-occupied budget motels was next to impossible, given the low-cost operations of the family-owned motels.
In 2009 Supertel hired Omahan Kelly Walters, a former Kiewit Co. finance man, as its CEO. Schulte remained on the board of directors until 2012.
Under Walters, the company reduced and refinanced its debt, saving interest costs, and adopted the upscale improvement plan. The tactics included a $30 million investment in 2012 by the Argentine real estate company Inversiones y Representaciones Sociedad Anónima, or IRSA.
The investment made IRSA a 34 percent owner, reducing the ownership by common stockholders at the same time. Other preferred shares were sold, eventually putting 80 percent of the company’s equity in the preferred shareholders’ hands.
In 2011 the City of Norfolk bought the company’s office building for $1.75 million and converted it for city offices. The company has resolved to keep its headquarters in Norfolk.
Supertel continued selling its low-rate properties, reducing its debt and refinancing its loans as interest rates declined. It raised $2.8 million in a common stock sale in July 2014, and that September Walters announced that he would leave the CEO’s job when a replacement was found.
“I am excited about the company’s future, but it is time for me to seek new challenges,” he said at the time. Walters, who is still a Condor director, declined to comment for this story.
The company had lost $83 million between 2008 and 2014, a large share of that from writing down the value of its motels, before reporting a profit of $6.1 million in the first nine months of 2015.
At the company’s shareholder meeting last June, Lincoln shareholder Mark Tallman, who owned about 9 percent of Condor’s common stock, asked when dividend payments — suspended in 2009 — would resume. Blackham said that would depend on improving profits, a goal of the quality improvement strategy.
“I like what you’re saying,” Tallman said at the meeting, but he urged Blackham to “be very careful” borrowing money to buy more motels.
Tallman didn’t return a call for comment.
Now, with Blackham at the helm, Condor is facing a future that is unclear.
One possibility is that a buyer makes an offer for the company and takes over, leaving most shareholders with only part of their original investments.
Last year Blackman said selling the company was “not on the radar screen today,” but added that it could come up as management and directors fulfill their obligation to do what’s best for shareholders.
Another possible outcome is that Blackham gains the time to make his strategy pay off. He is intent on its success, having bought about 12 percent of its common stock himself, and has relationships with other hotel owners that he says will help with buying upscale hotels at reasonable prices.
Another possibility is that Condor would crash. The company said in late 2014 that some financial scenarios could “compel us to file for reorganization” or “lead to insolvency.”
Such possibilities keep Condor’s shareholders on edge.