Press Release
Paul J. Schulte and Steve Borgmann started out with the idea of building motels.
What the two Norfolk business partners ended up building was Supertel Hospitality Inc., a public company that has a portfolio of hotels involving several franchises—Super 8, Comfort Inn/Comfort Suites, Hampton Inn, Holiday Inn Express, Suites at Key Largo, Days Inn, Ramaada Ltd., Guest House Inn, Sleep Inn, Supertel Inn and Savannah Suites.
Schulte, who is Supertel’s president, chairman and chief executive officer, and Borgmann began building Super 8 Motels in the Midwest in 1978. Twelve years later, the pair had constructed a total of 44 hotels.
“In 1990, we took all of those entities and combined them into a single-ownership entity, and then we continued development,” Schulte said.
Over the next four years, they built properties in Texas, Arkansas, Missouri and Kansas.
In 1994, the company went public as a C corporation on Nasdaq, but in 1999, it was determined that it would be in the best interest of the shareholders to get back in to a partnership type entity, where earnings could be distributed as a pre-tax dividend to the shareholders.
“A C corp, while it could issue a dividend, it’s not a practical thing to do because a C corp pays federal tax on the earnings before the dividends are paid, where the partnership type entity—either the REIT (real estate investment trust) or limited partnership or master limited partnership—doesn’t pay the federal tax on the earnings before dividends. The dividend earnings got the shareholders who pay the tax…but the tax is only paid once,” Schulte said.
The company merged Supertel into a REIT called Humphrey Hospitality Trust, which had its corporate headquarters in Columbia, Md., to put itself into a position to pay a dividend to the shareholders and not have the taxation issue, Schulte said.
“When we did that, the REIT laws and rules did not allow for a management company to be held inside the real estate investment trust,” he said.
In other words, a REIT couldn’t manage its own properties. “So we signed a lease with Humphrey Hospitality Management when we did the merger in 1999,” he said.
But by 2001, because of the economic downturn, Schulte said it was apparent that the combination wasn’t going to work, so the lease arrangement was renegotiated.
During that same time, Congress passed the REIT Modernization Act, which allowed REITs to form a taxable subsidiary, Schulte said. That subsidiary was able to hire a management company for the properties as opposed to leasing them.
Schulte said the decision to move the corporate headquarters back to Norfolk was made in 2004.
“We terminated the management agreement with Humphrey Hospitality Management and signed a management agreement with Royal Host Management (now known as Royco Hotels Inc.) out of Calgary, Canada,” Schulte said, adding that Royco’s U.S. headquarters are based in the Supertel building in Norfolk.
At the same time Schulte came back to serve as chairman, president and CEO of the REIT.
Since the move back to Norfolk, Supertel has seen steady growth, Schulte said.
To its shareholders, Supertel currently pays a dividend rate of 44 cents per share per year or 11 cents per quarter, Schulte said. That’s a 72 percent increase from 2003.
The company held a secondary stock offering that raised about $43.8 million after underwriting discounts and estimated costs and expenses in December of last year.
The secondary stock offering was followed in January by Supertel’s acquisition of seven hotels to expand the company’s presence in several states. The company’s portfolio now includes 93 hotels with 7,245 rooms in 22 states, which is an increase from the 77 hotels in 17 states the company owned in January 2006.
“Since we moved the company back, we have increased the assets and increased the number of properties significantly,” Schulte said “We’re delighted with it (the return to Norfolk). We have really good people, and they do a really good job.”
- Story Courtesy of the Norfolk Daily News
