UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission File Number:
333-264
Exact name of Registrant as specified in its charter:
South Seas Properties Company Limited Partnership
State or other Jurisdiction of incorporation or organization:
Ohio
I.R.S. Employer Identification Number:
59-2541464
Address of Principal Executive Offices:
12800 University Drive, Suite 350
Fort Myers, FL 33907
Registrant's Telephone Number, including Area Code:
(941) 481-5600
Indicate by check mark whether the registrant (1) has
filed all re ports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X YES NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
YES NO
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
FORM 10-Q
SEPTEMBER 30, 1996
INDEX
PAGE NO.
COVER LETTER
PART I
ITEM 1
FINANCIAL INFORMATION
Consolidated Balance Sheets at
September 30, 1995 and 1996 and
December 31, 1995 1
Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1995 and 1996 2
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1995
and 1996 3-4
Notes to Consolidated Financial Statements 5-6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-14
PART II
OTHER INFORMATION 15
SIGNATURES 16
EXHIBITS:
EXHIBIT 10 - CREDIT LYONNAIS LOAN AGREEMENT
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
EXHIBIT 99 - CALCULATION OF WEIGHTED AVERAGE
UNITS OUTSTANDING
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<TABLE>
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SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30
Dec. 31
1995 1995 1996
(audited) (unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $7,340 $ 8,825 $ 6,641
Restricted cash 5,818 82 21
Restricted marketable securities - - 3,263
Accounts receivable, trade 6,261 3,316 3,999
Inventories 1,847 1,689 1,671
Prepaid expenses and other 1,975 1,572 2,002
Total current assets 23,241 15,484 17,597
PROPERTY, PLANT AND EQUIPMENT, net 76,668 73,849 77,992
LOAN COSTS, net 2,450 1,740 5,416
GOODWILL, net 6,805 6,896 6,531
OTHER ASSETS 1,662 1,426 1,905
Total assets $110,826 $99,395 $109,441
LIABILITIES AND PARTNERS' CAPITAL
DEFICIENCY
CURRENT LIABILITIES
Current maturities of notes
and mortgages payable $13,602 $15,728 $ 1,313
Current maturities of bonds
payable 12,998 2,450 -
Current obligations under
capital leases 398 402 256
Accounts payable 3,146 2,696 2,831
Accrued expenses 9,540 7,453 5,551
Customer deposits 4,708 3,011 3,188
Deferred revenue 1,073 8 425
Total current liabilities 45,465 31,748 13,564
NOTES AND MORTGAGES PAYABLE, less
current maturities 75,555 60,988 64,294
BONDS PAYABLE, less current
maturities - 12,785 43,500
LONG-TERM OBLIGATIONS UNDER
CAPITAL LEASES, less current
obligations 1,112 1,221 706
OTHER LONG-TERM OBLIGATIONS 1,384 1,384 1,304
COMMITMENTS AND CONTINGENCIES - - -
MINORITY INTERESTS 12 13 18
PARTNERS' CAPITAL DEFICIENCY (12,702) (8,744) (13,945)
Total liabilities and
partners' capital
deficiency $110,826 $99,395 $109,441
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
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SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per unit data)
(unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Revenues
Rooms $10,795 $11,467 $46,174 $51,592
Food and beverage 3,214 3,216 12,531 13,611
Retail 1,156 1,271 4,546 5,099
Golf 204 411 1,776 2,196
Spa and fitness 431 468 601 1,892
Other 3,157 3,489 12,078 12,998
Total revenues 18,957 20,322 77,706 87,388
Expenses
Rooms 3,060 3,475 9,968 11,500
Food and beverage 2,779 3,076 9,448 10,678
Retail 888 1,002 3,253 3,600
Golf 161 240 662 777
Spa and fitness 278 278 351 1,064
Other 1,422 1,658 4,747 5,135
Condominium lease and rental
expenses 3,296 3,533 13,289 14,639
Sales and marketing 1,532 2,041 4,202 5,854
Maintenance and grounds 1,176 1,275 3,285 3,836
General and administrative
- resort properties 4,100 4,059 12,912 12,792
General and administrative
- corporate overhead 974 1,094 2,893 2,989
Depreciation and amortization 1,527 1,581 4,325 5,297
Interest expense 2,363 2,633 6,769 8,015
Total expenses 23,556 25,945 76,104 86,176
Income/(loss) before non-operating items
and extraordinary item (4,599) (5,623) 1,602 1,212
Net gain/(loss) on disposal/sale of
fixed assets (308) 2 (305) 5
Minority interests 14 9 (15) (22)
Acquisition costs (340) - (340) -
Income/(loss) before extraordinary item (5,233) (5,612) 942 1,195
Extraordinary item - early extinguish-
ment of debt - (2,084) - (2,084)
Net income/(loss) $(5,233)$(7,696) $ 942 $ (889)
Net income/(loss) per unit before
before extraordinary item $ (1.22)$ (1.27) $ .22 $ .28
Net income per unit $ (1.22)$ (1.74) $ .22 $(.20)
Weighted average units
outstanding 4,308 4,414 4,269 4,351
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 1 of 2
(In Thousands)
(unaudited)
Nine Months
Ended September 30
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 80,255 $ 88,130
Cash paid to suppliers, employees and affiliates (67,073) (76,062)
Interest paid (5,833) (9,943)
Net cash provided by operating
activities 7,349 2,125
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/purchase of assets (4,564) (5,458)
Proceeds from sale of assets - 5
Loans to affiliates, net of repayments 724 -
Change in restricted cash/marketable securities 840 2,534
Cash acquired in purchase of resort property 353 - Acquisition costs (340) -
Net cash used by investing
activities (2,987) (2,919)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 7,440 70,480
Deferred loan costs (164) (5,939)
Principal payments, long-term debt (4,671) (38,645)
Principal payments, under capital
lease obligations (103) (548)
Principal payments, bonds payable - (12,998)
Distributions to partners (1,294) (919)
Distributions to minority interest (10) (16)
Proceeds from the issuance of limited
partner units - 565
Principal payments under revolving lines
of credit - (11,885)
Net cash provided by
financing activities 1,198 95
Net increase/(decrease) in cash 5,560 (699)
Cash and cash equivalents, beginning of period 3,265 7,340
Cash and cash equivalents, end of period $ 8,825 $ 6,641
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 2 of 2
(In Thousands)
(unaudited)
Nine Months
Ended September 30
1995 1996
<S> <C> <C>
RECONCILIATION OF NET INCOME/(LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income/(loss) $ 942 $ (889)
Adjustments to reconcile net income
to net cash provided by operating
activities
Extraordinary item - early extinguish-
ment of debt - 2,084
Depreciation/amortization expense 4,325 5,297
(Gain)/loss on disposal/sale of fixed assets 305 (5)
Minority interest 15 22
Acquisition costs 340 -
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable, net 3,097 2,262
Inventories 8 176
Prepaid expenses and other assets (290) (270)
Increase (decrease) in:
Accounts payable (1,320) (315)
Accrued expenses 475 (4,069)
Customer deposits (372) (1,520)
Deferred revenues (176) (648)
Total adjustments 6,407 3,014
Net cash provided by operating activities $ 7,349 $2,125
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of $356 were incurred during the nine months
ended June 30, 1995 when South Seas entered into leases for the upgrade
of equipment.
In 1995, South Seas acquired the Sanibel Inn in exchange for 71,374
partnership units. As part of the exchange, South Seas acquired
$13.4 million in assets and assumed $12.3 million in liabilities.
In 1995, South Seas issued 17,730 partnership units for the
satisfaction of $225 of accrued interest payable.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly South Seas Properties Company Limited Partnership ("South Seas")
consolidated financial position as of September 30, 1995 and 1996,
and the consolidated results of its operations for the three months
and nine months ended September 30, 1995 and 1996, and its
consolidated cash flows for the nine months ended September 30, 1995
and 1996. The results of operations for the nine month period ended
September 30, 1996 are not indicative of the results to be expected
for the full year due to the seasonality of the business operation.
For further information, refer to the audited consolidated financial
statements and notes thereto, included in South Seas' Prospectus
dated March 25, 1996.
Note 2. Impact of Recently Issued Accounting Standards
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation," effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 requires a fair value based
method of accounting for stock-based compensation. South Seas
issued 118,750 limited partnership units under its' Management
Equity Incentive Plan during the nine months ended September
30, 1996. South Seas will apply the existing accounting rules
contained in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," rather than adopt SFAS No. 123.
Therefore, no expense recognition for employee stock-based compensation
will be reflected in results of operations, however full disclosure as
required by SFAS No. 123 will be provided annually in the notes.
Note 3. Change in Debt Structure
On March 28, 1996, South Seas completed the funding of the financing
transaction as offered in the form S-1 Registration Statement. The
total aggregate principal amount raised was $43,500,000, with
interest payable monthly at 10%, and no principal reduction until
maturity on April 15, 2003.
The Notes are non-callable during the first four years of the term
then become redeemable, in whole or in part, at the option of South
Seas at various redemption prices (108.24% to 112.62% of principal)
during or after the year 2000. Subsequent to the occurrence of
certain events, the holders of Notes will be offered the opportunity
to exchange the Notes for partnership units at an exchange rate of
$12 per partnership unit (subject to adjustment in certain
<PAGE>
circumstances). Upon the stated maturity of the Notes, holders of
Notes will be offered the opportunity to exchange the Notes at an
exchange rate of $10.50 per unit (subject to adjustment in certain
circumstances).
On May 13, 1996, South Seas entered into a loan modification
agreement whereby the entire amount of an existing loan balance
($6,986,000) could be treated as a revolving loan. On May 14, 1996
South Seas reduced the loan by $6,885,000 under this new loan
arrangement. No changes were made to existing amortization, interest
or maturity terms. This loan was paid in full with the consolidation
loan on September 26, 1996. (See discussion below).
On June 24, 1996, South Seas amended an existing loan agreement
whereby the loan was bifurcated into a "permanent loan amount"
(approximately $14.1 million) and a "revolving loan amount"
($5 million). No changes were made in the existing amortization
schedule of principal, interest remains fixed at 10.8% on the
permanent loan amount, and will be prime plus two hundred (200)
basis points on the revolving loan amount. On June 28, 1996
South Seas reduced the loan by $5,000,000 under this revolving
loan. This loan was a part of the consolidation loan discussed below.
On September 26, 1996, South Seas completed an $80 million senior
consolidation loan, which includes a $40 million amortizing term
portion and a $40 million revolving line of credit, to be used for
working capital and future acquisitions. This loan will mature
September 26, 2001. See Exhibit 10 for a complete discussion of
amortization schedule and interest rates.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
"Selected Historical Financial Data," "Selected Unaudited Pro
Forma Consolidated Financial Data" and the historical and pro
forma and audited consolidated financial statements for South
Seas Properties Company Limited Partnership ("South Seas") and
the notes thereto appearing in the Prospectus.
GENERAL
South Seas is one of the largest owners and operators of
upscale beachfront and/or destination resorts and hotels in
Florida. South Seas owns six resort and hotel properties, leases,
operates and manages one resort spa, owns a golf and tennis club,
and manages two additional resort properties located on Florida's
Southwest coast. South Seas consolidates the results of operations
of its owned properties and records management fees on the managed
properties.
South Seas has implemented a growth strategy which focuses on
improving results at existing properties through increased revenues
and increasing its operating leverage through centralized management.
South Seas' growth strategy also focuses on acquiring and, to a lesser
extent, developing new resorts and hotels in targeted markets with
demographic and business characteristics consistent with its market
profile. The Sanibel Inn was acquired on June 1, 1995 in exchange
for 71,374 limited partnership units ("Units") plus a contingent,
deferred cash payment of up to $700,000. This acquisition was accounted
for under the purchase method for financial reporting purposes, and
its results of operations have been included in the consolidated
financial statements of South Seas for periods subsequent to the date
of acquisition. In June 1995, South Seas entered into a four year
lease agreement (the "Safety Harbor Lease") through a wholly-owned
subsidiary, Safety Harbor Management Company, Ltd. ("Safety Harbor
Management Co.") with an unrelated party pursuant to which it operates
and manages the Safety Harbor Resort and Spa ("Safety Harbor," Safety
Harbor and the Sanibel Inn are collectively referred to herein as
the "New Resorts"). The Safety Harbor Lease also provides Safety
Harbor Management Co., with an option, expiring on May 31, 2000, to
purchase Safety Harbor for an aggregate purchase price of between
$17.5 million and $22.5 million, depending on the year the option is
exercised. Management views the Safety Harbor Lease as a turnaround
opportunity at an under-performing resort, as evidenced by its
occupancy rate of approximately 35% in 1994 and 1995. Management
believes that the performance of Safety Harbor can be improved by
making certain renovations at the resort and also utilizing South
Seas' marketing resources and operating skills. The Safety Harbor
Lease requires that South Seas spend a minimum of $1.8 million in
capital toward renovation during the term of the lease. South Seas
anticipates that it will benefit, following a period where the resort
will be renovated and repositioned, from improved
<PAGE>
operating results at Safety Harbor since the lease payments under the
Safety Harbor lease are fixed amounts and South Seas' right to purchase
Safety Harbor under the Safety Harbor Lease is based on a series of
annual fixed option prices.
SEASONALITY
Properties owned or operated by South Seas (collectively "the
Properties") are affected by normally recurring seasonal patterns.
Room rates and occupancy are generally higher during the months of
January, February, March and April than during the remainder of the
year. As much as 45-50% of South Seas' revenues is earned in the
first four months of each year. Accordingly, South Seas' operations
are seasonal in nature, with lower revenue and net income in the
second, third and fourth calendar quarters.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenues. Revenues consist principally of room rentals, food and
beverage sales, retail sales, spa and fitness revenues, and golf
course operations. Other revenue includes marina operations, long
distance telephone charges, fees for the use of recreation
facilities, commissions from realty sales, interest income and
other miscellaneous items. Revenues for the three months ended
September 30, 1996 increased by $1.4 million, or 7.2% over the prior
period.
Rooms revenues increased by $672,000, or 6.2% over the prior period.
The increase in rooms revenues resulted from an increase in the
average daily rate ("ADR"), and an increase in occupancy. ADR was
$148.02 for 1996, compared to $144.46 in 1995, an increase of $3.56,
or 2.5%. Occupancy as a percentage of total rooms available,
increased to 62.2% in 1996 from 60.8% for the same period in 1995.
The changes in ADR and occupancy combine to reflect South Seas efforts
to maximize revenue per available room ("REVPAR"), during both high
and low demand periods. During the July through September period of
1996, REVPAR increased $4.18 or 4.8% over the same period in 1995.
Retail revenues for the three months ended September 30, 1996 increased
by $115,000, or 10.0% over the same period in 1995. The renovated
Dunes Golf & Tennis Club's pro shop produced approximately $61,000 or
53% of the growth over the prior period.
Other revenues for the three months ended September 30, 1996
increased by $332,000, or 10.5% over the prior period. Approximately
$133,000 or 40.1% of the increase was attributable to brokerage
commissions earned on third party fund raising efforts.
Additionally, higher interest earnings on both restricted reserve
account balances and cash balances were realized.
Expenses. Total expenses for the three months ended
September 30, 1996 increased by $2.4 million, or 10.1% over
the prior period. As a percentage of revenues, expenses increased
slightly
<PAGE>
from 124.3% to 127.7% for the period. As noted earlier, South Seas
operations are seasonal in nature. Therefore, fixed costs may cause
expenses to meet or exceed revenues during lower revenue quarters. This
is a normal, recurring pattern in their business cycle.
Rooms expenses for the three months ended September 30, 1996
increased by $415,000 or 13.6% over the prior period. As a
percentage of rooms revenues, rooms expenses increased slightly
from 28.3% to 30.3%, due primarily to additional costs at the
Vacation Planning Center.
Sales and marketing costs for the three months ended
September 30, 1996 increased $509,000 or 33.2% over the prior
period. As a percentage of total revenues, sales and marketing
increased from 8.1% in the three months ended September 30, 1995
to 10.0% for the three months ended September 30, 1996, primarily
due to increased marketing effort to reposition Safety Harbor.
For the three months ended September 30, 1996, maintenance and
grounds expense increased by $99,000 or 8.4% over the prior period.
Primary increase is due to the Dunes being open for operations
during 1996 and closed for renovation during 1995 (approximately
$119,000). As a percentage of total revenues, maintenance and
grounds expense remained relatively flat at 6.2% during 1995 and
6.3% during 1996.
General and administrative expense for the three months ended
September 30, 1996 increased by $79,000, or 1.5% over the prior
period, and as a percentage of revenues decreased from 26.8% to 25.4%.
Depreciation and amortization expense for the three months ended
September 30, 1996 increased by $54,000 or 3.5% over the prior
period. As a percentage of revenues, depreciation and amortization
expense decreased from 8.1% to 7.8%.
Interest expense for the three months ended September 30, 1996
increased by $269,000 or 11.4% over the prior period. The increase
was primarily attributable to the additional indebtedness partially
offset by an overall lower cost of funds that was incurred in
March 1996 with the issuance of the $43.5 million of convertible bonds.
Extraordinary item - early extinguishment of debt. In September
1996 South Seas obtained an $80,000,000 consolidation loan. A
non-cash loss was incurred of approximately $2.1 million and has
been treated as an extraordinary item.
Net Loss. As a result of the foregoing factors, net loss for
the three months ended September 30, 1996 increased by $2.5
million compared to the prior period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues. Revenues consist principally of room rentals, food
<PAGE>
and beverage sales, retail sales, spa and fitness revenues, and
golf course operations. Other revenue includes marina operations,
long distance telephone charges, fees for the use of recreation
facilities, commissions from realty sales, interest income and
other miscellaneous items. Revenues for the nine months ended
September 30, 1996 increased by $9.7 million, or 12.5% over the
prior period.
Rooms revenues increased by $5.4 million, or 11.7% over the
prior period. Approximately $4.0 million, or 73.0% of the increase
represents room revenues attributable to the New Resorts. Rooms
revenues at Comparable Resorts increased by approximately $1.4
million or 3.3%. The increase in room revenues at Comparable
Resorts resulted from an increase in the ADR, combined with an
increase in the percentage of occupancy. ADR at Comparable Resorts
was $202.60 for 1996, compared to $200.42 in 1995, an increase
of $2.18 or 1.1%. Occupancy percentage at Comparable Resorts
increased to 76.8% in 1996 from 76.0% for the same period in
1995. The changes in ADR and occupancy combine to reflect South
Seas efforts to maximize REVPAR, during both high and low demand
periods. During the nine months ended September 30, 1996, REVPAR
for Comparable Resorts increased $3.24 or 2.1% over the same period
in 1995. The New Resorts had an occupancy percentage of 47.8%,
ADR of $148.18 and REVPAR of $70.57 during the nine months ended
September 30, 1996, however relative occupancy levels, REVPAR, and
ADR at the New Resorts are depressed in large part as a result of
Safety Harbor. Management of South Seas believes operating results
at Safety Harbor will begin to improve over time as its operational
skills and marketing resources are fully utilized.
Food and beverage revenues for the nine months ended September
30, 1996 increased by $1.1 million, or 8.6% over the same period
in 1995. The increase was due primarily to the additional food
and beverage operations at Safety Harbor, $937,000 or 86.8% of the
total increase. Food and beverage revenues at the Comparable Resorts
increased slightly by $143,000 or 1.2% over the prior period.
Retail revenues for the nine months ended September 30, 1996
increased by $553,000, or 12.2% over the same period in 1995.
Approximately $156,000, or 28.2% of the increase was due primarily
to retail operations at the New Resorts. Retail revenues for
Comparable Resorts for the nine month period in 1996 increased
by $397,000, or 8.9% compared to the prior period. The renovated
Dunes Golf & Tennis Club's pro shop produced approximately $141,000
of the growth over the prior period. South Seas Plantation produced
approximately $248,000 over the prior period through increased sales
at their grocery outlets.
Golf revenues increased $420,000 or 23.7% for the nine months
ended September 30, 1996 over the prior period. This was a result
of the renovated Dunes Golf and Tennis Club being open for business
in 1996 versus closed and under renovation in 1995.
Spa and fitness revenues increased by $1.3 million or 214.8%
<PAGE>
reflecting the results of operations at Safety Harbor, which was leased
effective June 1, 1995. Thus, 1996 results reflect nine months of
activity versus four months in 1995.
Other revenues for the nine months ended September 30, 1996 increased
by $920,000, or 7.6% over the prior period. Approximately $470,000
of the increase was attributable to the Comparable Resorts.
Additional club membership revenue at the renovated Dunes Golf
and Tennis Club accounted for $246,000 of the increase. Other
revenues at Sundial were up approximately $210,000, primarily in
the recreation department. This is a result of termination of the
bike and boat concession which provided only a percentage of rental
income. This operation is now owned and directly provided by the
resort to its guests. The New Resorts contributed $450,000 or 48.9%
of the total increase in other revenues.
Expenses. Total expenses for the nine months ended September 30, 1996
increased by $10.1 million, or 13.2% over the prior period. As a
percentage of revenues, expenses increased slightly from 97.9% to
98.6% for the period. As noted earlier, South Seas operations are
seasonal in nature. Therefore, fixed costs cause may expenses to meet or
exceed revenues during lower revenue quarters. This is a normal,
recurring pattern in their business cycle.
Rooms expenses for the nine months ended September 30, 1996 increased
by $1.5 million or 15.4% over the prior period. Rooms expenses at
Comparable Resorts increased $727,000 or 7.6% for the same period.
Approximately $805,000 or 52.6% of the total increase reflects the
additional expenses associated with the New Resorts. As a percentage
of rooms revenues, rooms expenses increased slightly from 21.6% to 22.2%.
Sales and marketing costs for the nine months ended September 30, 1996
increased $1.6 million or 39.3% over the prior period, of which
$787,000 or 47.6% of the total increase was associated with operations
of the New Resorts. The $865,000 or 22.9% increase experienced at the
Comparable Resorts is above the percentage growth in revenues and
reflects marketing efforts targeted for the off-season. As a percentage
of total revenues, sales and marketing increased from 5.4% in the nine
months ended September 30, 1995 to 6.7% for the nine months ended
September 30, 1996, primarily due to increased marketing effort to
reposition Safety Harbor.
For the nine months ended September 30, 1996, maintenance and grounds
expense increased by $551,000 or 16.8% over the prior period, of which
$270,000 or 49.0% of the total increase was attributable to the New
Resorts. Increase at the Comparable Resorts for the same period was
$281,000 or 9.2% and is consistent with expected maintenance costs for
1996. As a percentage of total revenues, maintenance and grounds expense
increased from 4.2% to 4.4%.
General and administrative expense for the nine months ended
September 30, 1996 decreased by $24,000, or .15% over the prior
<PAGE>
period, and as a percentage of revenues decreased from 20.3% to 18.1%.
Approximately $1.3 million increase in general and administrative expenses
was attributable to operations of the New Resorts. These costs were
partially offset by reductions in insurance reserves. At
September 30, 1995 South Seas accrued $325,000 in additional health
insurance reserves. At September 30, 1996 South Seas reduced casualty
insurance reserves by $347,000 to accurately reflect workers compensation
claims reductions. The combined impact of these two insurance
adjustments produces a $672,000 decrease from September 1995 to
September 1996. The remaining $700,000 is due to timing of certain
expenses. Certain expenses budgeted to occur during this time period
were not incurred. However, management anticipates these to be incurred
in future periods.
Depreciation and amortization expense for the nine months ended
September 30, 1996 increased by $972,000 or 22.5% over the prior
period. As a percentage of revenues, depreciation and amortization
expense increased from 5.6% to 6.1%. The increase, both in dollars
and as a percentage of revenues, resulted from the impact of New Resorts
acquired in June 1995 ($512,000 or 52.7% of the total), increased
depreciation expense on the significant fixed asset additions placed
in service within the last twelve months and higher amortization of
loan costs associated with the public debt offering.
Interest expense for the nine months ended September 30, 1996
increased by $1.2 million or 18.4% over the prior period. The
increase was attributable to the additional indebtedness that was
incurred in March 1996 with the issuance of the $43.5 million of
convertible bonds and $40,000 was associated with the New Resorts.
Extraordinary item - early extinguishment of debt. In September 1996
South Seas obtained an $80,000,000 consolidation loan. A non-cash loss
was incurred of approximately $2.1 million and has been treated as an
extraordinary item.
Net Income/(loss). As a result of the foregoing factors, net income
for the nine months ended September 30, 1996 decreased by $1.8 million
compared to the prior period.
LIQUIDITY AND CAPITAL RESOURCES
South Seas has historically financed its operations and capital
expenditures with cash generated from operations, bank borrowings,
borrowings from private investors, corporate bonds and short-term
credit facilities.
On March 28, 1996, South Seas completed the public offering of
$43,500,000 of its 10% subordinated notes as offered in the
Form S-1 Registration Statement ("Notes Offering"). The total
aggregate principal amount raised was $43,500,000, including the
full $3.5 million over allotment, with interest payable monthly
at 10%, and with no principal reduction until maturity on April 15, 2003.
<PAGE>
The Notes are non-callable during the first four years of the
term then become redeemable, in whole or in part, at the option
of South Seas at various redemption prices (108.24% to 112.62% of
principal) during or after the year 2000. Subsequent to the
occurrence of certain events, the holders of Notes will be offered
the opportunity to convert the Notes at an exchange rate of $12
per partnership unit (subject to adjustment in certain circumstances).
Upon the stated maturity of the Notes, holders of Notes will be
offered the opportunity to convert the Notes at an exchange rate
of $10.50 per unit (subject to adjustment in certain circumstances).
South Seas believes that cash generated by operations, together with
the proceeds from the Notes Offering will be adequate to meet its
working capital, debt service and capital expenditure requirements
through 1996. South Seas' outstanding indebtedness, together with
the Notes, places certain debt service obligations on the partnership.
Subsequent to 1996 South Seas believes that it may be necessary to
obtain additional debt or equity financing in order to accommodate
its plan for growth and expansion. South Seas intends to pursue
resort and/or hotel acquisitions and to a lesser extent development
opportunities in order to achieve growth in its portfolio of
properties. A portion of the expenditures associated with this
growth strategy will be funded with cash generated from operations
and proceeds from the Notes Offering.
In addition, under the terms of the indenture (executed in connection
with the Notes Offering), South Seas may release, under certain
conditions, the $3.3 million in funds reserved for interest
payments on the Notes. These funds would also be available for
renovations and/or acquisitions. However, South Seas anticipates
that implementation of its growth strategy will require it to obtain
additional debt or equity financing. The amount of additional
financing required by South Seas in order to implement its growth
strategy will depend on several factors, including the purchase
price and renovation costs associated with acquisitions and South
Seas' available cash resources at the time of a particular
transaction. Although there can be no assurance as to South
Seas' ability to obtain financing in the amounts it requires on
commercially reasonable terms, if at all, South Seas believes that,
based upon its current financial condition and results of operations,
such financing will be available to it. South Seas' inability to
obtain additional financing could have a material adverse effect
on its results of operations, financial condition and future
prospects. The indenture places restrictions on the amount of
additional Funded Indebtedness (as defined in the prospectus
delivered in connection with the Notes Offering) that South Seas
may incur.
On September 30, 1996, South Seas had cash and cash equivalents of
$6.6 million; and restricted cash and marketable securities, which
was primarily funds held as a interest reserve fund on notes payable,
of $3.3 million. Cash and cash equivalents increased by $699,000
during the nine months ended September 30, 1996.
Cash flow from operations was approximately $2.1 million for the
<PAGE>
nine months ended September 30, 1996 as compared to $7.3 million
in the prior period. Cash flow from operations was negatively
impacted by a $4.1 million increase in interest paid during 1996.
This significant increase in interest paid was attributed to the
early retirement of numerous notes, bonds and accrued interest
thereon with the proceeds from the public offering and now having
higher debt balances with monthly interest payments. South Seas'
other major source of cash in the 1996 period was proceeds of
$43.5 million from the Notes Offering. In addition to funding its
operating activities, South Seas' major uses of cash during the 1996
period were principal payments on outstanding debt of approximately
$63.5 million (primarily through proceeds of the Notes Offering,
including $11.9 million under revolving lines), capital expenditures
and asset purchases of approximately $5.5 million, and distributions
to partners of approximately $919,000.
South Seas is not currently a party to any legal proceeding which,
in Management's opinion, is likely to have a material adverse effect
on its operating results or financial position.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation," effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 requires a fair value based
method of accounting for stock-based compensation. South Seas
issued 118,750 limited partnership units under its' Management
Equity Incentive Plan during the nine months ended
September 30, 1996. South Seas will apply the existing accounting
rules contained in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Therefore, no expense
recognition for employee stock-based compensation will be reflected
in results of operations, however full disclosure as required by
SFAS No. 123 will be provided annually in the notes.
<PAGE>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Partnership Units
As part of South Seas Management Equity Incentive Plan,
24,500 limited partnership units were sold during the
three months ended September 30, 1996 at $10 per unit
(total of 118,750 during the nine months ended
September 30, 1996). Each unit comes with five options
to purchase additional units in the future.
Refer to Exhibit 10.1 "Management Equity Incentive Plan"
as filed under Form 10Q for the period ended March 31, 1996.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters submitted during the three months ended
September 30, 1996.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit I - Weighted Average Units Outstanding
(b) Reports on Form 8-K
Not applicable
<PAGE>
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
SIGNATURES
SEPTEMBER 30, 1996
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
ROBERT M. TAYLOR RICHARD E. KRICHBAUM
CHAIRMAN OF T&T RESORTS, L.C. VICE PRESIDENT OF FINANCE
GENERAL PARTNER OF S.S. RESORT MANAGEMENT L.C.
SOUTH SEAS PROPERTIES GENERAL PARTNER OF
COMPANY LIMITED PARTNERSHIP SOUTH SEAS RESORTS
(SIGNATURE) COMPANY, L.P.
NOVEMBER 14, 1996 (SIGNATURE)
November 14,1996
TIMOTHY R. BOGOTT VIRGINIA S. BROOKS
PRESIDENT CORPORATE CONTROLLER
S.S. RESORT MANAGEMENT, L.C. S.S. RESORT MANAGEMENT,
GENERAL PARTNER OF SOUTH SEAS L.C.
RESORTS COMPANY, L.P. GENERAL PARTNER OF SOUTH (SIGNATURE)
(SIGNATURE) SEAS RESORTS COMPANY, L.P.
November 14, 1996 (SIGNATURE)
November 14, 1996
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