UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 33-78866
______________________
MOTELS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
______________________
701 Lee Street, Suite 1000
Des Plaines, Illinois 60016
(847) 803-1200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
______________________
Indicate by check mark whether the registrant (1) has filed all reports
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
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.
[X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
November 8, 1996: 800,000
<PAGE>
INDEX
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 1996 (unaudited)
and December 31, 1995 .................................................. 2
Condensed consolidated statements of operations - Three months ended
September 30, 1996 and 1995 (unaudited); Nine months ended September 30,
1996 and 1995 (unaudited) .............................................. 3
Condensed consolidated statements of cash flows - Nine months ended
September 30, 1996 and 1995 (unaudited) ................................ 4
Notes to condensed consolidated financial statements -
September 30, 1996 (unaudited).......................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General ................................................................ 7
Results of Operations .................................................. 9
Liquidity and Capital Resources ........................................14
Part II - Other Information
Item 1. Legal Proceedings .................................................16
Item 2. Changes in Securities .............................................16
Item 3. Defaults upon Senior Securities ...................................16
Item 4. Submission of Matters to a Vote of Security Holders ...............16
Item 5. Other Information .................................................16
Item 6. Exhibits and Reports on Form 8-K ..................................16
Signatures .................................................................17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................. $ 15,590 $ 13,897
Restricted cash ............................................ 4,108 2,162
Accounts receivable from property operations ............... 4,193 2,808
Operating supplies and prepaid expenses .................... 2,567 3,349
Deposits and other assets .................................. 4,540 2,893
Mortgage and other notes receivable ........................ 5,123 2,788
Investment property:
Operating properties, net of accumulated depreciation
of $59,560 in 1996 and $51,075 in 1995 .............. 316,904 278,281
Land held for development ................................ 4,046 4,046
---------- -----------
Total investment property .................................. 320,950 282,327
Financing and other deferred costs, net of accumulated
amortization of $3,622 in 1996 and $2,127 in 1995 ........ 13,807 14,927
Deferred tax asset ......................................... 2,665 2,210
---------- -----------
$ 373,543 $ 327,361
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable ..................................... $ 2,303 $ 1,554
Real estate taxes payable .................................. 3,472 1,963
Accrued interest payable ................................... 6,124 3,145
Other accounts payable and accrued expenses ................ 5,337 4,078
Deferred tax liability ..................................... 6,445 6,376
Secured notes payable:
Lines of credit .......................................... 29,752 -
Mortgage and other notes ................................. 217,419 209,972
---------- -----------
Total secured notes payable ................................ 247,171 209,972
12% Senior Subordinated Notes, net of unamortized
discount of $3,670 in 1996 and $3,885 in 1995 ............ 76,330 76,115
---------- -----------
Total liabilities .......................................... 347,182 303,203
Minority interests ......................................... 1,900 1,879
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized, 800,000 shares issued and outstanding ... 8 8
Additional paid-in capital ............................... 15,294 15,294
Retained earnings ........................................ 9,159 6,977
---------- -----------
Total stockholders' equity ................................. 24,461 22,279
---------- -----------
$ 373,543 $ 327,361
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Motel operating revenues ...................... $ 39,192 $ 34,613 $ 101,302 $ 88,152
Other revenues ................................ 115 146 257 423
---------- ---------- ---------- ----------
Total revenues .................................. 39,307 34,759 101,559 88,575
Costs and expenses:
Motel operating expenses ...................... 18,598 15,403 52,175 43,422
Marketing and royalty fees .................... 2,892 2,272 7,480 5,944
General and administrative .................... 1,457 1,306 4,552 4,203
Depreciation and amortization ................. 3,571 3,178 10,454 9,448
Net gain on sale of properties ................ (520) - (622) -
---------- ---------- ---------- ----------
Total direct expenses ........................... 25,998 22,159 74,039 63,017
---------- ---------- ---------- ----------
Net operating revenue ........................... 13,309 12,600 27,520 25,558
Interest expense ................................ 7,976 6,980 23,576 20,801
---------- ---------- ---------- ----------
Income from operations .......................... 5,333 5,620 3,944 4,757
Minority interests of others in
income from operations ........................ (150) (231) (335) (413)
---------- ---------- ---------- ----------
Income before income taxes ...................... 5,183 5,389 3,609 4,344
Income tax expense .............................. 2,025 2,097 1,427 1,708
---------- ---------- ---------- ----------
Income before extraordinary item ................ 3,158 3,292 2,182 2,636
Gain on early extinguishment of debt, net of
applicable income taxes of $171 - 268 - 268
---------- ---------- ---------- ----------
Net income ...................................... $ 3,158 $ 3,560 $ 2,182 $ 2,904
========== ========== ========== ==========
Net income per common share:
Income before extraordinary item .............. $ 3.95 $ 4.11 $ 2.73 $ 3.29
Extraordinary item ............................ - 0.34 - 0.34
---------- ---------- ---------- ----------
Net income per common share ................... $ 3.95 $ 4.45 $ 2.73 $ 3.63
========== ========== ========== ==========
Weighted average number of
common shares outstanding ..................... 800,000 800,000 800,000 800,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income ................................................ $ 2,182 $ 2,904
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation, amortization and accretion of
discount on notes ................................... 10,669 9,639
Minority interests of others in net income
from operations ..................................... 335 413
Deferred income taxes ................................. (385) (1,157)
Net gain on sale of properties ........................ (622) -
Gain on early extinguishment of debt .................. - (439)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ............................... (1,294) (1,580)
Operating supplies, prepaid expenses,
deposits and other assets ....................... (2,546) (955)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ............. 4,947 3,676
Accrued interest payable .......................... 2,979 1,663
---------- ---------
Net cash provided by operating activities ................... 16,265 14,164
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties ...... (49,146) (6,202)
Refurbishment of investment properties .................... (7,161) (5,674)
Net proceeds from sale of investment properties ........... 7,207 -
Cash restricted for refurbishment of properties ........... (1,946) 1,879
Collections on mortgage and other notes receivable ........ 90 65
---------- ---------
Net cash used in investing activities ....................... (50,956) (9,932)
Cash flows provided by (used in) financing activities:
Proceeds from secured notes payable ....................... 41,659 168,800
Repayment of secured notes payable ........................ (4,590) (150,027)
Distributions to minority interests ....................... (314) (336)
Deferred financing costs .................................. (371) (9,228)
---------- ---------
Net cash provided by (used in) financing activities ......... 36,384 9,209
---------- ---------
Net increase (decrease) in cash and cash equivalents ........ 1,693 13,441
Cash and cash equivalents at beginning of period ............ 13,897 8,488
---------- ---------
Cash and cash equivalents at end of period .................. $ 15,590 $ 21,929
========== =========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest .................. $ 20,381 $ 18,947
========== =========
Cash paid (net of refunds received) during the period
for income taxes ........................................ $ 151 $ 877
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three-month and nine-month periods ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in Motels of America, Inc.
and Subsidiaries' Annual Report on Form 10-K for the year ended December 31,
1995. The terms "MOA" and the "Company" mean Motels of America, Inc. and its
subsidiaries.
2. Divestitures
In August and September 1996, the Company sold five motel properties
(including the land underlying the properties) to unaffiliated parties for
approximately $6.1 million in cash and notes receivable of $1,675,000. The
notes bear interest at rates of 8% to 9%, provide for monthly principal and
interest receipts, mature at various dates through 2004 and are secured by the
motel properties. In conjunction with the sales of two of the properties, the
Company purchased the land underlying the properties for a total of $666,000.
In addition, one of the motel properties had been leased to an unaffiliated
party since June 1996. In conjunction with the sales, the Company recorded a
net gain of approximately $520,000. Approximately $453,000 of proceeds from
the sale of one of the motel properties was utilized to repay a portion of one
of the lines of credit.
In October 1996, the Company sold three motel properties to unaffiliated
parties for approximately $3.2 million in cash and notes receivable of
approximately $3.9 million. The notes bear interest at rates of 9% to 9.5%,
provide for monthly principal and interest receipts, mature at various dates
through 1999 and are secured by two of the motel properties.
3. Secured Notes Payable
On November 6, 1996, the Company completed two separate financing
transactions with CS First Boston Corporation ("CSFB") pursuant to which the
Company borrowed $37,150,000. Approximately $29.8 million of the proceeds were
utilized to repay the entire outstanding borrowings under the Company's lines
of credit with Nomura Asset Capital Corporation; $1.6 million of the proceeds
were utilized toward a partial paydown of the Company's borrowings from HFS
Incorporated; and the remaining net proceeds were retained for general
corporate purposes. The CSFB borrowings are secured by first mortgages on
nineteen of the Company's motel properties and a pledge of the stock of one of
Motels of America, Inc's subsidiaries. The terms of the notes and mortgages,
among other things, provide for a floating rate of interest adjusted monthly
based on the thirty day LIBOR rate plus 3.25% and monthly payments of
principal and interest based on a twenty year amortization period. The notes
mature on November 1, 1998.
4. Income Taxes
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income taxes principally as a
result of state income taxes.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING
RESULTS PRESENTED BELOW FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1995 HAVE BEEN PREPARED ON THE SAME BASIS AS THE INTERIM
CONDENSED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS AND, IN THE OPINION OF
THE COMPANY, INCLUDE ALL ADJUSTMENTS (CONSISTING ONLY OF NORMAL RECURRING
ADJUSTMENTS) NECESSARY TO PRESENT FAIRLY THE INFORMATION SET FORTH THEREIN.
General
MOA operates principally in the economy limited service segment of the
lodging industry. As a result, its average room rates tend to be lower than
the average room rates of full service lodging facilities. However, due to
the limited nature of the public space and ancillary services provided by
limited service motels, the Company's expenses tend to be lower than those of
full service lodging facilities. The profitability of the lodging industry in
general is significantly dependent upon room rental rates and occupancy rates.
Due to the fixed nature of a relatively high portion of the Company's
expenses, changes in either room rates or occupancy rates result in
significant changes in the operating profit of the Company's motels.
Between January 1, 1995 and September 30, 1996, the Company has acquired
and sold a number of motels in various transactions summarized as follows:
<TABLE>
<CAPTION>
Number of
Date Transaction Rooms
--------------- --------------------------------- ---------
<S> <S> <C>
September and
December 1995 Purchased two motels located in 250
Chattanooga, TN and Indio, CA.
December 1995 Sold two motels located in (260)
Charlotte, NC and Augusta, GA.
January 1996 Purchased nineteen motels 1,794
located in the eastern half
of the United States from
Forte USA, Inc.
January through
March 1996 Purchased two motels located in 201
Newark, DE and Red Wing, MN.
Also purchased the land
underlying one of its existing
properties.
May 1996 Sold a motel located in (102)
Newport, KY.
June 1996 Sold a motel located in (60)
Waukegan, IL.
August 1996 Sold three motels located (306)
in York, PA and Romulus, MI.
September 1996 Sold two motels located in (95)
Niagara Falls, NY and
Pittsfield, MA.
------
1,422
======
</TABLE>
In the aggregate, the Company expended $38.3 million in cash (net of
proceeds from sales of $11.3 million) in conjunction with the above listed
transactions. Cash was funded from internal sources and $42.7 million in
borrowings.
The above listed acquisitions have been accounted for under the purchase
method of accounting and therefore results from operations have been included
only since the date of acquisition.
<PAGE>
Results of Operations
The following discussion and analysis address results of operations for
the three months ended September 30, 1996 and 1995.
Three Months Ended September 30, 1996 Compared to the Three Months Ended
September 30, 1995
The following chart presents certain historical operating results
and statistics discussed herein and is being provided as a supplement to the
interim condensed consolidated financial statements presented elsewhere.
<TABLE>
<CAPTION>
Supplemental Operating Results and Statistics
----------------------------------------------------------
(unaudited)
Three Months Ended September 30
----------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues ....................... $31,514 $31,524 $ 5,485 $ 979 $36,999 $32,503
Ancillary motel revenues ............ 1,928 1,965 265 145 2,193 2,110
-------- -------- -------- -------- -------- --------
Total motel operating revenues .. . 33,442 33,489 5,750 1,124 39,192 34,613
Motel costs and expenses:
Motel operating expenses ............ 15,167 14,580 3,431 823 18,598 15,403
Marketing and royalty fees .......... 2,365 2,212 527 60 2,892 2,272
Depreciation and amortization ....... 2,938 2,512 427 82 3,365 2,594
Net gain on sale of properties ...... - - (520) - (520) -
-------- -------- -------- -------- -------- --------
Total motel direct expenses ....... 20,470 19,304 3,865 965 24,335 20,269
-------- -------- -------- -------- -------- --------
$12,972 $14,185 $ 1,885 $ 159 14,857 14,344
======== ======== ======== ========
Corporate operations:
Other revenues ........................ 115 146
General and administrative expenses ... 1,457 1,306
Depreciation and amortization ......... 206 584
-------- --------
(1,548) (1,744)
-------- --------
Net operating revenue ................... $13,309 $12,600
======== ========
Other data:
Number of motels at period end ........ 121 121 18 5 139 126
Number of rooms at period end ......... 10,061 10,074 1,932 634 11,993 10,708
Occupancy percentage .................. 74.95% 76.05% 68.42% 55.31% 73.80% 74.98%
ADR (1) ............................... $45.41 $44.72 $40.72 $34.96 $44.65 $44.35
REVPAR (2) ............................ $36.12 $36.13 $29.20 $22.20 $34.91 $35.41
Net operating revenue margin (3) ...... 33.86% 36.25%
Net motel revenue margin (4) .......... 50.49% 52.97% 32.67% 24.62% 47.84% 52.11%
</TABLE>
[FN]
(1) ADR represents room revenues divided by the total number of rooms
occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating revenue margin represents net operating revenue divided by
total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by
motel room revenues.
<PAGE>
TOTAL REVENUES consist principally of motel operating revenues. Motel
operating revenues are derived from room rentals and ancillary motel revenues
such as charges to guests for food and beverage service, long distance
telephone calls, fax machine use and from vending machines. Other revenues
include interest income, distributions on partnership interests in excess of
the Company's basis in such partnerships and other miscellaneous income.
Total revenues increased to $39,307,000 for the three months ended September
30, 1996 from $34,759,000 for the three months ended September 30, 1995, an
increase of $4,548,000 or 13.1%.
MOTEL REVENUES increased to $39,192,000 for the three months ended
September 30, 1996 from $34,613,000 for the three months ended September 30,
1995, a net increase of $4,579,000 or 13.2%. Approximately $4,626,000 of the
net increase in motel revenues was attributable to the twenty-three motels
acquired and nine motels divested since January 1, 1995 (the
"acquired/divested motels"), which was partially offset by a decrease of
$47,000 related to motels owned during both periods. Motel revenues for
motels owned during both periods decreased 0.1%. The decrease in motel
revenues for motels owned during both periods was attributable to a decrease
in the occupancy percentage partially offset by an increase in the average
daily room rate ("ADR"). The ADR for the motels owned during both periods
increased to $45.41 for the three months ended September 30, 1996 from $44.72
for the three months ended September 30, 1995, an increase of $0.69 or 1.5%.
The occupancy percentage for the three months ended September 30, 1996 for the
motels owned during both periods decreased to 75.0% from 76.1% for the three
months ended September 30, 1995. REVPAR for motels owned during both periods
decreased to $36.12 for the three months ended September 30, 1996 from $36.13
for the three months ended September 30, 1995. The acquired/divested motels
had an occupancy percentage of 68.4%, an ADR of $40.72 and REVPAR of $29.20
for the period which they were owned by the Company in 1996.
MOTEL OPERATING EXPENSES include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses increased to $18,598,000 for the three
months ended September 30, 1996 from $15,403,000 for the three months ended
September 30, 1995, an increase of $3,195,000 or 20.7%. Approximately
$2,608,000 of the increase is attributable to the cost of operating the
acquired/divested motels since January 1, 1995. The cost of operating motels
owned during both periods increased to $15,167,000 for the three months ended
September 30, 1996 from $14,580,000 for the three months ended September 30,
1995, an increase of $587,000 or 4.0%. Motel operating expenses as a
percentage of motel revenues increased to 47.5% for the three months ended
September 30, 1996 from 44.5% for the three months ended September 30, 1995.
Motel operating expenses as a percentage of motel revenues for the motels
owned in both periods increased to 45.3% for the three months ended September
30, 1996 from 43.5% for the three months ended September 30, 1995. The
decrease in the operating margin for motels owned during both periods is
primarily attributable to certain operating expenses, especially payroll and
related costs, rising at a faster rate than motel operating revenues. Motel
operating expenses as a percent of motel revenues for the acquired/divested
motels was 59.7% for the three months ended September 30, 1996.
MARKETING AND ROYALTY FEES include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to
franchisors and other related marketing expenses. Marketing and royalty fees
increased to $2,892,000 for the three months ended September 30, 1996 from
$2,272,000 for the three months ended September 30, 1995, an increase of
$620,000 or 27.3%. Approximately $467,000 of the increase in marketing and
royalty fees was attributable to the acquired/divested motels. The marketing
and royalty fees for motels owned during both periods increased to $2,365,000
for the three months ended September 30, 1996 from $2,212,000 for the three
months ended September 30, 1995, an increase of $153,000 or 6.9%. For the
motels owned during both periods, marketing and royalty fees as a percent of
room revenues increased to 7.5% for the three months ended September 30, 1996
from 7.0% for the three months ended September 30, 1995. The increase is
principally attributable to the Company expanding its marketing efforts.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES include the costs of
corporate training, marketing, purchasing, administrative support and
accounting. The major components of these costs are salaries, wages and
related expenses, travel, rent and other administrative expenses. Corporate
general and administrative expenses increased $151,000 to $1,457,000 for the
three months ended September 30, 1996 from $1,306,000 for the three months
ended September 30, 1995, an increase of 11.6%. As a percentage of total
motel operating revenues, corporate general and administrative expenses
decreased to 3.7% for the three months ended September 30, 1996 from 3.8% for
the three months ended September 30, 1995.
DEPRECIATION AND AMORTIZATION increased to $3,571,000 for the three
months ended September 30, 1996 from $3,178,000 for the three months ended
September 30, 1995, a net increase of $393,000 or 12.4%. Approximately
$345,000 of the net increase in depreciation and amortization is attributable
to the acquired/divested motels.
NET OPERATING REVENUE increased to $13,309,000 for the three months ended
September 30, 1996 from $12,600,000 for the three months ended September 30,
1995, an increase of $709,000 or 5.6%. The increase in net operating revenues
included a net increase of $764,000 in net motel revenues (motel revenues less
motel operating expenses and marketing and royalty fees). Of the $764,000 net
increase in net motel revenues, $1,551,000 resulted from the acquired/divested
motels. Net motel revenues for motels owned during both periods decreased
$787,000 or 4.7%. Net operating revenue as a percent of total revenues was
33.9% for the three months ended September 30, 1996 as compared to 36.3% for
the three months ended September 30, 1995.
INTEREST EXPENSE increased to $7,976,000 for the three months ended
September 30, 1996 from $6,980,000 for the three months ended September 30,
1995, an increase of $996,000. The increase is principally due to an increase
in outstanding borrowings utilized to fund acquisitions of lodging facilities.
NET INCOME decreased to $3,158,000 for the three months ended September
30, 1996 from $3,560,000 for the three months ended September 30, 1995.
<PAGE>
The following discussion and analysis address results of operations for
the nine months ended September 30, 1996 and 1995.
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
interim condensed consolidated financial statements presented elsewhere.
<TABLE>
<CAPTION>
Supplemental Operating Results and Statistics
----------------------------------------------------------
(unaudited)
Nine Months Ended September 30
----------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues ....................... $79,574 $79,149 $15,267 $ 2,946 $94,841 $82,095
Ancillary motel revenues ............ 5,517 5,509 944 548 6,461 6,057
-------- -------- -------- -------- -------- --------
Total motel operating revenues .. . 85,091 84,658 16,211 3,494 101,302 88,152
Motel costs and expenses:
Motel operating expenses ............ 42,334 40,713 9,841 2,709 52,175 43,422
Marketing and royalty fees .......... 6,036 5,716 1,444 228 7,480 5,944
Depreciation and amortization ....... 8,731 7,532 1,108 228 9,839 7,760
Net gain on sale of properties ...... - - (622) - (622) -
-------- -------- -------- -------- -------- --------
Total motel direct expenses ....... 57,101 53,961 11,771 3,165 68,872 57,126
-------- -------- -------- -------- -------- --------
$27,990 $30,697 $ 4,440 $ 329 32,430 31,026
======== ======== ======== ========
Corporate operations:
Other revenues ........................ 257 423
General and administrative expenses ... 4,552 4,203
Depreciation and amortization ......... 615 1,688
-------- --------
(4,910) (5,468)
-------- --------
Net operating revenue ................... $27,520 $25,558
======== ========
Other data:
Number of motels at period end ........ 121 121 18 5 139 126
Number of rooms at period end ......... 10,061 10,074 1,932 634 11,993 10,708
Occupancy percentage .................. 69.12% 70.26% 64.43% 62.30% 68.28% 69.86%
ADR (1) ............................... $41.73 $41.03 $39.53 $33.19 $41.36 $40.68
REVPAR (2) ............................ $30.84 $30.83 $27.04 $24.52 $30.16 $30.52
Net operating revenue margin (3) ...... 27.10% 28.85%
Net motel revenue margin (4) .......... 46.15% 48.30% 32.27% 18.91% 43.91% 47.25%
</TABLE>
[FN]
(1) ADR represents room revenues divided by the total number of rooms
occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating revenue margin represents net operating revenue divided
by total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by
motel room revenues.
<PAGE>
TOTAL REVENUES increased to $101,559,000 for the nine months ended
September 30, 1996 from $88,575,000 for the nine months ended September 30,
1995, an increase of $12,984,000 or 14.7%.
MOTEL REVENUES increased to $101,302,000 for the nine months ended
September 30, 1996 from $88,152,000 for the nine months ended September 30,
1995, an increase of $13,150,000 or 14.9%. Approximately $12,717,000 of the
increase in motel revenues was attributable to the acquired/divested motels
and $433,000 of the increase related to motels owned during both periods.
Motel revenues for motels owned during both periods increased 0.5%. The
increase in motel revenues for motels owned during both periods was
attributable to an increase in the average daily room rate ("ADR") partially
offset by a decrease in the occupancy percentage. The ADR for the motels
owned during both periods increased to $41.73 for the nine months ended
September 30, 1996 from $41.03 for the nine months ended September 30, 1995,
an increase of $0.70 or 1.7%. The occupancy percentage for the nine months
ended September 30, 1996 for the motels owned during both periods decreased to
69.1% from 70.3% for the nine months ended September 30, 1995. REVPAR for
motels owned during both periods increased to $30.84 for the nine months ended
September 30, 1996 from $30.83 for the nine months ended September 30, 1995.
The acquired/divested motels had an occupancy percentage of 64.4%, an ADR of
$39.53 and REVPAR of $27.04 for the period which they were owned by the
Company in 1996.
MOTEL OPERATING EXPENSES increased to $52,175,000 for the nine months
ended September 30, 1996 from $43,422,000 for the nine months ended September
30, 1995, an increase of $8,753,000 or 20.2%. Approximately $7,132,000 of the
increase is attributable to the cost of operating the acquired/divested motels
since January 1, 1995. The cost of operating motels owned during both periods
increased to $42,334,000 for the nine months ended September 30, 1996 from
$40,713,000 for the nine months ended September 30, 1995, an increase of
$1,621,000 or 4.0%. Motel operating expenses as a percentage of motel
revenues increased to 51.5% for the nine months ended September 30, 1996 from
49.3% for the nine months ended September 30, 1995. Motel operating expenses
as a percentage of motel revenues for the motels owned in both periods
increased to 49.8% for the nine months ended September 30, 1996 from 48.1% for
the nine months ended September 30, 1995. The decrease in the operating
margin for motels owned during both periods is primarily attributable to
certain operating expenses, especially payroll and related costs and
utilities, rising at a faster rate than motel operating revenues. Motel
operating expenses as a percent of motel revenues for the acquired/divested
motels was 60.7% for the nine months ended September 30, 1996.
MARKETING AND ROYALTY FEES increased to $7,480,000 for the nine months
ended September 30, 1996 from $5,944,000 for the nine months ended September
30, 1995, an increase of $1,536,000 or 25.8%. Approximately $1,216,000 of the
increase in marketing and royalty fees was attributable to the
acquired/divested motels. The marketing and royalty fees for motels owned
during both periods increased to $6,036,000 for the nine months ended
September 30, 1996 from $5,716,000 for the nine months ended September 30,
1995, an increase of $320,000 or 5.6%. For the motels owned during both
periods, marketing and royalty fees as a percent of room revenues increased to
7.6% for the nine months ended September 30, 1996 from 7.2% for the nine
months ended September 30, 1995. The increase is principally attributable to
the Company expanding its marketing efforts.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES increased $349,000 to
$4,552,000 for the nine months ended September 30, 1996 from $4,203,000 for
the nine months ended September 30, 1995, an increase of 8.3%. As a
percentage of total motel operating revenues, corporate general and
administrative expenses decreased to 4.5% for the nine months ended September
30, 1996 from 4.8% for the nine months ended September 30, 1995.
DEPRECIATION AND AMORTIZATION increased to $10,454,000 for the nine
months ended September 30, 1996 from $9,448,000 for the nine months ended
September 30, 1995, a net increase of $1,006,000 or 10.6%. Approximately
$880,000 of the net increase in depreciation and amortization is attributable
to the acquired/divested motels.
NET OPERATING REVENUE increased to $27,520,000 for the nine months ended
September 30, 1996 from $25,558,000 for the nine months ended September 30,
1995, an increase of $1,962,000 or 7.7%. The increase in net operating
revenues included a net increase of $2,861,000 in net motel revenues (motel
revenues less motel operating expenses and marketing and royalty fees). Of
the $2,861,000 net increase in net motel revenues, $4,369,000 resulted from
the acquired/divested motels. Net motel revenues for motels owned during both
periods decreased $1,508,000 or 3.9%. Net operating revenue as a percent of
total revenues was 27.1% for the nine months ended September 30, 1996 as
compared to 28.8% for the nine months ended September 30, 1995.
INTEREST EXPENSE increased to $23,576,000 for the nine months ended
September 30, 1996 from $20,801,000 for the nine months ended September 30,
1995, an increase of $2,775,000. The increase is principally due to an
increase in outstanding borrowings utilized to fund acquisitions of lodging
facilities.
NET INCOME decreased to $2,182,000 for the nine months ended September
30, 1996 from $2,904,000 for the nine months ended September 30, 1995.
Liquidity and Capital Resources
On November 6, 1996, the Company completed two separate financing
transactions with CS First Boston Corporation("CSFB") pursuant to which the
Company borrowed $37,150,000. Approximately $29.8 million of the proceeds were
utilized to repay the entire outstanding borrowings under the Company's lines
of credit with Nomura Asset Capital Corporation; $1.6 million of the proceeds
were utilized toward a partial paydown of the Company's borrowings from HFS
Incorporated; and the remaining net proceeds were retained for general
corporate purposes. The CSFB borrowings are secured by first mortgages on
nineteen of the Company's motel properties and a pledge of the stock of one of
Motels of America, Inc's subsidiaries. The terms of the notes and mortgages,
among other things, provide for a floating rate of interest adjusted monthly
based on the thirty day LIBOR rate plus 3.25% and monthly payments of
principal and interest based on a twenty year amortization period. The notes
mature on November 1, 1998.
The Company's primary uses of its capital resources include debt service,
capital expenditures (primarily for motel refurbishment), working capital and
acquisitions of lodging facilities.
The company's debt service requirements consist of the obligation to make
interest and principal payments on its outstanding indebtedness. As of
September 30, 1996, the Company had principal repayment obligations of
$31,992,000, $10,293,000 and $30,117,000 during the remainder of the fiscal
year ending December 31, 1996 and during the fiscal years ending December 31,
1997 and 1998, respectively. As a result of the financings completed with CS
First Boston Corporation in November 1996, the Company's principal repayment
obligations on a pro forma basis as of September 30, 1996 amount to
$2,343,000, $11,013,000 and $66,445,000 for the three months ended December
31, 1996 and for fiscal 1997 and 1998, respectively. Management believes that
the Company will have sufficient resources through the ability to refinance
certain indebtedness and generate funds internally to meet all debt repayment
obligations which are scheduled to mature through December 31, 1998.
The Company's capital expenditure requirements principally include
capital improvements and refurbishment of its lodging facilities as part of
its ongoing operating strategy to provide well maintained facilities. The
Company made capital expenditures (exclusive of acquisitions and development
of investment properties) of $7,161,000 and $5,674,000 for the nine months
ended September 30, 1996 and 1995, respectively. In addition, as of September
30, 1996, $3,559,000 of the Company's restricted cash has been set aside for
future refurbishment of motel properties, in accordance with certain debt
agreements. Management is not aware of any unusual required level of future
capital expenditures necessary to maintain its existing properties.
As of September 30, 1996, the Company had $15,590,000 of cash and cash
equivalents, an increase of $1,693,000 for the nine months ended September 30,
1996. The increase consisted of $16,265,000 of funds provided from operations
and $36,384,000 of funds provided from financing activities offset by
$50,956,000 of funds utilized in investing activities. Net financing
activities include $41,659,000 of proceeds from additional borrowings
partially offset by $4,590,000 of principal repayments and $685,000 of
deferred financing costs and other items. Net investing activities include
$56,307,000 of cash utilized for motel acquisitions and redevelopment of
existing motel properties ($49,146,000) and renovation of existing motel
properties ($7,161,000), and a change in restricted cash of $1,946,000. Other
investing activities included net proceeds from the sale of investment
properties of $7,207,000 and collections on notes receivable of $90,000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Information with respect to the Company's completion of two separate
financing transactions with CS First Boston Corporation in November
1996 disclosed in Note 3 of the unaudited Notes to Condensed
Consolidated Financial Statements and on page 14 of the Liquidity and
Capital Resources section of Management's Discussion and Analysis of
Financial Condition and Results of Operations of this Form 10-Q is
herein incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
Not Applicable
<PAGE>
SIGNATURES
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.
MOTELS OF AMERICA, INC.
November 13, 1996 By: /s/ Kurt M. Mueller
-------------------------------------
Kurt M. Mueller
President and Chief Operating Officer
November 13, 1996 By: /s/ John D. Simon
-------------------------------------
John D. Simon
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,698
<SECURITIES> 0
<RECEIVABLES> 9,316
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 376,464
<DEPRECIATION> 59,560
<TOTAL-ASSETS> 373,543
<CURRENT-LIABILITIES> 0
<BONDS> 323,501
0
0
<COMMON> 8
<OTHER-SE> 24,453
<TOTAL-LIABILITY-AND-EQUITY> 373,543
<SALES> 0
<TOTAL-REVENUES> 101,559
<CGS> 0
<TOTAL-COSTS> 59,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,576
<INCOME-PRETAX> 3,609
<INCOME-TAX> 1,427
<INCOME-CONTINUING> 2,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,182
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.73
</TABLE>
