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, 1997.
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
______________________
MOA HOSPITALITY, 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 12, 1997: 800,000
<PAGE>
INDEX
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 1997
(unaudited) and December 31, 1996 ......................... 2
Condensed consolidated statements of operations -
Three months ended September 30, 1997 and 1996 (unaudited);
Nine months ended September 30, 1997 and 1996(unaudited).... 3
Condensed consolidated statements of cash flows -
Nine months ended September 30, 1997 and 1996 (unaudited) .. 4
Notes to condensed consolidated financial statements -
September 30, 1997 (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 ..........................................17
Item 2. Changes in Securities ......................................17
Item 3. Defaults upon Senior Securities ............................17
Item 4. Submission of Matters to a Vote of Security Holders ........17
Item 5. Other Information ..........................................17
Item 6. Exhibits and Reports on Form 8-K ...........................17
Signatures ..........................................................18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ................... $ 15,326 $ 12,248
Restricted cash ............................. 2,795 3,738
Accounts receivable from property operations. 3,662 2,795
Operating supplies and prepaid expenses...... 1,918 2,880
Deposits and other assets ................... 15,477 7,658
Mortgage and other notes receivable ......... 8,196 8,932
Investment property:
Operating properties, net of accumulated
depreciation of $70,785 in 1997 and
$61,855 in 1996........................ 298,517 307,696
Land held for development ................ 4,047 4,047
-------- --------
Total investment property ................... 302,564 311,743
Financing and other deferred costs, net of
accumulated amortization of $4,808 in 1997
and $4,136 in 1996........................ 17,027 18,439
-------- --------
$366,965 $368,433
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable ...................... $ 1,840 $ 2,177
Real estate taxes payable ................... 3,297 2,612
Accrued interest payable .................... 6,072 3,693
Other accounts payable and accrued expenses . 5,505 3,847
Net deferred tax liability .................. 3,814 3,685
Secured mortgage and other notes ............ 243,935 251,148
12% Senior Subordinated Notes, net of
unamortized discount of $3,351 in 1997 and
$3,594 in 1996 ........................... 76,649 76,406
-------- --------
Total liabilities ........................... 341,112 343,568
Minority interests .......................... 1,844 1,899
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 ......................... 8,707 7,664
-------- -------
Total stockholders' equity .................... 24,009 22,966
-------- -------
$366,965 $368,433
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MOA HOSPITALITY, 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
------------------ --------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Motel operating revenues ..... $ 37,139 $ 39,192 $ 95,725 $ 101,302
Other revenues ............... 139 115 614 257
-------- --------- ---------- ----------
Total revenues ................. 37,278 39,307 96,339 101,559
Costs and expenses:
Motel operating expenses ..... 16,376 18,598 47,417 52,175
Marketing and royalty fees ... 2,631 2,892 6,928 7,480
General and administrative ... 1,817 1,457 5,609 4,552
Restructuring costs .......... 0 0 750 0
Depreciation and amortization. 3,731 3,571 11,058 10,454
-------- --------- ---------- ----------
Total direct expenses .......... 24,555 26,518 71,762 74,661
-------- --------- ---------- ----------
Net operating revenue .......... 12,723 12,789 24,577 26,898
Interest expense ............... 7,674 7,976 23,332 23,576
-------- --------- ---------- ----------
Net income from operations ..... 5,049 4,813 1,245 3,322
Gain on sale of properties ..... 0 520 669 622
Minority interests of others
in net income (loss) from
operations.................... (111) (150) (180) (335)
-------- --------- ---------- ----------
Net income before income taxes.. 4,938 5,183 1,734 3,609
Income tax expense ............. 1,933 2,025 690 1,427
-------- --------- ---------- ----------
Net income ..................... $ 3,005 $ 3,158 $ 1,044 $ 2,182
======== ======== ========= =========
Net income per common share .... $ 3.76 $ 3.95 $ 1.31 $ 2.73
======== ======== ========= =========
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>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income .......................................... $ 1,044 $ 2,182
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation, amortization and accretion of
discount on notes ............................. 11,300 10,669
Minority interests of others in net income
from operations ............................... 180 335
Deferred income taxes ........................... 129 (385)
Net gain on sale of properties .................. (669) (622)
Change in assets and liabilities
(Increase) decrease in assets:
Accounts receivable ......................... (868) (1,294)
Operating supplies, prepaid expenses,
deposits and other assets ................. 6,472 (2,546)
Increase in liabilities:
Accounts payable and accrued expenses........ 2,025 4,947
Accrued interest payable .................... 2,379 2,979
--------- ---------
Net cash provided by operating activities.............. 21,992 16,265
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties. (11,116) (49,146)
Refurbishment of investment properties............... (4,413) (7,161)
Net proceeds from sale of investment properties...... 340 7,207
Cash restricted for refurbishment of properties...... 943 (1,946)
Collections on mortgage and other notes receivable... 736 90
--------- ---------
Net cash used in investing activities ................. (13,510) (50,956)
Cash flows provided by (used in) financing activities:
Proceeds from secured notes payable ................. 2,000 41,659
Repayment of secured notes payable .................. (6,871) (4,590)
Distributions to minority interests ................. (236) (314)
Deferred financing costs ............................ (297) (371)
--------- ---------
Net cash provided by (used in) financing activities.... (5,404) 36,384
--------- ---------
Net increase in cash and cash equivalents.............. 3,078 1,693
Cash and cash equivalents at beginning of period....... 12,248 13,897
--------- ---------
Cash and cash equivalents at end of period............. $ 15,326 $ 15,590
========= =========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest............. $ 20,953 $ 20,381
========= =========
Cash paid (net of refunds received) during the period
for income taxes ................................... $ 252 $ 151
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
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, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. 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,
1996. The terms "MOA" and the "Company" mean MOA Hospitality, Inc. and its
subsidiaries. In October 1997, the Company changed its name to MOA Hospitality,
Inc.
2. Divestitures
In January 1997, the Company sold one lodging facility to an unrelated
party for approximately $0.5 million in cash and the assumption of a $2.3
million mortgage note, secured by the property. The Company recorded a gain of
approximately $0.7 million. The Company remains contingently liable on the note
in the event the purchaser does not perform under its obligations.
3. Secured Notes Payable
On April 14, 1997, the Company borrowed $2 million under a $2 million
secured revolving line of credit. Terms included interest payable at the prime
rate plus 100 basis points and a maturity date of May 1, 1998. The borrowings
were repaid on July 17, 1997 and the facility terminated.
4. Restructuring Costs
The Company has recorded a provision for restructuring costs in the amount
of $750,000 in connection with the reorganization of its management structure.
This reorganization includes the implementation of a decentralized organiza-
tional structure whereby many of the property management support functions
previously based out of the corporate office are being moved to various
regional offices which are being established throughout the country. The
provision for restructuring costs is intended to cover the associated
relocation and severance costs.
5. Subsequent Events
At September 30, 1997, the Company had assumed management control of four
properties, which were built for the Company, pending acquisition. In October,
1997, the Company acquired the four properties for $9,000,000 consisting of cash
and $6,200,000 of new borrowings. The new borrowings were under a three year
$150,000,000 secured loan facility entered into by a wholly-owned subsidiary of
the Company. The Company has pledged its interest in another subsidiary to
secure a portion of borrowings under each facilities. The terms of the loan
facility include, among other things: interest at a rate based on the thirty day
LIBOR rate plus 300 basis points, payable monthly; monthly principal payments
based on a twenty-five year amortization schedule; and, repayment of amounts
borrowed three years after the date of each funding.
At September 30, 1997, eight properties were under various stages of
development for the Company. Management anticipates approximately $15,000,000
will be expended to complete construction of these motels. At September 30,
1997, a subsidiary of the Company guaranteed approximately $600,000 of
borrowings of an affiliate, the proceeds of which were utilized in conjunction
with the construction of the above referenced properties. In addition, the
Company has guaranteed completion of construction of such properties.
6. 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,
1997 AND 1996 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
The Company 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, 1996 and September 30, 1997, the Company has acquired, sold
or indirectly developed a number of motels in various transactions summarized
as follows:
Number of
Date Transaction Rooms
---- ----------- ---------
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.
<PAGE>
Number of
Date Transaction Rooms
---- ----------- ---------
September 1996 Sold two motels located in (95)
Niagara Falls, NY and
Pittsfield, MA.
October 1996 Sold three motels located (447)
in West Des Moines, IA,
Phoenix, AZ and Orlando, FL.
November 1996 Sold a motel located in (223)
Las Vegas, NV.
January 1997 Sold a motel located in (130)
Kissimmee, FL.
February 1997 Assumed management control, 48
pending acquisition, of a
motel located in
Greensboro, GA which was built
for the Company.
May 1997 Assumed management control, 61
pending acquisition, of a
motel located in Wilson, NC
which was built for the Company.
September 1997 Assumed management control, 117
pending acquisition, of two
motels located in Columbia, SC
and Milford, MA which were built
for the Company.
----
858
====
In the aggregate, the Company expended $45.7 million in cash (net of
proceeds from sales of $16.2 million) in conjunction with the above listed
transactions. Cash was funded from internal sources and $41.6 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, 1997 and 1996.
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996
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
------------------------------------------------------
Three Months Ended September 30
------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
----------------- ---------------- -----------------
1997 1996 1997 1996 1997 1996
------- ------- ------ ------- ------- --------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues ..................... $34,953 $34,943 $267 $2,057 $35,220 $37,000
Ancillary motel revenues........... 1,898 1,910 21 282 1,919 2,192
-------- -------- ------- ------- ------- --------
Total motel operating revenues... 36,851 36,853 288 2,339 37,139 39,192
Motel costs and expenses:
Motel operating expenses........... 16,218 16,833 158 1,765 16,376 18,598
Marketing and royalty fees......... 2,605 2,723 26 169 2,631 2,892
Depreciation and amortization...... 3,485 3,180 40 185 3,525 3,365
-------- -------- ------- ------- ------- --------
Total motel direct expenses...... 22,308 22,736 224 2,119 22,532 24,855
-------- -------- ------- ------- ------- --------
$14,543 $14,117 $64 $220 14,607 14,337
======== ======== ======= =======
Corporate operations:
Other revenues ...................... 139 115
General and administrative
expenses.......................... 1,817 1,457
Depreciation and amortization ....... 206 206
-------- -------- ------- ------- ------- --------
(1,884) (1,548)
-------- --------
Net operating revenue ................. $12,723 $12,789
======== ========
Other data:
Number of motels at period end....... 134 134 4 5 138 139
Number of rooms at period end........ 11,176 11,193 226 800 11,402 11,993
Occupancy percentage ................ 71.41% 75.28% 50.99% 57.40% 71.18% 73.80%
ADR (1) ............................. $47.61 $45.06 $44.96 $38.63 $47.59 $44.65
REVPAR (2) .......................... $35.84 $35.78 $24.71 $25.22 $35.72 $34.91
Net operating revenue margins (3).... 34.13% 32.54%
Net motel revenue margin (4)......... 51.58% 49.50% 38.95% 19.69% 51.48% 47.84%
</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 decreased to $37,278,000 for the three months ended September 30, 1997
from $39,307,000 for the three months ended September 30, 1996, a decrease of
$2,029,000 or 5.2%.
Motel revenues decreased to $37,139,000 for the three months ended
September 30, 1997 from $39,192,000 for the three months ended September 30,
1996, a decrease of $2,053,000 or 5.2%. The decrease consisted of a $2,051,000
change in motel revenues for the period from motels acquired and divested since
July 1, 1996, and a decrease of $2,000 for motels owned during both periods.
The decrease in motel revenues for motels owned during both periods was
attributable to a decline in the occupancy partially offset by an increase in
the average daily room rate ("ADR"). The ADR for the motels owned during both
periods increased to $47.61 for the three months ended September 30, 1997 from
$45.06 for the three months ended September 30, 1996, an increase of $2.55 or
5.7%. The increase in ADR is reflective of management's efforts to increase
room rates at its lodging facilities. The occupancy percentage for the three
months ended September 30, 1997 for the motels owned during both periods
decreased to 71.41% from 75.28% for the three months ended September 30, 1996.
REVPAR for motels owned during both periods increased to $35.84 for the three
months ended September 30, 1997 from $35.78 for the three months ended September
30, 1996, an increase of $0.06 or 0.2%. The motels acquired and divested had an
occupancy percentage of 50.99%, an ADR of $44.96 and REVPAR of $24.71 for the
period which they were owned by the Company during the three months ended
September 30, 1997.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $16,376,000 for the three months
ended September 30, 1997 from $18,598,000 for the three months ended September
30, 1996, a net decrease of $2,222,000 or 11.9%. The cost of operating the
motels divested and acquired since July 1, 1996 decreased $1,607,000 for the
period. The cost of operating motels owned during both periods decreased to
$16,218,000 for the three months ended September 30, 1997 from $16,833,000 for
the three months ended September 30, 1996, a decrease of $615,000 or 3.7%. The
reduction in the operating expenses for motels owned during both periods is
primarily attributable to a reduction in variable operating expenses as a result
of renting fewer rooms. Motel operating expenses as a percentage of motel
revenues decreased to 44.1% for the three months ended September 30, 1997 from
47.5% for the three months ended September 30, 1996. Motel operating expenses
as a percentage of motel revenues for the motels owned in both periods decreased
to 44.0% for the three months ended September 30, 1997 from 45.7% for the three
months ended September 30, 1996. The increase in the operating margin for
motels owned during both periods is primarily attributable to the increase in
ADR combined with the reduction in the number of rooms rented. Motel operating
expenses as a percentage of motel revenues for the acquired and divested motels
was 54.9% for the three months ended September 30, 1997.
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 decreased to
$2,631,000 for the three months ended September 30, 1997 from $2,892,000 for the
three months ended September 30, 1996, a decrease of $261,000 or 9.0%.
<PAGE>
Approximately $143,000 of the net decrease in marketing and royalty fees was
attributable to the motels acquired and divested since July 1, 1996. The
marketing and royalty fees for motels owned during both periods decreased to
$2,605,000 for the three months ended September 30, 1997 from $2,723,000 for
the three months ended September 30, 1996, a decrease of $118,000 or 4.3%.
For the motels owned during both periods, marketing and royalty fees as a
percentage of room revenues decreased to 7.5% for the three months ended
September 30, 1997 from 7.8% for the three months ended September 30, 1996.
Corporate general and administrative expenses include the costs of regional
and corporate personnel, corporate training, marketing, purchasing,
administrative support, accounting and development activities. The major
components of these costs are salaries, wages and related expenses, travel, rent
and other administrative expenses. Corporate general and administrative
expenses increased $360,000 to $1,817,000 for the three months ended September
30, 1997 from $1,457,000 for the three months ended September 30, 1996, an
increase of 24.7%. The increase in general and administrative expenses is
primarily attributable to the Company's expansion of its vending operations and
legal costs incurred in connection with a lawsuit filed by the Company against
ShoLodge Franchise Systems, Inc., the franchisor of the Shoney's Inn franchises
operated by the Company.
Depreciation and amortization increased to $3,731,000 for the three months
ended September 30, 1997 from $3,571,000 for the three months ended September
30, 1996, a net increase of $160,000 or 4.5%.
Net operating revenue decreased to $12,723,000 for the three months ended
September 30, 1997 from $12,789,000 for the three months ended September 30,
1996, a decrease of $66,000 or 0.5%. The decrease in net operating revenues
included an increase of $430,000 in net motel revenues (motel revenues less
motel operating expenses and marketing and royalty fees). Of the $430,000
increase in net motel revenues, $731,000 resulted from motels owned during both
periods an increase of 4.2%. The motels acquired and divested since July 1,
1996 resulted in a decrease of net motel revenue of $301,000 for the period.
Net operating revenue as a percent of total revenues was 34.1% for the three
months ended September 30, 1997 as compared to 32.5% for the three months ended
September 30, 1996.
Interest expense decreased to $7,674,000 for the three months ended
September 30, 1997 from $7,976,000 for the three months ended September 30,
1996, a decrease of $302,000. During the three months ended September 30, 1997,
$291,000 of interest costs were capitalized in connection with the Company's
development activities.
Net income decreased to $3,005,000 for the three months ended September 30,
1997 from $3,158,000 for the three months ended September 30, 1996, due to
reasons as discussed above.
<PAGE>
The following discussion and analysis address results of operations for the
nine months ended September 30, 1997 and 1996.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
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
--------------------------------------------------------
Nine Months Ended September 30
--------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
-------------- ----------------- ----------------
1997 1996 1997 1996 1997 1996
------- ------- -------- ------- ------- -------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues .................... $78,236 $76,363 $11,988 $18,478 $90,224 $94,841
Ancillary motel revenues ......... 5,054 4,858 447 1,603 5,501 6,461
-------- -------- -------- -------- -------- --------
Total motel operating revenues . 83,290 81,221 12,435 20,081 95,725 101,302
Motel costs and expenses:
Motel operating expenses ......... 40,492 39,820 6,925 12,355 47,417 52,175
Marketing and royalty fees ....... 5,780 5,852 1,148 1,628 6,928 7,480
Depreciation and amortization .... 8,731 8,439 1,787 1,400 10,518 9,839
-------- -------- -------- ------- ------- -------
Total motel direct expenses .... 55,003 54,111 9,860 15,383 64,863 69,494
-------- -------- -------- -------- -------- --------
$28,287 $27,110 $2,575 $4,698 30,862 31,808
======== ======== ======== ========
Corporate operations:
Other revenues ..................... 614 257
General and administrative expenses. 5,609 4,552
Restructuring Costs ................ 750 0
Depreciation and amortization ...... 540 615
-------- --------
(6,285) (4,910)
-------- --------
Net operating revenue ................ $24,577 $26,898
======== ========
Other data:
Number of motels at period end ..... 119 119 19 20 138 139
Number of rooms at period end ...... 9,662 9,673 1,740 2,320 11,402 11,993
Occupancy percentage ............... 67.32% 69.23% 62.65% 64.72% 66.65% 68.28%
ADR (1) ............................ $44.04 $41.58 $43.82 $40.45 $44.01 $41.36
REVPAR (2) ......................... $31.56 $30.62 $28.48 $28.45 $31.12 $30.16
Net operating revenue margin (3) ... 25.51% 26.49%
Net motel revenue margin (4) ....... 47.32% 46.55% 36.39% 33.00% 45.86% 43.91%
</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 decreased to $96,339,000 for the nine months ended September
30, 1997 from $101,559,000 for the nine months ended September 30, 1996, a
decrease of $5,220,000 or 5.1%.
Motel revenues decreased to $95,725,000 for the nine months ended September
30, 1997 from $101,302,000 for the nine months ended September 30, 1996, a
decrease of $5,577,000 or 5.5%. $7,646,000 of the decrease in motel revenues
was attributable to motels acquired and divested since January 1, 1996 partially
offset by an increase of $2,069,000 or 2.6% in motel revenues for motels owned
during both periods. The increase in motel revenues for motels owned during
both periods was attributable principally to an increase in the average daily
room rate ("ADR"). The ADR for the motels owned during both periods increased
to $44.04 for the nine months ended September 30, 1997 from $41.58 for the nine
months ended September 30, 1996, an increase of $2.46 or 5.9%. The increase
in ADR is reflective of management's efforts to increase room rates at its
lodging facilities. The occupancy percentage for the nine months ended
September 30, 1997 for the motels owned during both periods decreased to 67.32%
from 69.23% for the nine months ended September 30, 1996. REVPAR for motels
owned during both periods increased to $31.56 for the nine months ended
September 30, 1997 from $30.62 for the nine months ended September 30, 1996,
an increase of $0.94 or 3.1%. The acquired and divested motels had an
occupancy percentage of 62.65%, an ADR of $43.82 and REVPAR of $28.48 for
the period which they were owned by the Company in 1997.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $47,417,000 for the nine
months ended September 30, 1997 from $52,175,000 for the nine months ended
September 30, 1996, a net decrease of $4,758,000 or 9.1%. The net decrease is
attributable to a $5,430,000 decrease in the costs of operating the motels
acquired and divested since January 1, 1996. The cost of operating motels
owned during both periods increased to $40,492,000 for the nine months ended
September 30, 1997 from $39,820,000 for the nine months ended September 30,
1996, an increase of $672,000 or 1.7%. Motel operating expenses as a percent-
age of motel revenues decreased to 49.5% for the nine months ended September 30,
1997 from 51.5% for the nine months ended September 30, 1996. Motel operating
expenses as a percentage of motel revenues for the motels owned in both period
decreased to 48.6% for the nine months ended September 30, 1997 from 49.0% for
the nine months ended September 30, 1996. The increase in the operating margin
for motels owned during both periods is primarily attributable to the increase
in motel operating revenues. Motel operating expenses as a percentage of motel
revenues for the acquired and divested motels was 55.7% for the nine months
ended September 30, 1997.
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 decreased to
$6,928,000 for the nine months ended September 30, 1997 from $7,480,000 for the
nine months ended September 30, 1996, a decrease of $552,000 or 7.4%. The
acquired and divested motels marketing and royalty fees decreased $480,000.
The marketing and royalty fees for motels owned during both periods decreased
to $5,780,000 for the nine months ended September 30, 1997 from $5,852,000 for
the nine months ended September 30, 1996, a decrease of $72,000 or 1.2%. For
the motels owned during both periods, marketing and royalty fees as a percentage
of room revenues decreased to 7.4% for the nine months ended September 30, 1997
from 7.7% for the nine months ended September 30, 1996.
<PAGE>
Corporate general and administrative expenses include the costs of regional
and corporate personnel, corporate training, marketing, purchasing,
administrative support, accounting and development activities. The major
components of these costs are salaries, wages and related expenses, travel,
rent and other administrative expenses. Corporate general and administrative
expenses increased $1,057,000 to $5,609,000 for the nine months ended September
30, 1997 from $4,552,000 for the nine months ended September 30, 1996, an
increase of 23.2%. The increase in general and administrative expenses is
primarily attributable to the Company's expansion of its development efforts,
vending operations and legal costs. The legal costs are being incurred in
connection with a lawsuit filed by the Company against ShoLodge Franchise
Systems, Inc., the franchisor of the Shoney's Inn franchises operated by the
Company.
Restructuring costs in the amount of $750,000 were recorded in 1997 as a
provision for the reorganization of the Company's management structure. This
reorganization includes the implementation of a decentralized organizational
structure whereby many of the property management support functions previously
based out of the corporate office are being moved to various regional offices
which are being established throughout the country. The provision for
restructuring costs is intended to cover the associated relocation and severance
costs.
Depreciation and amortization increased to $11,058,000 for the nine months
ended September 30, 1997 from $10,454,000 for the nine months ended September
30, 1996, a net increase of $604,000 or 5.8%. Approximately $387,000 of the net
increase in depreciation and amortization is attributable to the acquired and
divested motels since January 1, 1996.
Net operating revenue decreased to $24,577,000 for the nine months ended
September 30, 1997 from $26,898,000 for the nine months ended September 30,
1996, a decrease of $2,321,000 or 8.6%. The decrease in net operating revenues
is principally attributable to the $750,000 provision for restructuring costs,
a $1,057,000 increase in general and administrative expenses, both discussed
above and a decrease in net motel revenues. The decrease in net motel revenues
(motel revenues less motel operating expenses and marketing and royalty fees)
amounted to $267,000. $1,736,000 of the $267,000 decrease in net motel revenues
resulted from the motels acquired and divested since January 1, 1996. Net motel
revenues for motels owned during both periods increased $1,469,000 or 4.1%. Net
operating revenue as a percent of total revenues was 25.7% for the nine months
ended September 30, 1997 as compared to 26.6% for the nine months ended
September 30, 1996.
Interest expense decreased to $23,332,000 for the nine months ended
September 30, 1997 from $23,576,000 for the nine months ended September 30,
1996, a decrease of $244,000. During the nine months ended September 30, 1997,
$451,000 of interest costs were capitalized in connection with the Company's
development activities.
Net income decreased to $1,044,000 for the nine months ended September 30,
1997 from $2,182,000 for the nine months ended September 30, 1996, due to
reasons as discussed above.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt service,
capital expenditures (primarily for motel refurbishment) and working capital;
in addition, on a discretionary basis, the Company utilizes its capital
resources for the development and acquisition of motel properties.
<PAGE>
In April 1997, the Company borrowed $2,000,000 under a $2,000,000 secured
revolving line of credit facility. Terms of the revolving line of credit
include interest payable at the prime rate plus 100 basis points and a maturity
date of May 1, 1998. The borrowings were repaid on July 17, 1997 and the
facility terminated.
In September 1997, the Company renegotiated the terms of a maturing mortgage
note secured by a motel with an outstanding principal balance of $1,228,000. The
new terms include monthly payments of interest at a rate of 9.25% and principal
based on a twenty-five year amortization schedule. The mortgage note matures
on September 14, 2000.
The Company's debt service requirements consist of the obligation to make
interest and principal payments on its outstanding indebtedness. As of
September 30, 1997, the Company had principal repayment obligations of
$2,186,000, $66,989,000 and $7,245,000 during the remainder of the fiscal year
ending December 31, 1997 and during the fiscal years ending December 31, 1998
and 1999, 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 through December 31, 1999.
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 properties)
of $4,413,000 and $7,161,000 for the nine months ended September 30, 1997 and
1996, respectively. In addition, as of September 30, 1997, the Company had
$2,795,000 of cash restricted 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.
At September 30, 1997, the Company had assumed management control of four
properties, which were built for the Company, pending acquisition. In October,
1997, the Company acquired the four properties for $9,000,000 consisting of cash
and $6,200,000 of new borrowings. The new borrowings were under a three year
$150,000,000 secured loan facility entered into by a wholly-owned subsidiary of
the Company. The Company has pledged its interest in another subsidiary to
secure a portion of borrowings under each facilities. The terms of the loan
facility include, among other things: interest at a rate based on the thirty
day LIBOR rate plus 300 basis points, payable monthly; monthly principal
payments based on a twenty-five year amortization schedule; and, repayment of
amounts borrowed three years after the date of each funding.
At September 30, 1997, eight properties were under various stages of development
for the Company. Management anticipates approximately $15,000,000 will be
expended to complete construction of these motels. At September 30, 1997, a
subsidiary of the Company guaranteed approximately $600,000 of borrowings of
an affiliate, the proceeds of which were utilized in conjunction with the
construction of the above referenced properties. In addition, the Company
has guaranteed completion of construction of such properties.
In October, 1997 the Company entered into an agreement with Mr. J. Anthony
Kouba, a Director of the Company, for the development of a lodging property in
Santa Monica, California. Mr. Kouba will assign over to an entity controlled
by the Company the rights to acquire a certain parcel of land located in Santa
Monica in exchange for a 20% residual interest in the project. Mr. Kouba will
continue to act as the developer of the project and provide construction
management in exchange for a $7,000 per month developer fee or a $10,000 per
month construction management fee dependent on the stage of development. The
Company will provide or arrange for funding and will receive a priority return
on its invested capital.
For the nine months ended September 30, 1997, cash and cash equivalents
increased $3,078,000. This increase consisted of $21,992,000 of funds provided
by operating activities offset by $13,510,000 of funds used in investing
activities and $5,404,000 of funds used in financing activities. Net investing
activities of $13,510,000 include: $11,116,000 of cash utilized for motel
development and $4,413,000 expended on refurbishment of existing properties
offset by a change in cash restricted for refurbishment of $943,000 and
$1,076,000 of cash provided from the sale of investment properties and
collections on mortgage and other notes receivable. Cash used in financing
activities includes: $6,871,000 of cash utilized to repay indebtedness;
$533,000 of cash used for deferred financing costs and other items, offset by
$2,000,000 of proceeds from secured notes payable.
<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
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
<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.
MOA HOSPITALITY, INC.
November 12, 1997 By: /s/ Kurt M. Mueller
____________________
Kurt M. Mueller
Chief Financial Officer
November 12, 1997 By: /s/ John D. Simon
____________________
John D. Simon
Secretary and Treasurer
<PAGE>
<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 IT ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,121
<SECURITIES> 0
<RECEIVABLES> 11,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 369,302
<DEPRECIATION> 70,785
<TOTAL-ASSETS> 366,965
<CURRENT-LIABILITIES> 0
<BONDS> 320,584
0
0
<COMMON> 8
<OTHER-SE> 24,001
<TOTAL-LIABILITY-AND-EQUITY> 366,965
<SALES> 0
<TOTAL-REVENUES> 96,339
<CGS> 0
<TOTAL-COSTS> 54,345
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,332
<INCOME-PRETAX> 1,734
<INCOME-TAX> 690
<INCOME-CONTINUING> 1,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,044
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
</TABLE>
