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 June 30, 1998.
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.
[ ] Yes [ ] No
Number of shares of Common Stock, $.01 par value, outstanding as of
August 14, 1998: 800,000
<PAGE>
INDEX
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - June 30, 1998
(unaudited)and December 31, 1997 ...................................... 2
Condensed consolidated statements of operations -
Three months ended June 30,1998 and 1997 (unaudited);
Six months ended June 30, 1998 and 1997 (unaudited) ................... 3
Condensed consolidated statements of cash flows -
Six months ended June 30, 1998 and 1997 (unaudited) ................... 4
Notes to condensed consolidated financial statements -
June 30, 1998 (unaudited) ............................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General ............................................................... 7
Results of Operations .................................................10
Liquidity and Capital Resources .......................................17
Part II - Other Information
Item 1. Legal Proceedings .................................................19
Item 2. Changes in Securities .............................................19
Item 3. Defaults upon Senior Securities ...................................19
Item 4. Submission of Matters to a Vote of Security Holders ...............19
Item 5. Other Information .................................................19
Item 6. Exhibits and Reports on Form 8-K ..................................19
Signatures .................................................................20
<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>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 16,893 $ 13,032
Accounts receivable from property operations .............................. 3,732 2,241
Operating supplies and prepaid expenses ................................... 2,202 2,199
Current portion of mortgage and notes receivable .......................... 137 602
------------ ------------
Total Current Assets ...................................................... 22,964 18,074
Investment property:
Operating properties, net of accumulated depreciation ................... 310,753 310,992
Land held for development ............................................... 2,389 2,389
------------ ------------
Total investment property ................................................. 313,142 313,381
Other Assets:
Deposits and other assets ................................................. 436 6,798
Restricted cash ........................................................... 1,018 1,226
Mortgage and other notes receivable, less current portion ................. 5,165 6,801
Financing and other deferred costs, net of accumulated
amortization of $7,194 in 1998 and $5,605 in 1997. 15,141 16,579
------------ ------------
Total Other Assets ........................................................ 21,760 31,404
------------ ------------
Total Assets $ 357,866 $ 362,859
============ ============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable .................................................... $ 2,547 $ 2,693
Real estate taxes payable ................................................. 3,135 2,450
Accrued interest payable .................................................. 3,437 3,625
Other accounts payable and
accrued expenses ........................................................ 6,278 4,393
Current portion of long-term debt ......................................... 53,329 67,157
------------ ------------
Total Current Liabilities ................................................. 68,726 80,318
Net deferred tax liability ................................................ 3,592 3,351
Long-term debt, less current portion:
Mortgage and other notes payable .......................................... 181,552 181,098
12% Senior Subordinated Notes, net of unamortized
discount of $3,086 in 1998 and $3,265 in 1997............................ 76,914 76,735
------------ ------------
Total Long-term debt, excluding current portion ........................... 258,466 257,833
------------ ------------
Total Liabilities ......................................................... 330,784 341,502
------------ ------------
Minority Interests ........................................................ 1,645 1,763
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 ....................................................... 10,135 4,292
------------ ------------
Total stockholders' equity ................................................ 25,437 19,594
------------ ------------
$ 357,866 $ 362,859
============ ============
</TABLE>
See accompanying notes to 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 Six Months Ended
June 30 June 30
----------------------- -----------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Motel operating revenues ..................$ 31,643 $ 32,501 $ 57,081 $ 58,586
Other revenues ............................ 232 216 453 475
------------ ------------ ------------ -----------
Total revenues .............................. 31,875 32,717 57,534 59,061
Costs and expenses:
Motel operating expenses .................. 15,681 15,713 30,617 31,041
Marketing and royalty fees ................ 2,010 2,346 3,810 4,297
General and administrative ................ 2,375 1,608 4,874 3,792
Restructuring Costs ....................... 0 750 0 750
Depreciation and amortization ............. 4,038 3,691 8,086 7,327
------------ ------------ ------------ -----------
Total direct expenses ....................... 24,104 24,108 47,387 47,207
------------ ------------ ------------ -----------
Net operating revenue ....................... 7,771 8,609 10,147 11,854
Interest expense ............................ 7,799 7,795 15,415 15,658
------------ ------------ ------------ -----------
Net income (loss) from operations ........... (28) 814 (5,268) (3,804)
Gain on sale of properties .................. 14,421 0 14,874 669
Minority interests of others in
net income from operations ................ (58) (95) (40) (69)
------------ ------------ ------------ -----------
Net income (loss) before income taxes ....... 14,335 719 9,566 (3,204)
Income tax expense (credit) ................. 5,579 280 3,723 (1,243)
------------ ------------ ------------ -----------
Net income (loss) ...........................$ 8,756 $ 439 $ 5,843 $ (1,961)
============ ============ ============ ===========
Net income (loss) per common share ..........$ 10.95 $ 0.55 $ 7.30 $ (2.45)
============ ============ ============ ===========
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>
Six Months Ended
June 30
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) ............................................................ $ 5,843 $ (1,961)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation, amortization and accretion of
discount on notes ...................................................... 8,273 7,486
Minority interests of others in net income (loss)
from operations ........................................................ 40 69
Deferred income taxes .................................................... 241 76
Net gain on sale of properties ........................................... (14,874) (669)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable .................................................. (1,506) (1,776)
Operating supplies, prepaid expenses,
deposits and other assets .......................................... 6,226 2,905
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ................................ 2,404 1,904
Accrued interest payable ............................................. (188) (82)
------------ ------------
Net cash provided by (used in) operating activities ............................ 6,459 7,952
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties ......................... (11,497) (6,379)
Refurbishment of investment properties ....................................... (2,902) (3,001)
Net proceeds from sale of investment properties .............................. 23,270 340
Cash restricted for refurbishment of properties .............................. 208 792
Collections on mortgage and other notes receivable ........................... 2,100 183
------------ ------------
Net cash provided by (used in) investing activities ............................ 11,179 (8,065)
Cash flows provided by (used in) financing activities:
Proceeds from secured notes payable .......................................... 5,919 2,000
Repayment of secured notes payable ........................................... (19,292) (2,971)
Distributions to minority interests .......................................... (157) (157)
Deferred financing costs ..................................................... (247) (232)
------------ ------------
Net cash provided by (used in) financing activities ............................ (13,777) (1,360)
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................... 3,861 (1,473)
Cash and cash equivalents at beginning of period ............................... 13,032 12,248
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 16,893 $ 10,775
============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest ..................................... $ 15,604 $ 15,740
============ ============
Cash paid (net of refunds received) during the period
for income taxes ........................................................... $ 96 $ 58
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
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 six-month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in MOA Hospitality, Inc. and Subsidiaries'
Annual Report on Form 10-K for the year ended December 31, 1997. The terms
"MOA" and the "Company" mean MOA Hospitality, Inc. and its subsidiaries.
2. Acquisitions and Divestitures
In March 1998, the Company sold one lodging facility to an unrelated
party, for approximately $1.4 million in cash. The Company realized a pre-
tax gain of approximately $0.5 million.
In May 1998, the Company sold one lodging facility to an unrelated
party, for approximately $20 million in cash. The Company realized a pre-
tax gain of approximately $12.7 million. The Company paid down approximately
$12.4 million of first mortgage debt in conjunction with this transaction.
In June 1998, the Company sold land to an unrelated party, for
approximately $3.0 million in cash. The Company realized a pre-tax gain of
approximately $1.7 million.
In June 1998, the Company borrowed approximately $4.8 million under
its $150 million secured loan facility with Credit Suisse First Boston in
conjunction with the acquisition of three properties for $8.9 million. The
three properties were purchased from an affiliate of the Company that had
built the properties for the Company.
In July 1998, the Company sold one lodging facility to an unrelated
party, for approximately $4.0 million consisting of $1.0 million in cash and a
$3 million first mortgage note. The Company realized a pre-tax gain of
approximately $0.5 million. The Company paid down approximately $2.5 million
of the first mortgage debt in conjunction with this transaction.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. 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
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATIONS REFORM ACT
OF 1995 AND, AS SUCH, SPEAK ONLY AS OF THE DATE MADE. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSESD OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: COMPETITION, INTEREST RATE
FLUCTUATIONS, OR GENERAL BUSINESS AND ECONOMIC CONDITIONS.
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 SIX MONTHS ENDED JUNE 30,
1998 AND 1997 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 can result in
significant changes in the operating profit of the Company's motels.
Between January 1, 1997 and June 30, 1998, the Company has acquired or assumed
management control pending acquisition and sold a number of motels in various
transactions summarized as follows:
Number of
Date Transaction Rooms
---- ----------- ---------
January 1997 Sold a motel located in (130)
Kissimmee, FL.
February 1997 Assumed management control 48
of a motel located in
Greensboro, GA which was
built by an affiliate for
the Company and acquired in
October 1997.
<PAGE>
Number of
Date Transaction Rooms
---- ----------- ---------
May 1997 Assumed management control 61
of a motel located in
Wilson, NC which was built
by an affiliate for the
Company and acquired in
October 1997.
September 1997 Assumed management control 117
of two motels located in
Columbia, SC and Milford, MA
which were built by an
affiliate for the Company
and acquired in October 1997.
December 1997 Sold a motel located in (48)
Cambridge, OH.
Purchased a motel located in 53
East Syracuse, NY which was
built by an affiliate for the
Company.
March 1998 Sold a motel located in (49)
South Hill, VA.
Assumed management control 54
of a motel located in Mineral
Wells, WV which was built by
an affiliate for the Company
and acquired in June 1998.
The Company has leased the
property to a third party tenant.
May 1998 Sold a motel located in (122)
Santa Clara, CA. Sold adjacent
vacant land in June 1998.
Assumed management control 66
of a motel located in
Mishawaka, IN which was built
by an affiliate for the Company.
<PAGE>
Number of
Date Transaction Rooms
---- ----------- ---------
June 1998 Assumed management control 131
of two motels located in Lake
City, FL and Stafford, TX
which were built by an
affiliate for the Company and
acquired in June 1998. The
Company has leased the
properties to third party
tenants.
-------
181
=======
In the aggregate, the Company received $2.0 million in cash (inclusive
of $23.8 million of net proceeds from sales of properties) in conjunction with
the above listed transactions. Cash required for the above described
acquisitions was funded from internal sources and $12.5 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 earlier of the date of acquisition or date the Company
assumed management control and was at financial risk.
<PAGE>
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
consolidated financial statements presented elsewhere herein.
<TABLE>
<CAPTION>
Supplemental Operating Results and Statistics
-------------------------------------------------------------------
(unaudited)
Three Months Ended June 30
-------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997
---------- ---------- --------- --------- ---------- ---------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues ................................. $ 28,599 $ 29,429 $ 1,135 $ 1,241 $ 29,734 $ 30,670
Ancillary motel revenues ...................... 1,802 1,714 107 117 1,909 1,831
---------- ---------- --------- --------- ---------- ----------
Total motel operating revenues............... 30,401 31,143 1,242 1,358 31,643 32,501
Motel costs and expenses:
Motel operating expenses ...................... 15,003 15,052 678 661 15,681 15,713
Marketing and royalty fees .................... 1,899 2,226 111 121 2,010 2,347
Depreciation and amortization ................. 3,531 3,447 21 72 3,552 3,519
---------- ---------- --------- --------- ---------- ----------
Total motel direct expenses ................. 20,433 20,725 810 854 21,243 21,579
---------- ---------- --------- --------- ---------- ----------
$ 9,968 $ 10,418 $ 432 $ 504 $ 10,400 $ 10,922
========== ========== ========= ========= ========== ==========
Corporate operations:
Other revenues .................................. 232 216
General and administrative expenses:
Management operations ......................... 1,305 1,267
Construction and development .................. 276 (91)
Other general and
administrative expenses .................... 794 432
--------- ----------
Total general and administrative expenses ....... 2,375 1,608
Restructuring costs ............................. 0 750
Depreciation and amortization ................... 486 171
--------- ----------
(2,629) (2,313)
--------- ----------
Net operating income .............................. $ 7,771 $ 8,609
========= ==========
Other data:
Number of motels at period end (5) .............. 132 132 5 4 137 136
Number of rooms at period end (5) ............... 10,936 10,960 297 326 11,233 11,286
Occupancy percentage (5) ........................ 65.79% 67.75% 68.64% 79.14% 65.88% 68.04%
ADR (1)(5) ...................................... $ 43.68 $ 43.53 $ 53.95 $ 60.16 $ 39.71 $ 44.03
REVPAR (2)(5) ................................... $ 30.55 $ 31.21 $ 40.52 $ 52.10 $ 30.85 $ 31.75
Net operating income margin (3) ................. 24.38% 26.31%
Net motel revenue margin (4)(5) ................. 47.20% 47.11% 39.91% 46.41% 46.92% 47.09%
</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 income margin represents net operating income divided by
total motel operating revenues plus 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.
(5) At June 30, 1998 and for the three months then ended, excludes amounts
related to three motels which are leased to third party tenants.
<PAGE>
Total revenues consist principally of motel operating revenues.
Motel operating revenues are derived from room rentals and ancillary motel
revenues such as 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 $31,875,000 for the three months ended June 30, 1998 from
$32,717,000 for the three months ended June 30, 1997, a decrease of $842,000
or 2.6%.
Motel revenues decreased to $31,643,000 for the three months ended
June 30, 1998 from $32,501,000 for the three months ended June 30, 1997, a
decrease of $858,000 or 2.6%. The motel revenues for motels owned during both
periods decreased approximately $742,000 or 2.4%. The decrease in motel
revenues for motels owned during both periods was attributable principally to
a decrease in the occupancy percentage. The occupancy percentage decreased
from 67.75% for the three months ended June 30, 1997 to 65.79% for the three
months ended June 30, 1998. Management attributes the decline in occupancy
principally to two factors: i) a significant increase in the supply of motels
rooms in the markets in which the Company competes and ii) the negative impact
of the much publicized weather effect of El Nino. The average daily rate
("ADR") for the motels owned during both periods increased to $43.68 for the
three months ended June 30, 1998 from $43.53 for the three months ended June
30, 1997, an increase of $0.15 or 0.3%. REVPAR for motels owned during both
periods decreased to $30.55 for the three months ended June 30, 1998 from
$31.21 for the three months ended June 30, 1997, a decrease of $0.66 or 2.1%.
Motel revenues for motels acquired and divested since January 1, 1997
accounted for $116,000 of the overall $858,000 decrease in motel revenues.
The acquired and divested motels had an occupancy percentage of 68.64%, an ADR
of $53.95 and REVPAR of $40.52 for the three months ended June 30, 1998.
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 $15,681,000
for the three months ended June 30, 1998 from $15,713,000 for the three months
ended June 30, 1997, a net decrease of $32,000 or 0.2%. The cost of operating
motels owned during both periods decreased to $15,003,000 for the three months
ended June 30, 1998 from $15,052,000 for the three months ended June 30, 1997,
a decrease of $49,000 or 0.3%. Motel operating expenses for motels acquired
and divested since January 1, 1997 increased to $678,000 for the three months
ended June 30, 1998 from $661,000 for the three months ended June 30, 1997.
Motel operating expenses as a percentage of motel revenues increased to 49.6%
for the three months ended June 30, 1998 from 48.3% for the three months ended
June 30, 1997. Motel operating expenses as a percentage of motel revenues for
the motels owned in both periods increased to 49.4% for the three months ended
June 30, 1998 from 48.3% for the three months ended June 30, 1997. Motel
operating expenses as a percentage of motel revenues for the acquired and
divested motels was 54.6% for the three months ended June 30, 1998.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisers and other related marketing expenses. Marketing and royalty fees
decreased to $2,010,000 for the three months ended June 30, 1998 from
$2,347,000 for the three months ended June 30, 1997, a decrease of $337,000 or
14.4%. The marketing and royalty fees for motels owned during both periods
decreased to $1,899,000 for the three months ended June 30, 1998 from
$2,226,000 for the three months ended June 30, 1997, a decrease of $327,000 or
14.7%. For the motels owned during both periods, marketing and royalty fees
as a percentage of room revenues decreased to 6.6% for the three months ended
June 30, 1998 from 7.6% for the three months ended June 30, 1997. The
decrease in marketing and royalty fees is attributable to a reduction in
franchise fees due to the decline in room revenues on which most such fees are
based and a reduction in rates for certain contractual franchise fees.
<PAGE>
In addition, during the period from February 1998 through May 1998 the Company
disaffiliated its Shoney's Inns from the ShoLodge Franchise System and ceased
the payments of franchise fees at such time. On an annual basis, the Company
historically paid approximately $650,000 of franchise fees on its fourteen
Shoney's Inns. Marketing and royalty fees for motels acquired and divested
since January 1, 1997 decreased to $111,000 for the three months ended June
30, 1998 from $121,000 for the three months ended June 30, 1997.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction and Development and Other. Included in the Management Company
Operations, which is the division responsible for the motel operations, are
the costs associated with training, marketing, purchasing, administrative
support, property related legal and accounting costs. The major components of
these costs are salaries, wages and related expenses, travel, rent and other
administrative expenses. The general and administrative expenses for the
Management Operations increased $38,000 to $1,305,000 for the three months
ended June 30, 1998 from $1,267,000 for the three months ended June 30, 1997,
an increase of 3.0%. The general and administrative expenses associated with
Construction and Development increased $367,000 from $(91,000) for the three
months ended June 30, 1997 to $276,000 for the three months ended June 30,
1998. Other General and Administrative expenses increased $362,000 to
$794,000 for the three months ended June 30, 1998 from $432,000 for the three
months ended June 30, 1997. The increase is principally due to legal costs
incurred in connection with a lawsuit that the Company initiated against
Shoney's Franchise Systems, Inc., the franchiser of the Shoney's Inn
franchises operated by the Company. As a percentage of total motel operating
revenues, Management Operations general and administrative expenses was 4.1%
for the three months ended June 30, 1998 and 3.9% for the three months ended
June 30, 1997.
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 included the implementation of a decentralized
organizational structure whereby many of the property management support
functions previously based out of the corporate office were moved to various
regional offices which are located throughout the country. The provision for
restructuring costs covered the associated relocation and severance costs.
Depreciation and amortization increased to $4,038,000 for the three
months ended June 30, 1998 from $3,690,000 for the three months ended June 30,
1997, a net increase of $348,000 or 9.4%. Approximately $315,000 of the net
increase in depreciation and amortization is attributable to the corporate
operations.
Net operating income decreased to $7,771,000 for the three months
ended June 30, 1998 from $8,609,000 for the three months ended June 30, 1997,
a decrease of $838,000 or 9.7%. The decrease in net operating income included
a decrease of $489,000 in net motel revenues (motel revenues less motel
operating expenses and marketing and royalty fees) an increase in corporate
general and administrative expenses of $767,000 and an increase in depreciation
and amortization of $348,000. This decrease was offset by an increase in other
revenues of $16,000 and the restructuring provision of $750,000 recorded in
1997. Of the $489,000 decrease in net motel revenues, $366,000 resulted from
the motels owned during both periods or a decrease of 2.6%. Net operating
income as a percent of total revenues was 24.4% for the three months ended June
30, 1998 as compared to 26.3% for the three months ended June 30, 1997.
Interest expense increased to $7,799,000 for the three months ended
June 30, 1998 from $7,795,000 for the three months ended June 30, 1997, an
increase of $4,000.
<PAGE>
Gain on sale of properties amounted to $14,421,000 on a pre-tax basis
for the three months ended June 30, 1998. During the quarter ended June 30,
1998, the Company sold a motel located in Santa Clara and the adjacent vacant
parcel of land, in two distinct and unrelated transactions, for a combined
$23.0 million in cash upon which the $14.4 million gain was realized.
Net income increased to $8,756,000 for the three months ended June
30, 1998 from $439,000 for the three months ended June 30, 1997.
<PAGE>
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
consolidated financial statements presented elsewhere herein.
<TABLE>
<CAPTION>
Supplemental Operating Results and Statistics
---------------------------------------------------------------------
(unaudited)
Six Months Ended June 30
---------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- -------------------- -----------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- --------- ---------- ----------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues .................................. $ 50,477 $ 52,568 $ 2,761 $ 2,436 $ 53,238 $ 55,004
Ancillary motel revenues ....................... 3,572 3,350 271 232 3,843 3,582
---------- ---------- ---------- --------- ---------- ----------
Total motel operating revenues ............... 54,049 55,918 3,032 2,668 57,081 58,586
Motel costs and expenses:
Motel operating expenses ....................... 28,965 29,644 1,652 1,397 30,617 31,041
Marketing and royalty fees ..................... 3,547 4,053 263 244 3,810 4,297
Depreciation and amortization .................. 7,046 6,820 80 177 7,126 6,997
---------- ---------- ---------- --------- ---------- ----------
Total motel direct expenses .................. 39,558 40,517 1,995 1,818 41,553 42,335
---------- ---------- ---------- --------- ---------- ----------
$ 14,491 $ 15,401 $ 1,037 $ 850 $ 15,528 $ 16,251
========== ========== ========== ========= ========== ==========
Corporate operations:
Other revenues ................................... 453 475
General and administrative expenses:
Management operations .......................... 2,548 2,564
Construction and development ................... 597 469
Other general and
administrative expenses ..................... 1,729 759
---------- ----------
Total general and administrative expenses ........ 4,874 3,792
Restructuring costs .............................. 0 750
Depreciation and amortization .................... 960 330
---------- ----------
(5,381) (4,397)
---------- ----------
Net operating income ............................... $ 10,147 $ 11,854
========== ==========
Other data:
Number of motels at period end (5) ............... 131 131 6 5 137 136
Number of rooms at period end (5) ................ 10,888 10,912 345 374 11,233 11,286
Occupancy percentage (5) ......................... 60.61% 64.11% 64.60% 71.94% 60.76% 65.51%
ADR (1)(5) ....................................... $ 42.26 $ 41.49 $ 55.83 $ 56.74 $ 42.80 $ 39.49
REVPAR (2)(5) .................................... $ 27.43 $ 28.30 $ 39.61 $ 44.71 $ 27.88 $ 28.78
Net operating income margin (3) .................. 17.64% 20.07%
Net motel revenue margin (4)(5) .................. 42.67% 42.27% 40.46% 42.16% 42.55% 42.27%
</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 income margin represents net operating income divided by
total motel operating revenues plus 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.
(5) At June 30, 1998 and for the six months then ended, excludes amounts
related to the three motels which are leased to third party tenants.
<PAGE>
Total revenues decreased $1,527,000 to $57,534,000 for the six months
ended June 30, 1998 from $59,061,000 for the six months ended June 30, 1997 or
2.6%.
Motel revenues decreased to $57,081,000 for the six months ended June
30, 1998 from $58,586,000 for the six months ended June 30, 1997, a decrease
of $1,505,000 or 2.6%. The motel revenues for motels owned during both
periods decreased approximately $1,869,000 or 3.3% which was partially offset
by an increase of $364,000 for acquired and divested motels, since January 1,
1997. The decrease in motel revenues for motels owned during both periods was
attributable principally to a decrease in the occupancy percentage. The
occupancy percentage decreased from 64.11% for the six months ended June 30,
1997 to 60.61% for the six months ended June 30, 1998. Management attributes
the decline in occupancy principally to two factors: i) a significant increase
in the supply of motels rooms in the markets in which the Company competes and
ii) the negative impact of the much publicized weather effect of El Nino.
The ADR for the motels owned during both periods increased to $42.26 for the
six months ended June 30, 1998 from $41.49 for the six months ended June 30,
1997, an increase of $0.77 or 1.9%. The increase in ADR is reflective of
management's efforts to increase room rates at its lodging facilities. REVPAR
for motels owned during both periods decreased to $27.43 for the six months
ended June 30, 1998 from $28.30 for the six months ended June 30, 1997, a
decrease of $0.87 or 3.1%. The acquired and divested motels had an occupancy
percentage of 64.60%, an ADR of $55.83 and REVPAR of $39.61 for the period
which they were owned by the Company in 1998.
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 $30,617,000
for the six months ended June 30, 1998 from $31,041,000 for the six months
ended June 30, 1997, a net decrease of $424,000 or 1.4%. The cost of
operating motels owned during both periods decreased to $28,965,000 for the
six months ended June 30, 1998 from $29,644,000 for the six months ended June
30, 1997, a decrease of $679,000 or 2.3%. Motel operating expenses for motels
acquired and divested since January 1, 1997 increased to $1,652,000 for the
six months ended June 30, 1998 from $1,397,000 for the six months ended June
30, 1997. Motel operating expenses as a percentage of motel revenues
increased to 53.6% for the six months ended June 30, 1998 from 53.0% for the
six months ended June 30, 1997. Motel operating expenses as a percentage of
motel revenues for the motels owned in both periods increased to 53.6% for the
six months ended June 30, 1998 from 53.0% for the six months ended June 30,
1997. Motel operating expenses as a percentage of motel revenues for the
acquired and divested motels was 54.5% for the six months ended June 30, 1998.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisers and other related marketing expenses. Marketing and royalty fees
decreased to $3,810,000 for the six months ended June 30, 1998 from $4,297,000
for the six months ended June 30, 1997, a decrease of $487,000 or 11.3%. The
marketing and royalty fees for motels owned during both periods decreased to
$3,547,000 for the six months ended June 30, 1998 from $4,053,000 for the six
months ended June 30, 1997, a decrease of $506,000 or 12.5%. For the motels
owned during both periods, marketing and royalty fees as a percentage of room
revenues decreased to 7.0% for the six months ended June 30, 1998 from 7.7%
for the six months ended June 30, 1997. The decrease in marketing and royalty
fees is attributable to a reduction in franchise fees due to the decline in
room revenues on which most such fees are based and a reduction in rates for
certain contractual franchise fees. In addition, during the period from
February 1998 through May 1998 the Company disaffiliated its Shoney's Inns
from the ShoLodge Franchise System and ceased the payments of franchise fees
at such time. On an annual basis, the Company historically paid approximately
$650,000 of franchise fees on its fourteen Shoney's Inns. Marketing and
royalty fees for motels acquired and divested since January 1, 1997 increased
to $263,000 for the six months ended June 30, 1998 from $244,000 for the six
months ended June 30, 1997.
<PAGE>
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction and Development and Other. Included in the Management Company
Operations, which is the division responsible for the motel operations, are
the costs associated with training, marketing, purchasing, administrative
support, property related legal and accounting costs. The major components of
these costs are salaries, wages and related expenses, travel, rent and other
administrative expenses. The general and administrative expenses for the
Management Operations decreased $16,000 to $2,548,000 for the six months ended
June 30, 1998 from $2,564,000 for the six months ended June 30, 1997, a
decrease of 0.6%. The general and administrative expenses associated with
Construction and Development increased $128,000 from $469,000 for the six
months ended June 30, 1997 to $597,000 for the six months ended June 30, 1998.
Other General and Administrative expenses increased $970,000 to $1,729,000 for
the six months ended June 30, 1998 from $759,000 for the six months ended June
30, 1997. The increase is principally due to legal costs incurred in
connection with a lawsuit that the Company initiated against ShoLodge
Franchise Systems, Inc., the franchiser of the Shoney's Inn franchises
operated by the Company. As a percentage of total motel operating revenues,
Management Operations general and administrative expenses was 4.5% for the six
months ended June 30, 1998 and 4.4% for the six months ended June 30, 1997.
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 included the implementation of a decentralized
organizational structure whereby many of the property management support
functions previously based out of the corporate office were moved to various
regional offices which are located throughout the country. The provision for
restructuring costs covered the associated relocation and severance costs.
Depreciation and amortization increased to $8,086,000 for the six
months ended June 30, 1998 from $7,327,000 for the three months ended June 30,
1997, a net increase of $759,000 or 10.4%. Approximately $630,000 of the net
increase in depreciation and amortization is attributable to the corporate
operations.
Net operating income decreased to $10,147,000 for the six months
ended June 30, 1998 from $11,854,000 for the six months ended June 30, 1997, a
decrease of $1,707,000 or 14.4%. The decrease in net operating income
included a decrease of $594,000 in net motel revenues (motel revenues less
motel operating expenses and marketing and royalty fees) an increase in
corporate general and administrative expenses of $1,082,000, an increase in
depreciation and amortization of $759,000, a decrease of other revenues of
$22,000 and an offset in the amount of $750,000 due to the restructuring
provision recorded in 1997. Of the $594,000 decrease in net motel revenues,
$684,000 resulted from the motels owned during both periods or a decrease of
3.1%. Net motel revenues for motels acquired and divested since January 1,
1997 increased $90,000. Net operating income as a percent of total revenues
was 17.6% for the six months ended June 30, 1998 as compared to 20.1% for the
six months ended June 30, 1997.
Interest expense decreased to $15,415,000 for the six months ended
June 30, 1998 from $15,658,000 for the six months ended June 30, 1997, a
decrease of $243,000.
<PAGE>
Gain on sale of properties amounted to $14,874,000 for the six months
ended June 30, 1998 compared to $669,000 for the respective period in 1997.
Two motels and a parcel of vacant land were sold in 1998 for $24.4 million in
cash in three unrelated transactions on which the $14.9 million gain was
recognized. In 1997, one property was sold for $2.8 consisting of $0.5
million cash and the buyers assumption of a $2.3 million mortgage note.
Net income increased to $5,843,000 for the six months ended June 30,
1998 from a loss of $1,961,000 for the six months ended June 30, 1997.
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.
The Company's debt service requirements consist of the obligation to make
interest and principal payments on its outstanding indebtedness. As of June
30, 1998, the Company had principal repayment obligations of $47,133,000,
$8,811,000 and $14,493,000 during the remainder of the fiscal year ending
December 31, 1998 and during the fiscal years ending December 31, 1999 and
2000, respectively. The Company has been told by investment bankers that the
cash flows derived from the properties securing the maturing mortgage loans
will be sufficient to allow for the refinancing of such mortgage debt given
the current interest rate environment. As of August 12, 1998 however, the
Company had not definitively arranged for such refinancing and therefore is
subject to the risk that the credit market could be adversely affected by some
unforeseen event. Although the Company does not have lines of credit
outstanding, the Company believes sufficient resources exist to meet its
normal liquidity needs. A $4.0 million mortgage loan secured by four motel
properties matured in May 1998 and was refinanced with the same lender at a
9.5% interest rate for another year.
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 $2,902,000 and $3,001,000 for the six months ended June 30,
1998 and 1997, respectively. In addition, as of June 30, 1998, the Company
had $1,018,000 of cash restricted for future refurbishment of motel
properties, in accordance with certain debt agreements. The Company is not
aware of any unusual required level of future capital expenditures necessary
to maintain its existing properties.
In June 1998, three properties built by an affiliate were acquired for
$8,900,000 of which $4,800,000 was funded from the $150,000,000 secured loan
facility with CS First Boston. As of August 11, 1998, five properties were
under various stages of development for the Company. Management anticipates
approximately $16,600,000 will be expended to purchase these motels upon their
completion during the next twelve months. In addition, the Company
anticipates drawing upon its $150,000,000 secured loan facility with CS First
Boston to finance a portion of the acquisition price for these properties.
For the six months ended June 30, 1998, cash and cash equivalents increased
$3,861,000. This increase consisted of $6,459,000 of funds provided by
operating activities and $11,179,000 of funds provided by investing activities
and $13,777,000 of funds used in financing activities. Net investing
activities of $11,179,000 include: $23,270,000 of net proceeds from the sale
of investment properties; $2,100,000 of funds provided from the collections on
mortgage and other notes receivable and a change in cash restricted for
refurbishment of $208,000 offset by $11,497,000 of cash utilized for motel
development and $2,902,000 expended on refurbishment of existing properties.
Cash used in financing activities includes: $19,292,000 of cash utilized to
repay indebtedness; and $404,000 of cash used for deferred financing costs and
other items offset by $5,919,000 from proceeds from notes payable.
<PAGE>
Impact of Year 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company, in the normal course of operations, is in the process of
replacing its primary financial accounting system that was implemented in
1991. The new system will be year 2000 compliant according to the company
that developed the software. The Company has made an assessment of its other
financial systems and believes other than for a few necessary minor
modifications, that they are year 2000 compliant. There can be no guarantee
that the systems of other companies such as banks and suppliers on which the
Company relies upon to transact business in the normal course will be year
2000 compliant which could possibly cause hardships for the Company.
<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:
Not Applicable
(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.
MOA HOSPITALITY, INC.
August 17, 1998 By: /s/ Kurt M. Mueller
---------------------------------
Kurt M. Mueller
Chief Financial Officer
(Principal Accounting Officer)
August 17, 1998 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
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,893
<SECURITIES> 0
<RECEIVABLES> 3,869
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 389,933
<DEPRECIATION> 79,180
<TOTAL-ASSETS> 357,866
<CURRENT-LIABILITIES> 68,726
<BONDS> 258,466
0
0
<COMMON> 8
<OTHER-SE> 25,429
<TOTAL-LIABILITY-AND-EQUITY> 357,866
<SALES> 0
<TOTAL-REVENUES> 57,534
<CGS> 0
<TOTAL-COSTS> 34,427
<OTHER-EXPENSES> 12,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,415
<INCOME-PRETAX> 9,566
<INCOME-TAX> 3,723
<INCOME-CONTINUING> 5,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,843
<EPS-PRIMARY> 7.30
<EPS-DILUTED> 7.30
</TABLE>
