<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 2000
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 0-9032
SONESTA INTERNATIONAL HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-5648107
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
</TABLE>
200 CLARENDON STREET, BOSTON, MA 02116
(Address of principal executive offices)
(Zip Code)
617-421-5400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report
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. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of Shares of Common Stock Outstanding
As of November 10, 2000 -- $.80 par value,
Class A - 3,705,230
<PAGE>
INDEX
SONESTA INTERNATIONAL HOTELS CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - September 30, 2000 and
December 31, 1999...................................... 1
Consolidated statements of operations - Three
month and nine month periods ended
September 30, 2000 and 1999............................ 3
Consolidated statements of cash flows - Nine
month periods ended September 30, 2000 and 1999........ 4
Notes to consolidated financial statements -
September 30, 2000 and 1999............................ 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition--Three month and
nine month periods ended September 30, 2000 and 1999... 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
</TABLE>
<PAGE>
PART I - ITEM 1. FINANCIAL INFORMATION
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 23,164 $ 7,876
Investments in government debt securities .............. 10,100 --
Accounts and notes receivables:
Trade, less allowance of $285......................
($260 at December 31, 1999) for doubtful accounts 6,310 7,673
Other ............................................. 561 2,083
-------- --------
Total accounts and notes receivable ..... 6,871 9,756
Current portion of deferred taxes ...................... 495 459
Inventories ............................................ 1,354 1,530
Prepaid expenses ....................................... 1,380 1,092
-------- --------
Total current assets ................... 43,364 20,713
Long-term receivables and advances ....................... 1,103 1,507
Property and equipment, at cost:
Land and land improvements ........................... 9,939 9,894
Buildings ............................................. 70,189 69,256
Furniture and equipment ............................... 36,597 30,785
Leasehold improvements ................................ 3,218 2,471
Projects in progress .................................. 2,799 1,051
-------- --------
122,742 113,457
Less accumulated depreciation and amortization ........ 35,372 29,255
-------- --------
Net property and equipment ................. 87,370 84,202
Other long-term assets ................................... 1,741 1,096
-------- --------
$133,578 $107,518
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------
SEPTEMBER 30 DECEMBER 31
2000 1999
------------- -----------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................. $ 1,413 $ 24,164
Accounts payable ................................................... 3,469 6,897
Advance deposits ................................................... 3,704 4,703
Federal, foreign and state income taxes ............................ 206 97
Accrued liabilities:
Salaries and wages .......................................... 2,561 2,917
Rentals ..................................................... 4,451 6,917
Interest .................................................... 527 410
Pension and other employee benefits.......................... 3,765 207
Other ....................................................... 2,619 1,344
-------- --------
Total accrued liabilities .......................... 13,923 11,795
-------- --------
Total current liabilities .......................... 22,715 47,656
Long-term debt........................................................ 75,934 26,165
Deferred federal and state income taxes .............................. 5,236 4,220
Other non-current liabilities ........................................ 358 3,095
Redeemable preferred stock, $25 par value, at
redemption value.................................................. 294 294
Commitments and contingencies
Common stockholders' equity:
Common stock:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--6,102,176 shares at stated value ..................... 4,882 4,882
Retained earnings ................................................. 36,147 33,114
Treasury shares--2,396,946 (2,386,946 at December 31, 1999) at cost (11,988) (11,908)
-------- --------
Total common stockholders' equity ...................... 29,041 26,088
-------- --------
$133,578 $107,518
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands except for per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rooms ......................... $ 13,756 $ 13,483 $ 48,670 $ 46,485
Food and beverage ............. 5,999 5,428 20,406 18,963
Management, license and
service fees ............. 1,095 1,092 3,616 3,406
Parking, telephone and other... 2,005 1,877 7,085 6,035
------- ------- ------- --------
22,855 21,880 79,777 74,889
------- ------- ------- --------
Costs and expenses:
Costs and operating expenses .. 10,702 10,013 33,234 30,990
Advertising and promotion ..... 1,919 2,101 6,149 6,039
Administrative and general .... 4,096 3,643 12,218 11,743
Human resources ............... 527 480 1,567 1,455
Maintenance ................... 1,811 1,617 5,387 4,987
Rentals ....................... 800 1,020 5,179 5,514
Property taxes ................ 625 516 1,874 1,604
Depreciation and amortization . 2,022 1,756 6,121 5,317
------- ------- ------- --------
22,502 21,146 71,729 67,649
------- ------- ------- --------
Operating income ................... 353 734 8,048 7,240
Other income (deductions):
Interest expense .............. (1,710) (1,125) (4,186) (3,475)
Interest income ............... 561 120 954 497
Foreign exchange gain (loss) .. (3) 2 (9) (5)
Gain on sales of assets ....... 4 -- 14 5
Gain on casualty .............. 225 -- 1,175 --
Other ......................... -- -- -- 3,875
------- ------- ------- --------
(923) (1,003) (2,052) 897
Income (loss) before income taxes .. (570) (269) 5,996 8,137
Federal, foreign and state income
tax provision (benefit) ....... (211) (42) 2,308 3,045
------- ------- ------- --------
Income (loss) before extraordinary
loss on refinancing of debt ... (359) (227) 3,688 5,092
Extraordinary loss on refinancing of
debt (net of tax) ............. -- -- (274) --
------- ------- ------- --------
Net income (loss) .................. (359) (227) 3,414 5,092
Retained earnings at beginning
of period ..................... 36,510 33,874 33,114 28,871
Cash dividends on preferred stock .. (4) (4) (10) (10)
Cash dividends on common stock...... -- -- (371) (310)
------- ------- ------- --------
Retained earnings at end of period $36,147 $33,643 $36,147 $ 33,643
------- ------- ------- --------
------- ------- ------- --------
Basic and diluted earnings (loss) per
share of common stock.......... $(.10) $(.06) $.92 $1.27
------- ------- ------- --------
------- ------- ------- --------
Weighted average number of shares
Outstanding.................... 3,705 3,716 3,709 3,995
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
---- ----
<S> <C> <C>
Cash provided (used) by operating activities
Net income ................................................... $ 3,414 $5,092
Items not (providing) requiring cash
Pension expense ....................................... 804 792
Depreciation and amortization of property and equipment 6,121 5,317
Other amortization .................................... (280) (534)
Deferred federal and state income taxes ............... 980 566
Gain on sales of assets ............................... (14) (5)
Extraordinary loss on debt refinancing................. 431 --
Changes in assets and liabilities
Accounts and notes receivable ......................... 2,524 1,049
Inventories ........................................... 176 (13)
Prepaid expenses ...................................... (260) 190
Accounts payable ...................................... (3,057) (2,376)
Advance deposits ...................................... (999) 303
Federal, foreign and state income taxes ............... 109 161
Accrued liabilities ................................... (1,386) (1,649)
------ ------
Cash provided by operating activities ............ 8,563 8,893
Cash provided (used) by investing activities
Proceeds from sales of assets .............................. 32 5
Investments in government debt securities .................. (10,100) --
Expenditures for property and equipment .................... (9,306) (6,724)
New loan and advances....................................... (36) --
Payments received on long-term receivables
and advances ........................................... 737 607
------ ------
Cash used by investing activities ................ (18,673) (6,112)
Cash provided (used) by financing activities
Scheduled payments on long-term debt ....................... (825) (3,538)
Proceeds from issuance of long-term debt ................... 72,000 --
Cost of financing .......................................... (1,379) --
Payments on refinancing of long-term debt .................. (43,566) --
Cash dividends paid......................................... (752) (631)
Purchase of treasury stock.................................. (80) (3,782)
-------- ------
Cash provided (used) by financing activities ..... 25,398 (7,951)
-------- ------
Net increase (decrease) in cash ................................. 15,288 (5,170)
Cash and cash equivalents at beginning of period ................ 7,876 9,470
-------- ------
Cash and cash equivalents at end of period ...................... $ 23,164 $4,300
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (CONTINUED)
SUPPLEMENTAL SCHEDULE OF INTEREST AND INCOME TAXES PAID
Cash paid for interest in the 2000 nine-month period and the 1999 nine
month period was approximately $4,338,000 and $4,028,000, respectively.
Cash paid for income taxes in the 2000 nine month period and the 1999
nine month period was approximately $1,219,000 and $2,318,000,
respectively.
See accompanying notes to consolidated financial statements.
5
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying unaudited 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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1999.
Sonesta Beach Resort Anguilla reopened on February 10, 2000, after a brief
closure due to damage sustained from hurricane Lenny, which struck the island in
November 1999. Under its insurance agreements, the hotel will receive loss of
income proceeds for the period of the closure, as well as for a six month period
following the reopening date. The loss of revenues during the first nine months
of 2000 compared to the same period in 1999 was approximately $1,213,000.
Included in gain from casualty is $1,175,000 from the receipt of advances
against the business interruption claim.
On June 2, 2000 the Company refinanced the mortgage loans on its hotels in Key
Biscayne, Florida and Cambridge, Massachusetts. The net proceeds from this
refinancing were $27,055,000. The Company intends to use these proceeds for
improvements to the Key Biscayne property, and to fund its expansion plans. At
December 31, 1999, the mortgage loan on the Key Biscayne property was classified
as a current liability pending receipt of a formal loan commitment.
2. LONG-TERM RECEIVABLES AND ADVANCES
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Sharm El Sheikh (a) ............... $ 820 $ 936
Cairo, Egypt, net of discount (b) . 140 315
Other ............................. 472 866
------ ------
Total long-term receivables 1,432 2,117
Less: current portion .... 329 610
------ ------
Net long-term receivables . $1,103 $1,507
====== ======
</TABLE>
6
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a) This loan, in the original amount of $1,000,000, was made in 1996 and
1997 to the owner of Sonesta Beach Resort, Sharm El Sheikh. The loan
agreement was amended in 1999. The loan bears interest at the prime
rate (9 1/2% at September 30, 2000) and is being repaid in 60 monthly
installments beginning in January 2000.
(b) The remaining balance of this loan, made in February 1997 to the owner
of the Sonesta Hotel Cairo, will be repaid in 2000. There is no
interest due during the term of the loan.
3. BORROWING ARRANGEMENTS
The Company has a $2,000,000 line of credit which expired on September 30, 2000,
but which the Company expects to renew until September 30, 2001. This line of
credit bears interest at the prime rate (9 1/2% at September 30, 2000). The
terms of the line require a certain minimum net worth, a minimum amount of
unrestricted cash or available credit lines during part of each calendar year,
and approval for additional borrowings by the Company. No amounts were
outstanding under this line at September 30, 2000.
A subsidiary of the Company had a $5,000,000 line of credit which was cancelled
by the Company effective October 1, 2000.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Charterhouse of Cambridge Trust and
Sonesta of Massachusetts Inc.:
First mortgage note (a) ............. $40,922 $21,414
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) ............. 30,941 23,049
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) ............. 5,032 5,440
Other.................................. 452 426
------- -------
77,347 50,329
Less: current portion of long-term debt 1,413 24,164
------- -------
Total long-term debt .................. $75,934 $26,165
======= =======
</TABLE>
7
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a) The mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) was
refinanced in June 2000. The new loan is secured by a first mortgage on
the Royal Sonesta Hotel Boston (Cambridge) property. This property is
included in fixed assets at a net book value of $25,394,000 at
September 30, 2000. The interest rate on this new loan is 8.6% for the
term of the loan, and amortization of the principal balance is based on
a 25 year schedule. Monthly payments are $332,911. The mortgage loan
matures in July 2010, and prepayment of this loan will be subject to
early payment penalties, based on prevailing interest rates at the time
of prepayment.
(b) The mortgage loan on the Sonesta Beach Resort Key Biscayne was
refinanced in June 2000. The new loan is secured by a first mortgage on
the Sonesta Beach Resort Key Biscayne property. This property is
included in fixed assets at a net book value of $39,706,000 at
September 30, 2000. The interest rate on this new loan is 8.6% for the
term of the loan, and amortization of the principal balance is based on
a 25 year schedule. Monthly payments are $251,713. The mortgage loan
matures in July 2010, and prepayment of this loan will be subject to
early payment penalties, based on prevailing interest rates at the time
of prepayment.
(c) The loan is secured by a first mortgage on the Sonesta Beach Resort
Anguilla property, and an assignment to the lender of the hotel's
furniture, fixtures and equipment. The property is included in fixed
assets at a net book value of $12,363,000 at September 30, 2000. In
addition, an amount of $1,900,000 is secured by a Company guaranty. The
loan requires minimum principal payments of $136,000 and $544,000
during the remaining three months of 2000 and 2001, respectively. In
addition, principal payments are required equal to 25% of the hotel's
annual excess cash flow, as defined. The balance of $4,352,000 is due
on the scheduled maturity date of December 31, 2001. The interest rate
on the loan is LIBOR plus 2.25%. The interest rate at September 30,
2000 was 8.87%.
5. HOTEL COSTS AND OPERATING EXPENSES
Hotel costs and operating expenses in the accompanying Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Direct departmental costs
Rooms ............... $ 3,698 $ 3,607 $11,465 $10,852
Food and beverage ... 5,023 4,712 15,901 15,069
Heat, light and power 891 796 2,453 2,273
Other ............... 1,090 898 3,415 2,796
------- ------- ------- -------
$10,702 $10,013 $33,234 $30,990
======= ======= ======= =======
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
8
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL, FOREIGN AND STATE INCOME TAX
The provision for income taxes (before extraordinary items) in the accompanying
Consolidated Statements of Operations is summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
---- ----
<S> <C> <C>
Deferred federal income tax provision $ 980 $ 566
Current federal income tax provision 639 2,141
Current foreign income tax provision 334 28
Current state income tax provision .. 355 310
------ ------
$2,308 $3,045
====== ======
</TABLE>
7. SEGMENT INFORMATION
Segment information for the Company's two reportable segments, Owned & Leased
Hotels and Management Activities for the three month and nine month periods
ending September 30, 2000 and 1999 follows:
Three month period ended September 30, 2000
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
------ ---------- ------------
<S> <C> <C> <C>
Revenues ................................... $ 21,756 $ 1,099 $ 22,855
Operating income (loss), before depreciation
and amortization expense ........... 2,831 (456) 2,375
Depreciation and amortization .......... (1,907) (115) (2,022)
Interest income (expense), net ......... (1,357) 208 (1,149)
Other income (deductions) .............. 229 (3) 226
--------- --------- ---------
Segment pre-tax loss ....................... (204) (366) (570)
Segment assets ............................. 115,910 17,668 133,578
Segment capital additions .................. 4,170 76 4,246
</TABLE>
Nine month period ended September 30, 2000
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 75,895 $ 3,882 $ 79,777
Operating income (loss) before depreciation
and amortization expense .......... 14,351 (182) 14,169
Depreciation and amortization ......... (5,776) (345) (6,121)
Interest income (expense), net ........ (3,697) 465 (3,232)
Other income (deductions) ............. 1,185 (5) 1,180
--------- --------- ---------
Segment pre-tax profit (loss) ............. 6,063 (67) 5,996
Segment assets ............................ 115,910 17,668 133,578
Segment capital additions ................. 8,943 363 9,306
</TABLE>
9
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three month period ended September 30, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
------ ---------- ------------
<S> <C> <C> <C>
Revenues ....................................... $ 20,783 $ 1,097 $ 21,880
Operating income (loss) before depreciation
and amortization expense ............... 2,782 (292) 2,490
Depreciation and amortization .............. (1,651) (105) (1,756)
Interest income (expense), net ............. (1,089) 84 (1,005)
Other income ............................... -- 2 2
-------- -------- --------
Segment pre-tax profit (loss) .................. 42 (311) (269)
Segment assets ................................. 90,357 10,594 100,951
Segment capital additions ...................... 2,131 73 2,204
</TABLE>
Nine month period ended September 30, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 71,451 $ 3,438 $ 74,889
Operating income (loss) before depreciation
and amortization expense .......... 13,509 (952) 12,557
Depreciation and amortization ......... (5,002) (315) (5,317)
Interest income (expense), net ........ (3,301) 323 (2,978)
Other income .......................... -- 3,875 3,875
--------- --------- ---------
Segment pre-tax profit .................... 5,206 2,931 8,137
Segment assets ............................ 90,357 10,594 100,951
Segment capital additions ................. 6,490 234 6,724
</TABLE>
8. EARNINGS PER SHARE
As the Company has no dilutive securities, there is no difference between basic
and diluted earnings per share of common stock. The following table sets forth
the computation of basic earnings per share of common stock (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) ...................... $ (359) $ (227) $ 3,414 $ 5,092
Preferred stock dividends .............. (4) (4) (10) (10)
------- ------- ------- -------
Numerator for earnings (loss) per share .. $ (363) $ (231) $ 3,404 $ 5,082
======= ======= ======= =======
Denominator:
Weighted average number of
shares outstanding .................. 3,705 3,716 3,709 3,995
======= ======= ======= =======
Earnings (loss) per share of common
Stock ............................... $ (.10) $ (.06) $ .92 $ 1.27
======= ======= ======= =======
</TABLE>
10
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST NINE MONTHS 2000 COMPARED TO 1999
REVENUES
<TABLE>
<CAPTION>
TOTAL REVENUES
(IN THOUSANDS)
---------------------------------------
NO. OF
ROOMS 2000 1999
----- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI ........... 100 $ 2,595 $ 3,808
Sonesta Beach Resort Key Biscayne ............ 300 22,188 20,801
Royal Sonesta Hotel Boston (Cambridge) ....... 400 23,684 21,119
Royal Sonesta Hotel New Orleans .............. 500 27,428 25,723
Management and service fees and other revenues 3,882 3,438
------- -------
Total revenues ......................... $79,777 $74,889
======= =======
</TABLE>
Total revenues for the first nine months of 2000 were $79,777,000 compared to
$74,889,000 in 1999, an increase of approximately $4,888,000.
Revenues during the first nine months of 2000 at Sonesta Beach Resort Anguilla
were $1,213,000 less than during the same period in 1999. The Anguilla resort
was closed due to damage sustained by hurricane Lenny from November 17, 1999
until February 10, 2000. The Company has insurance for the loss of income during
the period of closure, as well as for the reduction in revenues for a six month
period following reopening. The Company recorded a gain on casualty of
$1,175,000 against its business interruption insurance claim during the nine
month period ending September 30, 2000. Sonesta Beach Resort Key Biscayne
increased revenues by 7% in the first nine months of the year compared to last
year, mainly due to increases in food and beverage revenues and revenues from
the hotel's retail shops, which have been operated by the Company since late
1999. Revenues at the Royal Sonesta Hotel Boston (Cambridge) increased by 12%
during the first nine months of 2000 compared to the same period in 1999. Room
revenue per available room (REVPAR) increased by 12%, due to both higher
occupancies and an increase in average rate achieved. This increase in room
revenues was caused by higher demand from both the group and convention as well
as the transient market segments. Food and beverage revenues at the Boston
(Cambridge) property increased by 14% compared to 1999. Revenues during the nine
month period ending September 30, 2000 at the Company's Royal Sonesta Hotel New
Orleans increased by $1,705,000 compared to 1999. This was due to a 7% increase
in the hotel's REVPAR. Revenues from management activities increased from
$3,438,000 during the nine month period ended September 30, 1999 to $3,882,000
during the nine month period ended September 30, 2000. This was caused primarily
by increases in fee income from the Company's managed operations in Egypt, in
particular from the Sonesta St. George Hotel in Luxor, and from the collection
of previously unrecorded fees and other expenses from a hotel which the Company
used to manage in Orlando, Florida.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
OPERATING INCOME
<TABLE>
<CAPTION>
OPERATING INCOME
(IN THOUSANDS)
--------------------------
2000 1999
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI ... $(1,885) $ (595)
Sonesta Beach Resort Key Biscayne .... 2,389 3,200
Royal Sonesta Hotel Boston (Cambridge) 5,376 3,984
Royal Sonesta Hotel New Orleans ...... 2,695 1,918
------- -------
Operating income from hotels after
management and service fees ...... 8,575 8,507
Management activities and other ...... (527) (1,267)
------- -------
Operating income ............ $ 8,048 $ 7,240
======= =======
</TABLE>
Operating income for the nine-month period ending September 30, 2000 was
$8,048,000, compared to operating income of $7,240,000 in 1999, an increase of
approximately $808,000.
Operating loss at the Sonesta Beach Resort Anguilla increased by $1,290,000
during the first nine months of 2000 compared to the same period in 1999. This
was the result of a $1,213,000 decrease in revenues, due to the closure of the
resort from damage sustained by hurricane Lenny from November 17, 1999 through
February 10, 2000. The Company has insurance for this loss of profits, and has
already recorded casualty income of $1,175,000 in the nine month period ended
September 30, 2000. Operating income at Sonesta Beach Resort Key Biscayne for
the nine month period ended September 30, 2000 decreased by $811,000 compared to
the same period in 1999. The resort's revenues rose $1,387,000 during the first
nine months of 2000, mainly due to income from the hotel's retail shops, which
the Company started operating in late 1999. Expenses rose $2,198,000 compared to
1999, mainly due to increases in costs and operating expenses related to the
retail shops, increases in administrative and general expenses, and a $580,000
increase in depreciation expense, which is a result of the refurbishments the
Company has undertaken since the resort was acquired in July 1998. Royal Sonesta
Boston (Cambridge) had operating income of $5,376,000 during the first nine
months of 2000, compared to operating income of $3,984,000 during the first nine
months of 1999. Revenues rose $2,565,000 compared to last year, and this
increase was partially offset by increases in expenses of $1,173,000, primarily
in costs and operating, as well as depreciation expense. Royal Sonesta Hotel New
Orleans increased operating income from $1,918,000 in the first nine months of
1999 to $2,695,000 in the first nine months of 2000, due to a $1,705,000
increase in revenues, partially offset by increased expenses of $928,000. This
increase in expenses was primarily in costs and operating expenses and real
estate taxes. Operating loss from management activities, which is computed after
management and service fees from the Company's owned and leased hotels, was
$527,000 during the first nine months of 2000, compared to a loss of $1,267,000
in the same period last year. This was mainly due to increased income from the
Company's managed operations in Egypt, which reported higher fee income and
lower management expenses following a restructuring of the Company's Middle East
office in mid-1999.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
OTHER INCOME (DEDUCTIONS)
Included in the first nine months of 2000 is a gain on casualty of $1,175,000,
resulting from a business interruption claim after hurricane Lenny struck the
island of Anguilla in November 1999. Sonesta Beach Resort Anguilla reopened on
February 10, 2000, but has a claim for lost income for the period of the
closure, as well as a six month period following the reopening. Included in
Other Income in 1999 is a termination fee of approximately $1,875,000 which the
Company received in connection with the June 1, 1999 cancellation of the
management agreement under which the Company operated the Sonesta Beach Resort &
Casino, Curacao. Also included in Other Income in 1999 is a supplemental fee of
$2,000,000 from Sonesta Beach Resort Bermuda, which the Company continues to
operate under a management agreement.
Interest expense increased by $711,000 during the first nine months of 2000 due
to the additional expense incurred following the refinancing in June 2000 of the
mortgage loans on both the Royal Sonesta Hotel Boston (Cambridge) and Sonesta
Beach Resort Key Biscayne. Interest income increased $457,000 due to income
received from the short term investment of the refinancing proceeds.
The Company recorded an extraordinary loss of $274,000 (net of federal and state
taxes) in June 2000, which represents the write-off of unamortized loan costs
and the payment of a prepayment penalty, in connection with the refinancing of
its Cambridge and Key Biscayne hotels' mortgage loans.
THIRD QUARTER 2000 COMPARED TO 1999
REVENUES
<TABLE>
<CAPTION>
TOTAL REVENUES
(IN THOUSANDS)
---------------------------------------
NO. OF
ROOMS 2000 1999
----- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI ........... 100 $ 547 $ 657
Sonesta Beach Resort Key Biscayne ............ 300 5,082 4,740
Royal Sonesta Hotel Boston (Cambridge) ....... 400 8,635 8,162
Royal Sonesta Hotel New Orleans .............. 500 7,492 7,224
Management and service fees and other revenues 1,099 1,097
------- -------
Total revenues ....................... $22,855 $21,880
======= =======
</TABLE>
Total revenues for the three month period ended September 30, 2000 were
$22,855,000 compared to $21,880,000 in 1999, an increase of approximately
$975,000.
Third quarter revenues at the Sonesta Beach Resort Anguilla were $110,000 less
than during the same quarter in 1999, due to lower occupancies in the 2000
quarter. Revenues of Sonesta Beach Resort Key Biscayne during the third quarter
of 2000 rose $342,000 compared to the third quarter of 1999, due to increased
food and beverage revenues, and income from the hotel's retail outlets, which
the Company started operating in late 1999. Royal Sonesta Hotel Boston
(Cambridge) increased revenues by 6% compared to last year's third quarter, due
to a 5% increase in REVPAR, and increased food and beverage revenues. Revenues
during the third quarter of 2000 at the Royal Sonesta Hotel New Orleans
increased by $268,000 to $7,492,000 compared to 1999, due to increased food and
beverage revenues and a 4% increase in average room rate. Revenues from
management activities increased slightly from $1,097,000 during the third
quarter of 1999 to $1,099,000 in the third quarter of 2000.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
OPERATING INCOME
<TABLE>
<CAPTION>
OPERATING INCOME
(IN THOUSANDS)
--------------------------
2000 1999
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI ... $ (746) $ (629)
Sonesta Beach Resort Key Biscayne .... (1,085) (808)
Royal Sonesta Hotel Boston (Cambridge) 2,259 2,184
Royal Sonesta Hotel New Orleans ...... 496 384
------- -------
Operating income from hotels after
management and service fees ...... 924 1,131
Management activities and other ...... (571) (397)
------- -------
Operating income ............ $ 353 $ 734
======= =======
</TABLE>
Operating income for the third quarter of 2000 was $353,000, compared to
operating income of $734,000 in 1999, a decrease of approximately $381,000.
Operating loss at the Sonesta Beach Resort Anguilla increased from $629,000
during the third quarter of 1999 to $746,000 during the third quarter of 2000,
primarily due to a reduction in revenues of $110,000. The third quarter 2000
operating loss at Sonesta Beach Resort Key Biscayne increased by $277,000
compared to 1999. Increased expenses of $619,000 exceeded the increase in
revenues of $342,000 during the third quarter of 2000 compared to 1999. The
increased expenses were primarily related to increases in costs and operating
expenses related to the hotel's retail shops, and increases in administrative
and general and depreciation expenses. Royal Sonesta Hotel Boston (Cambridge)
increased operating income by $75,000 in the third quarter of 2000 compared to
1999. Increased revenues of $473,000 were partially offset by increased
expenses, primarily increases in costs and operating and administrative and
general expenses. Operating income at Royal Sonesta Hotel New Orleans in the
2000 third quarter increased by $112,000 compared to 1999, due to a $268,000
increase in revenues, partially offset by a $156,000 increase in expenses. In
the third quarter of 2000, the Company had an operating loss from management
activities of $571,000 compared to a loss of $397,000 during the 1999 third
quarter, primarily as a result of increased administrative and general expenses.
OTHER INCOME (DEDUCTIONS)
Included in the third quarter of 2000 is a gain from casualty of $225,000
resulting from a business interruption claim for Sonesta Beach Resort Anguilla,
which was closed from November 17, 1999 to February 10, 2000, from damage
sustained from hurricane Lenny.
Interest expense increased by $585,000 during the third quarter of 2000 due to
the additional expense incurred following the refinancing in June 2000 of
mortgage loans on both the Royal Sonesta Hotel Boston (Cambridge) and Sonesta
Beach Resort Key Biscayne. Interest income increased $441,000 in the third
quarter of 2000 due to income received on the short term investment of the
refinancing proceeds.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
FEDERAL, FOREIGN AND STATE INCOME TAXES
The provision for income taxes during the first nine months of 2000 was higher
than the statutory rate due to state taxes provided on the Company's income from
its operations in Louisiana, Florida and Massachusetts.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $23,164,000 at
September 30, 2000.
In June 2000, the Company refinanced the mortgage loans on its hotels in
Cambridge, Massachusetts and Key Biscayne, Florida. The net proceeds from this
refinancing were $27,055,000, and the Company intends to use these proceeds for
improvements to the Key Biscayne property, and to fund its expansion plans.
The Company will contribute approximately $3,500,000 to its Pension Plan in
2001, and this amount is shown as a current employee benefit liability at
September 30, 2000.
The Company believes that its present cash balances will be more than adequate
to meet all of its obligations.
15
<PAGE>
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates. The Company uses fixed rate debt and debt with variable interest
rates to finance the ownership of its properties.
The table that follows summarizes the Company's debt obligations outstanding at
September 30, 2000.
Short and Long Term Debt at September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Amount Due $347 $6,236 $967 $ 1,054 $1,148 $67,595 $77,347
Average Interest Rate 8.61% 8.61% 8.60% 8.60% 8.60% 8.60%
</TABLE>
16
<PAGE>
PART II - OTHER INFORMATION
ITEM NUMBERS 1, 2, 3, 4, 5 AND 6
Not applicable during the quarter ended September 30, 2000
17
<PAGE>
.
SIGNATURE
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.
SONESTA INTERNATIONAL HOTELS CORPORATION
By: /s/ Boy van Riel
--------------------------------------
Boy van Riel
Vice President and Treasurer
(Authorized to sign on behalf of the
Registrant as Principal Financial Officer)
Date: November 13, 2000
18
