UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999.
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
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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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 803-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
June 15, 2000: 800,000
INDEX TO FORM 10-K
Page
Part I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 26
Part III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management 30
Item 13. Certain Relationships and Related Transactions 30
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 31
ITEM 1. BUSINESS
General
MOA Hospitality, Inc. and its subsidiaries ("MOA" or the "Company")
is a leading owner and operator of national brand affiliated limited service
lodging facilities in the United States. As of December 31, 1999, the Company,
directly and through subsidiaries, owned 126 lodging facilities located in 39
states with a total of 9,868 rentable guestrooms. The Company owns a 100%
interest in all but two of its properties. At December 31, 1999, the Company
operated all of its motels with the exception of forty-three motels that were
leased to and operated by third-party tenants pursuant to operating leases. The
Company's largest concentrations of lodging facilities are located in the States
of Georgia and Illinois with 13 lodging facilities in Georgia and 12 lodging
facilities in Illinois. Properties owned in the states of Illinois and Georgia
at December 31, 1999, accounted for 9.16 % and 4.70% of consolidated motel
operating revenues for the year ended December 31, 1999, respectively. One
hundred and thirteen of the Company's lodging facilities are operated pursuant
to franchise or license agreements under the following national brand names:
Best Western, Comfort Inn, Day's Inn, Holiday Inn Express, Microtel, Ramada,
Ltd., Super 8 and Travelodge. One hundred and one of the franchise or license
agreements are with brands owned by Cendant Corporation including 87 with Super
8 Motels, Inc., a wholly owned subsidiary of Cendant Corporation. MOA believes
its lodging facilities benefit from affiliating with national brands primarily
due to the national brand name recognition achieved through national advertising
and product distribution. In addition, the franchisor or licensor typically
provide additional services such as: central reservation services, sponsorship
of customer loyalty programs, exposure in published travel directories, leads
with respect to group tour business and other professional services such as
quality assurance inspections.
Subsequent to December 31, 1999 through June 15, 2000, the
Company closed on the sale of six properties. In addition, the Company
entered into twenty-five additional leases with third-party tenants.
The Company was incorporated in 1986 under the laws of the State of
Delaware to continue the business commenced by its predecessors in 1982. The
Company's principal executive offices are located at 701 Lee Street, Suite 1000,
Des Plaines, Illinois 60016, telephone (847) 803-1200.
Recent History
The Company has experienced a deterioration in its operating
performance over the past several years. The following table summarizes the
recent operating performance of the Company (in 000's):
1995 1996 1997 1998 1999
------- -------- -------- --------- ---------
Income(Loss) from Operations prior to
Impairment Losses and Restructuring Costs $1,685 $(1,080) $(3,137) $(11,474) $(13,485)
Impairment Losses and Restructuring Costs - - (3,276) (9,300) 1,378)
------- -------- -------- --------- ---------
Income(Loss) from Operations $1,685 $(1,080) $(6,413) $(20,774) $(14,863)
The Company attributes the deterioration in its operating performance
to a myriad of factors, including but not limited to, a significant increase in
competitive supply resulting from the extensive building of new motel properties
in the markets in which the Company competes. Also increases in certain
operating costs including labor due to the historically low levels of
unemployment requiring the Company to compete with other industries for
qualified employees. Based on a property-by-property review, the Company
believes it is unlikely that it will realize the carrying value of certain of
its assets due to a deterioration in their operating performance caused by
factors outside of management's control and which are expected to continue for
the foreseeable future. As a result of this review, the Company recorded an
impairment loss of $928,000 and a restructuring charge of $450,000 in 1999. In
1998, the Company recorded an impairment loss of $9.3 million. In 1997, the
Company also recorded impairment losses of $2.5 million and restructuring
charges of $750,000. As discussed below, the Company has undertaken a number of
transactions during the period presented above including acquisitions,
development and sales of properties along with refinancing of the Company's
mortgage debt. Although the Company believes it has or will be able to obtain
adequate resources to meet its near-term maturing debt and other obligations,
the deteriorating trend in operating results noted above could adversely affect
the Company's ability to meet its maturing debt obligations in 2004 and 2005,
including the maturity of the remaining $34.5 million 12% Senior Subordinated
Notes in 2004.
Since December 31, 1996, the Company has had a net decrease in the
number of lodging properties owned from 135 properties to 126 properties at
December 31, 1999. A summary of the significant transactions with respect to the
number of lodging properties owned and operated by the Company that have
occurred since January 1, 1997 through June 1, 2000 is as follows:
In 1997, an affiliate of the Company was formed for the sole purpose
of constructing lodging properties to be acquired by a subsidiary of the Company
upon completion at cost. Such affiliate develops the lodging properties from its
own funds, payments from the Company on account to be applied towards the
purchase price and the proceeds of a $20.0 million revolving construction loan
facility arranged by the affiliate. In connection with the construction loan
facility, the Company had guaranteed completion of the construction of each
property and the subsidiary acquiring the properties had guaranteed the
construction loan facility to a maximum of $10.0 million. In 1997, five (5) such
properties were acquired for $12.9 million of which $7.8 million was funded from
a $150.0 million secured loan facility between the subsidiary acquiring the
properties and CSFB. This facility provided for, among other things, interest
computed at a rate based upon the thirty (30) day LIBOR rate plus 300 basis
points, monthly principal and interest payments at an 11.5% per annum constant,
and repayment in full of each funding made pursuant to the facility forty-two
(42) months after the date of each such funding. In addition, the Company has
pledged its interest in a wholly owned subsidiary to secure up to $20.0 million
of borrowing under the facility. The $20.0 million revolving construction loan
facility of the affiliate matured in 1998. The outstanding balances were paid in
full upon the purchase of financed properties by a subsidiary of the Company
with funds borrowed under the $150.0 million secured loan facility with CSFB and
the application of amounts previously deposited with the affiliate. At December
31, 1998 the $150.0 million secured loan facility with CSFB matured with no
further borrowings available with this loan facility. At December 31, 1999,
approximately $17.1 million of borrowings were outstanding under the $150.0
million CSFB secured loan facility. The amount outstanding is secured by eleven
properties and a pledge of the common stock of the subsidiary that owns such
properties. As a result of the Company's under utilization of the CSFB loan
facility, the Company changed its estimate of the economic benefit of certain
deferred loan costs incurred in connection with obtaining the facility and
accordingly accelerated the amortization of $1.9 million of such costs in 1998.
During 1997, in separate transactions, the Company sold two
properties for an aggregate of $3.9 million consisting of cash in the amount of
$0.1 million, a mortgage note receivable in the amount of $1.0 million and the
buyer's assumption of a mortgage note in the amount of $2.3 million. The Company
remains contingently liable on the $2.3 million note; in the event the purchaser
does not perform under its obligations.
During 1998, the Company, in a series of separate transactions with
unaffiliated parties, sold ten properties for approximately $61.3 million
consisting of cash in the amount of $53.0 million and first mortgage notes in
the amount of $8.3 million. These transactions resulted in a net gain of
approximately $23.7 million. Approximately $33.3 million of the net proceeds
were utilized to pay down certain outstanding borrowings. During 1998, the
Company also sold a parcel of vacant land and an investment in a partnership for
an aggregate amount of $4.2 million in cash that resulted in gains of
approximately $2.4 million.
During 1998, the Company acquired seven newly constructed motels from
an affiliate at cost for an aggregate amount of $20.6 million in cash. The
purchases of these motels were funded from $11.4 million of new borrowing under
the CSFB secured loan facility referred to above, application of amounts
previously deposited with the affiliate and from internally generated funds,
including funds from the net proceeds from the sale of properties.
During 1999, the Company sold ten properties for approximately $27.8
million consisting of $9.7 million in cash and $18.1 million in first mortgage
notes. These sale transactions resulted in gains of $2.5 million.
Also during 1999, the Company purchased one property constructed by
an affiliate for the Company. The property was purchased for $ 2.9 million.
Subsequent to December 31, 1999 through June 15, 2000, the Company
sold six properties for approximately $14.5 million consisting of $8 million in
cash and $6.5 million in first mortgage notes. These sale transactions resulted
in a gain of $1.0 million. The Company also purchased a parcel of land in
February 2000 for approximately $250,000 cash and a note in the amount of
$460,000.
During 1999, the Company repurchased from an affiliated company $35
million of the 12% Senior Subordinated Notes at a gain of approximately $1.9
million which was offset by the accelerated write-off of related deferred
financing costs in the amount of $1.9 million. Subsequent to December 31, 1999
the Company repurchased an additional $10.5 million of the 12% Senior
Subordinated Notes for a gain of $4.2 million which will be reduced by the
accelerated write-off of deferred financing costs in the amount of $0.5 million
for a net gain of $3.7 million.
The Company, as Lessor, has entered into operating leases with
unaffiliated parties to operate forty-two motel properties, and with one
affiliated party to operate one motel property at market rates. Under the terms
of these leases, the lessee is responsible for operating costs including all
maintenance, repairs, taxes and insurance expense on the leased property. The
leases, which have a terms ranging from five and a half years to six and half
years, provide for monthly rent payments. In addition, the lease grants the
lessee an option to purchase the leased properties at prices believed by
management to reflect market value.
Industry and Competition
The United States lodging industry is generally comprised of two
sectors: full-service facilities and limited-service facilities. Full-service
lodging facilities generally have more extensive common areas (including
restaurants, lounges and extensive meeting room facilities), offer more services
such as bell service and room service, and tend to be larger in terms of number
of rooms than limited-service facilities. MOA's properties are principally
limited-service type lodging facilities. The United States lodging industry is
also categorized into five general price segments (based on relative pricing in
local markets): luxury, upscale, mid-price, economy, and budget. MOA's
properties predominately fall into the economy segment with a small percentage
represented in both the mid-price and budget segments. Industry estimates
indicate that there are over 23,000 lodging facilities within the mid-price,
economy and budget segments. The United States lodging industry is also
generally considered to be relatively fragmented in terms of ownership,
especially with respect to the mid-price, economy and budget segments. This
combination of a large number of competitive lodging facilities and limited
concentration of ownership makes the segment in which MOA's lodging facilities
compete very competitive.
Generally, each of the Company's lodging facilities competes within
its local market with several national and regional brand affiliated lodging
facilities along with many independent competitive lodging facilities. Some of
the more recognizable brands with which the Company's lodging facilities compete
either directly or indirectly include: Baymont Inns (f/k/a Budgetel Inns),
Comfort Inns, Day's Inns, Fairfield Inns, Hampton Inns, Holiday Inn Express,
LaQuinta Inns, Motel 6, Ramada, Ltd., Red Roof Inns, Super 8 Motels and
Travelodge. Distinguishing characteristics among competitive lodging facilities
include: convenience of location, degree of curb appeal, reasonableness of room
rates, and in particular with repeat customers the quality and cleanliness of
room accommodations and the level of service.
The Company competes with other lodging facilities for a wide
spectrum of business and leisure travelers who desire consistency in the quality
of their accommodations and demand reasonable prices. They tend to be value
conscious consumers consisting of: construction workers, sales people,
technicians, senior citizens, government and military employees, and vacation
travelers. Due to the nature and location of the Company's lodging facilities,
the Company does not experience any significant degree of advance bookings
typical with many resort or destination locations nor does any one customer
represent a significant portion of the Company's revenues.
The lodging industry has seen a significant increase in the
construction of new lodging facilities over the course of the past few years.
Management believes this increase is a result of the relative strength of the
United States' economy, which in turn has resulted in greater travel, and
stronger operating performance of lodging facilities in general. Management also
believes the increase in new construction has been facilitated by an increased
availability of financing for such projects and a relatively favorable interest
rate environment. Based on the Company's internally prepared surveys of new
supply entering the markets in which it competes, the percentage increase in new
supply in such markets appears to have peaked in 1996; however, new supply
continues to enter the markets in which the Company competes. Accordingly, new
supply is expected to continue to negatively impact the Company's operating
performance especially during the off-peak seasons.
Demand for the Company's lodging facilities is affected by normally
recurring seasonal patterns. Demand for the Company's lodging facilities is
generally highest during the months of June, July and August and lowest during
the months of December, January and February. As is the case for the lodging
industry in general, demand for the Company's lodging facilities may be affected
by weather, national and regional economic conditions, government regulations,
changes in travel patterns including temporary interruptions due to road
construction and more permanent interruptions due to the development of new
interchanges and alternative routes, construction of new lodging facilities,
changes in the degree of competition from existing lodging facilities and other
factors.
Ownership Structure
At December 31, 1999, the Company had 100% ownership interest, either
directly or through subsidiaries, in 124 of the 126 lodging facilities it owned.
The Company was a general partner with ownership interests of 30% and 50% in two
individual limited partnerships each of which owned one lodging facility as its
principal asset. These partially owned lodging facilities have been consolidated
for financial reporting purposes due to the management and control, which the
Company possesses. Forty-three are subject to operating leases with purchase
options. (See discussion above in the general business section)
Franchise and License Agreements
The Company operates 113 of its lodging facilities pursuant to
franchise or license agreements. Eighty-seven of these agreements are with Super
8 Motels, Inc. The franchise fees (including royalties and contributions to
advertising and media funds) range from 6% to 9% of room revenues. Under the
Super 8 franchise agreements, the franchiser is obligated to: provide certain
standardized training programs; publish a travel directory with information
pertaining to all Super 8 motels; maintain an advertising and reservation fund
to be administered by the franchiser for advertising and promotion; inspect the
motels to assure satisfaction of Super 8 specifications and maintain
availability of corporate officers and employees for consultation concerning
motel operations. The obligations of the franchisee include, among other things,
maintaining the motel in a manner that satisfies Super 8 quality assurance
standards and compliance with Super 8 rules of operations.
The Super 8 franchise agreements have an initial 20-year term that,
for the Company, results in various ending dates ranging from 1999 through 2019.
The agreements continue thereafter on a year-by-year basis unless terminated by
either party upon nine months notice. The agreements provide a negotiated area
of geographic protection within which the franchiser is prohibited from
franchising another Super 8 motel. Upon expiration of individual franchise
agreements there is no assurance that a renewal franchise agreement will afford
the Company the same benefits that existed under the previously existing
franchise agreement. Generally, new franchise agreements have higher franchise
fees and reduced areas of protections.
The Company has three standard license agreements with Best Western
International. These agreements provide for an annual renewal.
The Company has twenty-three franchise or license agreements with
other franchisers or licensees. These agreements, which have various terms with
ending dates through 2017, generally provide similar benefits and obligations as
the Super 8 franchise agreements. Not all of franchise and license agreements
for the non Super 8 brands provide for a specific area of geographic protection
in which case, they generally rely on an impact policy to determine if another
lodging facility with the same brand affiliation could be located within a
particular market.
During 1997, the Company and certain of its subsidiaries commenced
legal actions against ShoLodge Franchise Systems, Inc. ("ShoLodge") the
franchisor of Shoney's Inns. The Company among other things has claimed that
ShoLodge has breached its contractual obligations and made material
misrepresentations to MOA prior to MOA or its subsidiaries acquiring any
Shoney's Inns. Commencing in February 1998, through May 1998 the Company
disaffiliated each of its fourteen Shoney's Inns from ShoLodge by removing the
sign and other identifying marks. At the time of such disaffiliation, MOA or its
subsidiaries ceased remitting franchise fees to ShoLodge. ShoLodge filed a
counter claim against MOA and certain of its subsidiaries claiming a failure to
renovate the properties and failure to pay franchise fees. In July 1999, the
Company entered into a settlement agreement with ShoLodge resolving all disputes
with respect to the litigation initiated by the Company. The settlement
agreement requires for the Company to make an initial payment of $575,000 in
July 1999 and three subsequent payments of $200,000 in July 2000, 2001 and 2002.
Operations
The Company believes the ownership and management of its properties
gives it certain competitive advantages over third party managed properties with
which it competes by being able to control all aspects of a lodging facility's
operations and expenditures to maintain such facilities. The Company also
believes it has certain competitive advantages over chain owned and operated
properties because as long as the Company meets a franchisor's minimum
requirements it can tailor the services and product offering of individual
facilities without concerning itself with national consistency.
Management of the Company's lodging facilities is coordinated from
the Company's corporate offices in Des Plaines, Illinois. During the last
quarter of 1999, The Company recorded a $450,000 restructuring charge for the
downsizing of both the regional and corporate offices. During 1997, the Company
undertook a reorganization of its management infrastructure and implemented a
more decentralized organization structure whereby many of the property
management support functions previously based out of the corporate office in Des
Plaines, Illinois were moved to various regional offices which were established.
This decentralization was undertaken in order to enhance the Company's
responsiveness, efficiency and control with respect to the day-by-day operations
of its properties. In conjunction with this reorganization, the Company recorded
a charge, in the second quarter of 1997, in the amount of $750,000 to cover the
cost of restructuring. The regional offices are located in Indianapolis,
Indiana, Weldon, North Carolina and Salt Lake City, Utah. Day-to-day management,
facility renovation, human resources and training, purchasing of operating
supplies and sales and marketing are principally directed from the regional
offices. The executive level functions as well as accounting and construction
continue to be centralized in Des Plaines, Illinois.
Typically, the general manager is the only salaried position at a
property; although, for the larger properties (generally in excess of 100
rooms), an assistant manager and/or salesperson may be present on a salaried
basis. Other employees generally are employed on an hourly basis with staffing
continually adjusted based on occupancy levels. General managers generally do
not reside on site because the Company believes its managers are more effective
if they spend time away from the property and become involved in the communities
where the properties are located. At December 31, 1999, the Company employed
approximately 1,600 employees including approximately 40 full and part-time
employees at the corporate and regional offices. Labor and related costs
generally represent the single largest expense of operating a motel property.
The hourly wage rates tend to be relatively low in relation to other industries
and accordingly, the Company is adversely affected by turnover common in the
industry partially due to the current strength of the United States economy that
has resulted in historically low unemployment rates. The Company's operations
could be significantly affected by changes in the Federal and State minimum wage
rates. The employees are not represented by any labor unions and management
believes its ongoing labor relations with its employees are good.
The Company utilizes advertising and marketing programs sponsored by
the various franchisers on both a national and regional basis. In addition, the
Company engages in a wide variety of sales and marketing activities at the local
market level including extensive individual sales calls, marketing blitzes and
involvement in local community activities such as Rotary Clubs, Chambers of
Commerce and motel associations. Various properties also promote special
packages in conjunction with local attractions or events. Billboard advertising
represents the single largest sales and marketing expenditure other than
contributions to franchiser sponsored advertising and media funds.
Regulatory Matters
The Company is subject to environmental regulations under various
federal, state and local laws. Certain of these laws may require a current or
previous owner or operator of real estate to clean up designated hazardous or
toxic substances or petroleum product releases affecting the property. In
addition, the owner or operator may be held liable to a governmental entity or
to third parties for damages or costs incurred by such parties in connection
with the contamination.
Certain of the Company's lodging facilities are located on, adjacent
to or in the vicinity of, properties, including gasoline stations, that contain
or have contained storage tanks or that have engaged or may in the future engage
in activities that may release petroleum products or other hazardous substances
into the soil or groundwater.
While there can be no assurance that in the future the foregoing
environmental conditions may not have a material effect on the Company,
management is not aware of any such materially adverse impacts to the Company
due to the existence of contaminants under or near its properties. Except as
described above, management is not aware of any environmental condition with
respect to its lodging facilities that could have a material adverse impact on
the Company's financial condition or results of operations.
The Company's lodging facilities are subject to various other laws,
ordinances and regulations. The Company believes that each facility has the
necessary permits and approvals required to enable the Company to operate its
lodging facilities.
The Company's lodging facilities must comply with Title III of the
Americans with Disabilities Act (the "ADA"). Under the provisions of the ADA,
the Company, as owner of the lodging facilities, is obligated to reasonably
accommodate the patrons of its facilities who have physical, mental or other
disabilities. In addition, the Company is obligated to ensure that alterations
to its lodging facilities conform to the specific requirements of the ADA
implementing regulations. The Company believes that it is in substantial
compliance with all current applicable regulations with respect to
accommodations for the disabled.
Item 2. PROPERTIES
The Company's lodging facilities are typically situated along
interstate highways and in secondary markets, offering a convenient lodging
alternative for many prospective customers. The facilities have an average size
of 78 rooms, though individual properties range from 33 to 187 rooms, depending
on location and business environment. MOA's properties generally do not offer
large meeting or banquet facilities, in-house restaurants, or room service; and
most do not offer recreational facilities such as pools or fitness centers. The
motels do, however, typically provide free coffee, free local calls, remote
control television, fax service, and free parking. In addition, many nationally
and regionally recognized restaurant chains are generally within close proximity
of the motels.
The Company generally owns its motels in fee simple. The company has
leased forty-three properties subject to operating leases including a purchase
option. However, the underlying real property of three of the lodging facilities
is subject to a ground lease. Ownership of the buildings and improvements
situated on such properties reverts to the landlord upon the expiration of the
lease term.
Most of the Company's properties were designed and built as limited
service economy lodging facilities. As such, they were designed to achieve
functional efficiencies and operate at lower fixed costs than most full service
or upscale lodging facilities. The properties generally employ individual
through-the-wall heating and cooling systems for each room. This provides cost
savings during periods of low occupancy and eliminates the need to have skilled
maintenance personnel on the payroll. Further, the Company's motels have limited
public areas to maintain.
The Company believes that the physical condition and general appearance
of a property have a significant impact on profitability. MOA has made capital
expenditures (exclusive of acquisitions and development of investment
properties) of $8,055,000, $5,696,000, and $7,948,000 in 1999, 1998 and 1997,
respectively. These expenditures include not only the replacement of guestroom
carpet and furnishings but also expenditures on parking lot repavement, exterior
renovations and interior public area renovations including lobby enhancements
and other revenue enhancing improvements such as installation of complete snack
shoppe vended areas and guest laundry facilities. Management believes the level
of capital expenditures made over the past three years has been sufficient to
maintain the competitive position of its motel facilities. The Company believes
that its facilities are currently well maintained and conform to the Company's
standards and where applicable to the franchiser's standards for cleanliness and
attractiveness and intends to maintain its facilities in such condition.
Information pertaining to the Company's 126 lodging facilities owned as of
December 31, 1999 with footnote disclosure of transactions subsequent to
year-end through June 15, 2000, is set forth in the following table.
Year
Number of Acquired or
Rentable Developed
Guest Year by the
Location Franchise Rooms Built Company
- ---------- --------- --------- ----- -----------
ARKANSAS
West Memphis (1) Super 8 61 1989 1989
ARIZONA
Phoenix Super 8 67 1998 1998
CALIFORNIA
Santa Monica Best Western 122 1991 1992
West Los Angeles Best Western 76 1993 1994
COLORADO
Longmont Super 8 64 1989 1994
FLORIDA
Fernandina Beach (2) Inn at Fernandina Beach 134 1985 1994
Ft. Walton Beach Howard Johnson 102 1987 1994
Lake City (2) Microtel 62 1998 1998
Melbourne Howard Johnson 119 1990 1994
Orlando Centroplex (1) Travelodge 76 1957 1996
Panama City (4) Super 8 63 1986 1987
Pensacola (2) Super 8 62 1985 1987
GEORGIA
Athens (2) Microtel 60 1998 1998
Brunswick (2) Super 8 62 1986 1987
Catersville (2) Super 8 62 1986 1987
Columbus Super 8 74 1985 1987
Douglas (2) Inn at Douglas 100 1986 1994
Dublin (2) Shamrock Inn 100 1984 1994
Fitzgerald (2) Inn at Fitzgerald 108 1985 1994
Hinesville (2) Inn at Hinesville 163 1976 1994
Macon (2) Cherry Blossom Inn 120 1987 1994
Moultrie (2) Inn at Moultrie 100 1979 1994
Rome (2) Super 8 62 1986 1987
Vidalia (2) Inn at Vidalia 128 1984 1994
Warner Robins (2) Super 8 60 1986 1987
IDAHO
Boise Super 8 108 1978 1994
Coeur d'Alene (1) Super 8 95 1983 1983
Lewiston (4) Super 8 62 1985 1985
Sandpoint Super 8 61 1984 1984
ILLINOIS
Bloomington (2) Super 8 61 1985 1987
Champaign (2) Super 8 61 1984 1987
Crystal Lake Super 8 59 1983 1987
Decatur (4) Super 8 61 1983 1987
East Moline (3) Super 8 63 1988 1988
Litchfield Super 8 61 1987 1994
Naperville (4) Travelodge 102 1983 1996
Peru (2) Super 8 61 1986 1987
South Springfield (4) Super 8 122 1987 1994
Springfield (2) Super 8 65 1985 1994
Tuscola Super 8 64 1988 1994
Waukegan (4) Super 8 61 1986 1987
INDIANA
Columbus (2) Super 8 62 1984 1987
Elkhart Fairyway Inn 60 1990 1994
Elkhart Super 8 62 1986 1989
Indianapolis Days Inn 161 1985 1994
Mishawaka Super 8 66 1998 1998
Muncie (4) Days Inn 62 1990 1994
Muncie (3) Super 8 63 1986 1989
Terre Haute Super 8 118 1985 1994
IOWA
Davenport (2) Super 8 61 1984 1987
Des Moines Super 8 152 1985 1994
KANSAS
Leavenworth (3) Super 8 60 1984 1989
Salina Super 8 61 1984 1989
Topeka (4) Super 8 62 1984 1987
KENTUCKY
Danville (2) Super 8 49 1987 1987
Lexington (2) Super 8 62 1987 1987
Louisville Super 8 100 1988 1988
LOUISIANA
Shreveport Super 8 143 1986 1994
MASSACHUSETTS
Milford Days Inn 69 1997 1997
MAINE
Ellsworth Comfort Inn 63 1993 1993
MICHIGAN
Battle Creek (2) Super 8 62 1985 1987
Grand Rapids (2) Super 8 62 1986 1987
Kalamazoo (2) Super 8 62 1985 1987
Muskegon Days Inn 106 1968 1993
Muskegon (2) Super 8 62 1986 1987
Saginaw (4) Super 8 62 1985 1987
MINNESOTA
Hibbing (4) Super 8 49 1993 1994
Red Wing (2) Super 8 60 1987 1996
Savage (4) Comfort Inn 75 1982 1994
MISSISSIPPI
Vicksburg (3) Super 8 62 1988 1988
MISSOURI
Independence (2) Super 8 77 1983 1987
Joplin Super 8 50 1985 1987
Liberty (2) Super 8 60 1980 1987
NW Kansas City (4) Super 8 50 1983 1987
St. Joseph Super 8 54 1985 1987
St. Louis (4) Super 8 99 1984 1987
Springfield (2) Super 8 50 1985 1987
MONTANA
Billings Ramada Ltd. 116 1978 1994
Billings Super 8 114 1979 1994
Dillon Super 8 48 1985 1989
Great Falls Super 8 117 1978 1994
Helena Super 8 102 1979 1988
NEBRASKA
Fremont (4) Super 8 43 1986 1989
NEVADA
Carson City (2) Super 8 63 1985 1985
Wendover Super 8 74 1988 1988
NEW HAMPSHIRE
Merrimack Days Inn 70 1999 1999
NEW MEXICO
Las Cruces (2) Super 8 61 1981 1987
NEW YORK
East Syracuse Super 8 53 1997 1997
NORTH CAROLINA
Greensboro (3) Travelodge 108 1985 1996
Weldon (2) Orchard Inn 49 1973 1993
Wilson Microtel 60 1997 1997
NORTH DAKOTA
Bismarck Super 8 61 1976 1987
Grand Forks (4) Super 8 33 1983 1987
Minot (4) Super 8 60 1977 1987
OHIO
Akron (2) Super 8 59 1986 1987
Canton (2) Days Inn 61 1985 1987
Maumee Super 8 70 1998 1998
St. Clairsville Super 8 62 1986 1987
Willoughby Travelodge 111 1984 1996
PENNSYLVANIA
Lancaster Super 8 101 1990 1990
York Super 8 94 1990 1990
SOUTH CAROLINA
Anderson (2) Super 8 62 1986 1987
Camden (4) Inn at Camden 84 1989 1994
Charleston (2) Orchard Inn 89 1973 1993
Columbia Microtel 48 1997 1997
Greenwood (2) Villager Lodge 62 1986 1987
Hilton Head (3) Quality Inn & Suites 127 1989 1994
SOUTH DAKOTA
Sioux Falls (4) Super 8 95 1976 1987
TENNESSEE
Chattanooga (2) Super 8 73 1986 1987
East Memphis (4) Super 8 69 1990 1990
Johnson City (2) Super 8 63 1986 1987
Knoxville Super 8 137 1975 1993
Union City (4) Super 8 61 1989 1989
TEXAS
Stafford Microtel 68 1998 1998
UTAH
Salt Lake City Super 8 119 1983 1988
VIRGINIA
Charlottesville (2) Super 8 65 1986 1987
Richmond (4) Inn at Richmond 116 1985 1994
WASHINGTON
Spokane Super 8 187 1982 1988
WEST VIRGINIA
Mineral Wells Microtel 54 1998 1998
WISCONSIN
Ashland (3) Super 8 70 1984 1988
Janesville (2) Super 8 48 1985 1987
Kenosha (4) Super 8 60 1984 1987
Madison Best Western 101 1983 1994
Rice Lake (4) Super 8 47 1984 1994
WYOMING
Cody Super 8 64 1982 1982
Jackson Super 8 97 1983 1983
-----
Total 9,868
=====
(1) Property is subject to a ground lease.
(2) Property is subject to an operating lease.
(3) Property sold subsequent to December 31, 1999.
(4) Property leased to a third-party tenant subsequent to December 31, 1999.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the
ordinary course of business. The Company does not believe that any of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's business, results of operations or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December
31, 1999 to a vote of the security holders of the Company.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 15, 2000, there were approximately 12 holders of record of
the Company's Common Stock. No established public trading market exists for the
Company's common equity. The Company has been advised that since its original
issuance there have been a limited number of privately negotiated sales of the
Common Stock.
The Company has never paid cash dividends on its Common Stock. It is
the Company's present intention to retain all future earnings for use in its
business and, therefore, it does not expect to pay cash dividends on the Common
Stock in the foreseeable future. The declaration and payment of dividends on the
Common Stock is restricted by the indenture relating to the 12% Senior
Subordinated Notes due April 15, 2004, Series B issued by the Company in April
1994 (the "Notes") and the instruments relating to the Company's other
indebtedness.
During 1999, the Company repurchased from an affiliated company $35
million of the 12% Senior Subordinated Notes at a gain of approximately $1.9
million which was offset by the accelerated write-off of related deferred
financing costs in the amount of $1.9 million. Subsequent to December 31, 1999
the Company repurchased an additional $10.5 million of the 12% Senior
Subordinated Notes for a gain of $4.2 million which will be reduced by the
accelerated write-off of deferred financing costs in the amount of $0.5 million
for a net gain of $3.7 million.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth-certain consolidated financial
information of the Company and its subsidiaries for the five fiscal years ended
December 31, 1999. This data should be read in conjunction with the audited
consolidated historical financial statements of the Company and the notes
thereto included elsewhere herein.
Year Ended December 31,
---------------------------------------------------------
1995 (1) 1996 (1) 1997 (1) 1998 (1) 1999 (1)
--------- --------- --------- --------- ---------
Statement of Operations Data
Total revenues $112,720 $128,271 $122,367 $116,327 $103,431
Costs and expenses:
Motel operating 57,353 67,344 62,333 60,608 54,573
Marketing and royalty fees 7,643 9,606 8,905 7,515 6,786
Corporate general and administrative 5,590 6,833 7,908 11,105 10,351
Lease expense 158
Impairment losses and restructuring costs - - 3,276 9,300 1,378
Depreciation and amortization(2) 12,618 13,995 14,985 17,995 14,978
--------- --------- --------- --------- ---------
Total direct expenses 83,204 97,778 97,407 106,523 88,224
--------- --------- --------- --------- ---------
Net operating income 29,516 30,493 24,960 9,804 15,207
Interest expense 27,831 31,573 31,373 30,578 30,070
--------- --------- --------- --------- ---------
Income (loss) from operations 1,685 (1,080) (6,413) (20,774) (14,863)
Net income (loss) 1,533 687 (3,372) 3,152 (7,675)
Net income (loss) per share $ 1.91 $ 0.86 $ (4.21) $ 3.94 $ (9.59)
Other Financial Data
Net cash provided by operating activities $ 8,144 $ 13,477 $ 15,947 $ 9,472 $ 12,982
Net cash provided by (used in) investing activities (10,532) (50,498) (13,648) 26,998 4,248
Net cash provided by (used in) financing activities 7,798 35,371 (1,515) (29,921) (31,427)
EBITDA(3) 42,134 44,487 43,221 37,099 31,563
EBITDA Margin (% of total revenues)(3) 37.38% 34.70% 35.32% 31.89% 30.52%
Net operating revenue margin (% of total revenue 26.19% 23.66% 20.40% 8.43% 14.70%
Refurbishment of investment properties $ 7,806 $ 9,857 $ 7,948 $ 5,696 $ 8,055
Operating Data (4)
Number of motels 125 135 138 130 83
Number of rooms 10,573 11,317 11,385 10,254 6,753
REVPAR(5) $ 28.96 $ 28.96 $ 29.48 $ 28.51 $ 29.86
ADR(6) $ 40.25 $ 40.91 $ 43.43 $ 43.51 $ 43.59
Occupancy percentage(7) 66.89% 66.25% 63.75% 61.46% 63.94%
Balance Sheet Data
Total assets $325,151 $368,433 $362,859 $339,055 $313,205
Total debt 286,088 327,554 324,989 296,151 268,180
Total stockholders' equity 22,279 22,966 19,594 22,746 15,071
(1) Results for the year ended December 31, 1995 includes a gain on early
extinguishment of debt, net of income taxes, of $0.2 million. Results for
the year ended December 31, 1999 include the recovery of $0.5 million of
offering costs previously written off. The results for years ended December
31, 1995, 1996, 1997, 1998 and 1999 include a $0.5 million, $2.6 million,
$1.1 million, $26.1 and $2.6 million of gains on the sale of properties,
respectively. Results for the year ended December 31, 1997 included the
recording of restructuring costs and the impairment losses of $3.3 million.
Results for the year ended December 31, 1998 included the recording of
impairment losses of $9.3 million. Results for the year ended December 31,
1999 included the recording of restructuring costs of $0.5 million and
impairment losses of $0.9 million.
(2) The Company changed its estimate of the economic benefit of certain
deferred loan costs in 1998. The effect of this change increased
amortization by $1.9 million for the year ended December 31, 1998.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest, gain on sale of properties,
write-off (recovery) of deferred offering costs, restructuring costs and
impairment losses and gain on early extinguishment of debt. EBITDA is not
intended to represent cash flow or any other measure of performance in
accordance with GAAP. EBITDA is included herein because management believes
that certain investors find it to be a useful tool for measuring the
ability to service debt. EBITDA should not be construed by the reader as an
alternative to operating income (as determined in accordance with GAAP) as
an indicator of the Company's operating performance, or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure
of liquidity.
(4) Operating data excludes amounts related to five motels, which are leased to
third party tenants at December 31, 1998 and forty-three motels at December
31, 1999.
(5) Revenue per available room ("REVPAR") represents motel-operating revenues
divided by the total number of rooms available. Total available rooms
represents the number of rooms available for rent multiplied by the number
of days in the reported period.
(6) The average daily room rate ("ADR") represents total room revenues divided
by the total number of rooms occupied.
(7) The occupancy percentage represents total rooms occupied divided by total
available rooms.
Item 7. 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 LITIGATION 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 EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS,
THE FOLLOWING: THE COMPANY'S ABILITY TO OBTAIN FINANCING, COMPETITION, INTEREST
RATE FLUCTUATIONS, OR GENERAL BUSINESS AND ECONOMIC CONDITIONS.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED FINANCIAL DATA"
AND THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS
PRESENTED BELOW FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 HAVE BEEN
PREPARED ON THE SAME BASIS AS THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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 percentages result in significant changes in
the operating profit of the Company's motels.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
-------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
------------------- ------------------ -------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- ---------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $67,990 $66,202 $22,392 $41,639 $90,382 $107,841
Ancillary motel revenues 5,055 4,357 1,396 2,809 6,451 7,166
-------- -------- -------- -------- -------- ---------
Total motel operating revenues 73,045 70,559 23,788 44,448 96,833 115,007
Motel costs and expenses:
Motel operating expenses 37,952 33,741 16,621 26,867 54,573 60,608
Marketing and royalty fees 5,073 4,539 1,713 2,976 6,786 7,515
Depreciation and amortization 7,603 11,258 3,865 3,317 11,468 14,575
-------- -------- -------- -------- -------- ---------
Total motel direct expenses 50,628 49,538 22,199 33,160 72,827 82,698
-------- -------- -------- -------- -------- ---------
$22,417 $21,021 $ 1,589 $11,288 24,006 32,309
======== ======== ======== ========
Lease operations:
Lease revenues 2,477 -
Lease operating expenses 158 -
Depreciation and amortization 1,922 -
-------- ---------
397 -
Corporate operations:
Other revenues 4,121 1,319
General and administrative expenses:
Management Operations 5,454 5,415
Construction/Acquisition and
Divestiture 1,407 1,389
Other general and administrative 3,490 4,301
-------- ---------
Total general and administrative expenses 10,351 11,105
Impairment losses and
restructuring costs 1,378 9,300
Depreciation and amortization 1,588 3,420
-------- ---------
(9,196) (22,506)
-------- ---------
Net operating income $15,207 $ 9,803
======== =========
Other data:
Number of motels at year end (5) 77 77 6 53 83 130
Number of rooms at year end (5) 6,358 8,657 395 1,597 6,753 10,254
Occupancy percentage (5) 64.98% 63.29% 61.32% 58.96% 63.94% 61.46%
ADR (1) (5) $ 45.03 $ 44.96 $ 39.73 $ 41.38 $ 43.59 $ 43.51
REVPAR (2) (5) $ 31.43 $ 30.33 $ 25.88 $ 26.04 $ 29.86 $ 28.51
Net operating income margin (3) 14.70% 8.43%
Net motel revenue margin (4) (5) 44.15% 48.76% 24.36% 35.08% 39.25% 43.48%
-------------------------------------------------
(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 corporate other and lease 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 December 31, 1998 and 1999 and for the years then ended, excludes
amounts related to five motels and forty-three motels, respectively,
which are leased to third party tenants.
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. Lease revenues are derived
from lease payments from properties operated by third party tenants. 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 $103,431,000 in 1999 from $116,326,000 in
1998, a decrease of $12,895,000 or 11.1%.
Motel revenues decreased to $96,833,000 in 1999 from $115,007,000 in
1998 a decrease of $18,174,000 or 15.8%. The decrease of $20,660,000 in motel
revenues was attributable to the acquired or divested motels (including those
subject to operating leases) since January 1, 1998 and offset by an increase in
the motel revenues for motels owned during both periods of $2,486,000. Motel
revenues for motels owned during both periods increased 3.5%. The increase in
motel revenues for motels owned during both periods was principally attributable
to increases in the occupancy percentage and the average daily room rate
("ADR"). The ADR for the motels owned during both periods increased to $45.03 in
1999 from $44.96 in 1998, an increase of $0.07 or 0.2%. The occupancy percentage
in 1999 for the motels owned during both periods increased to 65.0% from 63.3%
in 1998 or 2.7%. Revenue per available room ("REVPAR") for motels owned during
both periods increased to $31.43 in 1999 from $30.33 in 1998, an increase of
$1.10 or 3.6%. The acquired and divested motels had an occupancy percentage of
61.3%, an ADR of $39.73 and a REVPAR of $25.88 for the period, which the Company
owned them in 1999.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses decreased to $54,573,000 in 1999 from
$60,608,000 in 1998 a net decrease of $6,035,000 or 9.9%. Approximately
$10,246,000 of the decrease is attributable to the cost of operating the
acquired and divested motels since January 1, 1998. The cost of operating motels
owned during both periods increased to $37,952,000 in 1999 from $33,741,000 in
1998, an increase of $4,211,000 or 12.5%. Motel operating expenses as a
percentage of motel revenues increased to 56.2% in 1999 from 52.7% in 1998.
Motel operating expenses as a percentage of motel revenues for the motels owned
in both periods increased to 51.6% in 1999 from 47.8% in 1998. The increase in
the operating expenses as a percentage of motel revenues for motels owned during
both periods is primarily attributable to an increase in labor costs and repair
and maintenance expenses that on a percentage basis exceed the percentage
increase in motel revenues. Motel operating expenses as a percent of motel
revenues for the acquired and divested motels was 69.9% in 1999.
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 $6,786,000 in 1999 from $7,515,000 in 1998, a decrease of $729,000
or 9.7%. Approximately $1,263,000 of the decrease in marketing and royalty fees
was attributable to the motels acquired and divested since January 1, 1998. The
marketing and royalty fees for motels owned during both periods increased to
$5,073,000 in 1999 from $4,539,000 in 1998, an increase of $534,000 or 11.8%.
For the motels owned during both periods, marketing and royalty fees as a
percent of room revenues increased to 7.5% in 1999 from 6.9% in 1998. The
increase in marketing and royalty fees for motels owned in 1998 and 1999 was
principally due to additional marketing efforts to increase the occupancy
percentage. Including the affiliation of certain properties with national brands
resulting in the payment of franchise fees on such properties in 1999 where no
such fees were incurred in 1998.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division 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 $39,000 to $5,454,000 in 1999 from
$5,415,000 in 1998, an increase of 0.7%. Salary and related costs account for
the majority of the remaining overall increase. The general and administrative
expenses associated with Construction/Acquisition and Divestiture Division
increased $18,000 from $1,389,000 in 1998 to $1,407,000 or 1.3%. The increase is
attributable principally to an increase in the sales and leasing of the
Company's properties to others. Other General and Administrative expenses
decreased $811,000 from $4,301,000 in 1998 to $3,490,000 in 1999. As a
percentage of total motel operating revenues, Management Operations general and
administrative expenses increased from 4.7% in 1998 to 5.3% in 1999.
Lease revenues increased to $2,477,000 in 1999 from $0 in 1998, an
increase of $2,477,000 or 100.0%. This increase is the result of the forty-three
leased properties as of December 31, 1999.
Impairment losses and restructuring costs in the amount of $1,378,000
and $9,300,000 were recorded in 1999 and 1998, respectively. Based on a
property-by-property review of certain properties that had experienced a
deterioration in operating performance, management determined that in certain
instances the decline in operating performance was due to factors outside of
management's control and likely to persist for the foreseeable future. The
Company believes it is unlikely to realize the carrying value of certain of its
properties through either a sale or from operations and accordingly an
impairment loss in the amount of $928,000 was recorded in 1999 and $9,300,000 in
1998. Restructuring costs of $450,000 were recorded in the fourth quarter of
1999 relating to the reorganization of the Company's corporate and regional
offices. This reorganization was necessitated as the result of the substantial
leasing and sales activities throughout 1999. The provision for restructuring
costs is intended to cover the severance costs.
Depreciation and amortization decreased to $14,978,000 in 1999 from
$17,995,000 in 1998, a decrease of $3,017,000 or 16.8%. The $3,017,000 decrease
consists of a $1,832,000 decrease in corporate operations plus a $3,107,000
decrease from motel operations offset by an increase of $1,922,000 for lease
operations. During 1998, the Company reevaluated the economic useful life of
certain deferred loan costs associated with the CS First Boston $150.0 million
loan facility in light of the Company's under utilization of such facility. As a
result, the Company accelerated the amortization of such deferred loan costs in
the amount of $1.9 million in 1998.
Net operating income increased to $15,207,000 in 1999 from $9,803,000
in 1998, an increase of $5,404,000 or 55.1%. The increase in net operating
revenues included a decrease of $11,410,000 in net motel revenues (motel
revenues less motel operating expenses and marketing and royalty fees). Of the
$11,410,000 decrease in net motel revenues, $9,151,000 resulted from the motels
acquired and divested since January 1, 1998 and a decrease in net motel revenues
for motels owned during both periods of $2,259,000 or 7.0%. Net operating
revenue as a percent of total revenues was 14.7% and 8.4% in 1999 and 1998,
respectively. The increase in net operating income also included the decrease in
general and administrative expenses of $754,000, and decrease in depreciation
and amortization of $3,017,000 and an decrease in restructuring costs and
impairment losses of $7,922,000 all of which are separately discussed above. In
addition to the above, the Company realized an increase in other revenues in the
amount of $2,802,000 due principally to a gain on the repurchase of outstanding
bonds offset by accelerated amortization and interest expense associated with
bond purchase transaction. The Company also realized an increase in net lease
operations of $397,000.
Interest expense decreased to $30,070,000 in 1999 from $30,578,000 in
1998, a decrease of $508,000. The decrease is principally due to a decrease in
average outstanding borrowings.
Gain on sale of properties amounted to $2,528,000 in 1999 as compared
to $26,079,000 in 1998. The gain in 1999 consisted of $2,528,000 from the sale
of ten motel properties.
Net income (loss) decreased $10,827,000 to a net loss of $7,675,000
in 1999 from net income of $3,152,000 in 1998. Included in the net decrease of
$10,827,000 is a decrease of $14,172,000 of net of tax gains realized on the
sale of properties. Also included in the $10,827,000 decrease in net income is
the decrease in the provision for restructuring costs and impairment losses of
$829,000 and $5,596,000 net of tax for 1999 and 1998, respectively.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
-----------------------------------------------------------------
Year Ended December 31
-----------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
-------------------- ------------------ ---------------------
1998 1997 1998 1997 1998 1997
--------- --------- -------- -------- --------- ---------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 94,485 $ 96,607 $13,356 $17,503 $107,841 $114,110
Ancillary motel revenues 5,577 5,350 1,589 2,052 7,166 7,402
--------- --------- -------- -------- --------- ---------
Total motel operating revenues 100,062 101,957 14,945 19,555 115,007 121,512
Motel costs and expenses:
Motel operating expenses 51,679 50,933 8,929 11,400 60,608 62,333
Marketing and royalty fees 6,597 7,616 918 1,289 7,515 8,905
Depreciation and amortization 12,470 12,351 2,105 1,906 14,575 14,257
--------- --------- -------- -------- --------- ---------
Total motel direct expenses 70,746 70,900 11,952 14,595 82,698 85,495
--------- --------- -------- -------- --------- ---------
$ 29,316 $ 31,057 $ 2,993 $ 4,960 32,309 36,017
========= ========= ======== ========
Corporate operations:
Other revenues 1,319 855
General and administrative expenses:
Management Operations 5,415 4,568
Construction/Acquisition and
Divestiture 1,389 1,032
Other general and administrative 4,301 2,308
--------- ---------
Total general and administrative expenses 11,105 7,908
Impairment losses and
restructuring costs 9,300 3,276
Depreciation and amortization 3,420 728
--------- ---------
(22,506) (11,057)
--------- ---------
Net operating income $ 9,803 $ 24,960
========= =========
Other data:
Number of motels at year end (5) 121 121 9 17 130 138
Number of rooms at year end (5) 9,792 9,788 462 1,597 10,254 11,385
Occupancy percentage (5) 61.71% 63.80% 59.50% 64.18% 61.46% 63.75%
ADR (1) (5) $ 42.85 $ 42.30 $ 48.77 $ 52.72 $ 43.51 $ 43.43
REVPAR (2) (5) $ 28.00 $ 28.48 $ 32.47 $ 37.80 $ 28.51 $ 29.48
Net operating income margin (3) 8.43% 20.40%
Net motel revenue margin (4) (5) 44.23% 44.93% 38.17% 39.23% 43.48% 44.06%
-------------------------------------------------
(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 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.
(5) At December 31, 1998 and for the year then ended, excludes amounts
related to five motels which are leased to third party tenants.
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, lease income from properties operated by third
party tenants, distributions on partnership interests in excess of the Company's
basis in such partnerships and other miscellaneous income. Total revenues
decreased to $116,327,000 in 1998 from $122,367,000 in 1997, a decrease of
$6,040,000 or 4.9%.
Motel revenues decreased to $115,007,000 in 1998 from $121,512,000 in
1997 a decrease of $6,505,000 or 5.4%. Approximately $4,610,000 of the decrease
in motel revenues was attributable to the acquired or divested motels, since
January 1, 1997 and a decrease in the motel revenues for motels owned during
both periods of $1,895,000. Motel revenues for motels owned during both periods
decreased 1.9%. The decrease in motel revenues for motels owned during both
periods was principally attributable to a decrease in the occupancy percentage.
The ADR for the motels owned during both periods increased to $42.85 in 1998
from $42.30 in 1997, an increase of $0.55 or 1.3%. The occupancy percentage in
1998 for the motels owned during both periods decreased to 61.7% from 63.8% in
1997 or 3.3%. Management attributes this decrease to an increase in competitive
supply and other factors outside of its control. Revenue per available room
("REVPAR") for motels owned during both periods decreased to $28.00 in 1998 from
$28.48 in 1997, a decrease of $0.48 or 1.7%. The acquired and divested motels
had an occupancy percentage of 59.50%, an ADR of $48.77 and a REVPAR of $32.47
for the period, which the Company owned them in 1998.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses decreased to $60,608,000 in 1998 from
$62,333,000 in 1997 a net decrease of $1,725,000 or 2.8%. Approximately
$2,471,000 of the decrease is attributable to the cost of operating the acquired
and divested motels since January 1, 1997. The cost of operating motels owned
during both periods increased to $51,679,000 in 1998 from $50,933,000 in 1997,
an increase of $746,000 or 1.5%. Motel operating expenses as a percentage of
motel revenues increased to 52.7% in 1998 from 51.3% in 1997. Motel operating
expenses as a percentage of motel revenues for the motels owned in both periods
increased to 51.7% in 1998 from 50.0% in 1997. The increase in the operating
expenses as a percentage of motel revenues for motels owned during both periods
is primarily attributable to an increase in labor costs and repair and
maintenance expenses that on a percentage basis exceed the percentage increase
in motel revenues. Motel operating expenses as a percent of motel revenues for
the acquired and divested motels was 59.7% in 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 $7,515,000 in 1998 from $8,905,000 in 1997, a decrease of
$1,390,000 or 15.7%. Approximately $371,000 of the decrease in marketing and
royalty fees was attributable to the motels acquired and divested since January
1, 1997. The marketing and royalty fees for motels owned during both periods
decreased to $6,597,000 in 1998 from $7,616,000 in 1997, a decrease of
$1,019,000 or 13.4%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues decreased to 7.0% in 1998 from 7.9%
in 1997. The decrease in marketing and royalty fees for the motels owned in both
periods is principally due to a reduction in franchise fees. Franchise fees
declined due to two reasons i) a reduction of 1% of room revenues for most of
the Company's Super 8 motels and ii) a reduction in franchise fees paid to
ShoLodge Franchise Systems Inc. with respect to the Company's fourteen former
Shoney's Inns. The Company had participated in a voluntary program with Super 8
Motels, Inc. whereby an additional 1% of room revenues were contributed to the
advertising fund to be utilized for additional national advertising. This
program ceased December 31, 1997. During the period from February 1998 through
May 1998, the Company disaffiliated all of its Shoney's Inns from ShoLodge
Franchise Systems, Inc. and ceased payment of franchise fees at such time. On an
annual basis the Company historically had paid approximately $650,000 of
franchise fees on its fourteen former Shoney's Inns.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division 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 $847,000 to $5,415,000 in 1998 from
$4,568,000 in 1997, an increase of 18.5%. Approximately $400,000 of the increase
is due to the costs incurred with respect to the installation and implementation
of the Company's new primary financial accounting system. Salary and related
costs account for the majority of the remaining overall increase. The general
and administrative expenses associated with Construction/Acquisition and
Divestiture Division increased $357,000 from $1,032,000 in 1997 to $1,389,000 or
34.6%. The increase is attributable principally to an increase in the sales and
leasing of the Company's properties to others. Other General and Administrative
expenses increased $1,993,000 from $2,308,000 in 1997 to $4,301,000 in 1998. The
increase is due to an increase in legal costs incurred in connection with the
lawsuit that the Company initiated against ShoLodge Franchise Systems, Inc. in
1997 and severance payments to certain former employees of the Company. As a
percentage of total motel operating revenues, Management Operations general and
administrative expenses increased from 3.8% in 1997 to 4.7% in 1998.
Impairment losses and restructuring costs in the amount of $9,300,000
and $3,276,000 were recorded in 1998 and 1997, respectively. Based on a
property-by-property review of certain properties that had experienced a
deterioration in operating performance, management determined that in certain
instances the decline in operating performance was due to factors outside of
management's control and likely to persist for the foreseeable future. The
Company believes it is unlikely to realize the carrying value of certain of its
properties through either a sale or from operations and accordingly an
impairment loss in the amount of $9,300,000 was recorded in 1998. Restructuring
costs of $750,000 were recorded in the second quarter of 1997 relating to 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 were established
throughout the country. The provision for restructuring costs is intended to
cover the associated relocation and severance costs. Impairment losses of
$2,526,000 were recorded in 1997 to reflect the writedown of certain land held
for development to its fair value based on an independent appraisal of such land
obtained in 1998 and to reflect a provision for loss on the collection of a
mortgage note receivable.
Depreciation and amortization increased to $17,995,000 in 1998 from
$14,985,000 in 1997, an increase of $3,010,000 or 20.1%. The $3,010,000 increase
consists of a $2,692,000 increase in corporate operations and a $318,000
increase from motel operations. During 1998, the Company reevaluated the
economic useful life of certain deferred loan costs associated with the CS First
Boston $150.0 million loan facility in light of the Company's under utilization
of such facility. As a result, the Company accelerated the amortization of such
deferred loan costs in the amount of $1.9 million in 1998, which is included in
the $2,692,000 increase referred to above.
Net operating income decreased to $9,803,000 in 1998 from $24,960,000
in 1997, a decrease of $15,157,000 or 60.7%. The decrease in net operating
revenues included a decrease of $3,390,000 in net motel revenues (motel revenues
less motel operating expenses and marketing and royalty fees). Of the $3,390,000
decrease in net motel revenues, $1,768,000 resulted from the motels acquired and
divested since January 1, 1997 and a decrease in net motel revenues for motels
owned during both periods of $1,622,000 or 3.7%. Net operating revenue as a
percent of total revenues was 8.4% and 20.4% in 1998 and 1997, respectively. The
decrease in net operating income also included the increase in general and
administrative expenses of $3,197,000, and increase in depreciation and
amortization of $3,010,000 and an increase in restructuring costs and impairment
losses of $6,024,000 all of which are separately discussed above. In addition to
the above, the Company realized an increase in other revenues in the amount of
$464,000 due principally to an increase in interest income and lease income.
Interest expense decreased to $30,578,000 in 1998 from $31,373,000 in
1997, a decrease of $795,000. The decrease is principally due to a decrease in
average outstanding borrowings.
Gain on sale of properties amounted to $26,079,000 in 1998 as
compared to $1,110,000 in 1997. The gain in 1998 consisted of $25,409,000 from
the sale of ten motel properties and a parcel of vacant land and a gain of
$670,000 on the sale of an investment.
Net income (loss) increased $6,524,000 to net income of $3,152,000 in
1998 from a net loss of $3,372,000 in 1997. Included in the net increase of
$6,524,000 is an increase of $15,015,000 in the net of tax gains realized on the
sale of properties of $15,693,000 in 1998 and $678,000 in 1997. Also included in
the $6,524,000 increase in net income is the provision for the restructuring
costs and impairment losses of $5,596,000 and $2,016,000 net of tax for 1998 and
1997, respectively.
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
December 31, 1999, the Company has principal repayment obligations of
$13,154,000, $24,773,000 and $16,563,000 for the years ending December 31, 2000,
2001 and 2002, respectively. In December 1999 the Company assumed a $3,750,000
note payable at 9.5% due October 25, 2001 in conjunction with the purchase of
$20,098,000 of 12% Senior Subordinated Notes from an affiliate. This loan
requires monthly interest payments and semi-annual principal payments of
$1,025,000. Also, in December 1999, the Company assumed and additional
$5,000,000 note payable at 13.5% due December 22, 2000 in conjunction with the
purchase of $15,000,000 of 12% Senior Subordinated Notes from an affiliate. The
loan requires monthly interest payments. The Company's principal repayment
obligations, reflective of the above mentioned debt transactions, as of June 15,
2000 is $7,556,000 for the remainder of fiscal 2000; $2,609,000 for 2001 and
$974,000 for 2002. In October 1999, the Company purchased from an affiliated
company $35 million of the 12% Senior Subordinated Notes due in 2004 for a gain
of $1.9 million which is offset by $1.9 million in accelerated deferred loan
costs written off as part of the transaction. Subsequent to December 31, 1999,
the Company has purchased from an affiliated company an additional $10.5 million
of the 12% Senior Subordinated Notes for a gain of approximately $4.2 million
which is partially offset by $0.5 million in accelerated deferred loan costs
which will be written off in year 2000. Although the Company believes it has or
will be able to obtain adequate resources to meet its near-term maturing debt
and other obligations, either from operating cash flows or refinancing, the
deteriorating trend in operating results noted above could adversely affect the
Company's ability to meet its maturing debt obligations in 2004 and 2005,
including the maturity of the remaining $34.5 million 12% Senior Subordinated
Notes in 2004.
The Company's capital expenditure requirements principally include
capital improvements and the refurbishment of lodging facilities as part of an
ongoing strategy to provide well-maintained facilities. The Company made capital
expenditures (exclusive of acquisitions and development of investment
properties) of $8,055,000, $5,696,000, and $7,948,000 in 1999, 1998 and 1997,
respectively. In addition, as of December 31, 1999, the Company has $888,000 of
cash restricted for future refurbishment, 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. For the year
ended December 31, 1999 cash and cash equivalents decreased $14,197,000 from
$19,582,000 at December 31, 1998 to $5,385,000 at December 31, 1999. A total of
$12,982,000 of cash was provided by operating activities, $4,248,000 of cash was
provided by investing activities and $31,427,000 of cash was used in financing
activities. Net investing activities include: $4,675,000 of cash utilized for
motel development; $8,055,000 expended on renovation of existing motel
properties; $1,315,000 of cash was provided by a decrease in cash restricted for
refurbishment of properties; and $15,663,000 of cash provided from the sale of
investment properties and collections on mortgage and other notes receivable.
Cash used by financing activities include: $76,162,000 of cash utilized to repay
indebtedness plus $1,963,000 of deferred financing costs less $46,698,000 of
proceeds from borrowings.
The Company is not currently a party to any proceeding which, in
management's opinion, is likely to have a material adverse effect on the
Company's operating results or financial position.
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 replaced its primary financial accounting system in 1998
at a cost of approximately $400,000. The new system is year 2000 compliant. The
Company has not had any problems resulting from the Year 2000 change.
Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 1999, the Company has total outstanding debt of
approximately $268,180,000 of which approximately $53,588,000, or 20%, is
variable rate debt. If market rates of interest on the Company's debt increase
by 10%, the increase in interest expense on the Company's variable rate debt
would decrease future earnings and cash flows by approximately $540,000. If
market rates of interest increased by 10%, the fair value of the Company's total
outstanding debt would decrease by approximately $4,135,000. If market rates of
interest on the Company's variable rate debt decreased by 10%, the decrease in
interest expense on the Company's variable rate debt would increase future
earnings and cash flows by approximately $429,000. If market rates of interest
decreased by 10%, the fair value of the Company's total outstanding debt would
increase by approximately $3,620,000.
These amounts were determined by considering the impact of
hypothetical interest rates on the Company's debt. These analyses do not
consider the effect of the reduced level of overall economic activity that could
exist in such an environment. Further, in the event of a change of such
magnitude, management would likely take actions to mitigate its exposure to such
a change.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of
Regulation S-K is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following chart lists the Company's current directors and executive
officers.
Name Age Positions(s) with the Company
------ --- -------------------------------
Paul F. Wallace 63 Director, Chairman and Chief Executive Officer
Alan H. Baerenklau 54 Director, President and Chief Operating Officer
Kurt M. Mueller 43 Director, Chief Financial Officer
Carl W. Desch 84 Director
Louis A. Scarrone, M.D. 76 Director
Ronald P. Stewart 56 Director
Peter W. McClean 56 Director
Philip J. Levien 55 Director
Blane P. Evans 40 Vice President, Secretary & Treasurer
The following is a biographical summary of the experience of the
directors and executive officers of the Company:
Paul F. Wallace, formerly a Director and controlling stockholder of
EconoLodge, has been Chairman and Chief Executive Officer of the Company since
January 1994 and a Director of the Company since August 1992. Mr. Wallace also
serves on the Company's operations committee. Mr. Wallace was President of The
Broadstone Group from July 1978 until June of 1986, and he became the President
again in July of 1993. Mr. Wallace has been Chairman of the Board and
controlling stockholder of The Broadstone Group since July 1981, and is
currently the principal shareholder of a privately held manufacturing company
and an investor in and operator of various real estate related projects.
Alan H. Baerenklau joined the Company in March 1997 and became a
Director, President and Chief Operating Officer of the Company in April 1997.
Mr. Baerenklau was President and Chief Operating Officer of Florida Hospitality
Group, a hotel development and management company, from 1984 to 1997. Prior to
1984, Mr. Baerenklau held various positions with the Howard Johnson Company
including those of General Manager, Regional Manager, Director of Corporate Real
Estate and Vice President of Operations. He is also an investor, partner and
officer in various hotel real estate ventures.
Kurt M. Mueller has been the Chief Financial Officer since April
1997. Mr. Mueller has been a Director of the Company since he joined MOA in May
1991. Mr. Mueller was President from January 1994 until April 1997 and Chief
Operating Officer of the Company from May 1991 until April 1997. Mr. Mueller
also served as Executive Vice President from May 1991 until January 1994. In
addition, Mr. Mueller currently serves on the Company's operations committee.
From 1978 to 1991, Mr. Mueller was employed by Ernst & Young LLP most recently
as a Senior Manager. During his career at Ernst & Young LLP, he was on the audit
staff and, during his last two years, he worked in the Mergers and Acquisitions
Group performing due diligence financial and operational reviews.
Carl W. Desch, formerly a Director of EconoLodge, has been a Director
of the Company since April 1993 and serves on the Company's audit committee and
operations committee. Mr. Desch has been Chairman and Director of Citibank
(NY State), N.A. for over five years.
Louis A. Scarrone, M.D., formerly a Director of EconoLodge, has been
a Director of the Company since October 1993. He has been engaged in his own
private practice of internal medicine since 1955.
Ronald P. Stewart, formerly a Director of EconoLodge, has been a
Director of the Company since October 1993. Mr. Stewart has been Headmaster of
York Preparatory School in New York City since 1969 and Chairman of The Rhodes
Group, Inc. since 1992.
Peter W. McClean, has been a Director of the Company since April
1997. Mr. McClean is currently Senior Vice President and Head of Global Risk
Management for the Bank of Bermuda Limited, based in Hamilton, Bermuda. In his
current position, Mr. McClean is responsible for the credit policy, the market
risk policy, the operating risk, the internal audit and the Bank's General
Counsel.
Philip J Levien, formerly a Director and Chairman of the Board of
EconoLodge, has been a Director of the Company since April 1997 and serves on
its audit committee. Mr. Levien has served as a Director of the Broadstone
Group for the past 15 years. Mr. Levien has been a Real Estate Developer for
the past 30 years.
Blane P. Evans has been Vice President, Secretary and Treasurer
of the Company since May 1999. Mr. Evans joined the Company in January 1992
and has served in various capacities, most recently as Corporate Controller.
Executive officers of the Company are appointed and serve at the
discretion of the Board of Directors. Each director of the Company is elected
for a period of one year and serves until his successor is duly elected and
qualified. None of the directors or executive officers of the Company has a
family relationship with any of the other directors or executive officers of the
Company.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
the Company to each of the Chief Executive Officer and the four other most
highly compensated executive officers of the Company, as of the end of the last
fiscal year, for services rendered to the Company in all capacities during the
last three fiscal years:
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary($) Bonus($)
- ---------------------------- ---- --------- --------
Paul F. Wallace 1999 300,000 -
Chairman and Chief Executive Officer 1998 300,000 -
1997 300,000 -
Alan H. Baerenklau 1999 233,300 -
President and Chief Operating Officer (1) 1998 233,300 116,700
1997 194,500 -
Kurt M. Mueller 1999 200,000 -
Chief Financial Officer 1998 200,000 50,000
1997 266,667 -
- -----------------------------
(1) Mr. Baerenklau joined the Company in March 1997.
The Company historically has and intends to continue to pay
discretionary bonuses to key employees, including property managers, as rewards
for superior financial performance. The Company does not maintain any employee
pension, profit sharing or savings plans for its employees, other than a 401(k)
savings plan, nor does it currently have any stock related plans for key
executives.
Members of the Board of Directors do not receive compensation for
serving on the Board except that Messrs. Desch, Stewart and Dr. Scarrone each
receive a $5,000 annual retainer and are paid $1,000 for each meeting. All
members of the Board of Directors receive reimbursement of reasonable expenses
incidental to attendance at meetings of the Board of Directors and all
committees.
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee of the Board of Directors.
During 1999, no officer or employee of the Company or its subsidiaries
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by the only entity known to be the beneficial owner of more
than 5% of the Company's Common Stock, by each director and by all directors and
officers of the Company as a group as of June 15, 2000:
Shares of
Common Stock
Beneficially Percent
Name and Address of Beneficial Owner Owned of Class
- ------------------------------------ ------------- ----------
Principal Stockholders:
New Image Realty, Inc. 677,228 85%
888 Seventh Avenue
Suite 3400
New York, NY 10106
Executive Officer and Directors
- -------------------------------
Paul F. Wallace 684,357 (1) 86%
All Directors and Officers as a Group (11 persons) 684,357 (2) 86%
- -------------------------
(1) Mr. Wallace is President, Chairman of the Board and controlling stockholder
of The Broadstone Group. The Broadstone Group owns 100% of the outstanding
Common Stock of New Image Realty, Inc. ("New Image"), which owns 85% of the
outstanding Common Stock of MOA. Mr. Wallace is deemed to be a beneficial owner
of 677,228 shares of Common Stock of the Company owned by New Image and 7,129
shares of Common Stock of the Company issued to Opal Inc. in January 1994.
(2) Includes 677,228 shares of Common Stock of the Company held by New Image
and 7,129 shares of Common Stock of the Company held by Opal Inc. that are
deemed to be beneficially owned by Paul F. Wallace.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes. The Company received a
payment of approximately $0.4 million during 1997. And during 1998, the
Company made payments of approximately $4.8 million to affiliates of Paul F.
Wallace, of which approximately $2.1 million is required as future tax payments.
In October 1999, the Company purchased from an affiliated company $35
million of the 12% Senior Subordinated Notes due in 2004 for a gain of $1.9
million which is offset by $1.9 million in accelerated deferred financing costs
written off as part of the transaction. Subsequent to December 31, 1999, the
Company has purchased from an affiliated company an additional $10.5 million of
the 12% Senior Subordinated Notes for a gain of approximately $4.2 million which
is partially offset by $0.5 million in accelerated deferred financing costs
which will be written off in year 2000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 & 2. Financial Statements and Schedules
See Index to Financial Statements in this Form 10-K.
3. Exhibits
The Exhibits listed in the accompanying Index to Exhibits
are filed as part of this Form 10-K.
(b) Reports on Form 8-K
None.
INDEX TO FINANCIAL STATEMENTS
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Years Ended December 31, 1999, 1998 and 1997
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity for each of
the three years in the period ended December 31, 1999 F-5
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7
All schedules have been omitted because they are not required or are
not applicable, or the required information is included in the
financial statements or notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MOA Hospitality, Inc.
We have audited the consolidated balance sheets of MOA Hospitality,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MOA
Hospitality, Inc. and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
June 15, 2000
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
1999 1998
-------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,421,943 $ 19,581,870
Accounts receivable from property operations 1,813,599 2,014,742
Operating supplies and prepaid expenses 1,969,246 2,324,528
Current portion of mortgage and notes receivable 1,608,050 2,139,434
-------------- --------------
Total Current Assets 9,812,838 26,060,574
Investment property:
Operating properties, net of accumulated depreciation 256,609,273 279,943,510
Land held for development 4,937,586 3,829,439
-------------- --------------
Total investment property 261,546,859 283,772,949
Other Assets:
Deposits and other assets 3,680,946 1,762,314
Restricted cash 1,850,745 2,202,638
Net deferred tax asset - 1,542,050
Mortgage and other notes receivable, less current portion 23,448,186 11,625,905
Financing and other deferred costs, net of accumulated
amortization of $10,925,133 in 1999 and $8,258,685 in 1998 12,865,533 12,088,216
Total Other Assets 41,845,410 29,221,123
-------------- --------------
Total Assets $ 313,205,107 $ 339,054,646
============== ==============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,714,191 $ 3,939,181
Real estate taxes payable 2,017,579 2,847,444
Accrued interest payable 2,712,913 3,382,314
Other liabilities, including deposits 11,500,853 643,418
Other accounts payable and
accrued expenses 10,194,388 7,656,587
Current portion of long-term debt 13,153,969 40,199,004
Total Current Liabilities 41,293,893 58,667,948
Net deferred tax liability 104,798 -
Long-term debt, less current portion:
Mortgage and other notes payable 211,525,324 178,845,937
12% Senior Subordinated Notes, net of unamortized
discount of $1,400,961 in 1999 and $2,894,235 in 1998 43,501,040 77,105,765
-------------- --------------
Total Long-term debt, excluding current portion 255,026,364 255,951,702
-------------- --------------
Total Liabilities 296,425,055 314,619,650
-------------- --------------
Minority Interests 1,708,579 1,689,005
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and outstanding 8,000 8,000
Additional paid-in capital 15,294,284 15,294,284
Retained earnings (deficit) (230,811) 7,443,707
-------------- --------------
Total stockholders' equity 15,071,473 22,745,991
-------------- --------------
Total Liabilities and Stockholders' Equity $ 313,205,107 $ 339,054,646
============== ==============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Revenues:
Motel operating revenues $ 96,833,291 $ 115,007,367 $ 121,511,834
Lease revenues 2,476,570 - -
Other revenues 4,121,228 1,319,407 855,305
-------------- -------------- --------------
Total revenues 103,431,089 116,326,774 122,367,139
Costs and expenses:
Motel operating expenses 54,573,523 60,608,213 62,333,314
Marketing and royalty fees 6,785,937 7,515,048 8,904,980
General and administrative 10,350,626 11,104,660 7,907,752
Lease expense 157,729 - -
Impairment losses and restructuring costs 1,378,000 9,300,000 3,276,219
Depreciation and amortization 14,978,458 17,995,330 14,984,942
-------------- -------------- --------------
Total direct expenses 88,224,273 106,523,251 97,407,207
-------------- -------------- --------------
Net operating income 15,206,816 9,803,523 24,959,932
Interest expense 30,069,919 30,578,266 31,372,749
-------------- -------------- --------------
Loss from operations (14,863,103) (20,774,743) (6,412,817)
Minority interests (19,575) (83,641) (177,617)
Gain on sale of properties 2,527,605 26,078,852 1,109,622
-------------- -------------- --------------
Income (loss) before income taxes (12,355,073) 5,220,468 (5,480,812)
Income tax expense (benefit) (4,680,555) 2,068,563 (2,108,997)
-------------- -------------- --------------
Net income (loss) $ (7,674,518) $ 3,151,905 $ (3,371,815)
============== ============== ==============
Net income (loss) per common share (basic and diluted) $ (9.59) $ 3.94 $ (4.21)
============== ============== ==============
Weighted average number of
common shares outstanding 800,000 800,000 800,000
============== ============== ==============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Additional Retained Total
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
---------- --------------- ---------------- ----------------
Balance at January 1, 1997 $ 8,000 $ 15,294,284 $ 7,663,617 $ 22,965,901
Net loss - - (3,371,815) (3,371,815)
---------- --------------- ---------------- ----------------
Balance at December 31, 1997 8,000 15,294,284 4,291,802 19,594,086
Net income - - 3,151,905 3,151,905
---------- --------------- ---------------- ----------------
Balance at December 31, 1998 8,000 15,294,284 7,443,707 22,745,991
Net loss - - (7,674,518) (7,674,518)
---------- --------------- ---------------- ----------------
Balance at December 31, 1999 $ 8,000 $ 15,294,284 $ (230,811) $ 15,071,473
========== =============== ================ ================
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Cash flows provided by operating activities:
Net income (loss) $ (7,674,518) $ 3,151,905 $ (3,371,815)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and accretion
of discount on notes 16,472,044 18,390,661 15,313,183
Impairment losses 928,000 9,300,000 2,530,219
Minority interests of others in income from operations 19,575 83,641 177,617
Deferred income taxes 1,646,848 (4,893,734) (332,881)
Gain on sale of properties (2,527,605) (26,078,853) (1,109,622)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 197,786 219,529 553,831
Operating supplies, prepaid expenses,
deposits and other assets (4,405,249) 3,987,946 1,295,880
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 7,984,256 5,553,702 959,074
Accrued interest payable (669,401) (242,495) (68,059)
-------------- -------------- --------------
Net cash provided by operating activities 11,971,736 9,472,302 15,947,427
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties (4,674,649) (22,173,231) (10,401,985)
Refurbishment of investment properties (8,054,960) (5,696,331) (7,948,239)
Cash restricted for refurbishment of properties 1,314,710 (976,259) 2,512,099
Net proceeds from sales of investment properties 8,838,990 53,606,876 569,892
Collections on mortgage and other notes receivable 6,824,103 2,236,599 1,620,492
-------------- -------------- --------------
Net cash provided by (used in) investing activities 4,248,194 26,997,654 (13,647,741)
Cash flows provided by (used in) financing activities:
Repayment of notes payable (76,161,920) (43,263,684) (10,350,127)
Proceeds from notes payable 46,698,272 14,053,727 9,798,728
Distributions to minority interests - (157,143) (314,286)
Deferred financing costs (1,916,209) (553,482) (649,076)
-------------- -------------- --------------
Net cash provided by financing activities (31,379,857) (29,920,582) (1,514,761)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (15,159,927) 6,549,374 784,925
Cash and cash equivalents at beginning of year 19,581,870 13,032,496 12,247,571
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 4,421,943 $ 19,581,870 $ 13,032,496
============== ============== ==============
Supplementary disclosure of cash flow information:
Cash paid during the year for interest $ 30,739,320 $ 30,820,761 $ 31,440,807
============== ============== ==============
Cash paid (received) during the year for income taxes $ - $ 4,783,625 $ (59,941)
============== ============== ==============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Basis of Presentation
MOA Hospitality, Inc., an 85%-owned subsidiary of New Image Realty,
Inc. ("New Image"), owns, develops, manages, and has equity interests in various
national brand affiliated limited service lodging facilities in 39 states
throughout the United States. At December 31, 1999, the Company's largest
concentrations of lodging facilities were located in the States of Georgia and
Illinois with 13 lodging facilities in Georgia and 12 lodging facilities in
Illinois. The consolidated financial statements include the accounts of MOA
Hospitality, Inc. and all wholly owned subsidiaries and all entities in which it
has a controlling interest (collectively, the "Company"). All significant
intercompany accounts have been eliminated in consolidation. Certain
reclassifications of prior-period amounts have been made to conform with the
current-period presentation which have not changed operations or stockholders'
equity.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash Equivalents
Cash equivalents represent liquid assets with a maturity of three
months or less when purchased.
Restricted Cash
Restricted cash represents cash that, under the terms of certain
mortgage notes payable, has been set aside for the refurbishment of motel
properties.
Investment Properties
The Company's operating properties are stated at cost less accumulated
depreciation. Operating properties, excluding land, are depreciated using the
straight-line method over the estimated useful lives of the assets (buildings -
40 years; furniture and equipment - 7 years).
Maintenance and repair costs are expensed as incurred, while
significant improvements, replacements and major renovations are capitalized.
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. An impairment loss is measured as the difference between the
carrying value and fair value.
2. Summary of Significant Accounting Policies- (Continued)
Financing and Other Deferred Costs
Financing costs are amortized over the terms of the related
indebtedness using the level yield method. Franchise costs are amortized using
the straight-line method over the life of the related franchise agreement.
Earnings Per Share
Basic and fully diluted earnings per share are based on the weighted
average number of shares of common stock outstanding during each period.
3. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $24,454,408 and $12,989,747
at December 31, 1999 and 1998, respectively, represent notes collateralized by
motel properties. The notes provide for monthly principal and interest (various
rates of 8% to 10.5%) receipts over various terms through 2009, although certain
notes are callable prior to their due dates.
Other notes receivable in the amounts of $601,828 and $775,592 at
December 31, 1999 and 1998, respectively, bear an interest at rate of 11% and
are receivable over various terms through 2016. A note receivable with an
interest rate of 9% was paid in full during 1999.
Notes receivable of $2,625,807 at December 31, 1998 have been pledged
as collateral for a loan facility in which the Company participated along with
one of its affiliates. The loan facility had an outstanding balance of $242,691
at December 31, 1998. The loan facility was paid in full during 1999.
Notes receivable of $11,363,679 at December 31, 1999 have been pledged
as collateral for a loan facility. The loan facility had an outstanding balance
of $5,985,144 at December 31, 1999.
Two notes receivables in the amounts of $2,164,000 and $964,000 were
transferred to an affiliate as of December 31, 1999 in partial settlement of
amounts owed to the affiliate pursuant to the tax allocation agreement.
4. Operating Properties
The major classes of operating properties, at cost, are as follows:
December 31,
-------------------------------
1999 1998
------------- -------------
Land $ 45,695,630 $ 50,611,428
Buildings 238,670,582 250,547,251
Furniture and Equipment 60,473,596 60,277,741
------------- -------------
344,839,808 361,436,420
Less: Accumulated depreciation (88,230,535) (81,492,910)
------------- -------------
$256,609,273 $279,943,510
============= =============
Depreciation expense equaled $12,135,308, $12,942,987, and $12,151,209
for the years ended December 31, 1999, 1998 and 1997, respectively.
5. Notes Payable and Senior Subordinated Notes
In September 1995, the Company completed funding of a financing
transaction with Nomura Asset Capital Corporation ("NACC"). Motels of America,
L.L.C. (the "LLC"), a limited purpose subsidiary, obtained a loan from NACC in
the principal amount of $158.8 million evidenced by a Promissory Note ("Note")
due 2015. The Note is secured by 93 motel properties owned by the LLC. The loan
requires fixed monthly payments (based on a 20-year amortization schedule) of
principal and interest totaling approximately $1,390,000 through October 11,
2005; thereafter, if the loan is not repaid, excess cash flow as defined is
applied as additional principal payments. Interest accrues at 8.62% through
October 11, 2005, and thereafter at a fixed rate per annum equal to the greater
of (i) 10.62% or (ii) the yield as of October 11, 2005 on ten-year U.S. Treasury
notes, plus 4.5%.
In 1997, an affiliate of the Company was formed for the sole
purpose of constructing lodging properties to be acquired by a subsidiary of the
Company upon completion at cost. Such affiliate develops the lodging properties
from its own funds, payments from the Company on account to be applied towards
the purchase price and the proceeds of a $20.0 million revolving construction
loan facility arranged by the affiliate. In connection with the construction
loan facility, the Company had guaranteed completion of the construction of each
property and the subsidiary acquiring the properties had guaranteed the
construction loan facility to a maximum of $10.0 million. In 1997, five (5) such
properties were acquired for $12.9 million of which $7.8 million was funded from
a $150.0 million secured loan facility between the subsidiary acquiring the
properties and CS First Boston ("CSFB"). This facility provided for, among other
things, interest computed at a rate based upon the thirty (30) day LIBOR rate
plus 300 basis points, monthly principal and interest payments at an 11.5% per
annum constant, and repayment of the outstanding balance of each funding made
pursuant to the facility forty-two (42) months after the date of each such
funding. In addition, the Company has pledged its interest in a wholly owned
subsidiary to secure up to $20.0 million of borrowing under the facility. The
$20.0 million revolving construction loan facility of the affiliate matured in
1998. The outstanding balances were paid in full upon the purchase of financed
properties by a subsidiary of the Company with funds borrowed under the $150.0
million secured loan facility with CSFB and the application of amounts
previously deposited with the affiliate. At December 31, 1998 the $150.0
million secured loan facility with CSFB matured with no further borrowings
available for this loan facility. At December 31, 1999, approximately $17.1
million of borrowings were outstanding under the $150.0 million CSFB secured
loan facility. The amount outstanding is secured by eleven properties and a
pledge of the common stock of the subsidiary that owns such properties. As a
result of the Company's under utilization of the CSFB loan facility, the Company
changed its estimate of the economic benefit of certain deferred loan costs
incurred in connection with obtaining the facility and accordingly accelerated
the amortization of $1.9 million of such costs in 1998.
In 1994, the Company completed an offering of $80,000,000 in principal
amount of 12% Senior Subordinated Notes due April 15, 2004, Series B. In
conjunction with this offering, 80,000 shares of common stock were also issued.
These Notes have been registered under the Securities Act of 1933 and are freely
transferable by holders thereof. Interest on the Notes is payable semiannually.
The Notes were not redeemable by the Company prior to April 15, 1999. The
Company may redeem the Subordinated Notes at 106% reducing to 100% over the life
of the Subordinated Notes plus any accrued and unpaid interest. In October 1999,
the Company repurchased from an affiliated company $35 million of the 12% Senior
Subordinated Notes for a gain of $1.9 million, which is offset by the
accelerated write-off of deferred financing costs of $1.9 million. The
repurchase transaction included the assumption of $8,750,000 million of notes
payable of the affiliate. Subsequent to December 31, 1999, the Company
repurchased from an affiliated company an additional $10.5 million of the 12%
Subordinated Notes for a gain of approximately $4.2 million which was partially
offset by a $0.5 million write-off of accelerated deferred financing costs.
5. Notes Payable and Senior Subordinated Notes-(Continued)
The declaration and payment of dividends by the Company is restricted
by the indenture relating to the 12% Senior Subordinated Notes.
A summary of mortgage and other notes payable is as follows:
December 31,
------------------------------------
1999 1998
-------------- --------------
Mortgage and other notes:
Mortgage note payable secured by 93 motels, with interest
at 8.62% per annum through October 10, 2005. Rate equal to
greater of 10.62% or ten-year Treasury note plus 4.5%
thereafter. Principal and interest payable monthly; due
October 11, 2015. $ 144,826,404 $ 148,667,825
Mortgage notes payable secured by 13 motels at December
31,1998, and a pledge of the stock of one of MOA Hospitality,
Inc's subsidiaries, with interest at a floating rate of LIBOR
plus 3.37%; Principal and interest payable monthly;
repaid in 1999. - 12,025,637
Various cross-collateralized, nonrecourse mortgage notes
secured by 7 motels and the common stock of MOA Portfolio
II, Ltd., with interest at a floating rate of LIBOR plus
1.75% with a cap of 9%; monthly principal and interest
payments; repaid in 1999. - 17,233,789
Various mortgage notes payable currently secured by 6 and 7
motels at December 31, 1999 and 1998, respectively with
fixed interest from 7.85% to 10.25%; principal and interest
payments payable monthly; due dates from May 1, 1999 to
December 15, 2003. 4,877,930 7,009,027
Note secured by undeveloped land with a fixed interest rate
of 8%; interest payable monthly, due date May 4, 2001. 1,440,000 1,440,000
Various mortgage notes payable secured by 1 motel; with
variable interest based on prime or Treasury bill rates;
principal and interest payments payable monthly; due
February 1, 2009. 2,679,931 2,739,325
Mortgage note payable secured by a 4 motels, with interest
at LIBOR plus 3.25%; monthly principal and interest payment,
additional monthly principal payment of $20,833.33 and all
excess cash flow in year one. Due January 1, 2004. 10,306,417 -
Mortgage note payable secured by 8 motels, with interest at
Prime plus 0.5% points; monthly principal and interest; due
April 1, 2006. 16,368,092 -
Note payable unsecured, with a fixed interest rate of 10%,
initial principal payment $575,000 and three additional
annual principal payments of $200,000. Due July 19, 2000. 519,098 -
Note secured by notes receivable with interest at a floating
rate of LIBOR plus 2.50%; monthly principal and interest
payment; repaid in 1999. - 242,691
Mortgage note payable secured by a guarantee of New Image with
a fixed interest rate of 14%; interest payments payable
quarterly; due January 23, 2001. 8,400,000 8,400,000
Notes payable secured by a pledge of stock of one of MOA
Hospitality, Inc.'s subsidiaries, with interest at a
floating rate of LIBOR plus 3%; principal and interest
payments payable monthly; due April 8, 2001 through June
18, 2002. 17,063,737 17,716,547
Industrial development revenue bonds secured by a motel with
interest payable semiannually at 10.5%; annual sinking fund
redemptions of principal on December 1 through 2016. 3,445,000 3,520,000
Note payable secured by $20,098,000 of 12% Subordinated Notes
repurchased by the Company, with a fixed interest rate of 9.5%,
interest payable monthly and semi-annual principal
payment. Due October 25, 2001. 3,750,000 -
Note payable secured by note receivable, with an interest
rate of Prime plus 1.25%, monthly interest and principal
payments. Due April 1, 2006 5,985,144 -
Note payable secured by $15,000,000 of 12% Subordinated Notes
repurchased by the Company, with a fixed interest rate of
13.5%. Monthly interest payments. Due December 22, 2000 5,000,000 -
Other notes payable 17,540 50,100
-------------- --------------
224,679,293 219,044,941
Less current portion (13,153,969) (40,199,004)
-------------- --------------
$ 211,525,324 $ 178,845,937
============== ==============
Principal payments required on notes payable and the Senior
Subordinated Notes are scheduled as follows:
Years ended December 31,
2000 $ 13,153,969
2001 24,772,659
2002 16,563,246
2003 6,816,708
2004 60,366,557
Thereafter 147,908,155
-------------
Sub-total $269,581,294
Less: Discount, net of accumulated
amortization 1,400,961
-------------
$268,180,333
=============
6. Leases
The Company leases certain properties, administrative offices, and
equipment under operating leases. The leases generally provide for the Company
to pay taxes, insurance, and maintenance expenses related to the leased
property. Rent expense was approximately $504,000, $806,000, and $947,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. Minimum annual
rentals for leases on properties and the corporate office for the five years
subsequent to December 31, 1999 and thereafter, are approximately as follows:
Years ended December 31,
2000 $ 431,000
2001 345,000
2002 170,000
2003 132,000
2004 102,000
Thereafter 673,000
-----------
$1,853,000
===========
The Company, as lessor, has entered into operating leases with
unaffiliated parties to operate forty-two motel properties, and with one
affiliated party to operate one motel property. Under the terms of these
leases, the lessee is responsible for operating costs including all
maintenance, repairs, taxes and insurance expense on the leased property. The
leases, which have a terms ranging from five and a half years to six and half
years, provide for monthly rent payments. In addition, the lease grants the
lessee an option to purchase the leased properties at prices believed by
management to reflect market value, which in the aggregate is $78,600,000 at
December 31, 1999. Nonrefundable deposits, aggregating approximately $9,000,000
at December 31, 1999, received from lessees can be applied towards the purchase
prices of the leased properties. In addition, monthly lease payments are
allocated between rental income and a nonrefundable purchase price credit to be
applied if the purchase option is exercised. The deposits and real estate tax
and other amounts collected from the lessees aggregating $2,300,000 are
reflected in the balance sheet as a component of other accounts payable and
accrued expenses. Future minimum rentals under the lease (assuming that the
purchase options are not exercised prior to expiration) are approximately as
follows:
Years ended December 31,
2000 $ 6,440,000
2001 6,425,000
2002 6,499,000
2003 6,384,000
2004 5,866,000
Thereafter 1,437,000
------------
$33,051,000
============
7. Impairment losses and restructuring costs
In 1997, impairment losses of $2,526,000 were recorded to reflect the
writedown of certain land held for development to its fair value based on an
independent appraisal of such land obtained in 1998 and to reflect a provision
for a loss on the collection of a mortgage note receivable.
In 1998, impairment losses of $9,300,000 were recorded to reflect the
writedown of certain properties to their estimated fair value.
In 1999, impairment losses of $928,000 were recorded to reflect the
writedown of certain properties to their estimated fair value. Restructuring
costs of $450,000 were recorded to reflect the downsizing of corporate employees
due to the reduction of operating properties.
8. Income Taxes
Income tax expense (benefit) consists of:
Current Deferred Total
------------ ------------ ------------
Year ended December 31, 1999
U.S. federal $(4,711,638) $ 927,573 $(3,784,065)
State and local (1,615,767) 719,277 (896,490)
------------ ------------ ------------
$(6,327,405) $ 1,646,850 $(4,680,555)
============ ============ ============
Year ended December 31, 1998
U.S. federal $ 5,273,060 $(3,600,699) $ 1,672,361
State and local 1,689,240 (1,293,038) 396,202
------------ ------------ ------------
$ 6,962,300 $(4,893,737) $ 2,068,563
============ ============ ============
Year ended December 31, 1997
U.S. federal $(1,498,879) $ (206,171) $(1,705,050)
State and local (277,237) (126,710) (403,947)
------------ ------------ ------------
$(1,776,116) $ (332,881) $(2,108,997)
============ ============ ============
8. Income Taxes - (Continued)
Income tax expense (benefit) differs from the amounts computed by
applying the U.S. federal income tax rate of 34% to income before income taxes
and extraordinary item as a result of the following:
Year Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Computed "expected" tax expense (benefit) $(4,200,725) $ 1,774,959 $(1,863,476)
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal
income tax effect (591,684) 261,494 (266,605)
Other, net 111,854 32,110 21,084
------------ ------------ ------------
$(4,680,555) $ 2,068,563 $(2,108,997)
============ ============ ============
The deferred tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts reported for income tax purposes are as follows:
December 31,
-----------------------------
1999 1998
------------- -------------
Deferred tax assets:
Reserves, primarily impairment losses $ (3,749,866) $ (4,655,368)
Net state operating loss carryforwards (806,762) (1,428,811)
Federal tax credits carryover (633,727) (633,727)
Other, net (265,501) (800,484)
------------- -------------
Total deferred tax assets (5,455,856) (7,518,390)
Deferred tax liabilities:
Investment properties, principally due to
Depreciation and purchase accounting
Adjustments 5,560,654 5,976,340
------------- -------------
Total deferred tax liabilities 5,560,654 5,976,340
------------- -------------
Net deferred tax liability (asset) $ 104,798 $ (1,542,050)
============= =============
8. Income Taxes-(Continued)
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes and has entered into a
tax allocation agreement with New Image and its parent corporation. In
accordance with the agreement, the Company's tax liability/benefit will be
computed as if the Company had filed its own consolidated tax return and is
subject to tax on all of its taxable income. The Company made payments of
approximately $4.8 million, to the parent corporation during 1998. At December
31, 1999, approximately $2.1 million is owed to the parent corporation which has
been included in other accounts payable and accrued expenses.
At December 31, 1999, the Company has net operating loss carryforwards
("NOLs") for state income tax purposes of approximately $10.8 million. The NOLs,
which are subject to certain limitations, expire at various dates through 2010.
At December 31, 1999, the Company also has approximately $138,000 of tax credit
carryforwards subject to certain limitations.
9. Acquisitions and Divestitures
During 1997, in separate transactions, the Company sold two properties
for an aggregate of $3.9 million consisting of cash in the amount of $0.1
million, a mortgage note receivable in the amount of $1.0 million and the
buyer's assumption of a mortgage note in the amount of $2.3 million. The Company
remains contingently liable on the note, $2.3 million, in the event the
purchaser does not perform under its obligations.
In 1998, the Company sold ten properties, a parcel of vacant land and
an investment in a partnership to unaffiliated parties for approximately $65.5
million consisting of $57.2 million of cash and $8.3 in notes receivable; the
Company recorded a gain of $26.1 million. The Company also leased five
properties to third party operators in 1998.
During 1999, the Company has sold ten properties, including one being
accounted for on the installment basis, for approximately $27.8 million
consisting of $9.7 million in cash and $18.1 million in notes receivable. The
Company realized gains of approximately $2.5 million and deferred recognition of
a gain in the approximate amount of $1.7 million relating to the sale being
accounted for on the installment basis. The Company also leased an additional
thirty-eight properties to third party operators in 1999.
Also during 1999, the Company purchased the property constructed by an
affiliate for the Company. The property was purchased for $2.9 million.
From January 1, 2000 through June 1, 2000, the Company has sold
six properties for approximately $14.5 million consisting of $8 million in cash
and $6.5 million in first mortgage notes. These sale transactions resulted
in gains/losses of $1 million.
The Company, as lessor, has leased an additional twenty-five motel
properties during the period January 1, 2000 through June 15, 2000.
10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Mortgage and other notes receivable: The fair values of the Company's
mortgage and other notes receivable are estimated using discounted cash
flow analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings.
Mortgage and other notes payable: The fair values of the Company's
mortgage and other notes payable are estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements.
12% Senior Subordinated Notes: The fair value of the Company's 12% Senior
Subordinated Notes are based on quoted market prices.
The carrying amounts and fair values of the Company's financial
instruments at December 31 are as follows:
Carrying Carrying
Amount Fair Value Amount Fair Value
1999 1999 1998 1998
------------- ------------- ------------- -------------
Cash and cash equivalents $ 5,384,760 $ 5,384,760 $ 19,581,870 $ 19,581,870
Mortgage and other notes
receivable 25,056,236 24,759,095 13,765,339 14,018,869
Secured notes payable 224,679,293 224,363,195 219,044,941 224,922,041
12% Senior Subordinated
Notes 43,501,040 31,320,748 77,105,765 55,600,000
11. Segments
During the fourth quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No 131,
"Disclosures About Segments of an Enterprise and Related Information"
("Statement No. 131"). Statement No. 131 establishes standards for the manner in
which public business enterprises report information regarding reportable
operating segments. The adoption of Statement No. 131 did not affect the results
of operations or financial position of the Company.
11. Segments (continued)
As of December 31, 1999 the Company, directly and through subsidiaries,
owned 126 lodging facilities in 39 states. The Company owns a 100% interest in
all but two of its properties and also operates all but forty-two of its motels,
which are leased to third party tenants pursuant to operating leases and one to
an affiliated party. The Company separately evaluates the performance of each of
its motels. However, because each of the motels has similar economic
characteristics, the motels have been aggregated into a single dominant motel
segment as indicated below.
1999 1998 1997
--------- --------- ---------
(in thousands)
Motel operations:
Motel operating revenue:
Room revenues $ 90,382 $107,841 $114,110
Ancillary motel revenues 6,451 7,166 7,402
--------- --------- ---------
Total motel operating revenues 96,833 115,007 121,512
Motel costs and expenses:
Motel operating expenses 54,573 60,608 62,333
Marketing and royalty fees 6,786 7,515 8,905
Depreciation and amortization 11,468 14,575 14,257
--------- --------- ---------
Total motel direct expenses 72,827 82,698 85,495
--------- --------- ---------
24,006 32,309 36,017
Lease Operations:
Lease revenues 2,477 - -
Lease operating expenses 158 - -
Depreciation and amortization 1,922 - -
--------- --------- ---------
397 - -
Corporate Operations
Other revenues 4,121 1,319 855
General and administrative expenses:
Management Company Operations 5,454 5,415 4,568
Construction/Acquisition and Divestiture 1,407 1,389 1,032
Other general and administrative 3,490 4,301 2,308
--------- --------- ---------
Total general and administrative expenses 10,351 11,105 7,908
Impairment losses and restructuring costs 1,378 9,300 3,276
Depreciation and amortization 1,588 3,420 728
--------- --------- ---------
(9,196) (22,506) (11,057)
--------- --------- ---------
Net operating income 15,207 9,803 24,960
Interest expense 30,070 30,578 31,373
--------- --------- ---------
Loss from operations 14,863) (20,775) (6,413)
Minority interests (20) (84) (178)
Gain on sale of properties 2,528 26,079 1,110
--------- --------- ---------
Income (loss) before income taxes (12,355) 5,220 (5,481)
Income tax expense (benefit) (4,681) 2,068 (2,109)
--------- --------- ---------
Net Income (loss) $ (7,674) $ 3,152 $ (3,372)
========= ========= =========
12. Contingencies
The Company is involved in various legal proceedings arising
in the ordinary course of business. The Company does not believe that any of
these actions, either individually or in the aggregate, will have a material
adverse effect on the Company's business, results of operations or financial
condition.
The Company remains contingently liable on a $2.3 million note
assumed by a purchaser of an operating property in the event the purchaser does
not perform under its obligations.
In July 1999, the Company entered into a settlement agreement with
ShoLodge resolving all disputes with respect to the litigation initiated by the
Company. The settlement agreement requires for the Company to make an initial
payment of $575,000 in July 1999 and three subsequent payments of $200,000 in
July 2000, 2001 and 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 15th day of
June, 2000.
MOA HOSPITALITY, INC.
By: /s/ Kurt M. Mueller
------------------------
Kurt M. Mueller
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Paul F. Wallace Director, Chairman and June 15, 2000
- ----------------------------
Paul F. Wallace Chief Executive Officer
Principal Executive Officer
/s/ Alan H. Baerenklau Director, President and June 15, 2000
- ----------------------------
Alan H. Baerenklau Chief Operating Officer
/s/ Kurt M. Mueller Director and Chief June 15, 2000
- ----------------------------
Kurt M. Mueller Financial Officer
Principal Financial Officer
/s/ Carl W. Desch Director June 15, 2000
- ----------------------------
Carl W. Desch
/s/ Peter W. McClean Director June 15, 2000
- ----------------------------
Peter W. McClean
/s/ Louis A. Scarrone, M.D. Director June 15, 2000
- ----------------------------
Louis A. Scarrone, M.D.
/s/ Ronald P. Stewart Director June 15, 2000
- ----------------------------
Ronald P. Stewart
/s/ Philip J. Levien Director June 15, 2000
- ----------------------------
Philip J. Levien
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Company did not submit an annual report to security holders
covering the registrants's last fiscal year. In addition, the Company did not
send proxy statements, any form of proxy or other proxy soliciting material to
security holders with respect to any annual or other meeting of security
holders.
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
3.1 Certificate of Incorporation of Motels of America, Inc.
("MOA" or the Company") as amended to date, incorporated
by reference to Exhibit 3.1 to MOA's Registration
Statement on Form S-1 (No. 33-78866) which became
effective on July 13, 1994 (the "1994 Form S-1").
3.2 By-laws of MOA, incorporated by reference to Exhibit 3.2
to the 1994 Form S-1.
4.1 Indenture dated April 14, 1994 for the 12% Senior
Subordinated Notes due 2004, incorporated by reference to
Exhibit 4.1 to the 1994 Form S-1.
4.2 Registration Rights Agreement dated as of April 14, 1994
by and among MOA, Alex. Brown and BT Securities,
incorporated by reference to Exhibit 4.2 to the 1994
Form S-1.
4.3 Loan Agreement between Motels of America, L.L.C. and
Nomura Asset Capital Corporation ("NACC") dated as of
September 15, 1995, incorporated by reference to Exhibit
4.1 to MOA's Form 8-K filed on November 4, 1995.
4.4 Form of Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing between MOA-TL Corp. and MOA-CS Corp.,
as Mortgagor to CS First Boston Mortgage Capital Corp.,
as Mortgagee, dated as of November 5, 1996, incorporated
by reference to Exhibit 4.4 to MOA's Form 10-K for the
fiscal year ended December 31, 1996 (the "1996 Form 10-K").
10.1 Note Purchase Agreement dated as of October 20, 1994, among
NACC and MOA, MOA Midwest Corp. and Tri-State Inns, Inc.
(the "Note Purchase Agreement"), incorporated by reference
to Exhibit 10.2 to MOA's Form 10-K for the fiscal year
ended December 31, 1994 (the "1994 Form 10-K").
10.1A Amendment No. 1 to the Note Purchase Agreement, dated as
of October 20, 1994, incorporated by reference to Exhibit
10.2A to the 1994 Form 10-K.
10.1B Environmental Indemnity Agreement dated as of October 20,
1994, incorporated by reference to Exhibit 10.2B to the
1994 Form 10-K.
10.1C Amendment No. 2 to the Note Purchase Agreement, dated as
of December 16, 1994, incorporated by reference to
Exhibit 10.1B to MOA's Form 8-K filed on February 7, 1996
(the "1996 Form 8-K").
10.1D Amendment No. 3 to the Note Purchase Agreement, dated as
of January 23, 1996, incorporated by reference to
Exhibit 10.1C to the 1996 Form 8-K.
10.2 Note Purchase Agreement dated as of January 23, 1996,
among NACC and MOA-TL Corp., incorporated by reference to
Exhibit 10.2 to the 1996 Form 8-K.
10.3 $10,000,000 Promissory Note of MOA-TL Holding Corp.
payable to HFS Incorporated, dated as of January 23, 1996,
incorporated by reference to Exhibit 10.3 to the 1996
Form 8-K.
10.4 Asset Purchase Agreement dated as of December 19, 1995, by
and among MOA, Forte Hotels, Inc. and Forte USA, Inc. (the
"Asset Purchase Agreement"), incorporated by reference to
Exhibit 10.4 to the 1996 Form 8-K.
10.4A First Amendment to the Asset Purchase Agreement, dated as
of January 23, 1996, incorporated by reference to Exhibit
10.4A to the 1996 Form 8-K.
10.5 Employment Agreement of Daniel W. Daniele dated September
14, 1994, incorporated by reference to Exhibit 10.14 to the
1994 Form 10-K.
10.6 $20,000,000 Promissory Note of MOA-TL Corp. payable to CS
First Boston Mortgage Capital Corp., dated as of November
5, 1996, incorporated by reference to Exhibit 10.6 to MOA's
Form 10-K for the fiscal year ended December 31, 1996 (the
"1996 Form 10-K").
10.7 $17,150,000 Promissory Note of MOA-CS Corp. payable to CS
First Boston Mortgage Capital Corp., dated as of November
5, 1996, incorporated by reference to Exhibit 10.7 to MOA's
Form 10-K for the fiscal year ended December 31, 1996 (the
"1996 Form 10-K").
10.8 Credit facility agreement up to $150,000,000 between TAD
Properties, L.L.C. and Credit Suisse First Boston Mortgage
Capital., date as of December 20, 1996, incorporated by
reference to Exhibit 10.8 to MOA's Form 10-K for the fiscal
year ended December 31, 1997 (the "1997 Form 10-K").
10.8A Amendment to credit facility agreement, dated as of October
8, 1997, incorporated by reference to Exhibit 10.8 to MOA's
Form 10-K for the fiscal year ended December 31, 1997 (the
"1997 Form 10-K").
21.1 Subsidiaries of MOA.