UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 33-78866
----------------------
MOA HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
----------------------
701 Lee Street, Suite 1000
Des Plaines, Illinois 60016
(847) 803-1200
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ ] Yes [X] No
Number of shares of Common Stock, $.01 par value outstanding as
March 18, 2002: 800,000
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - 2
September 30, 2001 (unaudited) and December 31, 2000.
Condensed consolidated statements of operations - 3
Three months ended September 30, 2001 and 2000
and Nine months ended September 30, 2001 and 2000
(unaudited).
Condensed consolidated statements of cash flows - 4
Nine months ended September 30, 2001 and 2000
(unaudited).
Notes to condensed consolidated financial statements - 5
September 30, 2001 (unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General 8
Results of Operations 9
Liquidity and Capital Resources 15
Part II Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 8,081 $ 4,230
Accounts receivable from property operations 2,172 1,537
Operating supplies and prepaid expenses 1,772 2,032
Current portion of mortgage and notes receivable 227 6,185
------------- -------------
Total Current Assets 12,252 13,984
Investment property:
Operating properties, net of accumulated depreciation 216,956 232,366
Land held for development 13,358 8,366
------------- -------------
Total investment property 230,314 240,732
Other Assets:
Deposits and other assets 1,783 2,399
Mortgage and other notes receivable, less current portion 19,854 19,403
Financing and other deferred costs, net of accumulated
amortization of $16,491 in 2001 and $14,413 in 2000 9,819 11,165
------------- -------------
Total Other Assets 31,456 32,967
------------- -------------
Total Assets $ 274,022 $ 287,683
============= =============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 516 $ 1,109
Real estate taxes payable 1,548 1,373
Accrued interest payable 2,444 2,003
Other accounts payable and accrued expenses 3,267 6,924
Other liabilities, including nonrefundable lease deposits
of $21,442 in 2001 and $19,597 in 2000 31,206 24,432
Current portion of long-term debt 33,458 28,519
------------- -------------
Total Current Liabilities 72,439 64,360
Net deferred tax liabilty 522 995
Long-term debt, less current portion:
Mortgage and other notes payable 175,120 192,902
12% Senior Subordinated Notes, net of unamortized
discount of $220,000 in 2001 and $351,000 in 2000 13,256 13,125
------------- -------------
Total Long-term debt, excluding current portion 188,376 206,027
------------- -------------
Total Liabilities 261,337 271,382
------------- -------------
Minority Interests - 2,014
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and outstanding 8 8
Additional paid-in capital 15,294 15,294
Retained deficit (2,617) (1,015)
------------- -------------
Total Stockholders' Equity 12,685 14,287
------------- -------------
Total Liabilities and Stockholders' Equity $ 274,022 $ 287,683
============= =============
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share data)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Motel operating revenues $ 13,653 $ 17,458 $ 35,845 $ 47,442
Lease revenues 3,206 2,822 8,954 7,334
Vending revenues 624 287 1,375 767
Other revenues 542 766 1,749 2,235
------------ ------------ ------------ ------------
Total revenues 18,025 21,333 47,923 57,778
Costs and expenses:
Motel operating expenses 5,932 7,759 18,530 25,530
Marketing and royalty fees 965 1,188 2,549 3,380
General and administrative 1,377 1,463 4,652 4,309
Lease expenses 440 115 618 310
Vending expenses 533 338 1,357 761
Depreciation and amortization 3,422 3,829 10,649 10,988
------------ ------------ ------------ ------------
Total direct expenses 12,669 14,692 38,355 45,278
------------ ------------ ------------ ------------
Net operating income 5,356 6,641 9,568 12,500
Interest expense 5,142 6,180 15,651 19,025
------------ ------------ ------------ ------------
Income (loss) from operations 214 461 (6,083) (6,525)
Minority interests - (35) (20) (11)
Gain (loss) on sale of properties 820 (67) 3,479 1,017
------------ ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item 1,034 359 (2,624) (5,519)
Income tax expense (benefit) 403 140 (1,021) (2,148)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item 631 219 (1,603) (3,371)
Gain on early extinguishment of debt, net of
applicable income taxes of $1,437 - - - 2,255
------------ ------------ ------------ ------------
Net income (loss) $ 631 $ 219 $ (1,603) $ (1,116)
============ ============ ============ ============
Income (loss) per common share:
Income (loss) before extraordinary item $ 0.79 $ 0.27 $ (2.00) $ (4.21)
Extraordinary item - - - 2.82
------------ ------------ ------------ ------------
Net Income (loss) per common share
(basic and diluted) $ 0.79 $ 0.27 $ (2.00) $ (1.39)
============ ============ ============ ============
Weighted average number of
common shares outstanding 800,000 800,000 800,000 800,000
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30
---------------------------
2001 2000
------------ ------------
Cash flows used in operating activities:
Net loss $ (1,603) $ (1,116)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation, amortization and accretion of
discount on notes 10,779 11,064
Minority interests of others in net loss
from operations 20 11
Deferred income taxes (473) 2,421
Gain on early extinguishment of debt - (3,692)
Gain on sale of properties (3,479) (1,017)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (635) (309)
Operating supplies, prepaid expenses,
deposits and other assets (278) (5,970)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,122 3,005
Accrued interest payable 441 2,058
------------ ------------
Net cash provided by operating activities 6,894 6,455
Cash flows provided by investing activities:
Acquisition and development of investment properties (4,992) (2,201)
Refurbishment of investment properties (2,398) (3,909)
Net proceeds from sale of investment properties 4,357 7,241
Cash restricted for refurbishment of properties 664 (627)
Collections on mortgage and other notes receivable 12,657 6,917
------------ ------------
Net cash provided by investing activities 10,288 7,421
Cash flows provided by (used in) financing activities:
Proceeds from notes payable 12,883 11,979
Repayment of notes payable (25,724) (16,645)
Deferred financing costs (490) (591)
------------ ------------
Net cash used in financing activities (13,331) (5,257)
------------ ------------
Net increase in cash and cash equivalents 3,851 8,619
Cash and cash equivalents at beginning of period 4,230 4,422
------------ ------------
Cash and cash equivalents at end of period $ 8,081 $ 13,041
============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 15,079 $ 16,809
============ ============
Cash paid (net of refunds received) during the
period for income taxes $ 20 $ 172
============ ============
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
nine-month period ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001. For further
information, refer to the consolidated financial statements and footnotes
thereto included in MOA Hospitality, Inc. and Subsidiaries' Annual Report on
Form 10-K for the year ended December 31, 2000. The terms "MOA" and the
"Company" mean MOA Hospitality, Inc. and its subsidiaries. Certain
reclassifications of prior-period amounts have been made to conform with
current-period presentation, which have not changed operations or stockholders'
equity.
2. Divestitures and Leasing Activities
In January through September 30, 2001, the Company leased an additional
three, and re-leased two of its lodging facilities to third party operators
under terms similar to previous operating leases executed by the Company.
In January through September 30, 2001, the Company sold three of its
lodging facilities. Two for approximately $5.5 million in cash for gain a of
$1.8 million. The third was sold to a related party at fair market value for
$8,000,000 resulting in a deferred gain of $3,260,000 and a note receivable of
$7,150,000. The Company also sold its partnership interest in one lodging
facility for $200,000. The Company also recognized a deferred gain of
$1.7 million on one of it's lodging facilities sold in a prior year.
In August 2001, a subsidiary of the Company purchased a vending company
for $624,000 funded by $126,000 cash and assumed debt in the amount's as
follows: $250,000, non interest bearing with three annual payments of $83,333,
due August 24, 2002, August 24, 2003 and August 24, 2004; $134,000, due November
1, 2008, with monthly principal and interest payments of $2,168; $111,000, due
April 1, 2007, with monthly principal and interest payments of $2,146 and
$3,000, due July 1, 2002 with monthly principal and interest payments of $292.
Subsequent to September 30, 2001 and prior to December 31, 2001, the
Company re-leased one of its lodging facilities to a third party operator under
terms similar to previous operating leases executed by the Company.
Subsequent to September 30, 2001 and prior to December 31, 2001, the
Company has sold two of its lodging facilities two a related party at fair
market value for $9,840,000 resulting in a deferred gain of $2,238,000 and notes
receivable of $8,480,000.
Subsequent to December 31, 2001, the Company leased an additional two
and re-leased one of its lodging facilities to third party operators under terms
similar to previous operating leases executed by the Company.
Subsequent to December 31, 2001, the Company sold one of its lodging
facilities for approximately $2.2 million in cash for a loss of $696,000.
3. Mortgage and Other Notes Payable
In January through June 30, 2001 the Company was advanced $4.5 million
on loans of $10.5 million for construction advances on two properties under
construction.
In June 2001, the Company refinanced $3,997,000 of debt with new loans
of $3,425,000 at 8.84% due August 1, 2011, with monthly principal and interest
payments of $30,464 secured by two properties located in East Syracuse, NY and
Wilson, NC.
In July 2001, the Company borrowed $1,000,000 at prime plus .5% due
June 12, 2002.
In July 2001, the Company borrowed $3,500,000 at 8.67% due September 1,
2011 with monthly principal and interest payments of $30,751 secured by one
property in Milford, MA, which was used to pay off an existing construction loan
with a balance of $2,877,000.
In October 2001, the Company repurchased an additional $1.9 million of
the 12% Senior Subordinated Notes from an affiliate at fair market value for a
pre-tax gain of $431,000.
4. Income Taxes
Income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 34% to income before income taxes principally as
a result of state income taxes.
5. 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.
6. Segments
As of September 30, 2001 the Company, directly and through subsidiaries, owned
115 lodging facilities in 38 states. The Company owns a 100% interest in all
of its properties. The Company operates forty of its motels and leases
seventy-five of its motels to third party tenants pursuant to operating
leases. The Company separately evaluates the performance of each of its motels.
Three months ended Nine months ended
September 30 September 30
---------------------- ------------------------
2001 2000 2001 2000
--------- --------- ---------- ----------
Motel operations:
Motel operating revenue:
Room revenues $ 12,870 $ 16,356 $ 33,041 $ 44,257
Ancillary motel revenues 783 1,102 2,804 3,185
--------- --------- ---------- ----------
Total motel operating revenues 13,653 17,458 35,845 47,442
Motel costs and expenses:
Motel operating expenses 5,932 7,759 18,530 25,530
Marketing and royalty fees 965 1,188 2,549 3,380
Depreciation and amortization 1,505 1,753 4,751 6,076
--------- --------- ---------- ----------
Total motel direct expenses 8,402 10,700 25,830 34,986
--------- --------- ---------- ----------
5,251 6,758 10,015 12,456
Lease Operations
Lease revenues 3,206 2,822 8,954 7,334
Lease expenses 440 115 618 310
Depreciation and amortization 1,632 1,700 5,088 4,076
--------- --------- ---------- ----------
1,134 1,007 3,248 2,948
Vending Operations
Vending revenues 624 287 1,375 767
Vending expenses 533 338 1,357 761
Depreciation and amortization 97 52 259 148
--------- --------- ---------- ----------
(6) (103) (241) (142)
Corporate Operations
Other revenues 542 766 1,749 2,235
General and administrative expenses:
Management Company Operations 944 1,121 3,500 3,383
Construction/Acquisition and Divestiture 84 230 226 607
Vending - general and administrative 349 112 926 319
--------- --------- ---------- ----------
Total general and administrative expenses 1,377 1,463 4,652 4,309
Depreciation and amortization 188 324 551 688
--------- --------- ---------- ----------
(1,023) (1,021) (3,454) (2,762)
--------- --------- ---------- ----------
Net operating income 5,356 6,641 9,568 12,500
Interest expense 5,142 6,180 15,651 19,025
--------- --------- ---------- ----------
Loss from operations 214 461 (6,083) (6,525)
Minority interests - (35) (20) (11)
Gain (loss) on sale of properties 820 (67) 3,479 1,017
--------- --------- ---------- ----------
Income (loss) before income taxes
and extraordinary item 1,034 359 (2,624) (5,519)
Income tax expense (benefit) 403 140 (1,021) (2,148)
--------- --------- ---------- ----------
Income (loss) before extraordinary item 631 219 (1,603) (3,371)
Gain on early extinguishment of debt - - - 2,255
--------- --------- ---------- ----------
Net income (loss) $ 631 $ 219 $ (1,603) $ (1,116)
========= ========= ========== ==========
Total Assets:
Motel Operations $ 130,184 $ 150,348
Lease Operations 117,244 122,035
Corporate and other 26,594 38,892
---------- ----------
$ 274,022 $ 311,275
========== ==========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND AS SUCH, SPEAK ONLY AS OF THE DATE MADE. FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
THOSE ANTICIPATED AT THE TIME OF THE FORWARD-LOOKING STATEMENTS ARE MADE,
INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH THE
FOLLOWING: GENERAL REAL ESTATE, TRAVEL AND NATIONAL AND INTERNATIONAL ECONOMIC
CONDITIONS, INCLUDING THE SEVERITY AND DURATION OF THE DOWNTURN RESULTING FROM
THE SEPTEMBER 11, 2001 TERRORIST ATTACKS ON NEW YORK AND WASHINGTON, D.C.;. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS 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 INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS
PRESENTED BELOW FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
HAVE BEEN PREPARED ON THE SAME BASIS AS THE INTERIM CONDENSED CONSOLIDATED
HISTORICAL FINANCIAL STATEMENTS AND, IN THE OPINION OF THE COMPANY, INCLUDE ALL
ADJUSTMENTS (CONSISTING ONLY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY TO
PRESENT FAIRLY THE INFORMATION SET FORTH THEREIN.
General
MOA operates principally in the economy limited service segment of the
lodging industry. As a result, its average room rates tend to be lower than the
average room rates of full service lodging facilities. However, due to the
limited nature of the public space and ancillary services provided by limited
service motels, the Company's expenses tend to be lower than those of full
service lodging facilities. The profitability of the lodging industry in general
is significantly dependent upon room rental rates and occupancy rates. Due to
the fixed nature of a relatively high portion of the Company's expenses, changes
in either room rates or occupancy rates result in significant changes in the
operating profit of the Company's motels.
The United States lodging industry has experienced downward pressure on
RevPAR and occupancy throughout 2001 due to the overall slowdown in the economy.
Such pressure was substantially increased as a result of the September 11, 2001
terrorist attacks on New York and Washington D.C. On a same store basis, through
the third quarter RevPAR and occupancy have decreased to $38.83 and 70.11%,
respectively, for 2001 versus $39.49 and 71.21 % for 2000. For the period
subsequent to September 11, 2001 through November 30, 2001, RevPar and occupancy
have decreased to $39.36 and 69.23%.
The Company is actively working with its managers and lessees to reduce
operating and overhead expenses and has curtailed or postponed non-essential
capital expenditure activities; however, there can be no assurance that the
results of such efforts will be sufficient to enable the Company to continue
meeting its obligations as they come due.
Three Months Ended September 30, 2001 compared to the
Three Months Ended September 30, 2000
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
condensed consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
--------------------------------------------------------------------------
(unaudited)
Three Months Ended September 30
-------------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ----------------------- -----------------------
2001 2000 2001 2000 2001 2000
---------- ---------- ---------- ----------- ---------- ----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 12,393 $ 13,018 $ 477 $ 3,338 $ 12,870 $ 16,356
Ancillary motel revenues 909 958 (126) 144 783 1,102
---------- ---------- ---------- ----------- ---------- ----------
Total motel operating revenues 13,302 13,976 351 3,482 13,653 17,458
Motel costs and expenses:
Motel operating expenses 5,809 5,600 123 2,159 5,932 7,759
Marketing and royalty fees 918 929 47 259 965 1,188
Depreciation and amortization 1,461 1,650 44 103 1,505 1,753
---------- ---------- ---------- ----------- ---------- ----------
Total motel direct expenses 8,188 8,179 214 2,521 8,402 10,700
---------- ---------- ---------- ----------- ---------- ----------
$ 5,114 $ 5,797 $ 137 $ 961 5,251 6,758
========== ========== ========== ===========
Lease operations:
Lease revenues 3,206 2,822
Lease expenses 440 115
Depreciation and amortization 1,632 1,700
---------- ----------
1,134 1,007
Vending operations:
Vending revenues 624 287
Vending expenses 533 338
Depreciation and amortization 97 52
---------- ----------
(6) (103)
Corporate operations:
Other revenues, net 542 766
General and administrative expenses:
Management Company Operations 944 1,121
Construction/Acquisition
and Divestiture 84 230
Vending general and administrative 349 112
---------- ----------
Total general and administrative expenses 1,377 1,463
Depreciation and amortization 188 324
---------- ----------
(1,023) (1,021)
---------- ----------
Net operating income $ 5,356 $ 6,641
========== ==========
Other data:
Number of motels at period end (5) 37 37 3 8 40 45
Number of rooms at period end (5) 3,096 3,104 196 787 3,292 3,891
Occupancy percentage (5) 77.18% 79.73% 51.61% 68.07% 75.78% 78.32%
ADR (1) (5) $ 56.34 $ 59.91 $ 52.12 $ 46.46 $ 56.18 $ 54.83
REVPAR (2) (5) $ 46.67 $ 48.91 $ 27.03 $ 33.20 $ 45.59 $ 45.78
Net operating income margin (3) 29.71% 31.13%
Net motel revenue margin (4) (5) 53.04% 54.55% 37.95% 31.88% 52.49% 52.04%
-----------------------------------------------
(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 lease revenues plus vending 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 September 30, 2001 and for the three months then ended, excludes amounts
related to the seventy-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, and fax machine use. Lease revenues are derived from properties leased to
third parties. Vending revenues are derived from vending machines used in the
motels and also vending machines placed in non owned locations. Other revenues
include interest income, and other miscellaneous income. Total revenues
decreased to $18,025,000 for the three months ended September 30, 2001 from
$21,333,000 for the three months ended September 30, 2000, a decrease of
$3,308,000 or 15.5% primarily as a result of the leasing activity of the
Company. As lessor of 75 motels at September 30, 2001 the Company records rental
income and does not reflect the gross revenues and expenses of operating these
motels.
Motel revenues decreased to $13,653,000 for the three months ended
September 30, 2001 from $17,458,000 for the three months ended September 30,
2000, a decrease of $3,805,000 or 21.8%. The motel revenues for motels owned
during both periods decreased approximately $674,000, in addition there was a
decrease of $3,131,000 in motel revenues for motels acquired and divested since
July 1, 2000. Motel revenues for motels owned during both periods decreased by
4.8%. The decrease in motel revenues for motels owned during both periods was
attributable principally to a decrease in the occupancy. The ADR for the motels
owned during both periods decreased to $56.34 for the three months ended
September 30, 2001 from $59.91 for the three months ended September 30, 2000, a
decrease of $3.57 or 6%. Revenue per available room ("REVPAR") for motels owned
during both periods decreased to $46.67 for the three months ended September 30,
2001 from $48.91 for the three months ended September 30, 2000, a decrease of
$2.24 or 4.6%. The acquired and divested motels had an occupancy percentage of
51.61%, an ADR of $52.12 and REVPAR of $27.03 for the three months ended
September 30, 2001.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $5,932,000 for the three months
ended September 30, 2001 from $7,759,000 for the three months ended September
30, 2000, a net decrease of $1,827,000 or 23.5%. Motel operating expenses for
motels acquired and divested since July 1, 2000 decreased to $123,000 for the
three months ended September 30, 2001 from $2,159,000 for the three months ended
September 30, 2000, a decrease of $2,036,000 or 94.3%. The decrease was
partially offset by an increase of $209,000 or 3.7% in the costs of operating
the motels owned during both periods. The cost of operating motels owned during
both periods increased to $5,809,000 for the three months ended September 30,
2001 from $5,600,000 for the three months ended September 30, 2000. The increase
in operating costs is principally due to increased labor and related costs and
an increase in repairs and maintenance expenditures. Motel operating expenses as
a percentage of motel revenues were held to 43.4% for the three months ended
September 30, 2001 from 44.4% for the three months ended September 30, 2000.
Motel operating expenses as a percentage of motel revenues for the motels owned
in both periods increased to 43.7% for the three months ended September 30, 2001
from 40.1% for the three months ended September 30, 2000.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to franchisors
and other related marketing expenses. Marketing and royalty fees decreased to
$965,000 for the three months ended September 30, 2001 from $1,188,000 for the
three months ended September 30, 2000, a decrease of $223,000 or 18.8%. The
marketing and royalty fees for motels owned during both periods decreased to
$918,000 for the three months ended September 30, 2001 from $929,000 for the
three months ended September 30, 2000, a decrease of $11,000 or 1.2%. For the
motels owned during both periods, marketing and royalty fees as a percentage of
room revenues increased to 7.4% for the three months ended September 30, 2001
from 7.1% for the three months ended September 30, 2000. The decrease in
marketing and royalty fees for motels owned in both periods are principally due
to less room revenues.
Lease operations increased to $1,134,000 for the three months ended
September 30, 2001 from $1,007,000 for the three months ended September 30,
2000, an increase of $127,000. There were 75 leased properties with an asset
value of $122,035,000 at September 30, 2000 compared with 75 leased properties
with an asset value of $117,244,000 at September 30, 2001.
Vending operations increased to ($6,000) for the three months ended
September 30, 2001 from ($103,000) for the three months ended September 30,
2000, an increase of $97,000.
Corporate general and administrative expenses are segregated
by the Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division and Vending general and
administrative. 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 Company Operations
decreased $177,000 to $944,000 for the three months ended September 30, 2001
from $1,121,000 for the three months ended September 30, 2000, a decrease of
15.8%. The general and administrative expenses associated with
Construction/Acquisition and Divestiture Division decreased $146,000 from
$230,000 for the three months ended September 30, 2000 to $84,000 for the three
months ended September 30, 2001. Vending general and administrative expenses
increased $237,000 to $349,000 for the three months ended September 30, 2001
from $112,000 for the three months ended September 30, 2000, primarily due to
the increased personnel in preparation of expansion. As a percentage of total
motel operating revenues, Management Company Operations general and
administrative expenses were 6.7% for the three months ended September 30, 2001
and 6.4% for the three months ended September 30, 2000.
Depreciation and amortization decreased to $3,422,000 for the three
months ended September 30, 2001 from $3,826,000 for the three months ended
September 30, 2000, a net decrease of $407,000 or 10.6%.
Net operating income decreased to $5,356,000 for the three months ended
September 30, 2001 from $6,641,000 for the three months ended September 30,
2000, a decrease of $1,285,000 or 19.3%. Net operating income as a percent of
total revenues was 29.7% for the three months ended September 30, 2001 as
compared to 31.1% for the three months ended September 30, 2000.
Interest expense decreased to $5,142,000 for the three months ended
September 30, 2001 from $6,180,000 for the three months ended September 30,
2000, a decrease of $1,217,000. The decrease in interest expense is reflective
of the lower average amount of outstanding borrowings during the third quarter
of 2001 as compared to the third quarter 2000.
Gain (loss) on sale of properties amounted to $820,000 for the three
months ended September 30, 2001 compared to ($67,000) for the respective period
in 2000. For the quarter ended September 30, 2001, one property which was
currently leased was sold for $1.9 million in cash for a gain of $820,000.
Net income increased to $631,000 for the three months ended September
30, 2001 from $219,000 for the three months ended September 30, 2000.
Nine Months Ended September 30, 2001 Compared to the
Nine Months Ended September 30, 2000
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
condensed consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
--------------------------------------------------------------------------
(unaudited)
Nine Months Ended September 30
--------------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
----------------------- ---------------------- -----------------------
2001 2000 2001 2000 2001 2000
---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 30,257 $ 30,904 $ 2,784 $ 13,353 $ 33,041 $ 44,257
Ancillary motel revenues 2,600 2,699 204 486 2,804 3,185
---------- ---------- ---------- ---------- ---------- ----------
Total motel operating revenues 32,857 33,603 2,988 13,839 35,845 47,442
Motel costs and expenses:
Motel operating expenses 16,496 15,745 2,034 9,785 18,530 25,530
Marketing and royalty fees 2,325 2,295 224 1,085 2,549 3,380
Depreciation and amortization 4,441 4,472 310 1,604 4,751 6,076
---------- ---------- ---------- ---------- ---------- ----------
Total motel direct expenses 23,262 22,512 2,568 12,474 25,830 34,986
---------- ---------- ---------- ---------- ---------- ----------
$ 9,595 $ 11,091 $ 420 $ 1,365 10,015 12,456
========== ========== ========== ==========
Lease operations:
Lease revenues 8,954 7,334
Lease expenses 618 310
Depreciation and amortization 5,088 4,076
---------- ----------
3,248 2,948
Vending operations:
Vending revenues 1,375 767
Vending expenses 1,357 761
Depreciation and amortization 259 148
---------- ----------
(241) (142)
Corporate operations:
Other revenues, net 1,749 2,235
General and administrative expenses:
Management Company Operations 3,500 3,383
Construction/Acquisition
and Divestiture 226 607
Vending general and administrative 926 319
---------- ----------
Total general and administrative expenses 4,652 4,309
Depreciation and amortization 551 688
---------- ----------
(3,454) (2,762)
---------- ----------
Net operating income $ 9,568 $ 12,500
========== ==========
Other data:
Number of motels at period end (5) 37 37 3 7 40 44
Number of rooms at period end (5) 3,096 3,104 195 600 3,291 3,704
Occupancy percentage (5) 70.11% 71.21% 60.68% 58.96% 69.44% 69.91%
ADR (1) (5) $ 51.00 $ 51.00 $ 39.76 $ 143.38 $ 50.31 $ 49.58
REVPAR (2) (5) $ 38.83 $ 39.49 $ 27.19 $ 87.62 $ 38.00 $ 37.35
Net operating income margin (3) 19.97% 21.63%
Net motel revenue margin (4) (5) 46.39% 50.36% 26.22% 22.23% 44.69% 41.87%
------------------------------------------------
(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 lease revenues plus vending 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 September 30, 2001 and for the six months then ended, excludes amounts
related to the seventy-five motels which are leased to third party tenants.
Total revenues decreased $9,855,000 to $47,923,000 for the nine months
ended September 30, 2001 from $57,778,000 for the nine months ended September
30, 2000 or 17.1% primarily as a result of the leasing and sales activities of
the Company. As lessor of 75 motels at September 30, 2001 the Company records
rental income and does not reflect the gross revenues and expenses of operating
these motels.
Motel revenues decreased to $35,845,000 for the nine months ended
September 30, 2001 from $47,442,000 for the nine months ended September 30,
2000, a decrease of $11,597,000 or 24.4%. The motel room revenues for motels
owned during both periods decreased approximately $647,000 or 2.1%. There also
was a decrease of $10,569,000 for acquired and divested motels, since January 1,
2000. The ADR for the motels owned during both periods remained flat for the
nine months ended September 30, 2001 compared with the nine months ended
September 30, 2000. The occupancy percentage decreased from 71.21% for the nine
months ended September 30, 2000 to 70.11% for the nine months ended September
30, 2001. The REVPAR for motels owned during both periods decreased to $38.83
for the nine months ended September 30, 2001 from $39.49 for the nine months
ended September 30, 2000, a decrease of $.66 or 1.7%.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $18,530,000 for the nine months
ended September 30, 2001 from $25,530,000 for the nine months ended September
30, 2000, a net decrease of $7,000,000 or 27.4%. The cost of operating motels
owned during both periods increased to $16,496,000 for the nine months ended
September 30, 2001 from $15,745,000 for the nine months ended September 30,
2000, an increase of $751,000 or 4.8%. Motel operating expenses for motels
acquired and divested since January 1, 2000 decreased to $2,034,000 for the nine
months ended September 30, 2001 from $9,785,000 for the nine months ended
September 30, 2000. Motel operating expenses as a percentage of motel revenues
decreased to 51.7% for the nine months ended September 30, 2001 from 53.8% for
the nine months ended September 30, 2000. Motel operating expenses as a
percentage of motel revenues for the motels owned in both periods increased to
50.2% for the nine months ended September 30, 2001 from 46.9.% for the nine
months ended September 30, 2000.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to franchisers
and other related marketing expenses. Marketing and royalty fees decreased to
$2,549,000 for the nine months ended September 30, 2001 from $3,380,000 for the
nine months ended September 30, 2000, a decrease of $831,000 or 24.6%. The
marketing and royalty fees for motels owned during both periods increased to
$2,325,000 for the nine months ended September 30, 2001 from $2,295,000 for the
nine months ended September 30, 2000, an increase of $30,000 or 1.3%. For the
motels owned during both periods, marketing and royalty fees as a percentage of
room revenues increased to 7.7% for the nine months ended September 30, 2001
from 7.4% for the nine months ended September 30, 2000, an increase of 4%. The
decrease in marketing and royalty fees is attributable to a reduction in
franchise fees due to the decline in room revenues on which most such fees are
based and a reduction in rates for certain contractual franchise fees due to the
number of motels either sold or leased subsequent to September 30, 2000.
Marketing and royalty fees for motels acquired and divested since January 1,
2000 decreased to $224,000 for the nine months ended September 30, 2001 from
$1,085,000 for the nine months ended September 30, 2000.
Lease operations increased to $3,248,000 for the nine months ended
September 30, 2001 from $2,948,000 for the nine months ended September 30, 2000,
an increase of $300,000, which results from an increase to 75 leased properties
with an asset value of $117,244,000 at September 30, 2001 compared with 75
leased properties with an asset value of $122,035,000 at September 30, 2000.
Vending operations increased to ($241,000) for the nine months ended
September 30, 2001 from ($142,000) for the nine months ended September 30, 2000,
an increase of $99,000.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations, Construction
and Development and Vending general and administrative. 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 $117,000 to $3,500,000 for the nine months
ended September 30, 2001 from $3,383,000 for the nine months ended September 30,
2000, an increase of 3.5%. This is due primarily to discounts given on notes
receivable paid off during the first nine months of 2001. The general and
administrative expenses associated with Construction and Development decreased
$381,000 from $607,000 for the nine months ended September 30, 2000 to $226,000
for the nine months ended September 30, 2001. Vending general and administrative
expenses increased $607,000 to $926,000 for the nine months ended September 30,
2001 from $319,000 for the nine months ended September 30, 2000. As a percentage
of total motel operating revenues, Management Operations general and
administrative expenses was 9.8% for the nine months ended September 30, 2001
and 7.1% for the nine months ended September 30, 2000.
Depreciation and amortization decreased to $10,649,000 for the nine
months ended September 30, 2001 from $10,988,000 for the nine months ended
September 30, 2000, a net decrease of $339,000 or 3.1%.
Net operating income decreased to $9,568,000 for the nine months ended
September 30, 2001 from $12,500,000 for the nine months ended September 30,
2000, a decrease of $2,932,000 or 23.5%. This is a result of an increase in
management company operations expenses of $117,000 and in an increase of
$607,000 in vending G&A and a reduction in revenues. Net motel revenues for
motels acquired and divested since January 1, 2000 decreased $1,701,000. Net
operating income as a percent of total revenues was 20.0% for the nine months
ended September 30, 2001 as compared to 21.6% for the nine months ended
September 30, 2000.
Interest expense decreased to $15,651,000 for the nine months ended
September 30, 2001 from $19,025,000 for the nine months ended September 30,
2000, a decrease of $3,374,000. The decrease in interest expense is reflective
of the lower average amount of outstanding borrowings during the nine months
ending September 30, 2001 as compared to the nine months ending September 30,
2000.
Gain on sale of properties amounted to $3,479,000 for the nine months
ended September 30, 2001 compared to $1,017,000 for the period ended September
30, 2000. In six unrelated transactions, six properties were sold for $7.9
million in cash and $6.5 million in notes receivable, also a vacant parcel of
land was sold for cost during the nine months ended September 30, 2000. For the
nine months ended September 30, 2001, two properties were sold for $5.5 million
in cash and one other property recognized a deferred gain of $1.7 million.
Net loss increased to $1,603,000 for the nine months ended September
30, 2001 from a net loss of $1,116,000 for the nine months ended September 30,
2000 primarily as a result of a decrease of $2,932,000 in net operating income.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt
service, capital expenditures 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.
In January through September 30, 2001 the Company was advanced
$4.5 million on loans of $10.5 million for construction advances on two
properties under construction.
In June 2001, the Company refinanced $3,997,000 of debt with
new loans of $3,425,000 at 8.84% due August 1, 2011, with monthly principal and
interest payments of $30,464 secured by two properties located in East Syracuse,
NY and Wilson, NC.
In July 2001, the Company borrowed $1,000,000 at prime plus
.5% due June 12, 2002.
In July 2001, the Company borrowed $3,500,000 at 8.67% due
September 1, 2011 with monthly principal and interest payments of $30,751
secured by one property in Milford, MA, which was used to pay off an existing
construction loan with a balance of $2,877,000.
In August 2001, a subsidiary of the Company purchased a
vending company and assumed debt in the amount of $250,000, non interest bearing
with three annual payments of $83,333, due August 24, 2002, August 24, 2003 and
August 24, 2004, $134,000, due November 1, 2008, with monthly principal and
interest payments of $2,168 and $111,000, due April 1, 2007, with monthly
principal and interest payments of $2,146.
In October 2001, the Company repurchased an additional $1.9
million of the 12% Senior Subordinated Notes from an affiliate at fair market
value for a pre-tax gain of $431,000.
The Company's capital expenditure requirements principally
include capital improvements and refurbishment of its lodging facilities as part
of its ongoing operating strategy to provide well-maintained facilities. The
Company made capital expenditures (exclusive of acquisitions and development of
properties) of $2,398,000 and $3,909,000 for the nine months ended September 30,
2001 and 2000, respectively. In addition, as of September 30, 2001, the Company
had $664,000 of cash restricted for future refurbishment of motel properties, in
accordance with certain debt agreements. Management is not aware of any unusual
required level of future capital expenditures necessary to maintain its existing
properties.
For the nine months ended September 30, 2001, cash and cash equivalents
increased $3,851,000. This increase consisted of $10,288,000 of funds provided
by investing activities and $13,331,000 of funds used in financing activities
and $6,894,000 of funds provided by operations. Net investing activities of
$10,228,000 include: $4,992,000 of cash utilized for motel development and
$2,398,000 expended on refurbishment of existing properties, offset by
$17,014,000 of cash provided from the sale of investment properties and
collections on mortgage and other notes receivable and a change in cash
restricted for refurbishment of $664,000. Cash used in financing activities
includes: $25,724,000 of cash utilized to repay indebtedness; and $490,000 of
cash used for deferred financing costs and other items offset by $12,883,000
from proceeds from notes payable.
PART II - OTHER INFORMATION
Item 1. 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.
See Note 5 of the Notes to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Not Applicable
(b) Reports on Form 8-K:
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOA HOSPITALITY, INC.
March 18, 2002 By: /s/ Kurt M. Mueller
-----------------------
Kurt M. Mueller
President and Chief Financial Officer
March 18, 2002 By: /s/ Blane P. Evans
-----------------------
Blane P. Evans
Secretary and Treasurer