UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
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, 1996.
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
______________________
MOTELS OF AMERICA, 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]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of March
13, 1997: 800,000
INDEX TO FORM 10-K
Page
------
Part I
Item 1. Business ......................................................... 3
Item 2. Properties ....................................................... 7
Item 3. Legal Proceedings ................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders .............. 13
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ....................................................... 13
Item 6. Selected Financial Data .......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 16
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 ... 31
Item 13. Certain Relationships and Related Transactions ................... 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . 32
Signatures
PART I
ITEM 1. BUSINESS
General
Motels of America, Inc. ("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, 1996, the Company, directly and through
subsidiaries, operated 135 lodging facilities located in 35 states with a
total of 11,317 rooms. In January 1997, MOA sold a lodging facility and in
February 1997, MOA completed construction and opened an additional lodging
facility. As a result of these transactions, as of March 13, 1997, the
Company operates 135 lodging facilities located in 35 states with a total of
11,233 rooms. The Company's largest concentrations of lodging facilities are
located in the States of Georgia and Illinois with 13 lodging facilities each.
The Company operates 131 of its lodging facilities pursuant to franchise or
license agreements with the following national brands: Best Western, Comfort
Inn, Day's Inn, Holiday Inn Express, Howard Johnson, Microtel, Ramada, Ltd.,
Shoney's Inn, Super 8, Travelodge and Villager Lodge. By affiliating its
lodging facilities with national brands, MOA benefits by receiving national
brand name recognition, national advertising exposure, central reservation
services, exposure in published travel directories, group tour generated
business and other professional services which could not be duplicated by the
Company on a cost-effective basis for its lodging facilities.
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.
Repositioning
In October 1990, a controlling interest in the Company was acquired by a
corporation affiliated with Paul F. Wallace, the Chairman and Chief Executive
Officer and a director of the Company and previously a director and
controlling stockholder of EconoLodge. At the time of Mr. Wallace's 1990
investment, the Company was experiencing financial pressures resulting from
the 1989 acquisition of a regional motel chain and from economic
conditions that were adversely affecting the entire lodging industry. The
Company filed a bankruptcy petition on December 12, 1990 and subsequently
developed a plan of reorganization which permitted the Company to emerge from
bankruptcy on September 10, 1992.
Recent History
Since January 1, 1993, the Company has made a number of significant
acquisitions, including the purchase in February 1993 of the Pacific Shore
Hotel located in Santa Monica, California for a purchase price of
approximately $2.9 million in cash and the assumption of $9.5 million of
mortgage debt, the purchase in April 1994 of nine lodging facilities from
Midwest Lodging, Inc. for a cash purchase price of $28.5 million, the purchase
in April 1994 of fifteen lodging facilities through acquisition of all of the
outstanding common stock of Tri-State Inns, Inc. for a purchase price of $30.5
million in cash and the assumption of approximately $15.0 million in mortgage
debt, and the purchase during the period from May through December 1994 of
seventeen additional lodging facilities from unaffiliated parties for
approximately $34.1 million in cash and the assumption of $4.5 million in
mortgage debt. In January 1996, the Company acquired nineteen lodging
facilities from Forte USA, Inc., a subsidiary of Forte Hotels, Inc., for
approximately $35.5 million in cash which was financed by borrowings under the
NACC credit line and from HFS Incorporated. During 1996, the Company, in a
series of transactions, sold eleven motel properties for $15.8 million in net
cash proceeds and $6.3 million in mortgage and other notes receivable.
In April 1994, the Company issued in a public offering $80 million
principal amount of 12% Senior Subordinated Notes due April 15, 2004, Series B
(the "Notes"), the proceeds of which were used principally to finance
acquisitions and to repay existing indebtedness. In October 1994, the Company
entered into a two-year $100 million secured line of credit facility (the
"NACC credit line") with Nomura Asset Capital Corporation ("NACC").
Borrowings under the NACC credit line were secured by lodging facilities and
used principally to finance acquisitions of lodging facilities and related
expenses (including refurbishment costs).
In September 1995, the Company and NACC entered into a financing
transaction (the "Secured Financing") involving the formation of Motels of
America, L.L.C., a limited liability company wholly owned by MOA
("MOA LLC"), the transfer of 93 lodging facilities owned by MOA and its
subsidiaries to MOA LLC, and the borrowing by MOA LLC from NACC, on a secured
basis, of $158.8 million. Proceeds of the Secured Financing were used to
repay existing indebtedness of approximately $142.2 million (including
outstanding indebtedness under the NACC credit line) and for general corporate
purposes. During 1996, ownership of MOA LLC was transferred from MOA to one of
its wholly owned subsidiaries.
In November 1996, the Company completed two separate financing
transactions with CS First Boston Corporation ("CSFB") pursuant to which the
Company borrowed approximately $37.2 million. Approximately $29.8 million of
the proceeds were utilized to repay the entire outstanding borrowings under the
NACC credit line; $1.6 million of the proceeds were utilized toward a partial
paydown of the Company's borrowings from HFS Incorporated; and the remaining
net proceeds were retained for general corporate purposes. The CSFB borrowings
are evidenced by notes which mature on November 1, 1998 and are secured by first
mortgages on nineteen of the Company's motel properties and a pledge of the
stock of one of the Company's subsidiaries.
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.
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: 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 facilities nor does any one customer represent a significant
portion of the Company's revenues.
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, construction of new lodging
facilities, changes in the degree of competition from existing lodging
facilities and other factors.
Ownership Structure
At December 31, 1996 and March 13, 1997, the Company had 100% ownership
interest, either directly or through subsidiaries, in 133 of the 135 lodging
facilities it operated. 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.
Franchise and License Agreements
The Company operates 131 of its lodging facilities pursuant to franchise
or license agreements. Eighty-eight 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 7% of room revenues. Under the
Super 8 franchise agreements, the franchisor 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 franchisor 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 which, for
the Company, results in ending dates ranging from 1998 through 2014. 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 franchisor is prohibited from
franchising another Super 8 motel.
The Company has forty-three franchise or license agreements with other
franchisors or licensees. These agreements, which have various terms with
ending dates ranging from 1997 to 2017, generally provide similar benefits and
obligations as the Super 8 franchise agreements. Franchise fees (including
royalty and advertising fund contributions) generally range from 5% of room
revenues for the franchise agreements pertaining to the fifteen Shoney's Inns
franchised by ShoLodge, Inc. to approximately 9% of room revenues based on
various billing structures of the other franchisors. The ShoLodge, Inc.
franchise agreements provide for an area of geographic protection while the
other franchise agreements generally rely on an impact policy to determine if
another lodging facility with the same brand affiliation could be located
within a particular market.
The Company has four standard license agreements with Best Western
International. These agreements provide for an annual renewal.
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. Accounting, human
resources, purchasing, renovation and construction, sales and marketing, and
training is centralized and controlled from the corporate office. The Company
utilizes its Regional Managers to facilitate oversight and direction of the
day-to-day operations of its lodging facilities. Regional Managers are
located in the field and interface on a daily basis generally with ten to
forty property managers within their region.
The Company has developed and conducts its own training programs which
satisfies most franchisor training requirements. The Company believes its
unique training programs provide a competitive advantage in the management of
motels over individual owner/operators which must rely on franchisor and
industry supplied training material.
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, 1996,
the Company employed approximately 2,900 employees including approximately 75
full and part-time employees at the corporate office. The employees are not
represented by any labor unions and management believes its ongoing labor
relations with its employees is good.
The Company utilizes advertising and marketing programs sponsored by the
various franchisors 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 franchisor 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 83
rooms, though individual properties range from 33 to 189 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; however, the
underlying real property of five 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 established
a strict maintenance and refurbishment program enacted to ensure high quality
and well maintained properties. This program seeks to maximize the
attractiveness of the Company's rooms with prudent levels of capital
investment.
Over the past three years, MOA has expended an average of approximately
7.5% of its annual motel room revenues on renovation and refurbishment of its
properties, including expenditures relating to recently acquired properties.
The Company believes that its facilities are currently well maintained and
conform to the Company's standards for cleanliness and attractiveness and
intends to maintain its facilities in such condition.
Information pertaining to the Company's 135 lodging facilities operated
as of March 31, 1997 is set forth in the following table.
Number Year
of Year Acquired by
Location Franchise Rooms Built the Company
- ---------- ---------- ------ ----- -----------
ALABAMA
Pelham.................... Travelodge 64 1989 1996
ARKANSAS
West Memphis (1).......... Super 8 62 1989 1989
CALIFORNIA
Indio..................... Holiday Inn Express 126 1986 1995
Santa Clara............... Days Inn 168 1984 1994
Santa Monica.............. Best Western 122 1991 1992
Santa Monica (1).......... Pacific Shore 168 1966 1993
West Los Angeles.......... Best Western 76 1993 1994
COLORADO
Longmont.................. Super 8 64 1989 1994
DELAWARE
Newark.................... Howard Johnson 141 1969 1996
FLORIDA
Fernandina Beach.......... Shoney's 134 1985 1994
Ft. Lauderdale............ Travelodge 118 1987 1996
Ft. Walton Beach.......... Shoney's 102 1987 1994
Jacksonville.............. Travelodge 119 1986 1996
Melbourne................. Shoney's 119 1990 1994
Orlando Centroplex (1).... Travelodge 75 1957 1996
Panama City............... Super 8 63 1986 1987
Pensacola................. Super 8 62 1985 1987
GEORGIA
Brunswick................. Super 8 62 1986 1987
Cartersville.............. Super 8 62 1986 1987
Columbus.................. Super 8 77 1985 1987
Douglas................... Shoney's 100 1986 1994
Dublin.................... Shoney's 100 1984 1994
Fitzgerald................ Shoney's 108 1985 1994
Greensboro................ Microtel 48 1997 1997
Hinesville................ Shoney's 163 1976 1994
Macon..................... Shoney's 120 1987 1994
Moultrie.................. Shoney's 100 1979 1994
Rome...................... Super 8 62 1986 1987
Vidalia................... Shoney's 128 1984 1994
Warner Robins............. Super 8 62 1986 1987
IDAHO
Boise..................... Super 8 110 1978 1994
Coeur D'Alene (1)......... Super 8 95 1983 1983
Lewiston.................. Super 8 62 1985 1985
Sandpoint................. Super 8 61 1984 1984
ILLINOIS
Bloomington............... Super 8 62 1985 1987
Champaign................. Super 8 61 1984 1987
Crystal Lake.............. Super 8 59 1983 1987
Decatur................... Super 8 62 1983 1987
East Moline............... Super 8 63 1988 1988
Number Year
of Year Acquired by
Location Franchise Rooms Built the Company
- ---------- ---------- ------ ----- ---------
Litchfield................ Super 8 61 1987 1994
Naperville................ Travelodge 100 1983 1996
Okawville................. Super 8 40 1985 1988
Peru...................... Super 8 62 1986 1987
South Springfield......... Super 8 122 1987 1994
Springfield............... Super 8 65 1985 1994
Tuscola................... Super 8 66 1988 1994
Waukegan.................. Super 8 62 1986 1987
INDIANA
Columbus.................. Super 8 62 1984 1987
Elkhart................... Shoney's 61 1990 1994
Elkhart................... Super 8 62 1986 1989
Indianapolis.............. Days Inn 163 1985 1994
Muncie.................... Days Inn 62 1990 1994
Muncie.................... Super 8 63 1986 1989
Terre Haute............... Super 8 118 1985 1994
IOWA
Davenport................. Super 8 61 1984 1987
Des Moines................ Super 8 152 1985 1994
KANSAS
Leavenworth............... Super 8 60 1984 1989
Salina.................... Super 8 61 1984 1989
Topeka.................... Super 8 62 1984 1987
KENTUCKY
Danville.................. Super 8 49 1987 1987
Lexington................. Super 8 62 1987 1987
Louisville................ Super 8 100 1988 1988
Louisville................ Travelodge 108 1983 1996
LOUISIANA
Shreveport................ Super 8 143 1986 1994
MAINE
Ellsworth................. Comfort Inn 63 1993 1993
MICHIGAN
Battle Creek.............. Super 8 62 1985 1987
Detroit................... Travelodge 122 1986 1996
Grand Rapids.............. Super 8 62 1986 1987
Kalamazoo................. Super 8 62 1985 1987
Muskegon.................. Days Inn 106 1968 1993
Muskegon.................. Super 8 62 1986 1987
Saginaw................... Super 8 62 1985 1987
MINNESOTA
Hibbing................... Super 8 49 1993 1994
Red Wing.................. Super 8 60 1987 1996
Savage.................... Comfort Inn 75 1982 1994
MISSISSIPPI
Vicksburg................. Super 8 62 1988 1988
Number Year
of Year Acquired by
Location Franchise Rooms Built the Company
- ---------- ---------- ------ ----- ---------
MISSOURI
Independence.............. Super 8 81 1983 1987
Joplin.................... Super 8 50 1985 1987
Liberty................... Super 8 60 1980 1987
NW Kansas City............ Super 8 50 1983 1987
St. Joseph................ Super 8 55 1985 1987
St. Louis................. Super 8 99 1984 1987
Springfield............... Super 8 50 1985 1987
MONTANA
Billings.................. Ramada Ltd. 116 1978 1994
Billings.................. Super 8 115 1979 1994
Dillon.................... Super 8 47 1985 1989
Great Falls............... Super 8 117 1978 1994
Helena.................... Super 8 102 1979 1988
Kalispell................. Super 8 74 1984 1988
NEBRASKA
Fremont................... Super 8 43 1986 1989
NEVADA
Carson City............... Super 8 63 1985 1985
Wendover.................. Super 8 74 1988 1988
NEW MEXICO
Las Cruces................ Super 8 61 1981 1987
Raton (1)................. Super 8 48 1983 1987
NORTH CAROLINA
Greensboro................ Travelodge 108 1985 1996
Weldon.................... Orchard Inn 50 1973 1993
NORTH DAKOTA
Bismarck.................. Super 8 61 1976 1987
Grand Forks............... Super 8 33 1983 1987
Minot..................... Super 8 60 1977 1987
OHIO
Akron..................... Super 8 59 1986 1987
Cambridge................. Travelodge 48 1968 1996
Canton.................... Days Inn 61 1985 1987
Cleveland/Beachwood....... Travelodge 127 1980 1996
Cleveland/Willoughby...... Travelodge 110 1984 1996
Columbus.................. Travelodge 108 1983 1996
St. Clairsville........... Super 8 62 1986 1987
PENNSYLVANIA
Lancaster................. Super 8 101 1990 1990
York...................... Super 8 94 1990 1990
SOUTH CAROLINA
Anderson.................. Super 8 62 1986 1987
Camden.................... Shoney's 84 1989 1994
Charleston................ Orchard Inn 89 1973 1993
Columbia.................. Travelodge 106 1985 1996
Greenwood................. Villager Lodge 62 1986 1987
Hilton Head............... Shoney's 136 1989 1994
Number Year
of Year Acquired by
Location Franchise Rooms Built the Company
- ---------- ---------- ------ ----- ---------
SOUTH DAKOTA
Sioux Falls............... Super 8 95 1976 1987
TENNESSEE
Chattanooga............... Best Western 124 1972 1995
Chattanooga............... Super 8 74 1986 1987
East Memphis.............. Super 8 70 1990 1990
Johnson City.............. Super 8 63 1986 1987
Knoxville................. Super 8 139 1975 1993
Union City................ Super 8 62 1989 1989
UTAH
Salt Lake City............ Super 8 123 1983 1988
VIRGINIA
Charlottesville........... Super 8 65 1986 1987
Richmond.................. Shoney's 117 1985 1994
South Hill................ Super 8 49 1986 1987
WASHINGTON
Spokane................... Super 8 189 1982 1988
Wenatchee................. Orchard Inn 103 1984 1988
WISCONSIN
Ashland................... Super 8 70 1984 1988
Janesville................ Super 8 48 1985 1987
Kenosha................... Super 8 62 1984 1987
Madison................... Best Western 101 1983 1994
Oshkosh................... Super 8 61 1987 1994
Rice Lake................. Super 8 47 1984 1994
WYOMING
Cody...................... Super 8 64 1982 1982
Jackson................... Super 8 97 1983 1983
Total............... 11,233
======
==========================================
(1) Property is subject to a ground lease.
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,
1996 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 March 13, 1997, 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
$80 million principal amount of 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.
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, 1996, which has been derived from the audited financial statements, with
the exception of Operating Data and Same Property Data. This data should be
read in conjunction with the consolidated historical financial statements of
the Company and the notes thereto included elsewhere herein.
Year Ended December 31,
-------------------------------------------------------
1992 1993 (1) 1994 (1) 1995 (1) 1996 (1)
--------- --------- --------- --------- ---------
(dollars in thousands except Ratio,
Margin and Operating Data)
Statement of Operations Data
Total revenues ............................ $ 45,712 $ 58,257 $ 87,067 $ 112,720 $ 128,271
Costs and expenses:
Motel operating ........................ 21,492 28,625 43,245 57,353 67,344
Marketing and royalty fees ............. 3,257 3,874 5,900 7,643 9,606
Corporate general and
administrative ....................... 3,028 3,371 4,596 5,590 6,833
Depreciation and amortization(2) ....... 5,678 6,609 8,569 12,618 13,995
--------- --------- --------- --------- ---------
Total direct expenses ..................... 33,455 42,479 62,310 83,204 97,778
--------- --------- --------- --------- ---------
Net operating revenue ..................... 12,257 15,778 24,757 29,516 30,493
Interest expense .......................... 6,398 11,449 20,297 27,831 31,573
--------- --------- --------- --------- ---------
Income (loss) from operations ............. 5,859 4,329 4,460 1,685 (1,080)
Net income before
extraordinary item ..................... 5,696 3,304 414 1,265 687
Net income ................................ 5,696 3,796 414 1,533 687
Net income before
extraordinary item per share(3) ........ $4.63 $0.53 $1.58 $0.86
Net income per share(3) ................... $5.32 $0.53 $1.91 $0.86
Other Financial Data
Net cash provided by operating
activities ............................. $ 12,426 $ 10,176 $ 10,494 $ 8,144 $ 13,477
Net cash used in investing activities ..... (3,954) (3,762) (104,474) (10,532) (50,498)
Net cash provided by (used in)
financing activities ................... (9,766) (9,444) 98,713 7,798 35,371
EBITDA(4) ................................. 17,935 22,387 33,326 42,134 44,487
EBITDA Margin (% of total
revenues)(4) ........................... 39.23% 38.43% 38.28% 37.38% 34.70%
Net operating revenue margin
(% of total revenues) .................. 26.81% 27.08% 28.43% 26.19% 23.66%
Refurbishment of investment properties .. . $ 2,241 $ 3,455 $ 6,818 $ 7,806 $ 9,857
Operating Data
Number of motels .......................... 76 82 125 125 135
Number of rooms ........................... 5,164 5,781 10,551 10,573 11,335
REVPAR(5) ................................. $ 24.45 $ 28.11 $ 28.38 $ 28.96 $ 28.96
ADR(6) .................................... $ 35.90 $ 37.67 $ 37.58 $ 40.25 $ 40.91
Occupancy percentage(7) ................... 66.16% 69.78% 70.18% 66.89% 66.25%
Balance Sheet Data
Total assets .............................. $ 150,868 $ 165,694 $ 310,567 $ 325,151 $ 368,433
Total debt ................................ 130,356 141,453 268,191 286,088 327,554
Total stockholders' equity ................ 11,492 16,326 20,745 22,279 22,966
Year Ended December 31,
-------------------------------------------------------
1992 1993 (1) 1994 (1) 1995 (1) 1996 (1)
--------- --------- --------- --------- ---------
(room revenues in thousands)
Same Property Data:
75 Motels owned since
January 1, 1992:
Room revenues .......................... $ 43,556 $ 46,093 $ 48,641 $ 49,963 $ 49,704
REVPAR(5) .............................. $ 24.13 $ 25.68 $ 27.18 $ 27.78 $ 27.54
ADR(6) ................................. $ 35.70 $ 36.03 $ 35.67 $ 37.63 $ 37.87
Occupancy percentage(7) ................ 66.07% 69.50% 74.09% 71.89% 70.78%
76 Motels owned since
January 1, 1993:
Room revenues .......................... $ 48,612 $ 51,018 $ 52,655 $ 52,757
REVPAR(5) .............................. $ 27.31 $ 28.67 $ 29.55 $ 28.75
ADR(6) ................................. $ 36.88 $ 36.45 $ 38.52 $ 38.92
Occupancy percentage(7) ................ 69.92% 74.25% 72.26% 71.38%
83 Motels owned since
January 1, 1994:
Room revenues .......................... $ 58,577 $ 60,870 $ 61,217
REVPAR(5) .............................. $ 29.37 $ 30.46 $ 30.67
ADR(6) ................................. $ 37.54 $ 39.73 $ 40.46
Occupancy percentage(7) ................ 72.95% 71.44% 70.30%
117 Motels owned since
January 1, 1995:
Room revenues .......................... $ 95,704 $ 95,627
REVPAR(5) .............................. $ 29.71 $ 29.61
ADR(6) ................................. $ 40.41 $ 41.04
Occupancy percentage(7) ................ 68.85% 67.52%
[FN]
(1) Results for the years ended December 31, 1993 and 1995 include gains on
early extinguishment of debt, net of income taxes, of $0.5 million and
$0.3 million, respectively. Results for the years ended December 31, 1994
and 1995 include the writeoff of $3.1 million of deferred costs and the
recovery of $0.4 million of offering costs previously written off,
respectively. The results for years ended December 31, 1995 and 1996
include a $0.5 million and $2.6 million gain on the sale of properties,
respectively.
(2) The Company changed its estimate of the useful life of its buildings from
35 to 40 years in 1994. The effect of this change decreased depreciation
by $1,154,000 for the year ended December 31, 1994.
(3) No earnings per share has been calculated for the year ended December 31,
1992 as all previous equity interests in the Company were cancelled in
1992 pursuant to the confirmation order entered by the Bankruptcy Court.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest, gain on sale of properties,
write-off (recovery) of deferred offerring costs 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.
(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
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, 1996, 1995
AND 1994 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.
Between January 1, 1994 and December 31, 1996, the Company has acquired,
developed and sold a number of motels in various transactions summarized as
follows:
Number of
Date Transaction Rooms
---- ----------- ---------
January 1994 Purchased at an affiliate's 76
cost to build a Best Western
motel located in West Los
Angeles, CA which opened in 1993.
Also acquired the remaining 50%
interest in the Santa Monica, CA
Best Western motel in exchange for
a 1% common stock equity interest
in the Company.
April 1994 Purchased nine motels from 1,096
Midwest Lodging, Inc.
April 1994 Purchased all the outstanding 1,760
common stock of Tri-State Inns,
Inc. which owned fifteen motels.
May through Purchased seventeen additional 1,698
December 1994 motels.
Number of
Date Transaction Rooms
---- ----------- ---------
December 1994 Purchased a motel located in 140
Charlotte, NC at book value
from an affiliate.
September and Purchased two motels located 250
December 1995 in Chattanooga, TN and Indio, CA.
December 1995 Sold two motels located in (260)
Charlotte, NC and Augusta, GA.
January 1996 Purchased nineteen motels 1,794
located in the eastern half
of the United States from
Forte USA, Inc.
January through Purchased two motels located in 201
March 1996 Newark, DE and Red Wing, MN.
Also purchased the land underlying
one of its existing properties.
May 1996 Sold a motel located in (102)
Newport, KY.
June 1996 Sold a motel located in (60)
Waukegan, IL.
August 1996 Sold three motels located (306)
in York, PA and Romulus, MI.
September 1996 Sold two motels located in (95)
Niagara Falls, NY and
Pittsfield, MA.
October 1996 Sold three motels located (447)
in West Des Moines, IA,
Phoenix, AZ and Orlando, FL
November 1996 Sold a motel located in (223)
Las Vegas, NV.
------
5,522
======
During such period, the Company has in the aggregate expended $124.3
million in cash (net of proceeds from sales of $20 million) and assumed $24.8
million in debt in conjunction with the above listed acquisitions. Cash was
funded from internal sources and $135.7 million in borrowings.
The above listed acquisitions have been accounted for under the purchase
method of accounting and therefore results from operations have been included
only since the date of acquisition.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
-----------------------------------------------------------
(unaudited)
Year Ended December 31
-----------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
------------------- ------------------- -------------------
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- --------- ---------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues ......................$ 96,568 $ 96,480 $ 23,079 $ 7,745 $ 119,647 $ 104,225
Ancillary motel revenues ........... 6,385 6,407 1,811 1,492 8,196 7,899
--------- --------- --------- --------- --------- ---------
Total motel operating revenues ... 102,953 102,887 24,890 9,237 127,843 112,124
Motel costs and expenses:
Motel operating expenses ........... 50,743 49,658 16,601 7,695 67,344 57,353
Marketing and royalty fees ......... 7,447 7,080 2,159 563 9,606 7,643
Depreciation and amortization ...... 11,273 10,112 1,935 614 13,208 10,726
--------- --------- --------- --------- --------- ---------
Total motel direct expenses ...... 69,463 66,850 20,695 8,872 90,158 75,722
----------- --------- --------- --------- --------- -------
$ 33,490 $ 36,037 $ 4,195 $ 365 37,685 36,402
========= ========= ========= =========
Corporate operations:
Other revenues ....................... 428 596
General and administrative expenses... 6,833 5,590
Depreciation and amortization ........ 787 1,892
--------- ---------
(7,192) (6,886)
--------- ---------
Net operating revenue .................. $ 30,493 $ 29,516
========= =========
Other data:
Number of motels at period end ....... 118 118 17 7 135 125
Number of rooms at period end ........ 9,553 9,565 1,764 1,008 11,317 10,573
Occupancy percentage ................. 67.30% 68.55% 62.25% 51.77% 66.25% 66.89%
ADR (1) .............................. $41.01 $ 40.36 $ 40.50 $ 38.94 $ 40.91 $ 40.25
REVPAR (2) ........................... $29.43 $ 29.50 $ 27.19 $ 24.04 $ 28.96 $ 28.96
Net operating revenue margin (3) ..... 23.77% 26.19%
Net motel revenue margin (4) ......... 46.35% 47.83% 26.56% 12.64% 42.54% 45.22%
- -----------
[FN]
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating revenue margin represents net operating revenue divided by
total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
Total revenues consist principally of motel operating revenues. Motel
operating revenues are derived from room rentals and ancillary motel revenues
such as charges to guests for food and beverage service, long distance
telephone calls, fax machine use and from vending machines. Other revenues
include interest income, distributions on partnership interests in excess of
the Company's basis in such partnerships and other miscellaneous income.
Total revenues increased to $128,271,000 in 1996 from $112,720,000 in 1995, an
increase of $15,551,000 or 13.8%.
Motel revenues increased to $127,843,000 in 1996 from $112,124,000 in
1995, an increase of $15,719,000 or 14.0%. Approximately $15,653,000 of the
increase in motel revenues was attributable to the twenty-three motels
acquired and the thirteen motels divested, since January 1, 1995 and $66,000
of the increase related to motels owned during both periods. Motel revenues
for motels owned during both periods increased 0.1%. The increase in motel
revenues for motels owned during both periods was attributable to: 1996
having one additional day; an increase in the average daily room rate
("ADR"); and a decrease in the occupancy percentage. The ADR for the
motels owned during both periods increased to $41.01 in 1996 from $40.36
in 1995, an increase of $0.65 or 1.6%. The increase in ADR is reflective of
management's efforts to increase room rates at its lodging facilities. The
occupancy percentage in 1996 for the motels owned during both periods
decreased to 67.3% from 68.6% in 1995. 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 $29.43 in 1996 from $29.50 in 1995, a decrease of
$0.07 or 0.2%. The acquired and divested motels had an occupancy
percentage of 62.25%, an ADR of $40.50 and a REVPAR of $27.19 for the
period which they were owned by the Company in 1996.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, linens and other operating supplies.
Motel operating expenses increased to $67,344,000 in 1996 from $57,353,000 in
1995, a net increase of $9,991,000 or 17.4%. Approximately $8,906,000 of the
increase is attributable to the cost of operating the acquired and divested
motels since January 1, 1995. The cost of operating motels owned during both
periods increased to $50,743,000 in 1996 from $49,658,000 in 1995, an increase
of $1,085,000 or 2.2%. Payroll and related costs experienced the most
significant increase of all of the motel operation expenses. Management
attributes this increase to the affect of the minimum wage increase and
general tightening of the labor markets in many of the areas where the
Company's motels are located. Motel operating expenses as a percentage of
motel revenues increased to 52.7% in 1996 from 51.1% in 1995. Motel operating
expenses as a percentage of motel revenues for the motels owned in both
periods increased to 49.3% in 1996 from 48.3% in 1995. The decrease in the
operating margin for motels owned during both periods is primarily
attributable to the increase in motel operating expenses. Motel operating
expenses as a percent of motel revenues for the acquired and divested motels
was 66.7% in 1996.
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
increased to $9,606,000 in 1996 from $7,643,000 in 1995, an increase of
$1,963,000 or 25.7%. Approximately $1,596,000 of the increase in marketing and
royalty fees was attributable to the motels acquired and divested since
January 1, 1995. The marketing and royalty fees for motels owned during both
periods increased to $7,447,000 in 1996 from $7,080,000 in 1995, an increase
of $367,000 or 5.2%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues increased to 7.7% in 1996 from 7.3%
in 1995.
Corporate general and administrative expenses include the costs of
corporate training, marketing, purchasing, administrative support and
accounting. The major components of these costs are salaries, wages and
related expenses, travel, rent and other administrative expenses. Corporate
general and administrative expenses increased $1,243,000 to $6,833,000 in 1996
from $5,590,000 in 1995, an increase of 22.2%. The increase resulted
principally from higher payroll costs due to additional corporate personnel
hired to manage the additional work load associated with the increase in the
number of motels since January 1, 1995. The Company also hired several
individuals to facilitate the Company's new construction projects. As a
percentage of total motel operating revenues, corporate general and
administrative expenses increased to 5.3% in 1996 from 5.0% in 1995.
Depreciation and amortization increased to $13,995,000 in 1996 from
$12,618,000 in 1995, an increase of $1,377,000 or 10.9%. Approximately
$1,321,000 of the increase in depreciation and amortization is attributable to
the addition of the motels acquired and divested since January 1, 1995.
Depreciation and amortization with respect to motels owned during both periods
increased $1,161,000 due to the Company's continued reinvestment in the
properties. Corporate depreciation and amortization decreased $1,105,000 to
$787,000 in 1996 from $1,892,000 in 1995. The decrease is principally a
result of the completion of the amortization of the of deferred financing
costs incurred with respect to the borrowings under the two-year $100 million
secured line of credit facility entered into with Nomura Asset Capital
Corporation ("NACC") in October 1994 (the "NACC credit line").
Net operating revenue increased to $30,493,000 in 1996 from $29,516,000
in 1995, an increase of $977,000 or 3.3%. The increase in net operating
revenues included an increase of $3,765,000 in net motel revenues (motel
revenues less motel operating expenses and marketing and royalty fees). Of
the $3,765,000 increase in net motel revenues, $5,151,000 resulted from the
motels acquired and divested since January 1, 1995. Net motel revenues for
motels owned during both periods decreased $1,386,000 or 3.0%. Net operating
revenue as a percent of total revenues was 23.8% and 26.2% in 1996 and 1995,
respectively.
Interest expense increased to $31,573,000 in 1996 from $27,831,000 in
1995, an increase of $3,742,000. The increase is principally due to an
increase in outstanding borrowings utilized to finance the acquisition of
motel properties.
Net income decreased to $687,000 in 1996 from $1,533,000 in 1995. Net
income for 1996 includes the gain on sale of properties of $1,581,000, net of
tax. Net income for 1995 includes the gain on sale of properties of $293,000,
net of tax, the reversal of the writeoff of deferred offering costs of
$247,000, net of tax, and the gain on early extinguishment of debt of
$268,000, net of tax.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
-----------------------------------------------------------
(unaudited)
Year Ended December 31
-----------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
------------------- ------------------- -------------------
1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- ---------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues .........................$ 60,870 $ 58,577 $ 43,355 $ 21,954 $ 104,225 $ 80,531
Ancillary motel revenues .............. 4,447 4,236 3,452 1,871 7,899 6,107
--------- --------- --------- --------- --------- ---------
Total motel operating revenues .. . 65,317 62,813 46,807 23,825 112,124 86,638
Motel costs and expenses:
Motel operating expenses .............. 31,028 30,297 26,325 12,948 57,353 43,245
Marketing and royalty fees ............ 4,597 4,414 3,046 1,486 7,643 5,900
Depreciation and amortization ......... 6,533 6,305 4,193 1,585 10,726 7,890
--------- --------- --------- --------- --------- ---------
Total motel direct expenses ......... 42,158 41,016 33,564 16,019 75,722 57,035
--------- --------- --------- --------- --------- ---------
$ 23,159 $ 21,797 $ 13,243 $ 7,806 36,402 29,603
========= ========= ========= =========
Corporate operations:
Other revenues .......................... 596 429
General and administrative expenses ..... 5,590 4,596
Depreciation and amortization ........... 1,892 679
--------- ---------
(6,886) (4,846)
--------- ---------
Net operating revenue ..................... $ 29,516 $ 24,757
========= =========
Other data:
Number of motels at period end .......... 83 83 42 42 125 125
Number of rooms at period end ........... 5,887 5,857 4,686 4,694 10,573 10,551
Occupancy percentage .................... 71.44% 72.95% 61.23% 63.72% 66.89% 70.18%
ADR (1) .................................$ 39.73 $ 37.54 $ 41.00 $ 37.70 $ 40.25 $ 37.58
REVPAR (2) ..............................$ 30.46 $ 29.37 $ 27.10 $ 26.07 $ 28.96 $ 28.38
Net operating revenue margin (3) ........ 26.19% 28.43%
Net motel revenue margin (4) ............ 48.78% 47.97% 40.22% 42.78% 45.22% 46.56%
- -----------
[FN]
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating revenue margin represents net operating revenue divided by
total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
Total revenues increased to $112,720,000 in 1995 from $87,067,000 in
1994, an increase of $25,653,000 or 29.5%.
Motel revenues increased to $112,124,000 in 1995 from $86,638,000 in
1994, an increase of $25,486,000 or 29.4%. Approximately $22,982,000 of the
increase in motel revenues was attributable to the forty-four motels acquired
and the two motels divested since January 1, 1994 and $2,504,000 of the
increase related to motels owned during both periods. Motel revenues for
motels owned during both periods increased 4.0%. The increase in motel
revenues for motels owned during both periods was attributable to an increase
in the average daily room rate ("ADR") partially offset by a decrease in the
occupancy percentage. The ADR for the motels owned during both periods
increased to $39.73 in 1995 from $37.54 in 1994, an increase of $2.19 or 5.8%.
The increase in ADR is reflective of management's efforts to increase room
rates at its lodging facilities. The occupancy percentage in 1995 for the
motels owned during both periods decreased to 71.4% from 72.9% in 1994.
Revenue per available room ("REVPAR") for motels owned during both periods
increased to $30.46 in 1995 from $29.37 in 1994, an increase of $1.09 or 3.7%.
The motels acquired and motels divested had an occupancy percentage of 61.23%,
an ADR of $41.00 and a REVPAR of $27.10 for the period which they were owned
by the Company in 1995.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, linens and other operating supplies.
Motel operating expenses increased to $57,353,000 in 1995 from $43,245,000 in
1994, a net increase of $14,108,000 or 32.6%. Approximately $13,377,000 of
the increase is attributable to the cost of operating the motels acquired and
divested since January 1, 1994. The cost of operating motels owned during
both periods increased to $31,028,000 in 1995 from $30,297,000 in 1994, an
increase of $731,000 or 2.4%. Motel operating expenses as a percentage of
motel revenues increased to 51.1% in 1995 from 49.9% in 1994. Motel operating
expenses as a percentage of motel revenues for the motels owned in both
periods decreased to 47.5% in 1995 from 48.2% in 1994. The increase in the
operating margin for motels owned during both periods is primarily
attributable to the increase in room revenues. Motel operating expenses as a
percent of motel revenues for the motels acquired and motels divested since
January 1, 1994 was 56.2% in 1995.
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
increased to $7,643,000 in 1995 from $5,900,000 in 1994, an increase of
$1,743,000 or 29.5%. Approximately $1,560,000 of the increase in marketing and
royalty fees was attributable to the motels acquired and motels divested since
January 1, 1994. The marketing and royalty fees for motels owned during both
periods increased to $4,597,000 in 1995 from $4,414,000 in 1994, an increase
of $183,000 or 4.1%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues increased to 7.6% in 1995 from 7.5%
in 1994.
Corporate general and administrative expenses include the costs of
corporate training, marketing, purchasing, administrative support and
accounting. The major components of these costs are salaries, wages and
related expenses, travel, rent and other administrative expenses. Corporate
general and administrative expenses increased $994,000 to $5,590,000 in 1995
from $4,596,000 in 1994, an increase of 21.6%. The increase resulted
principally from higher payroll costs due to additional corporate personnel
hired to manage the additional work load associated with the increase in the
number of motels operated by the Company since January 1, 1994. As a
percentage of total motel operating revenues, corporate general and
administrative expenses declined to 5.0% in 1995 from 5.3% in 1994.
Depreciation and amortization increased to $12,618,000 in 1995 from
$8,569,000 in 1994, an increase of $4,049,000 or 47.2%. Approximately
$2,608,000 of the increase in depreciation and amortization is attributable to
the motels acquired and motels divested since January 1, 1994. The Company
changed its estimate of the useful life of its buildings from 35 to 40 years
in 1994. The effect of this change decreased depreciation by $1,154,000 for
the year ended December 31, 1994. Corporate depreciation and amortization
increased $1,213,000 to $1,892,000 in 1995 from $679,000 in 1994. The
increase is principally a result of amortization of deferred financing costs
incurred in 1994 with respect to the issuance by the Company of the Notes in
April 1994 and borrowings under the two-year $100 million secured line of
credit facility entered into with Nomura Asset Capital Corporation ("NACC") in
October 1994 (the "NACC credit line").
Net operating revenue increased to $29,516,000 in 1995 from $24,757,000
in 1994, an increase of $4,759,000 or 19.2%. The increase in net operating
revenues included an increase of $9,635,000 in net motel revenues (motel
revenues less motel operating expenses and marketing and royalty fees). Of
the $9,635,000 increase in net motel revenues, $8,045,000 resulted from the
motels acquired and motels divested since January 1, 1994. Net motel revenues
for motels owned during both periods increased $1,590,000 or 5.7%. Net
operating revenue as a percent of total revenues was 26.2% and 28.4% in 1995
and 1994, respectively.
Interest expense increased to $27,831,000 in 1995 from $20,297,000 in
1994, an increase of $7,534,000. Approximately $2,866,000 of the increase is
due to the issuance of the Notes in April 1994. The remainder of the increase
is principally due to an increase in outstanding borrowings utilized to fund
acquisitions of lodging properties
The writeoff of deferred offering costs in 1994 of $3,121,000 represents
costs incurred by the Company during 1994, including management's estimates of
unbilled costs at December 31, 1994, related to a proposed formation of a real
estate investment trust (the "REIT"). During the fourth quarter of 1994, the
public market for initial REITs deteriorated to the point, in the opinion of
management, that the contemplated transaction would not achieve the desired
financial results and the transaction was abandoned. Accordingly, the legal
fees, underwriting fees and other costs and deferred expenses were expensed in
the fourth quarter of 1994. During the fourth quarter of 1995, management
determined that the previous estimates of unbilled costs exceeded the actual
costs and the Company recovered $404,000 of the writeoff.
Net income increased to $1,533,000 in 1995 from $414,000 in 1994. Net
income for 1995 includes the gain on sale of properties of $293,000, net of
tax, the reversal of the writeoff of deferred offering costs of $247,000, net
of tax, and the gain on early extinguishment of debt of $268,000, net of tax.
Net income for 1994 includes the writeoff of deferred offering costs of
$1,906,000, net of tax
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, 1996, the Company has principal repayment obligations of
$10,207,437, $68,793,874 and $5,352,137 for the years ending December 31,
1997, 1998 and 1999, respectively. In January 1997, the Company sold a motel
for cash and the assumption of debt which reduced the principal repayment
obligations for 1997 from the $10,207,437 stated above to $7,866,190.
Management believes the Company will be able to extend the maturity or
refinance mortgage notes in the amount of $1,825,704 as of December 31,
1996 which would otherwise require repayment in 1997. Management believes
cash flows derived from the properties securing the approximate $62.5 million
of mortgage loans which mature in 1998 will be sufficient to allow for the
refinancing of such mortgage debt. Although the Company currently does not
have lines of credit outstanding, management believes sufficient resources
exists in the event of any unforeseen liquidity needs.
In January through March 1996, the Company borrowed approximately $30.9
million under the NACC credit line and $10.7 million from unrelated parties
to finance the acquisition of nineteen motels from Forte USA, Inc., a
subsidiary of Forte Hotels, Inc., two additional motel properties and the
land underlying a motel already owned.
In November 1996, the Company completed two separate financing transactions
with CSFB pursuant to which the Company borrowed $37,150,000 on a secured basis.
Approximately $29.8 million of the proceeds were utilized to repay the entire
outstanding borrowings under the Company's NACC credit line; $1.6 million of
the proceeds were utilized toward a partial paydown of the Company's borrowing
from HFS Incorporated; and the remaining net proceeds were retained for general
corporate purposes and are evidenced by mortgages. The terms of the notes and
mortgages, among other things, provide for a floating rate of interest adjusted
monthly based upon the thirty-day LIBOR rate plus 3.37% and monthly payments of
principal and interest based upon a twenty-year amortization period.
In November 1996, the Company contributed the total of approximately $2.5
million to a newly formed subsidiary, TAD Properties L.L.C. to cover
financing commitment fees and certain related expenses in connection with
prospective financing for a new construction motel development program
contemplated to be pursued by such subsidiary.
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 $9,857,347, $7,805,508 and $6,817,513 in 1996, 1995 and 1994,
respectively. In addition, as of December 31, 1996, the Company has
$3,738,478 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, 1996 cash and cash equivalents decreased
$1,649,590 from $13,897,161 at December 31, 1995 to $12,247,571 at December
31, 1996. $13,477,147 of cash was provided by operating activities,
$50,497,836 of cash was utilized in investing activities and $35,371,099 of
cash was provided by financing activities. Net investing activities include:
$55,021,276 of cash utilized for motel acquisitions ($43,837,022), development
($5,639,529) and redevelopment of existing motel properties ($5,544,725);
$9,857,347 expended on renovation of existing motel properties; $1,575,913 of
cash utilized as an increase in cash restricted for refurbishment of
properties; and $15,956,700 of cash provided from the sale of investment
properties and collections on mortgage and other notes receivable. Cash
provided by financing activities include: $82,721,234 of proceeds from
borrowings less $5,361,159 of deferred financing costs; $41,674,691 of cash
utilized to repay indebtedness; and $314,285 of cash distributed to minority
interests.
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.
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 60 Director, Chairman and Chief Executive Officer
Kurt M. Mueller 40 Director, President and Chief Operating Officer
Carl W. Desch 81 Director
J. Anthony Kouba 49 Director
Louis A. Scarrone, M.D. 73 Director
Ronald P. Stewart 52 Director
C. Michael Dolan 56 Vice-Chairman-Development
Daniel W. Daniele 41 Executive Vice President
Valerie Gossman-Murzl 43 Vice President & Assistant Secretary
John D. Simon 50 Secretary & Treasurer
Robert Brandt 56 Vice President & Assistant Secretary
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.
Kurt M. Mueller has been President since January 1994 and a Director and
Chief Operating Officer of the Company since he joined MOA in May 1991. Mr.
Mueller served as Executive Vice President from May 1991 until January 1994.
In addition, Mr. Mueller currently serves on the Company's operations
committee and audit committee. From 1978 to 1991, Mr. Mueller was employed by
Ernst & Young LLP and most recently was 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.
J. Anthony Kouba has been a Director of the Company since April 1995.
Mr. Kouba is a developer and operator of various real estate properties and
has been a licensed real estate broker in the State of California since 1975.
In addition, Mr. Kouba has been a member of the State Bar of California since
1972.
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 Learning
Annex of New York since 1992.
C. Michael Dolan, is one of the founders of MOA and has been Vice-
Chairman-Development since January 1994. He served as a Director from April
1990 to May 1996. Mr Dolan served as Chairman and Chief Executive Officer of
the Company from April 1990 until January 1994.
Daniel W. Daniele has been Executive Vice President of the Company since
September 1994. From October 1, 1993 until September 1994, Mr. Daniele served
as the Principal and National Director Hospitality Consulting for Ernst &
Young LLP. From March 26, 1991 to September 30, 1993, Mr. Daniele served as a
Senior Manager and National Director Hospitality Consulting for Ernst & Young
LLP. From February 1, 1991 to March 25, 1991, he worked on an independent
consulting basis for Ernst & Young LLP, and from January 2, 1991 to January
31, 1991, he served as a Senior Principal for Pannel, Kerr, Forster. From
February 1978 to November 1990, Mr. Daniele was employed by Laventhol &
Horwath in various positions including the Senior Principal and National
Director Economy/Limited-Service Lodging.
Valerie Gossman-Murzl has been Vice President, with a special emphasis on
Training/Development and Human Resources since joining the Company in January
1990, and Assistant Secretary since May 1996. Prior to 1990, she was most
recently a Director of Human Resources for the Marriott Corporation
specializing in Employee Relations Law. During her 12-year career with
Marriott, she held a variety of positions in operations and other aspects
of the lodging industry.
John D. Simon has been Secretary and Treasurer of the Company since
joining the Company in August 1996. From April 1995 to August 1996, he worked
as an independent consultant. From January 1990 to March 1995, Mr. Simon was
Vice President-Property Financial Operations for The Balcor Company, a wholly-
owned subsidiary of American Express Co. From October 1988 to December 1989,
he served as Senior Controller for The Balcor Company.
Robert Brandt has been Vice President and Assistant Secretary of the
Company since November 1996. Mr. brandt has served as Vice President of Budget
Motel Supply Corporation, a subsididary of MOA, since 1990. From 1986 to
1990, he was Vice President of DRG Investments, in charge of motel development
for the Company.
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 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 1996 300,000 --
Chairman and Chief Executive Officer 1995 300,000 --
1994 300,000 --
C. Michael Dolan 1996 300,000 --
Vice Chairman - Development 1995 300,000 --
1994 300,000 --
Kurt M. Mueller 1996 400,000 50,000
President and Chief Operating Officer 1995 350,000 --
1994 262,500 --(1)
Daniel W. Daniele 1996 250,000 100,000
Executive Vice President(2) 1995 200,000 --
1994 50,000 --
Valerie Gossman-Murzl
Vice President & Assistant Secretary 1996 87,000 23,000
1995 80,000 19,000
_____________________________ 1994 77,250 18,000
(1) The Company entered into an employment contract with Mr. Mueller which
was effective through May 31, 1994. The agreement provided for a base annual
salary of $175,000 and provided for bonus amounts based on the Company's
performance in meeting certain financial performance measurements. Bonus
amounts aggregating $175,000 earned and accrued in 1993 were subsequently paid
in 1994.
(2) Mr. Daniele has been Executive Vice President of the Company since
September 1994.
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 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, Kouba, 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 1996, no officer or employee of the Company or its subsidiaries
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
Employment Agreements and Compensation Arrangements
On September 14, 1994 the Company entered into an employment agreement
with Mr. Daniele providing for the employment of Mr. Daniele as Executive Vice
President of the Company until December 31, 1997. Pursuant to this agreement,
Mr. Daniele was entitled to a base salary of $200,000 in 1995 and will be
entitled to a base salary of $200,000 in each of 1996 and 1997. In addition,
pursuant to this agreement Mr. Daniele is eligible to receive an annual bonus
to be determined by the Board of Directors of the Company.
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 March 13, 1997:
Shares of
Common
Stock Beneficially Percent of
Name and Address of Beneficial Owner Owned Class
Principal Stockholders:
New Image Realty, Inc............................. 677,228 85%
888 Seventh Avenue
Suite 3400
New York, NY 10106
Executive Officers 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 paid $345,000, $190,000 and $185,000 for construction
management, brokerage commissions and for other services performed in 1994,
1995 and 1996, respectively, to a company in which Mr. Kouba has a minority
ownership interest.
The Company is a member of an affiliated group that files a consolidated
tax return for federal income tax purposes. During 1994, 1995 and 1996, the
Company made federal tax payments of approximately $2.5 million, $1.3 million,
and $0.5 million respectively, to affiliates of Paul F. Wallace, of which
approximately $1.0 million is available to offset required future federal tax
payments, if any.
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 8K
None.
INDEX TO FINANCIAL STATEMENTS
MOTELS OF AMERICA,INC. AND SUBSIDIARIES
Years Ended December 31, 1996, 1995 and 1994
Report of Independent Auditors .......................................F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 .........F-3
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1996 ...................................F-4
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1996 ....F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1996 ................................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
Motels of America, Inc.
We have audited the consolidated balance sheets of Motels of America,
Inc. and Subsidiaries as of December 31, 1996 and 1995, 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, 1996.
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 generally accepted auditing
standards. 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
Motels of America, Inc. and Subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
March 14, 1997
Chicago, Illinois
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1996 1995
------------- -------------
ASSETS
Cash and cash equivalents ................................... $ 12,247,571 $ 13,897,161
Restricted cash ............................................. 3,738,478 2,162,565
Accounts receivable from property operations ................ 2,794,739 2,807,661
Operating supplies and prepaid expenses ..................... 2,879,660 3,348,796
Deposits and other assets ................................... 7,658,003 2,892,877
Mortgage and other notes receivable ......................... 8,932,281 2,787,833
Investment property:
Operating properties, net of accumulated depreciation ..... 307,696,323 278,280,698
Land held for development ................................. 4,046,536 4,046,536
------------- -------------
Total investment property ................................... 311,742,859 282,327,234
Financing and other deferred costs, net of accumulated
amortization of $4,162,912 in 1996 and $2,127,120 in 1995.. 18,438,910 14,926,635
------------- -------------
$ 368,432,501 $ 325,150,762
============= =============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Trade accounts payable ...................................... $ 2,176,690 $ 1,554,145
Real estate taxes payable ................................... 2,611,873 1,963,058
Accrued interest payable .................................... 3,692,868 3,144,560
Other accounts payable and
accrued expenses .......................................... 3,847,484 4,077,730
Net deferred tax liability .................................. 3,684,565 4,165,559
Mortgage and other notes payable ............................ 251,147,547 209,972,514
12% Senior Subordinated Notes, net of unamortized
discount of $3,593,603 in 1996 and $3,884,900 in 1995...... 76,406,397 76,115,100
------------- -------------
Total liabilities ........................................... 343,567,424 300,992,666
Minority Interests .......................................... 1,899,176 1,879,451
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 ......................................... 7,663,617 6,976,361
------------- -------------
Total stockholders' equity .................................. 22,965,901 22,278,645
------------- -------------
$ 368,432,501 $ 325,150,762
============= =============
See accompanying notes to consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
-------------- -------------- --------------
Revenues:
Motel operating revenues ....................... $ 127,842,502 $ 112,123,889 $ 86,638,169
Other revenues ................................. 428,277 596,481 428,824
-------------- -------------- --------------
Total revenues ................................... 128,270,779 112,720,370 87,066,993
Costs and expenses:
Motel operating expenses ....................... 67,343,939 57,353,233 43,245,316
Marketing and royalty fees ..................... 9,606,013 7,643,068 5,899,681
General and administrative ..................... 6,833,365 5,590,441 4,596,278
Depreciation and amortization .................. 13,994,963 12,617,306 8,568,790
-------------- -------------- --------------
Total direct expenses ............................ 97,778,280 83,204,048 62,310,065
-------------- -------------- --------------
Net operating revenue ............................ 30,492,499 29,516,322 24,756,928
Interest expense ................................. 31,572,501 27,830,864 20,296,594
-------------- -------------- --------------
Income (loss) from operations .................... (1,080,002) 1,685,458 4,460,334
Gain on sale of properties........................ 2,589,029 479,281 -
Recovery (writeoff) of deferred offering costs ... - 404,101 (3,120,918)
Minority interests................................ (334,010) (471,688) (623,572)
-------------- -------------- --------------
Income before income taxes and
extraordinary item ............................. 1,175,017 2,097,152 715,844
Income tax expense ............................... 487,761 831,709 301,425
-------------- -------------- --------------
Income before extraordinary item ................. 687,256 1,265,443 414,419
Gain on early extinguishment of debt, net of
applicable income taxes of $170,734 in 1995 .... - 267,946 -
-------------- -------------- --------------
Net income ....................................... $ 687,256 $ 1,533,389 $ 414,419
============== ============== ==============
Net income per common share:
Income before extraordinary item ............... $ 0.86 $ 1.58 $ 0.53
Extraordinary item ............................. - 0.33 -
-------------- -------------- --------------
Net income per common share .................... $ 0.86 $ 1.91 $ 0.53
============== ============== ==============
Weighted average number of
common shares outstanding ...................... 800,000 800,000 777,425
============== ============== ==============
See accompanying notes to consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
--------- ------------- ------------- -------------
Balance at January 1, 1994 .......... $ 7,129 $ 11,290,133 $ 5,028,553 $ 16,325,815
Net income .......................... - - 414,419 414,419
Return of capital contribution to
stockholder for income taxes ...... - (303,978) - (303,978)
Issuance of common stock ............ 871 4,308,129 - 4,309,000
--------- ------------- ------------- -------------
Balance at December 31, 1994 ........ 8,000 15,294,284 5,442,972 20,745,256
Net income .......................... - - 1,533,389 1,533,389
--------- ------------- ------------- -------------
Balance at December 31, 1995 ........ 8,000 15,294,284 6,976,361 22,278,645
Net income .......................... - - 687,256 687,256
--------- ------------- ------------- -------------
Balance at December 31, 1996 ........ $ 8,000 $ 15,294,284 $ 7,663,617 $ 22,965,901
========= ============= ============= =============
See accompanying notes to consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
------------- --------------- ---------------
Cash flows provided by operating activities:
Net income ................................................$ 687,256 $ 1,533,389 $ 414,419
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, amortization and accretion
of discount on notes ................................... 14,286,260 12,875,818 8,734,378
(Recovery) writeoff of deferred offering costs .......... - (404,101) 3,120,918
Minority interests of others in income from operations .. 334,010 471,688 623,572
Deferred income taxes ................................... (480,994) (607,038) (143,977)
Gain on sale of properties............................... (2,589,029) (479,281) -
Gain on early extinguishment of debt .................... - (438,680) -
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ................................... 54,855 (193,129) (933,854)
Operating supplies, prepaid expenses,
deposits and other assets ............................ (1,196,653) (2,706,016) (3,587,356)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ................. 1,792,405 (1,268,500) 92,351
Accrued interest payable .............................. 589,037 (639,999) 2,173,921
------------- --------------- ---------------
Net cash provided by operating activities .................. 13,477,147 8,144,151 10,494,372
Cash flows used in investing activities:
Acquisition and development of investment properties ...... (55,021,276) (8,942,596) (95,615,269)
Refurbishment of investment properties .................... (9,857,347) (7,805,508) (6,817,513)
Cash restricted for refurbishment of properties ........... (1,575,913) 2,020,836 (3,225,643)
Net proceeds from sales of investment properties .......... 15,821,148 4,108,055 -
Collections on mortgage and other notes receivable ........ 135,552 86,865 1,184,407
------------- --------------- ---------------
Net cash used in investing activities ...................... (50,497,836) (10,532,348) (104,474,018)
Cash flows provided by financing activities:
Repayment of notes payable ................................ (41,674,691) (151,712,095) (32,688,475)
Proceeds from notes payable and
Senior Subordinated Notes ................................ 78,821,234 169,800,000 134,839,296
Distributions to minority interests ....................... (314,285) (414,511) (562,634)
Proceeds from issuance of common stock .................... - - 4,309,000
Return of capital contribution to
stockholder for income taxes ............................. - - (303,978)
Deferred financing costs and offering costs ............... (5,361,159) (9,875,712) (6,880,623)
------------- --------------- ---------------
Net cash provided by financing activities .................. 35,371,099 7,797,682 98,712,586
------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents ....... (1,649,590) 5,409,485 4,732,940
Cash and cash equivalents at beginning of period ........... 13,897,161 8,487,676 3,754,736
------------- --------------- ---------------
Cash and cash equivalents at end of period .................$ 12,247,571 $ 13,897,161 $ 8,487,676
============= =============== ===============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest ..................$ 30,732,896 $ 28,218,093 $ 17,723,662
============= =============== ===============
Cash paid during the period for income taxes ..............$ 993,984 $ 1,904,260 $ 3,211,737
============= =============== ===============
See accompanying notes to consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Organization and Basis of Presentation
Motels of America, 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 35
states throughout the United States. At December 31, 1996, the Company's
largest concentrations of lodging facilities were located in the State of
Illinois with 13 lodging facilities and the state of Georgia with 12 lodging
facilities. The consolidated financial statements include the accounts of
Motels of America, Inc. and all wholly owned subsidiaries and all entities in
which it has a majority or 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.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles 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 and Cash Equivalents
Cash and cash equivalents represent highly 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, has been set aside for the refurbishment of motel properties.
Operating 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). During the fourth quarter of
1994, the Company changed its estimate of the useful life of its buildings
from 35 to 40 years, effective January 1, 1994, based on a review of the
depreciable lives of its assets. The effect of this change increased net
income by approximately $705,000 and net income per share by $0.91, net of
income taxes, for the year ended December 31, 1994.
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.
Land Held for Development
Land held for development, consisting of land purchased for future
development, is stated at the lower of cost or estimated net realizable value.
Land held for development is written down to net realizable value when
management believes that market conditions in a particular geographic location
become unfavorable for the development of new properties.
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.
Organization costs are amortized using the straight-line method over a period
of 60 months.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of
common stock outstanding during each period.
3. Offering Costs
In 1994, in conjunction with the planned offering of a real estate
investment trust, the Company incurred $3,121,000 of costs. During the fourth
quarter of 1994, the offering was suspended due to a change in market factors
and the costs were written off. During 1995, management determined that the
estimated costs exceeded the actual costs and the Company recovered $404,000
of the writeoff.
4. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $6,884,174 and $699,240 at
December 31, 1996 and 1995, 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 $2,048,107 and $2,088,593 at
December 31, 1996 and 1995, respectively, bear interest at rates from 9% to
11% and are receivable over various terms through 2016.
Notes receivable of $5,995,813 at December 31, 1996 have been pledged as
collateral for a loan facility in which the Company participated along with one
of its affiliates, from which the loan proceeds to the Company were $3,900,000.
5. Operating Properties
The major classes of operating properties, at cost, are as follows:
December 31,
-----------------------------
1996 1995
-------------- --------------
Land $ 52,819,338 $ 44,008,320
Buildings 265,228,461 240,658,333
Furniture and Equipment 51,503,219 44,688,740
-------------- --------------
369,551,017 329,355,393
Less: Accumulated
depreciation (61,854,694) (51,074,695)
-------------- --------------
$ 307,696,323 $ 278,280,698
============== ==============
6. Notes Payable and Senior Subordinated Notes
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 are not redeemable at the option of the Company prior
to April 15, 1999, except that, until April 15, 1997, the Company may redeem,
under certain conditions, up to $24 million principal amount of the Notes at
112%, plus accrued and unpaid interest to the date of redemption.
In October 1994, the Company obtained a two-year $100 million secured line
of credit facility (the "line of credit") with Nomura Asset Capital
Corporation ("NACC") designed to be used principally to finance the
acquisition of motel properties, including expenses and refurbishment costs
associated with such acquisitions. Borrowings under the line of credit were
secured by motel properties. The line of credit bore interest, payable
monthly, at an annual rate equal to LIBOR plus 3.33%. The line of credit had
no balance outstanding at December 31, 1995 and was repaid in October 1996.
The Company was required to pay a financing fee of 1% of any funds borrowed
thereunder.
In September 1995, the Company completed funding of a financing transaction
with 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 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 totalling
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%.
During 1995 the Company repaid a mortgage note recognizing a gain of
$267,946 net of applicable income taxes of $170,734.
In January 1996, the Company borrowed approximately $24.2 million under the
NACC line of credit and $10 million from an unrelated party to finance the
acquisition of nineteen motels from Forte USA, Inc. (see Note 9). In February
and March 1996, the Company borrowed approximately $700,000 from an unrelated
party and an additional $6.7 million under the NACC line of credit to finance
the acquisition of two additional motel properties and the land underlying one
of its properties (see Note 9). The $10 million note payable, repayable at
any time with a maturity date of January 31, 2001, bears interest, payable
quarterly, at 14% per annum and is secured by a guarantee of New Image.
In November 1996, the Company completed two separate financing transactions
with CS First Boston Corporation ("CSFB") pursuant to which the Company
borrowed approximately $37.2 million. The proceeds were utilized to repay the
entire outstanding borrowings under the NACC line of credit; and a partial
paydown of $1.6 million of the $10 million note referred to above. The CSFB
borrowings are secured by first mortgages on nineteen of the Company's motel
properties and a pledge of the stock of one of Motels of America, Inc.'s
subsidiaries. The terms of the notes and mortgages, among other things,
provide for a floating rate of interest adjusted monthly based on the
thirty-day LIBOR rate plus 3.37% and monthly payments of principal and
interest based on a twenty-year amortization period. The notes mature on
November 1, 1998.
In November 1996, the Company borrowed $3.9 million in a collateralized loan
facility, along with one of its affiliates. Such loan bears interest at the
rate of 250 basis points over the thirty-day LIBOR rate, payable monthly and
matures November 13, 1999.
In November 1996, the Company contributed the total of approximately $2.5
million to a newly formed subsidiary TAD Properties L.L.C. to cover financing
commitment fees and certain related expenses in connection with prospective
financing for new construction motel development program contemplated to be
pursued by the subsidiary.
The declaration and payment of dividends is restricted by the indenture
relating to the 12% Senior Subordinated Notes. At December 31, 1996, dividends
of $1,683,375 were eligible to be declared.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
A summary of mortgage and other notes payable is as follows:
December 31,
1996 1995
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 . . . . . . . . . . . . . . . . . . $ 155,416,361 $ 158,337,556
Mortgage notes payable secured by 19
motels and a pledge of the stock of one
of Motels of America, Inc's subsidiaries,
with interest at a floating rate of LIBOR
plus 3.37%; Principal and interest
payable monthly; due November 1, 1998. . 37,089,632 ----
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;
due December 31, 1998 . . . . . . . . . . 19,485,345 20,505,824
Various mortgage notes payable currently
secured by 9 motels, with fixed interest
from 7% to 10.25%; principal and interest
payments payable monthly; due dates from
September 14, 1997 to November 1, 2001 . . . 7,404,715 12,039,408
Various mortgage notes payable currently
secured by 2 motels and undeveloped land,
with variable interest based on prime or
Treasury bill rates; principal and
interest payments payable monthly; due
dates from December 31, 1997 to June 1,
2001 . . . . . . . . . . . . . . . . . . 5,767,207 5,911,730
Mortgage note payable secured by a hotel,
with interest at LIBOR plus 1.75%,
principal and interest payments payable
monthly, due January 31, 2000 . . . . . 8,981,640 9,130,459
Note secured by Notes Receivable with
interest at a floating interest rate of
LIBOR plus 2.50%; monthly principal and
interest payment: due November 13,
1999 . . . . . . . . . . . . . . . . . . 3,900,000
Various notes payable secured by two
motels with fixed interest from 8% to
10%; principal and interest payment
payable monthly; due dates from June 28,
2000 to March 1, 2003 . . . . . . . . 804,815 ----
Mortgage note payable secured by a
guarantee of New Image Realty, Inc. with
a fixed interest rate of 14%; interest
payments payable quarterly; due January
23, 2001 . . . . . . . . . . . . . . . 8,400,000 ----
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 . . . . . . . . . . . . 3,645,000 3,700,000
Other notes payable . . . . . . . . . 252,832 347,537
------------- -------------
$251,147,547 $209,972,514
============= =============
Principal payments required on notes payable and the Senior Subordinated
Notes are scheduled as follows:
Years ended December 31,
1997 $ 10,207,437
1998 68,793,874
1999 5,352,137
2000 12,809,913
2001 14,070,464
Thereafter 219,913,722
-------------
$331,147,547
=============
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
7. 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 $1,159,000, $988,000 and
$765,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Minimum annual rentals for leases on properties and the corporate office
for the five years subsequent to December 31, 1996 and thereafter, are
approximately as follows:
Years ended December 31,
1997 $ 769,000
1998 770,000
1999 755,000
2000 759,000
2001 680,000
Thereafter 14,546,000
------------
$18,279,000
============
8. Income Taxes
Total income tax expense was allocated as follows:
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ----------- ----------
Income from $ 487,761 $ 831,709 $ 301,425
Extraordinary item ---- 170,734 ----
---------- ----------- ----------
$ 487,761 $1,002,443 $ 301,425
========== =========== ==========
Income tax expense (benefit) attributable to income from operations
consists of:
Current Deferred Total
---------- ----------- ----------
Year ended December 31, 1996:
U.S. federal $ 910,476 $(516,139) $394,337
State and local 58,279 35,145 93,424
---------- ----------- ----------
$ 968,755 $(480,994) $487,761
========== =========== ==========
Year ended December 31, 1995:
U.S. federal $1,214,098 $(542,740) $671,358
State and local 224,649 (64,298) 160,351
---------- ----------- ----------
$1,438,747 $(607,038) $831,709
========== =========== ==========
Year ended December 31, 1994:
U.S. federal $ 16,445 $ 227,247 $243,692
State and local 428,957 (371,224) 57,733
---------- ----------- ----------
$ 445,402 $(143,977) $301,425
========== =========== ==========
8. Income Taxes-(Continued)
Income tax expense 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,
---------------------------------------
1996 1995 1994
--------- --------- ----------
Computed "expected" tax expense $399,506 $713,032 $ 243,387
Increase in income
taxes resulting from:
State income taxes, net of
federal income tax benefit 61,659 105,832 38,104
Other, net 26,596 12,845 19,934
--------- --------- ----------
$487,761 $831,709 $ 301,425
========= ========= ==========
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,
---------------------------
1996 1995
------------ ------------
Deferred tax assets:
Reserves $ (364,012) $ (376,706)
Certain bankruptcy costs (88,890) (182,042)
Partnership investments (3,681) (7,369)
Net state operating loss carryforwards (896,012) (990,823)
Federal tax credits carryover (792,394) (437,948)
Other, net (559,446) (222,541)
------------ ------------
Total deferred tax assets (2,704,435) (2,217,429)
Deferred tax liabilities:
Investment properties, principally
due to depreciation and purchase
accounting adjustments 6,389,000 6,382,988
------------ ------------
Total deferred tax liabilities 6,389,000 6,382,988
------------ ------------
Net deferred tax liabilities $ 3,684,565 $ 4,165,559
============ ============
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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. During 1996 and 1995, the Company made federal tax
payments of approximately $0.5 million and $1.3 million, respectively, to the
parent corporation. At December 31, 1996, approximately $1.0 million is
available to offset required future federal tax payments to the parent
corporation, if any. For periods ending on or before February 28, 1994, any
current federal tax liability that would have been computed in accordance with
this agreement has been released and has been treated as a capital
contribution from New Image to the Company. At December 31, 1994,
stockholders' equity was reduced by $303,978 due to the federal tax benefit
realized from January 1, 1994 through February 28, 1994.
At December 31, 1996, the Company has net operating loss carryforwards
("NOLs") for state income tax purposes of approximately $11.2 million. The
NOLs, which are subject to certain limitations, expire at various dates
through 2010. At December 31, 1996, the Company also has approximately
$792,000 of tax credit carryforwards subject to certain limitations, which do
not expire.
9. Acquisitions and Divestitures
In January 1994, the Company acquired a hotel in Los Angeles, California in
exchange for $5,600,000 of outstanding advances to affiliates of the Company
and the assumption of $3,000,000 of debt. The hotel was built by New Image at
a total cost of approximately $8,600,000. Also in January 1994, the Company
acquired the previously unowned 50% interest in the Santa Monica Gateway hotel
and restaurant in exchange for a 1% common stock equity interest in Motels of
America, Inc., the result of which was an increase in investment properties of
$669,919.
In April, 1994, the Company acquired nine motel properties from Midwest
Lodging, Inc. ("Midwest") for $28,500,000 in cash. In addition, in April
1994, the Company acquired all of the outstanding stock of Tri-State for
$30,500,000 in cash, and the assumption of $15,000,000 of mortgage debt (see
Note 6) and a $6,750,000 note payable to certain former shareholders of Tri-
State. As a result of this transaction, the Company recorded a deferred tax
liability in the amount of $6,226,000. Tri-State owned fifteen motels and its
subsidiary owned certain restaurants and leasehold interests. Concurrently,
Tri-State's subsidiary was sold to the Company's parent which assumed the
$6,750,000 note.
In May through December 1994, the Company acquired seventeen additional
motel properties from unaffiliated parties for approximately $34.1 million in
cash and the assumption of $4.5 million of mortgage debt. The motels are
located principally in the Midwest and West regions of the United States.
In December 1994, the Company acquired a motel property in Charlotte, North
Carolina from an affiliate for $400,000 in cash and the assumption of
approximately $2.4 million of mortgage debt. The assets and liabilities
acquired are included in the financial statements at their historical basis as
they were acquired from a company under common control.
Pro forma unaudited results of perations for 1994 assuming the 1994
acquisitions had occurred at the beginning of 1994 are as follows:
1994
--------------
Total revenues $ 109,494,000
Net operating revenue 29,285,000
Income before extraordinary gain 492,000
Net operating income 492,000
Income before extraordinary gain
per common share 0.63
Net income per common share 0.63
Depreciation and amortization 10,105,000
In September and December 1995, the Company acquired two additional motel
properties from unaffiliated parties for approximately $4.7 million, of which
$3.7 million was paid from cash on hand and $1.0 million was borrowed. The
acquisitions have been accounted for as a purchase and the excess of the
purchase prices over the related historical bases have been allocated to the
investments in operating properties. The consolidated statements of
operations for the year ended December 31, 1995 reflect the operations of the
acquired motels for the period from the date of acquisition through December
31, 1995. Pro forma unaudited results of operations for 1994 and 1995
assuming the 1995 acquisitions had occurred at the beginning of 1994 would not
differ materially from the historical results.
In December 1995, the Company sold two motel properties for $4.1 million in
cash and a $300,000 note receivable; the Company recorded gains of $479,281.
In January 1996, the Company acquired nineteen motel properties from Forte
USA, Inc., a subsidiary of Forte Hotels, Inc., for $35.5 million.
In January through March 1996, the Company acquired two additional motel
properties and the land underlying one of its properties for approximately
$8.2 million.
In May through November 1996, the Company sold ten motel properties to
unaffiliated parties for approximately $15.8 million in net cash proceeds and
$6.3 million in notes receivable; the Company recorded a gain of $2.6 million.
Pro forma unaudited results for 1995 assuming the 1996 acquisitions had
occurred at the beginning of 1995 ar as shown below. Pro forma results for
1996 are not shown as such results would not differ materially from historical
results.
1995
-------------
Total revenue $131,865,949
Net operating revenue 34,179,661
Income before Extraordinary Gain 2,495,419
Net Income 2,763,365
Income before Extraordinary Gain
per common share 3.45
Net Income per common share 3.12
Depreciation and amortization 13,685,354
In January 1997, the Company sold a motel property for approximately
$0.9 million in cash and the assumption of $2.8 million of debt, the Company
recorded a gain of $0.7 million.
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 Carying
Amount Fair Value Amount Fair Value
1996 1996 1995 1995
Cash and cash
equivalents $12,247,571 $12,247,571 $13,897,161 $13,897,161
Mortgage and
other notes
receivable 8,932,281 9,047,466 2,787,833 2,907,000
Secured notes
payable 251,147,547 250,506,863 209,972,514 207,886,000
12% Senior
Subordinated
Notes 76,406,397 68,800,000 76,115,100 79,400,000
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, therunto duly authorized, on the 24th day
of March, 1997.
MOTELS OF AMERICA, INC.
By: /s/ Kurt M. Mueller
----------------------------------
Kurt M. Mueller
President and Chief Operating 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 March 24, 1997
- --------------------------
Paul F. Wallace Chief Executive Offficer
Principal Executive Officer
/s/ Kurt M. Mueller Director, President and March 24, 1997
- --------------------------
Kurt M. Mueller Chief Operating Officer
Principal Executive Officer
/s/ Carl W. Desch Director March 24, 1997
- --------------------------
Carl W. Desch
/s/ J. Anthony Kouba Director March 24, 1997
- --------------------------
J. Anthony Kouba
/s/ Louis A. Scarrone, M.D. Director March 24, 1997
- --------------------------
Louis A. Scarrone, M.D.
/s/ Ronald P. Stewart Director March 24, 1997
- --------------------------
Ronald P. Stewart
/s/ John D. Simon Treasurer March 24, 1997
- -------------------------- and Secretary
John D. Simon
Principal Accounting Officer and
Principal Financial Officer
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' 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.
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").
Sequential
Exhibit Page
Number Description Number
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.
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.
21.1 Subsidiaries of MOA.