UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
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
(847) 803-1200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
August 9, 1996: 800,000
INDEX
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - June 30, 1997
(unaudited) and December 31, 1996 ......................... 2
Condensed consolidated statements of operations -
Three months ended June 30, 1997 and 1996 (unaudited);
Six months ended June 30, 1997 and 1996(unaudited)......... 3
Condensed consolidated statements of cash flows -
Six months ended June 30, 1997 and 1996 (unaudited) ....... 4
Notes to condensed consolidated financial statements -
June 30, 1997 (unaudited).................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General ................................................... 6
Results of Operations ..................................... 8
Liquidity and Capital Resources ........................... 13
Part II - Other Information
Item 1. Legal Proceedings ......................................... 15
Item 2. Changes in Securities ..................................... 15
Item 3. Defaults upon Senior Securities ........................... 15
Item 4. Submission of Matters to a Vote of Security Holders ....... 15
Item 5. Other Information ......................................... 15
Item 6. Exhibits and Reports on Form 8-K .......................... 15
Signatures ......................................................... 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents ............................. $ 10,775 $ 12,248
Restricted cash ....................................... 2,946 3,738
Accounts receivable from property operations .......... 4,571 2,795
Operating supplies and prepaid expenses ............... 2,522 2,880
Deposits and other assets ............................. 13,834 7,658
Mortgage and other notes receivable ................... 8,749 8,932
Investment property:
Operating properties, net of accumulated depreciation
of $67,725 in 1997 and $61,855 in 1996 ............ 300,162 307,696
Land held for development ........................... 4,047 4,047
--------- ---------
Total investment property ............................. 304,209 311,743
Financing and other deferred costs, net of accumulated
amortization of $4,136 in 1997 and $4,163 in 1996 ... 17,504 18,439
--------- ---------
$365,110 $368,433
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable ................................ $ 2,160 $ 2,177
Real estate taxes payable ............................. 3,007 2,612
Accrued interest payable .............................. 3,611 3,693
Other accounts payable and accrued expenses ........... 5,354 3,847
Net deferred tax liability ............................ 3,760 3,685
Secured notes payable:
Line of Credit....................................... 2,000 -
Mortgage and other notes ............................ 245,836 251,148
--------- ---------
Total secured notes payable ........................... 247,836 251,148
12% Senior Subordinated Notes, net of unamortized
discount of $3,434 in 1997 and $3,594 in 1996 ....... 76,566 76,406
--------- ---------
Total liabilities ..................................... 342,294 343,568
Minority interests .................................... 1,811 1,899
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized, 800,000 shares issued and outstanding . 8 8
Additional paid-in capital .......................... 15,294 15,294
Retained earnings ................................... 5,703 7,664
--------- ---------
Total stockholders' equity ............................ 21,005 22,966
--------- ---------
$365,110 $368,433
========= =========
See accompanying notes to condensed consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ----------
Revenues:
Motel operating revenues ............. $ 32,501 $ 34,861 $ 58,586 $ 62,110
Other revenues ....................... 216 59 475 142
--------- --------- --------- ----------
Total revenues ......................... 32,717 34,920 59,061 62,252
Costs and expenses:
Motel operating expenses ............. 15,713 17,951 31,041 33,577
Marketing and royalty fees ........... 2,346 2,587 4,297 4,588
General and administrative ........... 1,608 1,566 3,792 3,095
Restructuring Costs .................. 750 - 750 -
Depreciation and amortization ........ 3,691 3,587 7,327 6,883
--------- --------- --------- ----------
Total direct expenses .................. 24,108 25,691 47,207 48,143
--------- --------- --------- ----------
Net operating revenue .................. 8,609 9,229 11,854 14,109
Interest expense ....................... 7,795 7,939 15,658 15,600
--------- --------- --------- ----------
Net income (loss) from operations ...... 814 1,290 (3,804) (1,491)
Gain on sale of properties ............. - 102 669 102
Minority interests of others in
net income (loss) from operations .... (95) (134) (69) (185)
--------- --------- --------- ----------
Net income (loss) before income taxes .. 719 1,258 (3,204) (1,574)
Income tax expense (credit) ............ 280 501 (1,243) (598)
--------- --------- --------- ----------
Net income (loss) ...................... $ 439 $ 757 $ (1,961) $ (976)
========= ========= ========= ==========
Net income (loss) per common share ..... $ 0.55 $ 0.95 $ (2.45) $ (1.22)
========= ========= ========= ==========
Weighted average number of
common shares outstanding ............ 800,000 800,000 800,000 800,000
========= ========= ========= ==========
See accompanying notes to condensed consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30
---------------------
1997 1996
---------- ----------
Cash flows provided by (used in) operating activities:
Net loss ............................................... $ (1,961) $ (976)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation, amortization and accretion of
discount on notes ................................... 7,486 7,025
Minority interests of others in net loss
from operations ..................................... 69 185
Deferred income taxes ................................ 76 138
Net gain on sale of properties ....................... (669) (102)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ................................ (1,776) (1,834)
Operating supplies, prepaid expenses,
deposits and other assets ......................... 2,905 (903)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses .............. 1,904 3,587
Accrued interest payable ........................... (82) 480
---------- ----------
Net cash provided by operating activities ............... 7,952 7,600
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties ... (6,379) (46,873)
Refurbishment of investment properties ................. (3,001) (4,564)
Proceeds from sale of investment properties ............ 340 1,349
Cash restricted for refurbishment of properties ........ 792 216
Collections on mortgage and other notes receivable ..... 183 45
---------- ----------
Net cash used in investing activities ................... (8,065) (49,827)
Cash flows provided by (used in) financing activities:
Proceeds from secured notes payable .................... 2,000 41,659
Repayment of secured notes payable ..................... (2,971) (3,434)
Distributions to minority interests .................... (157) (157)
Deferred financing costs ............................... (232) (371)
---------- ----------
Net cash provided by (used in) financing activities ..... (1,360) 37,697
---------- ----------
Net increase (decrease) in cash and cash equivalents .... (1,473) (4,530)
Cash and cash equivalents at beginning of period ........ 12,248 13,897
---------- ----------
Cash and cash equivalents at end of period .............. $ 10,775 $ 9,367
========== ==========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest ............... $ 15,740 $ 14,978
========== ==========
Cash paid (net of refunds received) during the period
for income taxes ...................................... $ 58 $ 92
========== ==========
See accompanying notes to condensed consolidated financial statements.
MOTELS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the six-month period ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Motels of America, Inc. and Subsidiaries' Annual
Report on Form 10-K for the year ended December 31, 1996. The terms "MOA" and
the "Company" mean Motels of America, Inc. and its subsidiaries.
2. Divestitures
In January 1997, the Company sold one lodging facility to an unrelated party,
for approximately $0.5 million in cash and the assumption of the $2.3 million
mortgage note. The Company recorded a gain of approximately $0.7 million.
The Company remains contingently liable on the note in the event the purchaser
does not perform under its obligations.
3. Secured Notes Payable
On April 14, 1997, the Company borrowed $2 million under a $2 million secured
revolving line of credit. Terms of the revolving line of credit include
interest payable at the prime rate plus 100 basis points and a maturity date
of May 1, 1998. The borrowings were repaid subsequent to June 30, 1997 and
the facility terminated.
4. Restructuring Costs
The Company has recorded a provision for restructuring costs in the amount of
$750,000 in connection with the reorganization of its management structure.
This reorganization includes the implementation of a decentralized
organizational structure whereby many of the property management support
functions previously based out of the corporate office are being moved to
various regional offices which are being established throughout the country.
The provision for restructuring costs is intended to cover the associated
relocation and severance costs.
5. Income Taxes
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income taxes principally as a
result of state income taxes.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING
RESULTS PRESENTED BELOW FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30,
1997 AND 1996 HAVE BEEN PREPARED ON THE SAME BASIS AS THE INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS AND, IN THE OPINION OF THE
COMPANY, INCLUDE ALL ADJUSTMENTS (CONSISTING ONLY OF NORMAL RECURRING
ADJUSTMENTS) NECESSARY TO PRESENT FAIRLY THE INFORMATION SET FORTH THEREIN.
General
MOA operates principally in the economy limited service segment of the lodging
industry. As a result, its average room rates tend to be lower than the
average room rates of full service lodging facilities. However, due to the
limited nature of the public space and ancillary services provided by limited
service motels, the Company's expenses tend to be lower than those of full
service lodging facilities. The profitability of the lodging industry in
general is significantly dependent upon room rental rates and occupancy rates.
Due to the fixed nature of a relatively high portion of the Company's
expenses, changes in either room rates or occupancy rates result in
significant changes in the operating profit of the Company's motels.
Between January 1, 1996 and June 30, 1997, the Company has acquired, sold or
indirectly developed a number of motels in various transactions summarized as
follows:
Number of
Date Transaction Rooms
__________________ ____________________________ _________
January 1996 Purchased nineteen motels 1,794
located in the eastern half
of the United States from
Forte USA, Inc.
January through
March 1996 Purchased two motels located 201
in 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.
January 1997 Sold a motel located in (130)
Kissimmee, FL.
February 1997 Assumed management control, 48
pending acquisition, of a
motel located in Greensboro,
GA which was built for the
Company.
May 1997 Assumed management control, 68
pending acquisition, of a
motel located in Wilson, NC
which was built for the
Company.
______
748
======
In the aggregate, the Company expended $29.5 million in cash (net of proceeds
from sales of $16.2 million) in conjunction with the above listed
transactions. Cash was funded from internal sources and $41.6 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.
Results of Operations
The following discussion and analysis address results of operations for the
three months ended June 30, 1997 and 1996.
Three Months Ended June 30, 1997 Compared to the Three Months Ended
June 30, 1996
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
interim condensed consolidated financial statements presented elsewhere.
Supplemental Operating Results and Statistics
-----------------------------------------------------------------
(unaudited)
Three Months Ended June 30
-----------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
--------------------- --------------------- ---------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ----------- --------- ---------- ----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues .......................... $ 30,540 $ 30,038 $ 130 $ 2,623 $ 30,670 $ 32,661
Ancillary motel revenues ............... 1,827 1,770 4 430 1,831 2,200
---------- ---------- ----------- --------- ---------- ----------
Total motel operating revenues ........ 32,367 31,808 134 3,053 32,501 34,861
Motel costs and expenses:
Motel operating expenses ............... 15,627 15,757 86 2,194 15,713 17,951
Marketing and royalty fees ............. 2,334 2,378 12 209 2,346 2,587
Depreciation and amortization .......... 3,496 3,175 24 207 3,520 3,382
---------- ---------- ----------- --------- ---------- ----------
Total motel direct expenses ........... 21,457 21,310 122 2,610 21,579 23,920
---------- ---------- ----------- --------- ---------- ----------
$ 10,910 $ 10,498 $ 12 $ 443 10,922 10,941
========== ========== =========== =========
Corporate operations:
Other revenues .......................... 216 59
General and administrative expenses ..... 1,608 1,566
Restructuring costs...................... 750 -
Depreciation and amortization ........... 171 205
---------- ----------
(2,313) (1,712)
---------- ----------
Net operating revenue .................... $ 8,609 $ 9,229
========== ==========
Other data:
Number of motels at period end .......... 134 134 2 10 136 144
Number of rooms at period end ........... 11,177 11,197 109 1,201 11,286 12,398
Occupancy percentage .................... 68.13% 71.59% 54.24% 54.78% 68.04% 69.85%
ADR (1) ................................. $ 44.06 $ 41.16 $ 37.87 $ 40.51 $ 44.03 $ 41.10
REVPAR (2) .............................. $ 31.81 $ 31.20 $ 21.20 $ 25.83 $ 31.75 $ 30.64
Net operating revenue margin (3) ........ 26.31% 26.43%
Net motel revenue margin (4) ............ 47.17% 45.52% 27.69% 24.78% 47.09% 43.85%
[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 decreased to $32,717,000 for the three months ended June 30,
1997 from $34,920,000 for the three months ended June 30, 1996, a decrease of
$2,203,000 or 6.3%.
Motel revenues decreased to $32,501,000 for the three months ended June 30,
1997 from $34,861,000 for the three months ended June 30, 1996, a decrease of
$2,360,000 or 6.8%. The decrease consisted of a $2,919,000 change in motel
revenues for the period from motels acquired and divested, since April 1, 1996
and offset by an increase of $559,000 for motels owned during both periods.
Motel revenues for motels owned during both periods increased 1.8%. 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 decline in occupancy. The ADR for the motels owned during both
periods increased to $44.06 for the three months ended June 30, 1997 from
$41.16 for the three months ended June 30, 1996, an increase of $2.90 or 7.1%.
The increase in ADR is reflective of management's efforts to increase room
rates at its lodging facilities. The occupancy percentage for the three
months ended June 30, 1997 for the motels owned during both periods decreased
to 68.13% from 71.59% for the three months ended June 30, 1996. REVPAR for
motels owned during both periods increased to $31.81 for the three months
ended June 30, 1997 from $31.20 for the three months ended June 30, 1996, an
increase of $0.61 or 2.0%. The motels acquired and divested had an occupancy
percentage of 54.24%, an ADR of $37.87 and REVPAR of $21.20 for the period
which they were owned by the Company during the three months ended June 30,
1997.
Motel operating expenses include payroll and related costs, utilities, repairs
and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $15,713,000 for the three
months ended June 30, 1997 from $17,951,000 for the three months ended June
30, 1996, a net decrease of $2,238,000 or 12.5%. The cost of operating the
motels divested and acquired since April 1, 1996 decreased $2,108,000 for the
period. The cost of operating motels owned during both periods decreased to
$15,627,000 for the three months ended June 30, 1997 from $15,757,000 for the
three months ended June 30, 1996, a decrease of $130,000 or 0.8%. Motel
operating expenses as a percentage of motel revenues decreased to 48.4% for
the three months ended June 30, 1997 from 51.5% for the three months ended
June 30, 1996. Motel operating expenses as a percentage of motel revenues for
the motels owned in both periods decreased to 48.3% for the three months ended
June 30, 1997 from 49.5% for the three months ended June 30, 1996. The
increase in the operating margin for motels owned during both periods is
primarily attributable to the increase in ADR. Motel operating expenses as a
percentage of motel revenues for the acquired and divested motels was 64.2%
for the three months ended June 30, 1997.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to
franchisors and other related marketing expenses. Marketing and royalty fees
decreased to $2,346,000 for the three months ended June 30, 1997 from
$2,587,000 for the three months ended June 30, 1996, a decrease of $241,000 or
9.3%. Approximately $197,000 of the net decrease in marketing and royalty
fees was attributable to the motels acquired and divested since April 1, 1996.
The marketing and royalty fees for motels owned during both periods decreased
to $2,334,000 for the three months ended June 30, 1997 from $2,378,000 for the
three months ended June 30, 1996, a decrease of $44,000 or 1.9%. For the
motels owned during both periods, marketing and royalty fees as a percentage
of room revenues decreased to 7.6% for the three months ended June 30, 1997
from 7.8% for the three months ended June 30, 1996.
Corporate general and administrative expenses include the costs of regional
and corporate personnel, corporate training, marketing, purchasing,
administrative support, accounting and development activities. The major
components of these costs are salaries, wages and related expenses, travel,
rent and other administrative expenses. Corporate general and administrative
expenses increased $42,000 to $1,608,000 for the three months ended June 30,
1997 from $1,566,000 for the three months ended June 30, 1996, an increase of
2.7%.
Restructuring costs in the amount of $750,000 were recorded as a provision for
the reorganization of the Company's management structure. This reorganization
includes the implementation of a decentralized organizational structure
whereby many of the property management support functions previously based out
of the corporate office are being moved to various regional offices which are
being established throughout the country. The provision for restructuring
costs is intended to cover the associated relocation and severance costs.
Depreciation and amortization increased to $3,691,000 for the three months
ended June 30, 1997 from $3,587,000 for the three months ended June 30, 1996,
a net increase of $104,000 or 2.9%.
Net operating revenue decreased to $8,609,000 for the three months ended June
30, 1997 from $9,229,000 for the three months ended June 30, 1996, a decrease
of $620,000 or 6.7%. The decrease was principally due to the $750,000
provision for restructuring costs recorded during the three months ended June
30, 1997, as discussed above. The decrease in net operating revenues included
an increase of $119,000 in net motel revenues (motel revenues less motel
operating expenses and marketing and royalty fees). Of the $119,000 increase
in net motel revenues, $733,000 resulted from motels owned during both periods
an increase of 5.4%. The motels acquired and divested since April 1, 1996,
resulted in a decrease of net motel revenue of $614,000 for the period. Net
operating revenue as a percent of total revenues was 26.3% for the three
months ended June 30, 1997 as compared to 26.4% for the three months ended
June 30, 1996.
Interest expense decreased to $7,795,000 for the three months ended June 30,
1997 from $7,939,000 for the three months ended June 30, 1996, a decrease of
$144,000. This decrease was principally a result of the Company capitalizing
$140,000 of interest costs with respect to its development activity.
Net income decreased to $439,000 for the three months ended June 30, 1997 from
$757,000 for the three months ended June 30, 1996, due to reasons as discussed
above.
The following discussion and analysis address results of operations for the six
months ended June 30, 1997 and 1996.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996.
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
interim condensed consolidated financial statements presented elsewhere.
Supplemental Operating Results and Statistics
-----------------------------------------------------------------
(unaudited)
Six Months Ended June 30
-----------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
--------------------- --------------------- ---------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ----------- --------- ---------- ----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues .......................... $ 47,270 $ 45,729 $ 7,734 $ 12,112 $ 55,004 $ 57,841
Ancillary motel revenues ............... 3,298 3,113 284 1,156 3,582 4,269
---------- ---------- ----------- --------- ---------- ----------
Total motel operating revenues ........ 50,568 48,842 8,018 13,268 58,586 62,110
Motel costs and expenses:
Motel operating expenses ............... 26,509 25,473 4,532 8,104 31,041 33,577
Marketing and royalty fees ............. 3,557 3,546 740 1,042 4,297 4,588
Depreciation and amortization .......... 5,832 5,599 1,165 875 6,997 6,474
---------- ---------- ----------- --------- ---------- ----------
Total motel direct expenses ........... 35,898 34,618 6,437 10,021 42,335 44,639
---------- ---------- ----------- --------- ---------- ----------
$ 14,670 $ 14,224 $ 1,581 $ 3,247 16,251 17,471
========== ========== =========== =========
Corporate operations:
Other revenues .......................... 475 142
General and administrative expenses ..... 3,792 3,095
Restructuring costs...................... 750 -
Depreciation and amortization ........... 330 409
---------- ----------
(4,397) (3,362)
---------- ----------
Net operating revenue .................... $ 11,854 $ 14,109
========== ==========
Other data:
Number of motels at period end .......... 119 119 17 25 136 144
Number of rooms at period end ........... 9,663 9,671 1,623 2,727 11,286 12,398
Occupancy percentage .................... 64.65% 66.03% 62.48% 63.60% 65.51% 65.51%
ADR (1) ................................. $ 41.78 $ 39.30 $ 43.32 $ 40.25 $ 39.49 $ 39.49
REVPAR (2) .............................. $ 28.90 $ 27.71 $ 28.06 $ 28.04 $ 28.78 $ 27.78
Net operating revenue margin (3) ........ 20.07% 22.66%
Net motel revenue margin (4) ............ 43.37% 43.35% 35.51% 34.03% 42.27% 41.40%
[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 decreased to $59,061,000 for the six months ended June 30, 1997
from $62,252,000 for the six months ended June 30, 1996, a decrease of
$3,191,000 or 5.1%.
Motel revenues decreased to $58,586,000 for the six months ended June 30, 1997
from $62,110,000 for the six months ended June 30, 1996, a decrease of
$3,524,000 or 5.7%. Of the decrease in motel revenues, $5,250,000 was
attributable to motels acquired and divested, since January 1, 1996 partially
offset by an increase of $1,726,000 or 3.5% in motel revenues for motels owned
during both periods. The increase in motel revenues for motels owned during
both periods was attributable principally to an increase in the average daily
room rate ("ADR"). The ADR for the motels owned during both periods increased
to $41.78 for the six months ended June 30, 1997 from $39.30 for the six
months ended June 30, 1996, an increase of $2.48 or 6.3%. The increase in ADR
is reflective of management's efforts to increase room rates at its lodging
facilities. The occupancy percentage for the six months ended June 30, 1997
for the motels owned during both periods decreased to 64.65% from 66.03% for
the six months ended June 30, 1996. REVPAR for motels owned during both
periods increased to $28.90 for the six months ended June 30, 1997 from $27.71
for the six months ended June 30, 1996, an increase of $1.19 or 4.3%. The
acquired and divested motels had an occupancy percentage of 62.48%, an ADR of
$43.32 and REVPAR of $28.06 for the period which they were owned by the
Company in 1997.
Motel operating expenses include payroll and related costs, utilities, repairs
and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $31,041,000 for the six
months ended June 30, 1997 from $33,577,000 for the six months ended June 30,
1996, a net decrease of $2,536,000 or 7.6%. The net decrease is attributable
to a $3,572,000 decrease in the costs of operating the motels acquired and
divested since January 1, 1996. The cost of operating motels owned during
both periods increased to $26,509,000 for the six months ended June 30, 1997
from $25,473,000 for the six months ended June 30, 1996, an increase of
$1,036,000 or 4.1%. Payroll and related costs experienced the most
significant increase of all of the motel operating expenses. Motel operating
expenses as a percentage of motel revenues decreased to 53.0% for the six
months ended June 30, 1997 from 54.1% for the six months ended June 30, 1996.
Motel operating expenses as a percentage of motel revenues for the motels
owned in both periods increased to 52.4% for the six months ended June 30,
1997 from 52.2% for the six months ended June 30, 1996. 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 percentage of motel revenues for the acquired and divested
motels was 56.5% for the six months ended June 30, 1997.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to
franchisors and other related marketing expenses. Marketing and royalty fees
decreased to $4,297,000 for the six months ended June 30, 1997 from $4,588,000
for the six months ended June 30, 1996, a decrease of $291,000 or 6.3%. The
acquired and divested motels marketing and royalty fees decreased $302,000.
The marketing and royalty fees for motels owned during both periods increased
to $3,557,000 for the six months ended June 30, 1997 from $3,546,000 for the
six months ended June 30, 1996, an increase of $11,000 or 0.3%. For the
motels owned during both periods, marketing and royalty fees as a percentage
of room revenues decreased to 7.5% for the six months ended June 30, 1997 from
7.8% for the six months ended June 30, 1996.
Corporate general and administrative expenses include the costs of regional
and corporate personnel, corporate training, marketing, purchasing,
administrative support, accounting and development activities. The major
components of these costs are salaries, wages and related expenses, travel,
rent and other administrative expenses. Corporate general and administrative
expenses increased $697,000 to $3,792,000 for the six months ended June 30,
1997 from $3,095,000 for the six months ended June 30, 1996, an increase of
22.5%. Salaries and other administrative costs related to the Company's
expanded development efforts account for a significant portion of the overall
increase in corporate general and administrative expenses.
Restructuring costs in the amount of $750,000 were recorded as a provision for
the reorganization of the Company's management structure. This reorganization
includes the implementation of a decentralized organizational structure
whereby many of the property management support functions previously based out
of the corporate office are being moved to various regional offices which are
being established throughout the country. The provision for restructuring
costs is intended to cover the associated relocation and severance costs.
Depreciation and amortization increased to $7,327,000 for the six months ended
June 30, 1997 from $6,883,000 for the six months ended June 30, 1996, a net
increase of $444,000 or 6.5%. Approximately $290,000 of the net increase in
depreciation and amortization is attributable to the acquired and divested
motels since January 1, 1996.
Net operating revenue decreased to $11,854,000 for the six months ended June
30, 1997 from $14,109,000 for the six months ended June 30, 1996, a decrease
of $2,255,000 or 16.0%. The decrease in net operating revenues is principally
attributable to the $750,000 provision for restructuring costs, a $697,000
increase in general and administrative expenses, both discussed above and a
decrease in net motel revenues. The decrease in net motel revenues (motel
revenues less motel operating expenses and marketing and royalty fees)
amounted to $697,000. Of the $697,000 decrease in net motel revenues,
$1,376,000 resulted from the motels acquired and divested since January 1,
1996. Net motel revenues for motels owned during both periods increased
$679,000 or 3.4%. Net operating revenue as a percent of total revenues was
20.1% for the six months ended June 30, 1997 as compared to 22.7% for the six
months ended June 30, 1996.
Interest expense increased to $15,658,000 for the six months ended June 30,
1997 from $15,600,000 for the six months ended June 30, 1996, an increase of
$58,000. The increase is principally due to an increase in outstanding
borrowings utilized to finance the acquisitions of motel properties. During
the six months ended June 30, 1997, $140,000 of interest costs were
capitalized in connection with the Company's development activities.
Net loss increased to $1,961,000 for the six months ended June 30, 1997 from
$976,000 for the six months ended June 30, 1996, due to reasons as discussed
above.
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.
In April 1997, the Company borrowed $2,000,000 under a $2,000,000 secured
revolving line of credit facility. Terms of the revolving line of credit
include interest payable at the prime rate plus 100 basis points and a
maturity date of May 1, 1998. The borrowings were repaid subsequent to June
30, 1997 and the facility terminated.
The Company's debt service requirements consist of the obligation to make
interest and principal payments on its outstanding indebtedness. As of June
30, 1997, the Company had principal repayment obligations of $4,939,000,
$68,932,000 and $7,665,000 during the remainder of the fiscal year ending
December 31, 1997 and during the fiscal years ending December 31, 1998 and
1999, respectively. Management believes the Company will be able to extend
the maturity or refinance mortgage notes in the amount of $1,800,652 as of
June 30, 1997 which would otherwise require repayment in 1997. Management
further believes that the Company will have sufficient resources through the
ability to refinance certain indebtedness and generate funds internally to
meet all debt repayment obligations which are scheduled through December 31,
1999.
The Company's capital expenditure requirements principally include capital
improvements and refurbishment of its lodging facilities as part of its
ongoing operating strategy to provide well-maintained facilities. The Company
made capital expenditures (exclusive of acquisitions and development of
properties) of $3,001,000 and $4,564,000 for the six months ended June 30,
1997 and 1996, respectively. In addition, as of June 30, 1997, the Company
had $2,946,000 of cash restricted for future refurbishment of motel
properties, in accordance with certain debt agreements. Management is not
aware of any unusual required level of future capital expenditures necessary
to maintain its existing properties.
At June 30, 1997, four properties were under various stages of development for
the Company. Management anticipates approximately $6,379,000 will be expended
throughout the remainder of 1997 to complete construction of these motels.
The Company is currently pursuing certain financing arrangements, to which
reference has previously been made, relating to planned expansion of new motel
development activities. The Company anticipates that an initial funding under
such arrangements, if completed, would occur in the third quarter of 1997 in
connection with the acquisition of certain motels which were developed for
the Company.
For the six months ended June 30, 1997, cash and cash equivalents decreased
$1,473,000. This decrease consisted of $8,065,000 of funds utilized in
investing activities and $1,360,000 of funds used in financing activities
offset by $7,952,000 of funds provided from operations. Net investing
activities of $8,065,000 include: $6,379,000 of cash utilized for motel
development; $3,001,000 expended on refurbishment of existing properties,
offset by a change in cash restricted for refurbishment of $792,000 and
$523,000 of cash provided from the sale of investment properties and
collections on mortgage and other notes receivable. Cash used in financing
activities includes: $2,971,000 of cash utilized to repay indebtedness;
$389,000 of cash used for deferred financing costs and other items, offset by
$2,000,000 of proceeds from secured notes payable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTELS OF AMERICA, INC.
August 12, 1997 By: /s/ Kurt M. Mueller
____________________
Kurt M. Mueller
Chief Financial Officer
August 12, 1997 By: /s/ John D. Simon
____________________
John D. Simon
Secretary and Treasurer