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 March 31, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 33-78866
______________________
MOA HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
______________________
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.
[ ] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
May 14, 1998: 800,000
INDEX
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - March 31,
1998 (unaudited) and December 31, 1997 .......................... 2
Condensed consolidated statements of operations -
Three months ended March 31, 1998 and 1997 (unaudited) .......... 3
Condensed consolidated statements of cash flows -
Three months ended March 31, 1998 and 1997 (unaudited)........... 4
Notes to condensed consolidated financial
statements - March 31, 1998 (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 ................................. 11
Part II - Other Information
Item 1. Legal Proceedings ............................................... 13
Item 2. Changes in Securities ........................................... 13
Item 3. Defaults upon Senior Securities ................................. 13
Item 4. Submission of Matters to a Vote of Security Holders ............. 13
Item 5. Other Information ............................................... 13
Item 6. Exhibits and Reports on Form 8-K ................................ 13
Signatures ................................................................ 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1998 1997
---------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................................... $ 9,382 $ 13,032
Accounts receivable from property operations ................. 3,150 2,241
Operating supplies and prepaid expenses ...................... 1,816 2,199
Current portion of mortgage and notes receivable ............. 284 602
---------- ---------
Total Current Assets ......................................... 14,632 18,074
Investment property:
Operating properties, net of accumulated depreciation ...... 310,948 310,992
Land held for development .................................. 2,389 2,389
---------- ---------
Total investment property .................................... 313,337 313,381
Other Assets:
Deposits and other assets .................................... 10,239 6,798
Restricted cash .............................................. 1,287 1,226
Mortgage and other notes receivable, less current portion .... 5,069 6,801
Financing and other deferred costs, net of accumulated
amortization of $6,398 in 1998 and $5,605 in 1997........... 15,799 16,579
---------- ---------
Total Other Assets ........................................... 32,394 31,404
---------- ---------
Total Assets $ 360,363 $362,859
========== =========
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ....................................... $ 2,717 $ 2,693
Real estate taxes payable .................................... 2,855 2,450
Accrued interest payable ..................................... 6,095 3,625
Other accounts payable and accrued expenses .................. 4,153 4,393
Current portion of long-term debt ............................ 66,742 67,157
---------- ---------
Total Current Liabilities .................................... 82,562 80,318
Net deferred tax liability ................................... 3,592 3,351
Long-term debt, less current portion:
Mortgage and other notes payable ............................. 179,039 181,098
12% Senior Subordinated Notes, net of unamortized
discount of $3,177 in 1998 and $3,265 in 1997............... 76,823 76,735
---------- ---------
Total Long-term debt, excluding current portion .............. 255,862 257,833
---------- ---------
Total Liabilities ............................................ 342,016 341,502
---------- ---------
Minority Interests ........................................... 1,666 1,763
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 .......................................... 1,379 4,292
---------- ---------
Total stockholders' equity ................................... 16,681 19,594
---------- ---------
$ 360,363 $362,859
========== =========
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share data)
Three Months Ended
March 31
--------------------
1998 1997
--------- ---------
Revenues:
Motel operating revenues ............. $ 25,438 $ 26,085
Other revenues ....................... 221 259
--------- ---------
Total revenues ......................... 25,659 26,344
Costs and expenses:
Motel operating expenses ............. 14,936 15,328
Marketing and royalty fees ........... 1,800 1,951
General and administrative ........... 2,499 2,184
Depreciation and amortization ........ 4,048 3,636
--------- ---------
Total direct expenses .................. 23,283 23,099
--------- ---------
Net operating revenue .................. 2,376 3,245
Interest expense ....................... 7,616 7,863
--------- ---------
Loss from operations ................... (5,240) (4,618)
Gain on sale of properties ............. 453 669
Minority interests of others in
loss from operations ................. 18 26
--------- ---------
Loss before income taxes ............... (4,769) (3,923)
Income tax expense (credit) ............ (1,856) (1,523)
--------- ---------
Net loss ............................... $ (2,913) $ (2,400)
========= =========
Net loss per common share .............. $ (3.64) $ (3.00)
========= =========
Weighted average number of
common shares outstanding ............ 800,000 800,000
========= =========
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31
---------------------
1998 1997
---------- ----------
Cash flows provided by (used in) operating activities:
Net income (loss) ........................................... $ (2,913) $ (2,400)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation, amortization and accretion of
discount on notes ..................................... 4,145 3,715
Minority interests of others in net income (loss)
from operations ....................................... (18) (26)
Deferred income taxes ................................... 241 164
Net gain on sale of properties .......................... (453) (669)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ................................. (909) (492)
Operating supplies, prepaid expenses,
deposits and other assets ......................... (3,066) (754)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ............... 208 323
Accrued interest payable ............................ 2,470 2,446
---------- ----------
Net cash provided by (used in) operating activities ........... (295) 2,307
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties ........ (2,567) (5,503)
Refurbishment of investment properties ...................... (1,635) (1,334)
Net proceeds from sale of investment properties ............. 1,439 340
Cash restricted for refurbishment of properties ............. (61) 1,037
Collections on mortgage and other notes receivable .......... 2,049 127
---------- ----------
Net cash used in investing activities ......................... (775) (5,333)
Cash flows provided by (used in) financing activities:
Proceeds from secured notes payable ......................... 1,134 -
Repayment of secured notes payable .......................... (3,609) (1,521)
Distributions to minority interests ......................... (78) (78)
Deferred financing costs .................................... (27) (43)
---------- ----------
Net cash provided by (used in) financing activities ........... (2,580) (1,642)
---------- ----------
Net increase (decrease) in cash and cash equivalents .......... (3,650) (4,668)
Cash and cash equivalents at beginning of period .............. 13,032 12,248
---------- ----------
Cash and cash equivalents at end of period .................... $ 9,382 $ 7,580
========== ==========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest .................... $ 5,146 $ 5,417
========== ==========
Cash paid (net of refunds received) during the period
for income taxes .......................................... $ (29) $ (55)
========== ==========
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
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 three-month period ended March 31, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in MOA Hospitality, Inc. and Subsidiaries' Annual
Report on Form 10-K for the year ended December 31, 1997. The terms "MOA" and
the "Company" mean MOA Hospitality, Inc. and its subsidiaries.
2. Divestitures
In March 1998, the Company sold one lodging facility to an unrelated party,
for approximately $1.4 million in cash. The Company realized a pre-tax gain
of approximately $0.5 million.
In May 1998, the Company sold one lodging facility to an unrelated party,
for approximately $20 million in cash. The Company realized a pre-tax gain
of approximately $12.5 million.
3.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
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE A
CTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERAILLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG
OTHERS, THE FOLLOWING: COMPETITION, INTEREST RATE FLUCTUATIONS, OR GENERAL
BUSINESS AND ECONOMIC CONDITIONS.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING
RESULTS PRESENTED BELOW FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
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, 1997 and March 31, 1998, the Company has acquired or
assumed management control pending acquisition and sold a number of motels in
various transactions summarized as follows:
Number of
Date Transaction Rooms
- - ---- ----------- ---------
January 1997 Sold a motel located in (130)
Kissimmee, FL.
February 1997 Assumed management control 48
of a motel located in
Greensboro, GA which was built
by an affiliate for the Company
and acquired in October 1997.
May 1997 Assumed management control 61
of a motel located in
Wilson, NC which was built
by an affiliate for the Company
and acquired in October 1997.
September 1997 Assumed management control 117
of two motels located in
Columbia, SC and Milford, MA
which were built by an
affiliate for the Company
and acquired in October 1997.
December 1997 Sold a motel located in (48)
Cambridge, OH.
Purchased a motel located in 53
East Syracuse, NY which was built
by an affiliate for the Company.
March 1998 Sold a motel located in (49)
South Hill, VA.
Assumed management control of 54
a motel located in Minneral
Wells, WV which was built by an
affiliate for the Company. The
Company has leased the property
to a third party tenant.
-----
106
=====
In the aggregate, the Company expended $13.4 million in cash (net of proceeds
from sales of $2.0 million) in conjunction with the above listed transactions.
Cash was funded from internal sources and $8.8 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 earlier of the date of acquisition or date the Company assumed
management control and was at financial risk.
Three Months Ended March 31, 1998 Compared to the Three Months Ended
March 31, 1997
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
------------------------------------------------------------
(unaudited)
Three Months Ended March 31
------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
------------------------------------------------------------
1998 1997 1998 1997 1998 1997
---------- --------- --------- --------- --------- ---------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues ........................ $ 22,952 $ 24,100 $ 552 $ 234 $ 23,504 $ 24,334
Ancillary motel revenues ............. 1,905 1,743 29 8 1,934 1,751
---------- ---------- --------- --------- --------- ---------
Total motel operating revenues ..... 24,857 25,843 581 242 25,438 26,085
Motel costs and expenses:
Motel operating expenses ............. 14,518 15,128 418 200 14,936 15,328
Marketing and royalty fees ........... 1,751 1,923 49 28 1,800 1,951
Depreciation and amortization ........ 3,574 3,450 0 27 3,574 3,477
---------- --------- --------- --------- --------- ---------
Total motel direct expenses ........ 19,843 20,501 467 255 20,310 20,756
---------- --------- --------- --------- --------- ---------
$5,014 $5,342 $114 ($13) 5,128 5,329
========== ========= ========= ==========
Corporate operations:
Other revenues ......................... 221 259
General and administrative expenses:
Management Operations ................ 1,243 1,297
Construction and development ......... 321 560
Other general and
administrative expenses ........... 935 327
--------- ----------
Total general and administrative expenses 2,499 2,184
Depreciation and amortization .......... 474 159
---------- ---------
(2,752) (2,084)
---------- ---------
Net operating income ..................... $ 2,376 $ 3,245
========== =========
Other data:
Number of motels at period end (5) ..... 132 132 5 3 137 135
Number of rooms at period end (5) ...... 11,056 11,088 279 145 11,335 11,233
Occupancy percentage (5) ............... 55.76% 60.77% 49.98% 48.60% 55.61% 60.60%
ADR (1) (5) ............................ $ 41.36 $ 39.74 $ 41.80 $ 34.06 $ 41.37 $ 39.68
REVPAR (2) (5) ......................... $ 24.98 $ 25.90 $ 22.00 $ 17.15 $ 24.90 $ 25.96
Net operating income margin (3) ........ 9.26% 12.32%
Net motel revenue margin (4) (5) ....... 37.42% 36.48% 20.65% 5.98% 37.02% 36.19%
[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 income margin represents net operating income divided by
total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
(5) At March 31, 1998 and for the three months then ended, excludes amounts
related to the one motel which is leased to a third party tenant.
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 $25,659,000 for the three months ended March 31,
1998 from $26,344,000 for the three months ended March 31, 1997, a decrease of
$685,000 or 2.6%.
Motel revenues decreased to $25,438,000 for the three months ended March
31, 1998 from $26,085,000 for the three months ended March 31, 1997, a
decrease of $647,000 or 2.5%. The motel revenues for motels owned during both
periods decreased approximately $986,000 which was partially offset by an
increase of $339,000 for acquired and divested motels, since January 1, 1997.
Motel revenues for motels owned during both periods decreased 3.8%. The
decrease in motel revenues for motels owned during both periods was
attributable principally to a decrease in the occupancy percentage. The
occupancy percentage decreased from 60.77% for the three months ended March
31, 1997 to 55.76% for the three months ended March 31, 1998. Management
attributes the decline in occupancy principally to two factors: i) a
significant increase in the supply of motel rooms in the market in which
the company competes and ii) the negative impact of the much publicized
weather effect of El Nino. The ADR for the motels owned during both periods
increased to $41.36 for the three months ended March 31, 1998 from $39.74 for
the three months ended March 31, 1997, an increase of $1.62 or 4.1%. The
increase in ADR is reflective of management's efforts to increase room rates
at its lodging facilities. REVPAR for motels owned during both periods
decreased to $24.98 for the three months ended March 31, 1998 from $25.90
for the three months ended March 31, 1996, a decrease of $0.92 or 3.6%.
The acquired and divested motels had an occupancy percentage of 49.98%, an
ADR of $41.80 and REVPAR of $22.00 for the period which they were owned by
the Company in 1998.
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 $14,936,000 for the three
months ended March 31, 1998 from $15,328,000 for the three months ended March
31, 1997, a net decrease of $392,000 or 2.6%. Approximately $610,000 of the
net decrease is attributable to the cost of operating the motels owned during
both periods. The cost of operating motels owned during both periods
decreased to $14,518,000 for the three months ended March 31, 1998 from
$15,128,000 for the three months ended March 31, 1997, a decrease of $610,000
or 4.0%. Motel operating expenses for motels acquired and divested since
January 1, 1997 increased to $418,000 for the three months ended March 31,
1998 from $200,000 for the three months ended March 31, 1997. Motel operating
expenses as a percentage of motel revenues remained same at 58.7% for the
three months ended March 31, 1998 and for the three months ended March 31,
1997. Motel operating expenses as a percentage of motel revenues for the
motels owned in both periods decreased to 58.4% for the three months ended
March 31, 1998 from 58.5% for the three months ended March 31, 1997. Motel
operating expenses as a percentage of motel revenues for the acquired and
divested motels was 71.9% for the three months ended March 31, 1998.
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 $1,800,000 for the three months ended March 31, 1998 from
$1,951,000 for the three months ended March 31, 1997, a decrease of $151,000
or 7.7%. The marketing and royalty fees for motels owned during both periods
decreased to $1,751,000 for the three months ended March 31, 1998 from
$1,923,000 for the three months ended March 31, 1997, a decrease of $172,000
or 8.9%. 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
March 31, 1998 from 8.0% for the three months ended March 31, 1997. The
decrease in marketing and royalty fees is attributable to a reduction in
franchise fee due to the decline in room revenues on which most such fees
are based and the reduction in rates for certain contractual franchise fees.
Marketing and royalty fees for motels acquired and divested since January 1,
1997 increased to $49,000 for the three months ended March 31, 1998 from
$28,000 for the three months ended March 31, 1997.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction and Development and Other. Included in the Management Company
Operations, which is the division responsible for the motel operations, are
the costs associated with training, marketing, purchasing, administrative
support, property related legal and accounting costs. The major components of
these costs are salaries, wages and related expenses, travel, rent and other
administrative expenses. The general and administrative expenses for the
Management Operations decreased $54,000 to $1,243,000 for the three months
ended March 31, 1998 from $1,297,000 for the three months ended March 31,
1997, a decrease of 4.2%. The general and administrative expenses
associated with Construction and Development decreased $239,000 from $560,000
for the three months ended March 31, 1997 to $321,000 for the three months
ended March 31, 1998. Other General and Administrative expenses increased
$608,000 to $935,000 for the three months ended March 31, 1998 from $327,000
for the three months ended March 31, 1997. The increase is due to legal costs
incurred in connection with a lawsuit that the Company initiated against
ShoLodge Franchise Systems, Inc., the franchiser of the Shoney's Inn
franchises operated by the Company. As a percentage of total motel operating
revenues, Management Operations general and administrative expenses was 4.9%
for the three months ended March 31, 1998 and 5.0% for the three months ended
March 31, 1997.
Depreciation and amortization increased to $4,048,000 for the three months
ended March 31, 1998 from $3,636,000 for the three months ended March 31,
1997, a net increase of $412,000 or 11.3%. Approximately $315,000 of the net
increase in depreciation and amortization is attributable to the corporate
operations.
Net operating income decreased to $2,376,000 for the three months ended
March 31, 1998 from $3,245,000 for the three months ended March 31, 1997, a
decrease of $869,000 or 26.8%. The decrease in net operating income included
a decrease of $104,000 in net motel revenues (motel revenues less motel
operating expenses and marketing and royalty fees). Of the $104,000 decrease
in net motel revenues, $204,000 resulted from the motels owned during both
periods or a decrease of 2.3%. Net motel revenues for motels acquired and
divested since January 1, 1997 increased $100,000. Net operating income as a
percent of total revenues was 9.3% for the three months ended March 31, 1998
as compared to 12.4% for the three months ended March 31, 1997.
Interest expense decreased to $7,616,000 for the three months ended March
31, 1998 from $7,863,000 for the three months ended March 31, 1997, a decrease
of $247,000.
Net loss increased to $2,913,000 for the three months ended March 31,
1998 from $2,400,000 for the three months ended March 31, 1997.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt service,
capital expenditures (primarily for motel refurbishment), 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 March
31, 1998, the Company had principal repayment obligations of $65,575,000,
$4,771,000 and $14,373,000 during the remainder of the fiscal year ending
December 31, 1998 and during the fiscal years ending December 31, 1999 and
2000, respectively. Management has been told by investment bankers that the
cash flows derived from the properties securing the maturing mortgage loans
will be sufficient to allow for the refinancing of such mortgage debt given
the current interest rate environment. As of May 14, 1998 however, the Company
had not definitively arranged for such refinancing and therefore is subject to
the risk that the credit market could be adversely affected by some unforeseen
event. Although the Company does not have lines of credit outstanding,
management believes sufficient resources exist to meet its normal liquidity
needs.
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 $1,635,000 and $1,334,000 for the three months ended March 31,
1998 and 1997, respectively. In addition, as of March 31, 1998, the Company
had $1,287,000 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 March 31, 1998, six properties were under various stages of development for
the Company. Management anticipates approximately $16,000,000 will be
expended to purchase these motels upon their completion during the next twelve
months. In addition, the Company anticipates drawing upon its $150,000,000
secured loan facility with CS First Boston to finance a portion of the
acquisition price for these properities.
For the three months ended March 31, 1998, cash and cash equivalents decreased
$3,650,000. This decrease consisted of $775,000 of funds utilized in
investing activities and $2,580,000 of funds used in financing activities and
$295,000 of funds used in operations. Net investing activities of $775,000
include: $2,567,000 of cash utilized for motel development; $1,635,000
expended on refurbishment of existing properties, and a change in cash
restricted for refurbishment of $61,000 offset by $3,488,000 of cash provided
from the sale of investment properties and collections on mortgage and other
notes receivable. Cash used in financing activities includes: $3,609,000 of
cash utilized to repay indebtedness; and $105,000 of cash used for deferred
financing costs and other items offset by $1,134,000 from proceeds from notes
payable.
Impact of Year 2000
The year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company, in the normal course of operations, is in the process of replacing
its primary financial accounting system that was impletmented in 1991. The
new system will be year 2000 compliant. The Company has made an assessment of
its other financial systems and believes other than for a few necessary
minor modifications, that they are year 2000 compliant. There can be no
guarantee that the systems of other companies such as banks and suppliers on
which the Company relies upon to transact business in the normal course will
be year 2000 compliant which would possibly cause hardships for the Company.
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:
Not Applicable
(b) Reports on Form 8-K:
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOA HOSPITALITY, INC.
May 14, 1998 By: /s/ Kurt M. Mueller
---------------------------------
Kurt M. Mueller
Chief Financial Officer
May 14, 1998 By: /s/ John D. Simon
---------------------------------
John D. Simon
Secretary and Treasurer