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SUBURBAN LODGES OF AMERICA, INC.
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The following is a press release issued by Registrant on April 25, 2001 in
respect to its financial results for the first quarter of fiscal year 2001.
For: Suburban Lodges of America, Inc.
Contact: Paul A. Criscillis, Jr.
Chief Financial Officer
(770) 799-5000
FOR IMMEDIATE RELEASE
SUBURBAN LODGES REPORTS INCREASED FIRST QUARTER EARNINGS
BEFORE UNUSUAL ITEMS
ATLANTA, GEORGIA, April 25, 2001 - Suburban Lodges of America, Inc.
(Nasdaq: SLAM), owner/franchisor of the Suburban Lodge and GuestHouse
International hotel brands and operator of 65 Company-owned Suburban Lodge
hotels, announced today that, excluding two unusual charges discussed below, the
Company's net income for the calendar quarter ended March 31, 2001 was $696,000
(or $0.06 per share) versus $555,000 (or $0.04 per share) in the year-ago
period.
Total revenues in the first quarter of 2001 increased by 9% to $18.7
million from $17.1 million in the first quarter of 2000. Income from franchising
operations also increased by 31% in the first quarter of 2001 versus the
year-ago period.
As previously announced, shortly after the close of the first quarter,
the Company completed a lengthy review of its strategic alternatives to maximize
share value. Expenses of $475,000 incurred in connection with the strategic
review have been charged against the Company's 2001 first quarter earnings.
One of the results of the strategic review was a decision to sell
eleven unimproved sites the Company was holding for its own future development.
This decision resulted in the recording of an impairment reserve of
approximately $6.7 million, the majority of which was for development expenses
incurred prior to 1999.
The after-tax impact of the two charges discussed above was $4.6
million (or $0.38 per share). As a result, the Company has reported a net loss
of $3.9 million (or $0.32 per share) in the first quarter of 2001 versus net
income of $555,000 (or $0.04 per share) in the year-ago period.
In the first quarter of 2001, Average Weekly Rates (AWR) for
Company-owned hotels increased by 2% to $200 from $197 in the prior year
quarter, with an average occupancy rate of 78% in 2001 versus 74% a year
earlier. For the quarter ended March 31, 2001, weekly revenue per available room
(RevPAR) for Company-owned hotels increased by 7% to $155 per available room
from $144 per available room in the first quarter of 2000.
David E. Krischer, Chairman and Chief Executive Officer, stated: "We
are extremely pleased with our first quarter results. Our RevPAR growth of 7% is
clearly in the forefront of the overall lodging industry. Moreover, the growth
of our franchise development pipeline is very encouraging, particularly in the
current weak economic environment. While the slowing U. S. economy could dampen
RevPAR increases in the coming quarter or two, we remain optimistic that the
nature of our extended stay product will fare well, even in this environment."
MAXIMIZING THE VALUE OF SUBURBAN LODGES
Earlier this month, the Company announced plans to resume open market
purchases of stock under a previously authorized stock buyback program. In
October of last year, the Company suspended its stock repurchase program and
engaged Salomon Smith Barney, a national investment banking firm with recognized
expertise in the hotel industry, to assist the Company in evaluating options to
maximize share value.
The strategic alternatives explored by Salomon Smith Barney included,
among other possibilities, a merger or sale of the Company, other possible
business combinations or joint ventures, a sale of all or a portion of the
Company's assets, a continuation of the Company's growth strategy and possible
changes to that strategy. Forty-five potential buyers of all or part of the
Company were contacted in the process. After nearly six months of exploration,
the Company received only one highly-conditional proposal to acquire the
Company.
The proposal was conditioned upon financing, which would be difficult
to obtain in the current weak market environment. Subsequent efforts by the
Company's board of directors (the "Board") and management to negotiate an
elimination of the financing condition resulted in new proposals with new
conditions from the would-be acquirer, including a proposed four-month due
diligence period. However, in the opinion of the Board and management, such
negotiations did not result in a better offer than the only written proposal
received by the Company, which was deemed inadequate due to, among other things,
the financing condition. For these reasons, among others, the proposal was
rejected unanimously by the Board.
The Company also received an inquiry from a third party regarding a
potential merger of equals. However, after serious consideration and
exploration, each of the parties determined not to pursue the concept.
After lengthy deliberation, the Company's Board and management
concluded that, at this time, the best way to maximize value for shareholders is
to continue with successful efforts to grow the Suburban Lodge and GuestHouse
International franchises, complemented by ongoing share repurchases and
opportunistic sales of real estate assets.
Accordingly, the Company's Board and management are continuing their
efforts to sell and convert Company-owned hotels into franchised hotels and the
Company is attempting to add new franchisees in all of its target markets. The
Company's Board and management believe this program will result in increased
earnings per share, which will be reflected favorably in the market price of the
Company's common stock.
The Company's Board and management are mindful of the options available
to the Company. If presented with one or more appropriate opportunities to grow
share value, the Company's Board and management are prepared to act promptly.
MAXIMIZING THE VALUE OF HOTEL TOOLS
HotelTools, Inc. is an independent developer of Internet-based
enterprise management systems for the hospitality industry. The HotelTools
system was designed to provide the Company and other multi-property lodging
owners and operators with enhanced real-time, low-cost and centralized access to
critical operating data, including, among other things, property, guest, rate
and reservations management information.
The Board and management of the Company believe the Company can achieve
significant top-line and bottom-line improvements to the Company's operating
results through use of the HotelTools software system. For this reason, the
Company is pursuing rapid deployment of HotelTools software in all Company-owned
hotels.
Experts in the hospitality industry believe the industry will migrate
toward the HotelTools model over the next several years. Recognizing this
potential, the Company resolved to support development and marketing of the
HotelTools system to third-parties, including the Company's franchisees and
owners and operators of other multi-property lodging chains.
The Company's loans to HotelTools, which totaled approximately $10
million as of March 31, 2001, began at a time when the public and private
markets generally were supportive of companies with similar products and
prospects. At that time, it appeared to the Company and others that third-party
financing for development of HotelTools would be readily available.
Unfortunately, the prospects for funding development of products such
as the HotelTools software have changed dramatically over the past twelve
months. As a result, the Company has acted to preserve the value of the
HotelTools system to the Company, while supporting the efforts of HotelTools to
attract third-party financing.
The board of directors and management of Suburban Lodges believe
HotelTools still offers great potential value to the Company and its
shareholders. However, the Company's board and management are mindful of growing
shareholder concerns over the extent of the Company's commitment to HotelTools.
For this reason, among others, in early March, the Company encouraged the
management of HotelTools to solicit offers for the purchase of HotelTools. In
any such sale, the Company will seek to retain a license to use the HotelTools
software with all upgrades. The Company has been informed by HotelTools that
HotelTools is actively engaged in discussions with several prospective buyers.
FORWARD-LOOKING STATEMENTS
This news release contains statements concerning the Company's plans,
beliefs and expectations for future periods. These "forward-looking statements"
may be identified by the use of words such as "intends," "contemplates,"
"believes," "anticipates," "expects," "should," "could," "would" and words of
similar import. These forward-looking statements involve known and unknown risks
and uncertainties that could cause actual results to differ materially from the
expectations expressed or implied in such statements. These risks and
uncertainties include, among others, changes in economic conditions, financial
markets or consumer demand for extended stay and other forms of lodging, the
level of competition in the extended stay and other lodging markets, the
Company's ability to enter into contracts with its franchisees, development
risks and inefficiencies, weather delays, zoning delays, the Company's financial
condition and other risks and uncertainties set forth in the Company's filings
with the Securities and Exchange Commission. Forward-looking statements included
in this news release concerning HotelTools are subject to the foregoing risks
and uncertainties affecting the Company and additional risks and uncertainties
including, but not limited to, uncertainty as to HotelTools' ability to operate
within its budget, its future profitability, its ability to meet development
schedules, its ability to develop and implement operational and financial
systems to manage rapidly growing operations, uncertainty as to the demand for
its products and services, the risk that competitors will be able to develop and
market products and services that produce results similar to those produced by
HotelTools' products and services, and the risk that HotelTools may not be able
to obtain financing on acceptable terms and in amounts that are sufficient to
meet its needs.
All forward-looking statements included in this press release are based
upon management's present expectations and the information available at this
time. The Company does not undertake any obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or other factors.
Suburban Lodges of America, Inc. owns, franchises and manages Suburban
Lodge hotels, the nation's largest economy extended stay lodging chain, and
franchises GuestHouse International hotels, the owner-friendly brand of
mid-market nightly hotels.
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended
March 31, 2001 March 31, 2000
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Revenue:
Hotel revenues $ 17,477 $ 15,959
Franchising revenue 1,023 781
Management and other revenue 175 355
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Total revenue 18,675 17,095
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Operating costs and expenses:
Hotel operating expenses 9,785 9,115
Corporate operating expenses 2,999 2,859
Expenses incurred in conjunction with
review of strategic alternatives 475
Undeveloped site carrying costs 47 44
Depreciation and amortization 2,526 2,398
Impairment of long-lived assets 6,687
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Operating costs and expenses - net 22,519 14,416
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Income (loss) from operations (3,844) 2,679
Other income (expense):
Interest income 234 245
Interest expense (2,430) (2,046)
Other 1 10
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Income (loss) before income taxes (6,039) 888
Provision (credit) for income taxes (2,183) 333
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Net income (loss) $ (3,856) $ 555
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Earnings (loss) per common share:
Basic $ (0.32) $ 0.04
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Diluted N/A $ 0.04
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Weighted average number of common
shares outstanding:
Basic 12,004 13,870
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Diluted N/A 13,870
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SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
March 31, December 31,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 7,345 $ 10,856
Accounts receivable, net of reserves of
$437 (2001) and $327 (2000) 1,758 1,520
Hotel inventory and supplies 2,538 2,538
Prepaid and refundable income taxes 260
Deferred income taxes 469 469
Prepaid expenses and other current assets 2,175 2,081
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Total current assets 14,285 17,724
Assets held for sale 9,553
Property and equipment, net of accumulated depreciation and
amortization of $30,302 (2001) and $27,863 (2000) 283,569 299,392
Notes receivable from HotelTools, Inc. 10,192 7,997
Other notes receivable 4,556 4,508
Acquired intangible assets - net 3,428 3,515
Deferred loan costs 1,999 2,097
Other assets 2,646 2,393
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TOTAL ASSETS $ 330,228 $ 337,626
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,668 $ 1,547
Construction accounts payable 1,402 1,314
Trade accounts payable 1,641 3,161
Accrued property taxes 1,106 720
Accrued wages and benefits 1,214 703
Other accrued liabilities 2,594 1,504
Other current liabilities 726 648
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Total current liabilities 10,351 9,597
Long-term debt, excluding current portion 117,702 119,574
Deferred income taxes 1,529 3,958
Other liabilities 172 167
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Total liabilities 129,754 133,296
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Shareholders' equity:
Common stock 157 157
Additional paid-in capital 202,280 202,280
Retained earnings 20,752 24,608
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223,189 227,045
Less treasury stock, at cost 22,715 22,715
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Shareholders' equity, net 200,474 204,330
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 330,228 $ 337,626
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The following is a script of the conference call held by Registrant at 10:00
a.m. on April 25, 2001 with respect to its financial results for the first
quarter of fiscal year 2001.
Suburban Lodges of America, Inc.
Quarterly Conference Call
April 25, 2001
10:00 a.m.
Comments by David Krischer, Chief Executive Officer
Thank you all for participating in today's first quarter 2001
conference call.
We issued a press release this morning that included our first quarter
financials. Please note that the press release includes a risk statement with
regard to forward-looking statements made in the press release. Please consider
the risk factors referred to in the press release as being restated at this time
for the purposes of this conference call.
My remarks this morning will first address our performance this past
quarter, review the announcement we made two weeks ago and then address various
issues raised during the last conference call. In light of the recently filed
13D and the anticipated commencement of a proxy contest over the election of
directors at this year's annual meeting on May 17, on the advice of counsel we
will not be opening this conference call up for questions so as to avoid any
violations of the proxy rules.
This will be the first, and hopefully the last, conference call where
we have not taken questions. We look forward to returning to our standard format
next quarter.
For the quarter, revenue grew by 9% to $18.7 million from $17.1 million
in 2000. We continue to see more rapid growth in our franchise income, which
increased this quarter by 31% over the prior year. Net income before special
charges was up to $0.06 per share this year versus $0.04 per share last year. As
we announced two weeks ago, we have taken two special charges during the
quarter: one for the expenses incurred in pursuing a strategic review of the
Company's alternatives over a six-month period beginning in October 2000, and
the second for a write-down of essentially development expenses associated with
land we previously held for development and which we are now actively marketing.
These charges resulted in a loss of $0.32 per share for the quarter.
Hotel operations at Company-owned hotels continued to be strong during
the quarter, although we are beginning to see a bit deeper economic downturn in
our industry than had been originally anticipated, particularly in the Midwest
where our impression is that they have been experiencing a recessionary
environment since late in the fourth quarter of last year. During the quarter,
occupancy increased to 78% from 74% last year. Together with an increase in
average weekly rate from $197 last year to $200 this year, weekly RevPar for the
quarter increased by 7% to $155 from $144 in 2000.
Although not as dramatic as first quarter, and despite the sluggishness
in the Midwest, we continue to see higher occupancies so far in the current
quarter and remain cautiously optimistic as we continue through the year.
Including the 65 Company-owned Suburban Lodge hotels, at the end of the
quarter there were a total of 193 hotels open and operating under the Company's
two brands: Suburban Lodge and GuestHouse International. In addition there were
137 hotels in various stages of construction or development between the two
brands. The total of 330 hotels either open or in our pipeline at the end of the
quarter is an increase of 38% over this same point last year.
During the more than six months that we were conducting our strategic
review, the Company was not in the marketplace purchasing its shares. As we
indicated two weeks ago we are now again in the marketplace repurchasing shares.
To the extent some of you have questions about our strategic review, I
can only say that the company, with the very active involvement of the full
board and its advisor, Salomon Smith Barney, took a very serious look at
alternatives in the market place to maximize shareholder value. In light of the
continued low stock price, the Company first began to consider a strategic
review in late summer 2000 and decided to initiate the process in early October
of last year.
Let me emphasize: this was a very serious effort by the Company. And it
was a serious effort by our banker, too, which was highly motivated to make a
deal happen. When the process was completed, the only conclusion that could be
reached was that, in the current economic environment, the best way to maximize
value for shareholders is to continue with successful efforts to grow the
Suburban Lodge and GuestHouse International franchises, complemented by ongoing
share repurchases and opportunistic sales of real estate assets.
We believe this program will result in increased earnings per share,
which will be reflected favorably in the market price of the Company's common
stock. Accordingly, we are continuing our efforts to sell and convert
Company-owned hotels into Company-franchised hotels and we are seeking new
franchisees for the Company's brands in all of our target markets.
There are additional, and noteworthy, details regarding the results of
our strategic review in this morning's press release, which I urge you to read
carefully. We also expand a bit on the status of HotelTools, which has been
seeking third-party funding and, with our encouragement, is now seeking a buyer.
We have been told by HotelTools that it currently is actively engaged in
discussions with several prospective buyers.
During our February conference call, concern was raised about the
Company's return on equity. Since we had at that time engaged Salomon Smith
Barney to represent us in a possible sale of the Company and were not in the
market buying our shares, we were uncomfortable commenting on this issue...and
we were equally uncomfortable explaining our discomfort. Now that these matters
have been disclosed, I would like to address these concerns. First of all it
should be clear that we are cognizant of our returns and focused on increasing
them; however, not by sacrificing our significant advantage of being one of the
least leveraged public hospitality companies.
We recently conducted a study of public hospitality companies with
total hotel assets of less than $1 billion to see how our return on assets
compares to our peers. We believed that such a comparison would take into
consideration our significantly lower leverage. Out of 22 hotel companies, both
C corps and REITS, we are in the top 40%. Moreover, it should be obvious that
since our purchase of GuestHouse International in mid-1999 we have significantly
increased our franchise infrastructure to serve both of our brands. This has
obviously had a negative impact on our recent returns. Nevertheless, our
franchise performance has been steadily improving, and, we believe, it will be a
significant vehicle for our future growth. Again, please do not interpret this
discussion to mean that the Company is satisfied with its returns or that it is
not focused on increasing shareholder value. We are. In fact, interestingly, the
two hospitality companies with the highest returns on equity are franchise
companies, the very model we are pursuing.
This completes my formal remarks today. As noted at the beginning of
this call, we will not be taking any questions at this time.
However, in the next two weeks, we expect to be speaking directly with
all of our major shareholders. At that time, we can respond to your questions
about the issues raised in the proxy contest. In the meantime, if you have a
question about one or more aspects of our first quarter results, please call
Chuck Criscillis, our C. F. O., or me once you've had an opportunity to review
today's press release.
This concludes today's conference call. We appreciate your continuing
interest in Suburban Lodges. You may all now hang up. Thank you very much.