UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/ X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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: 0-28108
Suburban Lodges of America, Inc.
Georgia 58-1781184
(State of Incorporation) (I.R.S. Employer
Identification No.)
1000 Parkwood Circle
Suite 850
Atlanta, Georgia 30339
(Address of principal executive offices)
770-951-9511
(Registrant's telephone number, including area code)
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
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES / X / NO / /
Number of shares of Common Stock, $.01 par value outstanding as of
March 31, 1997:
12,127,502
Suburban Lodges of America, Inc.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Balance Sheets at March 31, 1996 and March 31, 1997 (unaudited) 3
Statements of Operations for the three month periods ended 4
ended March 31, 1996 and March 31, 1997 (unaudited)
Statements of Cash Flows for the three month periods ended 5
March 31, 1996 and March 31, 1997 (Unaudited)
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION AND SIGNATURES
Signatures 10
Page 2
Suburban Lodges of America, Inc.
Consolidated Balance Sheets
(Unaudited)
March 31, March 31,
1997 1996
------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 55,962,296 $ 767,163
Accounts receivable, trade 106,283
Prepaid and other assets 1,289,783 440,587
Advances to affiliates 26,000 30,000
Current deferred tax asset 65,026 7,050
----------- ----------
Total current 57,449,388 1,244,800
----------- ----------
NONCURRENT DEFERRED TAX ASSET 201,717
DEFERRED EXPENSES-net 567,124 448,907
INVESTMENT IN FACILITIES- at cost:
Land 8,374,642 2,386,633
Building 59,809,074 9,371,039
Furniture and fixtures 3,297,603 909,773
Equipment 2,157,792 1,105,168
Construction in progress 13,112,880 3,449,530
----------- ----------
86,751,991 17,222,143
Less accumulated depreciation 3,170,446 2,096,182
----------- ----------
Net investment in facilities 83,581,545 15,125,961
----------- ----------
$141,799,774 $16,819,668
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ - $ 535,902
Current portion of notes payable to affiliates - 1,052,511
Accounts payable, trade 687,403 149,999
Construction accounts payable 279,462 336,078
Accrued interest 9,478 131,125
Accrued expenses and other liabilities 812,332 430,899
Unearned franchise fees 360,820 -
Income taxes payable 627,002 -
------------ -----------
Total current 2,776,497 2,636,514
DEFERRED INCOME TAX PAYABLE 64,003 -
LONG-TERM DEBT AND CAPITAL LEASES OBLIGATIONS 15,007,251 13,312,938
LONG-TERM NOTES PAYABLE TO AFFILIATES - 612,397
------------ -----------
Total liabilities 17,847,751 16,561,849
SHAREHOLDERS' EQUITY(DEFICIT):
Common stock 121,776 15
Additional paid-in capital 120,558,759 999
Retained earnings (deficit) 3,271,488 (1,669,789)
Partners' and members capital - 1,926,594
------------ -----------
Total capital 123,952,023 257,819
------------ -----------
$ 141,799,774 $ 16,819,668
============ ===========
/TABLE
Suburban Lodges of America, Inc.
Consolidated Statements of Operations
Mar 31, 1996 Mar 31, 1997
------------ ------------
REVENUE:
Room revenue $1,366,141 $3,449,567
Other hotel revenue 86,322 237,927
Franchise and other revenue 216,860 235,170
--------- ---------
Total revenue 1,669,323 3,922,664
--------- ---------
COSTS AND EXPENSES:
Hotel operating expenses 652,581 1,867,721
Corporate operating expenses 274,022 400,959
Related party consulting 6,000
Depreciation and amortization 116,250 466,000
--------- ---------
Total costs and expenses 1,048,853 2,734,680
--------- ---------
OPERATING INCOME 620,470 1,187,984
INTEREST INCOME 769,972
INTEREST EXPENSE (286,280) (1,247)
--------- ---------
334,190 1,956,709
INCOME TAX EXPENSE (26,561) (699,528)
--------- ---------
NET INCOME $307,629 $1,257,181
========= =========
Earnings per common share $0.11
=====
Pro forma earnings per share $0.06
=====
Weighted average shares outstanding 3,322,251 11,733,061
========= ==========
/TABLE
Suburban Lodges of America, Inc.
Statements of Cash Flows
Three Months
-----------------------------
1996 1997
-------- -----------
OPERATING ACTIVITIES:
Net income $ 307,629 $ 1,257,181
Adjustments to reconcile net income to
net cash provided by operating activities:
Non cash transactions 33,550,369
Depreciation and amortization 116,250 466,000
Changes in assets and liabilities:
Trade receivables, net (11,125)
Prepaid expenses and other assets (260,471) (214,726)
Advances to affiliates (25,000) 24,000
Current deferred tax asset 26,561 (10,000)
Noncurrent deferred tax asset 173,401
Deferred expenses, net (318,901)
Accounts payable, trade 67,630 (70,806)
Accrued expenses 108,221 409,113
Accrued interest (6,103) (84,564)
Unearned franchise fees 63,000
Noncurrent deferred tax liability 64,003
Income taxes payable 398,919
------------ -----------
Net cash provided by operating 334,717 35,695,864
------------ -----------
INVESTING ACTIVITIES:
Purchase of land (6,097,774)
Construction in progress 1,111,612
Construction accounts payable (208,524) (1,746,056)
Expenditures for buildings and improvements (1,471,126) (48,556,955)
Purchase of furniture,fixtures, and equipment (121,904) (2,742,965)
---------- -----------
Net cash used in investing activities (1,801,554) (58,032,138)
------------ -----------
FINANCING ACTIVITIES:
Debt assumed from acquisition properties 12,470,420
Repayment of debt from acquisition properties (12,470,420)
Proceeds from issuance of long-term debt 1,742,203
Principal payments on long-term debt (79,844)
Payments on advances to affiliates 40,000
Payments on capital lease obligations (6,291)
Offering costs (41,708)
Distributions to partners (149,500)
------------ -----------
Net cash provided by financing activities 1,546,568 (41,708)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 79,731 (22,377,982)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 687,432 78,340,278
------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 767,163 $55,962,296
========= ==========
/TABLE
Suburban Lodges of America, Inc.
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Accordingly, certain information
and footnotes required by generally accepted accounting principles for
complete financial statements have been omitted. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
which are necessary for a fair presentation of financial position and
results of operations have been made. These interim financial statements
should be read in conjunction with the consolidated historical financial
statements and notes thereto, presented in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and the Company's
Registration Statement on Form S-1(No. 333-3876), as amended, (the
"Registration Statement") and the Company's prospectus, dated May 23,
1996, filed with the Securities and Exchange Commission.
All significant intercompany balances and transactions have been
eliminated.
1. EARNINGS PER SHARE
Earnings per common share for the three month period ended March 31,
1997 are computed by dividing net income by the weighted average shares
outstanding for the period.
Prior to May 28, 1996, the assets of the Company were owned and
operated by Suburban Lodges of America, Inc. and its affiliates and the
Predecessor Entities. The outstanding shares or other equity interests
of the Predecessor Entities differ substantially from the shares of
common stock of the Company outstanding after the Offering. Accordingly,
the Company believes that the presentation of historical per share
information may not be meaningful.
The pro forma earnings per share for the three month period ended
March 31, 1996 have been calculated by dividing net income adjusted to
provide for income taxes (approximately $125,000 for the three month
period ended March 31, 1996) assuming a 37.5% effective tax rate by the
weighted average number of shares of common stock deemed to be
outstanding during the period. Prior to May 29, 1996, the Company was
not fully subject to income taxes because it consisted of partnerships
and limited liability companies; however, if they had been subject to
income taxes, pro forma net income after taxes would have been
approximately $208,869 for the three month period ended March 31, 1996.
In accordance with Accounting Principles Board Opinion No. 15, the
Company has also computed supplemental earnings per common share to be
$0.06 for the three month period ended March 31, 1996. Supplemental net
income of approximately $374,000 for the three month period ended March
31, 1996 has been computed by adjusting historical net income for ( i )
the elimination of interest expense on debt repaid with a portion of the
proceeds of the Offering; (ii) the inclusion of certain additional
corporate
Page 6
operating expenses; (iii) adjustments to depreciation and amortization;
(iv) the inclusion of Forest Park for the entire period; and (v) the
computation of income taxes for the period at a rate of 37.5%. For the
period January 1, 1996 to May 29, 1996, the supplemental weighted average
number of common shares outstanding is based upon outstanding shares for
the beginning of the period of 6,622,251 which were shares issued in
connection with the Corporate Organization and its related stock split
and the offering as described in the Company's Registration Statement.
Through May 29, 1996, shares outstanding for purposes of computing
supplemental earnings per share exclude 1,925,705 shares issued relative
to amounts used for general corporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THE QUARTER ENDED MARCH 31, 1997 TO THE QUARTER ENDED
MARCH 31, 1996
Total revenue for the quarter ended March 31, 1997 was approximately
$3,923,000 which was an increase of $2,253,000 or 135%, over the quarter
ended March 31, 1996. Room revenue for the quarter increased by
approximately $2,083,000 of which approximately $1,545,000 was
attributable to the opening and full quarter to date results of the nine
hotels which opened since March 31, 1996; a total of $224,000 relates to
the full quarter results for the Forest Park hotel which was acquired in
May 1996 and approximately $372,000 relates to the acquisition of four
existing hotels on February 28, 1997; in addition, a decline of
approximately ($57,000) in revenue was attributable to hotels open
throughout both periods, reflecting a (2.6%) decrease in occupancy which
was partially offset by a 1.9% increase in the average weekly rate from
$146.72 to $149.53. Occupancy for all company hotels declined from 96.6%
to 83.8% because of the ramp-up period for the eleven hotels opened since
March 31, 1996; however, the average weekly rate for all company hotels
increased from $146.72 to $154.50.
Page 7
Franchise and other revenue from corporate operations for the
quarter ended March 31, 1997 which includes management, franchise and
development revenue, was approximately $235,000 compared to $217,000 for
the quarter ended March 31, 1996. Franchise revenue for the quarter
increased about $71,000 from $89,000 in 1996 to $160,000 in 1997. The
additional franchise revenue reflects an increase of $73,000 in initial
franchise fees related to three new Suburban Lodge hotels opened in 1997
and a ($2,000) decrease in royalties on open hotels as a result of the
acquisition of four franchise properties on February 28, 1997.
Development and construction revenue decreased approximately ($39,000) as
the company focused on accelerating development of company owned
hotels during 1997. For the quarter ended March 31, 1997, there were no
third party management fees, whereas in the comparable quarter ended
March 31, 1996, there was one hotel under management, which was acquired
on May 23, 1996.
Hotel operating expenses increased about $1,215,000 or 186%, to
approximately $1,868,000 for the quarter ended March 31, 1997, from
approximately $653,000 for the quarter ended March 31, 1996. The majority
of this increase, or approximately $911,000, pertains to the opening and
quarter to date expenses for the nine hotels which opened since March 31,
1996, and approximately $235,000 reflects the expenses for Forest Park
which was acquired on May 29, 1996 and the four franchise hotels
which were acquired February 28, 1997. The balance of the increase in
hotel operating expenses of $69,000 is related to increases in expenses
at hotels open during the entire period for both years. Hotel
operating margins decreased from 55.1% to 49.3% from March 31, 1996 to
March 31, 1997, due primarily to fixed operating costs associated with
new hotels opened in 1997.
Corporate operating expenses increased $127,000 or approximately 46%
to $401,000 due to additional staffing in the financial, management and
development segments of the business, insurance, legal and professional
fees associated with being a public company, increased rent and related
office expenses, and expanded travel related expenses.
Depreciation and amortization increased to $466,000 from
approximately $116,000 as a result of the hotels opened or acquired since
March 31, 1996. In addition, the company incurred loan amortization costs
associated with the line of credit.
Interest expense declined from $286,000 in the quarter ended March
31, 1996 to zero interest for the comparable quarter in 1997, as a result
of the payoff of all debt on operating properties with proceeds from the
initial public offering. In addition, the company completed a second
offering on November 25, 1996, and the excess funds were invested to
generate interest income for the quarter ended March 31, 1997 of
approximately $769,000.
Income tax expense increased by $673,000 as compared to 1996,
because the Company became a taxable entity in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company applied a portion of the net proceeds from the May 23,
1996 IPO to the repayment of approximately $21 million in debt, plus
accrued interest, and paid approximately $7.6 million in connection with
the acquisition of certain hotels as part of the Corporate Organization,
leaving approximately $30 million dollars available for development of
additional Suburban Lodge hotels and general corporate purposes. Since
Page 8
the IPO, the Company has used a portion of the net proceeds from the IPO
and cash flow from operations to fund development and construction of
additional hotels and for working capital.
On November 25, 1996 the Company completed a secondary offering
which resulted in net proceeds of approximately $53 million. These
funds are targeted for future acquisitions, and construction and
development of additional hotels. As of March 31, 1997, the Company had
approximately $56 million in cash and cash equivalents and had borrowed
$15 million under the Line of Credit. On February 28, 1997, the Company
acquired four Suburban Lodge hotels from a franchisee and utilized
approximately $12.5 million to pay off the existing debt related to these
properties.
The Company anticipates that the total cost to complete construction
of the twenty Company-owned hotels expected to open by the end of 1997
will be approximately $60 million. The Company intends to fund the
development and construction of these hotels with existing cash balances,
cash flow from operations and borrowings under the Line of Credit. While
the Company anticipates that there may be some markets where, due to a
number of factors (such as union subcontractors), its development costs
will be higher, overall the Company anticipates that in the immediate
future a typical 136-guest room Suburban Lodge hotel will cost
approximately $3.6 million (approximately $26,000 per guest room) to
develop and construct, including pre-opening costs.
The Company has obtained a $25 million Line of Credit with PNC Bank,
Kentucky, Inc. ("PNC"), a commitment from PNC to increase the Line of
Credit to $50 million and a further commitment, which is subject to
obtaining other participating lenders, to increase the commitment to $100
million. The Line of Credit matures September 25, 1998 and bears
interest, at the borrower's option, at (i) the higher of PNC's prime
rate plus three-quarters of one percent or the federal funds rate plus
one and one quarter percent or (ii) the Euro-Rate plus two and one
quarter percent. The Line of Credit is secured by substantially all
assets of the Company. The Line of Credit restricts, among other things,
the incurrence of indebtedness, the sale of assets, the incurrence of
liens, the concentration of facility locations, and the payment of cash
dividends. In addition, the Company is required to satisfy, among other
things, certain financial performance criteria, including minimum net
worth levels and minimum levels of earnings before interest, taxes,
depreciation, and amortization. As of March 31, 1997, the Company had
$35 million available under the Line of Credit.
In the future, the Company may seek to increase the amount of its
credit facilities, negotiate additional credit facilities or issue
corporate debt or equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, fixed or variable rate interest and
may be subject to such terms as the Board of Directors of the Company
deems prudent.
The Company believes that existing cash balances, cash generated
from operations and borrowings under the Line of Credit, will be
sufficient to meet the Company's working capital and capital expenditure
needs through the end of 1997. However, additional capital may be
necessary for the Company to execute its long-term development plans.
Page 9
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (For SEC use only)
(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.
Suburban Lodges of America, Inc.
Date: May 9, 1997 By: /s/ DAVID E. KRISCHER
David E. Krischer
Chairman of the Board,
President
Chief Executive Officer
Date: May 9, 1997 By: /s/ TERRY J. FELDMAN
Terry J. Feldman
Vice President
Chief Financial Officer
(Principal Financial Officer)
Page 10