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 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: 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 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 June 30, 1997:
12,130,502
Suburban Lodges of America, Inc.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1996 and June 30, 1997
(unaudited) 3
Consolidated Statements of Operations for the three month and six
month periods ended June 30, 1996 and June 30, 1997 (unaudited) 4
Statements of Cash Flows for the six month periods
ended June 30, 1996 and June 30, 1997 (unaudited) 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-10
PART II. OTHER INFORMATION AND SIGNATURES
Signatures 11
Page 2
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1996 1997
------------ -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 78,340,278 $ 37,805,337
Accounts receivable, trade 95,158 126,403
Prepaid and other assets 1,075,057 1,559,928
Advances to affiliates 50,000 17,000
Current deferred tax asset 55,026 65,026
----------- -----------
Total current 79,615,519 39,573,694
----------- -----------
NONCURRENT DEFERRED TAX ASSET 375,118 201,717
DEFERRED EXPENSES - net 265,651 524,935
INVESTMENT IN FACILITIES - at cost:
Land 4,351,868 10,143,084
Building 31,069,119 65,924,599
Furniture and fixtures 2,405,849 3,839,403
Equipment 1,414,595 2,529,250
Construction in progress 14,224,492 24,005,195
----------- -----------
53,465,923 106,441,531
Less accumulated depreciation (2,721,819) (3,768,971)
----------- -----------
Net investment in facilities 50,744,104 102,672,560
----------- -----------
$131,000,392 $142,972,906
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade 758,209 221,779
Construction accounts payable 2,025,518 593,060
Accrued expenses and other 403,219 855,564
Accrued interest 94,042 -
Unearned franchise fees 297,820 410,070
Income taxes payable 228,083 103,848
----------- -----------
Total current 3,806,891 2,184,321
DEFERRED INCOME TAX PAYABLE - 64,003
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 15,000,000 15,000,000
----------- -----------
Total liabilities 18,806,891 17,248,324
SHAREHOLDERS' EQUITY(DEFICIT):
Common stock 115,258 121,776
Additional paid-in capital 110,063,881 120,557,755
Retained earnings (deficit) 2,014,362 5,045,051
Partners' and members capital
Total capital 112,193,501 125,724,582
----------- -----------
$131,000,392 $142,972,906
=========== ===========
Page 3
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- ------------- -------------
REVENUE:
Room revenue $1,660,515 $4,986,772 $3,026,656 $8,436,339
Other hotel revenue 127,284 442,913 213,606 680,841
Franchise and other revenue 295,735 215,984 512,595 451,153
--------- --------- --------- ---------
Total revenue 2,083,534 5,645,669 3,752,857 9,568,333
--------- --------- --------- ---------
COSTS AND EXPENSES:
Hotel operating expenses 779,619 2,462,319 1,432,200 4,330,061
Corporate operating expenses 321,074 452,159 597,096 855,599
Related party consulting fees 6,000 10,000
Depreciation and amortization 130,473 637,525 246,723 1,103,525
--------- --------- --------- ---------
Total costs and expenses 1,237,166 3,552,003 2,286,019 6,289,185
--------- --------- --------- ---------
OPERATING INCOME 846,368 2,093,666 1,466,838 3,279,148
INTEREST INCOME 139,081 552,024 139,081 1,321,996
INTEREST EXPENSE (267,663) (11,528) (553,943) (12,775)
--------- --------- --------- ---------
717,786 2,634,162 1,051,976 4,588,369
INCOME TAX EXPENSE 126,615 858,098 153,176 1,557,626
--------- --------- --------- ---------
NET INCOME $591,171 $1,776,064 $898,800 $3,030,743
======= ========= ======= =========
Earnings per common share -- $0.15 -- $0.25
==== ====
Pro forma earnings per share $0.08 -- $0.14 --
==== ====
Weighted average shares
outstanding 5,477,461 12,128,502 4,603,957 11,930,781
========= ========== ========= ==========
Page 4
SUBURBAN LODGES OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1996 1997
--------------------------
OPERATING ACTIVITIES:
Net income $898,800 $3,030,743
Non cash transactions
Depreciation and amortization 246,723 1,103,525
Changes in assets and liabilities:
Trade receivables, net (31,245)
Prepaid expenses and other assets (290,486) (484,871)
Advances to affiliates (120,000) 33,000
Current deferred tax asset (60,091) (10,000)
Noncurrent deferred tax asset 173,401
Deferred expenses, net (59,309) (318,900)
Accounts payable, trade 261,729 (536,430)
Accrued expenses 430,907 452,345
Accrued interest (137,228) (94,042)
Unearned franchise fees 112,250
Noncurrent deferred tax liability 64,003
Income taxes payable 213,267 (124,235)
---------- -----------
Net cash provided by operating 1,384,312 3,369,544
---------- -----------
INVESTING ACTIVITIES:
Capital expenditures (18,898,094) (29,972,419)
Construction accounts payable 616,209 (1,432,458)
---------- -----------
Net cash used in investing activities (18,281,885) (31,404,877)
---------- -----------
FINANCING ACTIVITIES:
Debt assumed from acquisition properties
Repayment of debt from acquisition (12,470,420)
Proceeds from issuance of long-term debt 2,814,967
Principal payments on long-term debt (14,981,894)
Payments on advances to affiliates (1,624,909)
Payments on capital lease obligations (25,845)
Offering costs (1,659,375) (29,188)
Net proceeds from stock issuance 59,998,950
Distributions to partners (1,131,014)
---------- -----------
Net cash provided by
financing activities 43,390,880 (12,499,608)
---------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 26,493,307 (40,534,941)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 687,432 78,340,278
---------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $27,180,739 $37,805,337
========== ==========
Page 5
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. 333-2876), 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.
2. EARNINGS PER SHARE
Earnings per common share for the three month and six month
periods ended June 30, 1997 were computed by dividing net income
by the weighted average shares outstanding for each period.
Prior to May 29, 1996, the assets of the Company were owned
and operated by Suburban Lodges of America, Inc. and its
affiliates and the limited liability companies and partnerships
(collectively, the "Predecessor Entities") which owned and
operated 16 Suburban Lodge facilities in operation, construction
or development immediately prior to the Company's initial public
offering (the "IPO"). The transactions whereby the Company
purchased the Predecessor Entities are referred to herein as the
"Corporate Organization." 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
IPO. 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 and six
month periods ended June 30, 1996 were calculated by dividing
income before income taxes by the weighted average number of
shares of common stock deemed to be outstanding during the
respective periods. Income before taxes has been adjusted to
provide for income taxes (approximately $269,000 and $395,000,
Page 6
respectively, for the three month and six month periods ended
June 30, 1996) assuming a 37.5% effective tax rate. Prior to May
29, 1996, the Company was not fully subject to income taxes
because it consisted in part of partnerships and limited
liability companies; however, if these partnerships and limited
liability companies had been subject to income taxes, pro forma
net income after taxes would have been approximately $449,000 and
$657,000, respectively, for the three month and six month periods
ended June 30, 1996, assuming a 37.5% effective tax rate.
In accordance with Accounting Principles Board Opinion No.
15, the Company also computed supplemental earnings per common
share to be $.09 and $.15, respectively, for the three month and
six month periods ended June 30, 1996. Supplemental net income
of approximately $590,000 and $964,000, respectively, for the
three month and six month periods ended June 30, 1996, was
computed by adjusting historical net income for (i) the
elimination of interest expense on debt repaid with a portion of
the proceeds of the IPO; (ii) the inclusion of certain additional
corporate operating expenses; (iii) adjustments to depreciation
and amortization; (iv) the inclusion of the Forest Park hotel for
the entire quarter and (v) the computation of income taxes for
the entire period at a rate of 37.5%. The supplemental weighted
average number of common shares outstanding (6,622,251) for both
periods is based upon the outstanding number of shares for the
beginning of each period of 6,622,251, which shares were issued
in connection with the Corporate Organization and the related
stock split and the IPO as described in the Registration
Statement. Shares outstanding for purposes of computing
supplemental earnings per share exclude 1,925,705 shares issued
relative to amounts used for general corporate purposes.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THE QUARTER ENDED JUNE 30, 1997 TO THE QUARTER
ENDED JUNE 30, 1996
Total revenue for the quarter ended June 30, 1997 was
approximately $5,646,000, which was an increase of $3,562,000, or
171%, over the quarter ended June 30, 1996. Room revenue for the
quarter increased by approximately $3,326,000, of which
approximately $2,068,000 was attributable to the opening and full
quarter to date results of the nine hotels which opened since
June 30, 1996; a total of $156,000 relates to the full quarter
results for the Forest Park hotel which was acquired in May 1996;
and approximately $1,168,000 relates to the acquisition of four
existing hotels on February 28, 1997. In addition, a decrease of
approximately $66,000 in revenue was attributable to hotels open
throughout both periods, reflecting a 3.2% decrease in occupancy
and a 1.3% decrease in the average weekly rate ("AWR") from
$153.89 to $151.87 for hotels open throughout both periods. A
portion of the change in the AWR relates to an Atlanta property
which had a non-recurring increase in AWR in 1996 due to the
Olympic Games in Atlanta. Occupancy for all Company hotels
declined from 95.6% to 90.2% because of the ramp-up period for
the 12 hotels opened since March 31, 1996; however, the AWR for
all Company hotels increased from $150.40 to $155.33. In
addition, other hotel revenues increased approximately $316,000
for the quarter ended June 30, 1997 compared to the quarter ended
June 30, 1996.
Franchise and other revenue from corporate operations for
the quarter ended June 30, 1997, which includes management,
franchise and development revenue, was approximately $216,000,
compared to $296,000 for the quarter ended June 30, 1996.
Franchise revenue for the quarter increased about $34,000 from
$70,000 in 1996 to $104,000 in 1997. The additional franchise
revenue reflects a decrease of $16,000 in initial franchise fees
from two openings in the quarter ended June 30, 1996 to one
opening in the current quarter, and an increase of $50,000 in
royalties on open hotels. Development and construction revenue
decreased approximately $80,000, as the Company focused on
accelerating development of Company-owned hotels during 1997.
For the quarter ended June 30, 1997, there were no third party
management fees, whereas in the comparable quarter ended June 30,
1996, there was one hotel under management, which was acquired on
May 29, 1996 as part of the Corporate Organization.
Hotel operating expenses increased about $1,683,000, or
216%, to approximately $2,462,000 for the quarter ended June 30,
1997, from approximately $780,000 for the quarter ended June 30,
1996. The majority of this increase, or approximately $1,594,000,
related to the opening and quarter to date expenses for the nine
hotels which opened and the five hotels acquired since June 30,
1996. The balance of the increase in hotel operating expenses of
$89,000 related to expenses at hotels open during the entire
period for both years. Hotel operating margins decreased from
56.4% to 54.6% from June 30, 1996 to June 30, 1997, due primarily
to fixed operating costs associated with new hotels, which lower
the operating margin during the ramp-up period.
Page 8
Corporate operating expenses increased $131,000, or
approximately 41%, to $452,000, 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 $638,000 from
approximately $130,000 as a result of the hotels opened or
acquired since June 30, 1996. In addition, the Company incurred
loan amortization costs associated with its $25 million line of
credit.
Interest expense declined from $268,000 in the quarter ended
June 30, 1996 to $12,000 for the comparable quarter in 1997, as a
result of the payoff of all debt on operating properties with
proceeds from the IPO. In addition, the Company completed a
second offering on November 25, 1996, and the investment of the
excess funds generated interest income for the quarter ended June
30, 1997 of approximately $552,000, compared to $139,000 in the
quarter ended June 30, 1996. Income tax expense increased by
$821,000 as compared to 1996. The effective tax rate of 36% in
1997 exceeded the 18% rate applicable in the comparable quarter
of 1996 because the Company became a taxable entity on May 29,
1996.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX
MONTHS ENDED JUNE 30, 1996
Total revenue for the six months ended June 30, 1997 was
approximately $9,568,000, which was an increase of $5,815,000, or
155%, over the six month period ended June 30, 1996. Room
revenue for the period increased by approximately $5,410,000, of
which approximately $5,531,000 was attributable to the opening
and year to date results for the 11 hotels which opened and the
one hotel acquired during or after the quarter ended June 30,
1996, and the partial year to date room revenue for the four
hotels acquired in February 1997. In addition, facilities open
throughout both periods experienced a decrease in room revenue of
$121,000, reflecting a 3.2% decrease in occupancy and a 1.3%
decrease in the AWR. The decrease in revenue relates primarily
to the temporary impact of opening additional Company-owned
facilities in cities in which the Company had existing
facilities. The increase in total room revenue reflects a 3.3%
increase in the AWR for all Company hotels from $150.40 to
$155.33, which resulted from rate increases at some existing
hotels as well as the overall impact of additional deluxe rooms
available at all of the facilities opened after June 30, 1996.
Franchise and other revenue from corporate operations for
the six month period ended June 30, 1997, which includes
management, franchise and development revenue, was approximately
$451,000, compared to $513,000 for the six month period ended
June 30, 1996. Franchise revenue for the period increased
$104,000, or 65%, from $160,000 in 1996 to $264,000 in 1997. The
additional franchise revenue reflects initial franchise fees on
four new Suburban Lodge facilities opened in 1997 and increased
Page 9
royalties on open facilities. Development and construction
revenue decreased approximately $119,000 due to the Company's
focus on development of Company-owned facilities since June 30,
1996.
Hotel operating expenses increased $2,898,000, or
approximately 202%, to $4,330,000 for the six month period ended
June 30, 1997, from $1,432,000 for the six month period ended
June 30, 1996. The majority of this increase, or $2,741,000,
reflects the opening and full year to date expenses for 11 hotels
which opened and the one hotel acquired during or after the
quarter ended June 30, 1996, and the partial year to date
expenses for the four hotels acquired in February 1997. In
addition, hotels opened throughout both periods experienced an
increase in operating expenses of $157,000. Facility operating
margins decreased from 55.8% to 52.5% from June 30, 1996 to June
30, 1997, due primarily to fixed operating costs associated with
new facilities which opened after June 30, 1996.
Depreciation and amortization increased from $247,000 to
$1,104,000, principally as a result of the 14 facilities opened
or acquired after June 30, 1996.
Corporate operating expenses increased $259,000, or
approximately 43%, to $856,000, due to additional staffing in
the financial, management and development segments of the
business, legal and professional fees associated with being a
public company and executive compensation and benefit plans.
Interest expense during the six month period ended June 30,
1997 decreased to $13,000 from $554,000 during the six month
period ended June 30, 1996. The decrease is primarily
attributable to the use of a portion of the net proceeds from the
IPO to retire all of the then existing debt.
Income tax expense increased by $1,494,000 as compared to
1996, because the Company became a taxable entity on May 29,
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company applied a portion of the net proceeds from the
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
available for development of additional Suburban Lodge hotels and
general corporate purposes. Since the IPO, the Company has used
the remaining 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 to the Company of
approximately $53 million. As of June 30, 1997, the Company had
approximately $38 million in cash and cash equivalents. These
funds are targeted for future acquisitions and construction and
Page 10
development of additional hotels. As of June 30, 1997, the
Company had borrowed $15 million under its line of credit. On
February 28, 1997, the Company acquired four Suburban Lodge
hotels from a franchisee and utilized approximately $12.5 million
in cash to pay off the existing debt related to such hotels.
The Company anticipates that the total cost to complete
construction of the 17 Company-owned hotels expected to open by
the end of 1997 will be approximately $46 million. The Company
intends to fund the development and construction of these hotels
with existing cash balances, cash flow from operations and
borrowings under its 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 $3.6-3.8 million (approximately $26,000-
28,000 per guest room).
The Company has obtained a $25 million line of credit (the
"Line of Credit") with PNC Bank, Kentucky, Inc. ("PNC"), an
approval from PNC to increase the Line of Credit to $50 million
and a commitment, which is subject to obtaining other
participating lenders, to increase the commitment to $100
million. The Line of Credit matures March 31, 1999, and bears
interest, at the Company'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 the assets of the Company. The Line
of Credit restricts, among other items, 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 items, certain financial performance criteria,
including minimum net worth levels and minimum levels of earnings
before interest, taxes, depreciation and amortization. As of
June 30, 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 11
PART II. OTHER INFORMATION AND SIGNATURES
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: August 14, 1997 By: /s/ TERRY J. FELDMAN
Terry J. Feldman
Vice President
Chief Financial Officer
(Principal Financial Officer)