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 AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission File Number 01-14115
RESORTQUEST INTERNATIONAL, INC.
(Exact name of registrant in its charter)
Delaware I.R.S. No. 62-1750352
(State of Incorporation) (I.R.S. Employer Identification No.)
530 Oak Court Drive, Suite 360
Memphis, Tennessee 38117
(Address of principal executive offices)(Zip Code)
(901) 762-0600
(Registrant's telephone number, including area code)
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.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of September 30, 2000.
Common Stock........................ 18,988,246 shares
Page 1 of 20
PART I - FINANCIAL INFORMATION
- -------------------------------
Company or group of companies for which report is filed:
RESORTQUEST INTERNATIONAL, INC. AND SUBSIDIARIES
Item 1. Financial Statements
- --------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
December 31, Sept 30,
1999 2000
------------ ---------
ASSETS
Current assets
Cash and cash equivalents $ 40,239 $ 17,386
Trade receivables, net 4,394 6,122
Deferred income taxes 1,237 760
Other current assets 7,676 4,792
-------- --------
Total current assets 53,546 29,060
Goodwill, net 175,167 185,759
Property and equipment, net 20,885 24,668
Note receivables from stockholder 4,470 4,000
Other assets 3,607 3,046
-------- --------
Total assets $257,675 $246,533
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 832 $ 441
Deferred revenue and property owner payables 43,392 31,571
Accounts payable and accrued liabilities 15,149 16,477
Other current liabilities 1,468 408
-------- --------
Total current liabilities 60,841 48,897
Long-term debt, net of current maturities 68,090 50,597
Deferred income taxes 734 2,059
Other long-term obligations 2,187 6,094
-------- --------
Total liabilities 131,852 107,647
-------- --------
Stockholders' equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
18,715,447 and 18,988,246 shares outstanding, respectively 187 190
Additional paid-in capital 150,974 151,960
Accumulated other comprehensive income (33) (45)
Excess distributions (29,500) (29,500)
Retained earnings 4,195 16,281
-------- --------
Total stockholders' equity 125,823 138,886
-------- --------
Total liabilities and stockholders' equity $257,675 $246,533
======== ========
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
2
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1999 2000 1999 2000
-------- -------- ------- -------
Revenues
Property management fees $22,923 $25,970 $ 56,498 $ 68,276
Service fees 12,524 14,114 30,213 37,467
Other 6,612 6,930 17,994 20,658
------- ------- -------- --------
Total revenues 42,059 47,014 104,705 126,401
------- ------- -------- --------
Operating expenses
Direct operating 18,947 21,921 49,203 62,701
General and administrative 9,507 10,330 28,455 31,919
Depreciation and amortization 1,856 2,185 5,086 6,266
------- ------- -------- --------
Total operating expenses 30,310 34,436 82,744 100,886
------- ------- -------- --------
Operating income 11,749 12,578 21,961 25,515
Interest and other expense, net 1,262 938 2,796 3,543
------- ------- -------- --------
Income before income taxes 10,487 11,640 19,165 21,972
Provision for income taxes 4,824 5,237 8,770 9,886
------- ------- -------- --------
Net income $ 5,663 $ 6,403 $ 10,395 $ 12,086
======= ======= ======== ========
Earnings per share
Basic $ 0.31 $ 0.34 $ 0.58 $ 0.64
======= ======= ======== ========
Diluted $ 0.31 $ 0.34 $ 0.58 $ 0.64
======= ======= ======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
Additional Other
Common Stock Paid-in Comprehensive Excess Retained
Shares Amount Capital Income Distributions Earnings Total
---------- ------ ---------- ------------- ------------- -------- --------
Balance, December 31, 1999 18,715,447 $187 $150,974 $(33) $(29,500) $ 4,195 $125,823
Net income - - - - - 12,086 12,086
Foreign currency translation
loss - (12) - - (12)
Stock issued in connection
with acquisitions 272,799 3 986 - - - 989
---------- ------ ---------- ------------- ------------- -------- --------
Balance, September 30, 2000 18,988,246 $190 $151,960 $(45) $(29,500) $16,281 $138,886
========== ====== ========== ============= ============= ======== ========
The accompanying notes are an integral part of this consolidated condensed
financial statement.
4
RESORTQUEST INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
Sept 30, Sept 30,
1999 2000
-------- --------
Cash flows from operating activities:
Net income $ 10,395 $ 12,086
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,086 6,266
Changes in assets and liabilities:
Trade and other receivables (475) (1,672)
Deferred revenue and property owner payables (623) (15,631)
Accounts payable and accrued liabilities (12,190) 3,110
Other (1,846) 2,501
-------- --------
Net cash provided by operating activities 347 6,660
-------- --------
Cash flows from investing activities:
Cash portion of acquisitions, net (18,237) (5,318)
Purchases of property and equipment
and software development costs (3,197) (6,282)
Other (709) -
-------- --------
Net cash used in investing activities (22,143) (11,600)
-------- --------
Cash flows from financing activities:
Net repayments (31,544) (17,913)
Net proceeds from issuance of senior notes 48,986 -
Proceeds from issuance of secured mortgage notes 5,734 -
Distribution to stockholders (392) -
Other (967) -
-------- --------
Net cash provided by (used in)
financing activities 21,817 (17,913)
-------- --------
Net change in cash and cash equivalents 21 (22,853)
Cash and cash equivalents, beginning of period 26,247 40,239
-------- --------
Cash and cash equivalents, end of period $ 26,268 $ 17,386
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
RESORTQUEST INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
In these footnotes, the words "Company," "ResortQuest," "we," "our" and "us"
refer to ResortQuest International, Inc., a Delaware corporation, and its
wholly-owned subsidiaries, unless otherwise stated or the context requires
otherwise.
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
Formation
---------
ResortQuest is the first company to offer vacation condominium and home
rentals, sales and management under a national brand name and is a leading
provider of vacation rentals in premier destination resorts located in the
continental United States, Hawaii and Canada. Since our initial public offering
on May 26, 1998, we have consummated 21 acquisitions, three of which were
accounted for under the pooling-of-interests method of accounting.
Acquisition Costs
-----------------
Costs incurred in the course of our evaluation of acquisition candidates
and the ultimate consummation of acquisitions consist primarily of attorneys'
fees, accounting fees and other costs incurred by us in identifying and closing
transactions. All costs incurred are deferred on the balance sheet until the
related transaction is either consummated or terminated. Similar treatment is
followed in recording costs incurred by us in the course of generating
additional debt or equity financing. During 1999, we incurred $716,000 in
transaction costs related to the acquisitions accounted for under the
pooling-of-interests method. These costs were recorded in General and
Administrative expenses during the six-month period ended June 30, 1999. For the
acquisitions accounted for under the purchase method of accounting, all
transaction costs and the excess of the purchase price over the fair value of
identified net assets acquired represents goodwill. Goodwill is amortized over a
life up to 40 years and is calculated off of a preliminary estimate that is
adjusted to its final balance within one year of the close of the acquisition.
Additionally, certain of our acquisitions have "earn-up" provisions that require
additional consideration to be paid if certain operating results are achieved
over periods of up to three years. This additional consideration is recorded as
goodwill when paid. Goodwill, net of amortization expense, increased by $2.8
million, or 1.5% and $10.6 million, or 6.0% during the three- and nine-month
periods ended September 30, 2000.
The total cost during 2000 for current year acquisitions and the earn-up
payments related to the 1999 acquisitions was $6.3 million, with 14.9% of the
net consideration paid in the form of common stock with an aggregate value of
$989,000, net of retired escrow shares, and the remaining $5.3 million of
consideration paid in cash, net of cash assumed. The total cost during 1999 for
acquisitions was $39.3 million, with 48.9% of the consideration paid in the form
of common stock with an aggregate value of $19.2 million and the remaining $20.1
million of consideration paid in cash.
Pro Forma Financial Information
-------------------------------
The aggregate impact of the 1999 acquisitions is material to our financial
statements, as defined by Accounting Principles Board Opinion No. 16, "Business
Combinations", and we noted the following pro forma results for the three and
nine months ended September 30, 1999, assuming these transactions occurred on
January 1, 1999:
Three Months Ended September 30,1999 Nine Months Ended September 30, 1999
Pro forma Pro forma Pro forma Pro forma
Actual Impact Combined Actual Impact Combined
(in thousands) ------- --------- --------- -------- --------- ---------
Revenues $42,059 $1,537 $43,596 $104,705 $10,861 $115,566
======= ====== ======= ======== ======= ========
Net income $ 5,663 $ 14 $ 5,677 $ 10,395 $ 47 $ 10,442
======= ====== ======= ======== ======= ========
6
NOTE 2 - NOTE RECEIVABLE FROM STOCKHOLDER
- -----------------------------------------
In connection with our initial public offering, we formalized a $4.0
million promissory note resulting from cash advances to a primary stockholder of
a predecessor company. On February 16, 2000, this promissory note along with
approximately $940,000 in accrued interest, management fees and other advances
were restructured into two notes, one for $4.0 million and one for $940,000 (the
"Notes"). The Notes are collateralized by real estate held by the stockholder
and bear interest at 1/2% below the prime rate of interest, but not less than 6%
and not more than 10%. The $940,000 note, plus accrued interest, is due in two
equal installments on December 31, 2000 and June 30, 2001 and is included as a
component of Other current assets. Interest payments under the $4.0 million note
are due and payable every January and July 1st with the principal being due on
May 25, 2008.
NOTE 3 - Earnings Per Share
- ---------------------------
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if outstanding options to purchase our securities are exercised. The
following table reflects our weighted average common shares outstanding and the
impact of outstanding dilutive stock options:
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1999 2000 1999 2000
---------- ---------- ---------- ----------
Basic weighted average common shares outstanding 18,462,402 19,019,793 17,775,855 18,954,344
Effect of dilutive securities - stock options 16,807 61,948 293,629 45,029
---------- ---------- ---------- ----------
Diluted weighted average common shares outstanding 18,479,209 19,081,741 18,069,484 18,999,373
========== ========== ========== ==========
NOTE 4 - SEGMENT REPORTING
- --------------------------
Under Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," we have one operating
segment, property management, which is managed as one business unit. The All
other caption includes First Resort Software and corporate. As of December 31,
1999 and September 30, 2000 approximately 73% and 75% of the All other segment
assets represents goodwill recorded for First Resort Software and corporate. The
following table presents the revenues, operating income and assets of our
reportable segment.
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(in thousands) 1999 2000 1999 2000
-------- -------- -------- --------
Revenues
Property management $ 41,154 $46,166 $101,985 $123,833
All other 905 848 2,720 2,568
-------- -------- -------- --------
$ 42,059 $47,014 $104,705 $126,401
======== ======= ======== ========
Operating income
Property management $ 13,364 $14,903 $ 27,714 $ 33,651
All other (1,615) (2,325) (5,753) (8,136)
-------- ------- -------- --------
$ 11,749 $12,578 $ 21,961 $ 25,515
======== ======= ======== ========
December 31, Sept 30,
(in thousands) 1999 2000
----------- --------
Assets
Property management $218,742 $207,870
All other 38,933 38,663
-------- --------
$257,675 $246,533
======== ========
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Overview
- --------
ResortQuest is the leading provider of vacation condominium and home rental
property management services in premier destination resorts located in the
United States and Canada. We have developed the first and only branded
nationwide network of vacation rental properties, and currently offer more than
18,000 rental properties. Our operations are in 42 premier resort locations in
the Beach, Hawaiian Islands, Mountain, and Desert geographical regions.
Our rental properties are generally second homes or investment properties
owned by individuals who assign us the responsibility of managing, marketing and
renting their properties. We earn management fees as a percentage of the rental
income from each property, but have no ownership interest in the properties. In
addition to the vacation property management business, we offer real estate
brokerage services and other rental and property owner services. We also have
developed a proprietary vacation rental software package that is utilized by us
and over 750 other vacation property management companies.
We provide value-added services to both vacationers and property owners.
For vacationers, we offer the value, convenience and features of a condominium
or home while providing many of the amenities and services of a hotel. For
property owners, we offer a comprehensive package of marketing, management and
rental services designed to enhance rental income and profitability while
providing services to maintain the property. To increase customer satisfaction,
we have developed and implemented a five-tier rating system that segments our
property portfolio into one of five categories: Bronze, Silver, Gold, Platinum
and Quest Home.
We market our properties through various media channels and have
significant Internet distribution through resortquest.com, which is our
proprietary web site offering real time reservations booking. In September 2000
we unveiled our second generation web site that enhances the booking experience
for e-travelers. In addition to detailed property descriptions, virtual tours,
interior and exterior photos and floor plans, and local information available at
the original web site, vacationers can search for properties by date, activity,
event or location; comparison shop among similar vacation rental units; check
for special discounts and promotions; and obtain maps and driving directions.
The site also allows foreign travelers to obtain currency conversion rates. For
the nine months ended September 30, 2000, our web site realized a 107% increase
in unique visitors over prior year and our web-related reservations increased to
7.3% of total reservations.
Through the acquisition of three vacation rental and property management
companies during the nine-months ended September 30, 2000, we entered two new
resort markets, Pensacola, Florida, and Sun Valley, Idaho, and significantly
increased our presence in the Outer Banks of North Carolina. During 1999, we
increased properties under management by approximately 28% and further enhanced
our unique national platform by expanding our presence into 12 new resort
markets in six new states through the acquisition of 13 vacation rental and
property management companies. Two of the acquisitions completed in March 1999
were accounted for under the pooling-of-interests method of accounting and all
historical financial information includes their results for the entire period
presented. The remaining acquisitions were accounted for under the purchase
method of accounting and their financial results are included in the historical
financial statements since their respective effective dates of acquisition.
Results of Operations
- ---------------------
Our operating results are highly seasonal due to the geographical
dispersion of the resort locations in which we operate. The results of
operations are subject to quarterly fluctuations caused primarily by the
seasonal variations in the vacation rental and property management industry,
with peak seasons dependent on whether the resort is primarily a summer or
winter destination. Due to the seasonal nature of our operations, our financial
results will be discussed by geographical region with Other representing the
corporate and First Resort Software operations.
8
Beach
-----
The following table sets forth the consolidated condensed results of
operations for the three- and nine-month periods ended September 30, 1999 and
2000 for our Beach operations in Gulf Shores, Alabama; Bethany Beach, Delaware;
Beaches of South Walton, Bonita Springs, Captiva Island, Destin, Fort Myers,
Fort Myers Beach, Marco Island, Okaloosa Island/Fort Walton Beach, Naples,
Navarre Beach, Orlando, Pensacola, Sanibel Island and Vanderbilt Beach, Florida;
St. Simons Island, Georgia; Nantucket, Massachusetts; Outer Banks, North
Carolina; Lake Erie Islands, Ohio; and Hilton Head Island, South Carolina.
Three Months Ended Sept 30, Nine Months Ended Sept 30,
(dollars in thousands) 1999 2000 1999 2000
--------------- --------------- --------------- ---------------
Revenues $28,660 100.0% $31,995 100.0% $60,118 100.0% $74,278 100.0%
Direct operating expenses 11,676 40.7 13,691 42.8 27,932 46.5 36,670 49.4
General and administrative expenses 4,194 14.6 4,623 14.5 11,990 19.9 13,705 18.5
--------------- --------------- --------------- ---------------
Operating income before depreciation
and amortization 12,790 44.7 13,681 42.7 20,196 33.6 23,903 32.1
Depreciation and amortization 937 3.3 1,106 3.4 2,611 4.3 3,211 4.3
--------------- --------------- --------------- ---------------
Operating income $11,853 41.4% $12,575 39.3% $17,585 29.3% $20,692 27.8%
=============== =============== =============== ===============
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999 - Beach
Revenues. Revenues increased $3.3 million or 12%, from $28.7 million in
1999 to $32.0 million in 2000, due to our Beach acquisitions closed at the end
of 1999 and a 6.2% increase in same store lodging revenues driven by a 9.0%
increase in ADR.
Direct operating expenses. Direct operating expenses increased $2.0 million
or 17%, from $11.7 million in 1999 to $13.7 million in 2000, due to our Beach
acquisitions closed at the end of 1999 and an increase in labor costs. As a
percentage of revenues, direct operating expenses increased 2.1 pts primarily
due to the increase in labor costs.
General and administrative expenses. General and administrative expenses
increased $429,000 or 10%, from $4.2 million in 1999 to $4.6 million in 2000,
due to our Beach acquisitions closed at the end of 1999 and a 2.3% increase in
same store units under management. As a percentage of revenues, general and
administrative expenses remained relatively flat.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999 - Beach
Revenues. Revenues increased $14.2 million, or 24%, from $60.1 million in
1999 to $74.3 million in 2000, due to our 1999 Beach acquisitions and an 11.8%
increase in same store lodging revenues driven by a 4.9% increase in ADR and a
1.1 pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $8.8
million, or 31%, from $27.9 million in 1999 to $36.7 million in 2000, primarily
due to our 1999 Beach acquisitions, a 1.1 pt increase in occupancy and an
increase in labor costs. As a percentage of revenues, direct operating expenses
increased 2.9 pts primarily due to the increase in labor costs.
General and administrative expenses. General and administrative expenses
increased $1.7 million, or 14%, from $12.0 million in 1999 to $13.7 million in
2000, due to our 1999 Beach acquisitions and a 3.0% increase in same store units
under management. As a percentage of revenues, general and administrative
expenses decreased 1.4 pts due to operating efficiencies.
9
Hawaiian Islands
----------------
The following table sets forth the consolidated condensed results of
operations for the three- and nine-month periods ended September 30, 1999 and
2000 for our Hawaiian operations on the islands of Hawaii, Kauai, Maui and Oahu.
Three Months Ended Sept 30, Nine Months Ended Sept 30,
(dollars in thousands) 1999 2000 1999 2000
-------------- -------------- --------------- ---------------
Revenues $6,247 100.0% $7,113 100.0% $17,594 100.0% $20,142 100.0%
Direct operating expenses 2,299 36.8 2,366 33.2 6,563 37.3 6,984 34.8
General and administrative expenses 1,519 24.3 1,748 24.6 4,707 26.8 5,304 26.3
-------------- -------------- --------------- ---------------
Operating income before depreciation
and amortization 2,429 38.9 2,999 42.2 6,324 35.9 7,854 38.9
Depreciation and amortization 127 2.0 139 2.0 409 2.3 418 2.0
-------------- -------------- --------------- ---------------
Operating income $2,302 36.9% $2,860 40.2% $ 5,915 33.6% $ 7,436 36.9%
============== ============== =============== ===============
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999 - Hawaiian Islands
Revenues. Revenues increased $866,000 or 14%, from $6.2 million in 1999 to
$7.1 million in 2000, primarily due to a 19.3% increase in lodging revenues
driven by a 9.9% increase in average daily rate ("ADR") and a 3.4 pt increase in
occupancy.
Direct operating expenses. Direct operating expenses increased $67,000, or
3%, from $ 2.3 million in 1999 to $2.4 million in 2000 primarily due to the
increase in occupancy. As a percentage of revenues, operating expenses decreased
3.6 pts due to lower incremental variable costs in relation to the increase in
revenues.
General and administrative expenses. General and administrative expenses
increased $229,000 or 15%, from $1.5 million in 1999 to $1.7 million in 2000
primarily due to a 6.0% increase in units under management. As a percentage of
revenues, general and administrative expenses remained relatively flat.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999 - Hawaiian Islands
Revenues. Revenues increased $2.5 million or 14%, from $17.6 million in
1999 to $20.1 million in 2000, primarily due to a 12.3% increase in lodging
revenues driven by a 7.4% increase in ADR and a 2.7 pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $421,000, or
6%, from $6.6 million in 1999 to $7.0 million in 2000 primarily due to the
increase in occupancy. As a percentage of revenues, operating expenses decreased
2.5 pts due to a lower incremental increase in variable costs in relation to the
increase in revenues.
General and administrative expenses. General and administrative expenses
increased $597,000 or 13%, from $4.7 million in 1999 to $5.3 million in 2000
primarily due to a 6.0% increase in units under management. As a percentage of
revenues, general and administrative expenses decreased 0.5 pts due to operating
efficiencies.
10
Mountain
--------
The following table sets forth the consolidated condensed results of
operations for the three- and nine-month periods ended September 30, 1999 and
2000 for our Mountain operations in Whistler, British Columbia; Aspen,
Breckenridge, Crested Butte, Dillon, Snowmass Village and Telluride, Colorado;
Sun Valley, Idaho; Big Sky, Montana; Sunriver, Oregon; and The Canyons, Deer
Valley and Park City, Utah.
Three Months Ended Sept 30, Nine Months Ended Sept 30,
(dollars in thousands) 1999 2000 1999 2000
-------------- -------------- --------------- ---------------
Revenues $5,960 100.0% $6,788 100.0% $22,101 100.0% $26,676 100.0%
Direct operating expenses 4,252 71.3 5,097 75.1 12,712 57.5 16,520 61.9
General and administrative expenses 1,824 30.6 1,472 21.7 4,694 21.2 4,123 15.5
-------------- -------------- --------------- ---------------
Operating (loss) income before
depreciation and amortization (116) (1.9) 219 3.2 4,695 21.3 6,033 22.6
Depreciation and amortization 424 7.1 451 6.6 1 010 4.6 1,280 4.8
-------------- -------------- --------------- ---------------
Operating (loss) income $ (540) (9.0)% $ (232) (3.4)% $ 3,685 16.7% $ 4,753 17.8%
============== ============== =============== ===============
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999 - Mountain
Revenues. Revenues increased $828,000 or 14%, from $6.0 million in 1999 to
$6.8 million in 2000, primarily due to our July 2000 acquisition in Sun Valley,
Idaho. Excluding the impact of this acquisition, revenues increased $344,000 or
6%, from $6.0 million in 1999 to $6.3 million in 2000 due to a 96% increase in
net real estate commissions in our Aspen and Snowmass, Colorado locations. This
increase in net real estate commissions and a 0.9 pt increase in occupancy were
partially off-set by a 1.0% decline in same store lodging revenues driven by a
4.0% decline in ADR and a 3.2% decrease in units under management.
Direct operating expenses. Direct operating expenses increased $845,000 or
20%, from $4.3 million in 1999 to $5.1 million in 2000, primarily due to our
July 2000 acquisition and an increase in labor costs. As a percentage of
revenues, operating expenses increased 3.8 pts primarily due to the increase in
labor costs.
General and administrative expenses. General and administrative expenses
decreased $352,000, or 19%, from $1.8 million in 1999 to $1.5 million in 2000,
due to operating efficiencies that were partially offset by our July 2000
acquisition. As a percentage of revenues, general and administrative expenses
decreased 8.9 pts due to operating efficiencies.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999 - Mountain
Revenues. Revenues increased $4.6 million or 21%, from $22.1 million in
1999 to $26.7 million in 2000, primarily due to our June 1999 acquisition in
Aspen, Colorado and our July 2000 acquisition in Sun Valley, Idaho. Excluding
the impact of these acquisitions, revenues decreased $612,000, or 3%, from $20.5
million in 1999 to $19.9 million in 2000 due to a 5.3% decline in lodging
revenues driven by a 3.0 pt decline in occupancy primarily resulting from the
lack of snow in January 2000.
Direct operating expenses. Direct operating expenses increased $3.8 million
or 30%, from $12.7 million in 1999 to $16.5 million in 2000, primarily due to
our June 1999 acquisition and our July 2000 acquisition in Sun Valley, Idaho and
an increase in labor costs. As a percentage of revenues, operating expenses
increased 4.4 pts, primarily due to the increase in labor costs.
General and administrative expenses. General and administrative expenses
decreased $571,000, or 12%, from $4.7 million in 1999 to $4.1 million in 2000,
due to operating efficiencies that were partially offset by our acquisitions. As
a percentage of revenues, general and administrative expenses decreased 5.7 pts
due to operating efficiencies.
11
Desert
------
The following table sets forth the consolidated condensed results of
operations for the three- and nine-month periods ended September 30, 1999 and
2000 for our Desert operations in Scottsdale and Tucson, Arizona; and Palm
Desert and Palm Springs, California.
Three Months Ended Sept 30, Nine Months Ended Sept 30,
(dollars in thousands) 1999 2000 1999 2000
------------ ------------ -------------- --------------
Revenues $ 287 100.0 % $ 270 100.0% $2,172 100.0% $2,737 100.0%
Direct operating expenses 284 98.9 302 111.9 663 30.5 1,172 42.8
General and administrative expenses 206 71.7 207 76.6 861 39.7 623 22.8
------------ ------------- -------------- --------------
Operating income before depreciation
and amortization (203) (70.6) $(239) (88.5) 648 29.8 942 34.4
Depreciation and amortization 48 16.7 61 22.6 119 5.4 172 6.3
------------ ------------- -------------- --------------
Operating (loss) income $(251) (87.3)% $(300) (111.1)% $ 529 24.4% $ 770 28.1%
============ ============= ============== ==============
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999 - Desert
Revenues. Revenues decreased $17,000, or 5.9%, from $287,000 in 1999 to
$270,000 in 2000, primarily due to a 3.6% decrease in ADR that was off-set by a
3.0 increase in lodging revenues driven by a 2.0% increase in units under
management and a 0.2 pt increase in occupancy.
Direct operating expenses. Direct operating expenses increased $18,000, or
6%, from $284,000 in 1999 to $302,000 in 2000, primarily due to the increase in
occupancy and the increased costs to service the additional units under
management. As a percentage of revenues, operating expenses increased 13.0 pts
due to the additional units under management and increased labor costs.
General and administrative expenses. General and administrative expenses
remained relatively flat. As a percentage of revenues, general and
administrative expenses increased 4.9 pts due to the additional units under
management and increased labor costs.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999 - Desert
Revenues. Revenues increased $565,000 or 26%, from $2.2 million in 1999 to
$2.7 million in 2000, primarily due to a 21.9% increase in lodging revenues
driven by a 2.0% increase in units under management and a 2.0 pt increase in
occupancy.
Direct operating expenses. Direct operating expenses increased $509,000, or
77%, from $663,000 in 1999 to $1.2 million in 2000, primarily due to the
increase in occupancy and the increased costs to service the additional units
under management. As a percentage of revenues, operating expenses increased 12.3
pts due to the additional units under management and increased labor costs.
General and administrative expenses. General and administrative expenses
decreased $238,000, or 28%, from $861.000 in 1999 to $623,000 in 2000, primarily
due to operating efficiencies. As a percentage of revenues, general and
administrative expenses decreased 16.9 pts due to operating efficiencies.
12
Other
-----
The following table sets forth the consolidated condensed results of operations
for the three- and nine-month periods ended September 30, 1999 and 2000 for our
Other operations comprised of First Resort Software and corporate.
Three Months Ended Sept 30, Nine Months Ended Sept 30,
(dollars in thousands) 1999 2000 1999 2000
--------------- -------------- --------------- ---------------
Revenues $ 905 100.0% $ 848 100.0% $ 2,720 100.0% $ 2,568 100.0%
Direct operating expenses 436 48.1 465 54.8 1,333 49.0 1,355 52.7
General and administrative expenses 1,764 N/M 2,280 N/M 6,203 N/M 8,164 N/M
--------------- -------------- --------------- ---------------
Operating loss before
depreciation and amortization (1,295) N/M (1,897) N/M (4,816) N/M (6,951) N/M
Depreciation and amortization 320 35.3 428 50.5 937 34.4 1,185 46.14
--------------- --------------- --------------- ---------------
Operating (loss) income $(1,615) N/M $(2,325) N/M (5,753) N/M $(8,136) N/M
=============== =============== =============== ===============
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999 - Other
Revenues. Revenues decreased $57,000 or 6% from $905,000 in 1999 to
$848,000 in 2000 primarily due to reduced software sales and service fee
revenues.
Direct operating expenses. Direct operating expenses increased $29,000, or
7%, from $436,000 in 1999 to $465,000 in 2000, primarily due to increased
operating costs at our First Resort Software operations.
General and administrative expenses. General and administrative expenses
increased $516,000 or 29%, from $1.8 million in 1999 to $2.3 million in 2000,
primarily due to the incremental marketing and other costs resulting from the
increase in units under management.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999 - Other
Revenues. Revenues decreased $152,000 or 6% from $2.7 million in 1999 to
$2.6 million in 2000, primarily due to reduced software sales and service fee
revenues.
Direct operating expenses. Direct operating expenses increased $22,000 or
2%, from $1.3 in 1999 to $1.4 million in 2000, primarily due to increased
operating costs at our First Resort Software operations.
General and administrative expenses. General and administrative expenses
increased $2.0 million or 32%, from $6.2 million in 1999 to $8.2 million in
2000, primarily due to the incremental marketing and other costs resulting from
the increase in units under management.
13
Liquidity and Capital Resources
- -------------------------------
ResortQuest is a holding company that conducts all of its operations
through its subsidiaries operating in 42 resort locations. Accordingly, the
primary internal source of our liquidity is through the cash flows realized from
our subsidiaries and our amended $50 million Credit Facility. We generated cash
flows from operating activities of $6.7 million in the nine months ended
September 30, 2000, primarily due to net income. Cash used in investing
activities was approximately $11.6 million in the nine months ended September
30, 2000, due primarily to $5.3 million in net cash payments related to the 2000
acquisitions and the earn-out payments related to 1999 acquisitions and $6.3
million in software development and implementation costs and purchases of
property and equipment. In the nine months ended September 30, 2000, cash used
in financing activities totaled $17.9 million, related to net repayments under
our Credit Facility. At September 30, 2000, we had approximately $17.4 million
in cash and cash equivalents, of which $17.3 million represented cash held in
escrow. The cash held in escrow is released at varying times in accordance with
state regulations, generally based upon the guest stay, or for real estate sale
deposits when the property is sold. At September 30, 2000, we had a working
capital deficit of $19.8 million. Total capital expenditures for 2000 are
anticipated to be between $7.0 million and $9.0 million, of which approximately
$6.0 million will be for web and software development and systems integration,
with the balance being applied to building improvements, furniture, fixtures and
equipment. We anticipate that our cash flows from operations will provide cash
in excess of our normal working capital levels, debt service requirements and
planned capital expenditures for the foreseeable future. However, future
acquisitions and/or other initiatives, depending on their size and the method of
financing, may affect our liquidity and capital requirements during that time.
Long-Term Borrowings
- --------------------
As of September 30, 2000 our long-term debt is comprised of the $50 million
9.06% Senior Secured Notes due June 2004, and $1.0 million in capital lease
obligations and other borrowings assumed in connection with certain
acquisitions. As of September 30, 2000, we are in compliance with all debt
covenants and have $50 million available under our Credit Facility, subject to
certain restrictive covenants. Additionally, our Credit Facility will expire in
May 2001 and we are currently in negotiations to replace this facility. We
anticipate that the Credit Facility will be replaced by year-end.
Shelf Registration
- ------------------
We registered 8.0 million shares of common stock through various shelf
registration statement filings. As of September 30, 2000, we have issued in
connection with acquisitions 3,063,960 shares under these shelf registration
statements, with the remaining 4,936,040 shares available for future
acquisitions.
Acquisition Strategy
- ---------------------
Although our strategy moving forward is to focus on internal growth, we
intend to continue to pursue selected acquisition opportunities in strategically
important markets. There can be no assurance that we will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses into ResortQuest without substantial costs, delays or other
operational or financial problems. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to us, as well as higher acquisition prices.
Furthermore, acquisitions involve a number of special risks, including the
failure of acquired companies to achieve anticipated results, diversion of
management's attention, failure to retain key personnel, risks associated with
unanticipated events or liabilities and amortization of acquired intangible
assets. Some or all of which could have a material adverse effect on our
business, financial condition and results of operations.
The timing, size or success of any acquisition effort and the associated
potential capital commitments are unpredictable. We expect to fund future
acquisitions primarily through a combination of cash flows from operating
activities, borrowings under the Credit Facility, other debt fundings and
issuance of our common stock. Our ability to fund future acquisitions under the
Credit Facility may be limited by certain restrictive covenants, the
satisfaction of which may be dependent upon our ability to raise additional
equity through either offerings for cash or the issuance of stock as
consideration for acquisitions. Our ability to fund acquisitions through
issuance of our common stock may not be feasible at our current stock price.
14
Non-compete and Employment Agreements
- -------------------------------------
We have entered into non-compete agreements with many of the former owners
of the companies that now comprise ResortQuest. These non-compete agreements are
generally three to five years in length effective the day the operations are
merged with ResortQuest. Additionally, we have entered into employment
agreements with many of these former owners, all senior corporate officers and
several key employees. Among other things, these agreements allow for severance
payments and some include acceleration of stock option awards upon a change in
control of ResortQuest, as defined under the agreements. At September 30, 2000,
the maximum amount of compensation that would be payable under all agreements if
a change in control occurred without prior written notice would be approximately
$10.7 million.
Seasonality and Quarterly Fluctuations
- --------------------------------------
Our business is highly seasonal. Our results of operations are subject to
quarterly fluctuations caused primarily by the seasonal variations in the
vacation rental and property management industry, with peak seasons dependent on
whether the resort is primarily a summer or winter destination. Our quarterly
results of operations may also be subject to fluctuations as a result of the
timing and cost of acquisitions, the timing of real estate sales, changes in
relationships with travel providers, extreme weather conditions or other factors
affecting leisure travel and the vacation rental and property management
industry.
Risks Associated With Forward Looking Statements
- ------------------------------------------------
This filing contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, which are intended to be covered by the safe harbors
created thereby. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including but not limited to the risks
associated with; successful integration of companies acquired, factors affecting
internal growth and management of growth, our acquisition strategy and
availability of financing, the tour and travel industry, seasonality, quarterly
fluctuations and general economic conditions, dependence on technology,
e-commerce and travel providers, and other factors discussed in our previous
filings with the Securities and Exchange Commission. Although we believe that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by us or any other person
that the objectives and plans will be achieved.
15
ResortQuest International, Inc.
Performance Statistics
September 30, 2000
Three Months Ended
Sept 30, Sept 30,
1999 2000 Variance
------- ------- --------
Beach
Lodging Revenues(1) $63,266 $67,179 6.2 %
Occupancy 67.9% 63.9% (4.0)pts
ADR $193.96 $211.45 9.0 %
RevPAU $131.79 $135.10 2.5 %
Total Units 5,877 6,013 2.3 %
Hawaii
Lodging Revenues(1) $35,539 $42,409 19.3 %
Occupancy 77.5% 80.9% 3.4 pts
ADR $102.72 $112.86 9.9 %
RevPAU $79.61 $91.32 14.7 %
Total Units 5,109 5,413 6.0 %
Mountain
Lodging Revenues(1) $6,028 $5,969 (1.0)%
Occupancy 32.4% 33.3% 0.9 pts
ADR $104.66 $100.53 (4.0)%
RevPAU $33.89 $33.43 (1.4)%
Total Units 2,446 2,367 (3.2)%
Desert
Lodging Revenues(1) $ 669 $ 689 3.0 %
Occupancy 29.2% 29.4% 0.2 pts
ADR $54.96 $52.98 (3.6)%
RevPAU $16.05 $15.59 (2.9)%
Total Units 537 548 2.0 %
Total
Lodging Revenues(1) $105,502 $116,246 10.2 %
Occupancy 64.7% 64.7% 0.0 pts
ADR $142.20 $151.78 6.7 %
RevPAU $92.06 $98.15 6.6 %
Total Units 13,969 14,341 2.7 %
(1) Lodging revenues are in thousands and represent the total rental charged to
property rental customers. Our revenue represents from 3% to over 40% of the
lodging revenues based on the services provided by us.
For better comparability, the above statistics exclude all non-exclusive
management contracts as well as all properties that were not acquired by
ResortQuest prior to third quarter 1999, which approximated 3,700 units as of
September 30, 2000. Also excluded from these statistics are owner use nights and
renovation nights which were approximately 10.1% of gross available nights in
the three months ended September 30, 2000 and 10.3% of gross available nights in
the three months ended September 30, 1999.
16
ResortQuest International, Inc.
Performance Statistics
September 30, 2000
Nine Months Ended
Sept 30, Sept 30,
1999 2000 Variance
------- ------- --------
Beach
Lodging Revenues(1) $108,874 $121,691 11.8 %
Occupancy 60.7% 61.8% 1.1 pts
ADR $148.07 $155.38 4.9 %
RevPAU $89.89 $96.02 6.8 %
Total Units 5,327 5,485 3.0 %
Hawaii
Lodging Revenues(1) $104,866 $117,782 12.3 %
Occupancy 77.1% 79.8% 2.7 pts
ADR $102.48 $110.01 7.4 %
RevPAU $79.05 $87.74 11.0 %
Total Units 5,109 5,413 6.0 %
Mountain
Lodging Revenues(1) $35,119 $33,249 (5.3)%
Occupancy 39.4% 36.4% (3.0)pts
ADR $155.78 $161.53 3.7 %
RevPAU $61.31 $58.83 (4.0)%
Total Units 2,446 2,367 (3.2)%
Desert
Lodging Revenues(1) $5,968 $7,277 21.9 %
Occupancy 45.4% 47.4% 2.0 pts
ADR $112.25 $112.33 0.0 %
RevPAU $51.01 $53.21 4.3 %
Total Units 537 548 2.0 %
Total
Lodging Revenues(1) $254,827 $279,999 9.9 %
Occupancy 63.1% 64.1% 1.0 pts
ADR $125.08 $131.80 5.4 %
RevPAU $78.95 $84.55 7.1 %
Total Units 13,419 13,813 2.9 %
(1) Lodging revenues are in thousands and represent the total rental charged to
property rental customers. Our revenue represents from 3% to over 40% of the
lodging revenues based on the services provided by us.
For better comparability, the above statistics exclude all non-exclusive
management contracts as well as all properties that were not acquired by
ResortQuest prior to first quarter 1999, which approximated 4,300 units as of
September 30, 2000. Also excluded from these statistics are owner use nights and
renovation nights which were approximately 10.8% of gross available nights in
the nine months ended September 30, 2000 and 11.0% of gross available nights in
the nine months ended September 30, 1999.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
We do not have significant market risk with respect to interest rates,
foreign currency exchanges or other market rate or price risks, and we do not
hold any financial instruments for trading purposes. As of June 30, 2000, all of
our outstanding debt is at a fixed interest rate and our only foreign operations
are in Canada.
PART II - OTHER INFORMATION
- -------------------------------
Item 1. Legal Proceedings
- --------------------------
On May 26, 2000, Hotel Corp. of the Pacific, Inc., a subsidary of
ResortQuest International doing business as Aston Hotels & Resorts, instituted
legal proceedings in the Circuit Court for the First Circuit of Hawaii against
Andre S. Tatibouet, a beneficial owner of more than five percent of our
outstanding common stock and the president of Hotel Corp. This action arises out
of a document styled Cooperation Agreement that was signed by Andre S.
Tatibouet, purporting to act on behalf of Hotel Corp., on the one hand, with
Cendant Global Services B.V. and Aston Hotels & Resorts International, Inc., on
the other hand. The Cooperation Agreement contains several provisions that are
detrimental to Hotel Corp., including provisions purporting to transfer certain
intellectual property and limit certain intellectual property rights held by
Hotel Corp. Hotel Corp. seeks monetary damages for breach of fiduciary duty,
fraud, and negligent misrepresentation. By order of the Circuit Court, the
claims asserted by Hotel Corp. in the lawsuit have been consolidated with an
arbitration demand, filed with the American Arbitration Association by Mr.
Tatibouet, in which he alleges various breaches of his employment agreement with
Hotel Corp.
Also on May 26, 2000, ResortQuest International and Hotel Corp. brought
action in the Ciruit Court for the First Circuit of Hawaii against Cendant
Corporation, Aston Hotels & Resorts International, Inc. and Cendant Global
Services B.V. ("Defendants"). It is the position of ResortQuest and Hotel Corp.
that the Cooperation Agreement is voidable because (i) it was entered in breach
of a prior agreement between ResortQuest, and the parent company of Cendant
Global Services B.V. and Aston Hotels & Resorts International, Inc., Cendant
Corporation, and (ii) it was entered into by an interested director and officer
of Hotel Corp. who was engaging in self-dealing. Accordingly, ResortQuest and
Hotel Corp. seek damages for breach of contract against Cendant, and the
equitable remedies of rescission and replevin. We believe that we have
meritorious claims and will prevail in each matter.
We are also involved in various legal actions arising in the ordinary
course of our business. We do not believe that any of the remaining actions will
have a material adverse effect on our business, financial condition or results
of operations.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
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.
18
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits filed herewith
Exhibit No. Description Page No.
----------- ---------------------------------------------- ----------
EX-27 Financial Data Schedule 20
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
Signature
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf be the
undersigned thereunto duly authorized.
RESORTQUEST INTERNATIONAL, INC.
November 13, 2000 By: /s/ J. Mitchell Collins
---------------------------
J. Mitchell Collins
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer,
Chief Accounting Officer
and Duly Authorized Officer)
19