================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission File No. 0-15291
AMERIHOST PROPERTIES, INC.
(Exact name of Registrant as specified in its charter
DELAWARE 36-3312434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 EAST DEVON AVE., SUITE 280, DES PLAINES, ILLINOIS 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 298-4500
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
As of November 13, 1998, 6,128,850 shares of the Registrant's Common Stock were
outstanding.
================================================================================
AMERIHOST PROPERTIES, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
PART I: Financial Information Page
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 4
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1997 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis 12
Schedule of Earnings Before Interest/Rent, Taxes and
Depreciation/Amortization for the Three and Nine
Months Ended September 30, 1998 and 1997 20
PART II: Other Information
Item 4 - Submission of Matters to a Vote of Securities Holders21
Item 6 - Exhibits and Reports on Form 8-K 21
Signatures 21
Part I: Financial Information
Item 1: Financial Statements
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
================================================================================
September 30, December 31,
1998 1997
------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 5,345,982 $ 2,349,503
Accounts receivable (including $157,508 and $1,375,936
from related parties) 3,586,917 3,440,241
Notes receivable, current portion 1,380,018 1,459,986
Prepaid expenses and other current assets 224,901 209,779
Refundable income taxes 1,698,390 2,342,734
Costs and estimated earnings in excess of billings on
uncompleted contracts with related parties 1,684,586 1,913,103
Total current assets 13,920,794 11,715,346
------------ ------------
Investments in and advances to unconsolidated
hotel joint ventures 5,796,209 5,319,689
------------ ------------
Property and equipment:
Land 10,678,286 10,365,676
Buildings 64,467,227 49,156,742
Furniture, fixtures and equipment 18,543,570 15,366,291
Construction in progress 859,726 3,549,408
Leasehold improvements 1,295,937 1,223,206
------------ ------------
95,844,746 79,661,323
Less accumulated depreciation and amortization 13,876,489 9,345,991
81,968,257 70,315,332
Notes receivable, less current portion 1,304,905 1,355,395
Deferred income taxes 3,319,000 --
Other assets, net of accumulated amortization of
$4,908,179 and $4,255,609 5,902,847 3,962,336
------------ ------------
10,526,752 5,317,731
$112,212,012 $ 92,668,098
============ ============
(continued)
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1998 1997
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,124,484 $ 4,780,444
Bank line-of-credit 2,550,748 1,289,709
Accrued payroll and related expenses 1,588,636 1,004,265
Accrued real estate and other taxes 2,394,751 885,610
Other accrued expenses and current liabilities 789,398
843,805
Current portion of long-term debt 4,622,271 5,119,194
------------- -------------
Total current liabilities 15,070,288 13,923,027
------------- -------------
Long-term debt, net of current portion 61,199,557 55,116,028
------------- -------------
Deferred income taxes -- 108,000
------------- -------------
Deferred income 14,282,162 927,444
Commitments
Minority interests 645,109 1,000,740
------------- -------------
Shareholders' equity:
Preferred stock, no par value; authorized 100,000 shares;
none issued -- --
Common stock, $.005 par value; authorized 25,000,000 shares;
issued and outstanding 6,177,850 shares at September 30, 1998,
and 6,212,925 shares at December 31, 1997 30,889 31,065
Additional paid-in capital 17,698,091 17,860,655
Retained earnings 3,722,791 4,138,014
21,451,771 22,029,734
Less:
Stock subscriptions receivable (436,875) (436,875)
21,014,896 21,592,859
$ 112,212,012 $ 92,668,098
============= =============
See notes to consolidated financial statements
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
Revenue:
Hotel operations:
AmeriHost Inn hotels $ 10,788,132 $ 4,729,708 $22,631,705 $10,504,167
Other hotels 3,920,469 4,792,954 11,481,208 13,725,713
Development and construction 1,459,851 3,281,059 7,932,438 11,724,159
Management services 621,839 881,822 1,925,652 2,254,201
Employee leasing 2,639,266 3,751,227 8,389,197 9,887,058
------------ ------------ ------------ ------------
19,429,557 17,436,770 52,360,200 48,095,298
------------ ------------ ------------ ------------
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels 6,476,072 2,912,004 14,944,067 6,881,811
Other hotels 2,554,938 3,269,296 8,501,782 10,318,748
Development and construction 1,474,314 3,053,261 7,510,058 10,517,474
Management services 667,221 508,880 1,875,817 1,438,883
Employee leasing 2,552,712 3,654,811 8,176,611 9,632,149
------------ ------------ ------------ ------------
13,725,257 13,398,252 41,008,335 38,789,065
------------ ------------ ------------ ------------
5,704,300 4,038,518 11,351,865 9,306,233
Depreciation and amortization 1,196,026 1,118,695 3,993,447 3,360,619
Leasehold rents - hotels 1,548,878 387,170 2,477,094 1,451,760
Corporate general and administrative 402,905 493,603 1,133,625 1,562,802
------------ ------------ ------------ ------------
Operating income 2,556,491 2,039,050 3,747,699 2,931,052
Other income (expense):
Interest expense (1,160,534) (1,169,817) (4,719,408) (2,857,209)
Interest income 133,707 212,138 392,721 552,838
Other income 30,471 20,148 129,026 56,231
Gain on sale of property -- -- 161,191 1,697,999
Contractual termination expenses -- -- -- (1,697,448)
Equity in net income and losses
of affiliates (38,410) 74,795 6,647 (134,618)
------------ ------------ ------------ ------------
Income (loss) before minority
interests and income taxes 1,521,725 1,176,314 (282,124) 548,845
Minority interests in (income) loss
of consolidated subsidiaries
and partnerships (90,489) (100,935) 142,639 44,720
------------ ------------ ------------ ------------
Income (loss) before income tax 1,431,236 1,075,379 (139,485) 593,565
Income tax expense (benefit) 587,000 441,000 (57,000) 193,000
------------ ------------ ------------ ------------
Net income (loss) before
extraordinary item 844,236 634,379 (82,485) 400,565
Extraordinary item - early extinguishment
of debt, net of income tax (Note 9) -- -- (332,738) --
------------ ------------ ------------ ------------
Net income (loss) $ 844,236 $ 634,379 $ (415,223) $ 400,565
============ ============ ============ ============
Net income (loss) per share:
Basic $ 0.14 $ 0.10 $ (0.07) $ 0.06
============ ============ ============ ============
Diluted $ 0.13 $ 0.08 $ (0.08) $ 0.03
============ ============ ============ ============
See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1998 1997
------------ ------------
Cash flows from operating activities:
Cash received from customers $ 53,259,648 $ 49,948,241
Cash paid to suppliers and employees (44,809,729) (42,379,424)
Interest received 685,895 418,438
Interest paid (4,578,698) (2,798,670)
Income taxes paid (2,725,656) (960,493)
Contract termination costs -- (1,642,831)
------------ ------------
Net cash provided by operating activities 1,831,460 2,585,261
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (32,915,711) (24,410,207)
Purchase of investments in, and advances
to, minority owned affiliates (2,306,697) (3,959,086)
Distributions, and collections on advances,
from affiliates 1,977,894 1,966,951
Acquisitions of partnership interests,
net of cash acquired (7,779,175) --
Collections on notes receivable 130,478 112,358
Preopening and management contract costs (184,962) (358,568)
Proceeds from sale of assets 64,443,899 3,390,576
------------ ------------
Net cash provided by (used in) investing
activities 23,365,726 (23,257,976)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 26,860,036 21,812,654
Principal payments on long-term debt (49,808,945) (2,149,126)
Proceeds from line of credit 22,656,804 12,411,143
Repayment on line of credit (21,395,765) (11,250,000)
Decrease in minority interest (353,876) (156,808)
Proceeds from exercise of common stock options -- 1,166,075
Common stock repurchase (158,961) --
------------ ------------
Net cash (used in) provided by financing activities (22,200,707) 21,833,938
------------ ------------
Net increase in cash and cash equivalents 2,996,479 1,161,223
Cash and cash equivalents, beginning of year 2,349,503 3,029,039
------------ ------------
Cash and cash equivalents, end of period $ 5,345,982 $ 4,190,262
============ ============
(continued)
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1998 1997
------------- -------------
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss) $ (415,223) $ 400,565
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,993,447 3,360,619
Equity in net (income) loss of affiliates and
amortization of deferred income (6,647) 134,618
Minority interests in net income (loss) of subsidiaries (142,639) (44,720)
Amortization of deferred gain on sale (341,629) --
Amortization of deferred interest and loan discount 34,044 29,820
Extraordinary item - early extinguishment of debt, net of tax 332,738 --
Compensation recognized through issuance of common
stock and common stock options -- 350,604
Gain on sale of investments, property
and equipment (161,191) (1,697,999)
Deferred income taxes (3,427,000) (50,000)
Unpaid contractual termination costs -- 54,617
Changes in assets and liabilities, net of effects
of acquisitions:
Decrease in accounts receivable 328,033 855,681
Decrease (increase) in prepaid expenses and
other current assets 46,859 (419,338)
Decrease (increase) in refundable income taxes 644,344 (717,493)
Decrease in costs and estimated earnings
in excess of billings 228,517 623,869
Decrease (increase) in other assets 1,408,367 (884,502)
Decrease in accounts payable (2,532,485) (33,509)
Increase (decrease) in accrued payroll
and other accrued expenses and current liabilities 1,252,495 280,774
Increase in accrued interest 106,666 24,495
Increase in deferred income 482,764 317,160
Net cash provided by operating activities $ 1,831,460 $ 2,585,261
See notes to consolidated financial statements
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1. BASIS OF PREPARATION:
The financial statements included herein have been prepared by the Company,
without audit. In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments, which consist only of recurring
adjustments necessary to present fairly the financial position of Amerihost
Properties, Inc. and subsidiaries as of September 30, 1998 and December 31,
1997 and the results of its operations for the three and nine months ended
September 30, 1998 and 1997 and cash flows for the nine months ended
September 30, 1998 and 1997. The results of operations for the three and nine
months ended September 30, 1998 are not necessarily indicative of the results
to be expected for the full year. It is suggested that the accompanying
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's 1997 Annual Report on Form 10-K.
Certain reclassifications have been made to the 1997 financial statements in
order to conform with the 1998 presentation.
2. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and partnerships in which the Company has a
majority ownership interest. Significant intercompany accounts and
transactions have been eliminated.
3. INCOME (LOSS) PER SHARE:
Basic income (loss) per share of common stock is computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding. Diluted income (loss) per share of common stock is computed by
dividing the adjusted net income (loss) by the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding. The
Company is a general partner in four partnerships where the limited partners
have the right at certain times and under certain conditions to convert their
limited partner interests into 296,850 shares of the Company's common stock.
The following are the calculations of basic and diluted earnings per share:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
----------- ---------- ----------- ------------
Net income (loss) before
extraordinary item $ 844,236 $ 634,379 $ (82,485) $ 400,565
Extraordinary item, net of tax - - (332,738) -
Net income (loss) 844,236 634,379 (415,223) 400,565
Impact of convertible
partnership interests (1,698) (62,076) (127,787) (191,155)
----------- ----------- ---------- -----------
$ 842,538 $ 572,303 $ (543,010) $ 209,410
=========== =========== =========== ===========
Weighted average common
shares outstanding 6,181,544 6,325,560 6,196,147 6,266,854
Dilutive effect of convertible
partnership interests and
common stock equivalents 413,049 805,691 349,767 838,296
Dilutive common shares outstanding 6,594,593 7,131,251 6,545,914 7,105,150
========== ========== ========== =========
3. INCOME (LOSS) PER SHARE (CONTINUED):
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
Basic net income (loss) per share,
before extraordinary item $ 0.14 $ 0.10 $ (0.02) $ 0.06
Extraordinary item, net of income tax - - (0.05) -
--------- ----------- ----------- ---------
Basic net income (loss) per share $ 0.14 $ 0.10 $ (0.07) 0.06
========= =========== =========== ==========
Diluted net income (loss) per share,
before extraordinary item $ 0.13 $ 0.08 $ (0.03) $ 0.03
Extraordinary item, net of income tax - - (0.05) -
--------- ----------- ----------- ---------
Diluted net income (loss) per share $ 0.13 $ 0.08 $ (0.08) $ 0.03
======= =========== ========== =========
4. INCOME TAXES:
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities determined for tax and financial reporting
purposes.
The income tax expense (benefit) for the three and nine months ended September
30, 1998 and 1997 was based on the Company's estimate of the effective tax
rate expected to be applicable for the full year. A $50,000 reduction in the
deferred tax asset reserve was made during the nine months ended September 30,
1997. The Company expects the effective tax rate to approximate the Federal
and state statutory rates.
5. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the nine months ended September 30:
1998 1997
Reduction of receivable in exchange
for common stock $ 3,779 $ -
Accrued contractual termination costs $ - $ 145,798
6. HOTEL LEASES:
The Company leases 31 hotels, including the 26 hotels leased pursuant to the
PMC transaction completed on June 30, 1998 (Note 8), the operations of which
are included in the Company's consolidated financial statements. The five
leases which were not part of the PMC transaction provide for an option to
purchase the hotel. Some of the purchase prices are based upon a multiple of
gross room revenues for the preceding twelve months and the others are based
upon a fixed amount. At September 30, 1998, the aggregate purchase price for
these five hotels was approximately $16,230,000.
7. INVESTMENTS:
During the first nine months of 1998, the Company acquired the remaining
ownership interests in fourteen hotel joint ventures. The following is a
summary of these acquisitions:
Fair value of assets acquired $37,456,299
Cash paid, net of cash acquired (7,779,175)
------------
Liabilities assumed $29,677,124
===========
In addition, the Company purchased ten hotels from entities in which the Company
held a minority ownership position, for a total purchase price of $24.0 million,
including the assumption of $13.1 million in mortgage debt.
8. SALE/LEASEBACK OF HOTELS:
On June 30, 1998, the Company completed the sale of 26 AmeriHost Inn hotels
to PMC Commercial Trust ("PMC") for $62.2 million. An additional four
AmeriHost Inn hotels are under contract to sell to PMC which are expected to
close within the next 60 days. Upon the sale to PMC, the Company entered into
agreements to lease back the hotels for an initial term of ten years, with
two five year renewal options. The lease payments are fixed at 10% of the
sale price for the first three years. Thereafter, the lease payments are
subject to a CPI increase with a 2% annual maximum. The Company has deferred
the gain on the sale of these hotels pursuant to sale/leaseback accounting.
This deferral will be recognized over the initial term of the lease as a
reduction of leasehold rent expense.
9. EXTRAORDINARY ITEM:
In connection with the PMC transaction (Note 8), the Company expensed
deferred loan costs associated with the early extinguishment of mortgage debt
on the sold hotels.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the development of AmeriHost Inn hotels, its
proprietary brand, and the ownership, operation and management of AmeriHost Inn
hotels and other mid-price hotels. As of September 30, 1998, there were 75
AmeriHost Inn hotels open, of which 58 were wholly-owned, one was
majority-owned, 13 were minority-owned, and three were managed for unrelated
third parties. A total of 16 AmeriHost Inn hotels were opened during the past
twelve months. The Company intends to use the AmeriHost Inn brand when expanding
its hotel operations segment. All of the hotels currently under construction
will be AmeriHost Inn hotels. As of September 30, 1998, six AmeriHost Inn hotels
were under construction, of which five will be wholly-owned, and one will be
minority-owned. Same room revenues for all AmeriHost Inn hotels (including
minority owned and managed only) increased approximately 9.1% and 9.4% during
the third quarter and first nine months of 1998, compared to the third quarter
and first nine months of 1997, respectively, attributable to an increase of
$0.20 and $0.09 in average daily rate for the third quarter and first nine
months, respectively, and an 8.6% and 9.2% increase in occupancy for the three
and nine month periods, respectively. These results relate to the 58 AmeriHost
Inn hotels that were operating for at least thirteen full months at September
30, 1998.
Revenues from hotel operations consist of the revenues from all hotels in which
the Company has a 100% or majority ownership or leasehold interest
("Consolidated" hotels). Investments in other entities in which the Company has
a minority ownership interest are accounted for using the equity method. As a
result of the Company's focus on increasing the number of Consolidated hotels,
the Company expects that revenues from the hotel operations segment will
increase over time as a percentage of the Company's overall revenues.
Development and construction revenues consist of one-time fees for new
construction and renovation activities performed by the Company for
minority-owned hotels and unrelated third parties. The Company also receives
revenue from management and employee leasing services provided to minority-owned
hotels and unrelated third parties.
The results for the first nine months of 1998 were consistent with the Company's
primary objective of increasing the number of wholly-owned or leased,
Consolidated AmeriHost Inn hotels. Due to the Company's focus on developing and
constructing a significant number of Consolidated AmeriHost Inn hotels during
1997 and the first nine months of 1998, as well as acquiring the remaining
ownership interests in a significant number of AmeriHost Inn hotels which were
previously minority-owned, the Company recognized lower revenues and profits
from the development and construction of hotels for minority-owned and unrelated
third parties during 1998. In addition, the Company disposed of several
non-AmeriHost Inn hotels during the past twelve months, as part of the Company's
plan to invest all available resources into the AmeriHost Inn hotel brand.
Although this strategy has a short-term negative impact on revenues and
earnings, the Company believes that the long-term benefits will be substantial.
Revenues from Consolidated AmeriHost Inn hotels increased 128.1% and 115.5% to
$10.8 million and $22.6 million during the third quarter and first nine months
of 1998, respectively, from revenues of $4.7 million and $10.5 million during
the third quarter and first nine months of 1997, due to the addition of 32
Consolidated AmeriHost Inn hotels during the past twelve months. Revenues from
the hotel management and employee leasing segments decreased by 29.6% and 15.0%
in total during the third quarter and first nine months of 1998, respectively,
due primarily to the acquisition of the remaining ownership interest in 22
minority-owned joint venture hotels, all of which are AmeriHost Inn hotels.
Revenues from Consolidated non-AmeriHost Inn hotels decreased 18.2% and 16.4%
during the third quarter and first nine months of 1998, compared to 1997, as a
result of the disposition of four Consolidated non-AmeriHost Inn hotels during
the first nine months of 1997 and one Consolidated non-AmeriHost Inn hotel
during the first nine months of 1998. Total revenues increased 11.4% and 8.9%,
to $19.4 million and $52.4 million during the third quarter and first nine
months of 1998, respectively, from $17.4 million and $48.1 million during the
1997 periods. The Company recorded net income of $844,236 for the third quarter
of 1998, or $0.13 per diluted share, compared to net income of $634,378, or
$0.08 per diluted share in 1997. For the nine months ended September 30, 1998,
the Company incurred a net loss of $415,223, or $0.08 per diluted share,
compared to net income of $400,565 during the first nine months of 1997, or
$0.03 per diluted share. Without an extraordinary item incurred during the
second quarter of 1998 in the amount of $332,738, net of income tax (due to the
write off of deferred loan costs associated with the prepayment of mortgage
debt), the net loss for the nine months ended September 30, 1998 would have been
$82,485, or $0.03 per diluted share. The Company sold one Consolidated
non-AmeriHost Inn hotel during the first nine months of 1998, and two
Consolidated non-AmeriHost Inn hotels during the first nine months of 1997,
resulting in a total gain, net of minority interests, of $161,191 and $1.7
million, respectively. The gains in 1997 were offset by a non-recurring charge
of $1.7 million from the termination of a consulting agreement with Urban 2000
Corp. (a company owned by the Company's Chairman of the Board and a former
officer/director) and the severance fees paid in connection with the departure
of an officer/director.
The Company uses EBITDA as a supplemental performance measure along with net
income to report its operating results. EBITDA is defined as net income before
extraordinary items, adjusted to eliminate the impact of (i) interest expense;
(ii) interest and other income; (iii) leasehold rents for hotels, which the
Company considers to be financing costs similar to interest; (iv) income tax
expense (benefit), (v) depreciation and amortization; and (vi) gains or losses
from property transactions. EBITDA should not be considered as an alternative to
operating income (as determined in accordance with Generally Accepted Accounting
Principles, "GAAP") as an indicator of the Company's operating performance or to
cash flows from operating activities (as determined in accordance with GAAP) as
a measure of liquidity. EBITDA, as defined by the Company is included herein due
to numerous requests by investors and analysts. Management believes that
investors and analysts find it to be a useful tool for measuring the Company's
ability to service debt. EBITDA increased 47.0% and 74.1% to $5.2 million and
$10.4 million during the three and nine months ended September 30, 1998,
respectively, from $3.5 million and $6.0 million during the three and nine
months ended September 30, 1997. After eliminating the impact of the
non-recurring charges, EBITDA increased 47.0% and 35.5% during the three and
nine months ended September 30, 1998, compared to the three and nine months
ended September 30, 1997. An EBITDA schedule is included herein.
On June 30, 1998, the Company completed the sale of 26 AmeriHost Inn hotels to
PMC Commercial Trust ("PMC") for $62.2 million. An additional four AmeriHost Inn
hotels are under contract to sell to PMC which are expected to close within the
next 60 days. Upon the sale to PMC, the Company entered into agreements to lease
back the hotels for an initial term of ten years, with two five year renewal
options. The lease payments are fixed at 10% of the sale price for the first
three years. Thereafter, the lease payments are subject to a CPI increase with a
2% annual maximum. The Company has deferred the gain on the sale of these hotels
pursuant to sale/leaseback accounting. This deferral will be recognized over the
initial term of the lease as a reduction of leasehold rent expense.
Amerihost had an ownership interest in 86 hotels at September 30, 1998 versus 75
hotels at September 30, 1997 (excluding hotels under construction). This
increased ownership was achieved primarily through the development of AmeriHost
Inn hotels for the Company's own account and for minority-owned entities. These
figures include a net increase of 31 Consolidated hotels, from 36 at September
30, 1997 to 67 at September 30, 1998.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenues increased 11.4% and 8.9% to $19.4 million and $52.4 million during the
three and nine months ended September 30, 1998, respectively, from $17.4 million
and $48.1 million during the three and nine months ended September 30, 1997. The
increase in revenue from the Consolidated AmeriHost Inn hotels was partially
offset by the decreases from the hotel management and employee leasing segments,
a decrease from the hotel development and construction segment, as well as the
decrease from non-AmeriHost Inn hotel operations.
Hotel operations revenue increased 54.5% and 40.8% to $14.7 million and $34.1
million during the three and nine months ended September 30, 1998, respectively,
from $9.5 million and $24.2 million during the three and nine months ended
September 30, 1997. Revenues from Consolidated AmeriHost Inn hotels increased
128.1% and 115.5% to $10.8 million and $22.6 million during the three and nine
months ended September 30, 1998, respectively, from $4.7 million and $10.5
million during the three and nine months ended September 30, 1997. These
increases were attributable primarily to the addition of 32 Consolidated
AmeriHost Inn hotels from October 1, 1997 through September 30, 1998, including
the addition of nine newly constructed Consolidated AmeriHost Inn hotels, and
the acquisition of additional ownership interest in 23 existing hotels causing
them to become a Consolidated AmeriHost Inn hotels, as well as an increase in
same room revenues. The increase in Consolidated AmeriHost Inn hotel revenue was
offset by a 18.2% and 16.4% decrease in Consolidated other brand hotel revenue
during the three and nine month periods, respectively. This decrease was the
result of the sale of three non-AmeriHost Inn Consolidated hotels, and the
termination of the lease for two other non-AmeriHost Inn hotels. The hotel
operations segment included the operations of 67 Consolidated hotels (including
59 AmeriHost Inn hotels) comprising 4,784 rooms at September 30, 1998, compared
to 36 Consolidated hotels (including 27 AmeriHost Inn hotels) comprising 2,939
rooms at September 30, 1997. After considering the Company's ownership interest
in the majority-owned Consolidated hotels, this translates to 4,515 and 2,619
equivalent owned rooms as of September 30, 1998 and 1997, respectively, or an
increase of 72.4%. Recently, the Company has experienced an increase in
competition in certain markets, primarily from newly constructed hotels. As a
result, there is increased downward pressure on occupancy levels and average
daily rates. The Company believes that as the number of AmeriHost Inn hotels
increases, the greater the benefits will be at all locations from marketplace
recognition and repeat business. In addition, the Company typically builds new
hotels in growing markets where it anticipates a certain level of additional
hotel development.
Hotel development revenue decreased 55.5% and 32.3% to $1.5 million and $7.9
million during the three and nine months ended September 30, 1998, respectively,
from $3.3 million and $11.7 million during the three and nine months ended
September 30, 1997. Hotel development revenues are directly related to the
number of hotels being developed and constructed for minority-owned entities or
unrelated third parties. The Company was constructing three hotels for
minority-owned entities or unrelated third parties during the third quarter of
1998, compared to six hotels during the three months ended September 30, 1997.
The Company was constructing six hotels for minority-owned entities or unrelated
third parties during the first nine months of 1998, compared to 12 hotels during
the nine months ended September 30, 1997. The Company also had several
additional projects in various stages of pre-construction development during
both nine month periods.
Hotel management revenue decreased 29.5% and 14.6% to $621,839 and $1.9 million
during the three and nine months ended September 30, 1998, respectively, from
$881,822 and $2.3 million during the three and nine months ended September 30,
1997. The number of hotels managed for third parties and minority-owned entities
decreased from 49 hotels, representing 3,933 rooms, at September 30, 1997 to 26
hotels, representing 2,222 rooms, at September 30, 1998. The addition of
management contracts for six newly constructed hotels (373 rooms) was more than
offset by the termination of three management contracts (250 rooms) with
minority-owned entities as a result of the sale of the hotels (non-AmeriHost Inn
hotels), the termination of 23 management contracts (1,497 rooms) with
minority-owned hotels which became Consolidated hotels due to the Company
acquiring additional ownership interests, and the termination of three
management contracts for non-AmeriHost Inn hotels with unrelated third parties
(337 rooms) as a result of the sale of the hotels in two of the three instances.
Employee leasing revenue decreased 29.6% and 15.2% to $2.6 million and $8.4
million during the three and nine months ended September 30, 1998, respectively,
from $3.8 million and $9.9 million during the three and nine months ended
September 30, 1997, due primarily to the reduction in hotels managed for
minority-owned entities and unrelated third parties as described above, and the
associated decrease in payroll costs which is the basis for the employee leasing
revenue.
Total operating costs and expenses increased 2.4% and 5.7% to $13.7 million
(70.6% of total revenues) and $41.0 million (78.3% of total revenues) during the
three and nine months ended September 30, 1998, respectively, from $13.4 million
(76.8% of total revenues) and $38.8 million (80.7% of total revenues) during the
three and nine months ended September 30, 1997. Operating costs and expenses in
the hotel operations segment increased 46.1% and 36.3% to $9.0 million and $23.4
million during the three and nine months ended September 30, 1998, respectively,
from $6.2 million and $17.2 million during the three and nine months ended
September 30, 1997. These increases resulted primarily from the net addition of
31 Consolidated hotels to this segment and are directly related to the 128.1%
and 115.5% increase in Consolidated AmeriHost Inn revenues during the three and
nine months ended September 30, 1998, respectively, offset by the 18.2% and
16.4% decrease in non-AmeriHost Inn hotel revenues during the three and nine
months ended September 30, 1998. Hotel operations segment operating costs and
expenses as a percentage of segment revenue decreased to 61.4% during the three
months ended September 30, 1998, from 64.9% during the three months ended
September 30, 1997. Hotel operations segment operating costs and expenses as a
percentage of segment revenue decreased to 68.7% during the nine months ended
September 30, 1998, from 71.0% during the nine months ended September 30, 1997.
Operating costs and expenses as a percentage of revenues for the Consolidated
AmeriHost Inn hotels decreased to 60.0% during the three month period ended
September 30, 1998, from 61.6% during the three month period ended September 30,
1997, while the percentage increased slightly during the nine month period
compared to the prior year, due primarily to the significant number of AmeriHost
Inn hotels operating during their pre-stabilization period during the first nine
months of 1998.
Operating costs and expenses for the hotel development segment decreased 51.7%
and 28.6% to $1.5 million and $7.5 million during the three and nine months
ended September 30, 1998, respectively, from $3.1 million and $10.5 million
during the three and nine months ended September 30, 1997, consistent with the
55.5% and 32.3% decrease in hotel development revenues for the three and nine
months ended September 30, 1998, respectively. Operating costs and expenses in
the hotel development segment as a percentage of segment revenue increased
during the three and nine months ended September 30, 1998 due primarily to the
overall decrease in the level of hotel development and construction activity
performed for minority-owned entities and unrelated third parties and the
relatively higher level of construction activity performed in 1998 compared to
1997, versus the level of pre-construction development activity. Construction
activity has significantly higher operating costs compared to the
pre-construction development activity. Hotel management segment operating costs
and expenses increased 31.1% and 30.4% to $667,221 and $1.9 million during the
three and nine months ended September 30, 1998, respectively, from $508,880 and
$1.4 million during the three and nine months ended September 30, 1997. This
increase was due to the increase in the number of hotels operated and managed,
and the allocation of certain general and administrative expenses and preopening
costs associated with the hotels opened during the three and nine months ended
September 30, 1998 and 1997. Employee leasing operating costs and expenses
decreased 30.2% and 15.1% to $2.6 million and $8.2 million during the three and
nine months ended September 30, 1998, respectively, from $3.7 million and $9.6
million during the three and nine months ended September 30, 1997, which is
consistent with the 29.6% and 15.2% decrease in segment revenue for the three
and nine months ended September 30, 1998.
Depreciation and amortization expense increased 6.9% and 18.8% to $1.2 million
and $4.0 million during the three and nine months ended September 30, 1998,
respectively, from $1.1 million and $3.4 million during the three and nine
months ended September 30, 1997. The increase was primarily attributable to the
net addition of 31 Consolidated hotels to the hotel operations segment and the
resulting depreciation and amortization therefrom, offset by the decrease in
depreciation from non-AmeriHost Inn hotels as a result of the sale/dispositions,
and the completion of the sale and leaseback of 26 hotels on June 30, 1998. As a
result of the sale/leaseback transaction, the Company did not recognize any
depreciation on the assets sold during the third quarter of 1998 and will not
recognize any depreciation from these sold assets going forward.
Leasehold rents - hotels increased 300.1% and 70.6% to $1.5 million and $2.5
million during the three and nine months ended September 30, 1998, respectively,
from $387,170 and $1.5 million during the three and nine months ended September
30, 1997. These increases are due primarily to the sale and leaseback
transaction with PMC on June 30, 1998, partially offset by the sale of two
leased Consolidated non-AmeriHost Inn hotels and the termination of the lease
for another Consolidated non-AmeriHost Inn hotel in the first and second
quarters of 1997. The Company anticipates leasehold rents hotels to continue
increasing going forward as a result of the sale/leaseback transaction.
Corporate general and administrative expense decreased 18.4% and 27.5% to
$402,905 and $1.1 million during the three and nine months ended September 30,
1998, respectively, from $493,603 and $1.6 million during the three and nine
months ended September 30, 1997, and can be attributed primarily to the
recognition of compensation expense in the first nine months of 1997 for options
issued at an exercise price below the then current market price, operational
efficiencies and the allocation of certain expenses.
The Company's operating income increased 25.4% and 27.9% to $2.6 million and
$3.7 million during the three and nine months ended September 30, 1998,
respectively, from $2.0 million and $2.9 million during the three and nine
months ended September 30, 1997. The following discussion of operating income by
segment is exclusive of any corporate general and administrative expense.
Operating income from Consolidated AmeriHost Inn hotels increased 88.5% and
78.0% to $2.2 million and $3.7 million during the three and nine months ended
September 30, 1998, respectively, from $1.2 million and $2.1 million during the
three and nine months ended September 30, 1997. These increases in operating
income were due to the increased number of Consolidated AmeriHost Inn hotels and
the increase in same room revenues as a significant number of recently opened
Consolidated AmeriHost Inn hotels were still operating in 1997 during their
pre-stabilization period when revenues are typically lower. Operating income
from the hotel development segment decreased to a loss of ($35,849) during the
three months ended September 30, 1998, from income of $209,740 during the three
months ended September 30, 1997 and decreased to $363,216 during the first nine
months of 1998 from $1.2 million during the first nine months of 1997. The
fluctuations in hotel development operating income were due to the timing of
hotels developed and constructed for third parties and minority-owned entities
during the third quarter and first nine months of 1998, compared with the third
quarter and first nine months of 1997, and the overall decrease in the number of
hotels developed and constructed for minority-owned entities and unrelated third
parties. The hotel management segment incurred an operating loss of ($139,503)
and ($226,677) during the three and nine months ended September 30, 1998, from
operating income of $288,533 and $566,784 during the three and nine months ended
September 30, 1997. This decrease was due primarily to the expenses associated
with the increased number of Consolidated hotels managed during the past twelve
months and the allocation of certain costs. Employee leasing operating income
decreased 10.3% and 16.8% to $85,654 and $209,886 during the three and nine
months ended September 30, 1998, respectively, from $95,516 and $252,209 during
the three and nine months ended September 30, 1997, due to the decrease in
employee leasing agreements with minority-owned entities and unrelated third
parties.
Interest expense remained relatively constant at $1.2 million during the three
months ended September 30, 1998 and September 30, 1997. Interest expense
increased 60.5% to $4.7 million for the nine months ended September 30, 1998
from $2.9 million during the nine months ended September 30, 1997. The increase
attributable to the additional mortgage financing of newly constructed and
acquired Consolidated AmeriHost Inn hotels, was offset by the sale and leaseback
transaction with PMC, whereby the Company did not recognize any interest expense
on the sold hotels beginning June 30, 1998.
The Company's share of equity in income (loss) of affiliates decreased to
($38,410) during the three months ended September 30, 1998, from $74,795 during
the three months ended September 30, 1997. The Company's share of equity in
income (loss) of affiliates increased to $6,647 during the nine months ended
September 30, 1998, from ($134,618) during the nine months ended September 30,
1997. The fluctuations in equity of affiliates during the three and nine months
ended September 30, 1998, compared to the three and nine months ended September
30, 1997, were primarily due to the sale of three minority owned hotels at a
significant gain and the acquisition of a significant number of minority owned
hotels by the Company resulting in 100% ownership positions . Distributions from
affiliates were $1.1 million during the nine months ended September 30, 1998,
compared to $282,274 during the nine months ended September 30, 1997.
The Company expensed $1.7 million during the first nine months of 1997 in costs
associated with the termination of a consulting agreement and an employment
agreement. The Company considers these costs non-recurring in nature.
LIQUIDITY AND CAPITAL RESOURCES
The Company has four main sources of cash from operating activities: (i)
revenues from hotel operations; (ii) fees from development, construction and
renovation projects; (iii) fees from management contracts; and (iv) fees from
employee leasing services. Cash from hotel operations is typically received at
the time the guest checks out of the hotel. Approximately 10% of the Company's
hotel operations revenues is generated through other businesses and contracts
and is usually paid within 30 to 45 days from billing. Fees from development,
construction and renovation projects are typically received within 15 to 45 days
from billing. Due to the procedures in place for processing its construction
draws, the Company typically does not pay its contractors until the Company
receives its draw from the equity or lending source. Management fee revenues
typically are received by the Company within five working days from the end of
each month. Cash from the Company's employee leasing segment typically is
received 24 to 48 hours prior to the pay date.
During the first nine months of 1998, the Company generated cash from operations
of $1.8 million, compared to $2.6 million during the first nine months of 1997,
or a decrease in cash provided by operations of $759,145. The first nine months
of 1997 included a non-recurring payment of $1.6 million in contractual
termination costs. The decrease in cash flow from operations during the first
nine months of 1998, when compared to 1997, can be attributed to the increasing
impact of seasonality and the significant number of hotels operating during
their pre-stabilization period as the number of Consolidated hotels increased
from 36 hotels at September 30, 1997 to 67 hotels at September 30, 1998, and the
timing of collections from hotel development and construction activity for
minority-owned entities.
The Company invests cash in three principal areas: (i) the purchase of property
and equipment through the construction and renovation of Consolidated hotels;
(ii) the purchase of equity interests in hotels; and (iii) the making of loans
to affiliated and non-affiliated hotels for the purpose of construction,
renovation and working capital. During the first nine months of 1998, the
Company received $23.4 million from investing activities compared to using $23.3
million during the first nine months of 1997. During the first nine months of
1998, the Company received $64.4 million from the sale of 27 hotels, used $32.9
million to purchase property and equipment for Consolidated AmeriHost Inn
hotels, used $323,515 for investments in and advances to affiliates, net of
distributions and collections, and used $7.8 million for the acquisition of
additional partnership interests. During the first nine months of 1997, the
Company used cash primarily for the purchase of $24.4 million in property and
equipment for Consolidated AmeriHost Inn hotels, used $1.9 million for
investments in and advances to affiliates, net of distributions and collections,
and received $3.4 million from the sale of hotels.
Cash used in financing activities was $21.9 million during the first nine months
of 1998 compared to cash provided by financing activities of $21.8 million
during the first nine months of 1997. In 1998, the primary factors were
principal repayments of $49.5 million including the repayment of mortgages in
connection with the sale of hotels, offset by $26.9 million in proceeds from the
mortgage financing of Consolidated hotels and the assumption of mortgage debt in
connection with the acquisition of hotels, and net proceeds of $1.3 million from
the Company's operating line-of-credit. In 1997, the contributing factors were
proceeds of $19.7 million from the mortgage financing of Consolidated hotels,
net of principal repayments, net proceeds of $1.2 million from the exercise of
common stock purchase options, and $1.2 million in net proceeds from the
Company's operating line-of-credit.
At September 30, 1998, the Company had $2.6 million outstanding under its
operating line-of-credit which has been repaid subsequently. The Company has
obtained a new operating line-of-credit effective November 1, 1998 which (i) has
a limit of $7.0 million (ii) is collateralized by a security interest in certain
of the Company's assets, including its interest in various joint ventures; (iii)
bears interest at an annual rate equal to the lending bank's base rate plus 1/2%
(with a minimum interest rate of 7.5%); and (iv) matures October 31, 1999. At
September 30, 1998, the Company also had outstanding $2.25 million of its 7%
Subordinated Notes which are unsecured obligations due October 9, 1999 and which
pay interest quarterly. Pursuant to the terms of the 7% Subordinated Notes, no
dividends may be paid on any capital stock of the Company until the 7%
Subordinated Notes have been paid in full. At the Company's sole discretion, the
7% Subordinated Notes may be prepaid at any time without penalty.
In March 1998, the Company's Board of Directors authorized the repurchase, from
time to time on the open market, of up to $1.0 million of Common Stock over the
next year. Through September 30, 1998, the Company repurchased 34,600 shares of
the Company's Common Stock for approximately $159,000.
The Company expects cash from operations to be sufficient to pay all operating
and interest expenses in 1998.
YEAR 2000
As is the case with other companies using computers in their operations, the
Company has to address the Year 2000 compliance issue. The Year 2000 issue
arises from the widespread use of computer programs that rely on two-digit date
codes to perform computations or decision-making functions. The Company has
begun its review of its computer programs to identify the systems that would be
affected by the Year 2000 issue, and is in the process of reviewing any exposure
the Company may have from vendors and financial institutions. However, the
majority of the Company's critical computer applications are contracted out to a
third-party provider. We have received written confirmation from this provider
that they will be fully Year 2000 compliant by December 31, 1998. The Company
believes that the cost, if any, to correct any Year 2000 issues in regards to
its other systems will not be material.
SEASONALITY
The lodging industry, in general, is seasonal by nature. The Company's hotel
revenues are generally greater in the second and third calendar quarters than in
the first and fourth quarters due to weather conditions in the markets in which
the Company's hotels are located, as well as general business and leisure travel
trends. This seasonality can be expected to continue to cause quarterly
fluctuations in the Company's revenues, and is expected to have a greater impact
as the number of Consolidated hotels increases. Quarterly earnings may also be
adversely affected by events beyond the Company's control such as extreme
weather conditions, economic factors and other general factors affecting travel.
In addition, hotel construction is seasonal, depending upon the geographic
location of the construction projects. Construction activity in the Midwest may
be slower in the first and fourth calendar quarters due to weather conditions.
INFLATION
Management does not believe that inflation has had, or is expected to have, any
significant adverse impact on the Company's financial condition or results of
operations for the periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about
Segments of an Enterprise and Related Information, which supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, establishes standards
for the way that public enterprises report information about operating segments
in annual and interim financial statements. It also establishes new standards
for disclosures regarding products and services, geographic areas and major
customers. This Statement is effective for the Company for the year end December
31, 1998 and requires comparative information for earlier years to be restated.
The Company's consolidated balance sheets and the related consolidated
statements of income, changes in shareholder's equity and cash flows will not be
affected by the implementation of SFAS No. 131.
Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up
Activities, provides guidance on the financial reporting of start-up costs and
organization costs. This Statement requires costs of start-up activities and
organization costs to be expensed as incurred. This SOP is effective for the
Company for 1999, and will require the Company to report the cumulative effect
of this change in accounting principle as of January 1, 1999, in accordance with
Accounting Principles Board Opinion No. 20, Accounting Changes. The Company
anticipates this cumulative effect will have a material impact on the Company's
consolidated financial statements.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts, including but not
limited to, statements regarding the Company's hotels under construction and the
operation of AmeriHost Inn hotels are based on current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plan on
terms satisfactory to the Company; competitive factors, such as the introduction
of new hotels or renovation of existing hotels in the same markets; changes in
travel patterns which could affect demand for the Company's hotels; changes in
development and operating costs, including labor, construction, land, equipment,
and capital costs; general business and economic conditions; and other risk
factors described from time to time in the Company's reports filed with the
Securities and Exchange Commission. The Company wishes to caution readers not to
place undue reliance on any such forward looking statements, which statements
are made pursuant to the Private Securities Litigation Reform Act of 1995 and,
as such, speak only as of the date made.
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE OF EARNINGS BEFORE INTEREST/RENT,
TAXES AND DEPRECIATION/AMORTIZATION
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue $ 19,429,557 $ 17,436,770 $52,360,200 $48,095,298
Operating costs and expenses 13,725,257 13,398,252 41,008,335 38,789,065
5,704,300 4,038,518 11,351,865 9,306,233
Corporate general and administrative (402,905) (493,603) (1,133,625) (1,562,802)
Equity in net income and losses
of affiliates (38,410) 74,795 6,647 (134,618)
Earnings before minority interests 5,262,985 3,619,710 10,224,887 7,608,813
Minority interests in earnings of
consolidated subsidiaries and
partnerships (90,489) (100,935) 142,639 44,720
Earnings before interest/rent, taxes
and depreciation/amortization, before
non-recurring charges 5,172,496 3,518,775 10,367,526 7,653,533
Non-recurring charges -- -- -- (1,697,448)
Earnings before interest/rent, taxes
and depreciation/amortization $ 5,172,496 $ 3,518,775 $10,367,526 $5,956,085
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders:
The annual shareholders' meeting was held on August 6, 1998. One matter
was voted as follows:
Matter 1: Election of Directors
Director For Against Abstain
-------- --- ------- -------
H. Andrew Torchia 5,192,106 1,320 30,154
Michael P. Holtz 5,079,496 113,930 30,154
Russell J. Cerqua 5,070,246 123,180 30,154
Reno J. Bernardo 5,069,646 123,780 30,154
Salomon J. Dayan 5,077,696 115,730 30,154
Richard A. Chaifetz 5,189,634 3,792 30,154
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit No.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Form 8-K on July 15, 1998 with respect to
the sale and leaseback of 26 hotels with PMC Commercial
Trust, which included pro forma financial statements.
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.
AMERIHOST PROPERTIES, INC.
Registrant
Date: November 13, 1998
By: /s/ James B. Dale
James B. Dale
Treasurer/Senior Vice President, Finance
By: /s/ Michael E. Kirk
Michael E. Kirk
Corporate Controller