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FORM 10-Q
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer)
incorporation or organization) identification no.)
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(201) 882-1010
(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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
-- --
The registrant had 30,964,859 shares of common stock, $.01 par value
outstanding, as of November 13, 1995.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-
December 31, 1994 and September 30, 1995.............. 1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1994
and September 30, 1995................................ 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994
and September 30, 1995................................ 3
Notes to Interim Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 18
Signatures ...................................................... 19
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
December 31, September 30,
1994 1995
-------- --------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ............................... $ 12,524 $ 34,704
Marketable securities available for sale ................ 1,117 25,400
Restricted cash ......................................... 9,725 9,370
Accounts receivable, net of reserves .................... 7,819 12,583
Current portion of mortgages and
notes receivable ...................................... 1,925 14,380
Other current assets .................................... 7,196 5,791
-------- --------
Total current assets ............................... 40,306 102,228
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization ........ 299,291 384,400
Mortgages and notes receivable, net of
current portion ......................................... 81,260 65,040
Other assets .............................................. 14,075 16,809
-------- --------
TOTAL ASSETS ....................................... $434,932 $568,477
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ................................. $ 5,284 $ 6,784
Other current liabilities ............................... 23,904 26,218
-------- -------
Total current liabilities .......................... 29,188 33,002
Long-term debt, net of current portion .................... 178,545 289,102
Other liabilities ......................................... 23,134 21,250
-------- --------
Total liabilities .................................. 230,867 343,354
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share;
20,000,000 shares authorized; none issued ............. -- --
Common stock, par value $.01 per share;
75,000,000 shares authorized; 30,409,371 and
30,945,125 shares issued and outstanding
at December 31, 1994 and September 30, 1995,
respectively .......................................... 304 309
Capital in excess of par value .......................... 171,774 179,571
Retained earnings ....................................... 31,987 45,243
-------- --------
Total stockholders' equity ......................... 204,065 225,123
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $434,932 $568,477
======== ========
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
---- ---- ---- ----
Revenues:
Lodging ....................................... $24,911 $38,032 $64,832 $108,157
Food and beverage ............................. 4,228 8,521 11,883 28,096
Management and other fees ..................... 2,602 2,399 7,505 6,080
Interest on mortgages and
notes receivable ............................ 3,977 3,354 12,134 9,268
Rental and other .............................. 345 397 982 1,042
------- ------- ------- --------
Total revenues ........................... 36,063 52,703 97,336 152,643
------- ------- ------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging ..................................... 7,048 10,268 18,347 28,561
Food and beverage ........................... 3,524 6,734 9,488 21,165
Selling and general ......................... 7,311 12,652 19,431 36,585
Occupancy and other operating ................. 2,620 2,824 7,638 8,216
General and administrative .................... 3,901 3,950 11,269 11,410
Depreciation and amortization ................. 2,265 4,134 6,287 11,907
------- ------- ------- --------
Total costs and expenses ................. 26,669 40,562 72,460 117,844
------- ------- ------- --------
Operating income ................................ 9,394 12,141 24,876 34,799
Investment income ............................... 461 1,950 1,492 3,879
Interest expense ................................ (3,408) (5,947) (10,397) (15,933)
Other income .................................... 531 822 7,463 1,427
Other expense ................................... -- (2,200) -- (2,200)
------- ------- ------- --------
Income before income taxes
and extraordinary items ....................... 6,978 6,766 23,434 21,972
Provision for income taxes ...................... 2,861 2,706 9,608 8,789
------- ------- ------- --------
Income before extraordinary items ............... 4,117 4,060 13,826 13,183
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes) ............ 3 12 172 73
------- ------- ------- --------
Net income ...................................... $ 4,120 $ 4,072 $13,998 $13,256
======= ======= ======= ========
Net income per common share:
Income before extraordinary items ............. .13 .12 .43 .41
Extraordinary items ........................... -- -- .01 --
------- ------- ------- --------
Net Income ...................................... .13 .12 .44 .41
======= ======= ======= ========
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(In Thousands)
Nine Months Ended
September 30,
1994 1995
------- -------
CASH FLOWS
Cash flows from operating activities:
Net income ............................................. $13,998 $13,256
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................ 6,287 11,907
Provision for hurricane damage ....................... -- 2,200
Utilization of net operating loss
carryforwards ..................................... 2,295 5,874
Gains on settlements of notes receivable ............. (6,005) (822)
Gains on discharges of indebtedness .................. (291) (121)
Gains on sales of assets ............................. (1,099) (1,103)
Compensation expense related to stock
options ........................................... 43 12
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable ............................... 1,016 (4,764)
Other current assets .............................. 784 1,393
Other liabilities ................................. 1,141 (1,806)
------- -------
Net cash provided by operating
activities ...................................... 18,169 26,026
------- -------
Cash flows from investing activities:
Net proceeds from mortgages and notes
receivable ........................................... 33,799 14,672
Disbursements for mortgages and
notes receivable ..................................... (1,100) (12,704)
Proceeds from sales of property, equipment
and leasehold improvements ........................... 1,053 1,784
Purchases of property, equipment and
leasehold improvements ............................... (28,303) (88,013)
Decrease in restricted cash ............................ 3,378 355
Proceeds from sales of marketable securities ........... 1,082 2,165
Purchases of marketable securities ..................... (5,885) (24,145)
Other .................................................. (1,516) 1,086
------- -------
Net cash provided by (used in) investing activities 2,508 (104,800)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of debt ..................... 3,725 120,159
Payments of debt ....................................... (42,479) (20,705)
Proceeds from the exercise of stock options
and warrants ......................................... 1,056 1,559
Other................................................... 75 (59)
------- -------
Net cash provided by (used in) financing
activities ..................................... (37,623) 100,954
------- -------
Net increase (decrease) in cash and
cash equivalents ..................................... (16,946) 22,180
Cash and cash equivalents at beginning
of period ............................................ 41,569 12,524
------- -------
Cash and cash equivalents at end of period ............. $24,623 $34,704
======= =======
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of September 30, 1995 and the results of its operations for the three and
nine months ended September 30, 1994 and 1995 and cash flows for the nine months
ended September 30, 1994 and 1995. Certain reclassifications have been made to
the September 30, 1994 consolidated financial statements to conform them to the
September 30, 1995 presentation.
The financial statements for the three and nine months ended September
30, 1994 and 1995 were prepared on a consistent basis with the audited
consolidated financial statements for the year ended December 31, 1994.
The consolidated results of operations for the three and nine months
ended September 30, 1995 are not necessarily indicative of the results to be
expected for the full year. These interim unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1994.
Note 2 - ACQUISITIONS
In March 1995, the Company acquired the option of ShoLodge, Inc.
("ShoLodge") to purchase a 50% interest in eleven of the Company's AmeriSuites
hotels and also acquired the ownership interest of the remaining AmeriSuites
hotel not already owned by the Company. In 1993, the Company and its
wholly-owned subsidiary, Suites of America, Inc. ("SOA") entered into agreements
with ShoLodge, a company controlled by a former director, designed to further
the growth of its AmeriSuites hotels from the six hotels owned by the Company at
that time. Pursuant to these agreements, (i) ShoLodge agreed to build and
finance six additional AmeriSuites hotels and received an option to purchase a
50% interest in SOA and (ii) the Company received an option pursuant to which it
could require ShoLodge to purchase a 50% interest in SOA. The exercise of the
option by ShoLodge was scheduled to occur in January 1995, when the Company and
ShoLodge began to negotiate the Company's buyout of ShoLodge's option. The
consideration payable by the Company was based upon the fair market value of the
properties. The consideration totaled $19,700,000 and was comprised of (i)
$16,100,000 in cash, of which $6,100,000 was paid on March 31, 1995 and
$10,000,000 was paid on May 5, 1995, plus (ii) $18,500,000 which will be paid in
notes maturing in 1997, less (iii) $14,900,000 of existing debt on five hotels,
which was retired at face value. The transaction resulted in a net increase of
approximately $3,600,000 of long-term debt. No gain or loss was recorded on the
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forgiveness of debt. As a result of this transaction, the Company assumed
management of these hotels.
In August 1995, the Company entered into an agreement to purchase four
Bradbury Suites hotels for $18,700,000. The hotels, comprising 459 rooms, are
located in Augusta, Georgia; Columbia, South Carolina; Arlington Heights,
Illinois and Jacksonville, Florida. The Company is converting the hotels to its
proprietary AmeriSuites brand. In August 1995, the Company also purchased the
149 room all-suite St. Tropez Hotel and Shopping Center in Las Vegas for
$15,200,000.
Note 3 - DEBT
In April and May 1995, the Company sold $86,250,000 of 7% Convertible
Subordinated Notes due 2002. The notes bear interest at 7%, are convertible into
common stock at a price of $12 per share at the option of the holder and mature
on April 15, 2002. The notes are redeemable, in whole or in part, at the option
of the Company after three years at premiums to principal which decline on each
anniversary date.
In February 1995, Prime obtained $39,000,000 of mortgage financing on
eleven of its hotels under two separate loan agreements. Both loans bear
interest at variable rates (approximately 10.5% at September 30, 1995) and have
five-year maturities.
During 1995, the Company prepaid and retired approximately $15,200,000
of its senior secured notes, resulting in pre-tax extraordinary gains of
$121,000. In October 1995, the Company prepaid and retired an additional
$7,056,000 of its senior secured notes. A pre-tax extraordinary gain of $53,000
will be recorded in the fourth quarter.
Note 4 - INCOME TAXES
At September 30, 1995, the Company had available federal net operating
loss carryforwards of approximately $106,600,000 which will expire beginning in
2005 and continuing through 2007. Of this amount, $104,800,000 is subject to an
annual limitation of $8,735,000 under the Internal Revenue Code due to a change
in ownership of the Company. The Company also has potential state income tax
benefits relating to net operating loss carryforwards of approximately
$8,000,000 which will expire during various periods from 1995 to 2006. Certain
of these potential benefits are subject to annual limitations similar to federal
requirements due to factors such as the level of business conducted in each
state and the amount of income subject to tax within each state's carryforward
period. For the three and nine months ended September 30, 1995 the Company
recognized $3,308,000 and $5,874,000 of tax benefits as a contribution to
stockholders' equity.
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Note 5 - CONTINGENCIES
The Company received a second favorable ruling in its litigation with
Financial Security Assurance, Inc. ("FSA") in which FSA sought approximately
$31,200,000 previously received by the Company in settlement of a note and
guaranty from Allen V. Rose and Arthur Cohen ("Rose and Cohen"). In an order
dated April 25, 1995, the U.S. District Court for the Southern District of
Florida (the "U.S. District Court") affirmed a lower court ruling approving the
Company's settlement with Rose and Cohen and finding that the Company alone was
entitled to the settlement proceeds. The Company had previously reached a
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25,000,000 plus proceeds from the sale of approximately
1,100,000 shares of the Company's common stock held by Rose, bringing the total
settlement proceeds to approximately $31,200,000. FSA asserted that, under the
terms of an intercreditor agreement, it was entitled to receive the settlement
proceeds otherwise payable to the Company. The U.S. Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") ruled in favor of the
Company in April 1994 and the Company used $25,000,000 of the settlement
proceeds to retire certain senior secured notes. FSA appealed to the U.S.
District Court, which affirmed the Bankruptcy Court's ruling. On May 12, 1995,
the Company used the remaining proceeds plus accrued interest to prepay senior
secured notes. On May 23, 1995, FSA filed a notice of appeal with the U.S. Court
of Appeals for the 11th Circuit.
Note 6 - NET INCOME PER COMMON SHARE
Primary net income per common share was computed based on the weighted
average number of common shares and common share equivalents (dilutive stock
options and warrants) outstanding during each period. The weighted average
number of common shares used in computing primary net income per share was
32,445,000 and 31,969,000 for the three and nine months ended September 30, 1994
and 32,661,000 and 32,118,000 for the three and nine months ended September 30,
1995, respectively.
Fully diluted net income per share, in addition to the adjustments for
primary net income per share, reflects the elimination of interest expense and
the issuance of additional common shares from the assumed conversion of the 7%
convertible subordinated notes from their issuance in the second quarter of
1995. The weighted average number of common shares used in computing fully
diluted net income per share was 39,860,000 and 36,666,000 for the three and
nine months ended September 30, 1995. Fully diluted net income per share has not
been presented in the consolidated financial statements because the dilutive
effect is not material.
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Note 7 - OTHER INCOME
Other income consists of items which are not considered part of the
Company's recurring operations and is composed of the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
-------- -------- -------- ------
Gains on settlements of notes receivable $131 $822 $6,005 $822
Gain on sale of property 114 -- 1,099 605
Other 286 -- 359 --
---- ---- ------ ----
TOTAL $531 $822 $7,463 $1,427
==== ==== ====== ======
Note 8 - OTHER EXPENSE
Other expense of $2,200,000 for the three and nine months ended
September 30, 1995 consists of a reserve for insurance deductibles related to
hurricane damage at the Company's Marriott's Frenchman's Reef Resort hotel in
St. Thomas, United States Virgin Islands.
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PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The Company is a leading hotel owner/operator which owns or leases 57
hotels (the "Owned Hotels") and manages 36 hotels (the "Managed Hotels") for
third parties. The Company has a financial interest in the form of mortgages or
profit participations (primarily incentive management fees) in 16 of the Managed
Hotels. The Company consolidates the results of operations of its Owned Hotels
and records management fees (including incentive management fees) and interest
income, where applicable, on the Managed Hotels.
The Company has implemented a growth strategy which focuses on
improving results at existing hotels through increased revenues and operating
leverage, acquiring full-service hotels and expanding its AmeriSuites hotel
brand in the all-suites segment. For the nine months ended September 30, 1995,
earnings from recurring operations have increased by 44.8% reflecting a 9.7%
REVPAR ("revenue per available room") increase at comparable hotels, the
addition of 20 hotels through acquisition, construction or note settlements in
the past two years and improved expense margins due to increased operating
efficiencies. Although future results of operations may be adversely affected in
the short-term by the costs associated with the acquisition and construction of
new hotels, it is expected that this impact will be offset, after an initial
period, by revenues generated by these new hotels. The Company believes that it
is well positioned to benefit from the expected continued improvements in the
lodging industry due to its hotel equity ownership position and its growth
strategy.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1994 COMPARED TO THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1995
The following table presents the components of operating income,
operating expense margins and other data for the Company and the Company's
comparable Owned Hotels for the three and nine months ended September 30, 1994
and 1995. The results of the four hotels divested during 1994 and 1995 are not
material to an understanding of the results of the Company's operations in such
periods and, therefore, are not separately discussed.
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Comparable Owned
Total Hotels(1)
------------------ ------------------
Three Months Ended Three Months Ended
September 30, September 30,
1994 1995 1994 1995
---- ---- ---- ----
(Dollars in thousands, except ADR and REVPAR)
Revenues:
Lodging ...................................................... $24,911 $38,032 $21,137 $23,434
Food and Beverage ............................................ 4,228 8,521 3,081 3,102
Management and Other Fees .................................... 2,602 2,399
Interest on Mortgages and Notes Receivable ................... 3,977 3,354
Rental and Other ............................................. 345 397
------- -------
Total Revenues ............................................ 36,063 52,703
Direct Hotel Operating Expenses:
Lodging ...................................................... 7,048 10,268 5,626 5,904
Food and Beverage ............................................ 3,524 6,734 2,588 2,531
Selling and General .......................................... 7,311 12,652 6,127 6,316
Occupancy and Other Operating .................................. 2,620 2,824
General and Administrative ..................................... 3,901 3,950
Depreciation and Amortization .................................. 2,265 4,134
Operating Income ............................................... 9,394 12,141
Operating Expense Margins:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue .................. 28.3% 27.0% 26.6% 25.2%
Food and Beverage, as a percentage of food and
beverage revenue .......................................... 83.3% 79.0% 84.0% 81.6%
Selling and General, as a percentage of lodging and
food and beverage revenue ................................. 25.1% 27.2% 25.3% 23.8%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue ......................... 9.0% 6.1%
General and Administrative, as a percentage of total
revenue ...................................................... 10.8% 7.5%
Other Data:
Occupancy ...................................................... 73.7% 73.4% 75.1% 78.5%
Average daily rate ("ADR") ..................................... $ 62.17 $ 70.22 $ 61.86 $ 65.94
Revenue per available room ("REVPAR") .......................... $ 45.82 $ 51.54 $ 46.44 $ 51.78
Gross Operating Profit ......................................... $11,230 $16,911 $ 9,876 $11,785
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Comparable Owned
Total Hotels(1)
------------------ ------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
---- ---- ---- ----
(Dollars in thousands, except ADR and REVPAR)
Revenues:
Lodging ........................................... $64,832 $108,157 $ 58,295 $63,400
Food and Beverage ................................. 11,883 28,096 9,778 9,435
Management and Other Fees ......................... 7,505 6,080
Interest on Mortgages and Notes Receivable ........ 12,134 9,268
Rental and Other .................................. 982 1,042
------- --------
Total Revenues ................................. 97,336 152,643
Direct Hotel Operating Expenses:
Lodging ........................................... 18,347 28,561 15,558 16,429
Food and Beverage ................................. 9,488 21,165 7,822 7,620
Selling and General ............................... 19,431 36,585 17,226 18,159
Occupancy and Other Operating ....................... 7,638 8,216
General and Administrative .......................... 11,269 11,410
Depreciation and Amortization ....................... 6,287 11,907
Operating Income .................................... 24,876 34,799
Operating Expense Margins:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue ....... 28.3% 26.4% 26.7% 25.9%
Food and Beverage, as a percentage of food and
beverage revenue ............................... 79.8% 75.3% 80.0% 80.8%
Selling and General, as a percentage of lodging and
food and beverage revenue ...................... 25.3% 26.9% 25.3% 24.9%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue .............. 10.0% 6.0%
General and Administrative, as a percentage of total
revenue ........................................... 11.6% 7.5%
Other Data:
Occupancy ........................................... 70.8% 70.5% 71.4% 73.2%
Average daily rate ("ADR") .......................... $ 60.42 $ 73.13 $ 60.16 $ 64.42
Revenue per available rooms ("REVPAR") .............. $ 42.78 $ 51.58 $ 42.97 $ 47.14
Gross Operating Profit .............................. $29,471 $ 49,977 $ 27,451 $30,776
(1) For purposes of this discussion of results of operations for 1994
compared to 1995, comparable Owned Hotels refers to the 37 Owned Hotels
that were owned or leased by the Company during all of the three and
nine months ended September 30, 1994 and 1995.
Lodging revenues increased by $13.1 million and $43.3 million, or 52.7%
and 66.8%, during the three and nine months ended September 30, 1995 over the
same periods of the prior year. The increases were primarily due to incremental
lodging revenues from the 19 new hotels added during 1994 and 1995 of $11.2
million and $39.4 million for the three and nine months ended September 30, 1995
and continued growth in revenues at comparable Owned Hotels. Lodging revenues
for comparable
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Owned Hotels increased by $2.3 million and $5.1 million or 10.9% and 8.8%, for
the three and nine months ended September 30, 1995 as compared to the same
periods of the prior year.
The Company operates in three major segments of the industry:
full-service, allsuites and limited-service. The following table illustrates the
changes in REVPAR for the comparable Owned Hotels for the three and nine months
ended September 30, 1995, as compared to the same periods in the prior year by
industry segment:
Three Months Nine Months
Ended Ended
September 30, 1995 September 30, 1995
------------------ ------------------
Full-service ............................... 11.4% 7.8%
All-suites ................................. 9.4% 12.1%
Limited-service ............................ 13.2% 10.2%
Total ...................................... 11.5% 9.7%
The REVPAR growth at comparable Owned Hotels reflects strong results in
all of the Company's industry segments: full-service, its all-suite AmeriSuites
and its limited-service Wellesley Inns. Repositioning efforts at both
full-service and limitedservice hotels contributed to the foregoing REVPAR
increases. The improvements in REVPAR were generated by increases in ADR, which
rose by 6.6% and 7.1% for the three and nine month periods and occupancy gains
of 4.6% and 2.4% for the three and nine month periods as compared to the same
periods in the prior year.
Food and beverage revenues increased by $4.3 million and $16.2 million,
or 101.5% and 136.4%, for the three and nine months ended September 30, 1995
compared to the same period in the prior year. These increases were primarily
due to the additional food and beverage operations related to the seven
full-service hotels acquired since March 31, 1994. Food and beverage revenues
for comparable Owned Hotels remained relatively equal for the three months ended
September 30, 1995, and decreased by $343,000, for the nine months ended
September 30, 1995 compared to the same periods in the prior year. The decrease
for the nine month period was primarily due to decreased banquet business and
lower beverage revenues at the Company's sports lounges.
Management and other fees consist of base and incentive fees earned
under management agreements, fees for additional services rendered to Managed
Hotels and sales commissions earned by the Company's national sales group,
Market Segments, Inc. ("MSI"). Management and other fees decreased by $203,000
and $1.4 million, or 7.8% and 19.0%, for the three and nine months ended
September 30, 1995 as compared to the same periods in the prior year. The
decreases were primarily due to the loss of management fees on five Managed
Hotels acquired by the Company during 1994 and 1995 and six additional hotels
which were sold by a third party hotel owner
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in 1994. Partially offsetting these decreased management fees were increased
base and incentive management fees associated with the remaining Managed Hotels
and increased revenues generated by MSI in the third quarter.
Interest on mortgages and notes receivable during the periods primarily
related to mortgages secured by certain Managed Hotels. Interest on mortgages
and notes receivable decreased by $623,000 and $2.9 million, or 15.7% and 23.6%,
for the three and nine months ended September 30, 1995 primarily due to the
Company's conversion of a $50 million note receivable secured by the Frenchman's
Reef into an operating hotel asset in December 1994. Partially offsetting the
decrease was interest income related to the purchase of $17.4 million of first
mortgages secured by two hotels for $12.7 million in June 1995.
Direct lodging expenses increased by $3.2 million and $10.2 million, or
45.7% and 55.7%, for the three and nine months ended September 30, 1995 compared
to the same periods in the prior year, due primarily to the addition of new
hotels. Direct lodging expenses, as a percentage of lodging revenue, decreased
from 28.3% to 27.0% for the three month period and from 28.3% to 26.4% for the
nine month period. These decreases were primarily due to increases in ADR which
had minimal corresponding increases in expenses. For comparable Owned Hotels,
direct lodging expenses as a percentage of lodging revenues decreased from 26.6%
to 25.2% for the three month period and from 26.7% to 25.9% for the nine month
period.
Direct food and beverage expenses increased by $3.2 million and $11.7
million, or 91.1% and 123.1%, for the three and nine months ended September 30,
1995 as compared to the same periods in the prior year primarily due to the
addition of seven new full-service hotels. As a percentage of food and beverage
revenues, direct food and beverage expenses decreased from 83.3% to 79.0% for
the three month period and 79.8% to 75.3% for the nine month period. The
decreases were primarily due to increased revenues in higher margin areas such
as banquet departments at the new hotels. For comparable Owned Hotels, direct
food and beverage expenses as a percentage of food and beverage revenue also
decreased from 84.0% to 81.6% for the three month period due to increased
revenues in higher margin areas and increased slightly from 80.0% to 80.8% for
the nine month period.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $5.3 million and $17.2 million, or 73.1% and 88.3%, for the three
and nine months ended September 30, 1995 as compared to the same periods in the
prior year due primarily to the addition of new hotels. As a percentage of hotel
revenues (defined as lodging and food and beverage revenues), direct hotel
selling and general expenses increased from 25.1% to 27.2% for the three month
period and from 25.3% to 26.9% for the nine month
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period due to the addition of new full-service properties which generally
require higher levels of unallocated expenses. For comparable Owned Hotels,
direct selling and general expenses as a percentage of revenues decreased from
25.3% to 23.8% for the three month period and from 25.3% to 24.9% for the nine
month period.
Occupancy and other operating expenses consist primarily of insurance,
real estate and other taxes and rent expense. For the three and nine months
ended September 30, 1995, occupancy and other operating expenses increased by
$204,000 and $578,000 as the additional costs associated with the new hotels
were offset by real estate tax refunds of approximately $300,000 and $600,000
for the three and nine month periods. As a percentage of hotel revenues,
occupancy and other operating expenses decreased from 9.0% to 6.1% for the three
month period and from 10.0% to 6.0% for the nine month period primarily due to
operating leverage.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned and Managed
Hotels and general corporate expenses. General and administrative expenses
increased by only $49,000 and $141,000 or 1.3% for the three and nine months
ended September 30, 1995, primarily due to home office payroll reductions. As a
percentage of total revenues, general and administrative expenses decreased from
10.8% to 7.5% for the three month period and from 11.6% to 7.5% for the nine
month period due to operating leverage.
Depreciation and amortization expense increased by $1.9 million and
$5.6 million, or 82.5% and 89.4%, for the three and nine months ended September
30, 1995 due to the impact of new hotel properties acquired in the past year and
refurbishment efforts at several hotels.
Interest expense increased by $2.5 million and $5.5 million, or 74.5%
and 53.2%, for the three and nine months ended September 30, 1995 primarily due
to new mortgage borrowings of $39.0 million incurred in February 1995 and $86.3
million of 7% Convertible Subordinated Notes due 2002 ("the Convertible Notes")
issued in April and May 1995. Investment income increased by $1.5 million and
$2.4 million, for the three and nine months primarily due to higher average cash
balances generated by the new borrowings.
Other income consists of items which are not part of the Company's
recurring operations. Other income for the three months ended September 30, 1995
consisted of $822,000 related to a gain on the settlement of a note receivable.
For the nine months ended September 30, 1995 other income also consisted of a
gain on the sale of land of $605,000. Other income for the three months ended
September 30, 1994 consisted of a gain on the sale of land of $114,000, a gain
on the settlement of a note receivable of $131,000 and proceeds from the
surrender of former officers' life insurance policies of $286,000. For the nine
months ended September 30, 1994 other income also consisted
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of a gain on the settlement of the Rose and Cohen note receivable of $5.9
million and gain on property sale of $1.1 million.
Pretax extraordinary gains of approximately $19,000 and $121,000 for
the three and nine months ended September 30, 1995 relate to the retirement of
secured notes with a face value of $15.2 million. Pretax extraordinary gains of
approximately $5,000 and $291,000 for the three and nine months ended September
30, 1994 relate to the retirement of debt with a face value of $8.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth strategy focuses on increasing its equity
ownership in hotels, particularly in the full-service and all-suites segments of
the market. The Company plans to aggressively expand its AmeriSuites hotel brand
and projects increasing the total number of AmeriSuites from its current level
of 15 hotels to 40 hotels by the end of 1996. Additionally, the Company intends
to actively pursue acquisitions of full-service hotels or hotel portfolios which
may also require additional capital for the costs of any necessary renovation or
refurbishment. As a result of the Company's decision to focus on its AmeriSuites
and full-service hotels, the Company has begun exploring the sale of its 14
limited-service Wellesley Inns and the Wellesley Inn trade name.
The Company is funding its acquisition and development program
currently with the proceeds from the issuance of $86.3 million of Convertible
Notes and mortgage financings of $42.6 million incurred in 1995. The Company
intends to finance future acquisitions and development with debt and/or equity
offerings. In addition, any proceeds generated from the sale of the Wellesley
Inns will also be utilized to fund acquisitions and development. The Company
believes that these sources will be adequate to fund the implementation of its
growth strategy through 1996. Additionally, the Company believes that its cash
flow from operations is sufficient to fund its anticipated working capital
needs, routine capital expenditures and debt service obligations due in the next
twelve months.
At September 30, 1995, the Company had cash and cash equivalents of
$34.7 million, current marketable securities of $25.4 million and restricted
cash, which is primarily collateral for various debt obligations, of $9.4
million. Cash and cash equivalents and current marketable securities increased
by $46.5 million during nine months ended September 30, 1995 primarily due to
the new borrowings offset by development and acquisition spending.
Cash flow from operations was approximately $26.0 million for the nine
months ended September 30, 1995 as compared to $18.2 million for the same period
of the prior year. Cash flow from operations was positively impacted by the
utilization of net operating loss carryforwards ("NOLs") of $5.9 and $2.3
million for the nine months ended September 30, 1995 and 1994, respectively. At
September 30, 1995, the Company had federal NOLs relating to its predecessor,
PMI, of approximately $106.6 million which are subject to annual utilization
limitations and expire beginning in 2005 and continuing through 2007.
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The Company's other major sources of cash for the nine months ended
September 30, 1995 were net proceeds of approximately $83.2 million from the
issuance of the Convertible Notes, mortgage financings of $39.0 million and
collections of mortgages and notes receivable of $14.7 million. The Company's
major uses of cash for the nine months ended September 30, 1995 were capital
expenditures of $88.0 million, purchases of marketable securities of $24.1
million, debt payments of $20.7 million and the purchase of first mortgage notes
for $12.7 million.
Debt. In April and May 1995, the Company sold $86.3 million of 7%
Convertible Subordinated Notes due 2002. The notes bear interest at 7%, are
convertible into common stock at a price of $12 per share at the option of the
holder and mature April 15, 2002. The notes are redeemable, in whole or in part,
at the option of the Company after three years at premiums to principal which
decline on each anniversary date. The Company plans to use the proceeds
primarily to finance the development and acquisition of hotels or hotel
portfolios.
In February 1995, the Company obtained $39.0 million of mortgage
financing on 11 of its hotels under two separate loan agreements. Both loans
bear interest at variable rates (approximately 10.5% at September 30, 1995) and
have five-year maturities. The funds will be used to finance the Company's
acquisition and development program. The Company also incurred an additional
$3.6 million of debt in connection with the ShoLodge Transaction. See "--
Capital Investments."
During 1995, the Company prepaid and retired $15.2 million of its
senior secured notes resulting in pre-tax extraordinary gains of $121,000. In
October 1995, the Company retired an additional $7.1 million of its senior
secured notes. A pre-tax extraordinary gain of $53,000 will be recorded in the
fourth quarter.
As of September 30, 1995, the Company has $37.5 million of debt related
to the Frenchman's Reef. The obligation matures in December 1996 at which time a
balloon payment of $34.9 million is due. The Company intends to seek an
extension of the maturity of such debt or refinance it. The debt is secured by
the property which has a book value of $50.0 million.
At September 30, 1995, the Company had $295.9 million in debt
outstanding. Of this debt, approximately $83.0 million bears interest at
floating rates. In August 1995, the Company entered into an interest rate
protection agreement with a major financial institution which reduces the
Company's exposure to fluctuations in interest rates by effectively fixing
interest rates on $40 million of variable interest rate debt. Under the
agreement, on a monthly basis the Company will pay a fixed rate of interest of
6.18% and will receive a floating interest rate payment equal to the 30 day
LIBOR rate on a $40 million notional principal amount. The agreement commenced
in October 1995 and expires in 1999.
Capital Investments. The Company has implemented a hotel development
and acquisition program which focuses on the development of its AmeriSuites
hotel chain and the acquisition of strategically positioned full-service hotels
or hotel portfolios. In connection with this program,
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the Company spent approximately $71.7 million in cash on the acquisition and
construction of hotels, purchased first mortgage notes for $12.7 million and
assumed $3.6 million of debt in 1995. The cash portion was funded by a
combination of existing cash balances, cash flow from operations, mortgage
financings and the Convertible Notes offering.
The Company plans to have 40 AmeriSuites hotels in operation by the end
of 1996. During the year, AmeriSuites hotels were opened in Atlanta and
Greensboro bringing the number of AmeriSuites owned and operated by the Company
to fifteen. The Company also expects to convert four recently acquired hotels to
AmeriSuites by year end. The hotels, which are located in Augusta, Georgia;
Columbia, South Carolina; Arlington Heights, Illinois; and Jacksonville,
Florida, were purchased in August 1995 for $18.7 million. The Company currently
has eight AmeriSuites hotels under construction and 15 additional AmeriSuites
sites under contract which are scheduled for the commencement of development in
the fourth quarter of 1995 or early 1996.
In March 1995, the Company purchased an AmeriSuites hotel in Richmond,
Virginia and ShoLodge Inc.'s option to acquire a 50% interest in 11 of the
Company's 12 AmeriSuites hotels. The total consideration payable by the Company
in the ShoLodge Transaction is $19.7 million and is comprised of (i) $16.1
million which was paid during the first half of 1995 plus (ii) $18.5 million
which will be paid in notes maturing in 1997 less (iii) $14.9 million of
existing debt on five hotels which was forgiven at face value. The transaction
resulted in a net increase of $3.6 million of long-term debt. As a result of the
transaction, the Company now manages these 12 AmeriSuites hotels.
As part of the Company's acquisition program, the Company purchased
the 149 room all-suite St. Tropez Hotel and Shopping Center in Las Vegas in
August 1995 for $15.2 million. In June 1995, the Company also purchased $17.4
million of first hotel mortgages for $12.7 million in cash. The mortgage loans
are secured by the 324-room Holiday Inn Hampton Coliseum and an adjacent
132-room Hampton Inn in Hampton, Virginia. The Company acquired the mortgage
loans from a private investment partnership and entered into an agreement with
the owner of the hotels to restructure the notes. The restructuring provided for
a twelve month maturity and a right of first refusal to the Company upon any
sale of the hotels.
In September 1995, the Frenchman's Reef hotel suffered damage when
Hurricane Marilyn struck the U.S. Virgins Islands. Due to extensive property and
business interruption insurance, the Company believes that its liquidity will be
affected only to the extent of its insurance deductibles which the Company
estimates at $2.2 million.
During the first nine months of 1995, the Company spent approximately
$16.0 million on capital improvements at its Owned Hotels, of which
approximately $7.0 million related to refurbishments and repositionings on
recently acquired hotels. The Company intends to spend a total of approximately
$22.0 million on capital improvements for all of 1995, of which approximately
$11 million relates to the refurbishing and repositioning of recently acquired
hotels.
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Asset Realizations. The Company has pursued a strategy of converting
the mortgage notes receivable and other assets that it owns into cash or
operating hotel assets. Since July 31, 1992, the Company has received $100.7
million in cash and added seven operating hotel assets through note settlements
and lease terminations. The Company will continue to pursue settlements with
mortgage and note obligors and will utilize the cash for debt repayments or
general corporate purposes. During 1995, the Company has received $13.1 million
in cash in settlement of a notes receivable resulting in gains of $822,000. In
May 1995, the Company obtained control of the 240 room Princeton Holiday Inn by
converting its $2.7 million mortgage note receivable into a long-term leasehold
position and assuming $1.5 million of debt. The hotel was recently repositioned
to a Holiday Inn from a Ramada Inn.
The Company received a second favorable ruling in its litigation with
Financial Security Assurance, Inc. ("FSA") in which FSA sought approximately
$31.2 million previously received by the Company in settlement of a note and
guaranty from Rose and Cohen. In an order dated April 25, 1995, the U.S.
District Court for the Southern District of Florida (the "U.S. District Court")
affirmed a lower court ruling approving the Company's settlement with Rose and
Cohen and finding that the Company alone was entitled to the settlement
proceeds. The Company had previously reached a settlement in 1993 with Rose and
Cohen which provided for Rose or his affiliate to pay the Company $25 million
plus proceeds from the sale of approximately 1.1 million shares of the Company's
common stock held by Rose, bringing the total settlement proceeds to
approximately $31.2 million. FSA asserted that, under the terms of an
intercreditor agreement, it was entitled to receive the settlement proceeds
otherwise payable to the Company. The U.S. Bankruptcy Court for the Southern
District of Florida (the "Bankruptcy Court") ruled in favor of the Company in
April 1994 and the Company used $25.0 million of the settlement proceeds to
retire certain senior secured notes. FSA appealed to the U.S. District Court,
which affirmed the Bankruptcy Court's ruling. On May 12, 1995, the Company used
the remaining proceeds plus accrued interest to prepay senior secured notes. On
May 23, 1995, FSA filed a notice of appeal with the U.S. Court of Appeals for
the 11th Circuit.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
EX-27 Financial Data Schedule
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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.
PRIME HOSPITALITY CORP.
Date: November 10, 1995 By: /s/ David A. Simon
------------------
David A. Simon, President and
Chief Executive Officer
Date: November 10, 1995 By: /s/ John M. Elwood
------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
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EX-27 Financial Data Schedule