1
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, 1996
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 39,779,010 shares of common stock, $.01 par value
outstanding, as of November 5, 1996.
2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-
December 31, 1995 and September 30, 1996........................................ 1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1995
and September 30, 1996.......................................................... 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995
and September 30, 1996.......................................................... 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.................................................... 20
Signatures ................................................................................ 21
3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
December 31, September 30,
1995 1996
------------ -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents .................................. $ 49,533 $ 73,474
Marketable securities available for sale ................... 11,929 532
Restricted cash ............................................ 8,973 210
Accounts receivable, net of reserves ....................... 13,139 14,883
Current portion of mortgages and
notes receivable ......................................... 1,533 1,360
Other current assets ....................................... 8,070 6,447
-------- --------
Total current assets ................................... 93,177 96,906
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization ........... 398,201 623,926
Mortgages and notes receivable, net of
current portion ............................................ 64,962 24,318
Other assets ................................................. 16,901 20,856
-------- --------
TOTAL ASSETS............................................ $573,241 $766,006
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt .................................... $ 5,731 $ 3,907
Other current liabilities .................................. 38,961 47,977
-------- --------
Total current liabilities .............................. 44,692 51,884
Long-term debt, net of current portion........................ 276,920 289,680
Other liabilities ............................................ 18,713 18,304
-------- --------
Total liabilities ...................................... 340,325 359,868
-------- --------
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; 31,004,449 and
39,764,395 shares issued and outstanding
at December 31, 1995 and September 30, 1996,
respectively ............................................. 310 398
Capital in excess of par value ............................. 183,050 332,951
Retained earnings .......................................... 49,556 72,789
-------- --------
Total stockholders' equity ............................. 232,916 406,138
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $573,241 $766,006
======== ========
See Accompanying Notes to Interim Consolidated Financial Statements.
-1-
4
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ---- ----
Revenues:
Lodging .................................. $ 38,032 $ 54,257 $ 108,157 $ 148,505
Food and beverage ........................ 8,521 8,751 28,096 28,230
Management and other fees ................ 2,399 1,737 6,080 5,221
Interest on mortgages and
notes receivable ....................... 3,354 1,027 9,268 4,731
Business interruption insurance .......... -- 2,616 -- 9,245
Rental and other ......................... 397 459 1,042 1,421
-------- -------- --------- ---------
Total revenues ....................... 52,703 68,847 152,643 197,353
-------- -------- --------- ---------
Costs and expenses:
Direct hotel operating expenses:
Lodging ................................ 10,268 13,769 28,561 37,919
Food and beverage ...................... 6,734 7,279 21,165 22,868
Selling and general .................... 12,652 16,345 36,585 46,088
Occupancy and other operating ............ 2,824 4,185 8,216 11,769
General and administrative ............... 3,950 4,330 11,410 13,087
Depreciation and amortization ............ 4,134 6,800 11,907 18,564
-------- -------- --------- ---------
Total costs and expenses ............. 40,562 52,708 117,844 150,295
-------- -------- --------- ---------
Operating income ........................... 12,141 16,139 34,799 47,058
Investment income .......................... 1,950 1,765 3,879 3,886
Interest expense ........................... (5,947) (5,282) (15,933) (16,829)
Other income ............................... 822 869 1,427 4,301
Other expense .............................. (2,200) -- (2,200) --
-------- -------- --------- ---------
Income before income taxes
and extraordinary items .................. 6,766 13,491 21,972 38,416
Provision for income taxes ................. 2,706 5,396 8,789 15,366
-------- -------- --------- ---------
Income before extraordinary items .......... 4,060 8,095 13,183 23,050
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes) ....... 12 7 73 183
-------- -------- --------- ---------
Net income ................................. $ 4,072 $ 8,102 $ 13,256 $ 23,233
======== ======== ========= =========
Earnings per common share:
Primary:
Income before extraordinary items ........ $ 0.12 $ 0.21 $ 0.41 $ 0.66
Extraordinary items ...................... -- -- -- 0.01
-------- -------- --------- ---------
Net earnings ............................... $ 0.12 $ 0.21 $ 0.41 $ 0.67
======== ======== ========= =========
Fully diluted:
Income before extraordinary items ........ $ 0.12 $ 0.20 $ 0.41 $ 0.62
Extraordinary items ...................... -- -- -- --
-------- -------- --------- ---------
Net earnings ............................... $ 0.12 $ 0.20 $ 0.41 $ 0.62
======== ======== ========= =========
See Accompanying Notes to Interim Consolidated Financial Statements.
-2-
5
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(In Thousands)
Nine Months Ended
September 30,
1995 1996
---- ----
Cash flows from operating activities:
Net income.......................................... $13,256 $ 23,233
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 11,907 18,564
Provision for hurricane damage ................... 2,200 --
Utilization of net operating loss
carryforwards .................................. 5,874 6,824
Gains on settlements of a notes receivable ....... (822) (1,771)
Gains on discharges of indebtedness .............. (121) (305)
Gain on disposal of assets ....................... (1,103) (4,860)
Compensation expense related to stock
options ........................................ 12 --
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable ............................ (4,764) (1,744)
Other current assets ........................... 1,393 1,624
Other liabilities .............................. (1,806) 7,898
------- ---------
Net cash provided by operating
activities ................................... 26,026 49,463
------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and notes
receivable ....................................... 14,672 8,789
Disbursements for mortgages and
notes receivable ................................. (12,704) (800)
Proceeds from sales of property, equipment
and leasehold improvements ....................... 1,784 8,336
Purchases of property, equipment and
leasehold improvements............................ (88,013) (210,830)
Proceeds from insurance settlement ................. -- 9,000
Decrease in restricted cash ........................ 355 8,764
Proceeds from sales of marketable securities ....... 2,165 13,735
Purchases of marketable securities.................. (24,145) 1,189
Other .............................................. 1,086 1,888
------- ---------
Net cash used in investing activities........... (104,800) (159,929)
------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt ................. 120,159 172,345
Payments of debt ................................... (20,705) (181,097)
Proceeds from issuance of common stock ............. -- 141,419
Proceeds from the exercise of stock options
and warrants ..................................... 1,500 1,740
------- ---------
Net cash provided by financing
activities................................... 100,954 134,407
------- ---------
Net increase in cash and
cash equivalents ................................. 22,180 23,941
Cash and cash equivalents at beginning
of period ........................................ 12,524 49,533
------- ---------
Cash and cash equivalents at end of period ......... $ 34,704 $ 73,474
========= =========
See Accompanying Notes to Interim Consolidated Financial Statement
-3-
6
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, 1996 and the results of its operations for the three and
nine months ended September 30, 1995 and 1996 and cash flows for the nine months
ended September 30, 1995 and 1996.
The financial statements for the three and nine months ended September
30, 1995 and 1996 were prepared on a consistent basis with the audited
consolidated financial statements for the year ended December 31, 1995.
The consolidated results of operations for the three and nine months
ended September 30, 1996 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 for the fiscal
year ended December 31, 1995.
Note 2 - SALE OF COMMON STOCK
In August 1996, the Company sold 8.3 million shares of Common Stock at
a price of $18 per share. The Company is utilizing the net proceeds from the
offering of approximately $141.4 million to finance, in part, the development of
its proprietary AmeriSuites brand.
Note 3 - DEBT
On January 23, 1996, the Company issued $120 million of 9 1/4% First
Mortgage Notes due 2006. Interest on the notes is payable semi-annually on
January 15 and July 15. The notes are secured by 15 hotels and contain certain
covenants including limitations on the incurrence of debt, dividend payments,
certain investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the option
of the Company after January 15, 2001 at premiums to principal which decline on
each anniversary date. The Company utilized a portion of the proceeds to pay
down $51.6 million of debt.
On June 28, 1996, the Company established a revolving credit facility
(the "Revolving Credit Facility") with a group of financial institutions
providing for availability of funds up to the lesser of $100.0 million or a
borrowing base determined under the agreement. The Revolving Credit Facility is
secured by certain of the Company's hotels with recourse to the Company.
- 4 -
7
Additional hotels may be added subject to the approval of the lenders. The
Revolving Credit Facility bears interest at LIBOR plus 2.25% and is available
for five years. The Revolving Credit Facility contains covenants requiring the
Company to maintain certain financial ratios and also contains certain covenants
which limit the incurrence of debt, liens, dividend payments, stock repurchases,
certain investments, transactions with affiliates, asset sales, mergers and
consolidations and any change of control of the Company. The aggregate amount of
the Revolving Credit Facility will be reduced to $87.0 million on June 28, 1999
and $75.0 million on June 28, 2000. On June 28, 1996, the Company borrowed $40.0
million under the Revolving Credit Facility and proceeds were used to retire
$20.0 million of interim financing with the remainder utilized principally for
the development of AmeriSuites hotels. On August 5, 1996, the Company repaid the
full amount of this borrowing under the Revolving Credit Facility with proceeds
from the issuance of Common Stock (See Note 2). As of November 1, 1996, the
Company has borrowing availability of approximately $60.0 million under the
Revolving Credit Facility. The Company is in the process of adding 17 additional
hotels to the collateral for the Revolving Credit Facility, which will increase
the borrowing availability to the maximum amount of $100.0 million.
On August 2, 1996, the Company prepaid in full $26.7 million of debt
secured by 10 hotels with the proceeds from the issuance of Common Stock (See
Note 2). The loans were due in February 2000 and bore interest at LIBOR plus
4.25%. The hotels formerly used as collateral for this debt are included in the
17 hotels being added to the collateral for the Revolving Credit Facility.
In October 1996, the Company entered into a six month interest rate
swap agreement with a major financial institution to hedge its interest rate
exposure on the anticipated financing of its development program in 1997. Under
the agreement, the Company effectively fixed interest rates for approximately
seven years on a $98.4 million notional principal amount.
Note 4 - ACQUISITIONS
On March 6, 1996, the Company acquired 18 hotels consisting of 16
Wellesley Inns and two other limited-service hotels for approximately $65.1
million in cash. The acquisition enabled the Company to establish full control
over its proprietary Wellesley Inns brand, with all 29 Wellesley Inns now owned
and operated by the Company. The acquisition price was comprised of
approximately $60.4 million to purchase the first mortgages on the 18 hotels,
with a face value of approximately $70.5 million, and $4.7 million to purchase
the interests of the three partnerships which owned the hotels. Approximately
$1.9 million of the total purchase price was paid to a partnership in which a
general partner is a related party. In connection with the transaction, the
Company also terminated its management agreements and junior subordinated
mortgages related to the 18 hotels. The transaction has been accounted for as a
purchase and, accordingly, the revenues and expenses of these hotels have been
included in reported results from the date of acquisition. If these operations
had been included in the consolidated financial statements since January 1,
1996, reported results would not have been materially different.
- 5 -
8
Note 5 - BUSINESS INTERRUPTION INSURANCE REVENUE
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered hurricane
damage. The Company and its insurance carrier settled the Company's property and
business interruption insurance claim with respect to the Frenchman's Reef for
$25.0 million. In July 1996, the Company received the final installment under
its settlement, bringing the net proceeds to $22.8 million, net of deductibles,
for which the Company provided a reserve of $2.2 million in the third quarter of
1995. Although the Company has repaired a majority of the damaged rooms on an
interim basis and has continued to operate the hotel, the impact of the
hurricane has caused operating profits to decline from the prior year level. For
the three and nine months ended September 30, 1996 and 1995, the Company
continued to record the operating revenues and expenses of the Frenchman's Reef.
In addition, the Company recorded business interruption insurance revenue based
on the claim settlement which is included in operating revenues. The Company is
currently underway with plans to refurbish and upgrade the Frenchman's Reef. In
addition to hurricane-related renovations, the plan provides for structural
enhancements, redesigned guestrooms, increased banquet and meeting space and new
landscaping.
Note 6 - EARNINGS PER COMMON SHARE
Primary earnings 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 earnings per share was 32.7
million and 38.7 million for the three months ended September 30, 1995 and 1996,
respectively, and 32.1 million and 34.7 million for the nine months ended
September 30, 1995 and 1996, respectively.
Fully diluted earnings per share, in addition to the adjustments for
primary earnings 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 April 1995. The weighted
average number of common shares used in computing fully diluted earnings per
share was 39.9 million and 45.8 million for the three months ended September 30,
1995 and 1996, respectively, and 36.7 million and 42.0 million for the nine
months ended September 30, 1995 and 1996, respectively.
- 6 -
9
Note 7 - OTHER INCOME
Other income consists of items which are not considered part of the
Company's recurring operations. For the three and nine months ended September
30, 1995 and 1996, other income consisted of the following:
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ------ ------
Gains on settlements of notes
receivable ............................ $822 $ -- $ 822 $1,515
Gains on sales of land parcels ......... -- 869 605 1,184
Gain on sale of hotel .................. -- -- -- 1,602
---- ---- ------ ------
Total ............................... $822 $869 $1,427 $4,301
==== ==== ====== ======
- 7 -
10
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, as of November 1,
1996, owns or leases 84 hotels (the "Owned Hotels") and manages 14 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 9 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's growth strategy focuses on the accelerated expansion of
its proprietary AmeriSuites brand through new construction. For the three and
nine months ended September 30, 1996, earnings from recurring operations
increased by 55.0% and 50.0%, due primarily to an 11.4% and 11.2% increase in
revenue per available room ("REVPAR") at comparable hotels, respectively, the
addition of 35 hotels primarily through acquisition or construction in the past
year and the impact of increased operating leverage. 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.
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered hurricane
damage. The Company and its insurance carrier settled the Company's property and
business interruption insurance claim with respect to the Frenchman's Reef for
$25.0 million. In July 1996, the Company received the final installment under
its settlement bringing the net proceeds to $22.8 million, net of deductibles,
for which the Company provided a reserve of $2.2 million in 1995. Although the
Company has repaired a majority of the damaged rooms on an interim basis and has
continued to operate the hotel, the impact of the hurricane has caused operating
profits to decline from the prior year level. For the three and nine months
ended September 30, 1996, the Company continued to record the operating revenues
and expenses of the Frenchman's Reef. In addition, the Company recorded business
interruption insurance revenue based on the claim settlement which is included
in operating revenues. The Company is currently underway with plans to refurbish
and upgrade the Frenchman's Reef. In addition to hurricane-related renovations,
the plan provides for structural enhancements, redesigned guestrooms, increased
banquet and meeting space and new landscaping.
- 8 -
11
The matters discussed in this Form 10-Q contain forward-looking
statements that involve risks and uncertainties, including risks associated with
the hospitality industry and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
- 9 -
12
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 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, 1996
and 1995. The results of the three hotels divested during 1995 and 1996 are not
material to an understanding of the results of the Company's operations in such
periods and, therefore, are not separately discussed.
Comparable Owned
Total Hotels(1)
------------------ ------------------
Three Months Ended Three Months Ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ---- ----
INCOME STATEMENT DATA: (Dollars in thousands, except ADR and REVPAR)
Revenues:
Lodging ........................................... $38,032 $54,257 $32,296 $35,963
Food and Beverage ................................. 8,521 8,751 6,324 6,791
Management and Other Fees ......................... 2,399 1,737
Interest on Mortgages and Notes Receivable ........ 3,354 1,027
Business Interruption Insurance ................... -- 2,616
Rental and Other .................................. 397 459
------- -------
Total Revenues ................................. 52,703 68,847
Direct Hotel Operating Expenses:
Lodging ........................................... 10,268 13,769 8,493 8,786
Food and Beverage ................................. 6,734 7,279 4,976 5,216
Selling and General ............................... 12,652 16,345 9,608 10,256
Occupancy and Other Operating ....................... 2,824 4,185
General and Administrative .......................... 3,950 4,330
Depreciation and Amortization ....................... 4,134 6,800
Operating Income .................................... 12,141 16,139
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue ....... 27.0% 25.4% 26.3% 24.4%
Food and Beverage, as a percentage of food and
beverage revenue ............................... 79.0% 83.2% 78.7% 76.8%
Selling and General, as a percentage of lodging and
food and beverage revenue ...................... 27.2% 25.9% 24.9% 24.0%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue .......... 6.1% 6.6%
General and Administrative, as a percentage of total
revenue ........................................ 7.5% 6.3%
OTHER DATA(2):
Occupancy ........................................... 74.7% 73.9% 75.0% 76.0%
Average daily rate ("ADR") .......................... $ 66.86 $ 71.08 $ 66.84 $ 73.45
Revenue per available room ("REVPAR") ............... $ 49.97 $ 52.51 $ 50.13 $ 55.84
Gross Operating Profit .............................. $16,899 $25,615 $15,543 $18,496
- ----------
- 10 -
13
Comparable Owned
Total Hotels(1)
----------------- -----------------
Nine Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ---- ----
INCOME STATEMENT DATA: (Dollars in thousands, except ADR and REVPAR)
Revenues:
Lodging ........................................... $108,157 $148,505 $84,168 $94,159
Food and Beverage ................................. 28,096 28,230 17,975 19,465
Management and Other Fees ......................... 6,080 5,221
Interest on Mortgages and Notes Receivable ........ 9,268 4,731
Business Interruption Insurance ................... -- 9,245
Rental and Other .................................. 1,042 1,421
-------- --------
Total Revenues ................................. 152,643 197,353
Direct Hotel Operating Expenses:
Lodging ........................................... 28,561 37,919 22,386 23,533
Food and Beverage ................................. 21,165 22,868 13,812 14,857
Selling and General ............................... 36,585 46,088 25,974 27,909
Occupancy and Other Operating ....................... 8,216 11,769
General and Administrative .......................... 11,410 13,087
Depreciation and Amortization ....................... 11,907 18,564
Operating Income .................................... 34,799 47,058
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue ....... 26.4% 25.5% 26.6% 25.0%
Food and Beverage, as a percentage of food and
beverage revenue ............................... 75.3% 81.0% 76.8% 76.3%
Selling and General, as a percentage of lodging and
food and beverage revenue ...................... 26.9% 26.1% 25.4% 24.6%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue .......... 6.0% 6.7%
General and Administrative, as a percentage of total
revenue ........................................ 7.5% 6.6%
OTHER DATA(2):
Occupancy ........................................... 70.6% 71.5% 70.8% 72.8%
Average daily rate ("ADR") .......................... $ 66.01 $ 69.94 $ 65.81 $ 71.19
Revenue per available room ("REVPAR") ............... $ 46.62 $ 49.99 $ 46.61 $ 51.82
Gross Operating Profit .............................. $ 49,942 $ 69,860 $39,971 $47,325
- ---------------------
(1) For purposes of this discussion of results of operations for 1996
compared to 1995, comparable Owned Hotels refers to 48 Owned Hotels
that were owned or leased by the Company during all of the three
months ended September 1996 and 1995 and the 46 Owned Hotels that
were owned or leased by the Company during all of the nine months ended
September 30, 1996 and 1995. The Frenchman's Reef has not been
classified as a comparable Owned Hotel due to the effect of the
hurricane damage.
(2) For purposes of showing operating trends, the results of the
Frenchman's Reef and the three disposed hotels have been excluded from
the Other Data section of the table.
- 11 -
14
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $16.2 million and $40.3
million, or 42.7% and 37.3%, during the three and nine months ended September
30, 1996, respectively over the same period of the prior year. The increase was
primarily due to incremental lodging revenues of $15.0 million and $40.0 million
for the three and nine month periods, respectively, from the 35 new hotels added
during the past year with the balance coming from growth in revenues at
comparable Owned Hotels. Lodging revenues for comparable Owned Hotels increased
by $3.7 million and $10.0 million, or 11.4% and 11.9%, for the three and nine
months ended September 30, 1996 as compared to the same periods of the prior
year driven by strong results at the Company's AmeriSuites and full-service
hotels. The revenue gains were offset by a decrease of $2.2 million and $9.0
million for the three and nine months, respectively, at the Frenchman's Reef
attributable to the impact of the 1995 hurricane.
The Company operates in three major segments of the industry:
all-suites, full-service and limited-service. The following table illustrates
the growth in REVPAR for the comparable Owned Hotels for the three and nine
months ended September 30, 1996 as compared to the same periods in the prior
year by industry segment:
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
1996 1996
-------------- --------------
All-suites........................................... 9.0% 14.2%
Full-service......................................... 16.8% 12.8%
Limited-service...................................... 0.7% 5.6%
Total....................................... 11.4% 11.2%
The REVPAR growth at comparable Owned Hotels is attributable to
increased market recognition of the AmeriSuites brand in the all-suites segment
and limited new supply combined with strong demand in the full-service segment.
Repositioning initiatives at full-service hotels also contributed to the
foregoing REVPAR increases. The Company's limited-service segment consists
primarily of the Company's Wellesley Inns where renovations and lower occupancy
levels impacted results in the third quarter. The improvements in REVPAR were
generated by increases in ADR, which rose by 9.9% and 8.2% for the three and
nine month periods, respectively, and occupancy gains of 1.3% and 2.8% for the
three and nine month periods, respectively, over the same periods in the prior
year.
Food and beverage revenues increased by $230,000 and $134,000, or 2.7%
and 0.5%, for the three and nine months ended September 30, 1996 over the same
periods in the prior year. Food and beverage revenues increased due to strong
growth at comparable hotels and additional revenues from two new hotels. The
increases were partially offset by lower food and beverage revenues at the
Frenchman's Reef which declined by $1.2 million and $5.2 million from the same
periods in the prior year due
- 12 -
15
to the hurricane damage. Food and beverage revenues for comparable outlets
increased by $467,000 and $1.5 million, or 7.4% and 8.3%, for the three and nine
months, due primarily to increased banquet business at several hotels.
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 $662,000
and $859,000, or 27.6% and 14.1%, for the three and nine months ended September
30, 1996 from the same periods in the prior year, due primarily to the
conversions of Managed Hotels into Owned Hotels.
Interest on mortgages and notes receivable during the period primarily
related to mortgages secured by certain Owned Hotels and Managed Hotels.
Interest on mortgages and notes receivable decreased by $2.3 million and $4.5
million, or 69.4% and 49.0%, for the three and nine months ended September 30,
1996 from the same periods in the prior year, primarily due to the Company's
conversions of notes receivable into cash or hotel assets during 1995 and 1996.
Direct lodging expenses increased by $3.5 million and $9.4 million, or
34.1% and 32.8%, for the three and nine months ended September 30, 1996 over 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
27.0% to 25.4% for the three month period and from 26.4% to 25.5% for the nine
month period due primarily to increased ADR which has a minimal corresponding
increase in expenses. For comparable Owned Hotels, direct lodging expenses as a
percentage of lodging revenues decreased from 26.3% to 24.4% for the three month
period and from 26.6% to 25.0% for the nine month period due primarily to
increases in ADR.
Direct food and beverage expenses increased by $545,000 and $1.7
million, or 8.1%, for both the three and nine months ended September 30,
1996, respectively, over the same periods in the prior year primarily due to
increased revenues. As a percentage of food and beverage revenues, direct food
and beverage expenses increased from 79.0% to 83.2% for the three month period
and from 75.3% to 81.0% for the nine month period. The increase was primarily
due to the impact of decreased revenues from the food and beverage operations at
the Frenchman's Reef. For comparable Owned Hotels, direct food and beverage
expenses, as a percentage of food and beverage revenue, decreased from 78.7% to
76.8% for the three month period and 76.8% to 76.3% for the nine month period.
The decrease was primarily to the higher margins associated with the increased
banquet revenues.
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
- 13 -
16
maintenance. Direct hotel selling and general expenses increased by $3.7 million
and $9.5 million, or 29.2% and 26.0%, for the three and nine months ended
September 30, 1996, over 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
decreased from 27.2% to 25.9% for the three month period and from 26.9% to 26.1%
for the nine month period due primarily to the impact of increases in ADR. For
comparable Owned Hotels, direct selling and general expenses as a percentage of
revenues decreased from 24.9% to 24.0% for the three month period and from 25.4%
to 24.6% for the nine month period due to the ADR increases.
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, 1996, occupancy and other operating expenses increased by
$1.4 million and $3.6 million or 48.2% and 43.2%, over the same periods in the
prior year primarily due to the addition of new hotels and increased real estate
taxes on certain hotels which were partially assessed in the prior year. As a
result, occupancy and other operating expenses as a percentage of hotel revenues
increased from 6.1% to 6.6% for the three month period and 6.0% to 6.7% for the
nine month period.
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 Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $380,000 and $1.7 million, or 9.6% and 14.7%, for the
three and nine months ended September 30, 1996, primarily due to increased
advertising, personnel and training costs associated with opening new hotels. As
a percentage of total revenues, general and administrative expenses decreased
from 7.5% to 6.3% for the three month period and from 7.5% to 6.6% for the nine
month period due to operating leverage.
Depreciation and amortization expense increased by $2.7 million and
$6.7 million, or 64.5% and 55.9%, for the three and nine months ended September
30, 1996 over the same periods in the prior year due to the impact of new hotel
properties acquired or opened in the past year and refurbishment efforts at
several hotels.
Interest expense decreased by $665,000, or 11.2%, for the three months
ended September 30, 1996 from the same period in the prior year primarily due to
capitalized interest associated with the construction of AmeriSuites hotels.
Capitalized interest increased to $1.7 million in the three month period from
$686,000 in the prior year period. Interest expense increased by $896,000,
or 5.6% for the nine months ended September 30, 1996 primarily due to a net
increase of $68.4 million in debt, after application of the proceeds to repay
indebtedness, from the $120.0 million First Mortgage Notes due 2006 ("the First
Mortgage Notes") issued in January 1996. The increase was partially offset by
higher capitalized interest which increased to $4.7
- 14 -
17
million for the nine month period from $1.8 million in the prior year period.
Investment income decreased by $185,000, or 9.5% for the three month period and
was relatively even with the prior year for the nine month period primarily due
to the weighted average of cash balances throughout the periods.
Other income consists of items which are not part of the Company's
recurring operations. Other income for the three months ended September 30, 1996
consisted of a gain on the sale of a land parcel of $869,000. For the nine
months ended September 30, 1996, other income also consisted of gains on the
settlements of notes receivable of $1.8 million and a gain on the sale of a
hotel of $1.6 million. Other income for the three months ended September 30,
1995 consisted of a gain on the settlement of a note receivable of $822,000. For
the nine months ended September 30, 1995, other income also consisted of a gain
on the sale of a land parcel of $605,000.
Pretax extraordinary gains of approximately $12,000 and $305,000 for
the three and nine months ended September 30, 1996, respectively, and $20,000
and $121,000 for the three and nine months ended September 30, 1995 relate
primarily to the retirement of senior secured notes and certain mortgage debt.
LIQUIDITY AND CAPITAL RESOURCES
Prime's principal growth strategy is the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. Prime
expects to have 39 AmeriSuites in operation by the end of 1996 and plans to have
70 AmeriSuites open by the end of 1997.
Prime believes it has sufficient resources available to fund its
AmeriSuites growth strategy, including capital from the following sources: (i)
net proceeds from the sale of 8.3 million shares of Common Stock in August 1996,
(ii) borrowings under its $100 million five-year Revolving Credit Facility and
(iii) internally generated free cash flow from its portfolio of 98 hotels as of
November 1, 1996. In addition, Prime may enter into sale/leaseback transactions
involving certain of its hotels or seek additional debt financing.
At September 30, 1996, the Company had cash, cash equivalents and
current marketable securities of $74.0 million. Cash, cash equivalents and
current marketable securities increased by $12.5 million during the nine months
ended September 30, 1996.
The Company's major sources of cash for the nine months ended September
30, 1996 were net proceeds of approximately $115.0 million from the issuance of
the $120.0 million First Mortgage Notes in January 1996, net proceeds from
borrowings under the Revolving Credit Facility of $38.0 million, net proceeds of
$141.4 million from the issuance of 8.3 million shares of Common Stock and cash
flow from operations of $49.5 million. The Company's major uses of cash during
the period were capital expenditures relating primarily to acquisitions and
development of $210.8 million and debt repayments of $172.3 million.
- 15 -
18
Cash flow from operations increased to $49.5 million for the nine
months ended September 30, 1996 as compared to $26.0 million for the same period
in the prior year due to the improved operating results. Cash flow from
operations was positively impacted by the utilization of net operating loss
carry forwards ("NOLs") of $6.8 million for the nine months ended September 30,
1996 as compared to $5.9 million for the same period in the prior year. At
September 30, 1996, the Company had federal NOLs relating to its predecessor,
Prime Motor Inns, Inc., of approximately $102.0 million which are subject to
annual utilization limitations and expire beginning in 2005 and continuing
through 2007.
Common Stock. On August 2, 1996, the Company sold 8.3 million shares of
Common Stock at a price of $18 per share. The Company is utilizing the net
proceeds from the offering of approximately $141.4 million to finance, in part,
the development of its proprietary AmeriSuites brand.
Debt. On June 28, 1996, the Company established a Revolving Credit
Facility with a group of financial institutions providing for availability of
funds up to the lesser of $100.0 million or a borrowing base determined under
the agreement. The Revolving Credit Facility is secured by certain of the
Company's hotels with recourse to the Company. Additional hotels may be added
subject to the approval of the lenders. The Revolving Credit Facility bears
interest at LIBOR plus 2.25% and is available for five years. The Revolving
Credit Facility contains covenants requiring the Company to maintain certain
financial ratios and also contains covenants which limit the incurrence of debt,
liens, dividend payments, stock repurchases, certain investments, transactions
with affiliates, asset sales, mergers and consolidations and any change of
control of the Company. The aggregate amount of the Revolving Credit Facility
will be reduced to $87.0 million on June 28, 1999 and $75.0 million on June 28,
2000. On June 28, 1996, the Company borrowed $40.0 million under the Revolving
Credit Facility and the proceeds were used to retire $20.0 million of interim
financing with the remainder utilized principally for the development of
AmeriSuites hotels. On August 5, 1996, the Company repaid the full amount of
this borrowing under the Revolving Credit Facility with the proceeds from the
issuance of Common Stock. As of November 1, 1996, the Company has borrowing
availability of approximately $60.0 million under the Revolving Credit Facility.
The Company is in the process of adding 17 additional hotels to the collateral
for the Revolving Credit Facility, which will increase the borrowing
availability to the maximum amount of $100.0 million.
On August 2, 1996, the Company prepaid in full $26.7 million of debt
secured by 10 hotels. The loans were due in February 2000 and bore interest at
LIBOR plus 4.25%. The hotels formerly used as collateral for this debt are
included in the 17 hotels being added to the collateral for the Revolving Credit
Facility.
In May 1996, the Company borrowed $20.0 million from a financial
institution with interest at LIBOR plus 2.25%. Proceeds were utilized for the
development of AmeriSuites hotels. The borrowing was subsequently repaid with
the proceeds from the Revolving Credit Facility.
- 16 -
19
In January 1996, the Company issued $120.0 million of First Mortgage
Notes. Interest on the First Mortgage Notes is payable semi-annually on January
15 and July 15. The notes are secured by 15 hotels and contain certain covenants
including limitations on the incurrence of debt, dividend payments, stock
repurchases, certain investments, transactions with affiliates, asset sales and
mergers and consolidations. The First Mortgage Notes are redeemable, in whole or
in part, at the option of the Company on or after January 15, 2001 at premiums
to principal which decline on each anniversary date thereafter. The Company
utilized a portion of the proceeds to pay down approximately $51.6 million of
indebtedness, with the remainder of the proceeds used to finance the development
or acquisition of hotels or hotel portfolios.
During the year, the Company has prepaid and retired $16.3 million of
its 10% Senior Secured Notes resulting in pre-tax extraordinary gains of
$116,000. The Company also retired $2.4 million of mortgage debt in conjunction
with the sale of a hotel which resulted in a pre-tax extraordinary gain of
$189,000.
The Company has $13.9 million of debt related to the Frenchman's Reef
which was originally scheduled to mature in December 1996. The Company and the
lender have entered into an agreement to extend the maturity of the loan to
January 1998. The loan continues to bear interest at the same rate and principal
payments are waived until maturity. All other terms and conditions of the loan
remain in effect. The Company and the lender are currently in negotiation to
restructure the loan in connection with the refurbishment plans at the
Frenchman's Reef. See "--Capital Investments."
In October 1996, the Company entered into a six month interest rate
swap agreement with a major financial institution to hedge its interest rate
exposure on the anticipated financing of its development program in 1997. Under
the agreement, the Company effectively fixed interest rates for approximately
seven years on a $98.4 million notional principal amount.
Capital Investments. The Company's capital spending thus far in 1996
has been focused on the development of its AmeriSuites hotel chain and the
consolidation of ownership of its Wellesley Inns chain. The Company spent
approximately $184.7 million through September 1996 on acquisitions and
construction funded primarily by a combination of existing cash balances, cash
flow from operations, the issuance of the First Mortgage Notes, and the issuance
of common stock.
The Company intends to rapidly expand its AmeriSuites chain through new
construction. The Company has opened nine new AmeriSuites hotels to date in
1996, bringing the number of AmeriSuites to 28 as of November 1, 1996. The
Company expects to have 39 AmeriSuites in operation by the end of 1996 and plans
to have 70 AmeriSuites open by the end of 1997. As of November 1, 1996, the
Company has 29 AmeriSuites hotels under construction and 24 additional
AmeriSuites sites under contract. During the nine months ended September 30,
1996, the Company spent $115.3 million constructing new AmeriSuites hotels and
expects to spend an additional $75 million in the fourth quarter of 1996.
- 17 -
20
On March 6, 1996, the Company acquired 18 hotels consisting of 16
Wellesley Inns and two other limited service hotels for approximately $65.1
million in cash. The acquisition enabled the Company to establish full control
over its proprietary Wellesley Inns brand with all 29 Wellesley Inns now owned
and operated by the Company. The Company is in the process of refurbishing 14 of
the acquired Wellesley Inns to ensure consistent quality and enhance the value
of its brand.
In September 1996, the Company acquired the Ramada Plaza Suite Hotel in
Secaucus, NJ which is being repositioned as Radisson Suite Hotel. The
acquisition price of $16.3 million included the assumption of $12.3 million of
debt. The acquisition is part of the Company's secondary strategy of acquiring
full-service hotels having operating synergies with other Company hotels.
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered damage when
Hurricane Marilyn struck the island. The Company has repaired a majority of the
damaged rooms on an interim basis and has continued to operate the hotel. The
Company is currently underway with plans to refurbish and upgrade the
Frenchman's Reef. In addition to hurricane-related renovations, the plan
provides for structural enhancements, redesigned guestrooms, increased banquet
and meeting space and new landscaping. The Company and its insurance carrier
settled the Company's property and business interruption insurance claim with
respect to Hurricane Marilyn for $25.0 million. In July 1996, the Company
received the final installment under its settlement, bringing the net proceeds
to $22.8 million, net of deductibles, for which the Company provided a reserve
of $2.2 million in 1995. The Company has utilized the insurance proceeds to
reduce the Frenchman's Reef mortgage loan to $13.9 million. Under certain
circumstances, the Company believes that the lender will re-lend these amounts
for property refurbishment; however, the lender has sole discretion concerning
such refurbishment loans. The Company is discussing with the lender the terms
under which the lender may make such funds available. In addition, in July 1996,
Hurricane Bertha struck the island and caused additional damage to the hotel.
The Company is in the process of preparing a claim under its property and
business interruption insurance.
During the nine months ended September 30, 1996, the Company spent
approximately $24.3 million on capital improvements at its Owned Hotels, of
which approximately $10.3 million related to refurbishments and repositionings
of recently acquired hotels. In 1996, the Company completed the repositioning of
the Hasbrouck Heights, N.J. Crowne Plaza and is in the process of refurbishing
14 of the recently acquired Wellesley Inns. The Company expects to substantially
complete the Wellesley Inn renovation by year end. The Company intends to spend
approximately $10 million relating to the Wellesley Inn refurbishment.
Asset Realizations. The Company has pursued a strategy of converting
mortgage notes receivable and other assets into cash or operating hotel assets.
During the nine months ended September 30, 1996, the Company received $8.3
million in cash in settlement of notes receivable and $8.4 million in cash on
sales of properties resulting in gains of $4.3 million. In January 1996,
- 18 -
21
the Company obtained control of the 210-room Cocoa Beach Howard Johnson Hotel by
converting its $9.7 million mortgage note receivable into a long-term lease. On
March 31, 1996, the Company obtained control of the 204-room Fairfield Radisson
by converting its $22.4 million mortgage note receivable into a long-term lease.
- 19 -
22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11 - Computation of Earnings per Common Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
On July 17, 1996, a report on Form 8-K was filed announcing
the Company's earnings for the second quarter of 1996.
- 20 -
23
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 11, 1996 By: /s/ David A. Simon
------------------
David A. Simon, President and
Chief Executive Officer
Date: November 11, 1996 By: /s/ John M. Elwood
------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
- 21 -
24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 COMPUTATION OF EARNINGS PER COMMON SHARE
27 FINANCIAL DATA SCHEDULE