1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
/ / Transition period report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from _______________ to _______________
Commission File Number: 34-0-25340
STUDIO PLUS HOTELS, INC.
(Exact name of registrant as specified in its charter)
Virginia 61-1273532
(State of Incorporation) (I.R.S. Employer
Identification No.)
1999 Richmond Road
Suite 4
Lexington, Kentucky 40502
(Address of principal executive offices)
606/269-1999
(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, and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Number of shares of Common Stock, $.01 par value outstanding as of May 3, 1996:
8,351,898
2
Studio Plus Hotels, Inc.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1996
(unaudited) and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 1996 (unaudited) and 1995 4
Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1996 (unaudited) and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION AND SIGNATURES
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 11
Report of Independent Accountants 12
Signatures 13
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Part I. Financial Information
Item 1. Financial Statements
STUDIO PLUS HOTELS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
ASSETS MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,654 $ 2,557
Accounts receivable, net of allowance of $70 and $71, respectively 491 372
Refundable income taxes 162
Other current assets 359 164
Total current assets 4,504 3,255
Property and equipment, net 66,626 59,630
Deferred loan costs, net of accumulated amortization of $78 and $48, respectively 418 245
Non-compete agreement, net of accumulated amortization of $144 and $125, respectively 6 25
Pre-opening costs, net of accumulated amortization of $456 and $391, respectively 429 210
Deferred public offering costs 473
Other assets 11 11
$72,467 $63,376
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,422 $ 1,877
Compensation 491 246
Interest 62 18
Income taxes payable 217
Accrued expenses 1,217 762
-------
Total current liabilities 4,409 2,903
Long-term debt 11,000 4,000
Deferred income tax 4,827 4,827
Shareholders' equity:
Common stock 51 51
Additional paid-in capital 50,490 50,490
Retained earnings 1,690 1,105
------- -------
Total shareholders' equity 52,231 51,646
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$72,467 $63,376
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See accompanying notes to financial statements
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Part I. Financial Information
Item 1. Financial Statements
STUDIO PLUS HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(Unaudited)
THREE MONTH PERIODS
ENDED MARCH 31,
------------------------------
1996 1995
Revenue:
Room revenue $ 4,250 $ 2,968
Other revenue 173 168
---------
Total revenue 4,423 3,136
---------
Costs and expenses:
Property operating expenses 1,931 1,342
Corporate operating expenses 890 313
Depreciation and amortization 674 408
Interest expense, net of interest income of $33 in 1996 (32) 751
---------
Total costs and expenses 3,463 2,814
Income before third party investors' interest, ---------
and income taxes 960 322
Third party investors' interest (27)
Income before income taxes 960 295
Provision for income taxes (375)
Net income $ 585 $ 295
--------- ---------
Pro forma income data: (Note 4)
Income before income taxes $ 295
Pro forma provision for income taxes (115)
Pro forma net income $ 180
---------
Earnings per common and common equivalent shares,
primary and fully diluted (Note 4) $ 0.11
Pro forma earnings per share (Note 4) $ 0.14
---------
Weighted average number of common and common
equivalent shares outstanding (Note 4) 5,319,998 1,284,799
See accompanying notes to financial statements
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Part I. Financial Information
Item 1. Financial Statements
STUDIO PLUS HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
THREE MONTH PERIODS
ENDED MARCH 31,
1996 1995
------ ------
Cash flows from operating activities:
Net Income $ 585 $ 295
Adjustments to reconcile net income to net cash provided
by operating activities:
Third party investors' interest 27
Depreciation and amortization 674 408
Gain on sale of assets (60)
Bad debt expense 14 22
Change in:
Accounts receivable (132) (63)
Other current assets (196) (2)
Other assets (16)
Accounts payable 338 99
Income taxes payable 379
Accrued expenses 373 21
------ ------
'Net cash provided by operating activities 2,035 731
------ ------
Cash flows from investing activities:
Sale of assets 141
Expenditures for land, buildings, improvements, furniture and fixtures (7,342) (1,952)
Additions to preopening costs (285) (37)
'Net cash used in investing activities (7,627) (1,848)
------ ------
Cash flows from financing activities:
Proceeds from long-term debt 7,000 1,192
Proceeds from notes payable to shareholders and partners 867
Principal payments on long-term debt (147)
Additions to deferred loan costs (203)
Public offering costs (108) (247)
'Net cash provided by financing activities 6,689 1,665
'Net increase in cash and cash equivalents 1,097 548
Cash and cash equivalents at beginning of periods 2,557 458
------ ------
Cash and cash equivalents at end of periods $3,654 $1,006
See accompanying notes to financial statements
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Studio Plus Hotels, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain
information and footnotes required by generally accepted accounting principles
for complete financial statements have been omitted. In the opinion of
management, all adjustments, consisting of normal recurring adjustments, which
are necessary for a fair presentation of financial position and results of
operations have been made. These interim financial statements should be read
in conjunction with the Company's 1995 Form 10-K filed with the Securities and
Exchange Commission.
All significant intercompany balances and transactions have been
eliminated.
(2) Follow-on Offering
On April 2, 1996, Studio Plus Hotels, Inc. and its wholly owned
subsidiary, Studio Plus Properties, Inc. (together the "Company"), completed a
follow-on offering of 3,450,000 shares of common stock, including 450,000
shares issued as a result of the exercise of the underwriters' over-allotment
option, and 213,102 shares sold by selling shareholders at $25.25 per share
(the "Offering"). Net proceeds to the Company were approximately $76.7
million, which excluded any proceeds from the selling shareholders. The
Company used the proceeds from the Offering to repay approximately $11.0
million of mortgage indebtedness and the balance to fund the national expansion
and development of StudioPLUS hotels and for working capital and general
corporate purposes.
(3) Income Taxes
Net income for periods prior to the completion of the Company's
Initial Public Offering on June 26, 1995 (the "IPO") excludes taxes on income.
Prior to the IPO, the Company was organized as S-corporations and partnerships,
and were not subject to income tax.
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(4) Earnings Per Share
The weighted average number of common and common equivalent shares
used in the computation of earnings per share for the three months ended March
31, 1996 are as follows:
Weighted average common shares issued 5,115,000
Dilutive effect of stock options 204,998
---------
Weighted average number of common and
common equivalent shares 5,319,998
The pro forma earnings per share for the three months ended March 31,
1995, has been calculated by dividing pro forma net income by the weighted
average number of shares of common stock deemed to be outstanding. Net income
has been adjusted to pro forma net income by reflecting the tax that would have
been paid by the Company if it had been subject to income tax for the full
period, assuming a 39.0% effective tax rate.
The Company believes that the earnings per share calculations discussed
above, required in accordance with Accounting Principles Board Opinion Number
15, are not meaningful for periods prior to the IPO. Rather, if certain
adjustments are made to the combined historical operating results for the
Predecessor Entities and 5,115,000 shares were assumed outstanding, the
adjusted net income per share for the three months ended March 31, 1995, would
have been $0.10, compared to $0.11 for the three months ended March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
During the first quarter of 1996, Studio Plus Hotels, Inc. (the
"Company") opened three new hotels, one each in Montgomery, Alabama (February
24, 1996; 72 suites), Charlotte, North Carolina (March 29, 1996; 72 suites),
and Birmingham, Alabama (March 31, 1996; 72 suites). The addition of these
three hotels brings the Company's total portfolio to 25 StudioPLUS hotels in
operation, or 1,786 suites, as of March 31, 1996. The Company's development
efforts are on track and it has broken ground on four new sites since the end
of the first quarter. As of May 3, 1996, the Company had ten hotels under
construction located in six states, all of which are currently expected to open
by the end of this year. In addition, development efforts are under way or
negotiations are continuing on approximately 30 additional sites located in 13
states. The Company anticipates acquiring and beginning construction on most
of these additional sites by the end of 1996, with the goal of operating 60
StudioPLUS hotels by the end of 1997, and 100 by the end of 1998. The Company
will continue searching for other appropriate sites to locate and construct
StudioPLUS hotels as it expands its development pipeline.
In accordance with its business plan, the Company has continued its
deliberate, increased investment in human resources and corporate
infrastructure. During the three months ended
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March 31, 1996, additional personnel were hired to help manage the accelerated
pace of development, as well as to help train and prepare for operating an
ever-increasing number of StudioPLUS hotels. To stay on top of the Company's
growth, experienced, enthusiastic and energetic individuals have been added to
further support the areas of site acquisition, construction supervision, hotel
operations, marketing and finance. To complement the over 30 years of
experience senior management has in developing and operating extended stay
hotels, and in addition to the extensive experience of our other corporate
management, support and hotel operations personnel, these newest additions
include professionals with experience in the hotel industry as well as in the
areas of real estate acquisition and development. As the Company continues to
further expand upon its regional presence, it anticipates proactively adding
more management and support staff throughout the year in preparation of
operating 35 StudioPLUS hotels by year end.
The Company completed an initial public offering (the "IPO") on June
26, 1995, at which time it acquired, through merger and acquisition, all of the
assets of the S-corporations and partnerships that owned StudioPLUS hotels (the
"Predecessor Entities"). The Company sold 3,565,000 shares of common stock
(the "Common Stock") in the IPO at a price of $15.00 per share. The Company
sold an additional 3,450,000 shares of Common Stock, including 213,102 shares
sold by selling shareholders, in a follow-on offering (the "Offering") that was
completed April 2, 1996, at a price of $25.25 per share.
The following discusses historical results for the Company from the
date of the IPO, and combined historical results for the Predecessor Entities
prior to the IPO.
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 1996, to three months ended March
31, 1995.
Total revenue for the three months ended March 31, 1996, was
$4,423,000, an increase of $1,287,000, or approximately 41.0% over the
corresponding three month period during 1995. Room revenue for this period
increased by approximately $1,282,000, of which (i) approximately $446,000 is
attributable to the 18 hotels open throughout both periods and (ii)
approximately $836,000 is attributable to the seven new hotels that have opened
since December 31, 1994. The increase in room revenue from the 18 hotels open
throughout both periods resulted from a 14.4% increase in weekly revenue per
available room from $174.85 to $200.09, which reflects a 9.8% increase in
average weekly rates from $228.54 to $251.02 and an increase in occupancy from
76.5% to 79.7%. The net increase in other revenue was approximately $5,000;
however, excluding a one-time gain on sale of assets of approximately $67,000
that occurred during the three months ended March 31, 1995, other revenue
increased approximately $72,000 due primarily to higher telephone, laundry and
vending income.
Operating expenses for the three months ended March 31, 1996,
including property and corporate expenses, were $2,821,000, an increase of
$1,166,000, or approximately 70.5% over the three months ended March 31, 1995.
Property operating expense increased by approximately $589,000, of which (i)
approximately $229,000 is attributable to the 18 hotels open throughout
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both periods and (ii) approximately $360,000 is attributable to the seven new
hotels that have opened since December 31, 1994. The increase in property
operating expense for the 18 hotels open throughout both periods resulted
primarily from higher labor costs relating to hiring and training hotel
operations personnel in preparation for opening additional hotels later this
year, as well as higher housekeeping and administrative expenses. Corporate
operating expense increased approximately $577,000, resulting from expanding
the Company's corporate infrastructure to support its national expansion
program, in addition to various expenses associated with operating as a public
company which were not applicable during the prior year period.
Depreciation and amortization expense increased $266,000, or
approximately 65.2%, resulting primarily from operating the seven new hotels
and the associated amortization of their pre-opening costs. The reduction of
$783,000 in interest expense for the three months ended March 31, 1996, over
the corresponding period in 1995 can be attributed to a decrease of
approximately $750,000 in interest expense, resulting from the payoff of debt
from the IPO proceeds, and an increase in interest income of approximately
$33,000 due to the investment of proceeds from the IPO. The provision for
income taxes for the three months ended March 31, 1996, was approximately
$375,000, for an effective tax rate of 39.0%. Prior to the IPO, the
Predecessor Entities were not subject to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
On April 2, 1996, the Company completed its follow-on Offering of
Common Stock, raising additional equity and increasing paid-in capital by
approximately $76.7 million. The Company will use the net proceeds from the
Offering to repay approximately $11.0 million (as of March 31, 1996) of
indebtedness under its line of credit (the "Line of Credit"), and the balance
to fund the development of additional StudioPLUS hotels and for working capital
and general corporate purposes. Pending the use of such proceeds as indicated,
the net proceeds will be invested in interest-bearing, short-term, investment
grade securities or money market accounts.
During the three months ended March 31, 1996, the Company generated
$2.0 million in cash provided by operating activities, an increase of $1.3
million over the three months ended March 31, 1995. This 178.4% increase can
be attributed to an improvement in net income resulting from operating seven
new hotels and an increase in accounts payable, income taxes payable, and
accrued expenses. The Company had cash and cash equivalents of $3.7 million
and $2.6 million at March 31, 1996, and December 31, 1995, respectively.
In February, the Company amended their existing Line of Credit with
Bank One, Lexington, NA (the "Bank") to increase its borrowing capacity from
$30 million to $50 million. Subsequent to the increase to $50 million, the
Company has received a commitment from the Bank to increase the principal
amount available under the Line of Credit to approximately $163 million. The
increase in the Line of Credit is subject to the Bank obtaining commitments
from participating lenders and other customary closing conditions. Under the
commitment for the increased Line of Credit, the financial covenants and terms
and conditions of the existing Line of Credit will continue to apply and the
Company has agreed to certain additional financial covenants and
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restrictions which the Company does not believe will adversely affect the
Company. There can be no assurance that all the conditions to the increase in
the Line of Credit will be met or that the Company will be able to obtain the
increase in the Line of Credit.
The Company currently expects to open one additional StudioPLUS hotel
during the second quarter, four during the third quarter and five during the
fourth quarter of 1996. The Company estimates that these ten additional
StudioPLUS hotels to be completed during 1996 should have a total cost of
approximately $31 million, which the Company intends to fund with proceeds from
the Offering, borrowings available under its line of credit, and cash flow from
operations. However, there can be no assurance that the Company will complete
the development of such additional StudioPLUS hotels during 1996 in a timely
manner or within budget.
The Company in the future may seek to further increase the amount of
its credit facilities, negotiate additional credit facilities, or issue
corporate debt instruments. Any debt incurred or issued by the Company may be
secured or unsecured at fixed or variable interest rates and may be subject to
such terms as the Board of Directors of the Company deems prudent.
The Company believes that the proceeds from the Offering, borrowings
under the Line of Credit and cash generated from operations will be sufficient
to meet the Company's working capital and capital expenditure needs for the
foreseeable future.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets", and SFAS
No. 123 "Accounting for Stock-Based Compensation", both of which are effective
for fiscal years beginning after December 31, 1995.
SFAS No. 121 requires that long-lived assets and certain intangibles
held and used by entities be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has concluded that adoption of this standard has no
material impact on its financial condition or results of operation.
SFAS No. 123 requires either the recognition or the pro forma
disclosure of compensation expense for stock options and other equity
instruments determined by a fair value based method of accounting. The Company
intends to disclose pro forma net income and earnings per share in the 1996
Annual Report, which will have no effect on the consolidated financial
statements.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
See Note 2, Part 1 of this Form 10-Q.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER
- - ------
15 Filed herewith; Report from Coopers & Lybrand L.L.P., dated May 1, 1996.
27 Financial Data Schedule (SEC Use Only)
(B) REPORTS OF FORM 8-K
Current report on form 8-K dated February 27, 1996, filed for purposes
of providing updated financial information for the year ended December 31,
1995. Information included within Form 8-K is as follows: First Amendment to
Rights Agreement;Selected Financial Information and Other Data for the Company
for each of the five years in the period ended December 31, 1995; Unaudited
Pro Forma Statement of Operations for the Company for the year ended December
31, 1995; Management's Discussion and Analysis of Financial Condition and
Results of Operations; and the Company's Audited Consolidated Financial
Statements and Notes, and Report of Independent Accountants.
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Studio Plus Hotels, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet and
related condensed consolidated statements of operations and cash flows of
Studio Plus Hotels, Inc. and Subsidiary as of March 31, 1996, and for the three
month period then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- - --------------------------------
Coopers & Lybrand, L.L.P.
Cincinnati, Ohio
May 1, 1996
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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.
Studio Plus Hotels, Inc.
Date: May 10, 1996 By: /s/ Norwood Cowgill, Jr.
- - ------------------------- -----------------------------------------
Norwood Cowgill, Jr.
Chairman of the Board, and President
Date: May 10, 1996 By: /s/ James C. Baughman, Jr.
- - ------------------------- -----------------------------------------
James C. Baughman, Jr.
Chief Financial Officer and Treasurer
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