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 September 30, 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 October 31,
1996: 12,528,845
2
Studio Plus Hotels, Inc.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
month periods ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Operations for the nine
month periods ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION AND SIGNATURES
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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Part I. Financial Information
Item 1. Financial Statements
STUDIO PLUS HOTELS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
ASSETS September 30, December 31,
1996 1995
(Unaudited)
Current assets:
Cash and cash equivalents $31,663 $2,557
Investments available-for-sale 18,227
Accounts receivable, net of allowance of
$75 and $71, respectively 739 372
Refundable income taxes 162
Other current assets 502 164
Total current assets 51,131 3,255
Property and equipment, net 91,426 59,630
Deferred loan costs, net of accumulated
amortization of $166 and $48, respectively 383 245
Preopening costs, net of accumulated amortization
of $633 and $391, respectively 552 210
Other assets 6 36
$143,498 $63,376
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $3,544 $1,877
Property tax 512 322
Compensation 522 246
Income taxes payable 1,139
Accrued expenses 641 458
Total current liabilities 6,358 2,903
Long-term debt 4,000
Deferred income tax 4,846 4,827
Shareholders' equity:
Common stock 125 51
Additional paid-in capital 127,207 50,490
Net unrealized gains on investments 29
Retained earnings 4,933 1,105
Total shareholders' equity 132,294 51,646
$143,498 $63,376
See accompanying notes to financial statements
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Part 1. 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 SEPTEMBER 30,
1996 1995
Revenue:
Room revenue $6,303 $4,353
Other revenue 210 141
Total revenue 6,513 4,494
Costs and expenses:
Property operating expenses 2,477 1,660
Corporate operating expenses 1,010 705
Depreciation and amortization 876 450
Interest income, net (722) (89)
Total costs and expenses 3,641 2,726
Income before income taxes 2,872 1,768
Provision for income taxes 1,120 705
Net income $1,752 $1,063
Earnings per common and common equivalent shares,
primary and fully diluted (Note 4) $0.14 $0.14
Weighted average number of common and common
equivalent shares outstanding (Note 4) 12,816,903 7,672,500
See accompanying notes to financial statements
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Part 1. Financial Information
Item 1. Financial Statements
STUDIO PLUS HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except earnings per share data)
(Unaudited)
NINE MONTH PERIODS
ENDED SEPTEMBER 30,
1996 1995
Revenue:
Room revenue $16,087 $11,397
Other revenue 553 434
Total revenue 16,640 11,831
Costs and expenses:
Property operating expenses 6,862 4,635
Corporate operating expenses 2,766 1,450
Depreciation and amortization 2,312 1,293
Interest (income) expense, net (1,577) 1,422
Total costs and expenses 10,363 8,800
Income before third party investors' interest and
income taxes 6,277 3,031
Third party investors' interest (142)
Income before income taxes 6,277 2,889
Provision for income taxes 2,448 1,280
Income before extraordinary loss 3,829 $1,609
Extraordinary loss (185)
Net income $3,829 $1,424
Pro forma income data: (Note 4)
Income before income taxes $1,609
Pro forma provision for income taxes 125
Pro forma income before extraordinary loss 1,734
Extraordinary loss (185)
Pro forma net income $1,549
Earnings per common and common equivalent shares,
primary and fully diluted (Note 4) $ 0.34
Pro forma earnings per share: (Note 4)
Income before extraordinary loss $ 0.44
Extraordinary loss (0.05)
Net income $ 0.39
Weighted average number of common and common
equivalent shares outstanding (Note 4) 11,180,562 3,968,570
See accompanying notes to financial statements
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Part 1. Financial Information
Item 1. Financial Statements
STUDIO PLUS HOTELS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
NINE MONTH PERIODS
ENDED SEPTEMBER 30,
1996 1995
Cash flows from operating activities:
Net Income $ 3,829 $ 1,424
Adjustments to reconcile net income to net cash provided
by operating activities:
Third party investors' interest 142
Depreciation and amortization 2,312 1,293
Gain on sale of investments and other assets (9) (70)
Bad debt expense 61 32
Extraordinary loss 185
Deferred income tax liability 540
Change in
Accounts receivable (428) (162)
Other current assets (338) (231)
Other assets 6 (200)
Accounts payable 94 139
Income taxes 1,301
Accrued expenses 724 408
Net cash provided by operating activities 7,552 3,500
Cash flows from investing activities:
Expenditures for land, buildings, improvements, furniture and fixtures (32,150) (7,994)
Sale of assets 156
Purchase of available-for-sale investments (39,171)
Proceeds from sale/maturity of available for sale investments 21,000
Additions to preopening costs (584) (50)
Purchase of third party investors' interest (1,500)
Net cash used in investing activities (50,905) (9,388)
Cash flows from financing activities:
Proceeds from long-term debt 7,000 3,979
Proceeds from notes payable to shareholders and partners 1,728
Principal payments on long-term debt (11,075) (37,874)
Principal payments on notes to shareholders (3,111)
Cash dividends (2,295)
Proceeds from public offering, net of underwriting costs 77,236 49,732
Proceeds from the exercise of stock options 7
Additions to deferred loan costs (256) (334)
Public offering costs (453) (1,365)
Net cash provided by financing activities 72,459 10,460
Net increase in cash and cash equivalents 29,106 4,572
Cash and cash equivalents, at beginning of periods 2,557 457
Cash and cash equivalents, at end of periods $ 31,663 $ 5,029
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 Studio Plus Hotels, Inc. 1995 Annual Report on Form
10-K filed with the Securities and Exchange Commission.
All significant intercompany balances and transactions have been
eliminated.
(2) 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
(the "Predecessor Entities"), and therefore, was not subject to income tax.
(3) Stock Split
On July 9, 1996, a three-for-two split of the Company's Common Stock
was effected in the form of a stock dividend of three shares of Common Stock
for each two shares of Common Stock outstanding at the close of business on
June 20, 1996. Effective with the stock split, Common Stock outstanding
increased from 8,351,898 to 12,527,833 shares. Accordingly, all applicable
share and per share data have been adjusted for the stock split.
(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
September 30, 1996, are as follows:
Weighted average common shares issued 12,527,833
Dilutive effect of stock options 289,070
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Weighted average number of common and
common equivalent shares 12,816,903
The weighted average number of common and common equivalent shares
used in the computation of earnings per share for the nine months ended
September 30, 1996, are as follows:
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Weighted average common shares issued 10,873,823
Dilutive effect of stock options 306,739
----------
Weighted average number of common and
common equivalent shares 11,180,562
The pro forma earnings per share for the three month and nine month
periods ended September 30, 1995, have 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 40.0% effective tax rate.
The Company believes that the earnings per share calculations
discussed above, required in accordance with Accounting Principles Board
Opinion No. 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 7,672,500 shares are assumed outstanding the
adjusted net income per share for the nine months ended September 30, 1995
would be $0.32, compared to $0.34 for the nine months ended September 30, 1996.
(5) Reclasssifications
Certain amounts within the prior year income statement captions have
been reclassified to provide consistency with current year presentation. These
reclassifications have no effect on net income of the prior year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW AND OUTLOOK
During the third quarter of 1996, three new StudioPLUS hotels were
opened, one each in Florence, Kentucky (September 3, 1996, 72 suites), Cary,
North Carolina (September 23, 1996, 72 suites), and Charleston, South Carolina
(September 25, 1996, 72 suites). The addition of these three hotels brings to
seven the number of StudioPLUS hotels the Company has opened this year and
brings the portfolio to a total of 29 hotels, or 2,074 suites. As of October
31, 1996, the Company had 14 StudioPLUS hotels under construction, six of which
are expected to open by the end of this year bringing the Company's portfolio
to a total of 35 hotels in operation located in nine states. The remaining
hotels under construction are expected to open by mid 1997.
The Company has 25 sites under contract, located in 13 states. In
addition, development efforts are under way or negotiations are continuing on
approximately 45 additional sites located in 19 states. The Company
anticipates acquiring and beginning construction on many of these additional
sites during the next several months, and is continually searching for other
appropriate sites on which to locate and construct StudioPLUS hotels.
Including the hotels in operation, StudioPLUS is operating, developing or
searching for sites in 25 states.
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After a review of the Company's internal growth plans, especially in
light of both recent additions to the Company's management team and the
continued significant opportunities created by the perceived favorable
demand/supply imbalance in the extended stay segment of the lodging industry,
the Company is increasing its rate of expansion. The stepped-up rate of growth
includes a higher level of new construction and opening of new locations during
the second half of 1997, as well as building larger facilities containing a
greater number of suites than the current typical design of 72 suites.
The Company's earlier growth target as expressed to investors was to
have in operation at least 35 hotels at the end of 1996, at least 60 at the end
of 1997 and at least 100 at the end of 1998. The Company still expects to end
this year with 35 locations in operation but now expects to open at least 30
new StudioPLUS hotels in 1997, with the greatest majority opening during the
second half of the year, when the Company expects to be at a run rate of over
10 new hotel openings per quarter. However, even more significant than the
increase in hotel openings will be the Company's growth in room count.
Through investing in the Company's infrastructure this year in
preparation for its national expansion, one of the results of its efforts has
been to develop prototype plans for larger hotels. The benefit is that while
the Company has increased the number of hotels it expects to have open next
year end from 60 to 65 (8.3% increase), it will increase the number of rooms
added by more than 25% from the previously expressed growth target, assuming
the 72-unit per location design.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Item 2 of this quarterly report
on Form 10-Q under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview and Outlook" and "--
Liquidity and Capital Resources" constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements include statements regarding the number and location of additional
sites for StudioPLUS hotels, the expected opening dates of StudioPLUS hotels
under construction, the number of StudioPLUS hotels the Company expects to have
open by the end of 1996, 1997 and 1998, the expected total development costs of
the 14 StudioPLUS hotels currently under construction, the likelihood of
closing on the Company's increased Line of Credit before the 1996 year end and
the Company's belief that corporate operating expenses will continue to
decrease as a percent of revenue. These forward-looking statements are
included in this Quarterly Report on Form 10-Q based on the intent, belief or
current expectations of the Company. However, readers of this Quarterly Report
on Form 10-Q are cautioned that any forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the
forward-looking statements as a result of various factors.
The number and location of additional sites for StudioPLUS hotels may
vary from the information disclosed in this Quarterly Report. Certain of the
sites currently under review for acquisition may not be acquired following the
Company's due diligence review or for other
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reasons and, as a result, the number, location and cost of potential sites
under contract or consideration for future StudioPLUS hotels will fluctuate and
change from time to time. Also, under the terms of the Company's Line of
Credit with Bank One Lexington, N.A. ("Bank One"), the Company has agreed
during 1996 to have no more than 25 sites and in 1997 no more than 35 sites
purchased or under construction at any one time without the prior consent of
Bank One. The expected opening dates of StudioPLUS hotels under construction,
the number of StudioPLUS hotels the Company expects to have open by the end of
1996, 1997 and 1998 and the expected total development costs of the 14
StudioPLUS hotels currently under construction may differ from the information
disclosed herein due to a number of risks associated with completion and the
development of hotels, including the risk that development costs will exceed
budgeted or contracted amounts, the risk of delays in completion of
construction, risks associated with weather, work stoppages and other factors
beyond the Company's control, the risk of failing to obtain all necessary
zoning, construction and operational permits and the risk that financing might
not be available on favorable terms. The Company may be unable to close on the
increased Line of Credit or the increased Line of Credit may not get syndicated
to $200 million. Finally, corporate operating expenses could be higher than
expected or revenue lower than expected. Other risks to achieving these
forward-looking statements are included in the Company's Current Report on Form
8-K dated August 13, 1996 and filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
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.
Comparison of three months ended September 30, 1996 to three months ended
September 30, 1995.
Total revenue for the three months ended September 30, 1996, was
$6,513,000, an increase of $2,019,000, or approximately 44.9% over the
corresponding three months during 1995. Room revenue for this period increased
by approximately $1,950,000, of which (i) approximately $314,000 is
attributable to the 18 hotels open throughout both periods and (ii)
approximately $1,636,000 is attributable to the 11 new hotels that have opened
since December 31, 1994 (the "New Hotels"). The increase in room revenue from
the 18 hotels open throughout both periods resulted from an 8.2% increase in
weekly revenue per available room from $228.98 to $247.88, which reflects a
7.5% increase in average weekly rate from $261.77 to $281.47 and an increase in
occupancy from 87.5% to 88.1%. The net increase in other revenue was
approximately $69,000, due primarily to higher telephone, laundry and vending
income from the New Hotels.
Property operating expenses for the three months ended September 30,
1996, were $2,477,000, an increase of $817,000 or approximately 49.2% over the
three months ended September 30, 1995, of which (i) approximately $199,000 is
attributable to the 18 hotels open throughout both periods and (ii)
approximately $618,000 is attributable to the New Hotels. The
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increase in property operating expenses for the 18 hotels open throughout both
periods resulted primarily from higher labor, marketing and administrative
expenses. Corporate operating expenses increased approximately $305,000, as a
result of expanding the Company's corporate infrastructure to support its
national expansion program; however, as a percentage of revenue these expenses
decreased 0.2 percentage points from 15.7% to 15.5%.
Depreciation and amortization expense increased $426,000, or
approximately 94.7%, primarily as a result of operating the New Hotels and the
associated amortization of their preopening costs. The increase of $633,000 in
net interest income for the three months ended September 30, 1996 over the
corresponding period in 1995 is attributable to the retirement of debt from the
IPO and from the Company's follow-on offering completed April 2, 1996 (the
"Offering") proceeds, and the associated increase in interest income due
primarily to the investment of such proceeds. The provision for income taxes
for the three months ended September 30, 1996, increased approximately $415,000
to $1,120,000, for an effective tax rate of 39.0% as compared to an effective
tax rate of 39.9% for the comparable period in 1995.
Comparison of nine months ended September 30, 1996, to nine months ended
September 30, 1995.
Total revenue for the nine months ended September 30, 1996, was
$16,640,000, an increase of $4,809,000 or approximately 40.6% over the
corresponding nine months during 1995. Room revenue for this period increased
by approximately $4,690,000, of which (i) approximately $907,000 is
attributable to the 18 hotels open throughout both periods, and (ii)
approximately $3,783,000 is attributable to the New Hotels. The increase in
room revenue from the 18 hotels open throughout both periods resulted from an
8.4% increase in weekly revenue per available room from $209.12 to $226.68,
which reflects an 8.1% increase in average weekly rate from $247.59 to $267.75,
with occupancy increasing 0.2 percentage points from 84.5% to 84.7%. The net
increase in other revenue was approximately $119,000 due primarily to higher
telephone, laundry and vending income from the New Hotels.
Property operating expenses for the nine months ended September 30,
1996, were $6,862,000, an increase of $2,227,000, or approximately 48.0% over
the nine months ended September 30, 1995, of which (i) approximately $632,000
is attributable to the 18 hotels open throughout both periods, and (ii)
approximately $1,595,000 is attributable to the New Hotels. The increase in
property operating expenses for the 18 hotels open throughout both periods
resulted primarily from higher labor, marketing, and administrative expenses.
Corporate operating expenses increased approximately $1,316,000, as a result of
corporate infrastructure expansion in addition to various expenses associated
with operating as a public company which were not applicable for most of the
corresponding nine month period during the prior year.
Depreciation and amortization expense increased $1,019,000, or
approximately 78.8%, primarily as a result of operating the New Hotels and the
associated amortization of their preopening costs. The reduction of $2,999,000
in interest expense for the nine months ended September 30, 1996, over the
corresponding period in 1995 can be attributed to a decrease of
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approximately $1,521,000 in interest expense, due to the retirement of debt
with proceeds from the Company's IPO in 1995 and the Offering in April, 1996,
and an increase in interest income of approximately $1,478,000 due to the
investment of proceeds from the Offering. The provision for income taxes for
the nine months ended September 30, 1996 was approximately $2,448,000, for an
effective tax rate of 39.0%. Prior to the IPO, the Predecessor Entities were
not subject to income taxes. The income tax expense for the nine months ended
September 30, 1995, consists primarily of charges relating to the termination
of the S-corporation and partnership status of the Predecessor Entities.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, the Company generated
$7,552,000 in cash provided by operating activities, an increase of $4,052,000
over the nine months ended September 30, 1995. This 115.8% increase can be
attributed primarily to an improvement in net income resulting from operating
the New Hotels.
In February, the Company amended its existing Line of Credit with Bank
One, to increase its borrowing capacity from $30 million to $50 million.
Subsequent to the increase to $50 million, the Company received a commitment
from the Bank to increase the principal amount available under the Line of
Credit to approximately $200 million with the Bank committing to $100 million.
The increase in the Line of Credit is subject to customary conditions to
closing and the Bank, with the assistance of Smith Barney, Inc. ("Smith
Barney"), obtaining commitments from participating lenders for an additional
$100 million. The commitment for the increased Line of Credit includes
financial covenants and terms and conditions which the Company believes are
customary for loans of this type. The Company anticipates closing on this
increased Line of Credit before the end of the year; however, there can be no
assurance that the Bank and Smith Barney will be successful in obtaining
commitments from participating lenders or 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.
Of the 14 StudioPLUS hotels currently under construction, the Company
expects to open six by the end of 1996 with the remaining eight to open by mid
1997. The Company estimates that these 14 StudioPLUS hotels should have a
total development cost of approximately $47 million, of which approximately $18
million has already been incurred. The Company intends to fund the development
of these hotels with available cash, borrowings under the 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
or 1997 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 or modify existing 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
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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 increased Line of Credit, if closed as anticipated, and cash
generated from operations will be sufficient to finance the development and
construction of the hotels the Company anticipates developing and opening
during 1997.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER
27 Financial Data Schedules (filed only electronically with The
Securities and Exchange Commission).
(b) REPORTS OF FORM 8-K
A Current Report on Form 8-K dated August 13, 1996 was filed during
the period covered by this Quarterly Report on Form 10-Q for purposes of
providing a cautionary statement to investors relating to "forward-looking
statements" within the meaning of the private Securities Litigation Reform Act
of 1995.
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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: November 12, 1996 By: /s/ Norwood Cowgill, Jr
-------------------- --------------------------------
Norwood Cowgill, Jr.
Chairman of the Board and
Chief Executive Officer
Date: November 12, 1996 By: /s/ James C. Baughman, Jr.
-------------------- --------------------------------
James C. Baughman, Jr. Chief
Financial Officer and Treasurer
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