UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1997
Commission File Number:
333-264
Exact name of Registrant as specified in its charter:
South Seas Properties Company Limited Partnership
State or other Jurisdiction of incorporation or organization:
Ohio
I.R.S. Employer Identification Number:
59-2541464
Address of Principal Executive Offices:
12800 University Drive, Suite 350
Fort Myers, FL 33907
Registrant's Telephone Number, including Area Code:
(941) 481-5600
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. X YES NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 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 NO
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
FORM 10-Q
SEPTEMBER 30, 1997
INDEX
PAGE NO.
COVER LETTER
PART I
ITEM 1
FINANCIAL INFORMATION
Consolidated Balance Sheets at
September 30, 1997 and
December 31, 1996 1
Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1996 and 1997 2
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1996 and 1997 3-4
Notes to Consolidated Financial Statements 5-7
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
PART II
OTHER INFORMATION 15
SIGNATURES 16
EXHIBITS:
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
EXHIBIT 99 - CALCULATION OF WEIGHTED AVERAGE
UNITS OUTSTANDING
EXHIBIT 10 - AMENDMENT 4 TO FIRST AMENDED AND RESTATED
SOUTH SEAS RESORT LIMITED PARTNERSHIP AGREEMENT
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(unaudited)
Sept. 30, Dec. 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,842 $6,459
Restricted cash 160 201
Accounts receivable, trade 4,271 6,743
Receivables from affiliates 126 543
Inventories 1,595 1,677
Prepaid expenses and other 1,946 1,637
Total current assets 9,940 17,260
PROPERTY, PLANT AND EQUIPMENT, net 86,897 79,904
LOAN COSTS, net 5,022 5,660
GOODWILL, net 7,043 6,440
OTHER ASSETS 3,180 1,778
Total assets $112,082 $111,042
LIABILITIES AND PARTNERS' CAPITAL
DEFICIENCY
CURRENT LIABILITIES
Current maturities of notes
and mortgages payable $ 2,087 $1,750
Current obligations under
capital leases 234 265
Accounts payable 5,706 4,410
Accrued expenses 5,647 4,940
Customer deposits 4,396 4,976
Deferred revenue 1,609 1,585
Total current liabilities 19,679 17,926
NOTES AND MORTGAGES PAYABLE, less
current maturities 62,008 65,357
BONDS PAYABLE 43,500 43,500
LONG-TERM OBLIGATIONS UNDER
CAPITAL LEASES, less current
obligations 458 631
OTHER LONG-TERM OBLIGATIONS 1,304 1,305
COMMITMENTS AND CONTINGENCIES - -
PARTNERSHIP UNITS SUBJECT TO REDEMPTION 825 825
MINORITY INTERESTS 35 27
PARTNERS' CAPITAL DEFICIENCY (15,727) (18,529)
Total liabilities and
partners' capital
deficiency $112,082 $111,042
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per unit data)
(unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
Revenues
Rooms $12,853 $11,467 $56,236 $51,592
Food and beverage 3,748 3,216 14,836 13,611
Retail 1,372 1,271 5,318 5,099
Golf 486 411 2,560 2,196
Spa and fitness 600 467 1,975 1,892
Other 3,447 3,490 12,458 12,998
Total revenues 22,506 20,322 93,383 87,388
Expenses
Rooms 3,982 3,475 12,775 11,500
Food and beverage 3,312 3,076 11,449 10,678
Retail 1,045 1,002 3,812 3,600
Golf 237 240 818 777
Spa and fitness 368 278 1,118 1,064
Other 1,506 1,658 5,067 5,135
Condominium lease and rental expenses 3,580 3,533 14,513 14,639
Sales and marketing 1,770 2,056 5,831 5,898
Maintenance and grounds 1,486 1,275 4,193 3,836
General and administrative -
resort properties 4,190 4,073 13,866 12,837
General and administrative -
corporate overhead 989 1,065 2,679 2,900
Depreciation and amortization 2,281 1,581 6,415 5,297
Interest expense 2,457 2,633 7,528 8,015
Total expenses 27,203 25,945 90,064 86,176
Income before non-operating items (4,697) (5,623) 3,319 1,212
Net gain on disposal/sale of
fixed assets - 1 2 5
Minority interests 7 9 (24) (22)
Income before extraordinary item (4,690) (5,612) 3,297 1,195
Extraordinary item - early extinguish-
ment of debt - (2,084) - (2,084)
Net income/(loss) $(4,690) $(7,696) 3,297 $ (889)
Net income per unit, primary $ (1.05) $ (1.74) $ 0.74 $(0.20)
Net income per unit, fully diluted $ (1.05) $ (1.74) $ 0.74 $(0.20)
Weighted average units outstanding 4,471 4,414 4,441 4,351
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 1 of 2
(In Thousands)
(unaudited)
Nine Months
Ended September 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 95,219 $ 88,130
Cash paid to suppliers, employees and affiliates (73,980) (76,062)
Interest paid (7,588) (9,943)
Net cash provided by operating
activities 13,651 2,125
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/purchase of assets (6,093) (5,458)
Proceeds from sale of assets 2 5
Loans to affiliates, net of repayments 91 -
Purchase of resort property assets (3,411) -
Option payments towards purchase of resort property (683) -
Acquisition costs, including refundable deposits (1,093) -
Change in restricted cash/marketable securities 41 2,534
Net cash used by investing
activities (11,146) (2,919)
CASH FLOWS FROM FINANCING ACTIVITIES:
Draws under line of credit 5,250 -
Proceeds from long-term debt 79 70,480
Deferred loan costs (230) (5,939)
Principal payments, long-term debt (1,320) (38,645)
Principal payments, under capital
lease obligations (204) (548)
Principal payments, bonds payable - (12,998)
Distributions to partners (1,000) (919)
Distributions to minority unit holders (16) (16)
Principal payments under revolving lines
of credit (10,006) (11,885)
Proceeds from the issuance of limited partner
units 325 565
Net cash (used)/provided by
financing activities (7,122) 95
Net (decrease)/increase in cash (4,617) (699)
Cash and cash equivalents, beginning of period 6,459 7,340
Cash and cash equivalents, end of period $ 1,842 $ 6,641
(continued)
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 2 of 2
(In Thousands)
(unaudited)
Nine Months
Ended September 30
1997 1996
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income/(loss) $ 3,297 $ (889)
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation/amortization expense 6,415 5,297
Gain on sale of fixed assets (2) (5)
Minority interest 24 22
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable, net 2,489 2,262
Inventories 82 176
Prepaid expenses and other assets (1,878) (270)
Increase (decrease) in:
Accounts payable 1,253 (315)
Accrued expenses 848 (4,069)
Customer deposits (677) (1,520)
Deferred revenues 24 (648)
Total adjustments 8,578 3,014
Net cash provided by operating activities $11,875 $2,125
Supplemental schedule of noncash investing and financing activities:
In January, 1997 South Seas acquired the Seaside Inn on
Sanibel Island, Florida for $6.5 million. In connection
with the acquisition, South Seas assumed liabilities of $2.5 million.
In September, 1997, South Seas received notice of a tax lien
(payable over seven years) for beach renourishment efforts
totalling $480. Depreciable land improvements were recorded
in the same amount.
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all
adjustments necessary (consisting of only normal
recurring adjustments) to present fairly South Seas
Properties Company Limited Partnership ("South Seas")
consolidated financial position as of September 30, 1997
and December 31, 1996 and the consolidated results of
its operations for the three and nine months then ended
and its consolidated cash flows for the nine months
ended September 30, 1996 and 1997. The results of
operations for the nine month period ended September 30,
1997 are not indicative of the results to be expected
for the full year due to the seasonality of the business
operation. For further information, refer to the
audited consolidated financial statements and notes
thereto, included in South Seas' 10-K report. Certain
amounts in the financial statements have been
reclassified to conform with the current presentation.
These reclassifications had no effect on the results of
operations previously reported. The consolidated
balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date but does
not include all disclosures required by generally
accepted accounting principles. Refer to South Seas
annual 10-K report for complete footnote disclosure.
Note 2. Computation of Earnings Per Unit
Primary earnings per unit of partnership interests are
computed based on the weighted average number of
partnership unit equivalents (unit options, if
applicable) outstanding of 4.47 million and 4.41
million, for the three months ended September 30, 1997
and 1996, respectively, and 4.44 million and 4.35
million for the nine months ended September 30, 1997 and
1996, respectively. The computation of fully diluted
earnings per unit assumed conversion of the 10%
convertible subordinated notes due April 2003,
accordingly, net earnings were increased by interest
expense on the subordinated notes. For the 1997 and
1996 fully diluted earnings per unit computation, units
were computed to be 8.58 million and 7.19 million for
the nine months ended September 30, 1997 and 1996,
respectively. For the three months ended September 30,
1997 and 1996 fully diluted earnings per unit is the
same as primary earnings per unit because such
calculation is anti-dilutive for those periods.
Note 3. Impact of Recently Issued Accounting Standards
In February, 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("FAS 128"), which becomes
effective for South Seas for the year ended December 31,
1997. FAS 128 replaces the presentation of primary
earnings per unit with a presentation of basic earnings
per unit which excludes dilution and is computed by
dividing income available to partnership unit holders by
the weighted average number of partnership units
outstanding for the period. Diluted earnings per unit
reflect the potential dilution that would occur if
securities or other contracts to issue units were
exercised or converted into units or resulted in the
issuance of units that then shared in the earnings of
the entity. Diluted earnings per unit is computed
similarly to fully diluted earnings per unit pursuant to
Accounting Principles Board Opinion No. 15, "Earnings
Per Share." FAS 128 also requires dual presentation of
basic and diluted earnings per unit on the face of the
income statement for all entities with complex capital
structures and requires a reconciliation of the
numerator and denominator of the basic earnings per unit
computation to the numerator and denominator of the
diluted earnings per unit comparison. The
implementation of FAS 128 is not expected to have a
material impact on South Seas' reported results of
operations.
In addition, during 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about
Capital Structure" ("FAS 129"), No. 130, "Reporting
Comprehensive Income" ("FAS 130"), and No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 129 consolidates the
existing requirements relating to disclosure of certain
information about an entity's capital structure. FAS 130
establishes standards for reporting comprehensive income
to present a measure of all changes in equity that
result from renegotiated transactions and other economic
events of the period other than transactions with owners
in their capacity as owners. Comprehensive income is
defined as the change in equity of a business enterprise
during a period from transactions and other events and
circumstances from nonowner sources and includes net
income. FAS 131 specifies revised guidelines for
determining an entity's operating segments and the type
and level of financial information to be disclosed. FAS
131 requires that management identify operating segments
based on the way that management disaggregates the
entity for making internal operating decisions. These
financial accounting standards are effective for fiscal
years beginning after December 31, 1997. Management has
not determined what impact these standards, when
adopted, will have on South Seas' financial statements.
Note 4.
On January 6, 1997 South Seas purchased from an
affiliated limited partnership, real and personal
property used in the operation of a 32 unit motel
(Seaside Inn) on Sanibel Island, Florida for $6.5
million. In connection with the acquisition, South Seas
assumed liabilities of $2.5 million. Unaudited revenues
and net income for the Seaside Inn for the year ended
December 31, 1996 were $1.4 million and $43,000,
respectively.
The balance of the purchase price was made via a cash
payment of $3.4 million which was allocated as follows
(in thousands):
Cash payment $3,411
Allocated to:
Fixed assets $5,574
Goodwill 912
Current assets and liabilities, net (134)
Debt assumed (2,505)
Repayment of advance from South Seas (326)
Down payment (100)
Other (10)
$3,411
Note 5. Seaside Inn Revolving Credit Line
In May, 1997, South Seas amended and increased the $2.5
million loan held by Barnett Bank, N.A. secured by the
Seaside Inn to a $3.5 million revolving credit line and
caused Barnett to assign the loan to Credit Lyonnais,
New York Branch, Barnett Bank, N.A. and Finova Capital
Corporation (collectively, the "Lender") and to pledge
the Seaside Inn to the Lender for security. The amount
available under this line was $923,000 as of September
30, 1997.
Note 6. Revolving Credit Line
In connection with the $40 million revolving line of
credit with Credit Lyonnais, New York Branch, South
Seas had available $17.65 million at September 30,
1997. South Seas applies surplus seasonal working
capital or draws working capital based on seasonal
needs to reduce or increase the outstanding revolving
loan balance.
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction
with "Selected Historical Financial Data," "Selected
Consolidated Financial Data" and the audited consolidated
financial statements for South Seas and the notes thereto
appearing in the annual 10-K report for the year ended
December 31, 1996.
GENERAL
South Seas is one of the largest owners and operators of
upscale beachfront destination resorts and hotels in Florida.
South Seas owns, leases and/or manages 10 resort and
recreational properties. Included are seven owned resort and
hotel properties, one 18 hole golf course, and one managed
resort property, all located on Sanibel, Captiva, Estero and
Marco Islands off Florida's gulf coast (collectively referred
to as the "Properties"). South Seas, through its 99% owned
subsidiary, South Seas Resorts Company Limited Partnership
("Management Company"), also operates under a lease
arrangement a resort and spa located on Tampa Bay, Florida.
The Properties are designed to appeal to families, leisure
travelers and business groups. The Properties range in size
and style from the 552-unit South Seas Plantation resort on
Captiva Island, to the 269 unit, 11 story Marco Island
Radisson, to the 30-unit Song of the Sea Inn, a bed-and-breakfast
located on Sanibel Island. By offering a wide
variety of price points and vacation experiences, South Seas
is able to appeal to a broad section of the vacation market.
The Properties offer a combined total of approximately 1,700
condominium and hotel units, consisting of approximately
2,300 guest rooms, including luxurious beach homes, fully
equipped condominiums, suites, cottages and hotel rooms.
South Seas also owns and operates The Dunes Golf and Tennis
Club on Sanibel Island, which features an 18-hole, par 70
golf course, seven soft surface tennis courts, full banquet
and restaurant facilities and other amenities. Guests
staying at any of the Properties have access to the amenities
and vacation activities offered at all of the Properties.
South Seas believes that this feature, combined with the
Properties' attractive locations, enhances customer
satisfaction and guests' perceptions of value.
SEASONALITY
Properties owned or operated by South Seas are affected by
normally recurring seasonal patterns. Room rates are
substantially higher and occupancy is somewhat higher during
the months of January, February, March and April than during
the remainder of the year. Approximately 45% of South Seas'
revenues is earned in the first four months of each year.
Accordingly, South Seas' typically reports lower revenue and
net income in the second, third and fourth calendar quarters.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1997 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30,
1996
Revenues. Revenues consist principally of room rentals,
food and beverage sales, retail sales, spa and fitness
revenues, and golf course operations. Other revenue includes
marina operations, long distance telephone charges, fees for
the use of recreation facilities, commissions from realty
sales, interest income and other miscellaneous items.
Revenues for the three months ended September 30, 1997
increased by approximately $2.2 million, or 10.8% over the
prior period.
Rooms revenues increased by approximately $1.4 million, or
12.1% over the prior period. Approximately $268,000, or
19.3% of the increase represents room revenues attributable
to the Seaside Inn (acquired January 6, 1997). Room revenues
at resorts owned throughout both periods ("Comparable
Resorts") increased by approximately $1.1 million or 9.8%.
The increase in room revenues at Comparable Resorts resulted
from an increase in the average daily rate ("ADR") and an
increase in the percentage of occupancy. ADR at Comparable
Resorts was $149.30 for 1997, compared to $148.05 in 1996, an
increase of $1.30, or .8%. Occupancy percentage at
Comparable Resorts increased to 67.1% for the three months
ended September 30, 1997 from 61.4% for the same period in
1996. The increase in ADR reflects South Seas' efforts to
maximize revenue per available room ("REVPAR"), during peak
demand periods. During the three months ended September 30,
1997, REVPAR for Comparable Resorts increased $9.33 or 10.3%
over the same period in 1996. The Seaside Inn had an
occupancy percentage of 71.5%, ADR of $127.33 and REVPAR of
$91.09 during the three months ended September 30, 1997.
Food and beverage revenues for the three months ended
September 30, 1997 increased by $532,000, or 16.5% over the
same period in 1996. Approximately $108,000 or 20.3% of the
increase was due to increased food and beverage sales at
Safety Harbor Resort and Spa ("Safety Harbor"). South Seas
entered into a lease arrangement on the Safety Harbor in June
1995. Management believed it was a property with significant
"up-side" potential. After a substantial investment in
capital improvements (over $2.8 million since lease
inception), combined with a highly motivated and experienced
management team, dramatic improvements in results of
operations have been realized at the resort over 1996. South
Seas Plantation also experienced strong growth in food and
beverage sales, increasing by $347,000 or 19.1% over the
prior period. This is primarily the result of the renovation
in the prior year of the King's Crown dining facility
(facility was closed during the three months ended September
30, 1996).
Other revenues for the three months ended September 30,
1997 decreased by $46,000, or 1.3% from the prior period.
Revenues recognized at the renovated Dunes Golf & Tennis Club
were approximately $264,000 higher than the prior year. In
1996, all annual membership and initiation fees were
recognized in full at the time of receipt. This policy was
consistent with the terms of the non-refundable fees.
Although these fees are still non-refundable, in 1997,
management elected to defer and recognize membership and
initiation fees pro-rata over the calendar year. This
increase was offset by a decrease in the revenues at the
corporate level of $414,000, primarily due to lower interest
income of $175,000 (excess funds now used to pay down the
revolving credit line).
Expenses. Total expenses for the three months ended
September 30, 1997 increased by approximately $1.3 million,
or 4.9% over the prior period. As a percentage of revenues,
expenses decreased from 127.7% to 107.5%. Analysis of major
financial line items follows:
Room expenses for the three months ended September 30,
1997 increased by $507,000 or 14.6% over the prior period.
Room expenses at Comparable Resorts increased $430,000 or
12.4% over the same period last year. As a percentage of
room revenues, room expenses increased slightly from 30.3% to
30.9%, primarily due to the additional staff position of
yield manager.
Sales and marketing costs for the three months ended
September 30, 1997 decreased by $286,000 or 13.9% over the
prior period. As a percentage of total revenues, sales and
marketing decreased from 10.1% in the three months ended
September 30, 1996 to 7.9% for the three months ended
September 30, 1997. Approximately $108,000 of the decrease
occurred at Safety Harbor, where in 1996 specific consumer
media (spa) was incurred to generate inquiries for late fall
1996 and 1997 spa package business. The remainder of the
decrease is timing and should reverse by year end.
Depreciation and amortization expense for the three months
ended September 30, 1997 increased by $700,000 or 44.3% over
the prior period. As a percentage of revenues, depreciation
and amortization expense increased from 7.8% at September 30,
1996 to 10.1% at September 30, 1997. The increase in dollars
is primarily a result of depreciation on recent renovations
and capital improvements as well as $59,000 (or 8.4% of the
total increase)attributable to the Seaside Inn acquisition,
and increased amortization of loan costs.
Extraordinary item - early extinguishment of debt. In
September 1996, South Seas obtained an $80,000,000
consolidation loan. A non-cash loss was incurred of
approximately $2.1 million and was treated as an
extraordinary item.
Net Loss. As a result of the foregoing factors, net loss
for the three months ended September 30, 1997 decreased by
$3.0 million or 39.1% compared to the prior period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues. Revenues consist principally of room rentals,
food and beverage sales, retail sales, spa and fitness
revenues, and golf course operations. Other revenue includes
marina operations, long distance telephone charges, fees for
the use of recreation facilities, commissions from realty
sales, interest income and other miscellaneous items.
Revenues for the nine months ended September 30, 1997
increased by $6.0 million, or 6.9% over the prior period.
Rooms revenues increased by approximately $4.6 million, or
9.0% over the prior period. Approximately $1.2 million or
26.8% of the increase represents room revenues attributable
to the Seaside Inn (acquired January 6, 1997). Dramatic
improvements were also realized at Safety Harbor, growth in
occupancy from 35.6% for the nine months ended September 30,
1996 to an occupancy percentage of 63.3% for the same period
in 1997, produced increased room revenues of $1.1 million.
Room revenues at Comparable Resorts increased by
approximately $3.4 million or 6.6%. The increase in room
revenues at Comparable Resorts resulted from an increase in
the ADR and an increase in the percentage of occupancy. ADR
at Comparable Resorts was $198.53 for 1997, compared to
$195.65 in 1996, an increase of $2.88 or 1.5%. Occupancy
percentage at Comparable Resorts increased to 74.9% for the
nine months ended September 30, 1997 from 70.8% for the same
period in 1996. The increase in ADR reflects South Seas'
efforts to maximize REVPAR, during peak demand periods.
During the nine months ended September 30, 1997, REVPAR for
Comparable Resorts increased $10.07 or 7.3% over the same
period in 1996. The Seaside Inn had an occupancy percentage
of 82.8%, ADR of $172.15 and REVPAR of $142.49 during the
nine months ended September 30, 1997.
Food and beverage revenues for the nine months ended
September 30, 1997 increased by $1.2 million, or 9.0% over
the same period in 1996. Approximately $475,000 or 38.8% of
the increase was due to increased food and beverage sales at
Safety Harbor. South Seas entered into a lease arrangement
on the Safety Harbor in September 1995. Management believed
it was a property with significant "up-side" potential.
After a substantial investment in capital improvements (over
$2.8 million since lease inception), combined with a highly
motivated and experienced management team, dramatic
improvements in results of operations have been realized at
the resort over 1996 and 1995 (the initial lease year).
Other revenues for the nine months ended September 30,
1997 decreased by $540,000, or 4.2% from the prior period.
Revenues recognized at the renovated Dunes Golf & Tennis Club
were approximately $140,000 lower than the prior year. In
1996, all annual membership and initiation fees were
recognized in full at the time of receipt. This policy was
consistent with the terms of the non-refundable fees.
Although these fees are still non-refundable, in 1997,
management elected to defer and recognize membership and
initiation fees pro-rata over the calendar year. An
additional decrease in the revenues at the corporate level of
$1 million was primarily due to lower interest income of
$433,000 (excess funds now used to pay down the revolving
credit line) and lower management fees of $76,000 (due to the
acquisition of the Seaside Inn, and those fees being
eliminated in consolidation). These decreases were offset by
improvements in other revenues at South Seas Plantation of
$322,000 (due primarily to incentive income earned on lease
programs) and $366,000 at Safety Harbor (due to significant
increases in occupancy).
Expenses. Total expenses for the nine months ended
September 30, 1997 increased by $3.9 million, or 4.5% over
the prior period. As a percentage of revenues, expenses
decreased from 98.6% to 96.4%. Analysis of major financial
line items follows:
Room expenses for the nine months ended September 30, 1997
increased by $1.3 million or 11.1% over the prior period.
Room expenses at Comparable Resorts increased $1.0 million or
9.0% over the same period last year. As a percentage of room
revenues, room expenses increased slightly from 22.3% to
22.7%, primarily due to the additional position of yield
manager.
General and administrative expense for the nine months
ended September 30, 1997 increased by $808,000, or 5.1% over
the prior period. Approximately $237,000 or 29.3% of the
total increase was associated with the Seaside Inn. As a
percentage of revenues, general and administrative expense
decreased slightly from 18.0% in 1996 to 17.7% in 1997.
Depreciation and amortization expense for the nine months
ended September 30, 1997 increased by $1.1 million or 21.1%
over the prior period. As a percentage of revenues,
depreciation and amortization expense increased from 6.1% at
September 30, 1996 to 6.9% at September 30, 1997. The
increase in dollars is primarily a result of depreciation on
recent renovations and capital improvements as well as
$152,000 (or 13.6% of the total increase)attributable to the
Seaside Inn acquisition, and increased amortization of loan
costs.
Extraordinary item - early extinguishment of debt. In
September 1996, South Seas obtained an $80,000,000
consolidation loan. A non-cash loss was incurred of
approximately $2.1 million and has been treated as an
extraordinary item.
Net Income. As a result of the foregoing factors, net
income for the nine months ended September 30, 1997 increased
by $4.2 million or 471.2% compared to the prior period. The
Seaside Inn contributed $427,000 or 10.2% of the total
increase.
LIQUIDITY AND CAPITAL RESOURCES
South Seas has historically financed its operations and
capital expenditures with cash generated from operations,
bank borrowings, borrowings from private investors, corporate
bonds and short-term credit facilities.
On March 28, 1996, South Seas completed the public
offering of $43,500,000 of its 10% subordinated notes as
offered in the Form S-1 Registration Statement ("Notes
Offering"). The terms of the Notes provided for the payment
of interest monthly at 10%, and with no principal reduction
until maturity on April 15, 2003.
The Notes are non-callable during the first four years of
the term then become redeemable, in whole or in part, at the
option of South Seas at increasing redemption prices (108.24%
to 112.62% of principal) during or after the year 2000.
Subsequent to the occurrence of certain events, the holders
of Notes will be offered the opportunity to convert the Notes
at an exchange rate of $12 per partnership unit (subject to
adjustment in certain circumstances). Upon the stated
maturity of the Notes, holders of Notes will be offered the
opportunity to convert the Notes at an exchange rate of
$10.50 per unit (subject to adjustment in certain
circumstances).
South Seas believes that cash generated by operations,
together with the proceeds from the Notes Offering will be
adequate to meet its working capital, debt service and
capital expenditure requirements through 1997. South Seas'
outstanding indebtedness, together with the Notes, places
certain debt service obligations on the partnership. South
Seas intends to pursue resort and/or hotel acquisitions and
to a lesser extent development opportunities in order to
achieve growth in its portfolio of properties. A portion of
the expenditures associated with this growth strategy will be
funded with cash generated from operations and proceeds from
the Notes Offering. South Seas believes that it may be
necessary to obtain additional debt or equity capital in
order to accommodate its plan for growth and expansion in
1997 and future periods.
South Seas anticipates that implementation of its growth
strategy referred to in the preceding paragraph will require
it to obtain additional debt or equity financing. The amount
of additional financing required by South Seas in order to
implement its growth strategy will depend on several factors,
including the purchase price and renovation costs associated
with acquisitions and South Seas' available cash resources at
the time of a particular transaction. Although there can be
no assurance as to South Seas' ability to obtain financing in
the amounts it requires on commercially reasonable terms, if
at all, South Seas believes that, based upon its current
financial condition and results of operations, such financing
will be available. South Seas' inability to obtain
additional financing could have a material adverse effect on
its results of operations, financial condition and future
prospects. The indenture and the senior credit facility
places restrictions on the amount of additional Funded
Indebtedness (as defined in the prospectus delivered in
connection with the Notes Offering) that South Seas may
incur.
In December, 1996, South Seas obtained an irrevocable,
transferable letter of credit in an amount not to exceed
$3.26 million, for use as a replacement for a reserve fund
established in connection with the Notes Offering. No
amounts had been drawn as of September 30, 1997.
In March, 1997, South Seas retained an investment banking
firm to advise the partnership on various strategic financial
alternatives, to realize its' growth plan and enhance its
equity value. As of the filing of this report, South Seas,
together with their investment bankers, have completed their
initial evaluation of the company's operations. Several
alternatives have been outlined and are currently under
review.
On September 30, 1997, South Seas had cash and cash
equivalents of approximately $1.8 million, and restricted
cash of $160,000. Cash and cash equivalents decreased by
$4.6 million during the nine months ended September 30, 1997.
Cash flow from operations was approximately $11.9 million
for the nine months ended September 30, 1997 as compared to
$2.1 million in the prior period. Cash flow from operations
was negatively impacted by a $2.4 million increase in
interest paid during 1996. This significant increase in
interest paid was attributed to the early retirement of
numerous notes, bonds and accrued interest thereon with the
proceeds from the public offering. South Seas' other major
source of cash in the 1996 period was proceeds of $43.5
million (from the Notes Offering). In addition to funding
its operating activities, South Seas' major uses of cash
during the 1996 period were principal payments on outstanding
debt of approximately $52.2 million (primarily through
proceeds of the Notes Offering), capital expenditures and
asset purchases of approximately $5.5 million, and
distributions to partners of approximately $919,000. In
1997, South Seas' major uses of cash included payments under
the revolving line of credit of $9.9 million, the purchase of
the Seaside Inn (net of liabilities assumed) of $3.4 million,
and capital expenditures of $6.1 million. At September 30,
1997, South Seas had a combined availability under their two
revolving lines of credit of $18.6 million.
South Seas is not currently a party to any legal
proceeding which, in Management's opinion, is likely to have
a material adverse effect on its operating results or
financial position.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"), which becomes
effective for South Seas for the year ended December 31,
1997. FAS 128 replaces the presentation of primary earnings
per unit with a presentation of basic earnings per unit which
excludes dilution and is computed by dividing income
available to partnership unit holders by the weighted average
number of partnership units outstanding for the period.
Diluted earnings per unit reflect the potential dilution that
would occur if securities or other contracts to issue units
were exercised or converted into units or resulted in the
issuance of units that then shared in the earnings of the
entity. Diluted earnings per unit is computed similarly to
fully diluted earnings per unit pursuant to Accounting
Principles Board Opinion No. 15, "Earnings Per Share." FAS
128 also requires dual presentation of basic and diluted
earnings per unit on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic
earnings per unit computation to the numerator and
denominator of the diluted earnings per unit comparison. The
implementation of FAS 128 is not expected to have a material
impact on South Seas' reported results of operations.
In addition, during 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure"
("FAS 129"), No. 130, "Reporting Comprehensive Income" ("FAS
130"), and No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 129
consolidates the existing requirements relating to disclosure
of certain information about an entity's capital structure.
FAS 130 establishes standards for reporting comprehensive
income to present a measure of all changes in equity that
result from renegotiated transactions and other economic
events of the period other than transactions with owners in
their capacity as owners. Comprehensive income is defined as
the change in equity of a business enterprise during a period
from transactions and other events and circumstances from
nonowner sources and includes net income. FAS 131 specifies
revised guidelines for determining an entity's operating
segments and the type and level of financial information to
be disclosed. FAS 131 requires that management identify
operating segments based on the way that management
disaggregates the entity for making internal operating
decisions. These financial accounting standards are effective
for fiscal years beginning after December 31, 1997.
Management has not determined what impact these standards,
when adopted, will have on South Seas' financial statements.
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Change in Partnership Units
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit I - Weighted Average Units Outstanding
(b) Reports on Form 8-K
Not applicable
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
SIGNATURES
September 30, 1997
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.
ROBERT M. TAYLOR RICHARD E. KRICHBAUM
CHAIRMAN OF T&T RESORTS, L.C. VICE PRESIDENT OF FINANCE
GENERAL PARTNER OF S.S. RESORT MANAGEMENT L.C.
SOUTH SEAS PROPERTIES GENERAL PARTNER OF
COMPANY LIMITED PARTNERSHIP SOUTH SEAS RESORTS
(SIGNATURE) COMPANY, L.P.
NOVEMBER 13, 1997 (SIGNATURE)
NOVEMBER 13, 1997
TIMOTHY R. BOGOTT VIRGINIA S. BROOKS
PRESIDENT CORPORATE CONTROLLER
S.S. RESORT MANAGEMENT, L.C. S.S. RESORTMANAGEMENT,
GENERAL PARTNER OF SOUTH SEAS L.C.
RESORTS COMPANY, L.P. GENERAL PARTNER OF SOUTH
(SIGNATURE) SEAS RESORTS COMPANY, L.P.
NOVEMBER 13, 1997 (SIGNATURE)
NOVEMBER 13, 1997