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UNITED STATES
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, 2002.
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 Number: 33-78866
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MOA HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
----------------------
701 Lee Street, Suite 1000
Des Plaines, Illinois 60016
(847) 803-1200
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
----------------------
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
Number of shares of Common Stock, $.01 par value outstanding as of
November 30, 2002: 800,000
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - March 31, 2002 2
(unaudited) and December 31, 2001.
Condensed consolidated statements of operations - 3
Three months ended March 31, 2002 and 2001 (unaudited).
Condensed consolidated statements of cash flows - 4
Three months ended March 31, 2002 and 2001 (unaudited).
Notes to condensed consolidated financial statements - 5
March 31, 2002 (unaudited).
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
General 9
Results of Operations 10
Liquidity and Capital Resources 13
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Certifications 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
2002 2001
------------- -------------
( Unaudited )
ASSETS
Current Assets:
Cash and cash equivalents $ 3,662 $ 3,152
Accounts receivable from property operations 1,323 1,461
Operating supplies and prepaid expenses 2,282 2,313
Current portion of mortgage and notes receivable 133 233
------------- -------------
Total Current Assets 7,400 7,159
Investment property:
Operating properties,
net of accumulated depreciation 198,363 206,172
Land held for development 10,812 9,585
------------- -------------
Total investment property 209,175 215,757
Other Assets:
Deposits and other assets 3,397 2,915
Mortgage and other notes receivable,
less current portion 31,383 28,081
Net deferred tax asset 1,182 2,537
Financing and other deferred costs,
net of accumulated amortization of
$16,490 in 2002 and $17,013 in 2001 8,243 8,934
------------- -------------
Total Other Assets 44,205 42,467
------------- -------------
Total Assets $ 260,780 $ 265,383
============= =============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,732 $ 1,521
Real estate taxes payable 1,437 1,460
Accrued interest payable 2,780 2,043
Nonrefundable lease deposits and
purchase price credits 24,086 23,296
Other liabilities for leased locations 5,630 4,581
Deferred income 6,594 5,475
Other accounts payable and accrued expenses 468 3,317
Current portion of long-term debt 30,111 31,667
------------- -------------
Total Current Liabilities 72,838 73,360
Long-term debt, less current portion:
Mortgage and other notes payable 173,135 175,250
12% Senior Subordinated Notes, net of
unamortized discount of $206 in 2002
and $223 in 2001 11,321 11,304
------------- -------------
Total Long-term debt, excluding current portion 184,456 186,554
------------- -------------
Total Liabilities 257,294 259,914
------------- -------------
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and outstanding 8 8
Additional paid-in capital 15,294 15,294
Retained deficit (11,816) (9,833)
------------- -------------
Total Stockholders' Equity 3,486 5,469
------------- -------------
Total Liabilities and Stockholders' Equity $ 260,780 $ 265,383
============= =============
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share data)
Three Months Ended
March 31
------------------------
2002 2001
---------- ----------
Revenues:
Motel operating revenues $ 7,657 $ 9,600
Lease revenues 2,897 2,893
Vending revenues 842 329
Other revenues 650 593
---------- ----------
Total revenues 12,046 13,415
Costs and expenses:
Motel operating expenses 4,684 5,824
Marketing and royalty fees 543 714
General and administrative 1,562 1,786
Lease expenses 281 226
Vending expenses 687 381
Depreciation and amortization 2,966 3,514
---------- ----------
Total direct expenses 10,723 12,445
---------- ----------
Net operating income 1,323 970
Interest expense 4,577 5,132
---------- ----------
Income (loss) from operations before
minority interest and income taxes (3,254) (4,162)
Minority interests - 13
---------- ----------
Income (loss) from continuing operations
before income taxes (3,254) (4,149)
Income tax expense (benefit) (1,266) (1,615)
---------- ----------
Income (loss) from continuing operations (1,988) (2,534)
Discontinued operations (including net
gain on disposal of $147 and $0,
respectively) net of income tax of $3 and ($70) 5 (109)
---------- ----------
Net income (loss) $ (1,983) $ (2,643)
========== ==========
Income (loss) per common share (basic and diluted):
Income (loss) per common share from
continuing operations $ (2.49) $ (3.17)
========== ==========
Net Income (loss) per common share $ (2.48) $ (3.30)
========== ==========
Weighted average number of
common shares outstanding 800,000 800,000
========== ==========
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31
-----------------------
2002 2001
---------- ----------
Cash flows used in operating activities:
Net loss $ (1,983) $ (2,643)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation, amortization and accretion of
discount on notes 3,031 3,654
Minority interests of others in net loss
from operations - (13)
Deferred income taxes 1,355 (241)
Gain on sale of properties (147) -
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 139 (4)
Operating supplies, prepaid expenses,
deposits and other assets (289) (165)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 647 1,023
Accrued interest payable 745 492
---------- -----------
Net cash provided by operating activities 3,498 2,103
Cash flows provided by investing activities:
Acquisition and development of investment properties (1,227) (1,676)
Refurbishment of investment properties (375) (778)
Net proceeds from sale of investment properties 2,460 -
Cash restricted for refurbishment of properties (135) 661
Collections on mortgage and other notes receivable 39 6,304
---------- -----------
Net cash provided by investing activities 762 4,511
Cash flows provided by (used in) financing activities:
Proceeds from notes payable 711 1,824
Repayment of notes payable (4,383) (7,094)
Deferred financing costs (78) -
---------- -----------
Net cash used in financing activities (3,750) (5,270)
---------- -----------
Net increase in cash and cash equivalents 510 1,344
Cash and cash equivalents at beginning of period 3,152 3,162
---------- -----------
Cash and cash equivalents at end of period $ 3,662 $ 4,506
========== ===========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 3,877 $ 4,692
========== ===========
Cash paid (net of refunds received) during the
period for income taxes $ - $ -
========== ===========
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in MOA Hospitality, Inc. and Subsidiaries' Annual
Report on Form 10-K for the year ended December 31, 2001. The terms "MOA" and
the "Company" mean MOA Hospitality, Inc. and its subsidiaries. Certain
reclassifications of prior-period amounts have been made to conform with
current-period presentation which have not changed operations or stockholders'
equity.
2. Divestitures and Leasing Activities
In January through March 31, 2002, the Company leased an additional
three of its lodging facilities to third party operators under terms similar to
previous operating leases executed by the Company.
Subsequent to March 31, 2002 through September 30, 2002, the Company
leased an additional two of its lodging facilities to third party operators
under terms similar to previous operating leases executed by the Company.
In January through March 31, 2002, the Company sold two of its lodging
facilities for approximately $3.7 million for a gain of approximately $147,000.
Deferred purchase price credits and non-refundable security deposits aggregating
approximately $280,000 were credited to the buyers in connection with these
sales. An additional property was sold to a related party at a price believed by
management to represent fair market value for $3,500,000 resulting in a deferred
gain of $1,120,000 and a note receivable of $3,240,000.
Subsequent to March 31, 2002 through September 30, 2002, the Company
sold three of its lodging facilities for approximately $4.7 million in cash for
a loss of approximately $169,000.
In accordance with SFAS 144 "Accounting for the Impairment or
Disposal of Long Lived Assets," effective for financial statements issued for
fiscal years beginning after December 31, 2001, net income and gain/(loss) on
sales of real estate for properties sold subsequent to December 31, 2001 are
reflected in the consolidated statements of operations as "Discontinued
operations" for both periods presented. Below is a summary of the results of
operations of these properties through their respective disposition dates:
For the Three Months Ended
March 31
---------------------------
( in thousands )
---------------------------
2002 2001
------------ ------------
Revenues:
Motel operating revenues $ 220 $ 270
Lease revenues 8 37
------------ ------------
Total revenues 228 307
Costs and expenses:
Motel operating expenses 223 232
Marketing and royalty fees 26 29
Lease expenses 1 4
Depreciation and amortization 62 112
------------ ------------
Total direct expenses 312 377
------------ ------------
Net operating income (84) (70)
Interest expense 55 109
------------ ------------
Income (loss) from operations (139) (179)
Gain (loss) on sale of properties 147 -
------------ ------------
Income (loss) before income taxes 8 (179)
Income tax expense (benefit) 3 (70)
------------ ------------
Net income (loss) $ 5 $ (109)
============ ============
3. Mortgage and Other Notes Payable
In January through March 31, 2002 the Company was advanced $654,000 on
loans of $7 million for construction advances on one property under construction
bringing the total advanced to $3.2 million.
During April through September 30, 2002, the Company was advanced an
additional $2.3 million on loans of $7 million for construction advances on one
property under construction bringing the total advanced to $5.5 million.
In April 2002, a subsidiary of the Company purchased a vending company
for $210,000 by issuing a note payable of $110,000 with monthly principal and
interest payments of $10,400, due March 1, 2003. Goodwill of $120,000 and fixed
assets of $90,000 were preliminarily recorded as a result of this transaction.
4. Income Taxes
Income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 34% to income before income taxes principally as
a result of state income taxes.
5. Contingencies
The Company is involved in various legal proceedings arising
in the ordinary course of business. The Company does not believe that any of
these actions, either individually or in the aggregate, will have a material
adverse effect on the Company's business, results of operations or financial
condition.
6. Related Parties
In March 2002 one property was sold to a related party at a
price believed by management to represent fair market value for $3,500,000
resulting in a deferred gain of $1,120,000 and a note receivable of $3,240,000.
During the quarter ended March 31, 2002, the Company received
approximately $38,000 in management fees from related parties.
7. Reclassifications
Certain reclassifications have been made to previously
reported 2001 statements in order to provide comparability with the 2002
statements reported herein. Theses reclassifications have not changed the 2001
results or stockholders' equity.
8. Segments
As of March 31, 2002, the Company, directly and through
subsidiaries, owned 111 lodging facilities in 38 states. The Company owns a 100%
interest in all of its properties. The Company operates thirty-five of its
motels and leases seventy-six of its motels to third party tenants pursuant to
operating leases. The Company separately evaluates the performance of each of
its motels.
Three months ended
March 31
-----------------------
2002 2001
---------- ----------
Motel operations:
Motel operating revenue:
Room revenues $ 6,799 $ 8,732
Ancillary motel revenues 858 868
---------- ----------
Total motel operating revenues 7,657 9,600
Motel costs and expenses:
Motel operating expenses 4,684 5,824
Marketing and royalty fees 543 714
Depreciation and amortization 1,314 1,593
---------- ----------
Total motel direct expenses 6,541 8,131
---------- ----------
1,116 1,469
Lease Operations
Lease revenues 2,897 2,893
Lease expenses 281 226
Depreciation and amortization 1,467 1,674
---------- ----------
1,149 993
Vending Operations
Vending revenues 842 329
Vending expenses 687 381
Depreciation and amortization 144 76
---------- ----------
11 (128)
Corporate Operations
Other revenues 650 593
General and administrative expenses:
Management Company Operations 1,142 1,472
Construction/Acquisition and Divestiture 5 34
Vending - general and administrative 415 280
---------- ----------
Total general and administrative expenses 1,562 1,786
Depreciation and amortization 41 171
---------- ----------
(953) (1,364)
---------- ----------
Net operating income 1,323 970
Interest expense 4,577 5,132
---------- ----------
Loss from operations before minority interests (3,254) (4,162)
Minority interests - 13
---------- ----------
Loss from continuing operations before income taxes (3,254) (4,149)
Income tax expense (benefit) (1,266) (1,615)
---------- ----------
Loss from continuing operations (1,988) (2,534)
Discontinued operations (including net gain
on disposal of $147 and $0) net of income
tax of $3 and $(70) 5 (109)
---------- ----------
Net Loss $ (1,983) $ (2,643)
========== ==========
Total Assets:
Motel Operations $ 109,897 $ 141,016
Lease Operations 113,599 117,039
Other Operations 37,284 23,019
---------- ----------
$ 260,780 $ 281,074
========== ==========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND AS SUCH, SPEAK ONLY AS OF THE DATE MADE. FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
THOSE ANTICIPATED AT THE TIME OF THE FORWARD-LOOKING STATEMENTS ARE MADE,
INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH THE
FOLLOWING: GENERAL REAL ESTATE, TRAVEL AND NATIONAL AND INTERNATIONAL ECONOMIC
CONDITIONS, INCLUDING THE SEVERITY AND DURATION OF THE DOWNTURN RESULTING FROM
THE SEPTEMBER 11, 2001 TERRORIST ATTACKS ON NEW YORK AND WASHINGTON, D.C.; SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: THE COMPANY'S ABILITY TO OBTAIN
FINANCING, COMPETITION, INTEREST RATE FLUCTUATIONS, OR GENERAL BUSINESS AND
ECONOMIC CONDITIONS.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS
PRESENTED BELOW FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 HAVE BEEN
PREPARED ON THE SAME BASIS AS THE INTERIM CONDENSED CONSOLIDATED HISTORICAL
FINANCIAL STATEMENTS AND, IN THE OPINION OF THE COMPANY, INCLUDE ALL ADJUSTMENTS
(CONSISTING ONLY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY TO PRESENT FAIRLY
THE INFORMATION SET FORTH THEREIN.
General
MOA operates principally in the economy limited service segment of the
lodging industry. As a result, its average room rates tend to be lower than the
average room rates of full service lodging facilities. However, due to the
limited nature of the public space and ancillary services provided by limited
service motels, the Company's expenses tend to be lower than those of full
service lodging facilities. The profitability of the lodging industry in general
is significantly dependent upon room rental rates and occupancy rates. Due to
the fixed nature of a relatively high portion of the Company's expenses, changes
in either room rates or occupancy rates result in significant changes in the
operating profit of the Company's motels.
The United States lodging industry has experienced downward pressure on
RevPAR and occupancy throughout 2001 due to the overall slowdown in the economy.
Such pressure was substantially increased as a result of the September 11, 2001
terrorist attacks on New York and Washington D.C. On a same store basis, through
the first quarter, RevPAR and occupancy have decreased to $29.89 and 60.08%,
respectively, for 2002 versus $30.56 and 61.35 % for 2001.
The Company is actively working with its managers and lessees to reduce
operating and overhead expenses and has curtailed or postponed non-essential
capital expenditure activities; however, there can be no assurance that the
results of such efforts will be sufficient to enable the Company to continue
meeting its obligations as they come due.
Three Months Ended March 31, 2002 Compared to the Three Months Ended
March 31, 2001
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
condensed consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
----------------------------------------------------------------------
Three Months Ended March 31
----------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures (6) Consolidated
------------------ ---------------------- ----------------------
2002 2001 2002 2001 2002 2001
-------- -------- ---------- ---------- ---------- ----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 6,588 $ 6,779 $ 211 $ 1,953 $ 6,799 $ 8,732
Ancillary motel revenues 837 818 21 50 858 868
-------- -------- ---------- ---------- ---------- ----------
Total motel operating revenues 7,425 7,597 232 2,003 7,657 9,600
Motel costs and expenses:
Motel operating expenses 4,407 4,589 277 1,235 4,684 5,824
Marketing and royalty fees 528 552 15 162 543 714
Depreciation and amortization 1,271 1,314 43 279 1,314 1,593
-------- -------- ---------- ---------- ---------- ----------
Total motel direct expenses 6,206 6,455 335 1,676 6,541 8,131
-------- -------- ---------- ---------- ---------- ----------
$ 1,219 $ 1,142 $ (103) $ 327 1,116 1,469
======== ======== ========== ==========
Lease operations:
Lease revenues 2,897 2,893
Lease expenses 281 226
Depreciation and amortization 1,467 1,674
---------- ----------
1,149 993
Vending operations:
Vending revenues 842 329
Vending expenses 687 381
Depreciation and amortization 144 76
---------- ----------
11 (128)
Corporate operations
Other revenues, net 650 593
General and administrative expenses:
Management Company Operations 1,142 1,472
Construction/Acquisition
and Divestiture 5 34
Vending general and administrative 415 280
---------- ----------
Total general and administrative expenses 1,562 1,786
Depreciation and amortization 41 171
---------- ----------
(953) (1,364)
---------- ----------
Net operating income $ 1,323 $ 970
========== ==========
Other data:
Number of motels at period end (5) 32 32 3 12 35 44
Number of rooms at period end (5) 2,760 2,762 288 1,006 3,048 3,768
Occupancy percentage (5) 60.08% 61.35% 39.73% 52.72% 58.62% 58.39%
ADR (1) (5) $ 44.15 $ 44.45 $ 34.48 $ 16.77 $ 43.67 $ 46.47
REVPAR (2) (5) $ 29.89 $ 30.56 $ 14.27 $ 9.07 $ 28.77 $ 29.60
Net operating income margin (3) 10.98% 7.23%
Net motel revenue margin (4) (5) 37.78% 36.24% 3.90% 31.03% 35.74% 35.07%
- ------------------------------------------------
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating income margin represents net operating income divided by total
motel operating revenues plus lease revenues plus vending revenues plus
corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
(5) At March 31, 2002 and March 31, 2001, and for the three months periods then
ended, excludes amounts related to the seventy-six motels and seventy-four
motels, respectively, which are leased to third party tenants.
(6) Includes newly aquired properties, newly leased properties and
properties which were leased that the Company is now operating.
Effective January 1, 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 extends the reporting requirements of discontinued operations
to include components of an entity that have either been disposed of or are
classified as held for sale. During the three months ended March 31, 2002, the
Company disposed of three properties. The operating results of theses properties
have been reclassified as discontinued operations in the unaudited consolidated
statements of operations for each of the periods included herein.
Total revenues consist principally of motel operating revenues. Motel
operating revenues are derived from room rentals and ancillary motel revenues
such as charges to guests for food and beverage service, long distance telephone
calls, and fax machine use. Lease revenues are derived from properties leased to
third parties. Vending revenues are derived from vending machines used in the
motels and also vending machines placed in non owned locations. Other revenues
include interest income, and other miscellaneous income. Total revenues
decreased to $12,046,000 for the three months ended March 31, 2002 from
$13,415,000 for the three months ended March 31, 2001, a decrease of $1,369,000
or 10.2%.
Motel revenues decreased to $7,657,000 for the three months ended March
31, 2002 from $9,600,000 for the three months ended March 31, 2001, a decrease
of $1,943,000 or 20.2%. The motel revenues for motels owned during both periods
decreased approximately $172,000 and revenues for motels acquired and divested
since January 1, 2001 decreased by $1,771,000. Motel revenues for motels owned
during both periods decreased by 2.3%. The decrease in motel revenues for motels
owned during both periods was attributable to a combined decrease in the average
daily rate ("ADR") and the occupancy rate. The ADR for the motels owned during
both periods decreased to $44.15 for the three months ended March 31, 2002 from
$44.45 for the three months ended March 31, 2001, a decrease of $0.30 or less
than 1%. The occupancy for the motels owned during both periods decreased to
60.1% for the three months ended March 31, 2002 from 61.35% for the three months
ended March 31, 2001, a decrease of 2.1%. Revenue per available room ("REVPAR")
for motels owned during both periods decreased to $29.89 for the three months
ended March 31, 2002 from $30.56 for the three months ended March 31, 2001, a
decrease of $.67 or 2.2%. The acquired and divested motels had an occupancy
percentage of 39.73%, an ADR of $34.48 and REVPAR of $14.27 for the period,
which they were owned by the Company in 2002.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $4,684,000 for the three months
ended March 31, 2002 from $5,824,000 for the three months ended March 31, 2001,
a net decrease of $1,140,000 or 19.6%. Motel operating expenses for motels
acquired and divested since January 1, 2001 decreased to $277,000 for the three
months ended March 31, 2002 from $1,235,000 for the three months ended March 31,
2001, a decrease of $958,000 or 77.6%. The decrease consists of a decrease of
$182,000 or 4% in the costs of operating the motels owned during both periods.
The cost of operating motels owned during both periods decreased to $4,407,000
for the three months ended March 31, 2002 from $4,589,000 for the three months
ended March 31, 2001. The decrease in operating costs is principally due to
decreased labor and related costs, a decrease in repairs and maintenance
expenditures and a decrease in energy related costs. Motel operating expenses as
a percentage of motel revenues increased to 61.2% for the three months ended
March 31, 2002 from 60.7% for the three months ended March 31, 2001. Motel
operating expenses as a percentage of motel revenues for the motels owned in
both periods decreased to 59.4% for the three months ended March 31, 2002 from
60.4% for the three months ended March 31, 2001.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to franchisors
and other related marketing expenses. Marketing and royalty fees decreased to
$543,000 for the three months ended March 31, 2002 from $714,000 for the three
months ended March 31, 2001, a decrease of $171,000 or 23.9%. The marketing and
royalty fees for motels owned during both periods decreased to $528,000 for the
three months ended March 31, 2002 from $552,000 for the three months ended March
31, 2001, a decrease of $24,000 or 4.3%. For the motels owned during both
periods, marketing and royalty fees as a percentage of room revenues decreased
to 8% for the three months ended March 31, 2002 from 8.1% for the three months
ended March 31, 2001. Marketing and royalty fees for motels acquired and
divested since January 1, 2001 decreased to $15,000 for the three months ended
March 31, 2002 from $162,000 for the three months ended March 31, 2001.
Franchise fees declined due to the leasing of properties to third parties and
also the sales of properties in the second and third quarter of 2001.
Lease operations increased to $1,149,000 for the three months ended
March 31, 2002 from $993,000 for the three months ended March 31, 2001, an
increase of $156,000 as a result fully depreciated furniture and fixtures on
various properties.
Vending operations increased to $11,000 for the three months ended
March 31, 2002 from a$128,000 loss for the three months ended March 31, 2001, an
increase of $139,000, which is the result of the addition of new vending
accounts.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division and Vending general and
administrative. Included in the Management Company Operations, which is the
division responsible for the motel operations, are the costs associated with
training, marketing, purchasing, administrative support, property related legal
and accounting costs. The major components of these costs are salaries, wages
and related expenses, travel, rent and other administrative expenses. The
general and administrative expenses for the Management Company Operations
decreased $330,000 to $1,142,000 for the three months ended March 31, 2002 from
$1,472,000 for the three months ended March 31, 2001, a decrease of 22.4% as a
result of approximately $25,000 lower travel expenditures and $240,000 of
discounts given on early notes receivable payoff in the first quarter of 2001
versus none in the first quarter of 2002 with the remaining $65,000 spread out
among various other items. The general and administrative expenses associated
with Construction/Acquisition and Divestiture Division decreased $29,000 from
$34,000 for the three months ended March 31, 2001 to $5,000 for the three months
ended March 31, 2002. Vending General and Administrative expenses increased
$135,000 to $415,000 for the three months ended March 31, 2002 from $280,000 for
the three months ended March 31, 2001. As a percentage of total motel operating
revenues, Management Company Operations general and administrative expenses was
14.3% for the three months ended March 31, 2002 and 14.9% for the three months
ended March 31, 2001.
Depreciation and amortization decreased to $2,966,000 for the three
months ended March 31, 2002 from $3,514,000 for the three months ended March 31,
2001, a net decrease of $548,000 or 15.6%. This is the result of amortization
expense on corporate of $13,000 at March 31, 2002 compared to $120,000 at March
31, 2001 on various loan costs which are now fully amortized. Also, there was a
reduction in depreciation expense on furniture and fixtures which were fully
depreciated at March 31, 2002 compared to March 31, 2001 of approximately
$428,000.
Net operating income increased to $1,323,000 for the three months ended
March 31, 2002 from $970,000 for the three months ended March 31, 2001, an
increase of $353,000 or 36.4%. The increase in net operating income included a
decrease of $632,000 in net motel revenues (motel revenues less motel operating
expenses and marketing and royalty fees). Of the $632,000 decrease in net motel
revenues, an increase of $34,000 resulted from the motels owned during both
periods or an increase of 1.4%. Net motel revenues for motels acquired and
divested since January 1, 2001 decreased $666,000. The remaining net increase is
a result of the increased leasing activities and the reduction of management
general and administrative expenses. Net operating income as a percent of total
revenues was 11% for the three months ended March 31, 2002 as compared to 7.2%
for the three months ended March 31, 2001.
Interest expense decreased to $4,577,000 for the three months ended
March 31, 2002 from $5,132,000 for the three months ended March 31, 2001, a
decrease of $555,000. The decrease in interest expense is reflective of the
lower average amount of outstanding borrowings during the first quarter of 2002
as compared to the first quarter 2001.
Discontinued operations increased to $5,000 for the three months ended
March 31, 2002 compared to a loss of $109,000 for the three months ended March
31, 2001 as a result of the sale of properties.
Net loss decreased to $1,983,000 for the three months ended March 31,
2002 from $2,643,000 for the three months ended March 31, 2001.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt
service, capital expenditures and working capital. In addition, on a
discretionary basis, the Company utilizes its capital resources for the
development and acquisition of motel properties.
The Company's debt service requirements consist of the obligation to
make interest and principal payments on its outstanding indebtedness.
In January through March 31, 2002 the Company was advanced $654,000 on
loans of $7 million for construction advances on one property under construction
bringing the total advanced to $3.2 million.
During April through September 30, 2002, the Company was advanced an
additional $2.3 million on loans of $7 million for construction advances on one
property under construction bringing the total advanced to $5.5 million.
In April 2002, a subsidiary of the Company purchased a vending company
for $210,000 by issuing a note payable of $110,000 with monthly principal and
interest payments of $10,400, due March 1, 2003. Goodwill of $120,000 and fixed
assets of $90,000 were preliminarily recorded as a result of this transaction.
The Company believes it has or will be able to obtain adequate
resources to meet its near-term maturing debt and other obligations.
The Company's capital expenditure requirements principally include
capital improvements and refurbishment of its lodging facilities as part of its
ongoing operating strategy to provide well-maintained facilities. The Company
made capital expenditures (exclusive of acquisitions and development of
properties) of $375,000 and $778,000 for the three months ended March 31, 2002
and 2001, respectively. In addition, as of March 31, 2002, the Company had
$527,000 of cash restricted for future refurbishment of motel properties, in
accordance with certain debt agreements. Management is not aware of any unusual
required level of future capital expenditures necessary to maintain its existing
properties. Capital repairs and maintenance expenses on leased properties are
funded by lessees.
For the three months ended March 31, 2001, cash and cash equivalents
increased $510,000. This increase consisted of $762,000 of funds provided by
investing activities and $3,750,000 of funds used by financing activities and
$3,498,000 of funds provided by operations. Net investing activities of $762,000
include: $1,227,000 of cash utilized for motel development and $375,000 expended
on refurbishment of existing properties, offset by $39,000 of cash provided from
the collections on mortgage and other notes receivable, $2,460,000 net proceeds
from the sale of investment properties and a change in cash restricted for
refurbishment of $135,000. Cash used in financing activities includes:
$4,383,000 of cash utilized to repay indebtedness, $711,000 from proceeds from
notes payable and $78,000 expended on deferred financing costs.
The Company believes it has or will be able to obtain adequate
resources to meet its near-term maturing debt and other obligations, either from
operating cash flows or refinancing, including the maturity of the remaining
$11.3 million 12% Senior Subordinated Notes in 2004.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal proceedings arising in the
ordinary course of business. The Company does not believe that any of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's business, results of operations or financial condition.
See Note 5 of the Notes to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities
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:
Not Applicable
(b) Reports on Form 8-K:
Not Applicable
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.
MOA HOSPITALITY, INC.
December 19, 2002 By: /s/ Kurt M. Mueller
------------------------------------------
Kurt M. Mueller
President and Chief Financial Officer
December 19, 2002 By: /s/ Blane P. Evans
------------------------------------------
Blane P. Evans
Secretary and Treasurer
CERTIFICATIONS
Written Statement of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
I, Kurt M. Mueller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MOA Hospitality, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: December 19, 2002
/s/ Kurt M. Mueller
-----------------------
Kurt M. Mueller
Chief Financial Officer
CERTIFICATIONS
Written Statement of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
I, Paul F. Wallace, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MOA Hospitality, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
4. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: December 19, 2002
/s/ Paul F. Wallace
-----------------------
Paul F. Wallace
Chief Executive Officer