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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
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
______________________
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 803-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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.
[X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
March 13, 1998: 800,000
INDEX TO FORM 10-K
Page
Part I
Item 1. Business ........................................... 3
Item 2. Properties ......................................... 8
Item 3. Legal Proceedings .................................. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................. 14
Item 6. Selected Financial Data ............................ 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 17
Item 8. Financial Statements and Supplementary Data ........ 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............. 27
Part III
Item 10. Directors and Executive Officers of the Registrant . 28
Item 11. Executive Compensation ............................. 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management ...................................... 33
Item 13. Certain Relationships and Related Transactions ..... 33
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ..................................... 34
Signatures
PART I
ITEM 1. BUSINESS
General
MOA Hospitality, Inc. and its subsidiaries ("MOA" or the "Company"),
formerly known as Motels of America, Inc., is a leading owner and operator of
national brand affiliated limited service lodging facilities in the United
States. As of December 31, 1997, the Company, directly and through
subsidiaries, operated 138 lodging facilities located in 37 states with a total
of 11,385 rooms. In March 1998, MOA sold a lodging facility resulting in the
Company owning and operating 137 lodging facilities located in 37 states with a
total of 11,336 rooms as of March 20, 1998. The Company's largest
concentrations of lodging facilities are located in the States of Georgia and
Illinois with 13 lodging facilities each. The Company derives less than 8% of
its revenues from lodging facilities located in either the states of Georgia or
Illinois. The Company operates 133 of its lodging facilities pursuant to
franchise or license agreements with the following national brands: Best
Western, Comfort Inn, Day's Inn, Holiday Inn Express, Howard Johnson, Microtel,
Ramada, Ltd., Shoney's Inn, Super 8, Travelodge and Villager Lodge. By
affiliating its lodging facilities with national brands, MOA benefits by
receiving national brand name recognition, national advertising exposure,
central reservation services, exposure in published travel directories, group
tour generated business and other professional services which could not be
duplicated by the Company on a cost-effective basis for its lodging facilities.
The Company was incorporated in 1986 under the laws of the State of
Delaware to continue the business commenced by its predecessors in 1982. The
Company's principal executive offices are located at 701 Lee Street, Suite
1000, Des Plaines, Illinois 60016, telephone (847) 803-1200.
Recent History
Since January 1, 1994, the Company has increased the number of its
lodging properties from 83 properties to 138 properties at December 31, 1997.
This growth was accomplished through acquisitions and development funded
through borrowings and internally generated funds. A summary of the
significant transactions which provided this growth is as follows:
In April 1994, the company in two separate but concurrent
transactions acquired twenty four lodging facilities for approximately $74
million consisting of cash of $59 million and the assumption of $15 million in
mortgage debt. Funding for the transactions was through an $80 million
principal amount public offering of 12% Senior Subordinated Notes due 2004,
Series B (the "Notes"). In conjunction with this offering the Company issued
80,000 shares of common stock to the holders of the Notes for no additional
consideration. During the May through December 1994 period, the Company
acquired in a series of transactions an additional seventeen lodging
facilities for approximately $34.1 million of cash and the assumption of $4.5
million of mortgage debt. In October 1994, the Company, entered into a two-
year $100 million secured line of credit facility (the "NACC credit line")
with Nomura Asset Capital Corporation ("NACC") to provide funding for
acquisitions and related expenses (including refurbishment costs).
In September 1995, the Company and NACC entered into a financing
transaction (the "Secured Financing") involving the formation of Motels of
America, L.L.C., a limited liability company wholly owned by MOA ("MOA LLC").
MOA and its subsidiaries transferred 93 lodging facilities to MOA LLC and MOA
LLC borrowed on a secured basis $158.8 million from NACC. Proceeds of the
Secured Financing were used to repay existing indebtedness of approximately
$142.2 million (including outstanding indebtedness under the NACC credit line)
and for general corporate purposes. During 1996, ownership of MOA LLC was
transferred from MOA to two of its wholly owned subsidiaries.
In January 1996, the Company acquired nineteen lodging facilities
from Forte USA, Inc., a subsidiary of Forte Hotels, Inc., for approximately
$35.5 million in cash which was financed by $30.9 million of borrowings under
the NACC credit line and from other unaffiliated sources. During 1996, the
Company, in a series of transactions, sold eleven motel properties for $15.8
million in net cash proceeds and $6.3 million in mortgage and other notes
receivable. In November 1996, the Company completed two separate financing
transactions with CS First Boston Corporation ("CSFB") pursuant to which the
Company borrowed approximately $37.2 million. Approximately $29.8 million of
the proceeds were utilized to repay the entire outstanding borrowings under
the NACC credit line; $1.6 million of the proceeds were utilized toward a
partial paydown of the certain borrowings; and the remaining net proceeds were
retained for general corporate purposes. The CSFB borrowings are evidenced by
notes which mature on November 1, 1998 and are secured by first mortgages on
nineteen of the Company's motel properties and a pledge of the stock of one of
the Company's subsidiaries.
In 1997, an affiliate of the Company was formed for the sole purpose
of constructing lodging properties to be acquired by a subsidiary of the
Company upon completion at cost. Such affiliate develops the lodging
properties from its own funds, payments from the Company on account to be
applied towards the purchase price and the proceeds of a $20,000,000
revolving construction loan facility arranged by the affiliate. In connection
with such construction loan facility, the Company has guaranteed completion of
the construction of each property and the subsidiary acquiring the properties
has guaranteed the construction loan facility to a maximum of $10,000,000. In
1997, five (5) such properties were acquired for $12,900,000 of which
$7,800,000 was funded form a $150,000,000 secured loan facility between the
subsidiary acquiring the properties and CS First Boston. This facility
provides, among other things for interest computed at a rate based upon the
thirty (30) day LIBOR rate plus 300 basis points, monthly principal and
interest payments at an 11.5% per annum constant, and repayment in full of
each funding made pursuant to the facility forty-two (42) months after the
date of each such funding. In addition, the Company has pledged its interest
in a wholly owned subsidiary to secure up to $20,000,000 of borrowing under
the facility. As of March 20, 1998, seven additional properties were under
construction and management anticipates approximately $19,000,000 will be
expended to purchase these lodging facilities upon completion. Payments from
the Company on account to be applied towards the future purchases amounted to
$1,841,000 at December 31, 1997. Interest earned by the Company on such payments
in 1997 equaled $558,000.
During 1997, in separate transactions, the Company sold two
properties for an aggregate of $3.9 million consisting of cash in the amount
of $0.1 million, a mortgage note receivable in the amount of $1.0 million and
the buyer's assumption of a mortgage note in the amount of $2.3 million. The
Company remains contingently liable on the note, $2.3 million, in the event
the purchaser does not perform under its obligations.
In March 1998, the Company sold one of its motels pursuant to a
condemnation related to a highway reconfiguration project for approximately
$1.6 million in cash and realized an approximate $0.5 million gain.
Industry and Competition
The United States lodging industry is generally comprised of two
sectors: full-service facilities and limited-service facilities. Full-
service lodging facilities generally have more extensive common areas
(including restaurants, lounges and extensive meeting room facilities), offer
more services such as bell service and room service, and tend to be larger in
terms of number of rooms than limited-service facilities. MOA's properties
are principally limited-service type lodging facilities. The United States
lodging industry is also categorized into five general price segments (based
on relative pricing in local markets): luxury, upscale, mid-price, economy,
and budget. MOA's properties predominately fall into the economy segment with
a small percentage represented in both the mid-price and budget segments.
Industry estimates indicate that there are over 23,000 lodging facilities
within the mid-price, economy and budget segments. The United States lodging
industry is also generally considered to be relatively fragmented in terms of
ownership. This combination of a large number of competitive lodging
facilities and limited concentration of ownership makes the segment in which
MOA's lodging facilities compete very competitive.
Generally, each of the Company's lodging facilities competes within
its local market with several national and regional brand affiliated lodging
facilities along with many independent competitive lodging facilities. Some
of the more recognizable brands with which the Company's lodging facilities
compete either directly or indirectly include: Budgetel Inns, Comfort Inns,
Day's Inns, Fairfield Inns, Hampton Inns, Holiday Inn Express, LaQuinta Inns,
Motel 6, Ramada, Ltd., Red Roof Inns, Super 8 Motels and Travelodge.
Distinguishing characteristics among competitive lodging facilities include:
convenience of location, degree of curb appeal, reasonableness of room rates,
and in particular with repeat customers the quality and cleanliness of room
accommodations and the level of service.
The Company competes with other lodging facilities for a wide
spectrum of business and leisure travelers who desire consistency in the
quality of their accommodations and demand reasonable prices. They tend to be
value conscious consumers consisting of: construction workers, sales people,
technicians, senior citizens, government and military employees, and vacation
travelers. Due to the nature and location of the Company's lodging
facilities, the Company does not experience any significant degree of advance
bookings typical with many resort facilities nor does any one customer
represent a significant portion of the Company's revenues.
The lodging industry has seen a significant increase in the
construction of new lodging facilities over the course of the past few years.
Management believes this increase is a result of the relative strength of the
Nation's economy which in turn has resulted in greater travel and stronger
operating performance of lodging facilities in general. Management also
believes the increase in new construction has been facilitated by an increased
availability of financing for such projects and a relatively favorable
interest rate environment. Based on the Company's internally prepared annual
surveys of new supply entering the markets in which it competes, the
percentage increase in new supply in such markets appears to have peaked in
1996 with a slightly lower percentage increase experienced in 1997 and an even
lower percentage of known and rumored new supply identified for 1998.
Management believes this increase in new supply of lodging facilities has
negatively affected the occupancy rate at its lodging facilities. Other than
various independent and small chain affiliated lodging facilities, Hampton
Inns, Holiday Express Inns and Fairfield Inns represent the national brands
with the most new rooms being built in the markets in which the Company's
lodging facilities compete. These national brands tend to have higher average
daily rates than the Company's lodging facilities which the Company believes
has allowed it and its direct competitors to continue to raise average daily
rates at a rate in excess of the underlying national inflation rate.
Demand for the Company's lodging facilities is affected by normally
recurring seasonal patterns. Demand for the Company's lodging facilities is
generally highest during the months of June, July and August and lowest during
the months of December, January and February. As is the case for the lodging
industry in general, demand for the Company's lodging facilities may be
affected by weather, national and regional economic conditions, government
regulations, changes in travel patterns, construction of new lodging
facilities, changes in the degree of competition from existing lodging
facilities and other factors. Management believes the much publicized weather
affect of El Nino began negatively impacting the occupancy of its properties
located in the Southeast during the fourth quarter.
Ownership Structure
At December 31, 1997, the Company had 100% ownership interest, either
directly or through subsidiaries, in 136 of the 138 lodging facilities it
operated. Due to the divesture of a property in the first quarter, these
numbers are reduced by one as of March 20, 1998. The Company was a general
partner with ownership interests of 30% and 50% in two individual limited
partnerships each of which owned one lodging facility as its principal asset.
These partially owned lodging facilities have been consolidated for financial
reporting purposes due to the management and control which the Company
possesses.
Franchise and License Agreements
The Company operates 133 of its lodging facilities pursuant to
franchise or license agreements. Eighty-seven of these agreements are with
Super 8 Motels, Inc. The franchise fees (including royalties, and
contributions to advertising and media funds) range from 6% to 7% of room
revenues. Under the Super 8 franchise agreements, the franchiser is obligated
to: provide certain standardized training programs; publish a travel
directory with information pertaining to all Super 8 motels; maintain an
advertising and reservation fund to be administered by the franchiser for
advertising and promotion; inspect the motels to assure satisfaction of Super
8 specifications and maintain availability of corporate officers and employees
for consultation concerning motel operations. The obligations of the
franchisee include, among other things, maintaining the motel in a manner that
satisfies Super 8 quality assurance standards and compliance with Super 8
rules of operations.
The Super 8 franchise agreements have an initial 20-year term which,
for the Company, results in various ending dates through 2017. The agreements
continue thereafter on a year-by-year basis unless terminated by either party
upon nine months notice. The agreements provide a negotiated area of
geographic protection within which the franchiser is prohibited from
franchising another Super 8 motel.
The Company has forty-six franchise or license agreements with other
franchisers or licensees. These agreements, which have various terms with
ending dates through 2017, generally provide similar benefits and obligations
as the Super 8 franchise agreements. Not all of franchise and license
agreements for the non Super 8 brands provide for a specific area of
geographic protection in which case, they generally rely on an impact policy
to determine if another lodging facility with the same brand affiliation could
be located within a particular market.
The Company has four standard license agreements with Best Western
International. These agreements provide for an annual renewal.
Operations
The Company believes the ownership and management of its properties
gives it certain competitive advantages over third party managed properties
with which it competes by being able to control all aspects of a lodging
facility's operations and expenditures to maintain such facilities. The
Company also believes it has certain competitive advantages over chain owned
and operated properties because as long as the Company meets a franchisor's
minimum requirements it can tailor the services and product offering of
individual facilities without concerning itself with national consistency.
Management of the Company's lodging facilities is coordinated from
the Company's corporate offices in Des Plaines, Illinois. During 1997, the
Company undertook a reorganization of its management infrastructure and
implemented a more decentralized organization structure whereby many of the
property management support functions previously based out of the corporate
office in Des Plaines, Illinois were moved to various regional offices which
were established.
This decentralization was undertaken in order to enhance the Company's
responsiveness, efficiency and control with respect to the day-by-day
operations of its properties. In conjunction with this reorganization, the
Company recorded a charge in the amount of $750,000 to cover the cost of
restructuring.
The regional offices are located in Independence, Missouri, Indianapolis,
Indiana, Marietta, Georgia and Salt Lake City, Utah. Day-to-day management,
facility renovation, human resources and training, purchasing of operating
supplies and sales and marketing are principally directed from the regional
offices. The executive level functions as well as accounting and construction
continue to be centralized in Des Plaines, Illinois.
The Company has developed and conducts its own training programs which
satisfies most franchiser training requirements. The Company believes its
unique training programs provide a competitive advantage in the management of
motels over individual owner/operators which must rely on franchiser and
industry supplied training material.
Typically, the general manager is the only salaried position at a
property; although, for the larger properties (generally in excess of 100
rooms), an assistant manager and/or salesperson may be present on a salaried
basis. Other employees generally are employed on an hourly basis with
staffing continually adjusted based on occupancy levels. General managers
generally do not reside on site because the Company believes its managers are
more effective if they spend time away from the property and become involved
in the communities where the properties are located. At December 31, 1997,
the Company employed approximately 2,300 employees including approximately 60
full and part-time employees at the corporate office. The employees are not
represented by any labor unions and management believes its ongoing labor
relations with its employees is good.
The Company utilizes advertising and marketing programs sponsored by
the various franchisers on both a national and regional basis. In addition,
the Company engages in a wide variety of sales and marketing activities at the
local market level including extensive individual sales calls, marketing
blitzes and involvement in local community activities such as Rotary Clubs,
Chambers of Commerce and motel associations. Various properties also promote
special packages in conjunction with local attractions or events. Billboard
advertising represents the single largest sales and marketing expenditure
other than contributions to franchiser sponsored advertising and media funds.
Regulatory Matters
The Company is subject to environmental regulations under various
federal, state and local laws. Certain of these laws may require a current or
previous owner or operator of real estate to clean up designated hazardous or
toxic substances or petroleum product releases affecting the property. In
addition, the owner or operator may be held liable to a governmental entity or
to third parties for damages or costs incurred by such parties in connection
with the contamination.
Certain of the Company's lodging facilities are located on, adjacent
to or in the vicinity of, properties, including gasoline stations, that
contain or have contained storage tanks or that have engaged or may in the
future engage in activities that may release petroleum products or other
hazardous substances into the soil or groundwater.
While there can be no assurance that in the future the foregoing
environmental conditions may not have a material effect on the Company,
management is not aware of any such materially adverse impacts to the Company
due to the existence of contaminants under or near its properties. Except as
described above, management is not aware of any environmental condition with
respect to its lodging facilities that could have a material adverse impact on
the Company's financial condition or results of operations.
The Company's lodging facilities are subject to various other laws,
ordinances and regulations. The Company believes that each facility has the
necessary permits and approvals required to enable the Company to operate its
lodging facilities.
The Company's lodging facilities must comply with Title III of the
Americans With Disabilities Act (the "ADA"). Under the provisions of the ADA,
the Company, as owner of the lodging facilities, is obligated to reasonably
accommodate the patrons of its facilities who have physical, mental or other
disabilities. In addition, the Company is obligated to ensure that alterations
to its lodging facilities conform to the specific requirements of the ADA
implementing regulations. The Company believes that it is in substantial
compliance with all current applicable regulations with respect to
accommodations for the disabled.
Item 2. PROPERTIES
The Company's lodging facilities are typically situated along
interstate highways and in secondary markets, offering a convenient lodging
alternative for many prospective customers. The facilities have an average
size of 83 rooms, though individual properties range from 33 to 187 rooms,
depending on location and business environment. MOA's properties generally do
not offer large meeting or banquet facilities, in-house restaurants, or room
service; and most do not offer recreational facilities such as pools or
fitness centers. The motels do, however, typically provide free coffee, free
local calls, remote control television, fax service, and free parking. In
addition, many nationally and regionally recognized restaurant chains are
generally within close proximity of the motels.
The Company generally owns its motels in fee simple; however, the
underlying real property of five of the lodging facilities is subject to a
ground lease. Ownership of the buildings and improvements situated on such
properties reverts to the landlord upon the expiration of the lease term.
Most of the Company's properties were designed and built as limited
service economy lodging facilities. As such, they were designed to achieve
functional efficiencies and operate at lower fixed costs than most full
service or upscale lodging facilities. The properties generally employ
individual through-the-wall heating and cooling systems for each room. This
provides cost savings during periods of low occupancy and eliminates the need
to have skilled maintenance personnel on the payroll. Further, the Company's
motels have limited public areas to maintain.
The Company believes that the physical condition and general
appearance of a property have a significant impact on profitability. MOA has
established a strict maintenance and refurbishment program enacted to ensure
high quality and well maintained properties. This program seeks to maximize
the attractiveness of the Company's rooms with prudent levels of capital
investment.
MOA has made capital expenditures (exclusive of acquistions and
development of investment properties) of $7,948,000, $9,857,000 and $7,806,000
in 1997, 1996 and 1995, respectively. These expenditures include not only the
replacement of guestroom carpet and furnishings but also expenditures on
parking lot repavement, exterior renovations and interior public area
renovations including lobby enhancements and other revenue enhancing
improvements such as installation of complete snack shoppe vended areas and
guest laundry facilities. Management believes the level of capital
expenditures made over the past three years is in excess of often cited
industry standards due to the improvements referred to above and as a result
of the deferred maintenance associated with the significant number of
properties acquired in recent years. The following table summarizes capital
expenditures made in 1997, 1996 and 1995 in relation to the year in which such
properties were acquired:
Capital Expenditures Number of Rooms at Year End
-------------------- ---------------------------
Property Acquired 1997 1996 1995 1997 1996 1995
----------------- ---- ---- ---- ---- ---- ----
Corporate Office $ 159,000 $ 192,000 $ 171,000
1993 and prior 3,072,000 5,535,000 2,150,000 5,771 5,798 5,811
1994 1,599,000 3,991,000 5,627,000 3,619 3,623 4,512
1995 188,000 139,000 250 250
1996 2,930,000 1,466
---------- ---------- ----------
Total $7,948,000 $9,857,000 $7,948,000
========== ========== ==========
The Company believes that its facilities are currently well
maintained and conform to the Company's standards for cleanliness and
attractiveness and intends to maintain its facilities in such condition.
Information pertaining to the Company's 137 lodging facilities operated as of
March 20, 1998 is set forth in the following table.
Number Year
of Year Acquired by
Location Franchise Rooms Built the Company
- -------- --------- ------ ----- -----------
ALABAMA
Pelham....................... Travelodge 64 1989 1996
ARKANSAS
West Memphis (1)............. Super 8 61 1989 1989
CALIFORNIA
Indio........................ Holiday Inn Express 126 1986 1995
Santa Clara.................. Days Inn 168 1984 1994
Santa Monica................. Best Western 122 1991 1992
Santa Monica (1)............. Pacific Shore 168 1966 1993
West Los Angeles............. Best Western 76 1993 1994
COLORADO
Longmont..................... Super 8 64 1989 1994
DELAWARE
Newark....................... Howard Johnson 141 1969 1996
FLORIDA
Fernandina Beach............. Shoney's 134 1985 1994
Ft. Lauderdale............... Travelodge 118 1987 1996
Ft. Walton Beach............. Shoney's 102 1987 1994
Jacksonville................. Travelodge 119 1986 1996
Melbourne.................... Shoney's 119 1990 1994
Orlando Centroplex (1)....... Travelodge 75 1957 1996
Panama City.................. Super 8 63 1986 1987
Pensacola.................... Super 8 62 1985 1987
GEORGIA
Brunswick.................... Super 8 62 1986 1987
Cartersville................. Super 8 62 1986 1987
Columbus..................... Super 8 74 1985 1987
Douglas...................... Shoney's 100 1986 1994
Dublin....................... Shoney's 100 1984 1994
Fitzgeral.................... Shoney's 108 1985 1994
Greensboro................... Microtel 48 1997 1997
Hinesville................... Shoney's 163 1976 1994
Macon........................ Shoney's 120 1987 1994
Moultrie..................... Shoney's 100 1979 1994
Rome......................... Super 8 62 1986 1987
Vidalia...................... Shoney's 128 1984 1994
Warner Robins................ Super 8 60 1986 1987
IDAHO
Boise........................ Super 8 110 1978 1994
Coeur D'Alene (1)............ Super 8 95 1983 1983
Lewiston..................... Super 8 62 1985 1985
Sandpoint.................... Super 8 61 1984 1984
ILLINOIS
Bloomington.................. Super 8 61 1985 1987
Champaign.................... Super 8 61 1984 1987
Crystal Lake................. Super 8 59 1983 1987
Decatur...................... Super 8 61 1983 1987
East Moline.................. Super 8 63 1988 1988
Litchfield................... Super 8 61 1987 1994
Naperville................... Travelodge 100 1983 1996
Okawville.................... Super 8 40 1985 1988
Peru......................... Super 8 61 1986 1987
South Springfield............ Super 8 122 1987 1994
Springfield.................. Super 8 65 1985 1994
Tuscola...................... Super 8 64 1988 1994
Waukegan..................... Super 8 61 1986 1987
INDIANA
Columbus..................... Super 8 62 1984 1987
Elkhart...................... Shoney's 61 1990 1994
Elkhart...................... Super 8 62 1986 1989
Indianapolis................. Days Inn 161 1985 1994
Muncie....................... Days Inn 62 1990 1994
Muncie....................... Super 8 63 1986 1989
Terre Haute.................. Super 8 118 1985 1994
IOWA
Davenport.................... Super 8 61 1984 1987
Des Moines................... Super 8 152 1985 1994
KANSAS
Leavenworth.................. Super 8 60 1984 1989
Salina....................... Super 8 61 1984 1989
Topeka....................... Super 8 62 1984 1987
KENTUCKY
Danville..................... Super 8 49 1987 1987
Lexington.................... Super 8 62 1987 1987
Louisville................... Super 8 100 1988 1988
Louisville................... Travelodge 108 1983 1996
LOUISIANA
Shreveport................... Super 8 143 1986 1994
MASSACHUSETTS
Milford...................... Days Inn 69 1997 1997
MAINE
Ellsworth.................... Comfort Inn 63 1993 1993
MICHIGAN
Battle Creek................. Super 8 62 1985 1987
Detroit...................... Travelodge 122 1986 1996
Grand Rapids................. Super 8 62 1986 1987
Kalamazoo.................... Super 8 62 1985 1987
Muskegon..................... Days Inn 106 1968 1993
Muskegon..................... Super 8 62 1986 1987
Saginaw...................... Super 8 62 1985 1987
MINNESOTA
Hibbing...................... Super 8 49 1993 1994
Red Wing..................... Super 8 60 1987 1996
Savage....................... Comfort Inn 75 1982 1994
MISSISSIPPI
Vicksburg.................... Super 8 62 1988 1988
MISSOURI
Independence................. Super 8 77 1983 1987
Joplin....................... Super 8 50 1985 1987
Liberty...................... Super 8 60 1980 1987
NW Kansas City............... Super 8 50 1983 1987
St. Joseph................... Super 8 54 1985 1987
St. Louis.................... Super 8 99 1984 1987
Springfield.................. Super 8 50 1985 1987
MONTANA
Billings..................... Ramada Ltd. 116 1978 1994
Billings..................... Super 8 115 1979 1994
Dillon....................... Super 8 48 1985 1989
Great Falls.................. Super 8 117 1978 1994
Helena....................... Super 8 102 1979 1988
Kalispell.................... Super 8 74 1984 1988
NEBRASKA
Fremont...................... Super 8 43 1986 1989
NEVADA
Carson City.................. Super 8 63 1985 1985
Wendover..................... Super 8 74 1988 1988
NEW MEXICO
Las Cruces................... Super 8 61 1981 1987
Raton (1).................... Super 8 48 1983 1987
NEW YORK
East Syracuse................ Super 8 53 1997 1997
NORTH CAROLINA
Greensboro.................. Travelodge 108 1985 1996
Weldon...................... Orchard Inn 49 1973 1993
Wilson...................... Microtel 61 1997 1997
NORTH DAKOTA
Bismarck.................... Super 8 61 1976 1987
Grand Forks................. Super 8 33 1983 1987
Minot....................... Super 8 60 1977 1987
OHIO
Akron....................... Super 8 59 1986 1987
Canton...................... Days Inn 61 1985 1987
Cleveland/Beachwood......... Travelodge 127 1980 1996
Cleveland/Willoughby........ Travelodge 110 1984 1996
Columbus.................... Travelodge 108 1983 1996
St. Clairsville............. Super 8 62 1986 1987
PENNSYLVANIA
Lancaster................... Super 8 101 1990 1990
York........................ Super 8 94 1990 1990
SOUTH CAROLINA
Anderson..................... Super 8 62 1986 1987
Camden....................... Shoney's 84 1989 1994
Charleston................... Orchard Inn 89 1973 1993
Columbia..................... Microtel 48 1997 1997
Columbia..................... Travelodge 106 1985 1996
Greenwood.................... Villager Lodge 62 1986 1987
Hilton Head.................. Shoney's 136 1989 1994
SOUTH DAKOTA
Sioux Falls.................. Super 8 95 1976 1987
TENNESSEE
Chattanooga.................. Best Western 124 1972 1995
Chattanooga.................. Super 8 73 1986 1987
East Memphis................. Super 8 69 1990 1990
Johnson City................. Super 8 63 1986 1987
Knoxville.................... Super 8 137 1975 1993
Union City................... Super 8 61 1989 1989
UTAH
Salt Lake City............... Super 8 120 1983 1988
VIRGINIA
Charlottesville.............. Super 8 65 1986 1987
Richmond..................... Shoney's 117 1985 1994
WASHINGTON
Spokane...................... Super 8 187 1982 1988
Wenatchee.................... Orchard Inn 103 1984 1988
WISCONSIN
Ashland...................... Super 8 70 1984 1988
Janesville................... Super 8 48 1985 1987
Kenosha...................... Super 8 60 1984 1987
Madison...................... Best Western 101 1983 1994
Oshkosh...................... Super 8 61 1987 1994
Rice Lake.................... Super 8 47 1984 1994
WYOMING
Cody......................... Super 8 64 1982 1982
Jackson...................... Super 8 97 1983 1983
Total.................. 11,336
=============================== ======
(1) Property is subject to a ground lease.
Item 3. 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December
31, 1997 to a vote of the security holders of the Company.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 20, 1998, there were approximately 12 holders of record
of the Company's Common Stock. No established public trading market exists
for the Company's common equity. The Company has been advised that since its
original issuance there have been a limited number of privately negotiated
sales of the Common Stock.
The Company has never paid cash dividends on its Common Stock. It is
the Company's present intention to retain all future earnings for use in its
business and, therefore, it does not expect to pay cash dividends on the
Common Stock in the foreseeable future. The declaration and payment of
dividends on the Common Stock is restricted by the indenture relating to the
$80 million principal amount of 12% Senior Subordinated Notes due April 15,
2004, Series B issued by the Company in April 1994 (the "Notes") and the
instruments relating to the Company's other indebtedness.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial
information of the Company and its subsidiaries for the five fiscal years ended
December 31, 1997, which has been derived from the audited financial
statements, with the exception of Operating Data and Same Property Data. This
data should be read in conjunction with the consolidated historical financial
statements of the Company and the notes thereto included elsewhere herein.
Year Ended December 31,
-----------------------------------------------------------------
1993 (1) 1994 (2) 1995 (1) 1996 (1) 1997 (1)
---------- ---------- ---------- ---------- ---------
(dollars in thousands except Ratio, Margin and Operating Data)
Statement of Operations Data
Total revenues ..................................... $ 58,257 $ 87,067 $ 112,720 $ 128,271 $ 122,367
Costs and expenses:
Motel operating ................................. 28,625 43,245 57,353 67,344 62,333
Marketing and royalty fees ...................... 3,874 5,900 7,643 9,606 8,905
Corporate general and
administrative ............................... 3,371 4,596 5,590 6,833 7,908
Restructuring costs
and impairment losses ........................ - - - - 3,276
Depreciation and amortization(2) ................ 6,609 8,569 12,618 13,995 14,985
--------- --------- ---------- ---------- ----------
Total direct expenses .............................. 42,479 62,310 83,204 97,778 97,407
--------- --------- ---------- ---------- ----------
Net operating income ............................... 15,778 24,757 29,516 30,493 24,960
Interest expense ................................... 11,449 20,297 27,831 31,573 31,373
--------- --------- ---------- ---------- ----------
Income (loss) from operations ...................... 4,329 4,460 1,685 (1,080) (6,413)
Net income (loss) before
extraordinary item .............................. 3,304 414 1,265 687 (3,372)
Net income (loss).................................. 3,796 414 1,533 687 (3,372)
Net income (loss) before
extraordinary item per share .................... $ 4.63 $ 0.53 $ 1.58 $ 0.86 ($4.21)
Net income (loss) per share ........................ 5.32 $ 0.53 $ 1.91 $ 0.86 ($4.21)
Other Financial Data
Net cash provided by operating
activities ...................................... $ 10,176 $ 10,494 $ 8,144 $ 13,477 $ 15,947
Net cash used in investing activities .............. (3,762) (104,474) (10,532) (50,498) (13,648)
Net cash provided by (used in)
financing activities ............................ (9,444) 98,713 7,798 35,371 (1,515)
EBITDA(3) .......................................... 22,387 33,326 42,134 44,487 43,221
EBITDA Margin (% of total
revenues)(3) .................................... 38.43% 38.28% 37.38% 34.70% 35.32%
Net operating revenue margin
(% of total revenues) ........................... 27.08% 28.43% 26.19% 23.66% 20.40%
Refurbishment of investment properties ............. $ 3,455 $ 6,818 $ 7,806 $ 9,857 $ 7,948
Operating Data
Number of motels ................................... 82 125 125 135 138
Number of rooms .................................... 5,781 10,551 10,573 11,317 11,385
REVPAR(4) .......................................... $ 28.11 $ 28.38 $ 28.96 $ 28.96 $ 29.48
ADR(5) ............................................. $ 37.67 $ 37.58 $ 40.25 $ 40.91 $ 43.43
Occupancy percentage(6) ............................ 69.78% 70.18% 66.89% 66.25% 63.75%
Balance Sheet Data
Total assets ....................................... $165,694 $310,567 $ 325,151 $ 368,433 $ 362,859
Total debt ......................................... 141,453 268,191 286,088 327,554 324,989
Total stockholders' equity ......................... 16,326 20,745 22,279 22,966 19,594
Year Ended December 31,
-----------------------------------------------------------------
1993 (1) 1994 (2) 1995 (1) 1996 (1) 1997 (1)
---------- ---------- ---------- ---------- ---------
(room revenues in thousands)
Same Property Data:
76 Motels owned since
January 1, 1993:
Room revenues ................................. $ 48,612 $ 51,018 $ 52,655 $ 52,757 $ 52,475
REVPAR(4) ..................................... $ 27.31 $ 28.67 $ 29.55 $ 28.75 $ 28.71
ADR(5)......................................... $ 36.88 $ 36.45 $ 38.52 $ 38.92 $ 40.67
Occupancy percentage(6) ....................... 69.92% 74.25% 72.26% 71.38% 68.30%
83 Motels owned since
January 1, 1994:
Room revenues ................................. $ 58,577 $ 60,870 $ 61,217 $ 62,147
REVPAR(4) ..................................... $ 29.37 $ 30.46 $ 30.67 $ 31.20
ADR(5) ........................................ $ 37.54 $ 39.73 $ 40.46 $ 42.66
Occupancy percentage(6) ....................... 72.95% 71.44% 70.30% 68.05%
117 Motels owned since
January 1, 1995:
Room revenues ................................. $ 95,704 $ 95,627 $ 96,850
REVPAR(4)...................................... $ 29.71 $ 29.61 $ 30.10
ADR(5) ........................................ $ 40.41 $ 41.04 $ 43.40
Occupancy percentage(6) ....................... 68.85% 67.52% 65.01%
119 Motels owned since
January 1, 1996:
Room revenues ................................. $ 97,143 $ 98,828
REVPAR(4) ..................................... $ 29.28 $ 29.88
ADR(5) ........................................ $ 41.01 $ 43.45
Occupancy percentage(6) ..................... 66.87% 64.50%
[FN]
(1) Results for the years ended December 31, 1993 and 1995 include gains on
early extinguishment of debt, net of income taxes, of $0.5 million and
$0.2 million, respectively. Results for the years ended December 31, 1994
and 1995 include the writeoff of $3.1 million of deferred costs and the
recovery of $0.5 million of offering costs previously written off,
respectively. The results for years ended December 31, 1995, 1996 and
1997 include a $0.5 million, $2.6 million and $1.1 million gain on the
sale of properties, respectively. Results for the year ended December
31, 1997 included the recording of restructuring costs and the impairment
losses of $3.3 million.
(2) The Company changed its estimate of the useful life of its buildings from
35 to 40 years in 1994. The effect of this change decreased depreciation
by $1,154,000 for the year ended December 31, 1994.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest, gain on sale of
properties, write-off (recovery) of deferred offerring costs,
restructuring costs and impairment losses and gain on early
extinguishment of debt. EBITDA is not intended to represent cash flow
or any other measure of performance in accordance with GAAP. EBITDA is
included herein because management believes that certain investors find
it to be useful tool for measuring the ability to service debt. EBITDA
should not be construed by the reader as an alternative to operating
income (as determined in accordance with GAAP) as an indicator of the
Company's operating performance, or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity.
(4) Revenue per available room (REVPAR) represents motel operating revenues
divided by the total number of rooms available. Total available rooms
represents the number of rooms available for rent multiplied by the
number of days in the reported period.
(5) The average daily room rate (ADR) represents total room revenues divided
by the total number of rooms occupied.
(6) The occupancy percentage represents total rooms occupied divided by total
available rooms.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED FINANCIAL
DATA" AND THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
NOTES THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING
RESULTS PRESENTED BELOW FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
HAVE BEEN PREPARED ON THE SAME BASIS AS THE AUDITED CONSOLIDATED FINANCIAL
STATEMENTS.
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 percentages result in significant
changes in the operating profit of the Company's motels.
Between January 1, 1995 and December 31, 1997, the Company has acquired,
developed and sold a number of motels in various transactions summarized as
follows:
Number of
Date Transaction Rooms
---- ----------- ---------
September and Purchased two motels located 250
December 1995 in Chattanooga, TN and Indio, CA.
December 1995 Sold two motels located in (260)
Charlotte, NC and Augusta, GA.
January 1996 Purchased nineteen motels 1,794
located in the eastern half
of the United States from
Forte USA, Inc.
January through Purchased two motels located in 201
March 1996 Newark, DE and Red Wing, MN.
Also purchased the land underlying
one of its existing properties.
May 1996 Sold a motel located in (102)
Newport, KY.
June 1996 Sold a motel located in (60)
Waukegan, IL.
Number of
Date Transaction Rooms
---- ----------- ---------
August 1996 Sold three motels located (306)
in York, PA and Romulus, MI.
September 1996 Sold two motels located in (95)
Niagara Falls, NY and
Pittsfield, MA.
October 1996 Sold three motels located (447)
in West Des Moines, IA,
Phoenix, AZ and Orlando, FL
November 1996 Sold a motel located in (223)
Las Vegas, NV.
January 1997 Sold a motel located in (130)
Kissimmee, FL.
February 1997 Assumed management control 48
of a motel located in
Greensboro, GA which was built
by an affiliate for the Company
and acquired in October 1997.
May 1997 Assumed management control 61
of a motel located in
Wilson, NC which was built
by an affiliate for the
Company and acquired in
October 1997.
September 1997 Assumed management control 117
of two motels located in
Columbia, SC and Milford, MA
which were built by an
affiliate for the Company
and acquired in October 1997.
December 1997 Sold a motel located in (48)
Cambridge, OH.
Purchased a motel located in 53
East Syracuse, NY which was built
by an affiliate. -----
853
=====
During such period, the Company has in the aggregate expended $53.8
million in cash (net of proceeds from sales of $20 million) in conjunction
with the above listed acquisitions. Cash was funded from internal sources and
$50.3 million in borrowings.
The above listed acquisitions have been accounted for under the
purchase method of accounting and therefore results from operations have been
included only since the earlier of the date of acquisition or date the Company
assumed management control and was at financial risk.
This report contains certain forward-looking statements that reflect
management's current views as well as estimates of future economic
circumstances, industry conditions, company performance and financial results.
The statements are based on many assumptions and factors, including
competition, seasonality and interest rates, as well as risks related to
expansion, leverage and lodging industry conditions. Any changes in such
assumptions or factors could significantly affect results.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
-----------------------------------------------------------------------
(unaudited)
Year Ended December 31
-----------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ---------------------- -----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- -----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues .................. $ 98,828 $ 97,143 $ 15,282 $ 22,505 $114,110 $119,648
Ancillary motel revenues........ 6,813 6,408 589 1,787 7,402 8,195
---------- ----------- --------- ----------- --------- -----------
Total motel operating revenues 105,641 103,551 15,871 24,292 121,512 127,843
Motel costs and expenses:
Motel operating expenses........ 53,142 52,387 9,191 14,957 62,333 67,344
Marketing and royalty fees...... 7,438 7,602 1,467 2,004 8,905 9,606
Depreciation and amortization... 11,657 11,305 2,600 1,903 14,257 13,208
---------- ----------- --------- ----------- --------- -----------
Total motel direct expenses... 72,237 71,294 13,258 18,864 85,495 90,158
---------- ----------- --------- ----------- --------- -----------
$ 33,404 $ 32,257 $ 2,613 $ 5,428 36,017 37,685
========== =========== ========= ===========
Corporate operations:
Other revenues ................... 855 428
General and administrative expenses:
Management Operations .......... 4,568 4,893
Construction and development.... 1,032 695
Other general and
administrative ............... 2,308 1,245
Total general and
administrative expenses .... 7,908 6,833
Restructuring costs and
impairment losses .............. 3,276 -
Depreciation and amortization .... 728 787
--------- ------------
(11,057) (7,192)
--------- ------------
Net operating income ............... $ 24,960 $ 30,493
========= ============
Other data:
Number of motels at period end ... 119 119 19 16 138 135
Number of rooms at period end .... 9,640 9,673 1,745 1,644 11,385 11,317
Occupancy percentage ............. 64.50% 66.87% 59.25% 63.75% 63.75% 66.25%
ADR (1) .......................... $ 43.45 $ 41.01 $ 43.26 $ 40.51 $ 43.43 $ 40.91
REVPAR (2) ....................... $ 29.96 $ 29.23 $ 26.62 $ 27.88 $ 29.48 $ 28.96
Net operating income margin (3) .. 20.40% 23.77%
Net motel revenue margin (4) ..... 45.60% 44.84% 34.11% 32.57% 44.06% 42.54%
[FN]
(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 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.
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, fax machine use and from vending machines. Other
revenues include interest income, distributions on partnership interests in
excess of the Company's basis in such partnerships and other miscellaneous
income. Total revenues decreased to $122,367,000 in 1997 from $128,271,000 in
1996, a decrease of $5,904,000 or 4.6%.
Motel revenues decreased to $121,512,000 in 1997 from $127,843,000 in
1996, a decrease of $6,331,000 or 5.0%. Approximately $8,421,000 of the
decrease in motel revenues was attributable to the twenty-six motels acquired
and the thirteen motels divested, since January 1, 1996 and an increase in the
motel revenues for motels owned during both periods offset the decrease by
$2,090,000. Motel revenues for motels owned during both periods increased
2.0%. The increase in motel revenues for motels owned during both periods was
attributable to: an increase in the average daily room rate ("ADR"); and a
decrease in the occupancy percentage. The ADR for the motels owned during
both periods increased to $43.45 in 1997 from $41.01 in 1996, an increase of
$2.44 or 6.0%. The increase in ADR is reflective of management's efforts to
increase room rates at its lodging facilities. The occupancy percentage in
1997 for the motels owned during both periods decreased to 64.5% from 66.9% in
1996. Management attributes this decrease to an increase in competitive
supply and other factors outside of its control. Revenue per available room
("REVPAR") for motels owned during both periods increased to $29.96 in 1997
from $29.23 in 1996, an increase of $0.73 or 2.5%. The acquired and divested
motels had an occupancy percentage of 59.25%, an ADR of $43.26 and a REVPAR of
$26.62 for the period which they were owned by the Company in 1997.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses decreased to $62,333,000 in 1997 from
$67,344,000 in 1996, a net decrease of $5,011,000 or 7.4%. Approximately
$5,766,000 of the decrease is attributable to the cost of operating the
acquired and divested motels since January 1, 1996. The cost of operating
motels owned during both periods increased to $53,142,000 in 1997 from
$52,387,000 in 1996, an increase of $755,000 or 1.4%. Motel operating
expenses as a percentage of motel revenues decreased to 51.3% in 1997 from
52.7% in 1996. Motel operating expenses as a percentage of motel revenues for
the motels owned in both periods decreased to 50.3% in 1997 from 50.6% in
1996. The increase in the operating margin for motels owned during both
periods is primarily attributable to the increase in motel operating revenues.
Motel operating expenses as a percent of motel revenues for the acquired and
divested motels was 57.9% in 1997.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisers and other related marketing expenses. Marketing and royalty fees
decreased to $8,905,000 in 1997 from $9,606,000 in 1996, a decrease of
$701,000 or 7.3%. Approximately $537,000 of the decrease in marketing and
royalty fees was attributable to the motels acquired and divested since
January 1, 1996. The marketing and royalty fees for motels owned during both
periods decreased to $7,438,000 in 1997 from $7,602,000 in 1996, a decrease of
$164,000 or 2.2%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues decreased to 7.5% in 1997 from 7.8%
in 1996.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations, Construction
and Development, and Other. 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 Operations decreased $325,000 to $4,568,000 in 1997 from $4,893,000
in 1996, a decrease of 6.6%. The decrease is primarily attributable to the
Company's implementation of its decentralized management structure and the
elimination of certain corporate positions which had previously existed. The
general and administrative expenses associated with Construction and
Development increased $337,000 from $695,000 in 1996 to $1,032,000 or 48.5%.
The increase is directly attributable to the increase in development activity
in 1997 compared to 1996 including site location personnel. Other General and
Administrative expenses increased $1,063,000 from $1,235,000 in 1996 to
$2,308,000 in 1997. The increase is due to legal costs incurred in connection
with a lawsuit that the Company initiated against ShoLodge Franchise Systems,
Inc., the franchiser of the Shoney's Inn Franchises operated by the Company
and the creation of a new executive position unrelated to the operations of
the motel properties. As a percentage of total motel operating revenues,
Management Operations general and administrative expenses were 3.8% in both
1997 and 1996.
Restructuring costs and impairment losses in the amount of $3,276,000
were recorded in 1997. Restructuring costs of $750,000 were recorded relating
to the reorganization of the Company's management structure. This
reorganization included the implementation of a decentralized organizational
structure whereby many of the property management support functions previously
based out of the corporate office were moved to various regional offices which
were established throughout the country. The provision for restructuring
costs is intended to cover the associated relocation and severance costs.
Impairment losses of $2,526,000 were recorded in 1997 to reflect the writedown
of certain land held for development to its fair value based on an independent
appraisal of such land obtained in 1998 and to reflect a provision for loss on
the collection of a mortgage note receivable.
Depreciation and amortization increased to $14,985,000 in 1997 from
$13,995,000 in 1996, an increase of $990,000 or 7.1%. Approximately $697,000
of the increase in depreciation and amortization is attributable to the
addition of the motels acquired and divested since January 1, 1996.
Depreciation and amortization with respect to motels owned during both periods
increased $352,000 due to the Company's continued reinvestment in the
properties. Corporate depreciation and amortization decreased $59,000 to
$728,000 in 1997 from $787,000 in 1996.
Net operating income decreased to $24,960,000 in 1997 from
$30,493,000 in 1996, a decrease of $5,533,000 or 18.2%. The decrease in net
operating revenues included a decrease of $619,000 in net motel revenues
(motel revenues less motel operating expenses and marketing and royalty fees).
Of the $619,000 decrease in net motel revenues, $2,118,000 resulted from the
motels acquired and divested since January 1, 1996 offset by an increase in
net motel revenues for motels owned during both periods of $1,499,000 or 3.4%.
Net operating revenue as a percent of total revenues was 20.4% and 23.8% in
1997 and 1996, respectively.
Interest expense decreased to $31,373,000 in 1997 from $31,573,000 in
1996, a decrease of $200,000. The decrease is principally due to a decrease
in outstanding borrowings.
Net income(loss) decreased $4,059,000 to a net loss of $3,372,000 in
1997 from a net income of $687,000 in 1996. Included in the net decrease of
$4,059,000 is a reduction of $903,000 in the net of tax gains realized on the
sale of properties of $678,000 in 1997 and $1,581,000 in 1996. In addition,
for 1997, included in the $4,059,000 reduction in net income is the provision
for the restructuring costs and impairment losses of $2,016,000 net of tax.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
Supplemental Operating Results and Statistics
----------------------------------------------------------------------
(unaudited)
Year Ended December 31
----------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues ................... $ 96,568 $ 96,480 $ 23,079 $ 7,745 $119,647 $104,225
Ancillary motel revenues......... 6,385 6,407 1,811 1,492 8,196 7,899
Total motel operating --------- ---------- ---------- ---------- ---------- ----------
revenues...................... 102,953 102,887 24,890 9,237 127,843 112,124
Motel costs and expenses:
Motel operating expenses......... 50,743 49,658 16,601 7,695 67,344 57,353
Marketing and royalty fees....... 7,447 7,080 2,159 563 9,606 7,643
Depreciation and amortization.... 11,273 10,112 1,935 614 13,208 10,726
--------- ---------- ---------- ---------- ---------- ----------
Total motel direct expenses ... 69,463 66,850 20,695 8,872 90,158 75,722
--------- ---------- ---------- ---------- ---------- ----------
$ 33,490 $ 36,037 $ 4,195 $ 365 37,685 36,402
========= ========== ========== ==========
Corporate operations:
Other revenues ................. 428 596
General and administrative
expenses:
Management operations......... 4,893 4,762
Construction and development.. 695 -
Other general and
administrative expenses..... 1,245 828
---------- ----------
Total general and
administrative expenses ...... 6,833 5,590
Depreciation and amortization... 787 1,892
---------- ----------
(7,192) (6,886)
---------- ----------
Net operating income ............. $30,493 $29,516
========== ==========
Other data:
Number of motels at period end.. 118 118 17 7 135 125
Number of rooms at period end... 9,553 9,565 1,764 1,008 11,317 10,573
Occupancy percentage ........... 67.30% 68.55% 62.25% 51.77% 66.25% 66.89%
ADR (1) ........................ $41.01 $40.36 $40.50 $38.94 $40.91 $40.25
REVPAR (2) ..................... $29.43 $29.50 $27.19 $24.04 $28.96 $28.96
Net operating income margin (3). 23.77% 26.19%
Net motel revenue margin (4).... 46.35% 47.83% 26.56% 12.64% 42.54% 45.22%
[FN]
(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 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.
Total revenues increased to $128,271,000 in 1996 from $112,720,000 in
1995, an increase of $15,551,000 or 13.8%.
Motel revenues increased to $127,843,000 in 1996 from $112,124,000 in
1995, an increase of $15,719,000 or 14.0%. Approximately $15,653,000 of the
increase in motel revenues was attributable to the twenty-three motels
acquired and the thirteen motels divested, since January 1, 1995 and $66,000
of the increase related to motels owned during both periods. Motel revenues
for motels owned during both periods increased 0.1%. The increase in motel
revenues for motels owned during both periods was attributable to: 1996 having
one additional day; an increase in the average daily room rate ("ADR"); and a
decrease in the occupancy percentage. The ADR for the motels owned during
both periods increased to $41.01 in 1996 from $40.36 in 1995, an increase of
$0.65 or 1.6%. The increase in ADR is reflective of management's efforts to
increase room rates at its lodging facilities. The occupancy percentage in
1996 for the motels owned during both periods decreased to 67.3% from 68.6% in
1995. Management attributes this decrease to an increase in competitive
supply and other factors outside of its control. Revenue per available room
("REVPAR") for motels owned during both periods decreased to $29.43 in 1996
from $29.50 in 1995, a decrease of $0.07 or 0.2%. The acquired and divested
motels had an occupancy percentage of 62.25%, an ADR of $40.50 and a REVPAR of
$27.19 for the period which they were owned by the Company in 1996.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses increased to $67,344,000 in 1996 from
$57,353,000 in 1995, a net increase of $9,991,000 or 17.4%. Approximately
$8,906,000 of the increase is attributable to the cost of operating the
acquired and divested motels since January 1, 1995. The cost of operating
motels owned during both periods increased to $50,743,000 in 1996 from
$49,658,000 in 1995, an increase of $1,085,000 or 2.2%. Payroll and related
costs experienced the most significant increase of all of the motel operation
expenses. Management attributes this increase to the affect of the minimum
wage increase and general tightening of the labor markets in many of the areas
where the Company's motels are located. Motel operating expenses as a
percentage of motel revenues increased to 52.7% in 1996 from 51.1% in 1995.
Motel operating expenses as a percentage of motel revenues for the motels
owned in both periods increased to 49.3% in 1996 from 48.3% in 1995. The
decrease in the operating margin for motels owned during both periods is
primarily attributable to the increase in motel operating expenses. Motel
operating expenses as a percent of motel revenues for the acquired and
divested motels was 66.7% in 1996.
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
increased to $9,606,000 in 1996 from $7,643,000 in 1995, an increase of
$1,963,000 or 25.7%. Approximately $1,596,000 of the increase in marketing
and royalty fees was attributable to the motels acquired and divested since
January 1, 1995. The marketing and royalty fees for motels owned during both
periods increased to $7,447,000 in 1996 from $7,080,000 in 1995, an increase
of $367,000 or 5.2%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues increased to 7.7% in 1996 from 7.3%
in 1995.
Corporate general and administrative expenses are segregated by the
Company into three separate area: Management Operations, Construction and
Development, and Other. 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 Operations
increased $131,000 or 2.8% from $4,762,000 in 1995 to $4,893,000 in 1996. The
increase resulted principally from higher payroll costs. The general and
administrative expenses for Construction and Development relate the employment
of several individuals to facilitate the Company's new construction and
development activities. Other General and Administrative expenses increased
$417,000 or 50.4% from $828,000 in 1995 to $1,245,000 in 1997. The increase
is principally salary related for positions not associated with the motel
operations. As a percentage of total motel operating revenues, Management
Operations general and administrative expenses decreased from 4.2% in 1995 to
3.8% in 1996. The decrease is due to the increase in motel operating revenues
resulting from the acquisition of properties early in 1996 without a
corresponding increase in corporate motel operation personnel.
Depreciation and amortization increased to $13,995,000 in 1996 from
$12,618,000 in 1995, an increase of $1,377,000 or 10.9%. Approximately
$1,321,000 of the increase in depreciation and amortization is attributable to
the addition of the motels acquired and divested since January 1, 1995.
Depreciation and amortization with respect to motels owned during both periods
increased $1,161,000 due to the Company's continued reinvestment in the
properties. Corporate depreciation and amortization decreased $1,105,000 to
$787,000 in 1996 from $1,892,000 in 1995. The decrease is principally a
result of the completion of the amortization of the of deferred financing
costs incurred with respect to the borrowings under the two-year $100 million
secured line of credit facility entered into with Nomura Asset Capital
Corporation ("NACC") in October 1994 (the "NACC credit line").
Net operating income increased to $30,493,000 in 1996 from
$29,516,000 in 1995, an increase of $977,000 or 3.3%. The increase in net
operating revenues included an increase of $3,765,000 in net motel revenues
(motel revenues less motel operating expenses and marketing and royalty fees).
Of the $3,765,000 increase in net motel revenues, $5,151,000 resulted from the
motels acquired and divested since January 1, 1995. Net motel revenues for
motels owned during both periods decreased $1,386,000 or 3.0%. Net operating
revenue as a percent of total revenues was 23.8% and 26.2% in 1996 and 1995,
respectively.
Interest expense increased to $31,573,000 in 1996 from $27,831,000 in
1995, an increase of $3,742,000. The increase is principally due to an
increase in outstanding borrowings utilized to finance the acquisition of
motel properties.
Net income decreased to $687,000 in 1996 from $1,533,000 in 1995. Net
income for 1996 includes the gain on sale of properties of $1,581,000, net of
tax. Net income for 1995 includes the gain on sale of properties of $293,000,
net of tax, the reversal of the writeoff of deferred offering costs of
$247,000, net of tax, and the gain on early extinguishment of debt of
$268,000, net of tax.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt service,
capital expenditures (primarily for motel refurbishment) 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. As of
December 31, 1997, the Company has principal repayment obligations of
$67,157,000, $6,745,000 and $14,373,000 for the years ending December 31,
1998, 1999 and 2000, respectively. Management has held discussions with
investment bankers regarding the refinancing of mortgage notes in the amount
of $62,645,000 as of December 31, 1997 which require repayment in 1998.
Management has been told by investment bankers that the cash flows derived
from the properties securing the maturing mortgage loans will be sufficient to
allow for the refinancing of such mortgage debt given the current interest
rate environment. As of March 20, 1998 however, the Company had not
definitively arranged for such refinancing and therefore is subject to the
risk that the credit market could be adversely affected by some unforeseen
event. Although the Company currently does not have lines of credit
outstanding, management believes sufficient resources exist to meet its normal
liquidity needs.
In 1997, an affiliate of the Company was formed for the sole purpose of
constructing lodging properties to be acquired by a subsidiary of the Company
upon completion at cost. Such affiliate develops the lodging properties from
its own funds, payments from the Company on account to be applied towards the
purchase price and the proceeds of a $20,000,000 revolving construction loan
facility arranged by the affiliate. In connection with such construction loan
facility, the Company has guaranteed completion of the construction of each
property, and the subsidiary acquiring the properties has guaranteed the
construction loan facility to a maximum of $10,000,000. In 1997, five (5)
such properties were acquired for $12,900,000 of which $7,800,000 was funded
from a new $150,000,000 secured loan facility between the subsidiary acquiring
the properties and CS First Boston. This facility provides, among other
things, for interest computed at a rate based upon the thirty (30) day LIBOR
rate plus 300 basis points, monthly principal and interest payments at an
11.5% per annum constant, and repayment in full of each funding made pursuant
to the facility forty-two (42) months after the date of each such funding. In
addition, the Company has pledged its interest in a wholly owned subsidiary to
secure up to $20,000,000 of borrowing under the facility. As of March 20,
1998, seven additional properties were under construction and management
anticipates approximately $19,000,000 will be expended to purchase these
lodging facilities upon completion. Payments from the Company on account to be
applied towards the future purchases amounted to $1,841,000 at December 31,
1997. Interest earned by the Company on such payments in 1997 equaled
$558,000.
The Company's capital expenditure requirements principally include capital
improvements and the refurbishment of lodging facilities as part of an ongoing
strategy to provide well maintained facilities. The Company made capital
expenditures (exclusive of acquisitions and development of investment
properties) of $7,948,000, $9,857,000 and $7,806,000 in 1997, 1996 and 1995,
respectively. In addition, as of December 31, 1997, the Company has
$1,226,000 of cash restricted for future refurbishment, 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.
For the year ended December 31, 1997 cash and cash equivalents increased
$785,000 from $12,247,000 at December 31, 1996 to $13,032,000 at December 31,
1997. A total of $15,948,000 of cash was provided by operating activities,
$13,648,000 of cash was utilized in investing activities and $1,515,000 of
cash was used by financing activities. Net investing activities include:
$10,402,000 of cash utilized for motel development: $7,948,000 expended on
renovation of existing motel properties; $2,512,000 of cash was provided from
a decrease in cash restricted for refurbishment of properties; and $2,190,000
of cash provided from the sale of investment properties and collections on
mortgage and other notes receivable. Cash provided by financing activities
include: $9,798,000 of proceeds from borrowings less $649,000 of deferred
financing costs; $10,350,000 of cash utilized to repay indebtedness; and
$314,000 of cash distributed to minority interests.
The Company is not currently a party to any proceeding which, in management's
opinion, is likely to have a material adverse effect on the Company's
operating results or financial position.
Impact of Year 2000
The year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. this could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company, in the normal course of operations, is in the process of
replacing its primary financial accounting system that was implemented in
1991. The new system will be year 2000 compliant. The Company has made an
assessment of its other financial systems and believes other than for a few
necessary minor modifications, that they are year 2000 compliant. There can
be no guarantee that the systems of other companies such as banks and
suppliers on which the Company relies upon to transact business in the normal
course will be year 2000 compliant which would possibly cause hardships for
the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of
Regulation S-K is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following chart lists the Company's current directors and
executive officers.
Name Age Positions(s) with the Company
---- --- -----------------------------
Paul F. Wallace 61 Director, Chairman and Chief Executive Officer
Alan H. Baerenklau 52 Director, President and Chief Operating Officer
Kurt M. Mueller 41 Director, Chief Financial Officer
Carl W. Desch 82 Director
Louis A. Scarrone, M.D. 74 Director
Ronald P. Stewart 53 Director
Peter W. McClean 54 Director
Philip J. Levien 53 Director
Daniel W. Daniele 42 Executive Vice President
Richard Gerhart 51 Senior Vice President
John D. Simon 51 Secretary & Treasurer
Robert Brandt 57 Vice President & Assistant Secretary
The following is a biographical summary of the experience of the
directors and executive officers of the Company:
Paul F. Wallace, formerly a Director and controlling stockholder of
EconoLodge, has been Chairman and Chief Executive Officer of the Company since
January 1994 and a Director of the Company since August 1992. Mr. Wallace also
serves on the Company's operations committee. Mr. Wallace was President of the
Broadstone Group from July 1978 until June of 1986, and he became the President
again in July of 1993. Mr. Wallace has been Chairman of the Board and
controlling stockholder of the Broadstone Group since July 1981, and is
currently the principal shareholder of a privately-held manufacturing company
and an investor in and operator of various real estate related projects.
Alan H. Baerenklau joined the Company in March 1997 and became a
Director, President and Chief Operating Officer of the Company in April 1997.
Mr. Baerenklau was President and Chief Operating Officer of Florida Hospitality
Group, a hotel development and management company, from 1984 to 1997. Prior to
1984, Mr Baerenklau held various positions with the Howard Johnson Company
including those of General Manager, Regional Manager, Director of Corporate
Real Estate and Vice President of Operations. He is also an investor, partner
and officer in various hotel real estate ventures.
Kurt M. Mueller has been the Chief Financial Officer since April 1997.
Mr. Mueller has been a Director of the Company since he joined MOA in May 1991.
Mr. Mueller was President from January 1994 until April 1997 and as Chief
Operating Officer of the Company from May 1991 until April 1997. Mr. Mueller
also served as Executive Vice President from May 1991 until January 1994. In
addition, Mr. Mueller currently serves on the Company's operations committee
and audit committee. From 1978 to 1991, Mr. Mueller was employed by Ernst &
Young LLP and most recently was a Senior Manager. During his career at Ernst &
Young LLP, he was on the audit staff and, during his last two years, he worked
in the Mergers and Acquisitions Group performing due diligence financial and
operational reviews.
Carl W. Desch, formerly a Director of EconoLodge, has been a Director
of the Company since April 1993 and serves on the Company's audit committee and
operations committee. Mr. Desch has been Chairman and Director of Citibank (NY
State), N.A. for over five years.
Louis A. Scarrone, M.D., formerly a Director of EconoLodge, has been a
Director of the Company since October 1993. He has been engaged in his own
private practice of internal medicine since 1955.
Ronald P. Stewart, formerly a Director of EconoLodge, has been a
Director of the Company since October 1993. Mr. Stewart has been Headmaster of
York Preparatory School in New York City since 1969 and Chairman of the
Learning Annex of New York since 1992.
Peter W. McClean, has been a Director of the Company since April 1997.
Mr. McClean is currently Senior Vice President and Head of Global Risk
Management for the Bank of Bermuda Limited, based in Hamilton, Bermuda. In his
current position, Mr McClean is responsible for the credit policy, the market
risk policy, the operating risk, the internal audit and the Bank's General
Counsel.
Philip J Levien, formerly a Director and Chairman of the Board of
EconoLodge, has been a Director of the Company since April 1997 and serves on
its audit committee. Mr. Levien has served as a Director of the Broadstone
Group for the past 15 years. Mr Levien has been a Real Estate Developer for
the past 30 years.
Daniel W. Daniele has been Executive Vice President of the Company
since September 1994. From October 1, 1993 until September 1994, Mr. Daniele
served as the Principal and National Director Hospitality Consulting for Ernst
& Young LLP. From March 26, 1991 to September 30, 1993, Mr. Daniele served as
a Senior Manager and National Director Hospitality Consulting for Ernst & Young
LLP. From February 1, 1991 to March 25, 1991, he worked on an independent
consulting basis for Ernst & Young LLP, and from January 2, 1991 to January 31,
1991, he served as a Senior Principal for Pannel, Kerr, Forster. From February
1978 to November 1990, Mr. Daniele was employed by Laventhol & Horwath in
various positions including the Senior Principal and National Director
Economy/Limited-Service Lodging.
Richard Gerhart has been the Senior Vice President of Operations since
joining the Company in April 1997. With over 25 years experience in the
Hospitality industry, he has served in various operations positions with
Marriott Corporation, Registry Hotels, LaQuinta Inns, Remington Hotels and
Motel 6. His responsibilities ranged from property level management positions
to Senior Vice President of Operations.
John D. Simon has been Secretary and Treasurer of the Company since
joining the Company in August 1996. From April 1995 to August 1996, he worked
as an independent consultant. From January 1990 to March 1995, Mr. Simon was
Vice President-Property Financial Operations for The Balcor Company, a wholly-
owned subsidiary of American Express Co. From October 1988 to December 1989,
he served as Senior Controller for The Balcor Company.
Robert Brandt has been Vice President and Assistant Secretary of the
Company since November 1996. Mr. Brandt has served as Vice President of Budget
Motels Supply Corporation, a subsidiary of MOA, since 1990. From 1986 to 1990,
he was Vice President of DRG Investments,in charge of motel development for the
Company.
Executive officers of the Company are appointed and serve at the
discretion of the Board of Directors. Each director of the Company is elected
for a period of one year and serves until his successor is duly elected and
qualified. None of the directors or executive officers of the Company has a
family relationship with any of the other directors or executive officers of
the Company.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to each of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company, as of the end of the last fiscal
year, for services rendered to the Company in all capacities during the last
three fiscal years:
SUMMARY COMPENSATION TABLE
--------------------------
Name and Principal Position Year Salary($) Bonus($)
- --------------------------- ---- --------- --------
Paul F. Wallace 1997 300,000 --
Chairman and Chief Executive Officer 1996 300,000 --
1995 300,000 --
Alan H. Baerenklau 1997 194,500 --
President and Chief Operating Officer(1)
Kurt M. Mueller 1997 266,667 --
Chief Financial Officer 1996 400,000 50,000
1995 350,000 --
Daniel W. Daniele 1997 250,000 --
Executive Vice President 1996 250,000 100,000
1995 200,000 --
Richard Gerhart
Senior Vice President(2) 1997 95,333
_____________________________
(1) Mr. Baerenklau joined the Company in March 1997.
(2) Mr. Gerhart has been employed by the Company since April 1997.
The Company historically has and intends to continue to pay
discretionary bonuses to key employees, including property managers, as
rewards for superior financial performance. The Company does not maintain any
employee pension, profit sharing or savings plans for its employees nor does
it currently have any stock related plans for key executives.
Members of the Board of Directors do not receive compensation for
serving on the Board except that Messrs. Desch, Kouba, Stewart and Dr.
Scarrone each receive a $5,000 annual retainer and are paid $1,000 for each
meeting. All members of the Board of Directors receive reimbursement of
reasonable expenses incidental to attendance at meetings of the Board of
Directors and all committees.
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee of the Board of Directors.
During 1997, no officer or employee of the Company or its subsidiaries
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
Employment Agreements and Compensation Arrangements
On September 14, 1994 the Company entered into an employment
agreement with Mr. Daniele providing for the employment of Mr. Daniele as
Executive Vice President of the Company until December 31, 1997. Pursuant to
this agreement, Mr. Daniele was entitled to a base salary each year of
$200,000 in 1995, 1996 and 1997. In addition, pursuant to this agreement Mr.
Daniele is eligible to receive an annual bonus to be determined by the Board
of Directors of the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by the only entity known to be the beneficial owner of more
than 5% of the Company's Common Stock, by each director and by all directors
and officers of the Company as a group as of March 20, 1998:
Shares of
Common
Stock Beneficially Percent of
Name and Address of Beneficial Owner Owned Class
- ------------------------------------ ------------------ ----------
Principal Stockholders:
New Image Realty, Inc................................ 677,228 85%
888 Seventh Avenue
Suite 3400
New York, NY 10106
Executive Officers and Directors:
Paul F. Wallace...................................... 684,357(1) 86%
All Directors and Officers as a Group (11 persons)... 684,357(2) 86%
_________________________
[FN]
(1) Mr. Wallace is President, Chairman of the Board and controlling
stockholder of The Broadstone Group. The Broadstone Group owns 100% of
the outstanding Common Stock of New Image Realty,Inc. ("New Image"),
which owns 85% of the outstanding Common Stock of MOA. Mr. Wallace is
deemed to be a beneficial owner of 677,228 shares of Common Stock of the
Company owned by New Image and 7,129 shares of Common Stock of the
Company issued to Opal Inc. in January 1994.
(2) Includes 677,228 shares of Common Stock of the Company held by New Image
and 7,129 shares of Common Stock of the Company held by Opal Inc. that
are deemed to be beneficially owned by Paul F. Wallace.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid $190,000, $185,000 and $243,000 for construction
management, brokerage commissions and for other services performed in 1995,
1996 and 1997, respectively, to a company which Mr. Kouba has a minority
ownership interest. Mr. Kouba resigned as a Director of the Company in
December 1997 citing personal reasons.
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes. During 1997, the
Company received a payment of approximately $0.4 million and during 1995 and
1996, the Company made payments of approximately $1.3 million and $0.5 million
respectively, to affiliates of Paul F. Wallace, of which approximately $2.2
million is available to offset required future tax payments, if any.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 & 2. Financial Statements and Schedules
See Index to Financial Statements in this Form 10-K.
3. Exhibits
The Exhibits listed in the accompanying Index to Exhibits are
filed as part of this Form 10-K.
(b) Reports on Form 8-K
None.
INDEX TO FINANCIAL STATEMENTS
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Years Ended December 31, 1997, 1996 and 1995
Report of Independent Auditors ....................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......... F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 ................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 1997 ............. F-5
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1997 ................................... F-6
Notes to Consolidated Financial Statements ........................... F-7
All schedules have been omitted because they are not required or are not
applicable, or the required information is included in the financial
statements or notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MOA Hospitality, Inc.
We have audited the consolidated balance sheets of MOA Hospitality,
Inc. (formerly Motels of America, Inc.) and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MOA
Hospitality, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
April 8, 1998
Chicago, Illinois
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------------
1997 1996
---------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 13,032,496 $ 12,247,571
Accounts receivable from property operations ....... 2,240,908 2,794,739
Operating supplies and prepaid expenses ............ 2,199,013 2,879,660
Current portion of mortgage and notes receivable ... 601,445 309,058
-------------- --------------
Total Current Assets ............................... 18,073,862 18,231,028
Investment property:
Operating properties, net of accumulated
depreciation................................ 310,991,915 307,696,323
Land held for development ..................... 2,389,439 4,046,536
-------------- --------------
Total investment property .......................... 313,381,354 311,742,859
Other Assets:
Deposits and other assets .......................... 6,797,533 7,658,003
Restricted cash .................................... 1,226,379 3,738,478
Mortgage and other notes receivable, less current
portion........................................ 6,800,493 8,623,223
Financing and other deferred costs, net of
accumulated amortization of $5,604,511 in 1997
and $4,162,912 in 1996......................... 16,579,356 18,438,910
-------------- --------------
Total Other Assets ................................. 31,403,761 38,458,614
-------------- --------------
Total Assets $ 362,858,977 $ 368,432,501
============== ==============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ............................. $ 2,693,317 $ 2,176,690
Real estate taxes payable .......................... 2,450,224 2,611,873
Accrued interest payable ........................... 3,624,809 3,692,868
Other accounts payable and
accrued expenses .............................. 4,392,814 3,847,484
Current portion of long-term debt .................. 67,157,229 10,207,437
-------------- --------------
Total Current Liabilities .......................... 80,318,393 22,536,352
Net deferred tax liability ......................... 3,351,684 3,684,565
Long-term debt, less current portion:
Mortgage and other notes payable ................... 181,097,669 240,940,110
12% Senior Subordinated Notes, net of unamortized
discount of $3,265,362 in 1997 and $3,593,603
in 1996........................................ 76,734,638 76,406,397
-------------- --------------
Total Long-term debt, excluding current portion .... 257,832,307 317,346,507
-------------- --------------
Total Liabilities .................................. 341,502,384 343,567,424
-------------- --------------
Minority Interests ................................. 1,762,507 1,899,176
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and
outstanding.................................. 8,000 8,000
Additional paid-in capital .................... 15,294,284 15,294,284
Retained earnings ............................. 4,291,802 7,663,617
-------------- --------------
Total stockholders' equity ......................... 19,594,086 22,965,901
-------------- --------------
$ 362,858,977 $ 368,432,501
============== ==============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
----------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
Revenues:
Motel operating revenues ................... $ 121,511,834 $ 127,842,502 $112,123,889
Other revenues ............................. 855,305 428,277 596,481
-------------- -------------- -------------
Total revenues ............................... 122,367,139 128,270,779 112,720,370
Costs and expenses:
Motel operating expenses ................... 62,333,314 67,343,939 57,353,233
Marketing and royalty fees ................. 8,904,980 9,606,013 7,643,068
General and administrative ................. 7,907,752 6,833,365 5,590,441
Restructuring costs and impairment losses .. 3,276,219 - -
Depreciation and amortization .............. 14,984,942 13,994,963 12,617,306
-------------- -------------- -------------
Total direct expenses ........................ 97,407,207 97,778,280 83,204,048
-------------- -------------- -------------
Net operating income ......................... 24,959,932 30,492,499 29,516,322
Interest expense ............................. 31,372,749 31,572,501 27,830,864
-------------- -------------- -------------
Income (loss) from operations ................ (6,412,817) (1,080,002) 1,685,458
Gain on sale of properties.................... 1,109,622 2,589,029 479,281
Recovery of offering costs ................... - - 404,101
Minority interests............................ (177,617) (334,010) (471,688)
-------------- -------------- -------------
Income (loss) before income taxes and
extraordinary item ......................... (5,480,812) 1,175,017 2,097,152
Income tax expense (benefit).................. (2,108,997) 487,761 831,709
-------------- -------------- -------------
Income (loss) before extraordinary item ...... (3,371,815) 687,256 1,265,443
Gain on early extinguishment of debt, net of
applicable income taxes of $170,734 in 1995. - - 267,946
-------------- -------------- -------------
Net income (loss)............................. $ (3,371,815) $ 687,256 $ 1,533,389
============== ============== =============
Net income (loss) per common share (basic
and diluted):
Income (loss) before extraordinary item .... $ (4.21) $ 0.86 $ 1.58
Extraordinary item ......................... - - 0.33
-------------- -------------- -------------
Net income (loss) per common share ......... $ (4.21) $ 0.86 $ 1.91
============== ============== =============
Weighted average number of
common shares outstanding .................. 800,000 800,000 800,000
============== ============== =============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
--------- -------------- ------------- --------------
Balance at January 1, 1995 $ 8,000 $ 15,294,284 $ 5,442,972 $ 20,745,256
Net income ....................... - - 1,533,389 1,533,389
-------- ------------- ----------- -------------
Balance at December 31, 1995 ..... 8,000 15,294,284 6,976,361 22,278,645
Net income ....................... - - 687,256 687,256
-------- ------------- ------------ -------------
Balance at December 31, 1996 ..... 8,000 15,294,284 7,663,617 22,965,901
Net loss ......................... (3,371,815) (3,371,815)
-------- ------------- ------------ -------------
Balance at December 31, 1997...... $ 8,000 $ 15,294,284 $ 4,291,802 $ 19,594,086
======== ============= ============ =============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------------------
1997 1996 1995
------------- ------------- -------------
Cash flows provided by operating activities:
Net income (loss)................................................ $ (3,371,815) $ 687,256 $ 1,533,389
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and accretion
of discount on notes .......................................... 15,313,183 14,286,260 12,875,818
Recovery of offering costs ..................................... - - (404,101)
Impairment losses .............................................. 2,530,219 - -
Minority interests of others in income from operations ......... 177,617 334,010 471,688
Deferred income taxes .......................................... (332,881) (480,994) (607,038)
Gain on sale of properties...................................... (1,109,622) (2,589,029) (479,281)
Gain on early extinguishment of debt ........................... - - (438,680)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable .......................................... 553,831 54,855 (193,129)
Operating supplies, prepaid expenses,
deposits and other assets ................................... 1,295,880 (1,196,653) (2,706,016)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ........................ 959,074 1,792,405 (1,268,500)
Accrued interest payable ..................................... (68,059) 589,037 (639,999)
------------- ------------- -------------
Net cash provided by operating activities ......................... 15,947,427 13,477,147 8,144,151
Cash flows used in investing activities:
Acquisition and development of investment properties ............. (10,401,985) (55,021,276) (8,942,596)
Refurbishment of investment properties ........................... (7,948,239) (9,857,347) (7,805,508)
Cash restricted for refurbishment of properties .................. 2,512,099 (1,575,913) 2,020,836
Net proceeds from sales of investment properties ................. 569,892 15,821,148 4,108,055
Collections on mortgage and other notes receivable ............... 1,620,492 135,552 86,865
------------- ------------- -------------
Net cash used in investing activities ............................. (13,647,741) (50,497,836) (10,532,348)
Cash flows provided by financing activities:
Repayment of notes payable ....................................... (10,350,127) (41,674,691) (151,712,095)
Proceeds from notes payable and
Senior Subordinated Notes ....................................... 9,798,728 82,721,234 169,800,000
Distributions to minority interests .............................. (314,286) (314,285) (414,511)
Deferred financing costs and offering costs ...................... (649,076) (5,361,159) (9,875,712)
------------- ------------- -------------
Net cash provided (used) by financing activities .................. (1,514,761) 35,371,099 7,797,682
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .............. 784,925 (1,649,590) 5,409,485
Cash and cash equivalents at beginning of period .................. 12,247,571 13,897,161 8,487,676
------------- ------------- -------------
Cash and cash equivalents at end of period ........................ $ 13,032,496 $ 12,247,571 $ 13,897,161
============= ============= =============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest ........................ $ 31,440,807 $ 30,732,896 $ 28,218,093
============= ============= =============
Cash paid (received) during the period for income taxes ......... $ (59,941) $ 993,984 $ 1,904,260
============= ============= =============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Organization and Basis of Presentation
MOA Hospitality, Inc.(formerly known as Motels of America, Inc.), an
85%-owned subsidiary of New Image Realty, Inc. ("New Image"), owns, develops,
manages, and has equity interests in various national brand affiliated limited
service lodging facilities in 37 states throughout the United States. At
December 31, 1997, the Company's largest concentrations of lodging facilities
were located in the States of Georgia and Illinois with 13 lodging facilities
each. The consolidated financial statements include the accounts of MOA
Hospitality, Inc. and all wholly owned subsidiaries and all entities in which
it has a controlling interest (collectively, the "Company"). All significant
intercompany accounts have been eliminated in consolidation. Certain
reclassifications of prior-period amounts have been made to conform with the
current-period presentation of the classified balance sheet.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents represent liquid assets with a maturity of three
months or less when purchased.
Restricted Cash
Restricted cash represents cash that, under the terms of certain
mortgage notes payable, has been set aside for the refurbishment of motel
properties.
Investment Properties
The Company's operating properties are stated at cost less accumulated
depreciation. Operating properties, excluding land, are depreciated using the
straight-line method over the estimated useful lives of the assets (buildings -
40 years; furniture and equipment - 7 years).
Maintenance and repair costs are expensed as incurred, while
significant improvements, replacements and major renovations are capitalized.
The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. An impairment loss is measured as the difference between the carrying
value and fair value.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Summary of Significant Accounting Policies-(Continued)
Financing and Other Deferred Costs
Financing costs are amortized over the terms of the related
indebtedness using the level yield method. Franchise costs are
amortized using the straight-line method over the life of the
related franchise agreement. Organization costs are amortized
using the straight-line method over a period of 60 months.
Earnings Per Share
Earnings per share is based on the weighted average number of
shares of common stock outstanding during each period. In 1997,
the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share". The adoption of Statement No. 128 had no
effect on the Company's earnings per share calculations.
3. Offering Costs
In 1994, in conjunction with the planned offering of a real
estate investment trust, the Company incurred $3,121,000 of costs.
During the fourth quarter of 1994, the offering was suspended due
to a change in market factors and the costs were written off.
During 1995, management determined that the estimated costs
exceeded the actual costs and the Company recovered $404,000 of
the writeoff.
4. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $6,601,412 and
$6,884,174 at December 31, 1997 and 1996, respectively, represent
notes collateralized by motel properties. The notes provide for
monthly principal and interest (various rates of 8% to 10.5%)
receipts over various terms through 2009, although certain notes
are callable prior to their due dates.
Other notes receivable in the amounts of $800,526 and
$2,048,107 at December 31, 1997 and 1996, respectively, bear
interest at rates from 9% to 11% and are receivable over various
terms through 2016.
Notes receivable of $4,692,262 at December 31, 1997 have been
pledged as collateral for a loan facility in which the Company
participated along with one of its affiliates. The loan facility
has an outstanding balance of $2,442,146.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Operating Properties
The major classes of operating properties, at cost, are as
follows:
December 31,
-----------------------------
1997 1996
------------- -------------
Land $ 53,830,545 $ 52,819,337
Buildings 273,244,078 265,228,461
Furniture and Equipment 57,786,496 51,503,219
------------- -------------
384,861,119 369,551,017
Less: Accumulated depreciation (73,869,204) (61,854,694)
------------- -------------
$310,991,915 $307,696,323
============= =============
Depreciation expense equaled $12,151,209, $11,520,181, and
$10,036,922 for the years ended December 31, 1997, 1996 and 1995,
respectively.
6. Notes Payable and Senior Subordinated Notes
In September 1995, the Company completed funding of a
financing transaction with Nomura Asset Capital Corporation
("NACC"). Motels of America, L.L.C. (the "LLC"), a limited
purpose subsidiary, obtained a loan from NACC in the principal
amount of $158.8 million evidenced by a Promissory Note due 2015.
The Note is secured by 93 motel properties owned by the LLC. The
loan requires fixed monthly payments (based on a 20-year
amortization schedule) of principal and interest totaling
approximately $1,390,000 through October 11, 2005; thereafter, if
the loan is not repaid, excess cash flow as defined is applied as
additional principal payments. Interest accrues at 8.62% through
October 11, 2005, and thereafter at a fixed rate per annum equal
to the greater of (i) 10.62% or (ii) the yield as of October 11,
2005 on ten-year U.S. Treasury notes, plus 4.5%.
During 1995 the Company repaid a mortgage note recognizing a
gain of $267,946 net of applicable income taxes of $170,734.
In January 1996, the Company borrowed approximately $24.2
million under a two year $100 million secured line of credit
(interest at LIBOR plus 3.33%) with NACC and $10 million from an
unrelated party to finance the acquisition of nineteen motels from
Forte USA, Inc. (see Note 10). In February and March 1996, the
Company borrowed approximately $700,000 from an unrelated party
and an additional $6.7 million under the NACC line of credit to
finance the acquisition of two additional motel properties and the
land underlying one of its properties (see Note 10). The $10
million note payable, repayable at any time with a maturity date
of January 31, 2001, bears interest, payable quarterly, at 14% per
annum and is secured by a guarantee of New Image.
In November 1996, the Company completed two separate
financing transactions with CS First Boston Corporation ("CSFB")
pursuant to which the Company borrowed approximately $37.2
million. The proceeds were utilized to repay the entire
outstanding borrowings under the NACC line of credit;
and a partial paydown of $1.6 million of the $10 million note
referred to above. The CSFB borrowings
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
are secured by first mortgages on nineteen of the Company's motel
properties and a pledge of the stock of one the Company's
subsidiaries. The terms of the notes and mortgages, among other
things, provide for a floating rate of interest adjusted monthly
based on the thirty-day LIBOR rate plus 3.37% and monthly payments
of principal and interest based on a twenty-year amortization
period. The notes mature on November 1, 1998.
In November 1996, the Company borrowed $3.9 million in a
collateralized loan facility, along with one of its affiliates.
Such loan bears interest at the rate of 250 basis points over the
thirty-day LIBOR rate, payable monthly and matures November 13,
1999.
In April 1997, the Company borrowed $2,000,000 under a
$2,000,000 secured revolving line of credit facility. Terms of
the revolving line of credit include interest payable at the prime
rate plus 100 basis points and a maturity date of May 1, 1998.
The borrowings were repaid on July 17, 1997 and the facility
terminated.
In September 1997, the Company renegotiated the terms of a
maturing mortgage note secured by a motel with an outstanding
principal balance of $1,228,000. The new terms include monthly
payments of interest at a rate of 9.25% and principal based on a
twenty-five year amortization schedule. The mortgage note matures
on September 14, 2000.
In 1997, an affiliate of the Company was formed for the sole
purpose of constructing lodging properties to be acquired by a
subsidiary of the Company upon completion at cost. Such affiliate
develops the lodging properties from its own funds, payments from
the Company on account of the purchase price and the proceeds of
a $20,000,000 revolving construction loan facility arranged by the
affiliate. In connection with such construction loan facility,
the Company has guaranteed completion of the construction of each
property, and the subsidiary acquiring the properties has
guaranteed the construction loan facility to a maximum of
$10,000,000. In 1997, five (5) such properties were acquired for
$12,900,000 of which $7,800,000 was funded form a new $150,000,000
secured loan facility between the subsidiary acquiring the
properties and CS First Boston. This facility provides, among
other things for interest computed at a rate based upon the thirty
(30) day LIBOR rate plus 300 basis points, monthly principal and
interest payments at an 11.5% per annum constant, and repayment in
full of each funding made pursuant to the facility forty-two (42)
months after the date of each such funding. In addition, the
Company has pledged its interest in a wholly owned subsidiary to
secure up to $20,000,000 of borrowing under the facility. As of
March 20, 1998, seven additional properties were under
construction and management anticipates approximately $19,000,000
will be expended to purchase these lodging facilities upon
completion. Payments from the Company on account to be applied
towards the future purchases amounted to $1,841,000 at December 31,
1997. Interest earned by the Company on such payments in 1997 equaled
$558,000.
In 1994, the Company completed an offering of $80,000,000 in
principal amount of 12% Senior Subordinated Notes due April 15,
2004, Series B. In conjunction with this offering, 80,000 shares
of common stock were also issued. These Notes have been
registered under the Securities Act of 1933 and are freely
transferable by holders thereof. Interest on the Notes is payable
semiannually. The Notes are not redeemable at the option of the
Company prior to April 15, 1999. The Company may redeem the Subordinated
Notes at 106% reducing to 100% over the life of the Subordinated Notes plus
any accrued and unpaid interest.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
The declaration and payment of dividends is restricted by the
indenture relating to the 12% Senior Subordinated Notes. At
December 31, 1997, dividends were not eligible to be declared and
at December 31, 1996, dividends of $1,683,375 were eligible to be
declared.
A summary of mortgage and other notes payable is as follows:
December 31,
-----------------------------
1997 1996
------------- -------------
Mortgage and other notes:
Mortgage note payable secured by 93 motels,
with interest at 8.62% per annum through
October 10, 2005. Rate equal to greater of
10.62% or ten-year Treasury note plus 4.5%
thereafter. Principal and interest
payable monthly; due October 11, 2015 . . . . $152,188,885 $ 155,416,361
Mortgage notes payable secured by 19 motels
and a pledge of the stock of one of MOA
Hospitality,Inc's subsidiaries, with
interest at a floating rate of LIBOR
plus 3.37%; Principal and interest payable
monthly; due November 1, 1998 . . . . . . . . 35,891,475 37,089,632
Various cross-collateralized, nonrecourse
mortgage notes secured by 7 motels and the
common stock of MOA Portfolio II, Ltd.,
with interest at a floating rate of LIBOR
plus 1.75% with a cap of 9%; monthly
principal and interest payments; due
December 31, 1998 . . . . . . . . . . . . . . 18,396,629 19,485,345
Various mortgage notes payable currently
secured by 9 motels, with fixed interest from
7% to 10.25%; principal and interest
payments payable monthly; due dates from
September 14, 2000 to November 1, 2001 . . . 7,205,967 7,404,715
Various mortgage notes payable currently
secured by 2 motels and undeveloped land,
with variable interest based on prime or
Treasury bill rates; principal and interest
payments payable monthly; due dates through
June 1, 2001 . . . . . . . . . . . . . . . . 3,347,926 5,767,207
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31,
-----------------------------
1997 1996
------------- -------------
Mortgage note payable secured by a hotel,
with interest at LIBOR plus 1.75%, principal
and interest payments payable monthly, due
January 31, 2000 . . . . . . . . . . . . . . $ 8,827,220 $ 8,981,640
Note secured by notes receivable with interest
at a floating rate of LIBOR plus 2.50%;
monthly principal and interest payment: due
November 13, 1999 . . . . . . . . . . . . . . 2,442,146 3,900,000
Note payable secured by a motel with
fixed interest of 8%; principal and
interest payment payable monthly; repaid
in 1997 . . . . . . . . . . . . . . . . . . . ---- 698,558
Mortgage note payable secured by a guarantee of
New Image Realty, Inc. with a fixed interest
rate of 14%; interest payments payable
quarterly; due January 23, 2001 . . . . . . . 8,400,000 8,400,000
Note payable secured by a pledge of stock of one
of MOA Hospitality, Inc.'s subsidiaries, with an
interest at a floating rate of LIBOR plus 3%;
principal and interest payments payable monthly;
due April 8, 2001 to June 19, 2001 . . . . . . 7,783,995 ----
Industrial development revenue bonds secured
by a motel with interest payable semiannually
at 10.5%; annual sinking fund redemptions
of principal on December 1 through 2016 . . . . 3,585,000 3,645,000
Other notes payable . . . . . . . . . . . . . . . 185,655 359,089
----------- -----------
248,254,898 251,147,547
Less current portion . . . . . . . . . . . . . . (67,157,229) (10,207,437)
------------ ------------
$181,097,669 $240,940,110
============= =============
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
Principal payments required on notes payable and the Senior
Subordinated Notes are scheduled as follows:
Years ended December 31,
------------------------
1998 $ 67,157,229
1999 6,745,389
2000 14,373,338
2001 21,428,048
2002 5,325,574
Thereafter 213,225,320
------------
$328,254,898
============
7. Leases
The Company leases certain properties, administrative offices,
and equipment under operating leases. The leases generally provide
for the Company to pay taxes, insurance, and maintenance expenses
related to the leased property. Rent expense was approximately
$947,000, $974,000, and $988,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
Minimum annual rentals for leases on properties and the
corporate office for the five years subsequent to December 31, 1997
and thereafter, are approximately as follows:
Years ended December 31,
------------------------
1998 $ 761,000
1999 753,000
2000 759,000
2001 681,000
2002 525,000
Thereafter 17,975,000
-----------
$21,454,000
===========
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Restructuring costs and impairment losses
In 1997, restructuring costs of $750,000 were recorded
relating to the reorganization of the Company's management
structure. This reorganization included the implementation of a
decentralized organizational structure whereby many of the property
management support functions previously based out of the corporate
office were moved to various regional offices which were
established throughout the country. Impairment losses of
$2,526,000 were recorded in 1997 to reflect the writedown of
certain land held for development to its estimated fair value and
to reflect a provision for loss on collection of a mortgage note
receivable.
9. Income Taxes
Total income tax expense (benefit) was allocated as follows:
Year Ended December 31,
-----------------------------------------
1997 1996 1995
------------ ------------ ------------
Income (loss) from operations $(2,108,997) $ 487,761 $ 831,709
Extraordinary item -- -- 170,734
------------ ------------ ------------
$(2,108,997) $ 487,761 $1,002,443
============ ============ ============
Income tax expense (benefit) attributable to income from
operations consists of:
Current Deferred Total
------------ ------------ -------------
Year ended December 31, 1997:
U.S. federal $(1,498,879) $ (206,171) $ (1,705,050)
State and local (277,237) (126,710) (403,947)
------------ ------------ -------------
$(1,776,116) $ (332,881) $ (2,108,997)
============ ============ =============
Year ended December 31, 1996:
U.S. federal $ 910,476 $ (516,139) $ 394,337
State and local 58,279 35,145 93,424
------------- ----------- -------------
$ 968,755 $ (480,994) $ 487,761
============= =========== =============
Year ended December 31, 1995:
U.S. federal $ 1,214,098 $ (542,740) $ 671,358
State and local 224,649 (64,298) 160,351
----------- ------------ -------------
$1,438,747 $ (607,038) $ 831,709
=========== ============ =============
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes-(Continued)
Income tax expense (benefit) differs from the amounts computed
by applying the U.S. federal income tax rate of 34% to income
before income taxes and extraordinary item as a result of the
following:
Year Ended December 31,
-------------------------------------
1997 1996 1995
---------- ----------- -----------
Computed "expected" tax
expense (benefit) $(1,863,476) $399,506 $713,032
Increase in income taxes
resulting from:
State income taxes,
net of federal income
tax effect (266,605) 61,659 105,832
Other, net 21,084 26,596 12,845
----------- --------- ----------
$(2,108,997) $487,761 $831,709
============ ========= ==========
The deferred tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes are as
follows:
December 31,
--------------------------------------
1997 1996
---------------- ------------------
Deferred tax assets:
Reserves $ (1,035,999) $ (364,012)
Certain bankruptcy costs (30,517) (88,890)
Net state operating loss carryforwards (896,012) (896,012)
Partnership investments 16,638 (3,681)
Federal tax credits carryover (633,727) (792,394)
Other, net (443,346) (559,446)
-------------- --------------
Total deferred tax assets (3,022,963) (2,704,435)
Deferred tax liabilities:
Investment properties, principally
due to depreciation and purchase
accounting adjustments 6,374,647 6,389,000
------------- -------------
Total deferred tax liabilities 6,374,647 6,389,000
------------- -------------
Net deferred tax liability $ 3,351,684 $ 3,684,565
============= =============
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes-(Continued)
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes and has
entered into a tax allocation agreement with New Image and its
parent corporation. In accordance with the agreement, the
Company's tax liability/benefit will be computed as if the Company
had filed its own consolidated tax return and is subject to tax on
all of its taxable income. During 1997 the Company received a
payment of approximately $0.4 million from the parent and during
1996, the Company made payments of approximately $0.5 million, to
the parent corporation. At December 31, 1997, approximately $2.2
million has been advanced to offset future tax payments to the
parent corporation, if any.
At December 31, 1997, the Company has net operating loss
carryforwards ("NOLs") for state income tax purposes of
approximately $13.3 million. The NOLs, which are subject to
certain limitations, expire at various dates through 2010. At
December 31, 1997, the Company also has approximately $633,000 of
tax credit carryforwards subject to certain limitations, $500,000
of which do not expire.
10. Acquisitions and Divestitures
In December 1995, the Company sold two motel properties for
$4.1 million in cash and a $300,000 note receivable; the Company
recorded gains of $479,281.
In January 1996, the Company acquired nineteen motel
properties from Forte USA, Inc., a subsidiary of Forte Hotels,
Inc., for $35.5 million.
In January through March 1996, the Company acquired two
additional motel properties and the land underlying one of its
properties for approximately $8.2 million.
In May through November 1996, the Company sold eleven motel
properties to unaffiliated parties for approximately $15.8 million
in net cash proceeds and $6.3 million in notes receivable; the
Company recorded a gain of $2.6 million.
During 1997, in separate transactions, the Company sold two
properties for an aggregate of $3.9 million consisting of cash in
the amount of $0.1 million, a mortgage note receivable in the
amount of $1.0 million and the buyer's assumption of a mortgage
note in the amount of $2.3 million. the Company remains
contingently liable on the note, $2.3 million, in the event the
purchaser does not perform under its obligations.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Acquisitions and Divestitures-(Continued)
Pro forma unaudited results for 1995 assuming the 1996
acquisitions had occurred at the beginning of 1995 are as shown
below.
1995
-----------------
Total revenue $ 131,865,949
Net operating revenue 34,179,661
Income before Extraordinary Gain 2,495,419
Net Income 2,763,365
Income before Extraordinary Gain
per common share 3.45
Net Income per common share 3.12
Depreciation and amortization 13,685,354
Pro forma results for 1997 and 1996 are not shown as such
results would not differ materially from historical results.
In March 1998, the Company sold one of its motels pursuant to
a condemnation related to a highway reconfiguration project for
approximately $1.6 million in cash and realized an approximate $0.5
million gain.
11. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in
the balance sheet for cash and cash equivalents approximates
its fair value.
Mortgage and other notes receivable: The fair values of the
Company's mortgage and other notes receivable are estimated
using discounted cash flow analyses, using interest rates
currently being offered for similar loans to borrowers with
similar credit ratings.
Mortgage and other notes payable: The fair values of the
Company's mortgage and other notes payable are estimated using
discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
12% Senior Subordinated Notes: The fair value of the
Company's 12% Senior Subordinated Notes are based on quoted
market prices.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Fair Value of Financial Instruments-(Continued)
The carrying amounts and fair values of the Company's
financial instruments at December 31 are as follows:
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ------------- ------------ ------------
Cash and cash
equivalents $13,032,496 $13,032,496 $12,247,571 $12,247,571
Mortgage and
other notes
receivable 7,401,938 7,588,815 8,932,281 9,047,466
Secured notes
payable 248,254,898 249,509,580 251,147,547 250,506,863
12% Senior
Subordinated
Notes 76,734,638 76,000,000 76,406,397 68,800,000
Supplemental Information to Be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
The Company did not submit an annual report to security holders
covering the registrants's last fiscal year. In addition, the Company did not
send proxy statements, any form of proxy or other proxy soliciting material to
security holders with respect to any annual or other meeting of security
holders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 9th day of
April, 1998.
MOA HOSPITALITY, INC.
By: /s/ Kurt M. Mueller
Kurt M. Mueller
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Paul F. Wallace Director, Chairman and April 9, 1998
Paul F. Wallace Chief Executive Officer
Principal Executive Officer
/s/ Alan H. Baerenklau Director, President and April 9, 1998
Alan H. Baerenklau Chief Operating Officer
/s/ Kurt M. Mueller Director and Chief April 9, 1998
Kurt M. Mueller Financial Officer
Principal Financial Officer
/s/ Carl W. Desch Director April 9, 1998
Carl W. Desch
/s/ Peter W. McClean Director April 9, 1998
Peter W. McClean
/s/ Louis A. Scarrone, M.D. Director April 9, 1998
Louis A. Scarrone, M.D.
/s/ Ronald P. Stewart Director April 9, 1998
Ronald P. Stewart
/s/ Philip J. Levien Director April 9, 1998
Philip J. Levien
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
- ------- ----------- ----------
3.1 Certificate of Incorporation of Motels of America, Inc.
("MOA" or the "Company") as amended to date, incorporated
by reference to Exhibit 3.1 to MOA's Registration
Statement on Form S-1 (No. 33-78866) which became
effective on July 13, 1994 (the "1994 Form S-1").
3.2 By-laws of MOA, incorporated by reference to Exhibit 3.2
to the 1994 Form S-1.
4.1 Indenture dated April 14, 1994 for the 12% Senior
Subordinated Notes due 2004, incorporated by reference
to Exhibit 4.1 to the 1994 Form S-1.
4.2 Registration Rights Agreement dated as of April 14, 1994
by and among MOA, Alex. Brown and BT Securities,
incorporated by reference to Exhibit 4.2 to the 1994
Form S-1.
4.3 Loan Agreement between Motels of America, L.L.C. and
Nomura Asset Capital Corporation ("NACC") dated as of
September 15, 1995, incorporated by reference to Exhibit
4.1 to MOA's Form 8-K filed on November 4, 1995.
4.4 Form of Mortgage, Security Agreement, Assignment of
Rents and Fixture Filing between MOA-TL Corp. and MOA-CS
Corp., as Mortgagor to CS First Boston Mortgage Capital
Corp., as Mortgagee, dated as of November 5, 1996,
incorporated by reference to Exhibit 4.4 to MOA's Form
10-K for the fiscal year ended December 31, 1996 (the
"1996 Form 10-K").
10.1 Note Purchase Agreement dated as of October 20, 1994,
among NACC and MOA, MOA Midwest Corp. and Tri-State
Inns, Inc. (the "Note Purchase Agreement"), incorporated
by reference to Exhibit 10.2 to MOA's Form 10-K for the
fiscal year ended December 31, 1994 (the "1994 Form 10-K").
10.1A Amendment No. 1 to the Note Purchase Agreement, dated as
of October 20, 1994, incorporated by reference to
Exhibit 10.2A to the 1994 Form 10-K.
10.1B Environmental Indemnity Agreement dated as of October
20, 1994, incorporated by reference to Exhibit 10.2B
to the 1994 Form 10-K.
10.1C Amendment No. 2 to the Note Purchase Agreement, dated
as of December 16, 1994, incorporated by reference to
Exhibit 10.1B to MOA's Form 8-K filed on February 7,
1996 (the "1996 Form 8-K").
Sequential
Exhibit Page
Number Description Number
- -------- ------------ ---------
10.1D Amendment No. 3 to the Note Purchase Agreement, dated
as of January 23, 1996, incorporated by reference to
Exhibit 10.1C to the 1996 Form 8-K.
10.2 Note Purchase Agreement dated as of January 23, 1996,
among NACC and MOA-TL Corp., incorporated by reference
to Exhibit 10.2 to the 1996 Form 8-K.
10.3 $10,000,000 Promissory Note of MOA-TL Holding Corp.
payable to HFS Incorporated, dated as of January 23, 1996,
incorporated by reference to Exhibit 10.3 to the 1996
Form 8-K.
10.4 Asset Purchase Agreement dated as of December 19, 1995,
by and among MOA, Forte Hotels, Inc. and Forte USA, Inc.
(the "Asset Purchase Agreement"), incorporated by
reference to Exhibit 10.4 to the 1996 Form 8-K.
10.4A First Amendment to the Asset Purchase Agreement, dated
as of January 23, 1996, incorporated by reference to
Exhibit 10.4A to the 1996 Form 8-K.
10.5 Employment Agreement of Daniel W. Daniele dated
September 14, 1994, incorporated by reference to
Exhibit 10.14 to the 1994 Form 10-K.
10.6 $20,000,000 Promissory Note of MOA-TL Corp. payable
to CS First Boston Mortgage Capital Corp., dated as
of November 5, 1996, incorporated by reference to
Exhibit 10.6 to MOA's Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Form 10-K").
10.7 $17,150,000 Promissory Note of MOA-CS Corp. payable
to CS First Boston Mortgage Capital Corp., dated as
of November 5, 1996, incorporated by reference to
Exhibit 10.7 to MOA's Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Form 10-K").
10.8 Credit facility agreement up to $150,000,000 between
TAD Properties, L.L.C. and Credit Suisse First Boston
Mortgage Capital., date as of December 20, 1996.
10.8A Amendment to credit facility agreement, dated as
of October 8, 1997.
21.1 Subsidiaries of MOA.