ITEM 1. BUSINESS
General
MOA Hospitality, Inc. and its subsidiaries ("MOA" or the "Company") is a leading owner and operator of national brand affiliated limited service lodging facilities in the United States. As of December 31, 1999, the Company, directly and through subsidiaries, owned 126 lodging facilities located in 39 states with a total of 9,868 rentable guestrooms. The Company owns a 100% interest in all but two of its properties. At December 31, 1999, the Company operated all of its motels with the exception of forty-three motels that were leased to and operated by third-party tenants pursuant to operating leases. The Company's largest concentrations of lodging facilities are located in the States of Georgia and Illinois with 13 lodging facilities in Georgia and 12 lodging facilities in Illinois. Properties owned in the states of Illinois and Georgia at December 31, 1999, accounted for 9.16 % and 4.70% of consolidated motel operating revenues for the year ended December 31, 1999, respectively. One hundred and thirteen of the Company's lodging facilities are operated pursuant to franchise or license agreements under the following national brand names: Best Western, Comfort Inn, Day's Inn, Holiday Inn Express, Microtel, Ramada, Ltd., Super 8 and Travelodge. One hundred and one of the franchise or license agreements are with brands owned by Cendant Corporation including 87 with Super 8 Motels, Inc., a wholly owned subsidiary of Cendant Corporation. MOA believes its lodging facilities benefit from affiliating with national brands primarily due to the national brand name recognition achieved through national advertising and product distribution. In addition, the franchisor or licensor typically provide additional services such as: central reservation services, sponsorship of customer loyalty programs, exposure in published travel directories, leads with respect to group tour business and other professional services such as quality assurance inspections.
Subsequent to December 31, 1999 through June 15, 2000, the Company closed on the sale of six properties. In addition, the Company entered into twenty-five additional leases with third-party tenants.
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
The Company has experienced a deterioration in its operating performance over the past several years. The following table summarizes the recent operating performance of the Company (in 000's):
The Company attributes the deterioration in its operating performance to a myriad of factors, including but not limited to, a significant increase in competitive supply resulting from the extensive building of new motel properties in the markets in which the Company competes. Also increases in certain operating costs including labor due to the historically low levels of unemployment requiring the Company to compete with other industries for qualified employees. Based on a property-by-property review, the Company believes it is unlikely that it will realize the carrying value of certain of its assets due to a deterioration in their operating performance caused by factors outside of management's control and which are expected to continue for the foreseeable future. As a result of this review, the Company recorded an impairment loss of $928,000 and a restructuring charge of $450,000 in 1999. In 1998, the Company recorded an impairment loss of $9.3 million. In 1997, the Company also recorded impairment losses of $2.5 million and restructuring charges of $750,000. As discussed below, the Company has undertaken a number of transactions during the period presented above including acquisitions, development and sales of properties along with refinancing of the Company's mortgage debt. Although the Company believes it has or will be able to obtain adequate resources to meet its near-term maturing debt and other obligations, the deteriorating trend in operating results noted above could adversely affect the Company's ability to meet its maturing debt obligations in 2004 and 2005, including the maturity of the remaining $34.5 million 12% Senior Subordinated Notes in 2004.
Since December 31, 1996, the Company has had a net decrease in the number of lodging properties owned from 135 properties to 126 properties at December 31, 1999. A summary of the significant transactions with respect to the number of lodging properties owned and operated by the Company that have occurred since January 1, 1997 through June 1, 2000 is as follows:
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 $20.0 million revolving construction loan facility arranged by the affiliate. In connection with the construction loan facility, the Company had guaranteed completion of the construction of each property and the subsidiary acquiring the properties had guaranteed the construction loan facility to a maximum of $10.0 million. In 1997, five (5) such properties were acquired for $12.9 million of which $7.8 million was funded from a $150.0 million secured loan facility between the subsidiary acquiring the properties and CSFB. This facility provided for, among other things, 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 $20.0 million of borrowing under the facility. The $20.0 million revolving construction loan facility of the affiliate matured in 1998. The outstanding balances were paid in full upon the purchase of financed properties by a subsidiary of the Company with funds borrowed under the $150.0 million secured loan facility with CSFB and the application of amounts previously deposited with the affiliate. At December 31, 1998 the $150.0 million secured loan facility with CSFB matured with no further borrowings available with this loan facility. At December 31, 1999, approximately $17.1 million of borrowings were outstanding under the $150.0 million CSFB secured loan facility. The amount outstanding is secured by eleven properties and a pledge of the common stock of the subsidiary that owns such properties. As a result of the Company's under utilization of the CSFB loan facility, the Company changed its estimate of the economic benefit of certain deferred loan costs incurred in connection with obtaining the facility and accordingly accelerated the amortization of $1.9 million of such costs in 1998.
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 $2.3 million note; in the event the purchaser does not perform under its obligations.
During 1998, the Company, in a series of separate transactions with unaffiliated parties, sold ten properties for approximately $61.3 million consisting of cash in the amount of $53.0 million and first mortgage notes in the amount of $8.3 million. These transactions resulted in a net gain of approximately $23.7 million. Approximately $33.3 million of the net proceeds were utilized to pay down certain outstanding borrowings. During 1998, the Company also sold a parcel of vacant land and an investment in a partnership for an aggregate amount of $4.2 million in cash that resulted in gains of approximately $2.4 million.
During 1998, the Company acquired seven newly constructed motels from an affiliate at cost for an aggregate amount of $20.6 million in cash. The purchases of these motels were funded from $11.4 million of new borrowing under the CSFB secured loan facility referred to above, application of amounts previously deposited with the affiliate and from internally generated funds, including funds from the net proceeds from the sale of properties.
During 1999, the Company sold ten properties for approximately $27.8 million consisting of $9.7 million in cash and $18.1 million in first mortgage notes. These sale transactions resulted in gains of $2.5 million.
Also during 1999, the Company purchased one property constructed by an affiliate for the Company. The property was purchased for $ 2.9 million.
Subsequent to December 31, 1999 through June 15, 2000, the Company sold six properties for approximately $14.5 million consisting of $8 million in cash and $6.5 million in first mortgage notes. These sale transactions resulted in a gain of $1.0 million. The Company also purchased a parcel of land in February 2000 for approximately $250,000 cash and a note in the amount of $460,000.
During 1999, the Company repurchased from an affiliated company $35 million of the 12% Senior Subordinated Notes at a gain of approximately $1.9 million which was offset by the accelerated write-off of related deferred financing costs in the amount of $1.9 million. Subsequent to December 31, 1999 the Company repurchased an additional $10.5 million of the 12% Senior Subordinated Notes for a gain of $4.2 million which will be reduced by the accelerated write-off of deferred financing costs in the amount of $0.5 million for a net gain of $3.7 million.
The Company, as Lessor, has entered into operating leases with unaffiliated parties to operate forty-two motel properties, and with one affiliated party to operate one motel property at market rates. Under the terms of these leases, the lessee is responsible for operating costs including all maintenance, repairs, taxes and insurance expense on the leased property. The leases, which have a terms ranging from five and a half years to six and half years, provide for monthly rent payments. In addition, the lease grants the lessee an option to purchase the leased properties at prices believed by management to reflect market value.
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, especially with respect to the mid-price, economy and budget segments. 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: Baymont Inns (f/k/a 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 or destination locations 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 United States' 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 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; however, new supply continues to enter the markets in which the Company competes. Accordingly, new supply is expected to continue to negatively impact the Company's operating performance especially during the off-peak seasons.
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 including temporary interruptions due to road construction and more permanent interruptions due to the development of new interchanges and alternative routes, construction of new lodging facilities, changes in the degree of competition from existing lodging facilities and other factors.
Ownership Structure
At December 31, 1999, the Company had 100% ownership interest, either directly or through subsidiaries, in 124 of the 126 lodging facilities it owned. 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. Forty-three are subject to operating leases with purchase options. (See discussion above in the general business section)
Franchise and License Agreements
The Company operates 113 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 9% 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 that, for the Company, results in various ending dates ranging from 1999 through 2019. 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. Upon expiration of individual franchise agreements there is no assurance that a renewal franchise agreement will afford the Company the same benefits that existed under the previously existing franchise agreement. Generally, new franchise agreements have higher franchise fees and reduced areas of protections.
The Company has three standard license agreements with Best Western International. These agreements provide for an annual renewal.
The Company has twenty-three 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.
During 1997, the Company and certain of its subsidiaries commenced legal actions against ShoLodge Franchise Systems, Inc. ("ShoLodge") the franchisor of Shoney's Inns. The Company among other things has claimed that ShoLodge has breached its contractual obligations and made material misrepresentations to MOA prior to MOA or its subsidiaries acquiring any Shoney's Inns. Commencing in February 1998, through May 1998 the Company disaffiliated each of its fourteen Shoney's Inns from ShoLodge by removing the sign and other identifying marks. At the time of such disaffiliation, MOA or its subsidiaries ceased remitting franchise fees to ShoLodge. ShoLodge filed a counter claim against MOA and certain of its subsidiaries claiming a failure to renovate the properties and failure to pay franchise fees. In July 1999, the Company entered into a settlement agreement with ShoLodge resolving all disputes with respect to the litigation initiated by the Company. The settlement agreement requires for the Company to make an initial payment of $575,000 in July 1999 and three subsequent payments of $200,000 in July 2000, 2001 and 2002.
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 the last quarter of 1999, The Company recorded a $450,000 restructuring charge for the downsizing of both the regional and corporate offices. 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 second quarter of 1997, in the amount of $750,000 to cover the cost of restructuring. The regional offices are located in Indianapolis, Indiana, Weldon, North Carolina 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.
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, 1999, the Company employed approximately 1,600 employees including approximately 40 full and part-time employees at the corporate and regional offices. Labor and related costs generally represent the single largest expense of operating a motel property. The hourly wage rates tend to be relatively low in relation to other industries and accordingly, the Company is adversely affected by turnover common in the industry partially due to the current strength of the United States economy that has resulted in historically low unemployment rates. The Company's operations could be significantly affected by changes in the Federal and State minimum wage rates. The employees are not represented by any labor unions and management believes its ongoing labor relations with its employees are 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.
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 78 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. The company has leased forty-three properties subject to operating leases including a purchase option. However, the underlying real property of three 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 made capital expenditures (exclusive of acquisitions and development of investment properties) of $8,055,000, $5,696,000, and $7,948,000 in 1999, 1998 and 1997, 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 has been sufficient to maintain the competitive position of its motel facilities. The Company believes that its facilities are currently well maintained and conform to the Company's standards and where applicable to the franchiser's standards for cleanliness and attractiveness and intends to maintain its facilities in such condition.
Information pertaining to the Company's 126 lodging facilities owned as of December 31, 1999 with footnote disclosure of transactions subsequent to year-end through June 15, 2000, is set forth in the following table.
Year Number of Acquired or Rentable Developed Guest Year by the Location Franchise Rooms Built Company - ---------- --------- --------- ----- ----------- ARKANSAS West Memphis (1) Super 8 61 1989 1989 ARIZONA Phoenix Super 8 67 1998 1998 CALIFORNIA Santa Monica Best Western 122 1991 1992 West Los Angeles Best Western 76 1993 1994 COLORADO Longmont Super 8 64 1989 1994 FLORIDA Fernandina Beach (2) Inn at Fernandina Beach 134 1985 1994 Ft. Walton Beach Howard Johnson 102 1987 1994 Lake City (2) Microtel 62 1998 1998 Melbourne Howard Johnson 119 1990 1994 Orlando Centroplex (1) Travelodge 76 1957 1996 Panama City (4) Super 8 63 1986 1987 Pensacola (2) Super 8 62 1985 1987 GEORGIA Athens (2) Microtel 60 1998 1998 Brunswick (2) Super 8 62 1986 1987 Catersville (2) Super 8 62 1986 1987 Columbus Super 8 74 1985 1987 Douglas (2) Inn at Douglas 100 1986 1994 Dublin (2) Shamrock Inn 100 1984 1994 Fitzgerald (2) Inn at Fitzgerald 108 1985 1994 Hinesville (2) Inn at Hinesville 163 1976 1994 Macon (2) Cherry Blossom Inn 120 1987 1994 Moultrie (2) Inn at Moultrie 100 1979 1994 Rome (2) Super 8 62 1986 1987 Vidalia (2) Inn at Vidalia 128 1984 1994 Warner Robins (2) Super 8 60 1986 1987 IDAHO Boise Super 8 108 1978 1994 Coeur d'Alene (1) Super 8 95 1983 1983 Lewiston (4) Super 8 62 1985 1985 Sandpoint Super 8 61 1984 1984 ILLINOIS Bloomington (2) Super 8 61 1985 1987 Champaign (2) Super 8 61 1984 1987 Crystal Lake Super 8 59 1983 1987 Decatur (4) Super 8 61 1983 1987 East Moline (3) Super 8 63 1988 1988 Litchfield Super 8 61 1987 1994 Naperville (4) Travelodge 102 1983 1996 Peru (2) Super 8 61 1986 1987 South Springfield (4) Super 8 122 1987 1994 Springfield (2) Super 8 65 1985 1994 Tuscola Super 8 64 1988 1994 Waukegan (4) Super 8 61 1986 1987
INDIANA Columbus (2) Super 8 62 1984 1987 Elkhart Fairyway Inn 60 1990 1994 Elkhart Super 8 62 1986 1989 Indianapolis Days Inn 161 1985 1994 Mishawaka Super 8 66 1998 1998 Muncie (4) Days Inn 62 1990 1994 Muncie (3) Super 8 63 1986 1989 Terre Haute Super 8 118 1985 1994 IOWA Davenport (2) Super 8 61 1984 1987 Des Moines Super 8 152 1985 1994 KANSAS Leavenworth (3) Super 8 60 1984 1989 Salina Super 8 61 1984 1989 Topeka (4) Super 8 62 1984 1987 KENTUCKY Danville (2) Super 8 49 1987 1987 Lexington (2) Super 8 62 1987 1987 Louisville Super 8 100 1988 1988 LOUISIANA Shreveport Super 8 143 1986 1994 MASSACHUSETTS Milford Days Inn 69 1997 1997 MAINE Ellsworth Comfort Inn 63 1993 1993 MICHIGAN Battle Creek (2) Super 8 62 1985 1987 Grand Rapids (2) Super 8 62 1986 1987 Kalamazoo (2) Super 8 62 1985 1987 Muskegon Days Inn 106 1968 1993 Muskegon (2) Super 8 62 1986 1987 Saginaw (4) Super 8 62 1985 1987 MINNESOTA Hibbing (4) Super 8 49 1993 1994 Red Wing (2) Super 8 60 1987 1996 Savage (4) Comfort Inn 75 1982 1994 MISSISSIPPI Vicksburg (3) Super 8 62 1988 1988 MISSOURI Independence (2) Super 8 77 1983 1987 Joplin Super 8 50 1985 1987 Liberty (2) Super 8 60 1980 1987 NW Kansas City (4) Super 8 50 1983 1987 St. Joseph Super 8 54 1985 1987 St. Louis (4) Super 8 99 1984 1987 Springfield (2) Super 8 50 1985 1987
MONTANA Billings Ramada Ltd. 116 1978 1994 Billings Super 8 114 1979 1994 Dillon Super 8 48 1985 1989 Great Falls Super 8 117 1978 1994 Helena Super 8 102 1979 1988 NEBRASKA Fremont (4) Super 8 43 1986 1989 NEVADA Carson City (2) Super 8 63 1985 1985 Wendover Super 8 74 1988 1988 NEW HAMPSHIRE Merrimack Days Inn 70 1999 1999 NEW MEXICO Las Cruces (2) Super 8 61 1981 1987 NEW YORK East Syracuse Super 8 53 1997 1997 NORTH CAROLINA Greensboro (3) Travelodge 108 1985 1996 Weldon (2) Orchard Inn 49 1973 1993 Wilson Microtel 60 1997 1997 NORTH DAKOTA Bismarck Super 8 61 1976 1987 Grand Forks (4) Super 8 33 1983 1987 Minot (4) Super 8 60 1977 1987 OHIO Akron (2) Super 8 59 1986 1987 Canton (2) Days Inn 61 1985 1987 Maumee Super 8 70 1998 1998 St. Clairsville Super 8 62 1986 1987 Willoughby Travelodge 111 1984 1996 PENNSYLVANIA Lancaster Super 8 101 1990 1990 York Super 8 94 1990 1990 SOUTH CAROLINA Anderson (2) Super 8 62 1986 1987 Camden (4) Inn at Camden 84 1989 1994 Charleston (2) Orchard Inn 89 1973 1993 Columbia Microtel 48 1997 1997 Greenwood (2) Villager Lodge 62 1986 1987 Hilton Head (3) Quality Inn & Suites 127 1989 1994 SOUTH DAKOTA Sioux Falls (4) Super 8 95 1976 1987 TENNESSEE Chattanooga (2) Super 8 73 1986 1987 East Memphis (4) Super 8 69 1990 1990 Johnson City (2) Super 8 63 1986 1987 Knoxville Super 8 137 1975 1993 Union City (4) Super 8 61 1989 1989
TEXAS Stafford Microtel 68 1998 1998 UTAH Salt Lake City Super 8 119 1983 1988 VIRGINIA Charlottesville (2) Super 8 65 1986 1987 Richmond (4) Inn at Richmond 116 1985 1994 WASHINGTON Spokane Super 8 187 1982 1988 WEST VIRGINIA Mineral Wells Microtel 54 1998 1998 WISCONSIN Ashland (3) Super 8 70 1984 1988 Janesville (2) Super 8 48 1985 1987 Kenosha (4) Super 8 60 1984 1987 Madison Best Western 101 1983 1994 Rice Lake (4) Super 8 47 1984 1994 WYOMING Cody Super 8 64 1982 1982 Jackson Super 8 97 1983 1983 ----- Total 9,868 ===== (1) Property is subject to a ground lease. (2) Property is subject to an operating lease. (3) Property sold subsequent to December 31, 1999. (4) Property leased to a third-party tenant subsequent to December 31, 1999.
Item 3.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December 31, 1999 to a vote of the security holders of the Company.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 15, 2000, 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 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.
During 1999, the Company repurchased from an affiliated company $35 million of the 12% Senior Subordinated Notes at a gain of approximately $1.9 million which was offset by the accelerated write-off of related deferred financing costs in the amount of $1.9 million. Subsequent to December 31, 1999 the Company repurchased an additional $10.5 million of the 12% Senior Subordinated Notes for a gain of $4.2 million which will be reduced by the accelerated write-off of deferred financing costs in the amount of $0.5 million for a net gain of $3.7 million.
Item 6.
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, 1999. This data should be read in conjunction with the audited consolidated historical financial statements of the Company and the notes thereto included elsewhere herein.
(1) Results for the year ended December 31, 1995 includes a gain on early extinguishment of debt, net of income taxes, of $0.2 million. Results for the year ended December 31, 1999 include the recovery of $0.5 million of offering costs previously written off. The results for years ended December 31, 1995, 1996, 1997, 1998 and 1999 include a $0.5 million, $2.6 million, $1.1 million, $26.1 and $2.6 million of gains 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. Results for the year ended December 31, 1998 included the recording of impairment losses of $9.3 million. Results for the year ended December 31, 1999 included the recording of restructuring costs of $0.5 million and impairment losses of $0.9 million.
(2) The Company changed its estimate of the economic benefit of certain deferred loan costs in 1998. The effect of this change increased amortization by $1.9 million for the year ended December 31, 1998.
(3) EBITDA represents earnings before interest expense, income taxes, depreciation, amortization, minority interest, gain on sale of properties, write-off (recovery) of deferred offering 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 a 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) Operating data excludes amounts related to five motels, which are leased to third party tenants at December 31, 1998 and forty-three motels at December 31, 1999.
(5) 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.
(6) The average daily room rate ("ADR") represents total room revenues divided by the total number of rooms occupied.
(7) The occupancy percentage represents total rooms occupied divided by total available rooms.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND, AS SUCH, SPEAK ONLY AS OF THE DATE MADE. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: THE COMPANY'S ABILITY TO OBTAIN FINANCING, COMPETITION, INTEREST RATE FLUCTUATIONS, OR GENERAL BUSINESS AND ECONOMIC CONDITIONS.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "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, 1999, 1998 AND 1997 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.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
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.
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(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 and lease revenues.
(4) Net motel revenue margin represents total motel operating revenues less motel operating expenses and marketing and royalty fees, divided by motel room revenues.
(5) At December 31, 1998 and 1999 and for the years then ended, excludes amounts related to five motels and forty-three motels, respectively, which are leased to third party tenants.
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. Lease revenues are derived from lease payments from properties operated by third party tenants. 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 $103,431,000 in 1999 from $116,326,000 in 1998, a decrease of $12,895,000 or 11.1%.
Motel revenues decreased to $96,833,000 in 1999 from $115,007,000 in 1998 a decrease of $18,174,000 or 15.8%. The decrease of $20,660,000 in motel revenues was attributable to the acquired or divested motels (including those subject to operating leases) since January 1, 1998 and offset by an increase in the motel revenues for motels owned during both periods of $2,486,000. Motel revenues for motels owned during both periods increased 3.5%. The increase in motel revenues for motels owned during both periods was principally attributable to increases in the occupancy percentage and the average daily room rate ("ADR"). The ADR for the motels owned during both periods increased to $45.03 in 1999 from $44.96 in 1998, an increase of $0.07 or 0.2%. The occupancy percentage in 1999 for the motels owned during both periods increased to 65.0% from 63.3% in 1998 or 2.7%. Revenue per available room ("REVPAR") for motels owned during both periods increased to $31.43 in 1999 from $30.33 in 1998, an increase of $1.10 or 3.6%. The acquired and divested motels had an occupancy percentage of 61.3%, an ADR of $39.73 and a REVPAR of $25.88 for the period, which the Company owned them in 1999.
Motel operating expenses include payroll and related costs, utilities, repairs and maintenance, property taxes, linens and other operating supplies. Motel operating expenses decreased to $54,573,000 in 1999 from $60,608,000 in 1998 a net decrease of $6,035,000 or 9.9%. Approximately $10,246,000 of the decrease is attributable to the cost of operating the acquired and divested motels since January 1, 1998. The cost of operating motels owned during both periods increased to $37,952,000 in 1999 from $33,741,000 in 1998, an increase of $4,211,000 or 12.5%. Motel operating expenses as a percentage of motel revenues increased to 56.2% in 1999 from 52.7% in 1998. Motel operating expenses as a percentage of motel revenues for the motels owned in both periods increased to 51.6% in 1999 from 47.8% in 1998. The increase in the operating expenses as a percentage of motel revenues for motels owned during both periods is primarily attributable to an increase in labor costs and repair and maintenance expenses that on a percentage basis exceed the percentage increase in motel revenues. Motel operating expenses as a percent of motel revenues for the acquired and divested motels was 69.9% in 1999.
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 $6,786,000 in 1999 from $7,515,000 in 1998, a decrease of $729,000 or 9.7%. Approximately $1,263,000 of the decrease in marketing and royalty fees was attributable to the motels acquired and divested since January 1, 1998. The marketing and royalty fees for motels owned during both periods increased to $5,073,000 in 1999 from $4,539,000 in 1998, an increase of $534,000 or 11.8%. For the motels owned during both periods, marketing and royalty fees as a percent of room revenues increased to 7.5% in 1999 from 6.9% in 1998. The increase in marketing and royalty fees for motels owned in 1998 and 1999 was principally due to additional marketing efforts to increase the occupancy percentage. Including the affiliation of certain properties with national brands resulting in the payment of franchise fees on such properties in 1999 where no such fees were incurred in 1998.
Corporate general and administrative expenses are segregated by the Company into three separate areas: Management Company Operations, Construction/Acquisition and Divestiture Division 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 $39,000 to $5,454,000 in 1999 from $5,415,000 in 1998, an increase of 0.7%. Salary and related costs account for the majority of the remaining overall increase. The general and administrative expenses associated with Construction/Acquisition and Divestiture Division increased $18,000 from $1,389,000 in 1998 to $1,407,000 or 1.3%. The increase is attributable principally to an increase in the sales and leasing of the Company's properties to others. Other General and Administrative expenses decreased $811,000 from $4,301,000 in 1998 to $3,490,000 in 1999. As a percentage of total motel operating revenues, Management Operations general and administrative expenses increased from 4.7% in 1998 to 5.3% in 1999.
Lease revenues increased to $2,477,000 in 1999 from $0 in 1998, an increase of $2,477,000 or 100.0%. This increase is the result of the forty-three leased properties as of December 31, 1999.
Impairment losses and restructuring costs in the amount of $1,378,000 and $9,300,000 were recorded in 1999 and 1998, respectively. Based on a property-by-property review of certain properties that had experienced a deterioration in operating performance, management determined that in certain instances the decline in operating performance was due to factors outside of management's control and likely to persist for the foreseeable future. The Company believes it is unlikely to realize the carrying value of certain of its properties through either a sale or from operations and accordingly an impairment loss in the amount of $928,000 was recorded in 1999 and $9,300,000 in 1998. Restructuring costs of $450,000 were recorded in the fourth quarter of 1999 relating to the reorganization of the Company's corporate and regional offices. This reorganization was necessitated as the result of the substantial leasing and sales activities throughout 1999. The provision for restructuring costs is intended to cover the severance costs.
Depreciation and amortization decreased to $14,978,000 in 1999 from $17,995,000 in 1998, a decrease of $3,017,000 or 16.8%. The $3,017,000 decrease consists of a $1,832,000 decrease in corporate operations plus a $3,107,000 decrease from motel operations offset by an increase of $1,922,000 for lease operations. During 1998, the Company reevaluated the economic useful life of certain deferred loan costs associated with the CS First Boston $150.0 million loan facility in light of the Company's under utilization of such facility. As a result, the Company accelerated the amortization of such deferred loan costs in the amount of $1.9 million in 1998.
Net operating income increased to $15,207,000 in 1999 from $9,803,000 in 1998, an increase of $5,404,000 or 55.1%. The increase in net operating revenues included a decrease of $11,410,000 in net motel revenues (motel revenues less motel operating expenses and marketing and royalty fees). Of the $11,410,000 decrease in net motel revenues, $9,151,000 resulted from the motels acquired and divested since January 1, 1998 and a decrease in net motel revenues for motels owned during both periods of $2,259,000 or 7.0%. Net operating revenue as a percent of total revenues was 14.7% and 8.4% in 1999 and 1998, respectively. The increase in net operating income also included the decrease in general and administrative expenses of $754,000, and decrease in depreciation and amortization of $3,017,000 and an decrease in restructuring costs and impairment losses of $7,922,000 all of which are separately discussed above. In addition to the above, the Company realized an increase in other revenues in the amount of $2,802,000 due principally to a gain on the repurchase of outstanding bonds offset by accelerated amortization and interest expense associated with bond purchase transaction. The Company also realized an increase in net lease operations of $397,000.
Interest expense decreased to $30,070,000 in 1999 from $30,578,000 in 1998, a decrease of $508,000. The decrease is principally due to a decrease in average outstanding borrowings.
Gain on sale of properties amounted to $2,528,000 in 1999 as compared to $26,079,000 in 1998. The gain in 1999 consisted of $2,528,000 from the sale of ten motel properties.
Net income (loss) decreased $10,827,000 to a net loss of $7,675,000 in 1999 from net income of $3,152,000 in 1998. Included in the net decrease of $10,827,000 is a decrease of $14,172,000 of net of tax gains realized on the sale of properties. Also included in the $10,827,000 decrease in net income is the decrease in the provision for restructuring costs and impairment losses of $829,000 and $5,596,000 net of tax for 1999 and 1998, respectively.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
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.
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(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.
(5) At December 31, 1998 and for the year then ended, excludes amounts related to five motels which are leased to third party tenants.
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, lease income from properties operated by third party tenants, distributions on partnership interests in excess of the Company's basis in such partnerships and other miscellaneous income. Total revenues decreased to $116,327,000 in 1998 from $122,367,000 in 1997, a decrease of $6,040,000 or 4.9%.
Motel revenues decreased to $115,007,000 in 1998 from $121,512,000 in 1997 a decrease of $6,505,000 or 5.4%. Approximately $4,610,000 of the decrease in motel revenues was attributable to the acquired or divested motels, since January 1, 1997 and a decrease in the motel revenues for motels owned during both periods of $1,895,000. Motel revenues for motels owned during both periods decreased 1.9%. The decrease in motel revenues for motels owned during both periods was principally attributable to a decrease in the occupancy percentage. The ADR for the motels owned during both periods increased to $42.85 in 1998 from $42.30 in 1997, an increase of $0.55 or 1.3%. The occupancy percentage in 1998 for the motels owned during both periods decreased to 61.7% from 63.8% in 1997 or 3.3%. 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 $28.00 in 1998 from $28.48 in 1997, a decrease of $0.48 or 1.7%. The acquired and divested motels had an occupancy percentage of 59.50%, an ADR of $48.77 and a REVPAR of $32.47 for the period, which the Company owned them in 1998.
Motel operating expenses include payroll and related costs, utilities, repairs and maintenance, property taxes, linens and other operating supplies. Motel operating expenses decreased to $60,608,000 in 1998 from $62,333,000 in 1997 a net decrease of $1,725,000 or 2.8%. Approximately $2,471,000 of the decrease is attributable to the cost of operating the acquired and divested motels since January 1, 1997. The cost of operating motels owned during both periods increased to $51,679,000 in 1998 from $50,933,000 in 1997, an increase of $746,000 or 1.5%. Motel operating expenses as a percentage of motel revenues increased to 52.7% in 1998 from 51.3% in 1997. Motel operating expenses as a percentage of motel revenues for the motels owned in both periods increased to 51.7% in 1998 from 50.0% in 1997. The increase in the operating expenses as a percentage of motel revenues for motels owned during both periods is primarily attributable to an increase in labor costs and repair and maintenance expenses that on a percentage basis exceed the percentage increase in motel revenues. Motel operating expenses as a percent of motel revenues for the acquired and divested motels was 59.7% in 1998.
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 $7,515,000 in 1998 from $8,905,000 in 1997, a decrease of $1,390,000 or 15.7%. Approximately $371,000 of the decrease in marketing and royalty fees was attributable to the motels acquired and divested since January 1, 1997. The marketing and royalty fees for motels owned during both periods decreased to $6,597,000 in 1998 from $7,616,000 in 1997, a decrease of $1,019,000 or 13.4%. For the motels owned during both periods, marketing and royalty fees as a percent of room revenues decreased to 7.0% in 1998 from 7.9% in 1997. The decrease in marketing and royalty fees for the motels owned in both periods is principally due to a reduction in franchise fees. Franchise fees declined due to two reasons i) a reduction of 1% of room revenues for most of the Company's Super 8 motels and ii) a reduction in franchise fees paid to ShoLodge Franchise Systems Inc. with respect to the Company's fourteen former Shoney's Inns. The Company had participated in a voluntary program with Super 8 Motels, Inc. whereby an additional 1% of room revenues were contributed to the advertising fund to be utilized for additional national advertising. This program ceased December 31, 1997. During the period from February 1998 through May 1998, the Company disaffiliated all of its Shoney's Inns from ShoLodge Franchise Systems, Inc. and ceased payment of franchise fees at such time. On an annual basis the Company historically had paid approximately $650,000 of franchise fees on its fourteen former Shoney's Inns.
Corporate general and administrative expenses are segregated by the Company into three separate areas: Management Company Operations, Construction/Acquisition and Divestiture Division 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 $847,000 to $5,415,000 in 1998 from $4,568,000 in 1997, an increase of 18.5%. Approximately $400,000 of the increase is due to the costs incurred with respect to the installation and implementation of the Company's new primary financial accounting system. Salary and related costs account for the majority of the remaining overall increase. The general and administrative expenses associated with Construction/Acquisition and Divestiture Division increased $357,000 from $1,032,000 in 1997 to $1,389,000 or 34.6%. The increase is attributable principally to an increase in the sales and leasing of the Company's properties to others. Other General and Administrative expenses increased $1,993,000 from $2,308,000 in 1997 to $4,301,000 in 1998. The increase is due to an increase in legal costs incurred in connection with the lawsuit that the Company initiated against ShoLodge Franchise Systems, Inc. in 1997 and severance payments to certain former employees of the Company. As a percentage of total motel operating revenues, Management Operations general and administrative expenses increased from 3.8% in 1997 to 4.7% in 1998.
Impairment losses and restructuring costs in the amount of $9,300,000 and $3,276,000 were recorded in 1998 and 1997, respectively. Based on a property-by-property review of certain properties that had experienced a deterioration in operating performance, management determined that in certain instances the decline in operating performance was due to factors outside of management's control and likely to persist for the foreseeable future. The Company believes it is unlikely to realize the carrying value of certain of its properties through either a sale or from operations and accordingly an impairment loss in the amount of $9,300,000 was recorded in 1998. Restructuring costs of $750,000 were recorded in the second quarter of 1997 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 $17,995,000 in 1998 from $14,985,000 in 1997, an increase of $3,010,000 or 20.1%. The $3,010,000 increase consists of a $2,692,000 increase in corporate operations and a $318,000 increase from motel operations. During 1998, the Company reevaluated the economic useful life of certain deferred loan costs associated with the CS First Boston $150.0 million loan facility in light of the Company's under utilization of such facility. As a result, the Company accelerated the amortization of such deferred loan costs in the amount of $1.9 million in 1998, which is included in the $2,692,000 increase referred to above.
Net operating income decreased to $9,803,000 in 1998 from $24,960,000 in 1997, a decrease of $15,157,000 or 60.7%. The decrease in net operating revenues included a decrease of $3,390,000 in net motel revenues (motel revenues less motel operating expenses and marketing and royalty fees). Of the $3,390,000 decrease in net motel revenues, $1,768,000 resulted from the motels acquired and divested since January 1, 1997 and a decrease in net motel revenues for motels owned during both periods of $1,622,000 or 3.7%. Net operating revenue as a percent of total revenues was 8.4% and 20.4% in 1998 and 1997, respectively. The decrease in net operating income also included the increase in general and administrative expenses of $3,197,000, and increase in depreciation and amortization of $3,010,000 and an increase in restructuring costs and impairment losses of $6,024,000 all of which are separately discussed above. In addition to the above, the Company realized an increase in other revenues in the amount of $464,000 due principally to an increase in interest income and lease income.
Interest expense decreased to $30,578,000 in 1998 from $31,373,000 in 1997, a decrease of $795,000. The decrease is principally due to a decrease in average outstanding borrowings.
Gain on sale of properties amounted to $26,079,000 in 1998 as compared to $1,110,000 in 1997. The gain in 1998 consisted of $25,409,000 from the sale of ten motel properties and a parcel of vacant land and a gain of $670,000 on the sale of an investment.
Net income (loss) increased $6,524,000 to net income of $3,152,000 in 1998 from a net loss of $3,372,000 in 1997. Included in the net increase of $6,524,000 is an increase of $15,015,000 in the net of tax gains realized on the sale of properties of $15,693,000 in 1998 and $678,000 in 1997. Also included in the $6,524,000 increase in net income is the provision for the restructuring costs and impairment losses of $5,596,000 and $2,016,000 net of tax for 1998 and 1997, respectively.
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, 1999, the Company has principal repayment obligations of $13,154,000, $24,773,000 and $16,563,000 for the years ending December 31, 2000, 2001 and 2002, respectively. In December 1999 the Company assumed a $3,750,000 note payable at 9.5% due October 25, 2001 in conjunction with the purchase of $20,098,000 of 12% Senior Subordinated Notes from an affiliate. This loan requires monthly interest payments and semi-annual principal payments of $1,025,000. Also, in December 1999, the Company assumed and additional $5,000,000 note payable at 13.5% due December 22, 2000 in conjunction with the purchase of $15,000,000 of 12% Senior Subordinated Notes from an affiliate. The loan requires monthly interest payments. The Company's principal repayment obligations, reflective of the above mentioned debt transactions, as of June 15, 2000 is $7,556,000 for the remainder of fiscal 2000; $2,609,000 for 2001 and $974,000 for 2002. In October 1999, the Company purchased from an affiliated company $35 million of the 12% Senior Subordinated Notes due in 2004 for a gain of $1.9 million which is offset by $1.9 million in accelerated deferred loan costs written off as part of the transaction. Subsequent to December 31, 1999, the Company has purchased from an affiliated company an additional $10.5 million of the 12% Senior Subordinated Notes for a gain of approximately $4.2 million which is partially offset by $0.5 million in accelerated deferred loan costs which will be written off in year 2000. Although the Company believes it has or will be able to obtain adequate resources to meet its near-term maturing debt and other obligations, either from operating cash flows or refinancing, the deteriorating trend in operating results noted above could adversely affect the Company's ability to meet its maturing debt obligations in 2004 and 2005, including the maturity of the remaining $34.5 million 12% Senior Subordinated Notes in 2004.
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 $8,055,000, $5,696,000, and $7,948,000 in 1999, 1998 and 1997, respectively. In addition, as of December 31, 1999, the Company has $888,000 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, 1999 cash and cash equivalents decreased $14,197,000 from $19,582,000 at December 31, 1998 to $5,385,000 at December 31, 1999. A total of $12,982,000 of cash was provided by operating activities, $4,248,000 of cash was provided by investing activities and $31,427,000 of cash was used in financing activities. Net investing activities include: $4,675,000 of cash utilized for motel development; $8,055,000 expended on renovation of existing motel properties; $1,315,000 of cash was provided by a decrease in cash restricted for refurbishment of properties; and $15,663,000 of cash provided from the sale of investment properties and collections on mortgage and other notes receivable. Cash used by financing activities include: $76,162,000 of cash utilized to repay indebtedness plus $1,963,000 of deferred financing costs less $46,698,000 of proceeds from borrowings.
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 replaced its primary financial accounting system in 1998 at a cost of approximately $400,000. The new system is year 2000 compliant. The Company has not had any problems resulting from the Year 2000 change.
Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 1999, the Company has total outstanding debt of approximately $268,180,000 of which approximately $53,588,000, or 20%, is variable rate debt. If market rates of interest on the Company's debt increase by 10%, the increase in interest expense on the Company's variable rate debt would decrease future earnings and cash flows by approximately $540,000. If market rates of interest increased by 10%, the fair value of the Company's total outstanding debt would decrease by approximately $4,135,000. If market rates of interest on the Company's variable rate debt decreased by 10%, the decrease in interest expense on the Company's variable rate debt would increase future earnings and cash flows by approximately $429,000. If market rates of interest decreased by 10%, the fair value of the Company's total outstanding debt would increase by approximately $3,620,000.
These amounts were determined by considering the impact of hypothetical interest rates on the Company's debt. These analyses do not consider the effect of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate its exposure to such a change.
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 63 Director, Chairman and Chief Executive Officer Alan H. Baerenklau 54 Director, President and Chief Operating Officer Kurt M. Mueller 43 Director, Chief Financial Officer Carl W. Desch 84 Director Louis A. Scarrone, M.D. 76 Director Ronald P. Stewart 56 Director Peter W. McClean 56 Director Philip J. Levien 55 Director Blane P. Evans 40 Vice President, Secretary & Treasurer
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 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. From 1978 to 1991, Mr. Mueller was employed by Ernst & Young LLP most recently as 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 Rhodes Group, Inc. 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.
Blane P. Evans has been Vice President, Secretary and Treasurer of the Company since May 1999. Mr. Evans joined the Company in January 1992 and has served in various capacities, most recently as Corporate Controller.
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 1999 300,000 - Chairman and Chief Executive Officer 1998 300,000 - 1997 300,000 -
Alan H. Baerenklau 1999 233,300 - President and Chief Operating Officer (1) 1998 233,300 116,700 1997 194,500 -
Kurt M. Mueller 1999 200,000 - Chief Financial Officer 1998 200,000 50,000 1997 266,667 -
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(1) Mr. Baerenklau joined the Company in March 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, other than a 401(k) savings plan, 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, 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 1999, no officer or employee of the Company or its subsidiaries participated in deliberations of the Company's Board of Directors concerning executive officer compensation.
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 June 15, 2000:
Shares of Common Stock Beneficially Percent Name and Address of Beneficial Owner Owned of Class - ------------------------------------ ------------- ---------- Principal Stockholders:
New Image Realty, Inc. 677,228 85% 888 Seventh Avenue Suite 3400 New York, NY 10106
Executive Officer and Directors - ------------------------------- Paul F. Wallace 684,357 (1) 86% All Directors and Officers as a Group (11 persons) 684,357 (2) 86% - -------------------------
(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 is a member of an affiliated group that files a consolidated tax return for federal income tax purposes. The Company received a payment of approximately $0.4 million during 1997. And during 1998, the Company made payments of approximately $4.8 million to affiliates of Paul F. Wallace, of which approximately $2.1 million is required as future tax payments.
In October 1999, the Company purchased from an affiliated company $35 million of the 12% Senior Subordinated Notes due in 2004 for a gain of $1.9 million which is offset by $1.9 million in accelerated deferred financing costs written off as part of the transaction. Subsequent to December 31, 1999, the Company has purchased from an affiliated company an additional $10.5 million of the 12% Senior Subordinated Notes for a gain of approximately $4.2 million which is partially offset by $0.5 million in accelerated deferred financing costs which will be written off in year 2000.
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.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Years Ended December 31, 1999, 1998 and 1997
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999
Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999
Notes to Consolidated Financial Statements
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. and Subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP ERNST & YOUNG LLP
Chicago, Illinois June 15, 2000
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Basis of Presentation
MOA Hospitality, 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 39 states throughout the United States. At December 31, 1999, the Company's largest concentrations of lodging facilities were located in the States of Georgia and Illinois with 13 lodging facilities in Georgia and 12 lodging facilities in Illinois. 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 which have not changed operations or stockholders' equity.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.
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.
Earnings Per Share
Basic and fully diluted earnings per share are based on the weighted average number of shares of common stock outstanding during each period.
3. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $24,454,408 and $12,989,747 at December 31, 1999 and 1998, 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 $601,828 and $775,592 at December 31, 1999 and 1998, respectively, bear an interest at rate of 11% and are receivable over various terms through 2016. A note receivable with an interest rate of 9% was paid in full during 1999.
Notes receivable of $2,625,807 at December 31, 1998 have been pledged as collateral for a loan facility in which the Company participated along with one of its affiliates. The loan facility had an outstanding balance of $242,691 at December 31, 1998. The loan facility was paid in full during 1999.
Notes receivable of $11,363,679 at December 31, 1999 have been pledged as collateral for a loan facility. The loan facility had an outstanding balance of $5,985,144 at December 31, 1999.
Two notes receivables in the amounts of $2,164,000 and $964,000 were transferred to an affiliate as of December 31, 1999 in partial settlement of amounts owed to the affiliate pursuant to the tax allocation agreement.
4. Operating Properties
The major classes of operating properties, at cost, are as follows: December 31, ------------------------------- 1999 1998 ------------- ------------- Land $ 45,695,630 $ 50,611,428 Buildings 238,670,582 250,547,251 Furniture and Equipment 60,473,596 60,277,741 ------------- ------------- 344,839,808 361,436,420 Less: Accumulated depreciation (88,230,535) (81,492,910) ------------- ------------- $256,609,273 $279,943,510 ============= =============
Depreciation expense equaled $12,135,308, $12,942,987, and $12,151,209 for the years ended December 31, 1999, 1998 and 1997, respectively.
5. 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 ("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%.
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 $20.0 million revolving construction loan facility arranged by the affiliate. In connection with the construction loan facility, the Company had guaranteed completion of the construction of each property and the subsidiary acquiring the properties had guaranteed the construction loan facility to a maximum of $10.0 million. In 1997, five (5) such properties were acquired for $12.9 million of which $7.8 million was funded from a $150.0 million secured loan facility between the subsidiary acquiring the properties and CS First Boston ("CSFB"). This facility provided for, among other things, 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 of the outstanding balance 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 $20.0 million of borrowing under the facility. The $20.0 million revolving construction loan facility of the affiliate matured in 1998. The outstanding balances were paid in full upon the purchase of financed properties by a subsidiary of the Company with funds borrowed under the $150.0 million secured loan facility with CSFB and the application of amounts previously deposited with the affiliate. At December 31, 1998 the $150.0 million secured loan facility with CSFB matured with no further borrowings available for this loan facility. At December 31, 1999, approximately $17.1 million of borrowings were outstanding under the $150.0 million CSFB secured loan facility. The amount outstanding is secured by eleven properties and a pledge of the common stock of the subsidiary that owns such properties. As a result of the Company's under utilization of the CSFB loan facility, the Company changed its estimate of the economic benefit of certain deferred loan costs incurred in connection with obtaining the facility and accordingly accelerated the amortization of $1.9 million of such costs in 1998.
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 were not redeemable by 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. In October 1999, the Company repurchased from an affiliated company $35 million of the 12% Senior Subordinated Notes for a gain of $1.9 million, which is offset by the accelerated write-off of deferred financing costs of $1.9 million. The repurchase transaction included the assumption of $8,750,000 million of notes payable of the affiliate. Subsequent to December 31, 1999, the Company repurchased from an affiliated company an additional $10.5 million of the 12% Subordinated Notes for a gain of approximately $4.2 million which was partially offset by a $0.5 million write-off of accelerated deferred financing costs.
5. Notes Payable and Senior Subordinated Notes-(Continued)
The declaration and payment of dividends by the Company is restricted by the indenture relating to the 12% Senior Subordinated Notes.
A summary of mortgage and other notes payable is as follows:
Principal payments required on notes payable and the Senior Subordinated Notes are scheduled as follows:
Years ended December 31, 2000 $ 13,153,969 2001 24,772,659 2002 16,563,246 2003 6,816,708 2004 60,366,557 Thereafter 147,908,155 ------------- Sub-total $269,581,294 Less: Discount, net of accumulated amortization 1,400,961 ------------- $268,180,333 =============
6. 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 $504,000, $806,000, and $947,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Minimum annual rentals for leases on properties and the corporate office for the five years subsequent to December 31, 1999 and thereafter, are approximately as follows:
Years ended December 31, 2000 $ 431,000 2001 345,000 2002 170,000 2003 132,000 2004 102,000 Thereafter 673,000 ----------- $1,853,000 ===========
The Company, as lessor, has entered into operating leases with unaffiliated parties to operate forty-two motel properties, and with one affiliated party to operate one motel property. Under the terms of these leases, the lessee is responsible for operating costs including all maintenance, repairs, taxes and insurance expense on the leased property. The leases, which have a terms ranging from five and a half years to six and half years, provide for monthly rent payments. In addition, the lease grants the lessee an option to purchase the leased properties at prices believed by management to reflect market value, which in the aggregate is $78,600,000 at December 31, 1999. Nonrefundable deposits, aggregating approximately $9,000,000 at December 31, 1999, received from lessees can be applied towards the purchase prices of the leased properties. In addition, monthly lease payments are allocated between rental income and a nonrefundable purchase price credit to be applied if the purchase option is exercised. The deposits and real estate tax and other amounts collected from the lessees aggregating $2,300,000 are reflected in the balance sheet as a component of other accounts payable and accrued expenses. Future minimum rentals under the lease (assuming that the purchase options are not exercised prior to expiration) are approximately as follows:
Years ended December 31, 2000 $ 6,440,000 2001 6,425,000 2002 6,499,000 2003 6,384,000 2004 5,866,000 Thereafter 1,437,000 ------------ $33,051,000 ============
7. Impairment losses and restructuring costs
In 1997, impairment losses of $2,526,000 were recorded 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 a loss on the collection of a mortgage note receivable.
In 1998, impairment losses of $9,300,000 were recorded to reflect the writedown of certain properties to their estimated fair value.
In 1999, impairment losses of $928,000 were recorded to reflect the writedown of certain properties to their estimated fair value. Restructuring costs of $450,000 were recorded to reflect the downsizing of corporate employees due to the reduction of operating properties.
8. Income Taxes
Income tax expense (benefit) consists of:
Current Deferred Total ------------ ------------ ------------ Year ended December 31, 1999 U.S. federal $(4,711,638) $ 927,573 $(3,784,065) State and local (1,615,767) 719,277 (896,490) ------------ ------------ ------------ $(6,327,405) $ 1,646,850 $(4,680,555) ============ ============ ============ Year ended December 31, 1998 U.S. federal $ 5,273,060 $(3,600,699) $ 1,672,361 State and local 1,689,240 (1,293,038) 396,202 ------------ ------------ ------------ $ 6,962,300 $(4,893,737) $ 2,068,563 ============ ============ ============ 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) ============ ============ ============
8. 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:
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, ----------------------------- 1999 1998 ------------- ------------- Deferred tax assets: Reserves, primarily impairment losses $ (3,749,866) $ (4,655,368) Net state operating loss carryforwards (806,762) (1,428,811) Federal tax credits carryover (633,727) (633,727) Other, net (265,501) (800,484) ------------- ------------- Total deferred tax assets (5,455,856) (7,518,390) Deferred tax liabilities: Investment properties, principally due to Depreciation and purchase accounting Adjustments 5,560,654 5,976,340 ------------- ------------- Total deferred tax liabilities 5,560,654 5,976,340 ------------- ------------- Net deferred tax liability (asset) $ 104,798 $ (1,542,050) ============= =============
8. 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. The Company made payments of approximately $4.8 million, to the parent corporation during 1998. At December 31, 1999, approximately $2.1 million is owed to the parent corporation which has been included in other accounts payable and accrued expenses.
At December 31, 1999, the Company has net operating loss carryforwards ("NOLs") for state income tax purposes of approximately $10.8 million. The NOLs, which are subject to certain limitations, expire at various dates through 2010. At December 31, 1999, the Company also has approximately $138,000 of tax credit carryforwards subject to certain limitations.
9. Acquisitions and Divestitures
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 1998, the Company sold ten properties, a parcel of vacant land and an investment in a partnership to unaffiliated parties for approximately $65.5 million consisting of $57.2 million of cash and $8.3 in notes receivable; the Company recorded a gain of $26.1 million. The Company also leased five properties to third party operators in 1998.
During 1999, the Company has sold ten properties, including one being accounted for on the installment basis, for approximately $27.8 million consisting of $9.7 million in cash and $18.1 million in notes receivable. The Company realized gains of approximately $2.5 million and deferred recognition of a gain in the approximate amount of $1.7 million relating to the sale being accounted for on the installment basis. The Company also leased an additional thirty-eight properties to third party operators in 1999.
Also during 1999, the Company purchased the property constructed by an affiliate for the Company. The property was purchased for $2.9 million.
From January 1, 2000 through June 1, 2000, the Company has sold six properties for approximately $14.5 million consisting of $8 million in cash and $6.5 million in first mortgage notes. These sale transactions resulted in gains/losses of $1 million.
The Company, as lessor, has leased an additional twenty-five motel properties during the period January 1, 2000 through June 15, 2000.
10. 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.
The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows:
11. Segments
During the fourth quarter of 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No 131, "Disclosures About Segments of an Enterprise and Related Information" ("Statement No. 131"). Statement No. 131 establishes standards for the manner in which public business enterprises report information regarding reportable operating segments. The adoption of Statement No. 131 did not affect the results of operations or financial position of the Company.
11. Segments (continued)
As of December 31, 1999 the Company, directly and through subsidiaries, owned 126 lodging facilities in 39 states. The Company owns a 100% interest in all but two of its properties and also operates all but forty-two of its motels, which are leased to third party tenants pursuant to operating leases and one to an affiliated party. The Company separately evaluates the performance of each of its motels. However, because each of the motels has similar economic characteristics, the motels have been aggregated into a single dominant motel segment as indicated below.
12. Contingencies
The Company is involved in various legal proceedings arising in the ordinary course of business. The Company does not believe that any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's business, results of operations or financial condition.
The Company remains contingently liable on a $2.3 million note assumed by a purchaser of an operating property in the event the purchaser does not perform under its obligations.
In July 1999, the Company entered into a settlement agreement with ShoLodge resolving all disputes with respect to the litigation initiated by the Company. The settlement agreement requires for the Company to make an initial payment of $575,000 in July 1999 and three subsequent payments of $200,000 in July 2000, 2001 and 2002.
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 15th day of June, 2000.
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 June 15, 2000 - ---------------------------- Paul F. Wallace Chief Executive Officer Principal Executive Officer
/s/ Alan H. Baerenklau Director, President and June 15, 2000 - ---------------------------- Alan H. Baerenklau Chief Operating Officer
/s/ Kurt M. Mueller Director and Chief June 15, 2000 - ---------------------------- Kurt M. Mueller Financial Officer Principal Financial Officer
/s/ Carl W. Desch Director June 15, 2000 - ---------------------------- Carl W. Desch
/s/ Peter W. McClean Director June 15, 2000 - ---------------------------- Peter W. McClean
/s/ Louis A. Scarrone, M.D. Director June 15, 2000 - ---------------------------- Louis A. Scarrone, M.D.
/s/ Ronald P. Stewart Director June 15, 2000 - ---------------------------- Ronald P. Stewart
/s/ Philip J. Levien Director June 15, 2000 - ---------------------------- Philip J. Levien
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.
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").
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, incorporated by reference to Exhibit 10.8 to MOA's Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K").
10.8A Amendment to credit facility agreement, dated as of October 8, 1997, incorporated by reference to Exhibit 10.8 to MOA's Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K").
21.1 Subsidiaries of MOA.
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.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
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 63 Director, Chairman and Chief Executive Officer Alan H. Baerenklau 54 Director, President and Chief Operating Officer Kurt M. Mueller 43 Director, Chief Financial Officer Carl W. Desch 84 Director Louis A. Scarrone, M.D. 76 Director Ronald P. Stewart 56 Director Peter W. McClean 56 Director Philip J. Levien 55 Director Blane P. Evans 40 Vice President, Secretary & Treasurer
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 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. From 1978 to 1991, Mr. Mueller was employed by Ernst & Young LLP most recently as 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 Rhodes Group, Inc. 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.
Blane P. Evans has been Vice President, Secretary and Treasurer of the Company since May 1999. Mr. Evans joined the Company in January 1992 and has served in various capacities, most recently as Corporate Controller.
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.
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 1999 300,000 - Chairman and Chief Executive Officer 1998 300,000 - 1997 300,000 -
Alan H. Baerenklau 1999 233,300 - President and Chief Operating Officer (1) 1998 233,300 116,700 1997 194,500 -
Kurt M. Mueller 1999 200,000 - Chief Financial Officer 1998 200,000 50,000 1997 266,667 -
- -----------------------------
(1) Mr. Baerenklau joined the Company in March 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, other than a 401(k) savings plan, 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, 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 1999, no officer or employee of the Company or its subsidiaries participated in deliberations of the Company's Board of Directors concerning executive officer compensation.
Item 12.
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 June 15, 2000:
Shares of Common Stock Beneficially Percent Name and Address of Beneficial Owner Owned of Class - ------------------------------------ ------------- ---------- Principal Stockholders:
New Image Realty, Inc. 677,228 85% 888 Seventh Avenue Suite 3400 New York, NY 10106
Executive Officer and Directors - ------------------------------- Paul F. Wallace 684,357 (1) 86% All Directors and Officers as a Group (11 persons) 684,357 (2) 86% - -------------------------
(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.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a member of an affiliated group that files a consolidated tax return for federal income tax purposes. The Company received a payment of approximately $0.4 million during 1997. And during 1998, the Company made payments of approximately $4.8 million to affiliates of Paul F. Wallace, of which approximately $2.1 million is required as future tax payments.
In October 1999, the Company purchased from an affiliated company $35 million of the 12% Senior Subordinated Notes due in 2004 for a gain of $1.9 million which is offset by $1.9 million in accelerated deferred financing costs written off as part of the transaction. Subsequent to December 31, 1999, the Company has purchased from an affiliated company an additional $10.5 million of the 12% Senior Subordinated Notes for a gain of approximately $4.2 million which is partially offset by $0.5 million in accelerated deferred financing costs which will be written off in year 2000.
PART IV
Item 14.
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.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Years Ended December 31, 1999, 1998 and 1997
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999
Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999
Notes to Consolidated Financial Statements
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. and Subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP ERNST & YOUNG LLP
Chicago, Illinois June 15, 2000
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Basis of Presentation
MOA Hospitality, 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 39 states throughout the United States. At December 31, 1999, the Company's largest concentrations of lodging facilities were located in the States of Georgia and Illinois with 13 lodging facilities in Georgia and 12 lodging facilities in Illinois. 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 which have not changed operations or stockholders' equity.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.
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.
Earnings Per Share
Basic and fully diluted earnings per share are based on the weighted average number of shares of common stock outstanding during each period.
3. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $24,454,408 and $12,989,747 at December 31, 1999 and 1998, 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 $601,828 and $775,592 at December 31, 1999 and 1998, respectively, bear an interest at rate of 11% and are receivable over various terms through 2016. A note receivable with an interest rate of 9% was paid in full during 1999.
Notes receivable of $2,625,807 at December 31, 1998 have been pledged as collateral for a loan facility in which the Company participated along with one of its affiliates. The loan facility had an outstanding balance of $242,691 at December 31, 1998. The loan facility was paid in full during 1999.
Notes receivable of $11,363,679 at December 31, 1999 have been pledged as collateral for a loan facility. The loan facility had an outstanding balance of $5,985,144 at December 31, 1999.
Two notes receivables in the amounts of $2,164,000 and $964,000 were transferred to an affiliate as of December 31, 1999 in partial settlement of amounts owed to the affiliate pursuant to the tax allocation agreement.
4. Operating Properties
The major classes of operating properties, at cost, are as follows: December 31, ------------------------------- 1999 1998 ------------- ------------- Land $ 45,695,630 $ 50,611,428 Buildings 238,670,582 250,547,251 Furniture and Equipment 60,473,596 60,277,741 ------------- ------------- 344,839,808 361,436,420 Less: Accumulated depreciation (88,230,535) (81,492,910) ------------- ------------- $256,609,273 $279,943,510 ============= =============
Depreciation expense equaled $12,135,308, $12,942,987, and $12,151,209 for the years ended December 31, 1999, 1998 and 1997, respectively.
5. 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 ("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%.
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 $20.0 million revolving construction loan facility arranged by the affiliate. In connection with the construction loan facility, the Company had guaranteed completion of the construction of each property and the subsidiary acquiring the properties had guaranteed the construction loan facility to a maximum of $10.0 million. In 1997, five (5) such properties were acquired for $12.9 million of which $7.8 million was funded from a $150.0 million secured loan facility between the subsidiary acquiring the properties and CS First Boston ("CSFB"). This facility provided for, among other things, 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 of the outstanding balance 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 $20.0 million of borrowing under the facility. The $20.0 million revolving construction loan facility of the affiliate matured in 1998. The outstanding balances were paid in full upon the purchase of financed properties by a subsidiary of the Company with funds borrowed under the $150.0 million secured loan facility with CSFB and the application of amounts previously deposited with the affiliate. At December 31, 1998 the $150.0 million secured loan facility with CSFB matured with no further borrowings available for this loan facility. At December 31, 1999, approximately $17.1 million of borrowings were outstanding under the $150.0 million CSFB secured loan facility. The amount outstanding is secured by eleven properties and a pledge of the common stock of the subsidiary that owns such properties. As a result of the Company's under utilization of the CSFB loan facility, the Company changed its estimate of the economic benefit of certain deferred loan costs incurred in connection with obtaining the facility and accordingly accelerated the amortization of $1.9 million of such costs in 1998.
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 were not redeemable by 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. In October 1999, the Company repurchased from an affiliated company $35 million of the 12% Senior Subordinated Notes for a gain of $1.9 million, which is offset by the accelerated write-off of deferred financing costs of $1.9 million. The repurchase transaction included the assumption of $8,750,000 million of notes payable of the affiliate. Subsequent to December 31, 1999, the Company repurchased from an affiliated company an additional $10.5 million of the 12% Subordinated Notes for a gain of approximately $4.2 million which was partially offset by a $0.5 million write-off of accelerated deferred financing costs.
5. Notes Payable and Senior Subordinated Notes-(Continued)
The declaration and payment of dividends by the Company is restricted by the indenture relating to the 12% Senior Subordinated Notes.
A summary of mortgage and other notes payable is as follows:
Principal payments required on notes payable and the Senior Subordinated Notes are scheduled as follows:
Years ended December 31, 2000 $ 13,153,969 2001 24,772,659 2002 16,563,246 2003 6,816,708 2004 60,366,557 Thereafter 147,908,155 ------------- Sub-total $269,581,294 Less: Discount, net of accumulated amortization 1,400,961 ------------- $268,180,333 =============
6. 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 $504,000, $806,000, and $947,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Minimum annual rentals for leases on properties and the corporate office for the five years subsequent to December 31, 1999 and thereafter, are approximately as follows:
Years ended December 31, 2000 $ 431,000 2001 345,000 2002 170,000 2003 132,000 2004 102,000 Thereafter 673,000 ----------- $1,853,000 ===========
The Company, as lessor, has entered into operating leases with unaffiliated parties to operate forty-two motel properties, and with one affiliated party to operate one motel property. Under the terms of these leases, the lessee is responsible for operating costs including all maintenance, repairs, taxes and insurance expense on the leased property. The leases, which have a terms ranging from five and a half years to six and half years, provide for monthly rent payments. In addition, the lease grants the lessee an option to purchase the leased properties at prices believed by management to reflect market value, which in the aggregate is $78,600,000 at December 31, 1999. Nonrefundable deposits, aggregating approximately $9,000,000 at December 31, 1999, received from lessees can be applied towards the purchase prices of the leased properties. In addition, monthly lease payments are allocated between rental income and a nonrefundable purchase price credit to be applied if the purchase option is exercised. The deposits and real estate tax and other amounts collected from the lessees aggregating $2,300,000 are reflected in the balance sheet as a component of other accounts payable and accrued expenses. Future minimum rentals under the lease (assuming that the purchase options are not exercised prior to expiration) are approximately as follows:
Years ended December 31, 2000 $ 6,440,000 2001 6,425,000 2002 6,499,000 2003 6,384,000 2004 5,866,000 Thereafter 1,437,000 ------------ $33,051,000 ============
7. Impairment losses and restructuring costs
In 1997, impairment losses of $2,526,000 were recorded 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 a loss on the collection of a mortgage note receivable.
In 1998, impairment losses of $9,300,000 were recorded to reflect the writedown of certain properties to their estimated fair value.
In 1999, impairment losses of $928,000 were recorded to reflect the writedown of certain properties to their estimated fair value. Restructuring costs of $450,000 were recorded to reflect the downsizing of corporate employees due to the reduction of operating properties.
8. Income Taxes
Income tax expense (benefit) consists of:
Current Deferred Total ------------ ------------ ------------ Year ended December 31, 1999 U.S. federal $(4,711,638) $ 927,573 $(3,784,065) State and local (1,615,767) 719,277 (896,490) ------------ ------------ ------------ $(6,327,405) $ 1,646,850 $(4,680,555) ============ ============ ============ Year ended December 31, 1998 U.S. federal $ 5,273,060 $(3,600,699) $ 1,672,361 State and local 1,689,240 (1,293,038) 396,202 ------------ ------------ ------------ $ 6,962,300 $(4,893,737) $ 2,068,563 ============ ============ ============ 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) ============ ============ ============
8. 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:
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, ----------------------------- 1999 1998 ------------- ------------- Deferred tax assets: Reserves, primarily impairment losses $ (3,749,866) $ (4,655,368) Net state operating loss carryforwards (806,762) (1,428,811) Federal tax credits carryover (633,727) (633,727) Other, net (265,501) (800,484) ------------- ------------- Total deferred tax assets (5,455,856) (7,518,390) Deferred tax liabilities: Investment properties, principally due to Depreciation and purchase accounting Adjustments 5,560,654 5,976,340 ------------- ------------- Total deferred tax liabilities 5,560,654 5,976,340 ------------- ------------- Net deferred tax liability (asset) $ 104,798 $ (1,542,050) ============= =============
8. 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. The Company made payments of approximately $4.8 million, to the parent corporation during 1998. At December 31, 1999, approximately $2.1 million is owed to the parent corporation which has been included in other accounts payable and accrued expenses.
At December 31, 1999, the Company has net operating loss carryforwards ("NOLs") for state income tax purposes of approximately $10.8 million. The NOLs, which are subject to certain limitations, expire at various dates through 2010. At December 31, 1999, the Company also has approximately $138,000 of tax credit carryforwards subject to certain limitations.
9. Acquisitions and Divestitures
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 1998, the Company sold ten properties, a parcel of vacant land and an investment in a partnership to unaffiliated parties for approximately $65.5 million consisting of $57.2 million of cash and $8.3 in notes receivable; the Company recorded a gain of $26.1 million. The Company also leased five properties to third party operators in 1998.
During 1999, the Company has sold ten properties, including one being accounted for on the installment basis, for approximately $27.8 million consisting of $9.7 million in cash and $18.1 million in notes receivable. The Company realized gains of approximately $2.5 million and deferred recognition of a gain in the approximate amount of $1.7 million relating to the sale being accounted for on the installment basis. The Company also leased an additional thirty-eight properties to third party operators in 1999.
Also during 1999, the Company purchased the property constructed by an affiliate for the Company. The property was purchased for $2.9 million.
From January 1, 2000 through June 1, 2000, the Company has sold six properties for approximately $14.5 million consisting of $8 million in cash and $6.5 million in first mortgage notes. These sale transactions resulted in gains/losses of $1 million.
The Company, as lessor, has leased an additional twenty-five motel properties during the period January 1, 2000 through June 15, 2000.
10. 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.
The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows:
11. Segments
During the fourth quarter of 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No 131, "Disclosures About Segments of an Enterprise and Related Information" ("Statement No. 131"). Statement No. 131 establishes standards for the manner in which public business enterprises report information regarding reportable operating segments. The adoption of Statement No. 131 did not affect the results of operations or financial position of the Company.
11. Segments (continued)
As of December 31, 1999 the Company, directly and through subsidiaries, owned 126 lodging facilities in 39 states. The Company owns a 100% interest in all but two of its properties and also operates all but forty-two of its motels, which are leased to third party tenants pursuant to operating leases and one to an affiliated party. The Company separately evaluates the performance of each of its motels. However, because each of the motels has similar economic characteristics, the motels have been aggregated into a single dominant motel segment as indicated below.
12. Contingencies
The Company is involved in various legal proceedings arising in the ordinary course of business. The Company does not believe that any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's business, results of operations or financial condition.
The Company remains contingently liable on a $2.3 million note assumed by a purchaser of an operating property in the event the purchaser does not perform under its obligations.
In July 1999, the Company entered into a settlement agreement with ShoLodge resolving all disputes with respect to the litigation initiated by the Company. The settlement agreement requires for the Company to make an initial payment of $575,000 in July 1999 and three subsequent payments of $200,000 in July 2000, 2001 and 2002.
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 15th day of June, 2000.
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 June 15, 2000 - ---------------------------- Paul F. Wallace Chief Executive Officer Principal Executive Officer
/s/ Alan H. Baerenklau Director, President and June 15, 2000 - ---------------------------- Alan H. Baerenklau Chief Operating Officer
/s/ Kurt M. Mueller Director and Chief June 15, 2000 - ---------------------------- Kurt M. Mueller Financial Officer Principal Financial Officer
/s/ Carl W. Desch Director June 15, 2000 - ---------------------------- Carl W. Desch
/s/ Peter W. McClean Director June 15, 2000 - ---------------------------- Peter W. McClean
/s/ Louis A. Scarrone, M.D. Director June 15, 2000 - ---------------------------- Louis A. Scarrone, M.D.
/s/ Ronald P. Stewart Director June 15, 2000 - ---------------------------- Ronald P. Stewart
/s/ Philip J. Levien Director June 15, 2000 - ---------------------------- Philip J. Levien
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.
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").
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, incorporated by reference to Exhibit 10.8 to MOA's Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K").
10.8A Amendment to credit facility agreement, dated as of October 8, 1997, incorporated by reference to Exhibit 10.8 to MOA's Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K").
21.1 Subsidiaries of MOA.