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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
- ---- ENDED DECEMBER 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
TRANSITION PERIOD FROM -------- TO --------
COMMISSION FILE NO. 1-6869
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PRIME HOSPITALITY CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2640625
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
700 ROUTE 46 EAST, FAIRFIELD, NEW JERSEY 07004
(address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(201)882-1010
SECURITIES REGISTERED PURSUANT TO
SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
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Common Stock, New York Stock Exchange
Par Value $.01 Per Share
Securities registered pursuant to Section 12(g) of the Act: Warrants
To Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
-----
The aggregate market value of the registrant's common stock held by
non-affiliates on March 10, 1994 based on the last sale price as reported by
the National Quotation Bureau, Inc. on that date was approximately
$208,050,000.
The Registrant had 29,200,204 shares of Common Stock outstanding as of
March 10, 1994.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
------ ------
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THIS ANNUAL REPORT ON FORM 10-K IS SUBMITTED FOR THE FISCAL YEAR ENDED DECEMBER
31, 1993 FOR PRIME HOSPITALITY CORP., A DELAWARE CORPORATION, ("THE COMPANY")
AND ITS PREDECESSOR CORPORATION PRIME MOTOR INNS, INC. ("PMI"). ON JULY 31,
1992 (THE "EFFECTIVE DATE"), PMI MERGED WITH AND INTO THE COMPANY, WHICH PRIOR
TO SUCH MERGER HAD BEEN A WHOLLY-OWNED SUBSIDIARY OF PMI. THE COMPANY WAS THE
SURVIVING CORPORATION IN THE MERGER. THE COMPANY IMPLEMENTED "FRESH START
REPORTING" ON JULY 31, 1992 AND CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO
DECEMBER 31.
THIS REPORT CONTAINS THE (A) COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1993 AND 1992 AND JULY 31, 1992 AND THE CONSOLIDATED STATEMENTS OF
INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1993 AND THE FIVE MONTHS ENDED DECEMBER 31, 1992 AND (B) PMI'S CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1992 AND THE CONSOLIDATED STATEMENTS OF INCOME,
STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE ONE MONTH ENDED JULY 31, 1992 AND
THE YEARS ENDED JUNE 30, 1992 AND 1991.
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY PRESENTED HEREIN WILL VARY
SIGNIFICANTLY FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PMI. ACCORDINGLY,
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AS OF AND SUBSEQUENT TO
JULY 31, 1992 ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS TO STATEMENTS OF PMI
AS OF ANY DATE PRIOR TO JULY 31, 1992. THE HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS OF PMI AND ITS SUBSIDIARIES HAVE BEEN PREPARED IN ACCORDANCE WITH
THE AICPA STATEMENT OF POSITION 90-7.
PART I and PART II
Items 1 and 2. Business and Properties
General
Business
The Company is a leading independent hotel operating company with
ownership or management of 86 full-service and limited-service hotels in 19
states and one resort hotel in the U.S. Virgin Islands (the "Hotels"). The
Company's Hotels are generally moderately priced hotels which are designed to
attract business and leisure travelers desiring quality accommodations at
affordable prices. Located primarily in secondary and tertiary markets, the
Hotels typically contain 100 to 200 guest rooms or suites and operate under
franchise agreements with national hotel chains (the "Franchised Hotels") or
under the Company's proprietary Wellesley Inns or AmeriSuites trade names (the
"Proprietary Hotels"). The Company owns or leases 40 of the Hotels (the "Owned
Hotels") and
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manages the remaining 47 Hotels for others (the "Managed Hotels"). The Company
holds significant mortgages or other financial interests in 12 of the 47
Managed Hotels.
Wellesley Inns and AmeriSuites are limited-service hotels that
primarily target the business traveler. Wellesley Inns are upper- economy
hotels located in Florida, the Middle Atlantic and the Northeast United States,
generally within short distances from restaurant facilities. AmeriSuites are
all-suites hotels mainly situated near corporate office parks and major
attractions in locations in the Southern and Central United States. The
Company has entered into an agreement in which it or its joint venture partner
may, if certain conditions are met, contribute its eight AmeriSuites to a joint
venture of which it will be a 50% owner.
As a leading domestic hotel operating company, the Company enjoys a
number of operating advantages over other lodging companies. With 87 Hotels
covering a number of price points and a broad geographic range, the Company
possesses the critical mass to support sophisticated operating, marketing and
financial systems. The Company believes that its array of central services
permits on-site hotel general managers to focus effectively on providing guest
services, results in economies of scale and helps generate above-market hotel
profit margins. As a result of these operating efficiencies, the Company's
Hotels generated average operating profit margins that exceeded comparable
industry standards for 1992, as reported by industry sources, by approximately
six percent for limited-service hotels and 16 percent for full-service hotels.
In addition to its hotel operations, the Company owns a portfolio of
notes and real estate (the "Other Assets"). As of December 31, 1993, the Other
Assets included $115.3 million in notes related to the Managed Hotels, $50.0
million in other notes and $23.6 million in real estate. The Company intends
over time to convert certain of these Other Assets to cash and hotel assets.
In 1992 and 1993, the Company converted $46.2 million and $14.6 million,
respectively, of Other Assets to cash and added six operating hotel assets
through settlements and lease terminations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Lodging
Operations--Franchised Hotels" and "Business--Other Assets."
Lodging Industry
As of December 31, 1993, there were approximately 3 million hotel
rooms in the United States. During the past decade, approximately 742,000
rooms were added to the hotel industry, producing a 3.1% annual growth rate.
However, subsequent to 1990,
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the growth rate of new construction diminished significantly, with only an
estimated 40,000 rooms added in 1992 (for a growth rate of 1.3%) and 31,000
rooms added in 1993 (for a growth rate of 1.0%). Such decreases in supply,
coupled with increases in demand in 1992 and 1993 generally have resulted in
improved operating results for domestic hotels. The improvement in industry
fundamentals has contributed to higher occupancy percentages and room rates for
the domestic hotel industry, including the Company. Over the next three years
industry analysts project national demand for hotel rooms to grow at a 3% to 4%
annual rate due to an improved economic environment while supply growth will be
negligible. Such projections also call for increases in occupancy and room
rates.
The following table sets forth industry data for 1992 and 1993 as to
(i) the average occupancy, (ii) the average room rate, (iii) REVPAR and (iv)
the percentage change of supply and demand. The table includes further
industry information relative to the Company's principal operating regions and
types of accommodations.
Lodging Industry Profile
Average Average % Change
Occupancy Room Rate REVPAR(2) 1992-1993
Segment 1992 1993 1992 1993 1992 1993 Supply Demand
- ------- ---- ---- ---- ---- ---- ---- ------ ------
U.S. Industry . . . . . 61.9% 63.7% $59.62 $60.99 $36.90 $38.85 1.0% 4.0%
By Region:
Middle Atlantic(1) . 61.8% 64.4% $77.03 $77.48 $47.60 $49.90 0.6% 4.8%
South Atlantic . . . 62.7% 64.8% $59.29 $60.92 $37.17 $39.48 0.7% 4.1%
By Service:
Luxury . . . . . . . 67.4% 69.6% $104.77 $106.86 $70.61 $74.37 2.0% 5.2%
Upscale . . . . . . 64.7% 66.0% $73.11 $74.47 $47.30 $49.15 0.9% 2.9%
Mid-Price . . . . . 62.9% 63.9% $53.98 $54.77 $33.95 $35.00 1.4% 2.9%
Economy . . . . . . 61.4% 61.9% $43.76 $43.68 $26.87 $27.04 0.8% 1.6%
Budget . . . . . . . 59.9% 59.3% $33.07 $33.68 $19.81 $19.97 0.3% -0.7%
- -------------------
Source: Smith Travel Lodging Outlook, February 1994.
(1) Middle Atlantic includes New Jersey, New York and Pennsylvania.
(2) REVPAR means revenues per available room and is equal to the amount of
room revenue divided by the total number of rooms available for sale.
Strategy
The Company believes that its equity ownership in the Hotels has
generated attractive yields and therefore it seeks to expand its role as equity
owner. As an owner/operator of hotels, the Company has control over hotel
product quality and service and benefits directly from both improving industry
fundamentals and its ability to improve individual hotel operating performance.
The Company's strategy to meet the foregoing objective and achieve sustainable
earnings growth has five key elements:
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- Expand Proprietary Hotel Chains. The Company believes that
its two proprietary hotel brands, Wellesley Inns and
AmeriSuites, are well positioned in attractive segments of the
lodging industry. The Company plans to continue the expansion
of the Wellesley Inns chain in the Southeast, the Middle
Atlantic and the Northeast United States through development
of new hotels and the acquisition and conversion of existing
hotels. The Company also intends to expand the AmeriSuites
chain through development of new hotels in business and
corporate markets throughout the country.
- Acquire and Reposition Hotels. The Company believes short-term
opportunities exist to acquire and reposition hotels at
attractive multiples of cash flow or at significant discounts
to replacement values. Generally, this strategy requires
investment of additional capital to improve product quality
and implementation of marketing and operating systems to
enhance market position and improve operating performance.
- Refurbish and Improve Operations at Existing Company-owned
Hotels. During the last two years, the Company has acquired
operating control of six Hotels through mortgage foreclosures,
lease termination/evictions or acquisitions. The Company is
pursuing a program of refurbishing, repositioning and, in some
instances, changing the franchise affiliation of these
recently acquired Hotels as well as other Hotels in the
Company's portfolio.
- Expand Management Service Operations. The Company seeks to
expand the number of Managed Hotels as a complement to its
core hotel ownership operations. The Company believes that
its management services business provides profit opportunities
without significant capital investment or incremental costs.
- Monetize or Convert Other Assets. The Company is currently
seeking to monetize or convert Other Assets to hotel operating
assets and cash. The Company converted $46.2 million and
$14.6 million of other assets in 1992 and 1993 to cash and
added six operating hotels through settlements and lease
terminations. The Company presently is attempting to convert
Other Assets which presently carry a book value of $75.0
million, to approximately $50.0 million in operating assets
with respect to the Marriott's Frenchman's Reef hotel in St.
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Thomas, U.S. Virgin Islands ("the Frenchman's Reef") and $32.0
million in cash from the settlement of notes with Allan V.
Rose and Arthur G. Cohen (the "Rose and Cohen Settlement"), of
which $25.0 million represents cash held in escrow as
settlement for notes receivable and an estimated $7.0 million
from the proceeds of the sale of 1.1 million shares of the
Company's common stock held by Rose. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Lodging Operations--Franchised Hotels"
and "Business--Other Assets."
Lodging Operations
The Hotels are located in 19 states and the U.S. Virgin Islands and
contain a total of 13,011 rooms. Hotel size generally ranges between 100 to
200 guest rooms or suites. The Hotels are operated primarily under franchise
agreements with national chains including Marriott, Radisson, Sheraton, Holiday
Inn, Ramada and Howard Johnson trade names and under the proprietary trade
names Wellesley Inns and AmeriSuites. The Hotels generally serve secondary and
tertiary markets and focus primarily on the business traveler customer base.
The following table sets forth information with respect to the Owned and
Managed Hotels as of March 1, 1994:
Owned(1) Managed with
----------------- Significant Interest (2) Other Managed Total
------------------------ ------------------- -----------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ----- --------- ------ -------- ------- ------ ------
Wellesley Inn . . . 11 1,157 5 478 11 1,031 27 2,666
AmeriSuites (3) . . 8 993 0 0 0 0 8 993
Marriott . . . . . 0 0 1 517 1 525 2 1,042
Radisson . . . . . 0 0 1 204 1 192 2 396
Sheraton . . . . . 2 364 0 0 1 225 3 589
Holiday Inn . . . . 2 363 1 158 4 827 7 1,348
Ramada . . . . . . 7 1,031 2 423 12 2,483 21 3,937
Howard Johnson . . 8 846 2 361 4 515 14 1,722
Other . . . . . . . 2 228 0 0 1 90 3 318
-- ----- -- ----- -- ----- -- ------
TOTAL . . . . . 40 4,982 12 2,141 35 5,888 87 13,011
== ===== == ===== == ===== == ======
- --------------
(1) Of the 40 Owned Hotels, ten are leased.
(2) Twelve Managed Hotels in which the Company holds a significant mortgage on
the property.
(3) The AmeriSuites presently owned by the Company are managed by ShoLodge.
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The following table sets forth information with respect to the Owned
Hotels as of March 1, 1994:
- --------------------------------------------------------------------------------------------------------------------
Wellesley Inn AmeriSuites Sheraton Holiday Inn Ramada Inn
State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
- --------------------------------------------------------------------------------------------------------------------
Arizona 1 118
Arkansas 1 130
California
Connecticut 1 105 3 486
Delaware
Florida 8 845
Georgia 1 114
Indiana 1 126
Nevada 1 202
New Jersey 1 101 1 124 2 304
New York 1 240 2 241
Ohio 2 254
Oregon 1 161
Tennessee 2 251
Virginia 1 106
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Total 11 1,157 8 993 2 364 2 363 7 1,031
===============================================================================================
- --------------------------------------------------------------------------------------------------
Howard Johnson Other Total
State Hotels Rooms Hotels Rooms Hotels Rooms
- --------------------------------------------------------------------------------------------------
Arizona 1 118
Arkansas 1 130
California 1 94 1 94
Connecticut 4 591
Delaware 1 142 1 142
Florida 1 96 2 228 11 1,169
Georgia 1 114
Indiana 1 126
Nevada 1 202
New Jersey 4 418 8 947
New York 1 96 4 577
Ohio 2 254
Oregon 1 161
Tennessee 2 251
Virginia 1 106
------------------------------------------------------------------------
Total 8 846 2 228 40 4,982
========================================================================
The following table sets forth information with respect to Managed Hotels
as of March 1, 1994:
- ----------------------------------------------------------------------------------------------------------
Wellesley Inn Marriott Radisson Sheraton Holiday Inn
State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
- ----------------------------------------------------------------------------------------------------------
California
Connecticut
Florida 6 597
Maryland 1 84 1 525
Massachusetts
Nebraska
New Jersey 2 179 2 396 1 225 2 550
New York 5 461
Ohio
Pennsylvania 1 105 2 320
Virginia 1 83 1 115
Virgin Islands 1 517
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Total 16 1,509 2 1,042 2 396 1 225 5 985
=====================================================================================
- ------------------------------------------------------------------------------------------------------
Ramada Inn Howard Johnson Other Total
State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
- ------------------------------------------------------------------------------------------------------
California 1 260 1 95 2 355
Connecticut 1 199 1 199
Florida 2 325 8 922
Maryland 1 189 3 798
Massachusetts 1 196 1 196
Nebraska 1 215 1 215
New Jersey 7 1,372 2 267 16 2,989
New York 5 461
Ohio 1 191 1 191
Pennsylvania 1 280 1 90 5 795
Virginia 1 193 3 391
Virgin Islands 1 517
---------------------------------------------------------------------------------
Total 14 2,906 6 876 1 90 47 8,029
=================================================================================
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The following table sets forth for the five years ended December 31,
1993 the number of hotels and rooms and the occupancy and ADR ("average room
rate") of the Owned and Managed Hotels. The data includes full year operating
results for hotels that the Company had previously managed and then acquired
during the year.
Year Ended Managed with
December 31, Owned Significant Interest Other Managed Total
- ------------ ---------------- -------------------- ---------------- ----------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ----- ------ ----- ------ ----- ------ -----
1989 . . . . . . . 21 2,687 12 2,141 31 5,245 64 10,073
1990 . . . . . . . 31 3,941 12 2,141 31 5,245 74 11,327
1991 . . . . . . . 32 4,071 12 2,141 32 5,489 76 11,701
1992 . . . . . . . 35 4,419 12 2,141 32 5,489 79 12,049
1993 . . . . . . . 41 5,092 12 2,141 33 5,604 86 12,837
Occupancy ADR Occupancy ADR Occupancy ADR Occupancy ADR
--------- --- --------- --- --------- --- --------- ---
1989 . . . . . 67.7% $59.19 71.0% $82.29 71.1% $58.53 70.3% $64.41
1990 . . . . . 65.9% $55.88 69.1% $78.63 66.3% $60.99 66.6% $63.19
1991 . . . . . 66.6% $53.60 64.1% $78.14 61.4% $59.15 63.7% $60.80
1992 . . . . . 68.0% $54.83 64.9% $80.45 66.3% $58.64 66.6% $61.16
1993 . . . . . 70.0% $56.02 68.8% $84.36 68.4% $59.88 69.1% $62.74
The leases covering the Company's leased Hotels provide for fixed
lease rents and, in most instances, additional percentage rents based on a
percentage of room revenues. The leases also generally require the Company to
pay the cost of repairs, insurance and real estate taxes. In addition, some of
the Company's Owned Hotels are located on land subject to long-term leases,
generally for terms in excess of the depreciable lives of the improvements.
The Company continuously refurbishes its Owned Hotels in order to
maintain consistent quality standards. The Company generally spends
approximately 4% to 6% of hotel revenue on capital improvements at its Owned
Hotels and typically refurbishes each hotel approximately every five years.
The Company believes that its Owned Hotels are in generally good physical
condition, with over half of the Owned Hotels being less than five years old.
The Company recommends the refurbishment and repair projects on its Managed
Hotels although spending amounts vary based on the financial strength of the
hotel and its owner and the significance of the Company's interest as a
mortgagee.
Franchised Hotels
The Company currently operates 36 full-service Hotels and 15
limited-service Hotels under franchise agreements with Marriott, Radisson,
Sheraton, Holiday Inn, Ramada and Howard Johnson. Additionally, the Company
owns one independent hotel. The Franchised Hotels are mostly located in the
Northeast, Middle Atlantic and Western regions in the United States. The
hotels are generally positioned along major highways within close proximity to
corporate headquarters, office parks, airports, convention or trade
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centers and other major facilities. The customer base for Franchised Hotels
consists primarily of business travelers as well as tourists. The Company's
sales force markets to companies which have a significant number of employees
traveling in the Company's operating regions who consistently produce a high
volume demand for hotel room nights. Full-service hotels generally have pool,
restaurant, lounge, banquet and meeting facilities, whereas limited-service
hotels generally only have a pool and, in some instances, meeting facilities.
The Company manages one resort hotel, Marriott's Frenchman's Reef in
St. Thomas, U.S. Virgin Islands. The Frenchman's Reef is a 517- room resort
hotel which includes a 421-room eight-story building and 96 rooms in the
adjacent Morningstar Beach Resort. The Frenchman's Reef has seven restaurants,
extensive convention facilities, complete sports and beach facilities and a
self-contained total energy and desalinization system. The Frenchman's Reef is
marketed directly through its own sales force in New York City and at the
Hotel, and through the Marriott reservation system. The Frenchman's Reef
markets primarily to tour groups, corporate meetings, conventions and
individual vacationers. The Company currently manages the Frenchman's Reef
for an independent owner, although the Company holds a significant interest in
the property through a first mortgage that the Company acquired when it sold
the Frenchman's Reef in 1985. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The full-service Franchised Hotels generally are larger Hotels and
have between 150 and 300 rooms, pool, restaurant, lounge, banquet and meeting
facilities. Other amenities include fitness rooms, room service,
remote-control cable television and facsimile services. In order to improve
guest satisfaction, the Company has recently introduced or expanded theme
concept lounges such as sports bars, fifties clubs and country and western bars
in six of its Hotels. The hotels actively market meeting and banquet services
to groups and individuals for seminars, business meetings, holiday parties and
weddings. The full-service Franchised Hotels are operated under agreements
with Marriott, Radisson, Sheraton, Holiday Inn (including Crowne Plaza Hotels)
and Ramada. The Company received recognition in 1993 as a highly awarded
Ramada franchisee for hotel quality and service and received awards from other
franchisors and associations as well.
The following table sets forth for the five years ended December 31,
1993, with respect to the full-service Franchised Hotels that were Owned and
Managed Hotels, the number of locations, number of rooms, occupancy percentage
and ADR. The data includes full year operating results for hotels that the
Company had previously managed and then acquired during the year.
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Number of
------------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . 34 7,032 68.3 $72.41
1990 . . . . . . . . . . . . 36 7,389 64.3 $72.48
1991 . . . . . . . . . . . . 37 7,633 61.4 $69.57
1992 . . . . . . . . . . . . 37 7,633 64.7 $70.31
1993 . . . . . . . . . . . . 37 7,633 67.0 $73.00
The Company's limited-service Franchised Hotels generally have an
average of between 100 and 120 rooms and offer complimentary continental
breakfast, remote control cable television, pool facilities and facsimile
services, generally with restaurant facilities within a short distance of the
hotel. They are designed to appeal primarily to business travelers and
secondarily to tourists. The following table sets forth for the five years
ended December 31, 1993, with respect to the limited-service Franchised Hotels
that were Owned and Managed Hotels, the number of locations, number of rooms,
occupancy percentage and ADR. The data includes full year operating results
for hotels that the Company had previously managed and then acquired during the
year.
Number of
-----------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . . 9 1,010 69.1 $52.02
1990 . . . . . . . . . . . . . 9 1,010 61.8 $52.17
1991 . . . . . . . . . . . . . 9 1,010 54.4 $49.42
1992 . . . . . . . . . . . . 10 1,106 57.4 $47.01
1993 . . . . . . . . . . . . 13 1,465 60.4 $45.67
The Company reviews on an on-going basis each Franchised Hotel's
competitive position in its local market in order to decide the types of
product that will best meet the market's demand characteristics. Repositioning
a hotel generally requires renovation and refurbishment of the exterior and
interior of the building and may result in a change in brand name. In 1993,
the Company changed the franchise affiliations of four of its Hotels and will
continue to do so where appropriate. The Company has completed or is in the
process of repositioning eight of its Franchised Owned Hotels.
The Company believes short-term opportunities exist for acquisitions
of full-service Franchised Hotels at attractive multiples of cash flow or at
significant discounts to replacement values. Due to competition among hotel
buyers, the Company cannot predict when or if it will acquire additional
hotels. The Company seeks to complement its acquisition objectives by adding
Managed Hotels. The Company believes there is a market for experienced
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hotel operators to manage for hotel equity holders such as banks, insurance
companies and other capital investors.
Wellesley Inns
The Company's proprietary Wellesley Inns chain consists of 27
limited-service hotels, 14 of which are located in Florida and the remainder in
the Middle Atlantic and Northeast United States. The Company owns and operates
11 Wellesley Inns and manages 16 Wellesley Inns for independent owners. The
Company has developed separate strategies for the Wellesley Inns located in
Florida and the northern Wellesley Inns. In Florida, where the population has
grown rapidly and development opportunities continue to exist, it has built a
geographically concentrated group of Wellesley Inns thereby developing brand
name recognition in Florida. In 1993, the Florida Wellesley Inns average
occupancy was approximately 90% and gross operating profits averaged over 50%
of hotel revenues. The prototypical Florida Wellesley Inn has 105 rooms and is
distinguished by its classic stucco exterior, spacious lobby and amenities such
as continental breakfast, remote control cable television and facsimile
services. The Florida properties are operated through the Company's Florida
regional office. Marketing efforts rely heavily on direct marketing and
billboard advertising. In the Middle Atlantic and Northeast where the Company
believes new development opportunities are limited, the Company has focused on
building the Wellesley Inns system through acquisition and conversion of
existing properties. In 1993, the northern Wellesley Inns average occupancy
was over 72% and gross operating profits averaged approximately 46% of hotel
revenues. The Company owns eight Florida Wellesley Inns and three northern
Wellesley Inns.
The following table sets forth for the five years ended December 31,
1993, with respect to the Wellesley Inns that are Owned and Managed Hotels, the
number of locations, number of rooms, occupancy percentage and the average
daily rate ADR. The data includes full year operating results for hotels that
the Company had previously managed and then acquired during the year.
Number of
------------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . 21 2,031 78.8 $43.54
1990 . . . . . . . . . . . . 26 2,561 78.4 $43.75
1991 . . . . . . . . . . . . 26 2,561 76.5 $43.75
1992 . . . . . . . . . . . . 26 2,561 78.0 $43.74
1993 . . . . . . . . . . . . 27 2,666 81.2 $45.28
The majority of the Florida Wellesley Inns were constructed within the
past five years. Historically, the Company has built
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Florida Wellesley Inns at a cost of approximately $35,000 to $40,000 per room,
depending on land costs. Florida Wellesley Inns have a low cost structure and
have had rapid stabilization periods generally within six to 18 months of
opening. The Company has begun construction of one Wellesley Inn in the
Sawgrass section of Fort Lauderdale, Florida and one Wellesley Inn in Lakeland,
Florida. The Company plans to expand the Northern portion of the Wellesley Inn
chain through conversion of existing mid-priced limited-service hotels rather
than through new construction.
AmeriSuites
The Company owns eight AmeriSuites hotels, which are positioned in the
all-suites segment of the hotel industry. AmeriSuites hotels offer guests an
attractively designed suite unit with a complimentary continental breakfast in
a spacious lobby cafe, remote control cable television and facsimile service.
AmeriSuites is a limited-service concept which offers group meeting space, but
does not include restaurant or lounge facilities. AmeriSuites attract
customers which typically stay in mid-market limited-service and full-service
hotels principally because of the quality of the guest suites, which offer
distinct living, sleeping and kitchen areas. AmeriSuites contain approximately
125 suites and two to four meeting rooms. AmeriSuites are primarily located
near corporate office parks and major attractions in the South and Central
parts of the United States. The target market is primarily the business
traveler with an average length of stay of two to three nights and secondarily
traveling families. The Company's eight AmeriSuites are managed by ShoLodge.
The Company currently intends to manage the AmeriSuites it is planning to build
in Tampa, Florida and any other AmeriSuites owned by the Company outside the
ShoLodge joint venture. AmeriSuites are marketed on a local level primarily
through direct sales and use the ShoLodge reservation system.
The following table sets forth for the five years ended December 31,
1993, with respect to AmeriSuites that are Owned Hotels, the number of
locations, number of rooms, occupancy percentage and the ADR. The data
includes full year operating results for hotels that the Company had previously
managed and then acquired during the year.
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Number of
------------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . 0 0 0.0 $0.00
1990 . . . . . . . . . . . . 3 367 37.9 $60.23
1991 . . . . . . . . . . . . 4 497 48.5 $55.33
1992 . . . . . . . . . . . . 6 749 60.0 $54.99
1993 . . . . . . . . . . . . 8 993 64.1 $56.21
In 1993, the Company, through Suites of America, Inc., a wholly owned
subsidiary ("Suites of America"), entered into a joint venture agreement with
ShoLodge designed to increase the number of AmeriSuites from the six hotels
owned at that time by adding six hotels to be built and financed by ShoLodge.
ShoLodge has completed development of three hotels, two of which the Company
has acquired subject to ShoLodge mortgages, bringing to eight the total number
of AmeriSuites owned by the Company. In addition, ShoLodge has three hotels
currently under construction. Upon the occurrence of certain events and the
exercise of an option by either ShoLodge or the Company, Suites of America will
own 12 AmeriSuites, ShoLodge will own a 50% interest in Suites of America and
Suites of America will enter into a 20 year management agreement with ShoLodge.
The Company will retain ownership of and all rights to license and develop the
brand name for its own account, regardless of whether the Company or ShoLodge
executes such option.
The Company plans to develop the AmeriSuites chain through new
construction for its own account outside the joint venture. The Company has
begun development of a site in Tampa, Florida and has other sites currently
under review. All of the AmeriSuites were constructed within the past four
years. The Company has historically built AmeriSuites at a cost of
approximately $45,000 to $48,000 per room, depending on land costs.
AmeriSuites have a low cost structure and have had stabilization periods,
generally of 24 to 36 months of opening. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Other Assets
On the December 31, 1993 balance sheet, Other Assets totalled
approximately $188.9 million and consisted of an aggregate principal amount of
$115.3 million of mortgages and notes secured by Managed Hotels, $50.0 million
of other mortgages and notes and $23.6 million of real property not related to
Owned Hotels (approximately $12 million of which consisted of office
buildings). The Company intends to convert certain of these Other Assets to
cash and hotel assets. In 1992 and 1993, the Company converted
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$46.2 million and $14.6 million, respectively, of Other Assets to cash and
added six operating hotel assets through settlements and lease terminations.
The Company's mortgage notes secured by hotel properties consist
primarily of notes with a book value of $100.2 million secured by mortgages on
12 Managed Hotels. These notes currently bear interest at rates ranging from
8.5% to 14.0% per annum and have various maturities through 2014. The
mortgages were primarily derived from the sales of hotel properties. The
largest of the 12 is the Frenchman's Reef mortgage, which the Company is
seeking to restructure. The Frenchman's Reef accounts for $50.0 million of the
mortgage notes and has a face value of approximately $79.0 million (excluding
accrued interest). The Company has restructured approximately $36.5 million of
the remaining mortgages and notes to receive the majority of available cash
flow and a participation in the future excess cash flow of such hotel
properties. The restructurings generally include senior mandatory-payment
notes and junior notes payable annually based on cash flow. The Company
believes that, taken together, the restructured senior and junior mortgage
notes often exceed the value of the properties they encumber. As a result,
these junior notes bear many of the characteristics and risks of operating
hotel equity investments and are not reflected on the Company's balance sheet.
Earnings on the Other Assets totaled 14.9% of Company's revenues in 1993. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
In addition to the 12 significant mortgage positions referred to
above, the Company also holds the junior, accruing or cash flow notes and other
interests on 19 other properties managed by the Company. With regard to these
19 properties, third parties generally hold significant senior mortgages.
Because there is substantial doubt that the Company will recover any of their
value, none of these subordinated financial interests are valued on the
Company's balance sheet.
In 1993, the Company recognized $3.8 million of interest income from
the senior, mandatory payment notes and $1.0 million of interest income related
to the junior, accruing or cash flow-based notes. The ability to collect on
these junior notes is affected by interest rates on other hotel debt owed to
third parties that is senior to the Company's mortgages and notes on the hotel
properties. The junior, accruing or cash flow notes have benefitted recently
from lower floating interest rates on the more senior debt. Approximately $4.3
million or 28.8% of the 1993 interest income on mortgages and notes was derived
from the Company's note receivable secured by the Frenchman's Reef. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's other notes receivable consist primarily of a note with
a book value of $25 million related to loans its predecessor made to entities
controlled by Rose and Cohen. The Company has collected $25.0 million from
Rose, which amount has been placed in escrow in settlement of the note from
Rose and Cohen. The entire amount of the settlement is subject to a claim by
Financial Security Assurance, Inc. ("FSA"). The Rose and Cohen Settlement
will include an additional amount from the liquidation of approximately 1.1
million shares of the Company's common stock held by Rose. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
Realizations."
Management Agreements
The Company provides hotel management services to third party hotel
owners of 47 Managed Hotels. Management fees are derived from the Managed
Hotels based on fixed percentages of the property's total revenues. Additional
fees are also generated from the rendering of specific services such as
accounting services, construction services, design services and sales
commissions and performance related incentive payments based on certain
measures of hotel income. The Company's fixed management fee percentages range
from 0.5% to 5.0% and average 3.5% of the Managed Hotel's total revenues before
giving consideration to performance related incentive payments. The base and
incentive fees comprised approximately 60.1%, or $6.5 million, of the total
management and other fees in 1993. Terms of the management agreements vary but
the majority are considered short-term and, therefore, there are risks
associated with termination of these agreements. However, the Company believes
these risks are mitigated due to its role as lender or provider of trade names
in many of these instances. The Company seeks to expand the number of hotels
under management agreements for third parties as a complement to its core hotel
ownership operation. In the first quarter of 1994 the Company added two
Managed Hotels in Santa Clara, California and Atlanta, Georgia. It believes
that the management service business provides gross revenue opportunities
without the investment of significant capital expenses and operating costs.
Operations
As a leading domestic hotel operating company, the Company enjoys a
number of operating advantages over other lodging companies. With 87 Hotels
covering a number of price points and broad geographic regions, the Company
possesses the critical mass
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to support sophisticated operating, marketing and financial systems. The
Company believes that its broad array of central services permits on-site hotel
general managers to effectively focus on providing guest services, results in
economies of scale and leads to above-market hotel profit margins. As a result
of these operating strategies, the Company's Hotels generated average operating
profit margins that exceeded comparable industry standards for 1992, as
reported by industry sources, by approximately six percent for limited-service
hotels and 16 percent for full-service hotels.
The Company's operating strategy combines operating service and
guidance from its central management team, with decentralized decision-making
authority delegated to each hotel's on-site management. On-site hotel managers
focus on providing guest services. The on- site hotel management teams focus
on providing guest services and consist of a general manager and, depending on
the hotel's size and market positioning, managers of sales and marketing, food
and beverage, front desk services, housekeeping and engineering. The Company's
operating objective is to exceed guest expectations by providing quality
services and comfortable accommodations at the lowest cost consistent with each
hotel's market position. On-site hotel management is responsible for efficient
expense controls and uses operating standards provided by the Company. Within
parameters established in the operating and capital planning process, on-site
management possesses broad decision-making authority on operating issues such
as guest services, marketing strategies, hiring practices and incentive
programs. Each hotel's management team is empowered to take all necessary
steps to ensure guest satisfaction within established guidelines. Key on-site
personnel participate in an incentive program based on hotel revenues and
profits.
The central management team, located in Fairfield, New Jersey,
provides four major categories of services: (i) operations management, (ii)
sales and marketing management, (iii) financial reporting and control and (iv)
hotel support services.
Operations Management. Operations management consists of the
development, implementation and monitoring of hotel operating standards and is
provided by a network of regional operating officers who are each responsible
for the operations of 10-15 hotels. Supporting them are training, food and
beverage and human resources departments, each staffed full-time by specialized
professionals. The cornerstone of operations management is employee training,
with a staff of professionals dedicated to training in sales, housekeeping,
food service, front desk services and leadership. The Company believes these
efforts increase
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employee effectiveness, reduce turnover and improve the level of guest
services.
The Company's cost-effective centralized management services benefit
not only its existing operations but also provide additional opportunities for
growth and development from acquisitions. In all of the recently acquired
Hotels, the Company's headquarters have assumed certain of the operational
responsibilities which previously had been performed by the on-site Hotel
management. In addition, the Company believes it has improved operating
efficiencies for each of these Hotels that it has acquired.
Sales and Marketing. Aggressive sales and marketing is a top
operating priority. Sales and marketing management is directed by a corporate
staff of 20 professionals, including regional marketing directors who are
responsible for each Hotel's sales and marketing strategies, and the Company's
12-member national sales group, Market Segments, Inc. ("MSI"). In cooperation
with the regional marketing and organization staff, on-site sales management
develops and implements short- and intermediate-term marketing plans. The
Company focuses on yield management techniques, which optimize the relationship
between hotel rates and occupancies and seek to maximize profitability. In
addition, the Company assumes prominent roles in franchise marketing
associations to obtain maximum benefit from franchise affiliations. The
Company's in-house creative department creates hotel advertising materials and
programs at cost-effective rates.
Complementing regional and on-site marketing efforts, MSI's marketing
team targets specific hotel room demand generators including tour operators,
major national corporate accounts, athletic teams, religious groups and others
with segment-specialized sales initiatives. MSI's primary objective is to book
hotel rooms at the Company's Hotels and its secondary objective is to market
its services on a commission basis to major operators throughout the industry.
Sales activities on behalf of non-affiliated hotels increase the number of
hotels where bookings can be made to support marketing efforts and defray the
costs of the marketing organization.
Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on site.
Centralized accounting personnel produce detailed financial and operating
reports for each Hotel. Additionally, central management directs budgeting and
analysis, processes payroll, handles accounts payable, manages each Hotel's
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cash, oversees credit and collection activities and conducts on-site hotel
audits.
Hotel Support Services. The Company's hotel support services combine
a number of technical functions in central, specialized management teams to
attain economies of scale and minimize costs. Central management handles
purchasing, directs construction and maintenance and provides design services.
Technical staff teams support each hotel's information and communication
systems needs. Additionally, the Company directs safety/risk management
activities and provides central legal services.
Franchise Agreements
The Company enters into non-exclusive franchise licensing agreements
with various franchisors, which agreements typically have a ten year term and
allow the Company to benefit from franchise brand recognition and loyalty. The
non-exclusive nature of the franchise agreement allows the Company the
flexibility to continue to develop properties with the brands that have shown
success in the past or to develop in conjunction with other brand names. While
the Company currently has a good relationship with its franchisors, there can
be no assurance that a desirable replacement would be available if any of the
franchise agreements were to be terminated.
The franchise agreements require the Company to pay annual fees, to
maintain certain standards and to implement certain programs which require
additional expenditures by the Company such as remodeling or redecorating. The
payment of annual fees, which typically total 7% to 8% of room revenues, cover
royalty fees and the costs of marketing and reservation services provided by
the franchisors. The use of franchisor reservation systems typically result in
increased occupancy. Franchise agreements, when initiated, generally provide
for an initial fee in addition to annual fees payable to the franchisor.
Working Capital
The Company currently funds its working capital needs principally
through a combination of existing cash balances, cash flow from operations and
cash from Other Asset settlements. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation - Financial
Condition."
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Seasonality
The impact of seasonality on the Company as a whole is insignificant
due to the seasonal balance achieved from the geographical location of the
Company's hotel properties in the Northeast and Southeast.
Competition
The Company operates and manages hotel properties in areas that
contain numerous other hotels, some of which are affiliated with national or
regional chains. The Company competes with other hotels primarily on the basis
of price, physical facilities and customer service.
The Company also competes with other management companies for the
management of hotel properties owned by third parties. Due to the abundance of
management companies, the percentage of gross sales which the Company earns as
a manager has decreased in certain instances and the terms of the management
agreements, have been reduced. In order to retain existing management
contracts, the Company may have to reduce further the fees which it receives.
Employees
As of December 31, 1993, the Company employed approximately 4,900
employees. Certain of the Company's employees are covered by collective
bargaining agreements. The Company believes that relations with its employees
are good.
Environmental Matters
The Hotels are subject to environmental regulations under 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. The Company does not believe that it is subject to any material
environmental liability.
Item 3. Legal Proceedings.
On September 3, 1993 Frenchmen's Reef Beach Resorts ("FRBA") filed for
protection under chapter 11 of the Bankruptcy Code. FRBA is the owner of the
Marriott Hotel, St. Thomas. U.S. Virgin Islands (the "Hotel"). The Company
holds mortgages encumbering the Hotel which secure obligations of FRBA to the
Company. In addition, the
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Company manages the Hotel for FRBA pursuant to a written agreement. FRBA has
filed with the bankruptcy court a Disclosure Statement setting forth a Plan of
Reorganization which, among other things, provides for the conveyance of the
Hotel to the Company. The limited partners of FRBA have filed an objection to
the Disclosure Statement. The Company has pending before the bankruptcy court
a motion for permission to commence and pursue a foreclosure of its mortgages
through the receipt of a judgement of foreclosure.
In a proceeding captioned PMI Investment, Inc. vs. Allan V. Rose and
Arthur Cohen et al. brought before the bankruptcy court the Company seeks to
recover amounts owed by Rose and Cohen under a guaranty. In that same
proceeding, the Company also seeks a determination that FSA has no claim to the
proceeds of any recovery from Rose and Cohen.
The Company has reached a settlement in that proceeding with Rose and
Cohen. Under the settlement, the Company will receive $25.0 million in cash,
which Rose has deposited in escrow, and the cash proceeds of the sale of
approximately 1.1 million shares of the Company's stock owned by Rose under the
Prime Motor Inns, Inc. Second Amended Plan of Reorganization. Disbursal of the
settlement proceeds is subject to the bankruptcy court's approval of the
settlement and the bankruptcy court's determination that FSA has no claim to
the settlement proceeds. A trial was held in January, 1994 on both issues and
the Company is awaiting the decision of the bankruptcy court.
PMI has responded to informal requests for information by the United
States Securities and Exchange Commission's Division of Enforcement relating to
certain of PMI's significant transactions for the years 1985 through 1990.
PMI has not submitted its Annual Report on Form 10-K for the fiscal
year ended June 30, 1990 and Quarterly Reports on Form 10-Q during the pendency
of its reorganization, except for its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992.
Contingent Claims
As of March 1, 1994 unresolved bankruptcy claims of approximately
$437,000,000 have been asserted against PMI. The Company has disputed
substantially all of these unresolved bankruptcy claims and has filed
objections to such claims. Management and its counsel believe that
substantially all of these claims will be dismissed and disallowed. Any claims
not disallowed will be satisfied by issuance of the Company's common stock. In
accordance with SOP 90-7, the consolidated financial statements have given full
effect to the issuance of the Company's common
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stock. The Company believes that the resolution of these claims will not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
In addition to the foregoing legal proceedings, the Company is
involved in various other proceedings incidental to the normal course of its
business. Management does not expect that any of such other proceedings will
have a material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fiscal quarter ended December 31,
1993 to a vote of the security holders of the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock, par value $.01 per share, commenced
trading on the New York Stock Exchange (the "NYSE") on August 3, 1992 under
the symbol "PDQ." As of March 10, 1994 there were 29,200,204 shares of common
stock outstanding. The Company's Plan of Reorganization ("the Plan") provided
for the issuance of 33,000,000 shares of common stock to holders of claims
under the Plan. The number of shares ultimately distributed under the Plan
could be less than 33,000,000 shares depending on the final outcome of
disputed claims. In addition, the Company has issued warrants to purchase an
aggregate of 2,106,000 shares of common stock. The warrants are not listed on
any exchange.
The following table sets forth the reported high and low closing sales
prices of the common stock on the NYSE.
Five Months Ended
December 31, 1992 High Low Dividend/Share
- ----------------- ---- ----- --------------
Third Quarter (August 3, . . . . . . . . . . . . . . . . . 2-1/8 1-1/2 -0-
1992 - September 30, 1992)
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 2-1/4 1-1/2 -0-
Year Ended
December 31, 1993
- -----------------
First Quarter . . . . . . . . . . . . . . . . . . . . . . . 3-5/8 2-1/8 -0-
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 4-1/2 3-1/2 -0-
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 4-3/4 3-1/8 -0-
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 6 4-3/8 -0-
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As of March 10, 1994, the closing sales price of the common stock on
the NYSE was $7 1/8. As of March 10, 1994, there were approximately 3,422
holders of record of common stock.
Prime does not anticipate paying any dividends on the common stock in
the foreseeable future. Covenants contained in certain of the Company's debt
securities prohibit Prime from paying cash dividends.
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Item 6. Selected Financial Data
The Company is the successor in interest to PMI. The Company
implemented "fresh start" reporting pursuant to the Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
of the American Institute of Certified Public Accountants, as of the Effective
Date. Accordingly, the consolidated financial statements of the Company are
not comparable in all material respects to any such financial statement as of
any date or any period prior to the Effective Date. Subsequent to the
Effective Date, the Company changed its fiscal year end from June 30 to
December 31. The table below presents selected consolidated financial data
derived from: (i) the Company's historical financial statements for the year
ended December 31, 1993, (ii) the Company's historical financial statements as
of and for the five month period ended December 31, 1992, (iii) the Company's
"fresh start" balance sheet as of the Effective Date, and (iv) the historical
consolidated financial statements of PMI for the one month ended July 31, 1992
and for each of the four years in the period ended June 30, 1992. This data
should be read in conjunction with the Consolidated Financial Statements.
Post-Reorganization Pre-Reorganization
--------------------------- ----------------------------------------
As of and for the
--------------------------
As of and for Five Months | One Month As of and for the
the Year Ended Ended | Ended Year Ended June 30,
December 31, December 31, | July 31, -----------------------
1993 1992 | 1992(1) 1992(1) 1991(1)
---------------- ------------- | ------------ -------- -------
(IN THOUSANDS)
|
STATEMENT OF OPERATIONS DATA: |
Total revenues . . . . . . . . . . . $108,860 $ 41,334 | $ 8,793 $134,190 $205,699
Valuation writedowns |
and reserves . . . . . . . . . . . -- -- | (13,000) (62,123) (59,149)
Reorganization items . . . . . . . . -- -- | 1,796 (23,194) (181,655)
Income(loss) from |
continuing operations before |
extraordinary items (3) . . . . . . 8,175 1,393 | (10,274) (71,965) (246,110)
Extraordinary items - gains |
on discharge of indebtedness |
(net of income taxes) . . . . . . 3,989 -- | 249,600 -- --
Net income (loss) . . . . . . . . . . . . 12,164 1,393 | 239,326 (71,965) (227,188)
|
BALANCE SHEET DATA: |
Total assets . . . . . . . . . . . . 410,685 403,314 | 468,650 554,118 679,916
Long-term debt, net of |
current portion . . . . . . . . . 168,618 192,913 | 204,438 8,921 2,851
Sotckholders' equity |
(deficiency) . . . . . . . . . . . 171,364 137,782 | 135,600 (229,292) (157,327)
Pre-Reorganization
------------------------
As of and for the
Year Ended June 30,
------------------------
1990 (1)(2) 1989
------------ ----------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Total revenues . . . . . . . . . . . $277,239 $ 315,189
Valuation writedowns
and reserves . . . . . . . . . . . (240,855) (9,398)
Reorganization items . . . . . . . . -- --
Income(loss) from
continuing operations before
extraordinary items (3) . . . . . . (280,387) (6,630)
Extraordinary items - gains
on discharge of indebtedness
(net of income taxes) . . . . . . -- --
Net income (loss) . . . . . . . . . . (267,075) (6,630)
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . 934,116 1,079,682
Long-term debt, net of
current portion . . . . . . . . . 368,925 422,828
Sotckholders' equity
(deficiency) . . . . . . . . . . . 66,681 334,014
- ----------------
(1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at
which time it owned or managed 141 hotels. During its approximately
two-year reorganization, PMI restructured its assets, operations and
capital structure. On the Effective Date, the Company emerged from chapter
11 reorganization with 75 owned or managed hotels (as compared to 141 owned
or managed hotels prior to the chapter 11 reorganization) $135.6 million of
stockholders' equity and $266.4 million of long-term debt.
(2) PMI effectively discontinued the operations of its franchise segment on
July 1, 1990, with the sales of the Howard Johnson, Ramada and Rodeway
franchise businesses in July 1990.
(3) Approximately $2.3 million, $28.0 million and $25.3 million of contractual
interest expense during the one month ended July 31, 1992 and for the
fiscal years ended June 30, 1992 and 1991, respectively, was not accrued
and was not paid due to the chapter 11 proceeding.
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Item 6. (Continued) Selected Quarterly Financial Data (Unaudited)
Quarterly financial data for the years ending December 31, 1993 and 1992 is
presented as follows (in thousands, except per share amounts).
Three Months Ended
----------------------------------------------------------------------
December 31, September 30 June 30, March 31, December 31,
1993 1993 1993 1993 1992
----------------------------------------------------------------------
Net revenue . . . . . . $27,906 $29,480 $26,689 $24,785 $23,781
Gross profit(a) . . . . . 5,394 7,545 6,393 5,594 4,553
Net income(loss) before
extraordinary items. . 2,213 3,379 1,588 995 281
Extraordinary items
(net of tax) . . . . (68) -- 631 3,426 --
Net income(loss) . . . . . 2,145 3,379 2,219 4,421 281
Income(loss) per
common share:
Income(loss) before
extraordinary items 0.06 0.10 0.05 0.03 0.01
Extraordinary items -- -- 0.02 0.10 --
----------------------------------------------------------------------
Net income(loss) . . . . . $0.06 $0.10 $0.07 $0.13 $0.01
======================================================================
Two Months One Month Three Months Ended
Ended Ended ------------------------
September 30, July 31, June 30, March 31,
1992 1992 1992 1992
------------------------------------------------------
Net revenue . . . . . . $17,553 $8,793 $29,378 $29,683
Gross profit(a) . . . . . 4,793 1,709 4,137 5,188
Net income(loss) before
extraordinary items. . 1,112 (10,274) (74,344) 351
Extraordinary items
(net of tax) . . . . -- 249,600 -- --
Net income(loss) . . . . . 1,112 (239,326) (74,344) 351
Income(loss) per
common share:
Income(loss) before
extraordinary items 0.03 (0.31) (2.25) 0.01
Extraordinary items -- 7.56 -- --
------------------------------------------------------
Net income(loss) . . . . . $0.03 $7.25 ($2.25) $0.01
======================================================
(a) Gross profit is defined as net revenues less direct operating expenses,
other operating and general expenses and depreciation and amortization
expense.
(b) Certain quarterly data has been reclassified to conform with the December
31, 1993 presentation.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company is the successor in interest to PMI, which emerged from
chapter 11 reorganization on the Effective Date. During its approximately
two-year reorganization, PMI restructured its assets, operations and capital
structure. As a result, the Company (i) eliminated numerous unprofitable lease
and management agreements, (ii) revalued its assets to reflect the then
approximate current fair market value of such assets on its financial
statements and (iii) reduced its liabilities by approximately $500 million. On
the Effective Date, the Company emerged from chapter 11 reorganization with 75
owned or managed hotels (as compared to 141 hotels prior to the chapter 11
reorganization), $135.6 million of total equity and $266.4 million of long-term
debt.
Since the Effective Date, the Company has taken the following actions
to further strengthen its operations and financial condition:
- Reduced overhead costs, reconstituted its management team and
recruited new senior management to the Company that is
responsible to a new, independent board of directors;
- Converted a portion of its notes, mortgages and other assets
to cash or hotel operating assets that provided the Company
with approximately $61.0 million in cash and six operating
hotel properties obtained through settlements or lease
expiration;
- Repaid approximately $87.0 million of its long-term debt using
the cash proceeds from conversions of other assets, tax
refunds and income generated from Hotel operations;
- Formulated and began implementing a hotel development and
improvement plan pursuant to which the Company purchased one
full- service hotel and built one new Wellesley Inn in 1993;
and
- Allocated more than 6.0% of its hotel revenues during this
period to enhance the product quality and market position of
its existing Hotels, including repositioning eight Hotels and
changing the franchise affiliations of four of such Hotels.
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The following table sets forth certain operating data for the five
year period ended December 31, 1993 with respect to the 41 Owned Hotels that
were in the Company's portfolio on December 31, 1993 since the later of the
year in which they were acquired or January 1, 1989. The data includes full
year operating results for hotels that the Company previously managed and then
acquired during the year.
1989(1) 1990(1) 1991(1) 1992(1) 1993(1)
------- ------- ------- ------- -------
Number of locations
at year end . . . . . . . . . . . . . . 21 31 32 35 41
Number of rooms
at year end . . . . . . . . . . . . . 2,545 3,953 4,083 4,425 5,145
Occupancy% . . . . . . . . . . . . . . . . 67.8% 65.9% 66.6% 68.0% 70.0%
ADR . . . . . . . . . . . . . . . . . . . $59.19 $55.88 $53.60 $54.83 $56.01
REVPAR . . . . . . . . . . . . . . . . . . $40.10 $36.80 $35.68 $37.30 $39.19
Room revenues . . . . . . . . . . . . . . . $29,809 $44,101 $51,774 $57,992 $66,721
Total hotel revenues . . . . . . . . . . . $43,090 $59,437 $68,137 $74,162 $83,652
Gross operating profit(1) . . . . . . . . . $17,741 $25,312 $26,798 $26,607 $31,997
Gross operating profit% . . . . . . . . . . 41.2% 42.6% 39.3% 35.9% 38.2%
(1) Gross operating profit is defined as total hotel revenues less direct
hotel operating expenses including room, food and beverage and selling
and general expenses.
- --------------
The Company's operating results for the five-year period from 1989 to
1993 were principally impacted by the overall trends in the U.S. lodging
industry. In 1990 and 1991, occupancy and ADR declined due to the oversupply
of hotel rooms and the weakness in demand due to the general slowdown in the
U.S. economy. Beginning in 1992, the demand for hotel rooms increased
primarily due to improved economic conditions in the United States. Coupled
with the lack of new hotel supply, occupancy, ADR and REVPAR improved. In
1993, occupancy, ADR and REVPAR continued to rise due to improving industry
fundamentals, the stabilization of the Company's Wellesley Inns and AmeriSuites
and the positive effects of the capital investments made by the Company to
improve product quality through repositionings of hotels.
Over the five-year period ended December 31, 1993, gross operating
profit was most affected by (i) the mix of the Company's limited- service
hotels as compared to full-service hotels, (ii) labor and related costs and
(iii) strategic marketing initiatives. The five Wellesley Inns added to the
Company's portfolio generated high gross operating margins and allowed the
Company to increase margins in 1990 despite a difficult economic environment.
In 1991 and 1992, the positive impact on gross operating profits from the
addition of the Wellesley Inns were offset by (i) above inflation
25
27
rate increases in direct hotel labor and related expenses (including wages,
health care benefits and workman's compensation), (ii) the Company's decision
to increase advertising and promotions (including hiring additional sales
staff, providing additional guest services such as enhanced continental
breakfasts and increasing outdoor advertising and direct mail marketing
campaigns) and (iii) the reallocation of previously centralized costs to
specific hotels. In 1993, gross operating profit improved primarily due to the
stabilization of labor and related costs and increased sales volumes. Given
the current positive industry fundamentals and the Company's proposed new hotel
development and acquisition refurbishment programs, the Company believes it
will continue to benefit from operating leverage.
Results of Operations for Year Ended December 31, 1993 Compared to Year Ended
December 31, 1992
The Company implemented "fresh start" reporting in accordance with
Statement of Position 90-7 of the American Institute of Certified Public
Accountants upon its emergence from reorganization on the Effective Date.
Under "fresh start" reporting, the purchase method of accounting was used and
the assets and liabilities of the Company were restated to reflect their
approximate fair value at the Effective Date. In addition, during the
reorganization period (September 18, 1990 to the Effective Date), the Company's
financial statements were prepared under accounting principles for entities in
reorganization which includes reporting interest expense only to the extent
paid and recording transactions and events directly associated with the
reorganization proceedings. Accordingly, the consolidated financial statements
of the Company are not comparable in all material respects to any such
financial statement as of any date or for any period prior to the Effective
Date. Subsequent to the Effective Date, the Company elected to change its
fiscal year end from June 30 to December 31.
For purposes of an analysis of the results of operations, comparisons
of the Company's results of operations for the year ended December 31, 1993 to
the prior year are made only when, in management's opinion, such comparisons
are meaningful. Prior to the Effective Date, the Company did not employ "fresh
start" reporting thereby making comparisons of certain financial statement data
prior to such date less meaningful. The financial information set forth below
presents the revenues and expenses which can be compared. The table excludes
the items which were impacted by the changes in accounting such as interest
expense, occupancy and other operating expense and depreciation expense for the
years ended December 31, 1992 and 1993. The financial information should be
read in conjunction with the consolidated financial statements of the Company
included elsewhere in this report. Since the Company
26
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changed its fiscal year in 1992, management has compiled unaudited data for the
calendar year ended December 31, 1992.
The direct revenues and expenses of the Owned Hotels are classified
into three categories: comparable hotels, new hotels and divested hotels. The
following discussion focuses primarily on the 29 comparable hotel properties
which were owned or leased by the Company during the entire two years
presented. The 12 hotels classified as new hotels are composed of four new
AmeriSuites hotels which were opened after December 31, 1991, a full-service
Ramada Inn in Meriden, Connecticut which was purchased in July 1993, a newly
constructed Wellesley Inn in Orlando, Florida which opened in November 1993 and
six hotel properties which were added through settlements of mortgages and
notes receivable and lease expirations. The hotels classified as divested
hotels are composed of three hotel properties divested primarily as a result of
property restructurings in 1992 and the Holiday Inn in Milford, Connecticut
which was sold in September 1993.
Years Ended
December 31,
1993 1992
------ ------
(In thousands, except for statistical information)
Room revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,219 $51,679
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,941 2,001
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,327 8,699
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,487 62,379
Food and beverage revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,055 9,549
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 91
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 3,422
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,270 13,062
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,831 11,452
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,765 20,063
Rental and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,507 2,232
Direct room expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,848 14,003
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,115 574
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 3,281
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,456 17,858
Direct food and beverage expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,480 8,278
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,504 78
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 3,046
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,230 11,402
27
29
Years Ended
December 31,
1993 1992
------ ------
Direct selling and general hotel expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 16,004
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,860 541
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 5,574
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,429 22,119
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . 15,685 17,162
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,809 --
Extraordinary items (pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . 6,761 --
Statistical information:
Comparable hotels:
Average occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . 72.15% 68.11%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55.96 $54.66
New hotels:
Average occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . 63.86% 50.67%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57.17 $55.59
Room revenues increased by $7.1 million or 11.4% for the year ended
December 31, 1993 over the prior year due to the impact of new hotels and
improved occupancy and room rates at comparable hotels. The increase was
partially offset by a decrease in room revenues as a result of the divestiture
of hotels. Room revenues for comparable hotels increased by $3.5 million or
6.8% for the year ended December 31, 1993 compared to the prior year. The
increase was primarily due to improved occupancy which increased 5.9% in 1993
reflecting improved economic conditions and the limited new construction of
hotels. Average daily room rates were slightly higher in the year ended
December 31, 1993 compared to the prior year, increasing by $1.30 or 2.4% over
the prior year. The Company's comparable full-service hotels had an average
occupancy of 69.3% for the year ended December 31, 1993 as compared to 65.2% in
1992. Average occupancy at the seven comparable Wellesley Inns in Florida
remained relatively stable at approximately 90% while average occupancy at the
three comparable Wellesley Inns in the Northeast increased to 73.4% for the
year ended December 31, 1993 from 61.3% in 1992 primarily as a result of
improved direct marketing efforts. Significant occupancy increases were also
reported at the four comparable AmeriSuites hotels all of which were opened
within the past four years. The average occupancy at the comparable
AmeriSuites hotels increased to 67.7% for the year ended December 31, 1993 from
63.7% in 1992 reflecting stabilization of these hotels and their increased
recognition in the market.
Food and beverage revenues decreased by $792,000 or 6.1% for the year
ended December 31, 1993 as compared to 1992 because all of
28
30
the divested hotels contained food and beverage operations while many of the
new hotels are limited-service hotels. Food and beverage revenues for
comparable hotels increased by 5.3% for the year ended December 31, 1993
compared to the prior year primarily as a result of increased beverage revenues
at the Company's sports lounges located in two Franchised Hotels.
Management and other fees consist of base and incentive fees earned
under management agreements, fees for additional services rendered to Managed
Hotels and sales commissions earned by the Company's national sales group, MSI.
The base and incentive fees comprise approximately 60% or $6.5 million of total
management and other fees for the year ended December 31, 1993. Management and
other fees decreased by $621,000 for the year ended December 31, 1993 as
compared to the prior year primarily due to a decrease in charges for
additional services. In addition, during the year ended December 31, 1993, the
number of Managed Hotels declined by five due to property divestitures by
independent owners, two of which were acquired by the Company. The decreases
have been partially offset by increases in management fees attributable to
increased hotel occupancies and higher incentive related performance fees.
Interest income on mortgages and notes decreased by $5.3 million for
the year ended December 31, 1993 as compared to the prior year primarily due to
the Company's early collection of a note receivable with a face amount of $58.0
million in August 1992. Interest income for the year ended December 31, 1993
primarily related to mortgages secured by 12 Managed Hotels. Approximately
$4.3 million or 28.8% of interest income is derived from the Company's $50
million note receivable secured by the Frenchman's Reef. For the year ended
December 31, 1993, operating profits improved for the Frenchman's Reef over the
prior year due to the stronger economy, the new affiliation with Marriott and
product improvements and cost controls at the hotel. The Company's proposed
mortgage restructuring is intended to provide the Company with ownership and
control of the Frenchman's Reef. If consummated, the impact of this
restructuring on operating income is expected to be minimal as direct revenues,
expenses and depreciation would increase and interest income would decrease.
In the year ended December 31, 1993, interest income also includes $976,000
recognized on subordinated mortgages which have been assigned no value on the
Company's balance sheet due to substantial doubts as to their recoverability.
These subordinated mortgages generated interest income primarily due to
declines in interest rates on the variable rate mortgages senior to the
Company's positions on these hotels.
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31
Direct room expenses increased by $1.6 million or 9.0% for the year
ended December 31, 1993 over the prior year, as the increased occupancy of the
comparable hotels combined with the new hotels more than offset the impact of
the divested full-service hotels. Direct room expenses for comparable hotels
increased by 6.0% for the year ended December 31, 1993 over the prior year
primarily due to increased expenses associated with the higher occupancy levels
including payroll costs, guest room supplies and reservation fees. In
addition, the increase is also attributable to higher health benefits and
worker's compensation expenses which have risen faster than the general
inflation rate over the past three years. Direct room expenses as a percentage
of room revenues decreased to 28.0% in 1993 as compared to 28.6% in 1992
primarily due to the impact of the divested hotels. Direct room expenses as a
percentage of room revenues for comparable hotels were approximately 27% in
1993 and 1992 as the Company was able to increase room rates to offset the
increases in costs.
Direct food and beverage expenses decreased by $1.2 million or 10.3%
primarily due to the impact of divested full-service hotels. Direct food and
beverage expenses for comparable hotels increased by 2.4% for the year ended
December 31, 1993 over the prior year. Direct food and beverage expenses as a
percentage of food and beverage revenues for comparable hotels decreased to
84.3% for the year ended December 31, 1993 as compared to 86.7% for the year
ended December 31, 1992. This improvement reflects the increase in beverage
sales which have a lower cost of sales percentage versus food sales.
Direct selling and general expenses consist primarily of hotel
expenses which are not specifically allocated to rooms or food and beverage
activities such as administration, selling and advertising, utilities and
repairs and maintenance. Direct selling and general expenses decreased by $1.7
million or 7.6% as the divested hotels were all full-service operations which
generally require increased overhead to support food and beverage operations.
Direct selling and general expenses for comparable Hotels increased by only
1.2% for the year ended December 31, 1993 over the prior year primarily due to
the restructuring of the Company's centralized operations which eliminated
certain allocated central office charges. These cost savings were offset by
higher utility charges as a result of the unusually warm summer in 1993.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned and Managed
Hotels and general corporate expenses. For the year ended December 31, 1993,
general and administrative expenses consisted of $11.7 million of
30
32
centralized management expenses and $4.0 million in general corporate expenses.
General and administrative expenses decreased by $1.5 million or 8.6% for the
year ended December 31, 1993 as compared to the prior year primarily due to the
restructuring of the Company's centralized management operations in February
1993 which eliminated approximately $2.5 million of annual costs.
Other income consists primarily of a gain on the sale of a hotel of
$1.0 million, settlement of closing adjustments of $625,000 related to the sale
of a hotel in a prior year, interest of $1.2 million received as part of a
federal tax refund and $500,000 received in settlement of prior year's fees on
a Managed Hotel.
The pre-tax extraordinary gains of $6.8 million in 1993 relate to the
repurchase of debt. Pre-tax extraordinary gains of approximately $187,000 will
be recognized in the first quarter of 1994 related to additional repurchases.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation- Liquidity and Capital Resources."
Six Months Ended December 31, 1992 Compared to Six Months Ended December 31,
1991
The following discussion and analysis is based on the historical
results of operations of the Company for the six-month periods ended December
31, 1992 and 1991. For purposes of the following discussion, comparisons of
the Company's results of operations for the six-month period ended December 31,
1992 to the same period in the prior year are made only when, in management's
opinion, such comparisons are meaningful. The financial information set forth
below should be read in conjunction with the consolidated financial statements
of the Company included elsewhere in this report.
The following table presents the Company's condensed income statements
for the six months ended December 31, 1992 and 1991 (in thousands):
Six Months Ended
December 31,
1992 1991
-------- --------
Owned and Leased Hotel Properties:
Total direct revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,063 $55,545
Total direct expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,409) (38,497)
------ ------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,654 17,048
Other Revenues and Expenses:
Management fees received . . . . . . . . . . . . . . . . . . . . . . . . . . 5,785 5,364
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,977 12,348
31
33
Six Months Ended
December 31,
1992 1991
-------- --------
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1,872
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,497) (5,622)
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,867) (28,982)
Valuation writedowns and reserves . . . . . . . . . . . . . . . . . . . . . (13,000) --
------ ------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . $(7,953) $ 2,028
====== ======
The Company's results of operations for the six months ended December
31, 1992 changed dramatically from the comparable period of the prior year. As
a result of the Chapter 11, hotel properties were disposed of through lease
rejection, lease expiration, contract termination or sale.
The following table presents the direct revenues and expenses of the
Company's owned and leased hotel properties for the six months ended December
31, 1992 and 1991. The hotel properties are classified into three categories:
comparable hotels; new hotels; and divested hotels. The following discussion
focuses on the 29 comparable hotel properties which were owned or leased by the
Company during the two periods presented. At December 31, 1992, the Company
owned or leased 34 hotel properties. Three new hotel properties which were
opened after June 30, 1991 and two hotel properties which were added through
note receivable settlements in 1992 are classified as "New Hotels". The hotel
properties divested primarily as a result of the Chapter 11 are classified as
"Divested Hotels".
Owned and Leased Properties
(In thousands, except for statistical information)
Six Months Ended
December 31,
1992 1991
-------- --------
Room Revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,672 $25,618
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,668 115
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 16,742
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,772 42,475
Food and Beverage Revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,200 5,156
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 7,914
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,291 13,070
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34
Six Months Ended
December 31,
1992 1991
-------- --------
Direct Room Expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,473 6,896
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786 56
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 5,255
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,373 12,207
Direct Food and Beverage Expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,630 4,064
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,324
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,708 10,388
Selling and General Expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,546 7,692
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689 47
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8,163
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,328 $15,902
Statistical Information:
Comparable hotels:
Occupancy % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.30% 68.52%
Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.41 $54.17
Room revenues for comparable hotels increased by $1.1 million or 4.1%
for the six months ended December 31, 1992 compared to the same period in the
prior year. The increase was due to improved occupancy while average daily
rate remained even with the prior year. The gain in occupancy was primarily
attributable to the improved results at three AmeriSuites hotels, which were
opened in the second half of 1990. In addition, occupancy increased at six
Wellesley Inns located in Florida partially, as a result of Hurricane Andrew.
The Company's inability to increase room rates was caused by the slowdown in
the economy, particularly in the Northeast and increased competition.
Food and beverage revenues for comparable hotels for the six months
ended December 31, 1992 were relatively even with the same period in the prior
year, as a result of the recession in the Northeast where the majority of the
Company's food and beverage outlets are located.
Room expenses as a percentage of room revenues for comparable hotels
increased to 28.0% for the six months ended December 31, 1992 from 26.9% for
the same period in the prior year. Food and beverage expenses as a percentage
of food and beverage revenues for comparable hotels increased to 89.0% from
78.8% for the same period
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in the prior year. The increases in the percentage of expenses to revenues
were primarily attributable to increased labor-related operating costs. In
particular, health benefits and workers' compensation costs have increased at
rates greater than inflation.
Selling and general expenses for comparable hotels increased by 11.1%
for the six months ended December 31, 1992 over the same period in the prior
year primarily due to hiring of additional sales staff, sales training programs
and increased advertising and sales promotion expenses.
The following table presents the Company's other revenues and expenses
for the six months ended December 31, 1992 and 1991 which are not considered
direct operating revenues and expenses of the owned and leased hotels and which
were not affected by accounting changes due to the reorganization and,
therefore, can be compared.
Other Revenues and Expenses
(In thousands)
Six Months Ended
December 31,
1992 1991
-------- --------
Management and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,785 $ 5,364
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,977 12,348
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1872
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 7,637 9,905
The Company derived management fees from the hotel properties it
managed based on a fixed percentage of gross revenues and charges for certain
other services rendered. Under certain agreements, the Company was also
eligible to receive performance-related incentive payments. The Company
managed 28 of its 34 owned and leased hotel properties and managed 50 hotel
properties for third party owners. Management fees increased by $0.4 million
for the six months ended December 31, 1992 as compared to the same period of
the prior year primarily due to incentive payments. The Company had a
concentration of short-term management agreements with a limited number of
related and third party owners. Fees derived from these agreements were
approximately $3.3 million or 57% of the total management and other fees
recognized during the six months ended December 31, 1992.
Interest and dividend income decreased for the six months ended
December 31, 1992 as compared to the same period of the prior year