Meritage Completes Initial Property Sale-Leaseback Transaction
GRAND RAPIDS, Mich., Nov. 4 /PRNewswire-FirstCall/ -- Meritage Hospitality
Group Inc. (AMEX:MHG), the nation's only publicly traded Wendy's franchisee and
the nation's first O'Charley's franchisee, today announced that the Company
completed a sale and leaseback transaction on November 3, 2004, involving a
Wendy's restaurant property. The property was sold to an unrelated third party
who then leased the property back to the Company under a 20-year lease
agreement standard for the industry.
The Company collected $1,893,000 in net proceeds from the transaction, used
$928,000 to pay down long-term indebtedness, and deposited the balance of
$965,000 into the Company's treasury. The sale resulted in a deferred gain of
$975,000 before income taxes which will be amortized over the 20-year lease
term. This sale will result in a one-time finance charge of approximately
$65,000 in the fourth quarter 2004. Subject to market conditions, the Company
may enter into additional sale and leaseback transactions containing similar
terms, with related charges and deferred gains, over the next 12 months. These
additional transactions could result in aggregate gross proceeds of
approximately $25 million. The Company anticipates that it would use
approximately 60% of the pre-tax proceeds to pay off long-term debt, with
remaining net proceeds being deposited into treasury and available for general
corporate purposes including new O'Charley's and Wendy's restaurant
development.
"We continue to evaluate the return on invested capital in both the Wendy's and
O'Charley's concepts in order to maximize long-term shareholder value. This
transaction and any future transactions will allow the Company to re-capitalize
the balance sheet by paying down long-term debt and increasing cash on hand,
both of which support our strategic objective of maintaining a strong balance
sheet and a less-leveraged new store growth model. A less- leveraged model
allows us to achieve store level profitability sooner," stated Robert E. Schermer, Jr., the Company's CEO.
Meritage currently operates 47 "Wendy's Old Fashioned Hamburgers" restaurants
throughout Western and Southern Michigan serving more than nine million
customers annually. The Company has been one of the fastest growing Wendy's
franchisees within the Wendy's franchise system during the past four years.
The Company also expanded into the casual dining segment when it entered into
the nation's first development agreement with O'Charley's Inc., giving Meritage
the exclusive rights to develop O'Charley's restaurants in the State of
Michigan.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995 Certain statements contained in this news release that are not historical facts
constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbors created by that Act. Forward-looking statements may be identified
by words such as "estimates," "anticipates," "projects," "plans," "expects,"
"believes," "should," and similar expressions, and by the context in which they
are used. Such statements are based only upon current expectations of the
Company. Any forward-looking statement speaks only as of the date made.
Reliance should not be placed on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors which may
cause actual results, performance or achievements to differ materially from
those expressed or implied. Meritage undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date on
which they are made.
Statements concerning expected financial performance, business strategies and
action which Meritage intends to pursue to achieve its strategic objectives,
constitute forward-looking information. Implementation of these strategies and
achievement of such financial performance are subject to numerous conditions,
uncertainties and risk factors, which could cause actual performance to differ
materially from the forward-looking statements. These include, without
limitation: competition; changes in the national or local economy; changes in
consumer tastes and eating habits; concerns about the nutritional quality of
our restaurant menu items; concerns about consumption of beef or other menu
items due to diseases including E. coli, hepatitis, and mad cow; promotions and
price discounting by competitors; severe weather; changes in travel patterns;
road construction; demographic trends; the cost of food, labor and energy; the
availability and cost of suitable restaurant sites; delays in scheduled
restaurant openings; the ability to finance expansion; interest rates;
insurance costs; the availability of adequate managers and hourly-paid
employees; directives issued by the franchisor regarding operations and menu
pricing; the general reputation of Meritage's and its franchisors' restaurants;
legal claims; and the recurring need for renovation and capital improvements.
In addition, Meritage's expansion into the casual dining restaurant segment as
a franchisee of O'Charley's will subject Meritage to additional risks
including, without limitation, unanticipated expenses or difficulties in
securing market acceptance of the O'Charley's restaurant brand, the ability of
our management and infrastructure to successfully implement the O'Charley's
development plan in Michigan, and our limited experience in the casual dining
segment. Also, Meritage is subject to extensive government regulations
relating to, among other things, zoning, public health, sanitation, alcoholic
beverage control, environment, food preparation, minimum and overtime wages and
tips, employment of minors, citizenship requirements, working conditions, and
the operation of its restaurants. Because Meritage's operations are
concentrated in certain areas of Michigan, a marked decline in Michigan's
economy, or in the local economies where our restaurants are located, could
adversely affect our operations. DATASOURCE: Meritage Hospitality Group Inc.
CONTACT: Robert E. Schermer, Jr. of Meritage Hospitality Group Inc., +1-616-776-2600 Web site: http://www.meritagehospitality.com/
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