Published in Economic Development

Meritage declines $29.1 million in PPP loans, citing ‘shifting rules, unclear guidance’

BY Tuesday, May 12, 2020 04:35pm

GRAND RAPIDS — Restaurant operator Meritage Hospitality Group Inc. said today that it declined millions in loans under a federal coronavirus relief program intended for small businesses. 

Citing a range of factors, Meritage (OTCQX: MHGU) said it declined $29.1 million in U.S. Small Business Administration loans under the Paycheck Protection Program included in the  Coronavirus Aid, Relief and Economic Security (CARES) Act. The company’s lender had approved the loans on April 6, and Meritage later disclosed the funding in an April 16 statement on the operational effects of the COVID-19 pandemic. 

Meritage CEO Robert Schermer Jr. COURTESY PHOTO

“As a result of shifting rules, unclear guidance and stabilized restaurant sales, the Company chose not to accept loans or participate in the (Paycheck Protection) Program but elected to participate in other tax benefits provided for under the CARES Act,” according to a statement from the company.

Meritage generated nearly half a billion in revenue in 2019 and employs 10,500 employees across its portfolio of 335 restaurants in 16 states. The company previously told WOOD-TV that it applied for the PPP loans in the first round of funding through its various subsidiaries that own individual restaurant locations. 

Other large national restaurant operators including Shake Shack and Ruth’s Chris also were approved for the PPP funding, but later declined the loans or returned the money.

In the second round of PPP funding, public companies were excluded from participating.

In a first quarter earnings release issued today, Meritage CEO Robert Schermer Jr. called the first three months of the year “a tale of two extremes.” 

“Early in the quarter, we hired 1,400 additional team members across our Wendy’s restaurant system, preparing for the national breakfast roll-out. We experienced record same store sales growth from breakfast, which continues to perform well in the social distancing environment,” Schermer stated. “The pandemic arrived mid-March, with Government ordered closure of restaurant dining rooms and state shelter-in-place mandates. We closed 335 dining rooms, including 8 restaurants entirely, on a temporary basis.”

As social distancing measures were imposed and the pandemic spread, Meritage suspended non-essential capital expenditures and restaurant developments and suspended dividends to shareholders, according to a statement. The company said it also “requested landlord rent relief and interest only loan payments for 90 days.” 

For the quarter, Meritage’s sales grew 7 percent on a year-over-year basis to $117.8 million. The company reported a quarterly net loss of $3.7 million, versus net income of $4.1 million in the same period a year ago. The results included a non-cash loss of $1 million related to an interest rate swap agreement, according to the company. 

Looking ahead, Meritage said that weekly sales at its Wendy’s stores “continue to improve as many states and communities we serve move toward re-opening.” Meritage expects to hire restaurant employees “once the closure mandates are lifted and normal dining room occupancy is restored.” 

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