SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Period ended March 31, 1998 Commission File 0-10134
SUPER 8 MOTELS III, LTD
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94 - 2664921
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 J Street
Sacramento, California 95814
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Address of principal executive offices Zip Code
Registrant's telephone number,
including area code (916) 442 - 9183
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 XX No __
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
INDEX
Financial Statements: PAGE
Balance Sheet - March 31, 1998 and December 31, 1997 2
Statement of Operations - Three Months Ended
March 31, 1998 and 1997 3
Statement of Changes in Partners' Equity -
Three Months Ended March 31, 1998 and 1997 4
Statement of Cash Flows - Three Months Ended
March 31, 1998 and 1997 5
Notes to Financial Statements 6
Management Discussion and Analysis 7
Other Information and Signatures 8 - 10
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Balance Sheet
March 31, 1998 and December 31, 1997
3/31/98 12/31/97
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ASSETS
Current Assets:
Cash and temporary investments $ 374,860 $ 362,215
Accounts receivable 123,430 100,184
Prepaid expenses 523 9,229
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Total current assets 498,813 471,628
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Property and Equipment:
Land 1,670,129 1,670,129
Capital improvements 26,175 26,175
Buildings 3,276,870 3,276,870
Furniture and equipment 789,579 782,439
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5,762,753 5,755,613
Accumulated depreciation (3,003,882) (2,968,172)
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Property and equipment, net 2,758,871 2,787,441
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Total Assets $ 3,257,684 $ 3,259,069
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LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 153,934 $ 116,417
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Total current liabilities 153,934 116,417
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Total liabilities 153,934 116,417
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Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 20,730 20,376
Limited Partners 3,083,020 3,122,276
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Total partners' equity 3,103,750 3,142,652
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Total Liabilities and Partners' Equity $ 3,257,684 $ 3,259,069
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The accompanying notes are an integral part of the financial statements.
2
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Statement of Operations
For the three Months Ended March 31, 1998 and 1997
Three Months Three Months
Ended Ended
3/31/98 3/31/97
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Income:
Guest room $ 409,194 $ 403,295
Telephone and vending 7,241 8,408
Interest 2,615 1,362
Other 820 919
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Total Income 419,870 413,984
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Expenses:
Motel operating expenses (Note 2) 278,553 279,414
General and administrative 49,383 22,461
Depreciation and amortization 35,710 38,576
Property management fees 20,863 20,646
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Total Expenses 384,509 361,097
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Net Income (Loss) $ 35,361 $ 52,887
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Net Income (Loss) Allocable
to General Partners $354 $529
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Net Income (Loss) Allocable
to Limited Partners $35,007 $52,358
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Net Income (Loss)
per Partnership Unit $5.89 $8.81
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Distribution to Limited Partners
per Partnership Unit $12.50 $0.00
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The accompanying notes are an integral part of the financial statements.
3
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Statement of Partners' Equity
For the three Months Ended March 31, 1998 and 1997
1998 1997
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General Partners:
Balance at beginning of year $ 20,376 $ 19,205
Net income (loss) 354 529
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Balance at end of period 20,730 19,734
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Limited Partners:
Balance at beginning of year 3,122,276 3,154,879
Net income (loss) 35,007 52,358
Less: Cash distributions (74,263) -
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Balance at end of period 3,083,020 3,207,237
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Total balance at end of period $ 3,103,750 $ 3,226,971
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The accompanying notes are an integral part of the financial statements.
4
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Statement of Cash Flows
For the three Months Ended March 31, 1998 and 1997
1998 1997
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Cash Flows From Operating Activities:
Received from motel revenues $ 394,009 $ 410,194
Expended for motel operations
and general and administrative expenses (302,576) (282,831)
Interest received 2,615 1,362
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Net cash provided (used) by operating activities 94,048 128,725
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Cash Flows From Investing Activities:
Purchases of property and equipment (7,140) -
Proceeds from sale of equipment - 120
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Net cash provided (used) by investing activities (7,140) 120
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Cash Flows From Financing Activities:
Distributions paid to Limited Partners (74,263) -
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Net cash provided (used) by financing activities (74,263) -
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Net increase in cash and temporary investments 12,645 128,845
Cash and temporary investments:
Beginning of year 362,215 254,782
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End of period $ 374,860 $ 383,627
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Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net income (loss) $ 35,361 $ 52,887
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,710 38,576
Gain on disposition of property - (120)
(Increase) decrease in accounts receivable (23,246) (2,428)
(Increase) decrease in prepaid expenses 8,706 9,239
Increase (decrease) in accounts payable
and accrued liabilities 37,517 30,571
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Total adjustments 58,687 75,838
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Net cash provided by operating activities $ 94,048 $ 128,725
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The accompanying notes are an integral part of the financial statements.
5
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Notes to Financial Statements
March 31, 1998
Note 1:
The attached interim financial statements include all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended December 31, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid or accrued to the General Partner or affiliates
for the period.
Property Management Fees $20,863
Franchise Fees $8,184
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods reported:
Three Months Three Months
Ended Ended
3/31/98 3/31/97
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Salaries and related costs $ 115,284 $ 109,729
Franchise and advertising 20,460 20,171
Utilities 21,235 22,665
Allocated costs,
mainly indirect salaries 49,761 44,110
Replacements and renovations 5,950 12,040
Other operating expenses 65,863 70,699
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Total motel operating expenses $ 278,553 $ 279,414
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The following additional material contingencies are required to be restated in
interim reports under federal securities law: None.
6
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
MARCH 31, 1998
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's current assets of $498,813 exceed its current liabilities of
$153,934 by $344,879. This excess of current assets over current liabilities
constitutes an operating reserve that is greater than the $297,050 operating
reserve requirement in the Partnership Agreement.
The Partnership has no major commitments for capital expenditures. During the
three months ended March 31, 1998, the Partnership expended $13,091 in such
expenditures which is equal to 3.2% of guest room revenue. Included in that
amount was $7,140 for replacement guest room carpets.
RESULTS OF OPERATIONS
The following is a comparison of the first three months of the fiscal year
ending December 31, 1998 with the corresponding period of the preceding fiscal
year.
Total revenues increased $5,886 (or 1.4%) for the three month period as compared
to the previous fiscal year. The increase in total revenue was due to a $5,899
(or 1.5%) increase in room revenue. Motel occupancy decreased from 74.3% in 1997
to 72.4% in 1998, which was offset by an increase in the average room rate from
$35.25 in 1997 to $36.73 in 1998. The decrease was due to a reduction in the
corporate business market segment at the San Bernardino motel.
The Partnership's expenses increased by $23,412 or 6.5%. This expense increase
was due to increased minimum wage requirements and to legal, appraisal and other
costs associated with the potential liquidation of the partnership.
FUTURE TRENDS
The General Partners expect that overall occupancy for the fiscal year ending
December 31, 1998 will be no greater or the same as that achieved in 1997. The
General Partners expect income for the current fiscal year to be no greater than
the previous fiscal year. Expenses are subject to both cost inflation and to the
deferred maintenance associated with the effects of high occupancy in previous
years. The net effect should be net income equal to or slightly less than the
previous fiscal year result.
As discussed in more detail in the following section labeled "Legal
Proceedings," the General Partners have agreed to offer the motels for sale and
to present any offer that equal or exceeds 75% of the appraised value for the
approval of the Limited Partners.
In the opinion of management, these financial statements reflect all adjustments
which were necessary to a fair statement of results for the interim periods
presented. All adjustments are of a normal recurring nature.
7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 27, 1997 a complaint was filed in the United States District Court,
Eastern District of California by the registrant, the Managing General Partner,
and four other limited partnerships (together with the registrant, the
"Partnerships") as to which the Managing General Partner serves as general
partner (i.e., Super 8 Motels, Ltd., Super 8 Motels II, Ltd., Super 8 Economy
Lodging IV, Ltd. and Famous Host Lodging V, L.P.), as plaintiffs. The complaint
named as defendants Everest/Madison Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties, LLC, Everest Partners, LLC, Everest Properties II, LLC,
Everest Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre
Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron,
Ronald J. Kravit, and Stephen P. Enquist ( the "Everest Defendants"). The
factual basis underlying the plaintiffs' causes of actions pertained to tender
offers directed by certain of the defendants to limited partners of the
Partnerships, and to indications of interest made by certain of the defendants
in purchasing the property of the Partnerships. The complaint requested the
following relief: (i) a declaration that each of the defendants had violated
Sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations promulgated by the Securities and
Exchange Commission thereunder; (ii) a declaration that certain of the
defendants had violated Section 15(a) of the Exchange Act and the rules and
regulations thereunder; (iii) an order permanently enjoining the defendants from
(a) soliciting tenders of or accepting for purchase securities of the
Partnerships, (b) exercising any voting rights attendant to the securities
already acquired, (c) soliciting proxies, and (d) violating Sections 13 or 14 of
the Exchange Act or the rules and regulations promulgated thereunder; (iv) an
order enjoining certain of the defendants from violating Section 15(a) of the
Exchange Act and the rules and regulations promulgated thereunder; (v) an order
directing certain of the defendants to offer to each person who sold securities
to such defendants the right to rescind such sale; and (vi) a declaration that
the Partnerships need not provide to the defendants a list of limited partners
in the Partnerships or any other information respecting the Partnerships which
is not publicly available.
On October 28, 1997 a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC, as plaintiffs, against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnerships, as
nominal defendants. The factual basis underlying the causes of action pertained
to the receipt by the defendants of franchise fees and reimbursement of
expenses, the indications of interest made by the plaintiffs in purchasing the
properties of the nominal defendants, and the alleged refusal of the defendants
to provide information required by the terms of the Partnerships' partnership
agreements and California law. The complaint requested the following relief: (i)
a declaration that the action has a proper derivative action; (ii) an order
requiring the defendants to discharge their fiduciary duties to the Partnerships
and to enjoin them from breaching their fiduciary duties; (iii) disgorgement of
certain profits; (iv) appointment of a receiver; and (v) an award for damages in
an amount to be determined.
8
PART II. OTHER INFORMATION (Continued)
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, among other things, the General Partner has agreed to proceed with
the marketing for sale of the properties of the Partnerships, if by June 30,
1998, it receives an offer to purchase one or more properties for a cash price
equal to 75% or more of the appraised value. In addition, the General Partner
has agreed to submit the offer for approval to the limited partners as required
by the partnership agreements and applicable law. The General Partner has also
agreed that upon the sale of one or more properties, to distribute promptly the
proceeds of the sale after payment of payables and retention of reserves to pay
anticipated expenses. The Everest Defendants agreed not to generally solicit the
acquisition of any additional units of the Partnerships without first filing
necessary documents with the SEC. Under the terms of the settlement agreement,
the Partnerships have agreed to reimburse the Everest Defendants for certain
costs not to exceed $60,000, to be allocated among the Partnerships. Of this
amount, the Partnership will pay approximately $12,000 during the year covered
by this report.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matter to the Vote of Security Holders
None
Item 5. Other Information
See Notes to Financial Statements
Item 6. Exhibits and Reports on Form 8-K
None
9
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUPER 8 MOTELS, III Ltd.
4-30-98 By /S/ Philip B. Grotewohl
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Date Philip B. Grotewohl,
Chairman of Grotewohl
Management Services, Inc.,
Managing General Partner
4-30-98 By /S/ Philip B. Grotewohl
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Date Philip B. Grotewohl,
Chief executive officer,
chief financial officer,
chief accounting officer
and sole director of
Grotewohl Management
Services, Inc., Managing
General Partner
10