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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
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Commission file number 33-11096
CRI HOTEL INCOME PARTNERS, L.P.
Organized pursuant to the Laws of the State of Delaware
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Internal Revenue Service - Employer Identification No. 52-1500621
11200 Rockville Pike, Rockville, Maryland 20852
(301) 468-9200
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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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
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CRI HOTEL INCOME PARTNERS, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
- September 30, 2008 and December 31, 2007.................... 1
Statements of Operations
- for the three and nine months ended
September 30, 2008 and 2007................................. 2
Statement of Changes in Partners' (Deficit) Capital
- for the nine months ended September 30, 2008................ 3
Statements of Cash Flows
- for the nine months ended September 30, 2008 and 2007....... 4
Notes to Financial Statements
- September 30, 2008 and 2007................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 11
Item 4. Controls and Procedures......................................... 17
Part II. OTHER INFORMATION
Item 5. Other Information............................................... 17
Item 6. Exhibits........................................................ 19
Signature................................................................ 20
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
September 30, December 31,
2008 2007
------------ ------------
(Unaudited)
Property and equipment - at cost:
Land ............................................................................ $ 1,574,490 $ 1,574,490
Buildings and site improvements ................................................. 14,282,845 14,265,485
Furniture, fixtures and equipment ............................................... 4,186,089 3,721,657
Leasehold improvements .......................................................... 1,431,234 1,431,234
------------ ------------
21,474,658 20,992,866
Less: accumulated depreciation and amortization ................................. (14,345,906) (13,703,827)
------------ ------------
7,128,752 7,289,039
Hotel operating cash .............................................................. 695,808 576,809
Working capital reserve ........................................................... 2,141,529 1,582,408
Capital improvements and real estate tax reserves held by servicer ................ -- 315,585
Receivables and other assets ...................................................... 421,721 329,260
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $731,019 and $697,296, respectively .......... 289,085 322,807
Loan refinancing costs,
net of accumulated amortization of $60,718 ...................................... 209,583 --
Property purchase costs,
net of accumulated amortization of $133,164 and $126,274, respectively .......... 49,102 55,993
Deposit ........................................................................... -- 18,000
------------ ------------
Total assets .................................................................. $ 10,935,580 $ 10,489,901
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses ............................................. $ 815,122 $ 698,514
Hotel trade payables .............................................................. 205,859 228,397
Mortgage payable .................................................................. 7,372,262 7,273,441
------------ ------------
Total liabilities ............................................................. 8,393,243 8,200,352
------------ ------------
Partners' (deficit) capital:
General Partner ................................................................. (337,938) (342,994)
Beneficial Assignee Certificates (BACs) Series A;
868,662 BACs issued and outstanding ........................................... 2,880,275 2,632,543
------------ ------------
Total partners' capital ....................................................... 2,542,337 2,289,549
------------ ------------
Total liabilities and partners' capital ....................................... $ 10,935,580 $ 10,489,901
============ ============
The accompanying notes are an integral part
of these financial statements.
-1-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Revenue:
Rooms ................................ $ 2,549,994 $ 2,463,870 $ 7,855,867 $ 7,897,897
Rental and other ..................... 65,821 65,778 197,707 209,591
Telephone ............................ 10,044 10,622 31,996 34,569
Food and beverage .................... 11,462 8,500 32,910 34,902
----------- ----------- ----------- -----------
2,637,321 2,548,770 8,118,480 8,176,959
----------- ----------- ----------- -----------
Departmental expenses:
Rooms ................................ (720,643) (746,874) (2,134,473) (2,153,822)
Rental and other ..................... (15,940) (19,698) (53,063) (59,622)
Telephone ............................ (17,574) (17,348) (53,520) (49,236)
Food and beverage .................... (8,861) (8,544) (23,783) (26,663)
----------- ----------- ----------- -----------
(763,018) (792,464) (2,264,839) (2,289,343)
----------- ----------- ----------- -----------
Gross operating income ................. 1,874,303 1,756,306 5,853,641 5,887,616
----------- ----------- ----------- -----------
Unallocated operating income (expenses):
Interest and other income ............ 19,768 51,072 70,414 127,091
General and administrative ........... (304,282) (312,985) (1,137,416) (960,419)
Depreciation and amortization ........ (241,408) (240,523) (743,409) (766,096)
Marketing ............................ (229,176) (237,550) (686,078) (719,247)
Property operations and maintenance .. (176,274) (175,727) (541,377) (525,365)
Energy ............................... (182,620) (177,315) (537,883) (516,105)
Building lease ....................... (116,327) (130,788) (536,335) (583,043)
Property taxes ....................... (167,475) (131,178) (438,219) (393,534)
Management fees ...................... (92,564) (89,434) (284,889) (286,878)
Professional fees .................... (58,226) (83,937) (220,302) (192,599)
Base asset management fee ............ (23,438) (23,438) (70,313) (70,313)
----------- ----------- ----------- -----------
(1,572,022) (1,551,803) (5,125,807) (4,886,508)
----------- ----------- ----------- -----------
Operating income ....................... 302,281 204,503 727,834 1,001,108
Interest expense ....................... (191,284) (145,369) (475,046) (434,608)
----------- ----------- ----------- -----------
Net income ............................. $ 110,997 $ 59,134 $ 252,788 $ 566,500
=========== =========== =========== ===========
Net income allocated to
General Partner (2%) ................. $ 2,220 $ 1,183 $ 5,056 $ 11,330
=========== =========== =========== ===========
Net income allocated to
BAC Holders (98%) .................... $ 108,777 $ 57,951 $ 247,732 $ 555,170
=========== =========== =========== ===========
Net income per BAC,
based on 868,662 BACs outstanding .... $ .13 $ .07 $ .29 $ .64
=========== =========== =========== ===========
The accompanying notes are an integral part
of these financial statements.
-2-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
Beneficial
Assignee
General Certificate
Partner Holders Total
--------- ----------- ----------
Partners' (deficit) capital, January 1, 2008 $(342,994) $2,632,543 $2,289,549
Net income 5,056 247,732 252,788
--------- ---------- ----------
Partners' (deficit) capital, September 30, 2008 $(337,938) $2,880,275 $2,542,337
========= ========== ==========
The accompanying notes are an integral part
of these financial statements.
-3-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
--------------------------
2008 2007
----------- -----------
Cash flows from operating activities:
Net income .......................................................... $ 252,788 $ 566,500
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 743,409 766,097
Changes in assets and liabilities:
(Decrease) increase in receivables and other assets, net ........ (92,461) 73,622
Increase in accounts payable and accrued expenses ............... 116,608 45,804
Decrease in hotel trade payables ................................ (22,538) (127,742)
----------- -----------
Net cash provided by operating activities ..................... 997,806 1,324,281
----------- -----------
Cash flows from investing activities:
Additions to property and equipment ................................. (481,792) (191,208)
Net (deposits to) withdrawals from working capital reserve .......... (559,121) (281,960)
Net withdrawals from (deposits to) capital improvements
and real estate tax reserves held by servicer ..................... 315,585 (25,714)
----------- -----------
Net cash used in investing activities ......................... (725,328) (498,882)
----------- -----------
Cash flows from financing activities:
Decrease in deposits ................................................ 18,000 --
Payoff mortgage ..................................................... (7,273,441) (168,833)
Refinance mortgage .................................................. 7,372,262 --
Loan refinancing costs .............................................. (270,300) --
Distribution to BAC holders ......................................... -- (429,186)
Distribution to General Partner ..................................... -- (8,864)
Distribution made on behalf of BAC holders .......................... -- (5,145)
----------- -----------
Net cash provided by (used in) financing activities ........... (153,479) (612,028)
----------- -----------
Net increase in hotel operating cash and cash and cash equivalents .... 118,999 213,371
Hotel operating cash and cash and cash equivalents, beginning of period 576,809 257,861
----------- -----------
Hotel operating cash and cash and cash equivalents, end of period ..... $ 695,808 $ 471,232
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............................ $ 475,046 $ 434,608
=========== ===========
The accompanying notes are an integral part
of these financial statements.
-4-
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of CRICO Hotel Associates I, L.P. (the General Partner), the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of CRI Hotel Income Partners, L. P. (the Partnership) as of September
30, 2008, and the results of its operations for the three and nine month periods
ended September 30, 2008 and 2007 and its cash flows and partners' capital for
the nine month periods ended September 30, 2008 and 2007. The results of
operations for the interim periods ended September 30, 2008, are not necessarily
indicative of the results to be expected for the full year.
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America (US GAAP) and with the instructions to Form 10-Q. Certain information
and accounting policies and footnote disclosures normally included in financial
statements prepared in conformity with US GAAP have been condensed or omitted
pursuant to such instructions. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's 2007 annual report on Form 10-KSB.
The Partnership and the chief operating decision maker consider the hotels'
operations as a single homogeneous business activity as it relates to achieving
their objectives of cash flow growth and capital appreciation. The chief
operating decision maker reviews cash flow and operating results in the
aggregate in order to determine the appropriate level of cash available, if any,
for distribution to the investors in the Partnership. Accordingly, the
Partnership considers itself to operate in a single reportable segment in
accordance with Statement of Financial Accounting Standards No. 131.
2. LONG-LIVED ASSETS
The Partnership reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. Recoverability is measured by a comparison of the carrying
amount of an asset to the estimated future undiscounted net cash flows expected
to be generated by the asset. If an asset were determined to be impaired, its
basis would be adjusted to fair value through the recognition of an impairment
loss. To date, there have been no impairment losses recognized on long-lived
assets.
3. WORKING CAPITAL RESERVE
The working capital reserve of $2,141,529 and $1,582,408 as of September
30, 2008 and December 31, 2007, respectively, represents all cash and cash
equivalents maintained as working capital for the Partnership. In accordance
with the terms of the Partnership Agreement, the working capital reserve may be
increased or reduced by the General Partner as it deems appropriate.
-5-
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
4. CAPITAL IMPROVEMENTS AND REAL ESTATE TAX RESERVES HELD BY SERVICER
In addition to the monthly loan installments under the former mortgage
loan, as discussed below, through May 1, 2008 the Partnership also made monthly
payments which were escrowed for capital improvements (CIR) and estimated annual
real estate taxes. The monthly CIR payment totaling $19,365 was held in escrow
to be drawn on by the Partnership for ongoing capital improvement expenditures
and for the replacement of furniture, fixtures and equipment at the hotels. The
real estate tax payments for annual taxes and assessments to be levied on the
hotels were estimated as $32,655 per month. The servicer of the loan paid such
taxes and assessments when due from these escrows. Both the CIR and real estate
tax payments were due on the same day as the monthly principal and interest
installments. On May 6, 2008, the Partnership's mortgage loan was refinanced
with the proceeds of four separate loans. The Partnership will pay directly for
real estate taxes and capital improvements.
During the nine month periods ended September 30, 2008 and 2007, the
Partnership made escrow deposits aggregating $77,458 and $174,281, respectively,
for capital improvements, and $130,622 and $291,176, respectively, for estimated
annual real estate taxes. As of September 30, 2008, and December 31, 2007, the
former servicer held reserves of $0 and $197,736 respectively, for capital
improvements and $0 and $117,849, respectively, for real estate taxes. The
Partnership was reimbursed by the former servicer in June 2008 for the remaining
balances in the escrowed CIR and real estate tax accounts.
5. MORTGAGES PAYABLE
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate,
Inc. (Citicorp) the Zero Coupon Notes which were originally issued in connection
with the Partnership's acquisition of the hotels. The loan matured January 1,
2008. On that date, a balloon payment in the amount of $7,273,441 became due.
The General Partner was unable to refinance the Partnership's mortgage debt
prior to its maturity. Although the loan was in default, the special servicer
agreed to a forbearance agreement for a period of 180 days for payment of a fee
in the amount of $72,734.41, plus continued monthly payments of principal,
interest (at the pre-default rate) and tax and capital improvements escrows.
On May 6, 2008, the Partnership closed three loans from General Electric
Credit Corporation ("GE") in the aggregate amount of $5,000,000 to refinance the
Plymouth and Roseville hotels in Minnesota and the Clearwater hotel in Florida.
The three loans are cross-collateralized by the three hotels. The Partnership
used the loan proceeds, together with the proceeds of a loan from Remediation
Capital Funding, LLC in the amount of $2,900,000 secured by the University hotel
in Minnesota, to pay off the existing debt in full.
The Phase I environmental study of the University hotel required by GE
revealed excess levels of three chemicals deemed hazardous in the groundwater on
the property. The contamination is not due to acts or omissions of the hotel.
Simultaneously with its refinancing efforts, the Partnership engaged a
consultant to enroll the University property in the Minnesota Pollution Control
Agency's ("MCPA") Voluntary Investigation and Cleanup ("VIC") Program and deal
with the contamination at the site. The Partnership's goal is to obtain a No
Action Letter with a Covenant Not to Sue, at which point it should be able to
-6-
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
5. MORTGAGE PAYABLE - Continued
obtain conventional financing on the property again. NOVA, the Partnership's
consultant, has prepared and submitted an additional Phase I study in accordance
with the guidelines established by the MPCA-VIC Program along with the
application and proposed scope of work for the required Phase II study. On July
16, 2008, the MPCA approved the work plan for the Phase II with samples of soil
and ground water scheduled to begin collection for analysis August 11, 2008. The
Partnership has been advised that the VIC Program process will likely take from
nine months to eighteen months.
The three new GE loans bear interest at the rate of 6.79% per annum and
mature on January 1, 2016 with balloon payments due as set forth below:
Plymouth $887,269
Roseville $2,083,122
Clearwater $887,269
The new loan with Remediation Capital bears interest at the rate of 14% per
annum and matures on May 6, 2009, although the Partnership has two options to
extend the loan for nine months each time. It is contemplated that this loan
will be refinanced after the environmental issues at the University hotel have
been resolved.
The Partnership made installments of principal and interest aggregating
$583,020 and $603,441 for the nine month periods ended September 30, 2008 and
2007. The Partnership's aggregate balance on the current loans was $7,372,262 as
of September 30, 2008. The Partnership's balance on the former loan was
$7,273,441 as of December 31, 2007.
6. DISTRIBUTIONS TO BAC HOLDERS
A distribution in the amount of $221,597 ($0.25 per BAC) was declared and
paid to BAC holders of record and to the General Partner for the first quarter
of 2007 in the amounts of $217,165 and $4,432, respectively. A distribution in
the amount of $221,598 ($0.25 per BAC) was declared and paid to BAC holders of
record, to the General Partner and to the state of Minnesota for withholding for
the second quarter of 2007 in the amounts of $212,021, $4,432 and $5,145,
respectively. A distribution in the amount of $221,597 ($0.25 per BAC) was
declared and paid to BAC holders of record and to the General Partner and to the
state of Minnesota for withholding for the third quarter of 2007 in the amounts
of $212,020, $4,432 and $5,145, respectively. The Partnership did not declare a
distribution for the fourth quarter of 2007 or the first, second and third
quarters of 2008.
-7-
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
7. COMMITMENTS
a. Hotel Management Agreements
---------------------------
The Partnership entered into management agreements with Bryanston
Group d/b/a Buckhead Hotel Management Company, Inc. (Buckhead) in
connection with operation of the hotels. The management agreements were
originally extended during 2001 to expire between November 2007 and July
2008. As the respective contracts expired, the Partnership entered into new
management contracts with Oak Hotels, Inc. under business terms
substantially similar to the former agreements. The new contracts will
expire December 31, 2016, with the exception of Scottsdale, which is
coterminous with the land lease on which that hotel is located. The
agreements provide for a base management fee of 3.5% of gross revenues from
operations. The management agreements also call for an incentive management
fee generally equal to 25% of net cash flow available after payment of a
preferred cash flow return to the Partnership equal to 11% of the aggregate
purchase price for hotels owned by the Partnership. No incentive management
fees were earned for either of the three or nine month periods ended
September 30, 2008 and 2007.
b. Lease Agreements
----------------
The Partnership assumed an existing lease agreement from Days Inns of
America, Inc. in connection with the acquisition of the leasehold interest
in the Scottsdale Days Inn. The assumption transfers the rights to operate
the property on the lease's existing terms over the remaining life of the
lease. In October 2002, the lease was extended to expire on December 31,
2008. There were no further extensions provided in the lease agreement, but
the Partnership has signed a short term extension through December 31, 2009
until the ground lessor decides to re-develop the property. Annual lease
payments are equal to the greater of $140,450 or 22% of total room revenue
and 2.5% of food and beverage revenue. Minimum lease payments of $11,704
are payable monthly with a quarterly analysis of the actual amount due. For
the three month periods ended September 30, 2008 and 2007, lease payments
were $116,327 and $130,788, respectively. For the nine month periods ended
September 30, 2008 and 2007, lease payments were $536,335 and $583,043,
respectively.
c. License Agreements
------------------
The five License Agreements pursuant to which the hotels are operated
as Days Inns have recently been assigned from the current licensee (and
former management agent), Buckhead Hotel Management Company, Inc. d/b/a
Bryanston Group, Inc., to the Partnership as Licensee. The business terms
remained identical.
8. GROUND LEASE AGREEMENTS
The Partnership had leased a portion of the Minneapolis Days Inn property
to Vicorp Restaurants, Inc. (Vicorp), which operated a Baker's Square restaurant
on the property. Gross rental income pursuant to the lease agreement with
Vicorp, which is included in interest and other income in the accompanying
statements of operations, was $0 and $18,424 for the three month periods ended
September 30, 2008 and 2007, respectively, and $12,712 and $55,271 for the nine
month periods ended September 30, 2008 and 2007, respectively. As of March 2008,
-8-
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
8. GROUND LEASE AGREEMENTS - Continued
Vicorp failed to pay the monthly rent due. On April 3, 2008, Vicorp declared
bankruptcy. It rejected the lease as an executory contract as of that date. The
Partnership has engaged a broker to locate a new tenant for the space. It has
also filed a proof of claim for its permitted damages in Vicorp's bankruptcy
case.
The Partnership leases a building adjacent to the hotel on the Roseville
Days Inn property to India Palace, Inc., which operates a restaurant on the
property. The lease expires on September 30, 2010. The lease provides one option
to extend the lease for an additional period of five years. Gross base rental
income pursuant to the lease agreement with India Palace, which is included in
interest and other income in the accompanying statements of operations, was
$7,500 and $22,500 for each of the three and nine month periods ended September
30, 2008 and 2007, respectively.
9. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the General Partner or its affiliates for their direct
expenses in connection with managing the Partnership. The Partnership paid
$17,167 and $186,124 for the three and nine month periods ended September 30,
2008, respectively, and $16,041 and $57,969 for the three and nine month periods
ended September 30, 2007, respectively. Such reimbursed expenses are included in
general and administrative expenses in the accompanying statements of
operations.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to pay the General Partner or its affiliates an annual base asset
management fee (Management Fee), equal to 0.50% of the weighted average balance
of the adjusted partnership investment during the period, as defined in the
Partnership Agreement. The Partnership paid a Management Fee of $23,438 and
$70,313 for each of the three and nine month periods ended September 30, 2008
and 2007.
C.R.I., Inc., the General Partner of the General Partner, has contracted
with Capitol Hotel Group, Inc. (CHG) to perform certain asset management
services related to the oversight of the operations of the hotels. The Chairman
and President of C.R.I., Inc. are the Chairman and President, respectively, of,
and holders of 100% of the equity interest in, CHG.
10. DEPRECIATION AND AMORTIZATION
Depreciation is based on the estimated useful lives of depreciable assets
using the straight-line method. Salvage value has been incorporated relating to
the Scottsdale hotel. The estimated lives used in determining depreciation
follow.
-9-
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
10. DEPRECIATION AND AMORTIZATION - Continued
Type of asset Estimated life
------------- --------------
Building and site improvements 10-30 years
Furniture, fixtures and equipment 7 years
Leasehold improvements Shorter of estimated life
(usually 7 years) or
remaining lease term
Property purchase cost and acquisition fees are being amortized over a
thirty-year period using the straight-line method, except for the Scottsdale
hotel which is being amortized over the remaining lease term. Loan refinancing
costs are being amortized over the life of the loans using the straight-line
method, which approximates the effective interest method.
11. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains two
cash accounts with the same bank. As of September 30, 2008, the uninsured
portion of the cash balance was $2,111,804.
# # #
-10-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
CRI Hotel Income Partners, L.P.'s (the Partnership) Management's Discussion
and Analysis of Financial Condition and Results of Operations section is based
on the financial statements, and contains information that may be considered
forward looking, including statements regarding the effect of governmental
regulations. Actual results may differ materially from those described in the
forward looking statements and will be affected by a variety of factors
including seasonality with respect to the hotel industry, national and local
economic conditions, the general level of interest rates, governmental
regulations affecting the Partnership and interpretations of those regulations,
the competitive environment in which the Partnership operates, and the
availability of working capital.
Travel and the Economy
----------------------
The hotel industry in the third quarter 2008 is continuing to feel the
effects of a sagging economy with decreased demand and lower occupancies, which
had a negative impact at two of the five hotels owned by the Partnership. The
Partnership's ability to pay operating expenses and current liabilities, and to
pay distributions to BAC holders, is primarily dependent upon the performance of
the underlying hotels. The General Partner is currently unable to estimate the
impact the future state of the economy could have on the Partnership's
operations, liquidity, or capital resources.
Distributions
-------------
A distribution in the amount of $221,597 ($0.25 per BAC) was declared
and paid to BAC holders of record and to the General Partner for the first
quarter of 2007 in the amounts of $217,165 and $4,432, respectively. A
distribution in the amount of $221,598 ($0.25 per BAC) was declared and paid to
BAC holders of record, to the General Partner and to the state of Minnesota for
withholding for the second quarter of 2007 in the amounts of $212,021, $4,432
and $5,145, respectively. A distribution in the amount of $221,597 ($0.25 per
BAC) was declared and paid to BAC holders of record and to the General Partner
and to the state of Minnesota for withholding for the third quarter of 2007 in
the amounts of $212,020, $4,432 and $5,145, respectively. The Partnership did
not declare a distribution for the fourth quarter of 2007 or the first, second
and third quarters of 2008.
Financial Condition/Liquidity
-----------------------------
The Partnership expects that the hotels in the aggregate will generate
sufficient cash flow to achieve a positive cash flow after operating expenses.
In addition to the periodic replacement of fixed assets, the General Partner
determined several years ago that certain capital improvements were needed to
enhance the marketability of the hotels. Since 1997, the Partnership funded a
total of approximately $2.5 million from the working capital reserve to the
hotels for such capital improvements.
The Partnership's liquidity and future results of operations are primarily
dependent upon the performance of the underlying hotels. Hotel operations may be
materially affected by changing market conditions and by seasonality caused by
variables such as vacations, holidays and climate. The General Partner continues
to work closely with the hotels' manager to pursue an aggressive marketing
campaign and stricter cost-cutting and cost-control measures in an effort to
maintain liquidity at the hotels.
For the nine month period ended September 30, 2008, net cash provided by
the hotel's operating activities and existing cash resources was adequate to
support investing and financing requirements. The Partnership anticipates that
future cash flows from the hotels' operations and existing cash resources, in
the aggregate, will be sufficient to pay operating expenses, accounts payable
and accrued expenses, and hotel trade payables. Accounts payable and accrued
expenses and hotel trade payables at September 30, 2008 totaled $1,020,981,
which represents a $94,070 increase from December 31, 2007. Accounts payable and
accrued expenses increased primarily due to higher real estate taxes payable,
partially offset by lower audit fees payable. Hotel trade payables decreased
primarily due to timing of payments.
-11-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Financing
- ---------
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate,
Inc. (Citicorp) the Zero Coupon Notes which were originally issued in connection
with the Partnership's acquisition of the hotels. The loan matured January 1,
2008. On that date, a balloon payment in the amount of $7,273,441 became due.
The General Partner was unable to refinance the Partnership's mortgage debt
prior to its maturity. Although the loan was in default, the special servicer
agreed to a forbearance agreement for a period of 180 days for payment of a fee
in the amount of $72,734.41, plus continued monthly payments of principal,
interest (at the pre-default rate) and tax and capital improvements escrows.
On May 6, 2008, the Partnership closed three loans from General Electric
Credit Corporation ("GE") in the aggregate amount of $5,000,000 to refinance the
Plymouth and Roseville hotels in Minnesota and the Clearwater hotel in Florida.
The three loans are cross-collateralized by the three hotels. The Partnership
used the loan proceeds together with the proceeds, of a loan from Remediation
Capital Funding, LLC in the amount of $2,900,000 secured by the University hotel
in Minnesota, to pay off the existing debt in full.
The Phase I environmental study of the University hotel required by GE
revealed excess levels of three chemicals deemed hazardous in the groundwater on
the property. The contamination is not due to acts or omissions of the hotel.
Simultaneously with its refinancing efforts, the Partnership engaged a
consultant to enroll the University property in the Minnesota Pollution Control
Agency's ("MCPA") Voluntary Investigation and Cleanup ("VIC") Program and deal
with the contamination at the site. The Partnership's goal is to obtain a No
Action Letter with a Covenant Not to Sue, at which point it should be able to
obtain financing on the property again. NOVA, the Partnership's consultant has
prepared and submitted an additional Phase I study in accordance with the
guidelines established by the MPCA-VIC Program along with the application and
proposed scope of work for the required Phase II study. On July 16, 2008, the
MPCA approved the work plan for the Phase II with samples of soil and ground
water scheduled to begin collection for analysis August 11, 2008. The
Partnership has been advised that the VIC Program process will likely take from
nine months to eighteen months.
The three new GE loans bear interest at the rate of 6.79% per annum and
mature on January 1, 2016 with balloon payments due as set forth below:
Plymouth $887,269
Roseville $2,083,122
Clearwater $887,269
The new loan with Remediation Capital bears interest at the rate of 14% per
annum and matures on May 6, 2009, although the Partnership has two options to
extend the loan for nine months each time. It is contemplated that this loan
will be refinanced after the environmental issues at the University hotel have
been resolved.
-12-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
The Partnership made installments of principal and interest aggregating
$583,020 and $603,441 for the nine month periods ended September 30, 2008 and
2007. The Partnership's aggregate balance on the current loans was $7,372,262 as
of September 30, 2008. The Partnership's balance on the former loan was
$7,273,441 as of December 31, 2007.
Capital Improvements and Real Estate Tax Reserves Held by Servicer
- ------------------------------------------------------------------
In addition to the monthly loan installments under its former mortgage
loan, as discussed above, the Partnership also made monthly payments which were
escrowed for capital improvements and estimated annual real estate taxes. During
the nine month periods ended September 30, 2008 and 2007, the Partnership made
escrow deposits aggregating $77,458 and $174,281, respectively, for capital
improvements, and $130,622 and $291,176, respectively, for estimated annual real
estate taxes. As of September 30, 2008 and December 31, 2007, the servicer held
reserves of $0 and $197,736, respectively, for capital improvements, and $0 and
$117,849, respectively, for real estate taxes. This loan was refinanced on May
6, 2008. The Partnership was reimbursed by the former servicer in June 2008 for
the remaining balances in the escrowed CIR and real estate tax accounts. The
Partnership will pay directly for real estate taxes and capital improvements.
Working Capital Reserve
- -----------------------
The working capital reserve of $2,141,529 and $1,582,408 as of September
30, 2008 and December 31, 2007, respectively, represents all cash and cash
equivalents maintained as working capital for the Partnership. In accordance
with the terms of the Partnership Agreement, the working capital reserve may be
increased or reduced by the General Partner as it deems appropriate.
Distributions to BAC Holders
- ----------------------------
A distribution in the amount of $221,597 ($0.25 per BAC) was declared and
paid to BAC holders of record and to the General Partner for the first quarter
of 2007 in the amounts of $217,165 and $4,432, respectively. A distribution in
the amount of $221,598 ($0.25 per BAC) was declared and paid to BAC holders of
record, to the General Partner and to the state of Minnesota for withholding for
the second quarter of 2007 in the amounts of $212,021, $4,432 and $5,145,
respectively. A distribution in the amount of $221,597 ($0.25 per BAC) was
declared and paid to BAC holders of record and to the General Partner and to the
state of Minnesota for withholding for the third quarter of 2007 in the amounts
of $212,020, $4,432 and $5,145, respectively. The Partnership did not declare a
distribution for the fourth quarter of 2007 or the first, second and third
quarters of 2008.
Results of Operations - Partnership
-----------------------------------
The Partnership's net income for the three month period ended September 30,
2008, increased compared to the corresponding period in 2007, primarily due to
an increase in gross operating income and a decrease in unallocated operating
expenses, partially offset by increased interest expense and decreased interest
and other income. Gross operating income increased primarily due to higher rooms
revenue, as a result of higher rates, and lower rooms expenses. The decrease in
unallocated operating expenses was primarily due to decreases in professional
fees and building lease expense, partially offset by increased property tax
expense. Professional fees are lower due to a reduction in audit fee expense
associated with the timing of services provided. Building lease expense
decreased due to lower revenues at Scottsdale Days Inn. Property tax expense
increased and interest and other income decreased as the restaurant on the
Minneapolis hotel property is not leased.
The Partnership's net income for the nine month period ended September 30,
2008, decreased compared to September 30, 2007, primarily due to decreases in
-13-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
gross operating income and interest and other income and increases in
unallocated operating expenses and interest expense. Gross operating income
decreased primarily due to lower rooms revenue as a result of lower occupancy.
Unallocated operating expenses increased primarily due to higher general and
administrative expenses due to higher reimbursed payroll costs and the
forbearance fee.
The General Partner is not able to predict the future trend of hotel gross
operating income, especially rooms revenue as it is affected by occupancy and
average daily rate. The General Partner continues to work closely with the
hotels' manager to contain any increase in unallocated operating expenses.
An analysis of each hotel's operating results for the three and nine month
periods ended September 30, 2008 and 2007, follows.
Results of Operations -- Hotels
-------------------------------
Operating statistics
- --------------------
The hotels' results of operations are affected by changing market
conditions and by seasonality caused by variables such as vacations, holidays
and climate. Based on the hotels' operating budgets and historical trends, the
following months should provide the highest net cash flow to the Partnership
from each of the hotels.
Hotel Location Peak Months
-------------- -----------
Clearwater, FL January through April
Minneapolis, MN March through November
Plymouth, MN April through October
Roseville, MN April through October
Scottsdale, AZ January through April; and
October and November
The hotels' results of operations set forth below may not be consistent
with longer-term historical trends.
The Partnership's statements of operations include operating results for
each of the hotels as summarized below. Gross Operating Income represents total
revenue from rooms, rental and other, telephone, and food and beverage, less the
related departmental expenses. Operating Income represents Gross Operating
Income less unallocated operating income and expenses. The results of operations
and average occupancy for the hotels for the three and nine month periods ended
September 30, 2008 and 2007, follow.
Gross Operating Income Gross Operating Income
for the three month periods for the nine month periods
ended September 30, ended September 30,
--------------------------- --------------------------
Hotel Location 2008 2007 2008 2007
-------------- ---------- ---------- ---------- ----------
Clearwater, FL $ 94,881 $ 153,394 $ 588,905 $ 740,753
Minneapolis, MN 690,242 585,071 1,739,836 1,605,674
Plymouth, MN 308,931 251,330 707,500 605,542
Roseville, MN 406,560 353,244 885,593 839,914
Scottsdale, AZ 373,689 413,267 1,931,807 2,095,733
---------- ---------- ---------- ----------
Total $1,874,303 $1,756,306 $5,853,641 $5,887,616
========== ========== ========== ==========
-14-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Operating (Loss) Income Operating Income
for the three month periods for the nine month periods
ended September 30, ended September 30,
--------------------------- --------------------------
2008 2007 2008 2007
---------- ---------- ----------- ----------
Clearwater, Fl $ (76,097) $ (49,319) $ 10,445 $ 106,946
Minneapolis, MN 429,902 344,536 995,283 899,526
Plymouth, MN 151,521 105,385 267,623 181,934
Roseville, MN 230,811 194,297 427,866 385,514
Scottsdale, AZ (81,980) (61,832) 342,456 426,267
Depreciation and partnership
operating expenses (351,876) (328,564) (1,315,839) (999,079)
---------- ---------- ----------- ----------
$ 302,281 $ 204,503 $ 727,834 $1,001,108
========== ========== =========== ==========
Average Occupancy Average Occupancy
for the three month periods for the nine month periods
ended September 30, ended September 30,
--------------------------- --------------------------
2008 2007 2008 2007
---------- ---------- --------- ---------
Clearwater, Fl 36% 53% 52% 59%
Minneapolis, MN 86% 91% 82% 87%
Plymouth, MN 76% 75% 72% 68%
Roseville, MN 83% 84% 72% 74%
Scottsdale, AZ 76% 81% 76% 85%
Three Month Periods Ended September 30, 2008
--------------------------------------------
Clearwater, Florida: Gross operating income decreased and operating loss
increased for the three month period ended September 30, 2008 compared to 2007,
primarily due to decreases in rooms revenue and rental and other revenue and
increased property tax expense, partially offset by decreases in rooms expense,
telephone expense, rental and other expense, marketing expense, energy expense,
repair and maintenance expenses, management fees and insurance expense.
Occupancy decreased due to several main factors; higher fuel prices, the
decrease in housing and construction markets, and a highly active hurricane
season.
Minneapolis, Minnesota: Gross operating income and operating income for the
three month period ended September 30, 2008 increased compared to 2007,
primarily due to increases in rooms revenue and rental and other revenue and
decreased marketing expense, partially offset by decreased telephone revenue and
increases in rooms expense, telephone expense, rental and other expense, general
and administrative expenses, energy expense, repair and maintenance expenses,
management fees, insurance expense and property tax expense. Occupancy decreased
due to market demand.
Plymouth, Minnesota: Gross operating income and operating income for the three
month period ended September 30, 2008 increased compared to 2007, primarily due
to increases in rooms revenue and telephone revenue and decreases in telephone
expense, rental and other expense and energy expense, partially offset by
decreased rental and other revenue and increased general and administrative
expenses, marketing expense, repair and maintenance expenses, management fees,
insurance expense and property tax expense. Occupancy was flat to last year.
Roseville, Minnesota: Gross operating income and operating income for the three
month period ended September 30, 2008 increased compared to 2007, primarily due
to increases in rooms revenue and rental and other revenue and decreases in
telephone expense, rental and other expense and marketing expense, partially
offset by decreased telephone revenue and increased rooms expense, general and
administrative expenses, energy expense, repair and maintenance expenses,
management fees, insurance expense and property tax expense. Occupancy was flat
to last year.
-15-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Scottsdale, Arizona: Gross operating income decreased and operating loss
increased for the three month period ended September 30, 2008 compared to 2007,
primarily due to decreases in rooms revenue and rental and other revenue and
increases in food and beverage expense, telephone expense, marketing expense,
energy expense and insurance expenses, partially offset by increased food and
beverage revenue and telephone revenue and decreased rooms expense, general and
administrative expenses, repair and maintenance expenses, management fees,
property tax expense and land lease expense. Occupancy decreased in all market
segments with the exception of tour and travel due to the lack of demand mostly
impacted by the economy.
Nine month Periods Ended September 30, 2007
-------------------------------------------
Clearwater, Florida: Gross operating income and operating income for the nine
month period ended September 30, 2008 decreased compared to 2007, primarily due
to decreases in rooms revenue, telephone revenue and rental and other revenue
and increases in telephone expense and property tax expense, partially offset by
decreases in rooms expense, rental and other expenses, general and
administrative expenses, marketing expense, energy expense, repair and
maintenance expenses, management fees and insurance expense. Occupancy decreased
due to market demand and the loss of a high rated non-repeating aerotech group
in the first and second quarter, higher fuel prices, and a highly active
hurricane season.
Minneapolis, Minnesota: Gross operating income and operating income for the nine
month period ended September 30, 2008 increased compared to 2007, primarily due
to increases in rooms revenue and rental and other revenue and decreases in
general and administrative expenses and marketing expense, partially offset by
increases in rooms expense, telephone expense, rental and other expense, energy
expense, repair and maintenance expenses, management fees, insurance expense and
property tax expense. Occupancy decreased due to a decline in market demand and
a reduction in university sports and visitors in the first quarter, mostly due
to the NCAA swimming event not being held at the University of Minnesota in
March 2008 and market demand.
Plymouth, Minnesota: Gross operating income and operating income for the nine
month period ended September 30, 2008 increased compared to 2007, primarily due
to increased rooms revenue and decreased telephone expense, rental and other
expense, general and administrative expenses and energy expense, partially
offset by decreased rental and other revenue and increased rooms expense, energy
expense, repair and maintenance expenses, management fees, insurance expense and
property tax expense. Occupancy increased as a result of production from
corporate groups.
Roseville, Minnesota: Gross operating income and operating income increased for
the nine month period ended September 30, 2008 compared to 2007, primarily due
to increased rooms revenue and decreases in telephone expense and marketing
expense, partially offset by decreases in telephone revenue and rental and other
revenue and increases in rooms expense, rental and other expense, general and
administrative expenses, energy expense, repair and maintenance expenses,
management fees, insurance expense and property tax expense. Occupancy decreased
due to a decline in market demand and ongoing road construction.
Scottsdale, Arizona: Gross operating income and operating income for the nine
month period ended September 30, 2008 decreased compared to 2007, primarily due
to decreases in rooms revenue, food and beverage revenue and telephone revenue
and increases in telephone expense, rental and other expense, marketing expense,
energy expense and insurance expense, partially offset by increased rental and
other revenue and decreases in rooms expense, food and beverage expense, general
and administrative expenses, repair and maintenance expenses, management fees,
property tax expense and land lease expense. Occupancy decreased due to a
decline in market demand and construction at the adjacent mall.
-16-
Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures
In October 2008, representatives of the Managing General Partner of the
Partnership carried out an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures, pursuant to
Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not
expect that the Partnership's disclosure controls and procedures will prevent
all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that
as of September 30, 2008, our disclosure controls and procedures were effective
to ensure that (i) the information required to be disclosed by us in the reports
filed or submitted by us under the Securities Exchange Act of 1934, as amended,
was recorded, processed, summarized or reported within the time periods
specified in the SEC's rules and forms and (ii) such information was accumulated
and communicated to management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure. In addition, there have been no significant changes in the
Partnership's internal controls over financial reporting that occurred during
the Partnership's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Partnership's internal controls over
financial reporting.
Part II. OTHER INFORMATION
Item 5. Other Information
a. There has not been any information required to be disclosed in a report on
Form 8-K during the quarter ended September 30, 2008, but not reported,
whether or not otherwise required by this Form 10-Q at September 30, 2008.
b. There is no established market for the purchase and sale of BACs, although
various informal secondary market services exist. Due to the limited
markets, however, investors may be unable to sell or otherwise dispose of
their BACs.
Registered Tender Offer
-----------------------
On April 2, 2007, MacKenzie Patterson Fuller L.P. and numerous affiliated
entities (MacKenzie) initiated a registered tender offer to purchase all of the
outstanding BACs at a price of $12.50 per BAC. The offer expired on May 4, 2007.
MacKenzie is not affiliated with the Partnership or the General Partner. The
price offered was determined solely at the discretion of MacKenzie and does not
necessarily represent the fair market value of each BAC. In response to the
MacKenzie registered tender offer, on April 11, 2007, the General Partner filed
a Schedule 14D- 9. In that filing, the General Partner recommended that BAC
holders reject the MacKenzie offer because the offer price was far lower than
MacKenzie's own estimated liquidation value of the Partnership and it believed
that current BAC holders could realize that difference in value themselves by
choosing to hold their investments for several more years until the
Partnership's assets are liquidated.
-17-
Part II. OTHER INFORMATION
Item 5. Other Information - Continued
A number of investors have sold their BACs to other investors. If more than
two percent of the total outstanding BACs are transferred due to sale in any one
calendar year (not counting certain exempt transfers), the Partnership could be
taxed as a "publicly traded partnership," with potentially severe tax
implications for the Partnership and its investors. Section 7704 of the Internal
Revenue Code defines the term "publicly traded partnership" as any partnership
for federal income tax purposes, the interests of which are readily traded on an
established securities market, or readily tradable on a secondary market or the
substantial equivalent thereof. If the Partnership is classified as a "publicly
traded partnership" or otherwise fails to qualify as a partnership for federal
income tax purposes in any taxable year, it would then be subject to federal
income tax on any taxable income in that taxable year at regular corporate
rates. A BAC holder could not then take into account the BAC Holder's
distributive share of the Partnership's income and would be subject to tax on
the BAC holder's share of the Partnership's income to the extent distributed
either as dividends out of current or accumulated earnings and profits or as
taxable gain in excess of the tax basis of the investor's BACs. A BAC holder
could also have to file amended income tax returns. If the Partnership were
taxed as a corporation, the BAC holder's cash flow, return on investment and the
value of the investor's BACs would be significantly reduced. Also, the income
and losses from the Partnership would no longer be considered a passive
activity.
From January 1, 2007 through April 29, 2007, the Partnership received sale
transfer requests for approximately 2.0% of the outstanding BAC's. Accordingly,
to remain within the two percent safe harbor, effective April 30, 2007, the
General Partner halted recognition of any transfers that would exceed the safe
harbor limit through December 31, 2007. As a result, transfers of BACs due to
sale transactions were not recognized by the Partnership between April 30, 2007
and December 31, 2007. The Partnership's unaffiliated transfer agent, Registrar
& Transfer Company, informed the General Partner in late January, 2008 that it
had processed sale transfers in excess of four percent of the outstanding BACs
in early January, 2008. Accordingly, the General Partner instructed the transfer
agent to halt all further sale transfers for the rest of 2008. The Partnership
sought an opinion from its tax counsel that it is "more likely than not" that
there would be no adverse tax consequences to the Partnership in connection with
exceeding the safe harbor limitation in 2008. In supplying information requested
in connection with the opinion, the General Partner became aware that the
percentage of trades significantly exceeded the safe harbor in 2006, when
Treasury Regulations applicable to the Partnership reduced the safe harbor
amount from five percent to two percent, and in 2007, when a re-calculation of
the non-exempt transfers reflected a total transfer of 2.21%. However, if
transfers in connection with known tender offers are not counted, the percentage
of sale transfers is reduced to well under two percent. The Partnership's tax
attorneys issued an opinion to the effect that the transfers pursuant to the
tender offers were not the type of regular and ongoing trading activities
contemplated as constituting public trading and that therefore it was more
likely than not that such trading would not result in the Partnership being
treated as a publicly traded partnership under Section 7704. However, there can
be no assurance that the Internal Revenue Service will agree with the
Partnership's position and take no action to treat it as a publicly traded
partnership.
-18-
Part II. OTHER INFORMATION
Item 6. Exhibits
Exhibit No. Description
- ----------- -----------
10.1 Form of Management Agreement dated March 1, 2008, between
Registrant and Oak Hotels, Inc. for the University, Plymouth and
Roseville hotels, April 1, 2008 for the Clearwater Hotel and July
1, 2008 for the Scottsdale Hotel.
31.1 Certification of Principal Executive Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
All other items are not applicable.
-19-
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CRI HOTEL INCOME PARTNERS, L.P.
--------------------------------------------------
(Registrant)
by: CRICO Hotel Associates I, L.P.
---------------------------------------------
General Partner
by: C.R.I., Inc.
----------------------------------------
its General Partner
November 13, 2008 by: /s/ H. William Willoughby
- ----------------- -----------------------------------
DATE H. William Willoughby,
Director, President, Secretary,
Principal Financial Officer and
Principal Accounting Officer
-20-