FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period.........to.........
Commission file number 0-16491
GROWTH HOTEL INVESTORS II
(Exact name of registrant as specified in its charter)
California 94-2997382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
(Issuer's phone number) (864) 239-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) GROWTH HOTEL INVESTORS II
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $16,015 $ 8,302
Restricted cash -- 208
Deferred costs -- 1,692
Accounts receivable and other assets 128 1,104
Investment properties:
Land -- 15,725
Buildings and related personal property -- 111,335
-- 127,060
Less accumulated depreciation -- (43,677)
-- 83,383
Total Assets $16,143 $ 94,689
Liabilities and Partners' Capital (Deficit)
Accounts payable and other liabilities $ 7,340 $ 2,271
Due (from) to affiliate of the joint venture partner (38) 827
Notes payable -- 49,215
Minority interest in joint ventures (6,421) 2,374
Partners' Capital (Deficit):
General partners' $ (721) $ (227)
Limited partners' (58,982 units outstanding) 15,983 40,229
15,262 40,002
Total liabilities and partners' capital $16,143 $ 94,689
<FN>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Consolidated Financial Statements
</FN>
b) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Hotel operations $ 202 $ 14,523 $ 24,684 $ 40,031
Interest income 331 82 574 231
Gain on sale of investment
properties 5,589 -- 63,689 --
Total revenues 6,122 14,605 88,947 40,262
Expenses:
Hotel operations 806 8,617 16,867 24,551
Mortgage interest 36 1,199 2,355 3,608
Depreciation 43 1,378 3,094 4,070
General and administrative 559 426 1,167 1,238
Litigation settlement -- -- 1,217 --
Total expenses 1,444 11,620 24,700 33,467
Income before minority interest
in joint venture's operations
and extraordinary loss on
early extinguishment of debt 4,678 2,985 64,247 6,795
Minority interest in joint
venture's operations (1,485) (769) (17,985) (1,571)
Income before extraordinary item 3,193 2,216 46,262 5,224
Extraordinary loss on early
extinguishment of debt -- -- (107) --
Net income $ 3,193 $ 2,216 $ 46,155 $ 5,224
Net income allocated to
general partners (2%) $ 64 $ 44 $ 923 $ 104
Net income allocated to
limited partners (98%) 3,129 2,172 45,232 5,120
Net income $ 3,193 $ 2,216 $ 46,155 $ 5,224
Per limited partnership unit:
Income before extraordinary loss $ 53.05 $ 36.82 $ 768.65 $ 86.80
Extraordinary loss -- -- $ (1.77) --
Net income per limited
partnership unit $ 53.05 $ 36.82 $ 766.88 $ 86.80
See Notes to Consolidated Financial Statements
c) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
(Unaudited)
Limited General Limited
Partnership Partners' Partners' Total
Units Equity Equity Equity
Original capital contributions 58,982 $ -- $ 58,982 $ 58,982
Partners' (deficit) capital at
December 31, 1996 58,982 $ (227) $ 40,229 $ 40,002
Net income for the nine months
ended September 30, 1997 -- 923 45,232 46,155
Distributions -- (1,417) (69,478) (70,895)
Partners' (deficit) capital at
September 30, 1997 58,982 $ (721) $ 15,983 $ 15,262
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 46,155 $ 5,224
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,195 4,324
Minority interest in joint ventures' operations 17,984 1,571
Gain on sale of investment properties (63,689) --
Extraordinary loss on early extinguishment
of debt 107 --
Change in accounts:
Accounts receivable and other assets 679 (904)
Accounts payable, and other liabilities (513) 533
Net cash provided by operating activities 3,918 10,748
Cash flows from investing activities:
Property and improvements and replacements (3,350) (3,482)
Restricted cash increase 208 573
Proceeds from sale of investment properties 149,190 --
Net cash provided by (used in) investing activities 146,048 (2,909)
Cash flows from financing activities:
Notes payable principal payments (287) (649)
Distributions to joint venture partner (21,197) (2,170)
Cash distribution to partners (70,895) (2,596)
Repayment of notes payable (48,928) --
Prepayment penalties (81) --
Due (from) to affiliate (865) (79)
Net cash used in financing activities (142,253) (5,494)
Net increase in cash and cash equivalents 7,713 2,345
Cash and cash equivalents at beginning of period 8,302 7,105
Cash and cash equivalents at end of period $ 16,015 $ 9,450
Supplemental information:
Interest paid $ 2,376 $ 3,782
Non-cash investing activity:
Purchase of joint venture partners interest-Note D
See Notes to Consolidated Financial Statements
e) GROWTH HOTEL INVESTORS II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Growth Hotel
Investors II (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of NPI
Realty Management Corporation, (the "Managing General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1997. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-K for the year ended December 31,
1996.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Balances and other transactions with affiliates of the Managing General Partner
in 1997 and 1996 are (in thousands):
For the Nine Months Ended
September 30,
1997 1996
Reimbursement for services of affiliates (included
in general and administrative expenses) $132 $198
In accordance with the partnership agreement, the general partner and affiliates
received a partnership management fee in the amount of 10 percent of cash from
operations available for distribution (as defined in the partnership agreement).
Fees paid pursuant to this agreement for the nine months ended September 30,
1997 and 1996 were approximately $224,000 and $288,000, respectively, and are
included in general and administrative expenses.
In addition to the fees paid to the Managing General Partner and affiliates as
set forth above, the Partnership has agreements with affiliates of its joint
venture partners, which provide for the management and operations of the joint
venture properties and services provided under each property's franchise
agreement. Fees paid pursuant to these agreements are generally based on a
percentage of gross revenues from operations of the property and for the nine
months ended September 30, 1997 and 1996 were approximately $2,846,000 and
$4,838,000, respectively. In addition, affiliates of the joint venture partners
received reimbursement of expenses during the nine monthsended September 30,
1997 and 1996 of approximately $485,000 and $658,000, respectively. These
expenses are included in operating expenses.
NOTE C - DISTRIBUTIONS
The Partnership distributed approximately $1,177.95 per unit (approximately
$69,478,000) to the holders of limited partnership units and approximately
$1,417,000 to the general partners for the nine month period ended September 30,
1997. The Partnership distributed approximately $43.13 per unit (approximately
$2,544,000) to the holders of limited partnership units and approximately
$52,000 to the general partners for the nine month period ended September 30,
1996.
NOTE D - JOINT VENTURE PURCHASE
On December 7, 1995, the Partnership acquired all of the economic rights of its
joint venture partner in GHI II Big River Associates, a California partnership.
This purchase was effective January 1, 1996, at a cost of $375,000. The
Partnership had an 80% ownership interest in GHI-II Big River Associates, which
in turn, owned the Hampton Inn-St. Louis property. The carrying value of the
property was increased by $500,000 which reflects the purchase of $375,000 and
$125,000 receivable from the joint venture partner.
NOTE E - SALE OF PROPERTIES
On June 24, 1997, the Partnership, sold all of its investment properties,
consisting of the Hampton Inn-Kansas City, Hampton Inn-Eden Prairie, Hampton
Inn-Dublin, and Hampton Inn-Colorado Springs for a sales price of approximately
$19,619,000. The Partnership has a controlling interest in three joint venture
partnerships, GHI II Big River Associates, Hampton/GHI Associates No. 2 and
Growth Hotel Investors Combined Fund No. 1. On June 24, 1997, GHI II Big River
Associates sold its investment property, Hampton Inn-St. Louis for a purchase
price of approximately $4,881,000. Additionally, Hampton/GHI Associates No. 2
sold its investment property, Hampton Inn-North Dallas for a sales price of
$10,200,000. Finally, on June 24, 1997, Hampton/GHI Associates No. 1
("Hampton/GHI"), a joint venture in which Growth Hotel Investors Combined Fund
No. 1 owns 80%, sold 17 of its 18 investment properties, consisting of the
Hampton Inn-Memphis-I-40, Hampton Inn-Columbia West, Hampton Inn-Spartanburg,
Hampton Inn-Little Rock, Hampton Inn-Amarillo, Hampton Inn-Greenville, Hampton
Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton Inn-Greensboro, Hampton Inn-
Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel Hill, Hampton Inn-Dallas,
Hampton Inn-Nashville, Hampton Inn-San Antonio, Hampton Inn-Madison Heights, and
Hampton Inn-Northlake for a purchase price of approximately $105,936,000. The
investment properties were sold to an unrelated third party, Equity Inns
Partnership, L.P., a Tennessee limited partnership. The properties were sold in
accordance with the settlement of the class action lawsuit brought in connection
with the tender offer made by Devon Associates (discussed in Item 3 of the
Partnership's Annual Report on Form 10-K for the period ending December 31,
1996.) The Partnership's last hotel property, the Hampton Inn-Mountain Brook,
was sold on August 1, 1997 for a sales price of approximately $8,651,000.
The aggregate purchase price for all 24 properties was approximately
$151,924,000. The Partnership received net proceeds, after satisfaction of
outstanding indebtedness and closing costs, from the sale of its investment
properties of approximately $25,918,000. In addition, the Partnership received
approximately $48,376,000 from its consolidated joint venture in distributions
from the sale of its properties and from operations. The Partnership made a
distribution of $67,782,000 ($1,149.19 per unit) to its limited partners and
approximately $1,383,000 to the General Partners from these net proceeds in July
1997. It is anticipated that the Partnership will be dissolved during the fourth
quarter of 1997 and the remaining proceeds, after establishment of sufficient
reserves, will be distributed to the partners.
The Partnership recognized a gain of approximately $63,689,000 due to the sale
of its investment properties and the properties in which the Partnership had a
controlling interest. Approximately $17,238,000 of the gain from the sale of
the properties in Growth Hotel Investors Combined Fund No. 1 was allocated to
the Partnership's joint venture partner, Growth Hotel Investors.
Pursuant to the terms of the settlement agreement with respect to the class
actions brought by limited partners of the Partnership and Growth Hotel
Investors ("GHI"), an affiliated partnership, against, among others, the
Partnership, GHI and their general partners, the Partnership and GHI were
required to pay the plaintiff's attorneys' fees associated with such actions.
As a result, an aggregate of $1,800,000 ($1,217,000 of which is allocable to the
Partnership) was paid in the third quarter of 1997 to the plaintiff's attorneys
for fees and expense reimbursements.
In connection with the sale by Hampton/GHI of its properties, the Partnership's
joint venture partner, Hampton Inns, Inc. ("Hampton"), was to be distributed a
portion of the net sale proceeds. However, pursuant to the terms of the
Hampton/GHI Joint Venture Agreement, Hampton is obligated to contribute to
Hampton/GHI an amount equal to the deficit of its capital account, which amount
is in excess of the amount to be distributed to Hampton. As a result, the
Partnership set aside as a reserve the amount which otherwise would have been
distributed to Hampton. The joint ventures received such payment from Hampton
for its deficit restoration obligation on November 5, 1997 in the amount of
approximately $9,164,000.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On June 24 and August 1, 1997, the Partnership sold all of its investment
properties and joint venture properties (see "Note E - Sale of Properties" for
information related to the sale).
In July, a cash distribution of approximately $69,165,000 was made from sales
proceeds and operations. Approximately $67,782,000 was distributed to the
limited partners and approximately $1,383,000 was distributed to the general
partners. It is anticipated that the Partnership will be dissolved during the
fourth quarter of 1997 and the remaining proceeds, after establishment of
sufficient reserves, will be distributed to the partners. In this regard, it
should be noted that in connection with the sale by Hampton/GHI of its
properties, the Partnership's joint venture partner, Hampton Inns, Inc.
("Hampton"), was to be distributed a portion of the net sale proceeds. However,
pursuant to the terms of the Hampton/GHI Joint Venture Agreement, Hampton is
obligated to contribute to Hampton/GHI an amount equal to the deficit of its
capital account, which amount is in excess of the amount to be distributed to
Hampton. As a result, the Partnership set aside as a reserve the amount which
otherwise would have been distributed to Hampton. The joint venture received
such payment from Hampton for its deficit restoration obligation on November 5,
1997 in the amount of approximately $9,164,000. It is expected that this amount,
after establishment of reserves, will be distributed by the Partnership prior to
year end, at which time the Partnership will be dissolved.
The Partnership's net income for the three and nine month periods ended
September 30, 1997, was approximately $3,193,000 and $46,155,000, respectively,
compared to net income of approximately $2,216,000 and $5,224,000, respectively,
for the same periods of 1996. The increase in net income is attributable to the
gain on sale of approximately $63,689,000 due to the sale of all of the
Partnership's investment properties and all of the investment properties in
which the Partnership had a controlling interest. (See "Note E- Sale of
Properties" for more information relating to these sales.) In addition, hotel
operations expense and depreciation expense decreased due to the sale of the
Partnership's investment properties. Net income also increased due to a
decrease in interest expense and an increase in interest income. The decrease
in interest expense is due to the payoff of all the mortgages encumbering the
Partnership's investment properties. The increase in interest income is related
to an increase in interest-bearing reserves. Offsetting the above increases to
net income are an increase in income allocated to the minority interest in joint
venture operations, a decrease in hotel operations revenue, and increases in
litigation settlement expense and the extraordinary loss on early extinguishment
of debt expenses. The increase in income allocated to the minority interest in
joint venture operations is due to the allocation of income to the Partnership's
joint venture partner in the GHI Combined Fund. The increase in income of the
GHI Combined Fund is attributable to the gain on sale of the Combined Fund's
eighteen properties. The decrease in hotel operations revenue is due to the
sale of the Partnership's investment properties. The litigation settlement
expense in 1997 relates to amounts paid in connection with the legal settlement
as discussed in "Note E- Sale of Properties." The extraordinary loss on early
extinguishment of debt in 1997 is due to prepayment penalties and the write off
of unamortized loan costs in connection with the sale of the Partnership's
investment properties.
At September 30, 1997, the Partnership had unrestricted cash of approximately
$16,015,000 as compared to approximately $9,450,000 at September 30, 1996. The
net cash provided by operations decreased primarily due to the decrease in net
income due to the sale of the Partnership's investment properties. The change
from net cash used in investing activities to net cash provided by investing
activities is due to the receipt of approximately $149,190,000 in net proceeds
from the sale of investment properties sold during the nine months ended
September 30, 1997. Net cash used in financing activities increased due to
increased distributions to the partners and the joint venture partner in 1997
and due to the payoff of all the mortgages encumbering the Partnership's
investment properties.
The Partnership distributed approximately $1,177.95 per unit (approximately
$69,478,000) to the holders of limited partnership units and approximately
$1,417,000 to the general partners for the nine month period ended September 30,
1997. The Partnership distributed approximately $43.13 per unit (approximately
$2,544,000) to the holders of limited partnership units and approximately
$52,000 to the general partners for the nine month period ended September 30,
1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL
Pursuant to the terms of the settlement agreement with respect to the class
actions brought by limited partners of the Partnership and Growth Hotel
Investors ("GHI"), an affiliated partnership, against, among others, the
Partnership, GHI and their general partners, the Partnership and GHI were
required to pay the plaintiff's attorneys' fees associated with such actions.
As a result, an aggregate of $1,800,000 ($1,217,000 of which is allocable to the
Partnership) was paid in the third quarter of 1997 to the plaintiff's attorneys
for fees and expense reimbursements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27,
Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K:
None were filed during the quarter ended September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROWTH HOTEL INVESTORS II
By: MONTGOMERY REALTY COMPANY 85,
its general partner
By: NPI REALTY MANAGEMENT CORP.
MANAGING GENERAL PARTNER
By: /s/William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: November 13, 1997