FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 4/26/93.)
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 June 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period.........to.........
(Amended by Exchange Act Rel. No. 312905, eff. 4/26/93)
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)
(864) 239-1000
(Issuer's phone number)
Indicate by check mark whether the Registrant (1) has filed all documents and
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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) GROWTH HOTEL INVESTORS II
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
June 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 6,699 $ 7,105
Restricted cash 1,140 902
Deferred costs 1,834 2,008
Accounts receivable and other assets 1,773 1,376
Investment properties:
Land 15,720 15,640
Buildings and related personal property 109,483 106,243
125,203 121,883
Less accumulated depreciation (40,828) (38,136)
84,375
$ 95,821 $ 95,138
Liabilities and Partners' Deficit
Accounts payable and other liabilities $ 2,607 $ 2,303
Due to affiliate of the joint venture partner 838 819
Notes payable 49,665 50,139
Minority interest in joint ventures 3,458 3,902
Partners' Equity (Deficit):
General partners' (242) (268)
Limited partners' (58,982 units outstanding) 39,495 38,243
39,253 37,975
Total liabilities and partners' deficit $ 95,821 $ 95,138
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but that does not include all of the
information and footnotes required by generally accepted accouting principles
for complete financial statements.
See Notes to Consolidated Financial Statements
b) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues:
Hotel operations $ 13,792 $ 13,361 $ 25,508 $ 24,492
Interest income 77 118 149 242
Total revenues 13,869 13,479 25,657 24,734
Expenses:
Hotel operations 8,637 8,158 15,934 15,169
Mortgage interest 1,213 1,392 2,409 2,770
Depreciation 1,468 1,129 2,692 2,260
General and administrative 507 264 812 510
Total expenses 11,825 10,943 21,847 20,709
Income before minority
interest in joint
venture's operation 2,044 2,536 3,810 4,025
Minority interest in joint
venture's operations (522) (710) (802) (1,396)
Net income $ 1,522 $ 1,826 $ 3,008 $ 2,629
Net income allocated to
general partners (2%) $ 30 $ 37 $ 60 $ 53
Net income allocated to
general partners (98%) 1,492 1,789 2,948 2,576
Net income $ 1,522 $ 1,826 $ 3,008 $ 2,629
Net income per limited
partnership unit $ 25.30 $ 30.33 $ 49.99 $ 43.67
<FN>
See Notes to Consolidated Financial Statements
c) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited General Limited
Partnership Partners' Partners' Total
Units Deficit Equity Equity
Partners' (deficit) equity at
December 31, 1995 58,982 $ (268) $ 38,243 $ 37,975
Net income for the six
months ended June 30, 1996 -- 60 2,948 3,008
Distributions -- (34) (1,696) (1,730)
Partners' (deficit) equity at
June 30, 1996 58,982 $ (242) $ 39,495 $ 39,253
<FN>
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net income $ 3,008 $ 2,629
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,866 2,460
Minority interest in joint ventures' operations 802 1,396
Deferred costs paid -- (1,425)
Change in accounts:
Accounts receivable and other assets (772) (383)
Accounts payable and other liabilities 426 514
Net cash provided by operating activities 6,330 5,191
Cash flows from investing activities:
Property and improvement additions (2,853) (3,220)
Restricted cash (increase) decrease (238) 887
Purchase of minority interest in joint venture -- (300)
Net cash used in investing activities (3,091) (2,633)
Cash flows from financing activities:
Notes payable principal payments (474) (470)
Joint venture partner distributions (1,460) (1,322)
Cash distribution to partners (1,730) (1,784)
Due to (from) affiliate 19 --
Net cash used in financing activities (3,645) (3,576)
Net decrease in cash and cash equivalents (406) (1,018)
Cash and cash equivalents at beginning of period 7,105 11,776
Cash and cash equivalents at end of period $ 6,699 $ 10,758
Supplemental information:
Interest paid $ 2,630 $ 2,689
Non-cash investing activity:
Purchase of joint venture partner's interest-Note F
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 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 Corp. ("NPI
Realty" or 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 six month periods ended June
30, 1996, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1996. 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, 1995.
The balance sheet at December 31, 1995, was derived from audited financial
statements at such date.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Note B - Transactions with Affiliated Parties
Growth Hotel Investors II (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. The
following transactions with affiliates of Insignia Financial Group, Inc.
("Insignia"), National Property Investors, Inc. ("NPI"), and affiliates of
NPI were charged to expense in 1996 and 1995:
For the Six Months Ended
June 30,
1996 1995
Reimbursement for services of affiliates (included
in general and administrative expenses) $155,000 $ 83,000
Partnership Management Fees (included in general
and administrative expenses) 192,000 192,000
The general partner of the partnership is Montgomery Realty Company-85 ("MRC-
85"), a California general partnership. The general partners of MRC-85 are Fox
Realty Investors ("FRI"), a California general partnership, and NPI Realty. On
February 13, 1996, NPI Realty, which acquired its interest in MRC-85 from
Montgomery Realty Corporation on November 15, 1995, became the managing general
partner of MRC-85. The associate general partner is GHI Associates of which FRI
is the general partner and Prudential-Bache Properties, Inc. is the limited
partner.
On January 19, 1996, all of the issued and outstanding shares of stock of NPI,
the sole shareholder of both NPI Equity Investments II, Inc. ("NPI Equity"), the
managing general partner of FRI and NPI Realty was acquired by an affiliate of
Insignia. In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI Equity and NPI Realty.
Note C - Restricted Cash
Restricted cash at June 30, 1996, represents funds provided for and maintained
by certain properties pursuant to the related notes payable agreements,
primarily related to the Growth Hotel Investors Combined Fund No. 1 ("Combined
Fund"), to meet future capital requirements and debt service payments.
Note D - Distributions
The Partnership distributed approximately $28 per unit (approximately $1,696,000
in total) to the holders of limited partnership units and approximately $34,000
to the general partners for each of the six month periods ended June 30, 1996
and 1995.
Note E - Amendment to Service Agreement
The Partnership paid $1,425,000 in January 1995 to Metric Management, Inc.
("MMI") amending their services agreement to provide for a reduction in the
monthly asset management fee from $54,700 to $7,000, the elimination of fees
payable to MMI for its assistance in refinancing and sales of properties owned
by the Partnership and provides the Partnership with the ability to terminate
MMI's services at will.
The buyout of the service contract is being amortized over the remaining term of
the services agreement of 10 years. For the six months ended June 30, 1996 and
1995, $71,000 has been amortized and is included in general and administrative
expenses.
Note F - Joint Venture Purchase
On December 7, 1995, the Partnership acquired, effective January 1, 1996, all of
the economic rights of its joint venture partner in GHI II Big River Associates,
a California partnership, the joint venture which owns the Hampton Inn - St.
Louis hotel, for $375,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Investment Properties:
A description of the hotel properties in which the Partnership has an ownership
interest, together with occupancy and room rate data follows:
Average Average Daily
Occupancy Rate Room Rate
For Six Months Ended For Six Months Ended
June 30, June 30,
Name and Location 1996 1995 1996 1995
Growth Hotel Investors II:
Hampton Inn-Kansas City 79% 82% $ 58.72 $ 53.56
Kansas City, Missouri
Hampton Inn-Eden Prairie 79% 70% 56.30 55.12
Eden Prairie, Minnesota
Hampton Inn-Dublin 69% 71% 57.40 53.75
Dublin, Ohio
Hampton Inn-North Dallas 80% 80% 64.77 62.24
Addison, Texas
Hampton Inn-St. Louis 67% 69% 60.34 57.03
St. Louis, Missouri
Hampton Inn-Colorado
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn-Memphis I40 East 75% 79% 53.88 52.57
Memphis, Tennessee
Hampton Inn-Columbia-West 78% 86% 59.72 53.82
West Columbia, South Carolina
Hampton Inn-Spartanburg 63% 70% 52.40 46.51
Spartanburg, South Carolina
Hampton Inn-Little Rock, North 75% 80% 51.98 47.98
North Little Rock, Arkansas
Hampton Inn-Amarillo 65% 72% 52.60 48.93
Amarillo, Texas
Average Average Daily
Occupancy Rate Room Rate
For Six Months Ended For Six Months Ended
June 30, June 30,
Name and Location 1996 1995 1996 1995
Growth Hotel Investors
Combined Fund No. 1:
(continued)
Hampton Inn-Greenville 79% 81% $ 57.54 $ 51.74
Greenville, South Carolina
Hampton Inn-Charleston-Airport 80% 79% 55.61 53.74
North Charleston, South Carolina
Hampton Inn-Memphis-Poplar 83% 84% 68.13 64.24
Memphis, Tennessee
Hampton Inn-Greensboro 81% 88% 64.98 57.59
Greensboro, North Carolina
Hampton Inn-Birmingham 76% 84% 60.21 57.73
Birmingham, Alabama
Hampton Inn-Atlanta-Roswell 80% 84% 64.02 57.48
Roswell, Georgia
Hampton Inn-Chapel Hill 86% 86% 61.45 55.34
Chapel Hill, North Carolina
Hampton Inn-Dallas-Richardson 82% 78% 56.17 50.32
Richardson, Texas
Hampton Inn-Nashville- 79% 87% 67.33 61.28
Briley Parkway
Nashville, Tennessee
Hampton Inn-San Antonio-Northwest 63% 65% 58.53 58.28
San Antonio, Texas
Hampton Inn-Madison Heights 74% 69% 58.19 53.32
Madison Heights, Michigan
Hampton Inn-Mountain Brook 81% 75% 61.24 57.17
Birmingham, Alabama
Hampton Inn-Northlake 78% 80% 59.81 53.82
Atlanta, Georgia
The Partnership's net income for the six months ended June 30, 1996, was
approximately $3,008,000, of which $1,522,000 was attributable to the second
quarter, as compared to $2,629,000 and $1,826,000 for the same periods of 1995,
respectively. The increase in net income is attributable to an increase in
hotel revenues due to an overall room rate increase at the Partnership's
investment properties along with a decrease in mortgage interest due to the
repayment of long-term debt on its Hampton Inn - Dublin and Hampton Inn - Kansas
City properties during the fourth quarter of 1995. Partially offsetting these
increases to income were increases in depreciation expense due to substantial
renovations at many of the Partnership's investment properties and general and
administrative expenses due to legal fees and costs associated with the
transition of partnership administration in 1996. In addition, hotel operations
expense increased due to exterior painting projects at the Hampton Inn -
Sycamore, Chapel Hill, Charleston, Birmingham, Nashville and Memphis properties.
Finally, affecting the increase in net income was a decrease in the minority
interest to joint venture partners.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the hotel market environment of its investment properties to
assess the feasibility of increasing rates, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rates and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of concessions and room rate reductions
to offset softening market conditions, there is no guarantee that the Managing
General Partner will be able to sustain such a plan.
At June 30, 1996, the Partnership had unrestricted cash of $6,699,000 as
compared to $10,758,000 at June 30, 1995. Net cash provided by operating
activities increased due to the increase in net income discussed above along
with the Partnership incurring costs of $1,425,000 during the first quarter of
1995 in relation to a buyout agreement as discussed in "Item 1. Financial
Statements Note E". Net cash used in investing activities increased primarily
as a result of increases in deposits to restricted cash. Net cash used in
financing activities was comparable to the 1995 amounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
mortgage indebtedness of $49,665,000 includes mortgages with maturity dates
ranging from 1996 through 2016. The mortgages encumbering the Hampton Inn -
Birmingham and Hampton Inn - North Lake properties (included in the
Partnership's consolidated joint venture, the Combined Fund) in the amounts of
$2,444,000 and $2,387,000, respectively, matured on August 1, 1996. The
Managing General Partner is confident that an extension of these loans will be
granted. A balloon payment on the mortgage encumbering the Partnership's Hampton
Inn - North Dallas property is due in December 1996 in the amount of
approximately $2,927,000. The Combined Fund has balloon payments due in
December 1996 of approximately $35,323,000. The Managing General Partner is
discussing with the lenders the options for extending these mortgages. The
Partnership's remaining properties have balloon payments due in 1998 and 2016.
The Managing General Partner is currently in the process of retaining an
investment advisor to assist in the sale of the assets. It is expected that the
Partnership will begin marketing its properties pursuant to the terms of the
settlement discussed in "Part II - Other Information Item 1. Legal Proceedings",
during the second half of 1996. Future cash distributions will depend on the
levels of cash generated from operations, property sales, and the availability
of cash reserves. A cash distribution of approximately $1,730,000 was paid to
the partners in the first six months of 1996 and 1995.
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 21,000 of the outstanding Units
at a purchase price of $750.00 per Unit. Due to the participation in the tender
offer by affiliates of NPI Realty, and the Managing General Partner's related,
existing and potential conflicts of interest, the Partnership, in its Schedule
14D-9 filed with Securities and Exchange Commission and sent to limited
partners, expressed no opinion and made no recommendation as to whether limited
partners should tender their Units pursuant to the Offer. The expiration of the
tender offers described above was midnight, New York time, on March 25, 1996.
See Items 2-4 of the Schedule 14D-9 of the Partnership, as filed with the
Commission on February 29, 1996, as amended by "Amendment No. 1" thereto, as
filed with the Commission on March 7, 1996, and as further amended by "Amendment
No. 2" thereto, as filed with the Commission on March 14, 1996 and as further
amended by "Amendment No. 3" thereto filed with the Commission on March 18, 1996
(collectively, the "Schedule 14D-9"), for additional information with respect to
the Offer and the current and potential conflicts of interest of MRC-85, which
Items 2-4 are incorporated herein by reference. Devon Associates acquired
17,287 units with respect to this offer. See Part II - Item 1 - Legal
Proceedings.
On March 13, 1996, the Partnership received a letter advising that the
Partnership's and Growth Hotel Investors ("GHI") joint venture partner in
certain of the hotel properties was offering $147,000,000 in cash for all 28
hotel properties directly or indirectly owned by the Partnership and GHI. See
"Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed
with the Commission on March 14, 1996, for a more complete description of this
offer, which "Amendment No. 2 is hereby incorporated by reference herein. By
the terms of the offer, the offer expired on March 31, 1996. The Managing
General Partner determined that before the offer could be recommended, if at
all, to the Partnership's limited partners further analysis of the hotel
properties and their value was needed. See Part II. Item 1 - Legal Proceedings
for information with respect to the marketing of the hotel properties for sale
in connection with the settlement of the actions arising out of the Devon
Associates tender offers.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen
Allemang, on behalf of themselves and all others similarly situated, and
derivatively on behalf of Growth Hotel Investors, a California limited
partnership and Growth Hotel Investors II, a California limited partnership,
Plaintiff v. Devon Associates, Montgomery Realty-85, GHI Associates, Cayuga
Associates, L.P., Cayuga Capital Corp., Insignia Financial Group, Inc., L.P.,
and Fleetwood Corp., Defendants and Growth Hotel Investors, a California Limited
partnership, and Growth Hotel Investors II, a California limited partnership,
Nominal Defendant, Supreme Court of the State of New York, County of New York,
Case No. 9600866 (The "Wallace Action").
On February 21, 1996, William and Mildred Wallace, holders of Units of GHI, and
Edith G. Martin and Paul and Gwen Allemang, holders of Units of the Partnership,
commenced an action on behalf of themselves and others similarly situated, and
derivatively on behalf of GHI and the Partnership, in the Supreme Court of the
State of New York, County of New York, against, among others, MRC-85 and certain
of its affiliates pertaining to the tender offer for up to 15,000 partnership
Units of GHI and up to 21,000 partnership Units of the Partnership which
commenced February 15, 1996. The action alleged, among other things, that the
tender offers constituted (a) a breach of fiduciary duty owed to limited
partners and the partnerships, and (b) a breach of the provisions of the
partnership agreements of such partnerships. The action, which was brought as
both a derivative action and a class action on behalf of all limited partners,
sought to enjoin the tender offers as well as monetary damages in an unspecified
amount.
R&S Asset Partners, a Florida general partnership, and Jessie B. Small, on their
own behalves, on behalf of all others similarly situated, and derivatively on
behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga
Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael
L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc.,
IFGP, Corp., National Properties Investors, Inc., NPI Equity Investment II,
Inc., Fox Fealty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin,
Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P.,
and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a
California Limited Partnership, and Growth Hotel Investors II, a California
Limited Partnership, Nominal Defendants, Superior Court of the State of
California, County of Los Angeles, Case No. BC145220 (The "R&S Asset Partners
Action").
On February 28, 1996, R&S Asset Partners, holders of Units of GHI, and Jesse B.
Small, holder of Units of the Partnership, commenced an action on behalf of
themselves and others similarly situated, and derivatively on behalf of GHI and
the Partnership, in the Superior Court of the State of California, County of Los
Angeles, against, among others, MRC-85 and certain of its affiliates pertaining
to the tender offer for up to 15,000 partnership Units of GHI and up to 21,000
partnership Units of the Partnership which commenced February 15, 1996. The
action alleged, among other things, that the tender offers constituted (a) a
breach of fiduciary duty owed to the limited partners of the partnerships, (b)
negligent misrepresentations pertaining to the disclosure set forth in the offer
to purchase, (c) common law fraud, and (d) a breach of the provisions of the
partnership agreements of such partnerships. The action, which was brought as a
derivative action and as a class action on behalf of all limited partners,
sought to enjoin the tender offers as well as monetary damages in an unspecified
amount.
See Item 3 of the Schedule 14D-9, which is incorporated herein by reference, for
additional information with respect to the above actions.
On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace
Action and the R&S Partners Action agreed in principle to settle these actions,
which settlement has subsequently received final court approval. In connection
with the settlement, MRC-85 agreed to take such actions as are reasonably
necessary and consistent with its fiduciary duties to procure offers for the
purchase of the Partnership's and GHI's assets which maximize the value of the
limited partner assignee units. MRC-85 further agreed to deal fairly and in
good faith with persons expressing an interest in making a bona fide offer to
purchase such assets and, subject to its fiduciary duty, provide such bona fide
offers with access to the Partnership's and GHI's books and records for due
diligence purposes. If MRC-85 determines that an offer to purchase its assets
is acceptable, MRC-85 will prepare a plan of liquidation, and subject to the
terms of the Partnership Agreement, submit such plan to the Partnership's
partners for approval. Also in connection with the settlement, the plaintiffs
will release all claims they may have arising out of the tender offers. The
Partnership is currently in the process of retaining an investment advisor to
assist in the sale of the assets. It is expected that the Partnership will
begin marketing its properties pursuant to the terms of the settlement during
the second half of 1996.
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.
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.,
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: August 14, 1996