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 September 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
GROWTH HOTEL INVESTORS II
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 9,450 $ 7,105
Restricted cash 329 902
Deferred costs 1,754 2,008
Accounts receivable and other assets 1,905 1,376
Investment properties:
Land 15,725 15,640
Buildings and related personal property 110,140 106,243
125,865 121,883
Less accumulated depreciation (42,206) (38,136)
83,659 83,747
Total assets $ 97,097 $ 95,138
Liabilities and Partners' Equity (Deficit)
Accounts payable and other liabilities $ 2,869 $ 2,303
Due to affiliate of the joint venture partner 740 819
Notes payable 49,490 50,139
Minority interest in joint ventures 3,395 3,902
Partners' Equity (Deficit):
General partners' (216) (268)
Limited partners' (58,982 units outstanding) 40,819 38,243
40,603 37,975
Total liabilities and partners' equity (deficit) $ 97,097 $ 95,138
Note: The balance sheet at December 31, 1995, 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
b) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Hotel operations $ 14,523 $ 13,916 $ 40,031 $ 38,408
Interest income 82 131 231 373
Total revenues 14,605 14,047 40,262 38,781
Expenses:
Hotel operations 8,617 8,188 24,551 23,357
Mortgage interest 1,199 1,355 3,608 4,125
Depreciation 1,378 1,430 4,070 3,690
General and administrative 426 272 1,238 782
Total expenses 11,620 11,245 33,467 31,954
Income before minority
interest in joint
ventures' operation 2,985 2,802 6,795 6,827
Minority interest in joint
ventures' operations (769) (436) (1,571) (1,832)
Net income $ 2,216 $ 2,366 $ 5,224 $ 4,995
Net income allocated to
general partners (2%) $ 44 $ 47 $ 104 $ 100
Net income allocated to
limited partners (98%) 2,172 2,319 5,120 4,895
Net income $ 2,216 $ 2,366 $ 5,224 $ 4,995
Net income per limited
partnership unit $ 36.82 $ 39.32 $ 86.80 $ 82.99
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 nine months
ended September 30, 1996 -- 104 5,120 5,224
Distributions -- (52) (2,544) (2,596)
Partners' (deficit) equity at
September 30, 1996 58,982 $ (216) $ 40,819 $ 40,603
<FN>
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net income $ 5,224 $ 4,995
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,324 3,992
Minority interest in joint ventures' operations 1,571 1,832
Deferred costs paid -- (1,425)
Change in accounts:
Accounts receivable and other assets (904) (585)
Accounts payable and other liabilities 533 (85)
Net cash provided by operating activities 10,748 8,724
Cash flows from investing activities:
Property and improvement additions (3,482) (3,912)
Restricted cash decrease 573 1,375
Purchase of minority interest in joint venture -- (300)
Net cash used in investing activities (2,909) (2,837)
Cash flows from financing activities:
Notes payable principal payments (649) (649)
Joint venture partner distributions (2,170) (2,112)
Cash distribution to partners (2,596) (2,650)
Due to (from) affiliate (79) --
Net cash used in financing activities (5,494) (5,411)
Net increase in cash and cash equivalents 2,345 476
Cash and cash equivalents at beginning of period 7,105 11,776
Cash and cash equivalents at end of period $ 9,450 $ 12,252
Supplemental information:
Interest paid $ 3,782 $ 4,003
Supplemental disclosure of non-cash investing activity:
Purchase of joint venture partner's interest-Note F
Fully depreciated assets of approximately $10,565 were written off during
the nine months ended September 30, 1995.
<FN>
See Notes to Consolidated Financial Statements
e)
GROWTH HOTEL INVESTORS II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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 nine
month periods ended September 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.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
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.
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
National Property Investors, Inc. ("NPI"), the sole shareholder of both NPI
Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI,
and NPI Realty were acquired by an affiliate of Insignia Financial Group, Inc.
("Insignia"). In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI Equity and NPI Realty.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES - (continued)
The following transactions with affiliates of Insignia, NPI, and affiliates of
NPI were charged to expense in 1996 and 1995:
For the Nine Months Ended
September 30,
1996 1995
Reimbursement for services of affiliates (included
in general and administrative expenses) $198,000 $117,000
Partnership Management Fees (included in general
and administrative expenses) (i) 288,000 288,000
(i) The Partnership Agreement provides for the payment of a partnership
management fee to the general partner equal to ten percent of cash
available for distribution. This management fee is intended to defray
some of the expenses related to services provided by the general partner,
or an affiliate, but not reimbursed by the Partnership.
NOTE C - RESTRICTED CASH
Restricted cash at September 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 $43 per unit ($2,544,000 in total) and
$44 per unit ($2,598,000 in total) to the holders of limited partnership units
during the nine months ended September 30, 1996 and 1995, respectively.
Approximately $52,000 was distributed to the general partners for each of the
nine month periods ended September 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 MMI's services agreement to provide (i) for a reduction in the
monthly asset management fee payable to MMI from $54,700 to $7,000, (ii) the
elimination of fees payable to MMI for its assistance in refinancing and sales
of properties owned by the Partnership and (iii) 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 nine months ended September 30,
1996 and 1995, $107,000 has been amortized and is included in general and
administrative expenses.
NOTE F - 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 has an 80% ownership interest in GHI-II Big River Associates, which
in turn, owns the Hampton Inn-St. Louis property.
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 The Nine Months Ended For The Nine Months Ended
September 30, September 30,
Name and Location 1996 1995 1996 1995
Growth Hotel Investors II:
Hampton Inn-Kansas City 82% 84% $60.71 $54.83
Kansas City, Missouri
Hampton Inn-Eden Prairie 73% 76% 58.26 56.50
Eden Prairie, Minnesota
Hampton Inn-Dublin 72% 74% 58.21 53.92
Dublin, Ohio
Hampton Inn-North Dallas 77% 79% 64.49 62.13
Addison, Texas
Hampton Inn-St. Louis 70% 74% 61.20 58.01
St. Louis, Missouri
Hampton Inn-Colorado Springs 82% 80% 60.56 55.24
Colorado Springs, Colorado
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn-Memphis I40 East 78% 82% 53.91 53.20
Memphis, Tennessee
Hampton Inn-Columbia-West 79% 85% 59.45 54.05
West Columbia, South Carolina
Hampton Inn-Spartanburg 65% 72% 54.13 47.27
Spartanburg, South Carolina
Hampton Inn-Little Rock, North 79% 82% 52.56 48.64
North Little Rock, Arkansas
Hampton Inn-Amarillo 69% 78% 54.54 51.14
Amarillo, Texas
Average Average Daily
Occupancy Rate Room Rate
For The Nine Months Ended For The Nine Months Ended
September 30, September 30,
Name and Location 1996 1995 1996 1995
Growth Hotel Investors
Combined Fund No. 1:
(continued)
Hampton Inn-Greenville 78% 81% $58.80 $ 52.10
Greenville, South Carolina
Hampton Inn-Charleston-Airport 80% 79% 55.82 53.70
North Charleston, South Carolina
Hampton Inn-Memphis-Poplar 84% 86% 67.39 64.34
Memphis, Tennessee
Hampton Inn-Greensboro 83% 89% 63.69 57.54
Greensboro, North Carolina
Hampton Inn-Birmingham 78% 84% 61.11 58.42
Birmingham, Alabama
Hampton Inn-Atlanta-Roswell 78% 84% 67.49 58.43
Roswell, Georgia
Hampton Inn-Chapel Hill 87% 88% 61.97 55.90
Chapel Hill, North Carolina
Hampton Inn-Dallas-Richardson 80% 78% 56.71 50.39
Richardson, Texas
Hampton Inn-Nashville- 83% 90% 67.61 61.98
Briley Parkway
Nashville, Tennessee
Hampton Inn-San Antonio- 67% 67% 59.38 58.85
Northwest
San Antonio, Texas
Hampton Inn-Madison Heights 75% 73% 59.08 53.56
Madison Heights, Michigan
Hampton Inn-Mountain Brook 81% 79% 62.75 57.95
Birmingham, Alabama
Hampton Inn-Northlake 76% 82% 62.94 54.39
Atlanta, Georgia
The Partnership's net income for the nine months ended September 30, 1996, was
approximately $5,224,000, of which $2,216,000 was attributable to the third
quarter, as compared to $4,995,000 and $2,366,000 for the same periods of 1995,
respectively. The increase in net income for the nine month period ended
September 30, 1996, 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 increased legal fees and cost reimbursements. As noted in "Item 1, Note B -
Transactions with Affiliated Parties", the Partnership reimburses the Managing
General Partner and its affiliates for its costs involved in the management and
administrations of all partnership activities. While overall expense
reimbursements have increased during the three and nine month periods ended
September 30, 1996, the recurring expenses subsequent to the transition efforts
to the new administration are expected to more closely approximate historical
levels. The increase in expense reimbursements during the three and nine month
periods ended September 30, 1996, is directly attributable to the combined
transition efforts of the Greenville, South Carolina, and Atlanta, Georgia,
administrative offices during the year-end close, preparation of the 1995 10-K
and tax return (including the limited partner K-1's), filing of the first two
quarterly reports and transition of asset management responsibilities to the new
administration. 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 for
the nine months ended September 30, 1996.
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 September 30, 1996, the Partnership had unrestricted cash of $9,450,000 as
compared to $12,252,000 at September 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 a decrease in the amount of funds transferred from restricted cash
during the nine months ended September 30, 1996, as compared to the same period
in 1995. 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 $49,490,000 includes mortgages with maturity dates
ranging from 1996 through 2016. The mortgages encumbering the Hampton Inn -
Mountain Brook and Hampton Inn - North Lake properties (included in the
Partnership's consolidated joint venture, the Combined Fund) in the amounts of
$2,554,000 and $2,376,000, respectively, matured on August 1, 1996. The Managing
General Partner has successfully extended the Hampton Inn-Northlake mortgage
through August 1997. The extension for the Hampton Inn-Mountain Brook property
is currently in negotiation; however, the Managing General Partner is confident
that this will also be extended through August 1997 (lender will have the right
to call the loan on August 1 of each successive year through 2001). 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, however, there can be no assurance that
this will be achieved in which case the properties will either be sold, or could
be foreclosed. The Partnership's remaining properties have balloon payments due
in 1998 and 2016. Future cash distributions will depend on the levels of cash
generated from operations, property sales, and the availability of cash
reserves. Cash distributions of approximately $2,596,000 and $2,650,000
respectively, were paid to the partners in the first nine 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 the 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.
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.
The Partnership and GHI (The Partnership's joint venture partner in the
Combined Fund) have begun marketing their properties for sale as
required by the settlement agreement entered into in connection with the class
action brought in February 1996 relating to the Offer. The Managing General
Partner has retained an investment advisor to assist in the sale of these
properties. Pursuant to its joint venture agreements with Hampton Inns, Inc.
("Hampton"), the Partnership notified Hampton in writing on October 22, 1996 of
its intention to sell the eighteen Hampton Inn properties owned by Hampton/GHI
Associates No. 1, and the North-Dallas Hampton Inn owned by Hampton/GHI
Associates No. 2 on certain terms and conditions. Hampton has thirty days from
receipt of the letter to accept or decline the offers. In the event that
Hampton rejects or fails to timely accept these offers, the Managing General
Partner will have the right to enter into one or more agreements with any third
party purchaser or purchasers for the sale of the hotels on terms not more
favorable to the purchaser than the terms set forth in the letters.
PART II. OTHER INFORMATION
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.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: November 13, 1996