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 March 31, 1997
[ ] 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)
March 31, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 8,931 $ 8,302
Restricted cash 244 208
Deferred costs 1,641 1,692
Accounts receivable and other assets 1,435 1,104
Investment properties:
Land 15,725 15,725
Buildings and related personal property 112,379 111,335
128,104 127,060
Less accumulated depreciation (45,140) (43,677)
82,964 83,383
Total assets $ 95,215 $ 94,689
Liabilities and Partners' Capital (Deficit)
Accounts payable and other liabilities $ 3,080 $ 2,271
Due to affiliate of the joint venture partner 557 827
Notes payable 49,046 49,215
Minority interest in joint ventures 2,796 2,374
Partners' Capital (Deficit):
General partners' (232) (227)
Limited partners' (58,982 units outstanding) 39,968 40,229
39,736 40,002
Total liabilities and partners' equity $ 95,215 $ 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
b) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended
March 31,
1997 1996
Revenues:
Hotel operations $ 11,552 $ 11,716
Interest income 89 72
Total revenues 11,641 11,788
Expenses:
Hotel operations 7,742 7,297
Mortgage interest 1,196 1,196
Depreciation 1,463 1,224
General and administrative 219 305
Total expenses 10,620 10,022
Income before minority interest in joint
venture's operation 1,021 1,766
Minority interest in joint ventures' operations (422) (280)
Net income $ 599 $ 1,486
Net income allocated to general partners (2%) $ 12 $ 30
Net income allocated to limited partners (98%) 587 1,456
Net income $ 599 $ 1,486
Net income per limited partnership unit $ 9.97 $ 24.69
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 Deficit 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 three
months ended March 31, 1997 12 587 599
Distributions (17) (848) (865)
Partners' (deficit) capital at
March 31, 1997 58,982 $ (232) $39,968 $39,736
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net income $ 599 $ 1,486
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,514 1,311
Minority interest in joint ventures' operations 422 280
Change in accounts:
Accounts receivable and other assets (331) (750)
Accounts payable and other liabilities 809 513
Net cash provided by operating activities 3,013 2,840
Cash flows from investing activities:
Property and improvement and replacements (1,044) (1,544)
Restricted cash increase (36) (289)
Net cash used in investing activities (1,080) (1,833)
Cash flows from financing activities:
Notes payable principal payments (169) (204)
Joint venture partner distributions -- (662)
Cash distribution to partners (865) (865)
Due (from) to affiliate (270) 105
Net cash used in financing activities (1,304) (1,626)
Net increase (decrease) in cash and cash equivalents 629 (619)
Cash and cash equivalents at beginning of period 8,302 7,105
Cash and cash equivalents at end of period $ 8,931 $ 6,486
Supplemental information:
Interest paid $ 1,194 $ 1,457
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 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 month period ended March 31, 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.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 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.
Balances and other transactions with affiliates of the Managing General Partner
in 1997 and 1996 are (in thousands):
For the Three Months Ended
March 31,
1997 1996
(in thousands)
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $ 38 $ 94
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 three months ended March 31, 1997
and 1996 were approximately $96,000, and are included in general and
administrative expenses.
In addition to the fees paid to the 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 three months ended
March 31, 1997 and 1996 were approximately $1,349,000 each quarter. In
addition, affiliates of the joint venture partners received reimbursement of
expenses during the three months ended March 31, 1997 and 1996 of approximately
$240,000 and $219,000, respectively. These expenses are included in operating
expenses.
NOTE C - DISTRIBUTIONS
The Partnership distributed approximately $14 per unit (approximately $848,000
in total) to the holders of limited partnership units and approximately $17,000
to the general partners for each of the three month periods ended March 31, 1997
and 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
As required by 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 and GHI, the Partnership's joint venture partner in the
Combined Fund properties, marketed all of their properties for sale. In this
regard, the Partnership and Growth Hotel Investors ("GHI"), an affiliated
partnership, retained Bear, Stearns & Co Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, (collectively the
"Sellers") GHI, and the joint ventures in which GHI has a controlling interest,
and Equity Inns Registrant, L.P. (the "Buyer") entered into certain purchase and
sale agreements pursuant to which the Buyer agreed to purchase from these
entities the twenty-four hotels described herein as well as four additional
hotels owned directly or indirectly by GHI for an aggregate purchase price of
$182 million, subject to adjustment. The purchase and sale agreements were
amended on May 1, 1997, to change the purchase price to $169,000,000, to extend
the study periods listed in various sections of the agreements, and to provide
for reimbursement to the Sellers for up to $4,000,000 of work in progress or
completed. If the sale is consummated at the above stated price, the Managing
General Partner estimates that the Partnership will receive net proceeds from
the sale of approximately $72,094,000. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interests in the Partnership and GHI, respectively. It is
anticipated that a proxy statement further detailing the transaction will be
forwarded to the limited partners shortly. Accordingly there can be no assurance
that the sale will be consummated with the Buyer or any other potential buyer.
The Managing General Partner plans to satisfy all existing debt of the
Partnership and liquidate the partnership upon the sale of the investment
properties. If a sale does not consummate before the debt matures; the Managing
General Partner plans to negotiate extensions for those encumbrances.
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 Quarter Ended For Quarter Ended
March 31, March 31,
Name and Location 1997 1996 1997 1996
Growth Hotel Investors II:
Hampton Inn-Kansas City 68% 75% $ 68.19 $ 57.24
Kansas City, Missouri
Hampton Inn-Eden Prairie 56% 68% 57.25 57.73
Eden Prairie, Minnesota
Hampton Inn-Dublin 64% 63% 64.34 55.73
Dublin, Ohio
Hampton Inn-North Dallas 77% 81% 66.65 64.94
Addison, Texas
Hampton Inn-St. Louis 57% 61% 61.71 59.44
St. Louis, Missouri
Hampton Inn-Colorado Springs 74% 74% 49.78 45.38
Colorado Springs, Colorado
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn-Memphis I40 East 68% 65% 56.26 53.20
Memphis, Tennessee
Hampton Inn-Columbia-West 68% 73% 59.50 58.96
West Columbia, South Carolina
Hampton Inn-Spartanburg 51% 54% 52.00 51.61
Spartanburg, South Carolina
Hampton Inn-Little Rock, North 68% 64% 54.97 51.37
North Little Rock, Arkansas
Hampton Inn-Amarillo 55% 59% 49.12 49.70
Amarillo, Texas
Hampton Inn-Greenville 72% 76% 59.85 57.79
Greenville, South Carolina
Hampton Inn-Charleston-Airport 66% 74% 58.35 53.57
North Charleston, South Carolina
Hampton Inn-Memphis-Poplar 78% 79% 69.34 67.95
Memphis, Tennessee
Hampton Inn-Greensboro 70% 77% 64.49 63.42
Greensboro, North Carolina
Hampton Inn-Birmingham 75% 71% 61.57 60.51
Birmingham, Alabama
Hampton Inn-Atlanta-Roswell 59% 75% 63.34 63.36
Roswell, Georgia
Hampton Inn-Chapel Hill 79% 81% 64.93 60.29
Chapel Hill, North Carolina
Hampton Inn-Dallas-Richardson 73% 78% 59.60 55.60
Richardson, Texas
Hampton Inn-Nashville- 71% 67% 66.65 64.66
Briley Parkway
Nashville, Tennessee
Hampton Inn-San Antonio-Northwest 54% 54% 56.03 55.87
San Antonio, Texas
Hampton Inn-Madison Heights 68% 69% 63.88 57.38
Madison Heights, Michigan
Hampton Inn-Mountain Brook 75% 77% 64.30 60.78
Birmingham, Alabama
Hampton Inn-Northlake 66% 78% 61.63 60.22
Atlanta, Georgia
The Managing General Partner attributes the decline in occupancy at its Hampton
Inn - Kansas City, Eden Prairie, North Dallas, St. Louis, Amarillo, Greensboro,
Greenville and Dallas/Richardson properties to increased competition in each of
their respective markets due to new hotels opening in these areas. Management
has implemented additional marketing strategies to help offset these decreases,
along with ongoing renovation projects at the properties to maintain their
market share by being competitive with the new hotels. The Managing General
Partner attributes the decrease in occupancy at its two Atlanta, Georgia
properties to the pre-Olympic guests experienced in the first quarter of 1996.
The Hampton Inn - Charleston had a decrease in occupancy due to ongoing
renovations that are needed so the hotel can be more competitive with the new
hotels in their market. The decrease in occupancy at the Hampton Inn - Columbia
is due to the construction of a highway by-pass in 1996 which re-routed traffic
away from the property. The Managing General Partner attributes the increase in
occupancy at its Hampton Inn - Birmingham, Little Rock and Nashville/Briley
properties to room renovations completed in 1996.
The Partnership's net income for the three months ended March 31, 1997 was
approximately $599,000 versus approximately $1,486,000 for the same period of
1996. The decrease in net income is attributable to an increase in operating
expenses, depreciation expense, an increase in income allocated to the minority
interest in joint venture and a decrease in revenue from hotel operations. The
increase in operating expenses was attributable to an overall increase in
property expenses, which included increased advertising costs, real estate taxes
and insurance. The increase in depreciation is due to major renovations of its
hotels in 1996 and 1997. The increase in income allocated to the minority
interest in joint venture is due to the allocation of income to the
Partnership's joint venture partner in GHI Combined Fund. The decrease in
revenue is attributable to decreased occupancies, but was slightly offset by an
increase in daily room rates. Partially offsetting the decrease in net income
was an increase in interest income and a decrease in general administrative
expenses. The increase in interest income is due to increases in interest-
bearing reserves. The decrease in general and administrative expense is due to
a decrease in expense reimbursements in 1997. Increased expense reimbursements
in 1996 were 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-1s), and transition of asset management responsibilities to the new
administration.
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 March 31, 1997, the Partnership had unrestricted cash of approximately
$8,931,000 as compared to approximately $6,486,000 at March 31, 1996. Net cash
provided by operating activities increased primarily due to a decrease in the
amount of cash used to pay for accounts receivable and other assets and an
increase in accounts payable and other liabilities. These increases in cash
provided by operating activities were partially offset by a decrease in net
income. Net cash used in investing activities decreased due to a decrease in
property and improvements and replacements and a decrease in restricted cash
deposits. Net cash used in financing activities decreased primarily due to no
distribution being made in 1997 to its joint venture partners.
As required by 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 and GHI, the Partnership's joint venture partner in the
Combined Fund properties, marketed all of their properties for sale. In this
regard, the Partnership and Growth Hotel Investors ("GHI"), an affiliated
partnership, retained Bear, Stearns & Co Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, (collectively the
"Sellers") GHI, and the joint ventures in which GHI has a controlling interest,
and Equity Inns Registrant, L.P. (the "Buyer") entered into certain purchase and
sale agreements pursuant to which the Buyer agreed to purchase from these
entities the twenty-four hotels described herein as well as four additional
hotels owned directly or indirectly by GHI for an aggregate purchase price of
$182 million, subject to adjustment. The purchase and sale agreements were
amended on May 1, 1997, to change the purchase price to $169,000,000, to extend
the study periods listed in various sections of the agreements, and to provide
for reimbursement to the Sellers for up to $4,000,000 of work in progress or
completed. If the sale is consummated at the above stated price, the Managing
General Partner estimates that the Partnership will receive net proceeds from
the sale of approximately $72,094,000. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interests in the Partnership and GHI, respectively. It is
anticipated that a proxy statement further detailing the transaction will be
forwarded to the limited partners shortly. Accordingly there can be no assurance
that the sale will be consummated with the Buyer or any other potential buyer.
The Managing General Partner plans to satisfy all existing debt of the
Partnership and liquidate the partnership upon the sale of the investment
properties. If a sale does not consummate before the debt matures; the Managing
General Partner plans to negotiate extensions for those encumbrances.
If the sale of the hotel properties is not consummated, the sufficiency of
existing liquid assets to meet future liquidity and capital expenditure
requirements will be 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 mortgages
encumbering the Partnership's investment properties totaled approximately
$49,046,000 at March 31, 1997. Two of the mortgages, Hampton Inn-Mountain Brook
and Hampton Inn-Northlake mature on August 1, 1997. The other consolidated joint
venture's remaining mortgages of approximately $35,136,000 mature on July 1,
1997. The Partnership's Hampton Inn-North Dallas matures July 1, 1997. The
Partnership's remaining properties have balloon payments due in 1998 and 2016.
Cash distributions were made during the three months ended March 31, 1997 and
1996, totaling approximately $865,000. Approximately $848,000 was paid to the
limited partners and approximately $17,000 was distributed to the general
partners. Future cash distributions will depend on the level of cash generated
from operations, property sales and the availability of cash reserves.
The Partnership has no material capital programs scheduled to be performed in
1997, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account.
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. Devon Associates acquired 17,287 units
with respect to this offer.
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 were held during the quarter ended March 31, 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
/s/William H. Jarrard, Jr.
President and Director
/s/Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: May 14, 1997