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 June 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)
June 30, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $82,975 $ 8,302
Restricted cash -- 208
Deferred costs 75 1,692
Accounts receivable and other assets 477 1,104
Investment properties:
Land -- 15,725
Buildings and related personal property 5,491 111,335
5,491 127,060
Less accumulated depreciation (2,509) (43,677)
2,982 83,383
Total Assets $86,509 $ 94,689
Liabilities and Partners' Capital (Deficit)
Accounts payable and other liabilities $ 6,032 $ 2,271
Due to affiliate of the joint venture partner 281 827
Accrued litigation settlement 1,217 --
Notes payable 2,524 49,215
Minority interest in joint ventures (4,779) 2,374
Partners' Capital (Deficit):
General partners' $ 598 $ (227)
Limited partners' (58,982 units outstanding) 80,636 40,229
81,234 40,002
Total liabilities and partners' capital $86,509 $ 94,689
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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Hotel operations $ 12,930 $ 13,792 $ 24,482 $ 25,508
Interest income 154 77 243 149
Gain on sale of investment
properties 58,100 -- 58,100 --
Total revenues 71,184 13,869 82,825 25,657
Expenses:
Hotel operations 8,319 8,637 16,061 15,934
Mortgage interest 1,123 1,213 2,319 2,409
Depreciation 1,588 1,468 3,051 2,692
General and administrative 389 507 608 812
Litigation settlement 1,217 -- 1,217 --
Total expenses 12,636 11,825 23,256 21,847
Income before minority interest
in joint venture's operations
and extraordinary loss on
early extinguishment of debt 58,548 2,044 59,569 3,810
Minority interest in joint
venture's operations (16,078) (522) (16,500) (802)
Income before extraordinary item 42,470 1,522 43,069 3,008
Extraordinary loss on early
extinguishment of debt (107) -- (107) --
Net income $ 42,363 $ 1,522 $ 42,962 $ 3,008
Net income allocated to
general partners (2%) $ 847 $ 30 $ 859 $ 60
Net income allocated to
limited partners (98%) 41,516 1,492 42,103 2,948
Net income $ 42,363 $ 1,522 $ 42,962 $ 3,008
Per limited partnership unit:
Income before extraordinary loss $ 705.63 $ 25.30 $ 715.60 $ 49.99
Extraordinary loss (1.77) -- $ (1.77) --
Net income per limited
partnership unit $ 703.86 $ 25.30 $ 713.83 $ 49.99
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 six
months ended June 30, 1997 -- 859 42,103 42,962
Distributions -- (34) (1,696) (1,730)
Partners' capital at
June 30, 1997 58,982 $ 598 $80,636 $81,234
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income $ 42,962 $ 3,008
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,152 2,866
Minority interest in joint ventures' operations 16,500 802
Gain on sale of investment properties (58,100) --
Extraordinary loss on early extinguishment
of debt 107 --
Change in accounts:
Accounts receivable and other assets 325 (772)
Accounts payable, and other liabilities (475) 426
Accrued litigation settlement 1,217 --
Net cash provided by operating activities 5,688 6,330
Cash flows from investing activities:
Property and improvements and replacements (3,347) (2,853)
Restricted cash decrease (increase) 208 (238)
Proceeds from sale of investment properties 140,588 --
Net cash provided by (used in) investing activities 137,449 (3,091)
Cash flows from financing activities:
Notes payable principal payments (287) (474)
Distributions to joint venture partner (19,416) (1,460)
Cash distribution to partners (1,730) (1,730)
Repayment of notes payable (46,404) --
Prepayment penalties (81) --
Due (from) to affiliate (546) 19
Net cash used in financing activities (68,464) (3,645)
Net increase (decrease) in cash and cash equivalents 74,673 (406)
Cash and cash equivalents at beginning of period 8,302 7,105
Cash and cash equivalents at end of period $ 82,975 $ 6,699
Supplemental information:
Interest paid $ 2,324 $ 2,630
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 six month
periods ended June 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 Six Months Ended
June 30,
1997 1996
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $88 $155
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 six months ended June 30, 1997 and
1996 were approximately $192,000, 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 six
months ended June 30, 1997 and 1996 were approximately $2,846,000 and
$3,074,000, respectively. In addition, affiliates of the joint venture partners
received reimbursement of expenses during the six months ended June 30, 1997 and
1996 of approximately $485,000 and $431,000, respectively. These expenses are
included in operating expenses.
NOTE C - DISTRIBUTIONS
The Partnership distributed approximately $28.75 per unit (approximately
$1,696,000) 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,
1997 and 1996. A cash distribution of approximately $69,165,000 was made in
July 1997 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.
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, 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 23 properties was approximately
$143,273,000. The Partnership received net proceeds, after satisfaction of
outstanding indebtedness and closing costs, from the sale of its investment
properties of approximately $25,489,000. In addition, the Partnership received
approximately $44,545,000 from its unconsolidated joint venture in distributions
from the sale of its properties. 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 second half of
1997 and the remaining proceeds, after establishment of sufficient reserves,
will be distributed to the partners.
The Partnership recognized a gain of approximately $58,100,000 due to the sale
of its investment properties and the properties in which the Partnership had a
controlling interest. Approximately $15,474,000 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, the Partnership believes that 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 has set aside as a reserve the amount
which otherwise would have been distributed to Hampton pending the payment by
Hampton of its deficit restoration obligation. The Partnership is hopeful that
Hampton will make its deficit restoration obligation payment during 1997.
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
second half of 1997 and the remaining proceeds, after establishment of
sufficient reserves, will be distributed to the partners.
The Partnership's net income for the three and six month periods ended June 30,
1997, was approximately $42,363,000 and $42,962,000, respectively, compared to
net income of approximately $1,522,000 and $3,008,000, respectively, for the
same periods of 1996. The increase in net income is attributable to the gain on
sale of approximately $58,100,000 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 with the exception of Hampton Inn-
Mountain Brook. (See "Note E- Sale of Properties" for more information relating
to these sales.) In addition, general and administrative expenses decreased and
interest income increased. The decrease in general and administrative expenses
is due to a decrease in expense reimbursements in 1997. Increased expense
reimbursements in 1996 were attributable to the combined transition efforts of
the administrative offices during the year-end close, including preparation of
the 1995 10-K and tax return (including the limited partner K-1s), filing of the
first two quarterly reports, and transition of asset management responsibilities
to the new administration. 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 and increases in litigation settlement expense, depreciation
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 seventeen of the Combined Fund's
eighteen properties. The litigation settlement expense in 1997 relates to
amounts due in connection with the legal settlement as discussed in "Note E-
Sale of Properties." The increase in depreciation expense is due to the
purchase of assets in 1996 and 1997 related to renovations at the Partnership's
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 June 30, 1997, the Partnership had unrestricted cash of approximately
$82,975,000 as compared to approximately $6,699,000 at June 30, 1996. The net
cash provided by operations decreased primarily due to the decrease in income
from operations. The change from net cash used in investing activities to net
cash provided by investing activities is due to the receipt of approximately
$140,588,000 in net proceeds from the sale of investment properties sold during
the second quarter of 1997. Net cash used in financing activities increased due
to the payoff of all the mortgages encumbering the Partnership's investment
properties with the exception of Hampton Inn-Mountain Brook, and due to
increased distributions to the joint venture partner in 1997.
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, the Partnership believes that 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 has set aside as a reserve the amount
which otherwise would have been distributed to Hampton pending the payment by
Hampton of its deficit restoration obligation. The Partnership is hopeful that
Hampton will make its deficit restoration obligation payment during 1997.
Cash distributions were made during the six months ended June 30, 1997 and 1996,
totaling approximately $1,730,000. Approximately $1,696,000 was distributed to
the limited partners and approximately $34,000 was distributed to the general
partners.
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 filed in the second quarter ended June 30, 1997:
Current report on Form 8-K dated June 24, 1997, as filed with the
Securities and Exchange Commission on July 9, 1997.
Current report on Form 8-K/A dated June 24, 1997, as filed with the
Securities and Exchange Commission on August 15, 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: September 9, 1997