SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number 0-14956
VMS National Hotel Partners
(Exact name of registrant as specified in its charter)
Illinois
(State or other jurisdiction of incorporation or organization)
36-3370590
(I.R.S. Employer Identification Number)
8700 West Bryn Mawr, Chicago, Illinois
(Address of principal executive offices)
60631
(Zip Code)
(312)399-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all 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
Item 1.
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 1996 December 31, 1995
______________ __________________
Property and Improvements:
Land $ --- $ 15,571,626
Building and Improvements --- 149,020,464
Equipment, furniture and fixtures --- 58,309,267
______________ ______________
--- 222,901,357
Less accumulated depreciation --- (124,401,350)
______________ ______________
--- 98,500,007
Property and improvements
held for sale 100,896,365 1,799,857
Cash and cash equivalents 8,199,205 6,179,655
Escrow and other deposits 102,815 103,988
Accounts receivable 2,552,673 2,676,744
Interest receivable 191,632 191,632
Prepaid expenses 1,176,574 1,403,700
Inventories 1,629,231 1,642,633
Other deferred costs 388,400 388,400
______________ ______________
Total assets $ 115,136,895 $ 112,886,616
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage loans payable $ 261,170,960 $ 261,170,960
Accrued interest payable 107,912,413 102,866,332
Other accounts payable
and accrued expenses:
Affiliates 159,596 114,357
Nonaffiliates 4,479,208 5,453,963
______________ ______________
Total liabilities 373,722,177 369,605,612
______________ ______________
Partners' Deficit:
General Partners (3,534,014) (3,513,379)
Limited Partners:
Portfolio I - 514 Interests (203,668,583) (202,197,907)
Portfolio II - 135 Interests (51,382,685) (51,007,710)
______________ ______________
Total partners' deficit (258,585,282) (256,718,996)
______________ ______________
Total liabilities and
partners' deficit $ 115,136,895 $ 112,886,616
============== ==============
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
______________ ______________
HOTEL OPERATIONS
Revenues:
Rooms $ 14,158,123 $ 13,791,352
Food and beverage 3,765,252 3,928,003
Telephone 780,118 662,587
Other 772,758 762,632
______________ ______________
Total hotel revenues 19,476,251 19,144,574
Direct costs and expenses:
Rooms 3,665,362 3,768,662
Food and beverage 3,084,337 3,255,783
Telephone 720,439 786,656
Other 509,324 501,189
______________ ______________
Total direct hotel costs
and expenses 7,979,462 8,312,290
Unallocated expenses:
Administrative and general 2,178,482 2,683,467
Management fees 433,261 303,139
Marketing 1,851,306 1,945,291
Energy 906,353 1,025,969
Property operations and maintenance 942,002 1,055,796
Property taxes and insurance 829,102 789,768
Rent 270,008 244,469
Mortgage interest expense 5,546,081 5,524,715
Depreciation --- 3,099,956
______________ _____________
Total unallocated expenses 12,956,595 16,672,570
______________ _____________
Loss from hotel operations (1,459,806) (5,840,286)
______________ _____________
PARTNERSHIP OPERATIONS
Revenues:
Interest on subscription notes 2,305 15,703
Interest on temporary investments 15,428 36,400
______________ _____________
Total partnership revenues 17,733 52,103
______________ _____________
Expenses:
Managing General Partners' fees 325,141 350,106
Professional, consulting and other fees:
Affiliates 70,481 73,694
Nonaffiliates 39,870 46,925
______________ _____________
Total partnership expenses 435,492 470,725
______________ _____________
Loss from partnership operations (417,759) (418,622)
______________ _____________
REORGANIZATION ITEMS:
Professional, consulting and other fees --- 151,841
______________ _____________
Total reorganization expenses --- 151,841
______________ _____________
Net loss $ (1,877,565) $ (6,410,749)
============== ==============
Net loss allocated to General Partners $ (20,635) $ (70,455)
============= ==============
Net loss allocated to Limited Partners $(1,856,930) $ (6,340,294)
============== ==============
Net loss
Portfolio I (514 Interests) $ (2,882) $ (9,841)
============== ==============
Portfolio II (135 Interests) $ (2,781) $ (9,496)
============== ==============
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
STATEMENT OF PARTNERS' DEFICIT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
Partners' Collections Net loss for
deficit on the three Partners'
at January 1, subscription months ended deficit at
1996 notes March 31, 1996 March 31, 1996
VMS National Hotel Partners:
General Partners $ (333,135) --- $ (1,878) $(335,013)
VMS National Hotel
Portfolio I:
General Partners (2,534,012) --- (14,964) (2,548,976)
Limited Partners:
Total (200,989,511) --- (1,481,455) (202,470,966)
Subscription
notes (1,208,396) 10,779 --- (1,197,617)
Net (202,197,907) 10,779 (1,481,455) (203,668,583)
Total (204,731,919) 10,779 (1,496,419) (206,217,559)
VMS National Hotel
Portfolio II:
General Partners (646,232) --- (3,793) (650,025)
Limited Partners:
Total (50,824,560) --- (375,475) (51,200,035)
Subscription
notes (183,150) 500 --- (182,650)
Net (51,007,710) 500 (375,475) (51,382,685)
Total (51,653,942) 500 (379,268) (52,032,710)
Combined
Totals $(256,718,996) $ 11,279 $(1,877,565) $(258,585,282)
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
_______________ _______________
OPERATING AND REORGANIZATION ACTIVITIES
Net loss $ (1,877,565) $ (6,410,749)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
and reorganization activities:
Depreciation --- 3,099,956
Decrease (increase) in accounts receivable 124,071 (734,203)
Decrease in interest receivable --- 833
Decrease (increase) in prepaid expenses 227,126 (460,461)
Decrease in inventories 13,402 30,141
Decrease in accounts payable and
accrued expenses (929,516) (1,500,837)
Increase in accrued interest payable 5,046,081 5,524,716
_______________ ______________
NET CASH PROVIDED BY (USED IN) OPERATING
AND REORGANIZATION ACTIVITIES 2,603,599 (450,604)
_______________ ______________
INVESTING ACTIVITIES
Additions to property and improvements (596,501) (2,911,387)
_______________ ______________
NET CASH USED IN INVESTING
ACTIVITIES (596,501) (2,911,387)
_______________ ______________
FINANCING ACTIVITIES
Partners' capital contributions 11,279 13,959
Decrease in escrow and other deposits 1,173 164,222
_______________ ______________
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,452 178,181
______________ ______________
Net increase (decrease) in cash
and cash equivalents 2,019,550 (3,183,810)
_______________ ______________
Cash and cash equivalents at beginning
of period 6,179,655 9,840,142
_______________ ______________
Cash and cash equivalents at
end of period $ 8,199,205 $ 6,656,332
=============== ==============
Interest paid $ 500,000 $ ---
=============== ==============
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. Basis of Accounting
The accompanying unaudited combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information, with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In March 1995, the FASB issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Partnerships have adopted Statement
121 in the first quarter of 1996 and, based on current circumstances,
the effects of adoption are as follows: pursuant to the Plan of
Reorganization all remaining properties are to be held for sale and
accordingly are classified as Property and Improvements held for sale on
the Combined Balance Sheet at March 31, 1996 and no further depreciation
expense is being recorded on the Partnerships subsequent to December 31,
1995. In the opinion of the General Partner, all adjustments
(consisting only of normal recurring accruals and the effect of adopting
FASB Statement No. 121) necessary for fair presentation of the results
of operations for the three months ended March 31, 1996 and 1995, have
been made to the financial information furnished herein. For further
information refer to the combined financial statements and footnotes
thereto included in the Partnerships' annual report on Form 10-K for the
year ended December 31, 1995.
2. Related Party Transactions
Under the terms of the various Partnership Agreements, the Managing
General Partner and its affiliates are to provide management, financing
and other services to Portfolio I, Portfolio II and the Operating
Partnership in return for certain fees as follows:
Fees paid and payable for the three months ended
March 31, 1996
Paid Payable
Managing General
Partner salary (1) $ 50,000 $ ---
Asset Management fees (2) 299,833 146,486
____________ ___________
Total management fees
and salary 349,833 146,486
Other services and
costs (3) 74,639 13,110
____________ ___________
$ 424,472 $ 159,596
============ ===========
(1) The Partnership Agreements specify the dollar amount of this fee.
The various Partnerships are obligated to incur in the aggregate,
$50,000 per year of salary fees in the future.
(2) This fee is assessed at 1.75% of gross revenues of the Hotels.
(3) These fees represent reimbursement for partnership accounting,
printing, legal department, data processing and travel and communication
expenses incurred by affiliates of the Managing General Partner for
operation of the Partnerships.
3. Mortgage Payments
Beginning August 11, 1994 (ie consummation date of the Second Amended
and Restated Note Purchase and Loan Agreement) and continuing until
maturity on November 11, 1996 interest will accrue on the senior debt at
the note rate of 10%. Any cash flow payments will continue to be
applied to the accrued unpaid interest.
4. Litigation
Certain affiliates of the Partnerships, including the Managing General
Partner and certain officers and directors of such affiliates are
parties to certain pending legal proceedings as described in Form 10-K
for the year ended December 31, 1995 filed as of March 31, 1996 and
certain other proceedings. The adverse outcome of any one or more legal
proceedings against any one of the affiliates which provides financial
support or services to the Partnerships could have a materially adverse
effect on the present and future operations of the Partnerships. There
can be no assurance as to the outcome of any of the legal proceedings.
5. Liquidity
The financial statements have been prepared assuming that the
Partnerships will continue as going concerns. On August 11, 1994, the
Operating Partnership emerged from bankruptcy and the Plan was approved
which required the Operating Partnership to sell properties as stated
in the loan agreement. The Partnerships have incurred operating losses
since inception and have capital deficiencies. Furthermore, affiliates
of the Managing General Partner have announced the existence of serious
financial difficulties which may have an effect on the ability of the
Managing General Partner to function in that capacity. These conditions
raise substantial doubt about the Partnerships' ability to continue as
going concerns. The combined financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability of assets or the settlement of liabilities that may
result from the possible inability of the Partnerships to continue as
going concerns.
6. Sale of Hotels
As of March 31, 1996, the Operating Partnership is under contract to
sell one hotel. This hotel is classified as property and improvements
held for sale at March 31, 1996 and at December 31, 1995. Also, as
previously stated in Note 1, all remaining properties are to be held for
sale and accordingly are classified as Property and Improvements held
for sale on the Combined Balance Sheet at March 31, 1996. In 1995, the
Partnerships sold the Milwaukee West Quality Inn to an unaffiliated
third party as a gross sales price of $1,800,000. The Partnerships
recognized a loss of $886,000 at December 31, 1994 for financial
reporting purposes to reduce the carrying value of the Quality Inn to
its estimated sales price, and an additional loss of $510,012 was
recognized in 1995 as a result of a downward adjustment of the sales
price as well as the payment of costs associated with the closing.
Principal on the first mortgage of $1,582,967 was repaid out of the sale
proceeds. In addition, the Operating Partnership received $36,000 in
repayment of the closing payment.
7. Subsequent Event
On April 8, 1996, each of the Operating Partnerships solicited votes
on a prepackaged Plan of Reorganization (the "Plan"). On May 3, 1996,
sufficient votes to confirm the Plan were received. On May 10, 1996,
the Operating Partnerships each commenced a voluntary case under Chapter
11 of title 11 of the United States Code in the United States Bankruptcy
Court for the Northern District of Illinois (the "Bankruptcy Court").
If the Plan is confirmed by the Bankruptcy Court, the Operating
Partnerships will turnover substantially all of their property to
certain of their secured creditors.
Part I
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
On October 28, 1985, VMS National Hotel Portfolio I and II (the
Partnerships) commenced a private offering of $97,350,000 in Limited
Partnership interests pursuant to their respective Private Placement
Memorandums. A total of 649 units were offered and sold at $150,000 per
unit. Subscribers for the Units had the option to contribute partially
in cash upon subscription with the remaining purchase price payable in
annual installments over a five year period or on a basis other than the
foregoing option, which was acceptable to the Managing General Partner
in its sole discretion. The Limited Partner selecting to pay in the
remaining purchase price of their units over a five year period executed
and delivered to the Partnerships full recourse notes payable.
VMS National Hotel Partners (the Operating Partnership) originally
intended to purchase 28 hotels from Holiday Inns, Inc. (HII). Under the
terms of the offering, investors would receive a rebate of a portion of
their capital contribution if fewer than 28 hotels were acquired. Only
24 hotels were actually purchased, resulting in a $15,000 per unit
rebate to each Limited Partner. The $15,000 per unit was payable over a
five year period to each Limited Partner who elected the five year
payment option. The Limited Partners who elected the all-cash option or
who prepaid their notes received the $15,000 per United rebate upon
payment of their purchase price of $150,000 per Unit.
Liquidity and Capital Resources
The Partnerships' main sources of funds are the operations or
dispositions of its hotel properties. These properties, in the
aggregate, had been incurring deficits after debt service payments due
to an inability to reach rental rates and occupancies originally
projected. In addition to affecting the Partnerships' ability to meet
debt service payments, these deficits have contributed to an overall
decrease in value of the Partnerships' properties.
As shown on the Combined Statements of Cash Flows, cash and cash
equivalents increased $2,018,550 from December 31, 1995 to March 31,
1996. The increase is primarily the result of cash provided by
operating activities, and due to the fact that the first mortgage
holders were only paid $500,000 in cash flow payments during the
quarter. Operations generated cash during the first quarter as a result
of higher occupancy and room rates. A portion of the excess funds
generated from operations will continued to be utilized as available for
improvements to the properties.
Recent Developments - VMS Realty Partners and Affiliates
There have been no material developments or changes from the Recent
Developments - VMS Realty Partners and Affiliates disclosed in Part I,
Item 1 of the Partnerships' report on Form 10-K for the year ended
December 31, 1995 except the item noted in footnote 7 of the Financial
Statements.
Results of Operations
As of March 31, 1996, the Partnerships owned and operated 15 hotels in
nine states. Originally, the Operating Partnership owned and operated
24 hotels located in 11 states throughout the continental United States
of which four hotels were sold in 1992, two hotels were sold in 1993,
two hotels were sold in 1994 and one hotel was sold in 1995. In
addition, the Partnerships has entered into a contract to sell one hotel
in 1996.
Total hotel revenues for the three months ended March 31, 1996 exceeded
revenues for the same period during the prior year by $331,677 or 1.7%
due to higher hotel occupancies and average daily rates. The average
occupancy for the portfolio during the first quarter of 1996 improved to
67.8% from 66.0% during the first quarter of 1995 and the average daily
rate improved to $61.07 from $57.58. All but three hotels experienced
growth in revenues for the first quarter. Additionally, several hotels
in the chronically sluggish Los Angeles area generated higher revenues,
which indicates improvement in the local economy. The improvement in
average daily rate for the portfolio produced significantly higher
departmental profits, as on average, $3.50 for each room sold was not
offset by any additional expenses.
Over the last three years, moderate economic growth and weak new
construction of full-service, mid-scale hotels have created a
relationship where the rate of growth in demand for hotel rooms has
exceeded the rate of growth in supply, driving up the price of a hotel
rooms and revenues. This favorable demand and supply relationship is
expected to exist for the next two years, producing strong gains in
revenues and profits, before growth stabilizes with the construction of
new hotels. In addition, each hotel is situated within a few miles of
a major metropolitan area, proximate to a business district or airport,
and is well positioned to capitalize on improving and stable market
conditions.
Food and beverage revenues declined for the period due to the sale of
one hotel in 1995. Also, telephone revenues improved as a result of a
global adjustment to long distance access charges.
Direct costs and expenses associated with the hotels for the period
ended March 31, 1996 decreased by 4% relative to the same period in 1995
due to the sale of one hotel in 1995. These costs and expenses were
significantly lower as a percentage of revenues due to higher average
daily rates and greater operating efficiencies.
Administrative and general, and marketing expenditures declined for the
period due to the sale of one hotel and reduced labor costs. Management
fees increased primarily due to the improved performance of two hotels
in the Los Angeles Airport market. Energy and maintenance expenditures
also decreased as a result of the sale of one hotel in 1995.
Unallocated expenses, exclusive of mortgage interest and depreciation,
decreased by 7.9% for first three months of 1996 compared to the same
period in 1995. This decrease is attributed primarily to the sale of
the hotel in 1995 and slightly lower expenditures in the marketing and
maintenance due to higher occupancy. Mortgage interest was
substantially the same in 1996 compared to 1995. No depreciation
expense was recorded for the first three months in accordance with the
Partnerships' adoption of FASB Statement No. 121 and the properties
being classified as held for sale.
PART II - OTHER INFORMATION
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
1. Legal Proceedings
There have been no new material developments or changes from Part I,
Item 3 of the Partnerships' report on Form 10-K for the year ended
December 31, 1995.
Items 2 through 4
Items 2 through 6 are omitted because of the absence of conditions under
which they are required.
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.
VMS National Hotel Partners
(Registrant)
By: VMS National Hotel Portfolio I
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: May 13, 1996 By: /s/ Joel A. Stone
Joel A. Stone, President
Date: May 13, 1996 By: /s/ Thomas A. Gatti
Thomas A. Gatti,
Senior Vice President
By: VMS National Hotel Portfolio II
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: May 13, 1996 By: /s/ Joel A. Stone
Joel A. Stone, President
Date: May 13, 1996 By: /s/ Thomas A. Gatti
Thomas A. Gatti,
Senior Vice President