SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
COMMISSION FILE NUMBER: 33-11224-LA
MISSION VALLEY COMFORT SUITES LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0213497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3145 Sports Arena Blvd.
San Diego, CA 92110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(619) 226-1212
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
State the number of limited partnership interests outstanding as
of the latest practicable date: 5,900
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial
information:
Balance Sheet as of March 31, 1995 and December 31, 1994.
Statement of Operations for the three-month periods ended
March 31, 1995 and March 31, 1994.
Statement of Cash Flows for the three-month periods ended
March 31, 1995 and March 31, 1994.
Notes to Financial Statements.
2
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
(Unaudited)
(Part 1)
March 31, December 31,
ASSETS 1995 1994
Cash and cash equivalents $ 45,817 $ 29,042
Accounts receivable 25,821 22,589
Operating Supplies 14,835 14,718
Prepaid expenses 24,445 33,956
Due from affiliates (Note 4) 0 12,565
---------- ----------
Total Current Assets 110,918 112,870
---------- ----------
Investment property, at cost:
Building and improvements 4,482,611 4,482,611
Furniture, fixtures and equipment 1,112,223 1,111,831
---------- ----------
3,938,445 3,938,445
Less accumulated depreciation 1,849,193 1,809,354
---------- ----------
Total Investment property, net
of accumulated depreciation 3,745,641 3,785,088
Franchise fees, net (Note 3) 33,542 34,167
Construction in Progress 60,694 0
---------- ----------
$3,950,795 $3,932,125
---------- ----------
---------- ----------
See accompanying notes to financial statements.
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MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
(Part 2)
LIABILITIES AND March 31, December 31,
PARTNER'S CAPITAL ACCOUNTS 1995 1994
Current liabilities:
Current portion of long-term debt $ 6,449 $ 6,322
Accounts payable and accrued expenses 43,988 49,673
Accrued expenses 5,948 11,264
Due to affiliates (Note 4) 13,823 5,879
---------- ----------
Total current liabilities 64,260 61,874
---------- ----------
Long-term debt, less current portion 242,097 243,758
Deferred rent liability (Note 6) 1,535,515 1,542,933
---------- ----------
Total liabilities 1,841,872 1,848,565
Partners' capital accounts:
General Partners:
Capital contributions 31,210 31,210
Cumulative net earnings (163,023) (165,559)
Cumulative cash distributions (133,640) (133,640)
---------- ----------
(265,453) (267,989)
Limited partners:
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net earnings (1,467,203) (1,490,030)
Cumulative cash distributions (1,275,708) (1,275,708)
---------- ----------
2,374,376 2,351,549
---------- ----------
Total partners' capital accounts 2,108,923 2,083,560
---------- ----------
$3,950,795 $3,932,125
---------- ----------
---------- ----------
See accompanying notes to financial statements.
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
----------------------------
1995 1994
---------- ----------
Revenues:
Room revenues $ 388,280 $ 348,888
Phone revenues 12,207 11,321
Interest income 54 225
Other income 4,151 3,715
---------- ----------
404,692 364,149
---------- ----------
Expenses:
Property operating expenses 133,027 135,427
Depreciation 39,839 38,493
General and Administrative 49,336 46,230
Amortization 625 625
Management fees 24,263 21,835
Royalties and advertising 29,785 29,054
Real estate taxes 12,751 15,603
Interest expense 5,109 6,525
Lease expense 54,625 53,836
Marketing 9,964 12,971
Repairs and maintenance 20,005 15,744
---------- ----------
379,329 376,343
---------- ----------
Net earnings $ 25,363 $ (12,194)
---------- ----------
---------- ----------
Net earnings per limited
partnership interest $ 3.87 $ (1.86)
---------- ----------
---------- ----------
See accompanying notes to financial statements.
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Net earnings $ 25,363 $ (12,194)
Adjustments to reconcile net earnings to cash:
Depreciation and amortization 40,464 39,118
(Increase) decrease in:
Accounts receivable (3,232) (624)
Operating supplies (117) (487)
Prepaid expenses 9,511 37,522
Increase (decrease) in:
Accounts payable and accrued expenses (5,685) 1,570
Due to/from Affiliates 20,509 11,448
Deferred rent liability (7,418) (7,430)
---------- ----------
Net cash provided by (used in) operating activities 79,395 68,923
---------- -----------
---------- ----------
Cash flows from investing activities:
Investment property expenditures (61,086) (2,922)
---------- ----------
Net cash used in investing activities (61,086) (2,922)
---------- ----------
Cash flows from financing activities:
Payments of notes payable (1,534) 0
Cash distributions to partners 0 0
----------- ----------
Net cash provided by (used in) financing activities (1,534) 0
---------- ----------
Net decrease in cash and cash equivalents 16,775 66,001
Cash and cash equivalents at beginning of period 29,042 41,360
---------- ----------
Cash and cash equivalents at end of period $ 45,817 $ 107,361
---------- ----------
---------- ----------
See accompanying notes to financial statements.
6
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1995
(Unaudited)
Readers of this quarterly report should refer to the partnership
audited financial statements and annual report Form 10-KSB (File
No. 33-11224-LA) for the period ended December 31, 1994, as
certain footnote disclosures which would substantially duplicate
those contained in such financial reports have been omitted from
this report.
1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Mission Valley Comfort Suites Ltd., A California Limited
Partnership (the Partnership), formerly Motels of America Series
X), a California Limited Partnership, was formed on September 18,
1987 pursuant to the California Revised Uniform Limited
Partnership Act. The purpose of the Partnership is to construct,
own, and operate a 122-room "suites only" motel under a franchise
agreement with Quality Inns International, Inc. The motel was
opened in September 1988.
The following is a summary of the Partnership's significant
accounting policies:
Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased
with an original maturity of three months or less to be cash
equivalents.
Investment Property
Investment property is recorded at cost. Depreciation is
computed using the straight-line method based on estimated useful
lives of 5 to 35 years. Maintenance and repair costs are
expensed as incurred, while significant improvements,
replacements, and major renovation are capitalized.
Franchise Fees
Franchise fees are amortized over the 20-year life of the
franchise agreement.
Income Taxes
No provision for income taxes has been made as any liability for
such taxes would be that of the partners rather than the
Partnership.
(Continued)
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements, Continued
Net Income per Interest
Net income per interest is based upon the 90% allocated to
limited partners divided by 5,900 limited partner interests
outstanding throughout the year.
2. PARTNERSHIP AGREEMENT
Net income or loss and cash distributions from operations of the
Partnership are allocated 90% to the limited partners and 10% to
the general partner. Profits from the sale or other disposition
of Partnership property are to be allocated to the general
partner until its capital account equals zero; thereafter, to the
limited partners until their capital accounts equal their capital
contributions reduced by prior distributions of cash from sale or
refinancing plus an amount equal to a cumulative but not
compounded annual 8% return thereon which cumulative return shall
be reduced (but not below zero) by the aggregate amount of prior
distributions of cash available for distribution; thereafter,
gain shall be allocated 15% to the general partner and 85% to the
limited partners. Loss from sale shall be allocated 1% to the
general partner and 99% to the limited partners.
3. FRANCHISE AGREEMENT
The Partnership has entered into a twenty-year franchise
agreement with Quality Inns International, Inc. to provide the
Partnership with consultation in the areas of design,
construction and operation of the motel. The agreement required
the payment of initial franchise fees of $50,000 and requires
ongoing royalty and chain-affiliated advertising fees based on a
percentage of gross room revenues.
4. RELATED PARTY TRANSACTIONS
The motel is operated pursuant to a management agreement with
GHG. The agreement provides for the payment of monthly
management fees of 6% of gross revenues.
The Partnership has agreed to reimburse GHG for certain expenses
related to services performed in maintaining the books and
administering the affairs of the Partnership.
GHG and an affiliate, GMS Management Services, Inc. (GMS),
allocate to the Partnership certain marketing, accounting, and
maintenance salaries and certain other expenses directly related
to the operation of the Partnership.
Fees and reimbursements for partnership administration expenses
paid to GHG and GMS for the three months ended March 31, 1995 and
March 31, 1994 are as follows:
(Continued)
8
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements, Continued
4. RELATED PARTY TRANSACTIONS (Continued)
3/31/95 3/31/94
------- -------
Management Fees $24,263 $21,835
Reimbursement for
partnership admini-
stration expenses $ 8,105 $ 9,886
In addition, all motel employees are paid by GMS. The
Partnership reimburses GMS for the wages of these employees plus
a one percent processing fee.
At March 31, 1995, $13,823 was due from GHG and GMS relating to
reimbursement for these operating expenses.
5. LONG-TERM DEBT
The Partnership had a note payable to its land lessor with a
principal balance of $200,000 which was due May 1, 1991. The
note required monthly interest payments at 15%. As of April 1,
1993, the Partnership had not made monthly interest payments on
this note since May 1, 1991, and accrued interest totalled
$60,000. As of April 1, 1993, the note payable was amended to
add the accrued interest to the principal balance so that the new
principal balance was $260,000. This balance is payable over
approximately 20 years in monthly installments of $2,175
including 8% interest. The note is secured by a trust deed on
the Partnership's motel.
Principal payments on this note are due as follows:
1995 $ 6,322
1996 6,847
1997 7,415
1998 8,031
1999 8,697
Thereafter 212,768
--------
$250,080
--------
--------
(Continued)
9
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements, Continued
6. LEASE
The Partnership leases the land underlying its motel under an
operating lease which expires in 2046. As of December 31, 1992,
rents were subject to annual increases based on the greater of 2
1/2% or the increase in the Consumer Price Index. The total
minimum rentals over the life of the lease, including the effects
of the 2-1/2% minimum annual increases, were being recognized on
the straight-line basis as required by generally accepted
accounting principles. Effective April 1, 1993, the lease was
amended to lower the rent payment to $20,000 per month. Rents
are still subject to annual increases based on the increase in
the Consumer Price Index, but the maximum annual increase is 5%
and there is no minimum annual increase. As a result of this
amendment to the lease agreement, a deferred rent liability of
$1,594,894, which was incurred prior to April 1, 1993, is being
credited to income on a straight-line basis over the remaining
term of the lease. The Partnership is required to pay real
estate taxes, insurance, and maintenance for the leased land and
improvements thereon.
Future minimum lease payments are due as follows:
1995 $ 248,172
1996 248,172
1997 248,172
1998 248,172
1999 248,172
Thereafter 11,643,403
-----------
$12,884,263
-----------
-----------
7. ADJUSTMENTS
In the opinion of the general partners, all adjustments
(consisting solely of normal recurring adjustments) necessary for
a fair presentation have been made to the accompanying figures as
of and for the three months ended March 31, 1995.
8. SUBSEQUENT EVENT
In May 1995, the Partnership paid a distribution of $26,999.79 to
the limited partners.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition:
On February 6, 1987, the Partnership commenced its public
offering pursuant to its Prospectus. On March 21, 1988, the
Partnership completed the public offering. The Partnership
received $5,117,287 (net of offering costs of $782,713) from the
sale of limited partnership interests. These funds were available
for investment in property, to pay legal fees and other costs
related to the investments, to pay operating expenses, and for
working capital. A portion of the proceeds were used to acquire
and construct the 122-room "suites only" motel on 1.93 acres of
land, subject to a 60-year lease expiring in 2046.
As a result of cost overruns related to the acquisition and
construction of the motel, the Partnership borrowed $200,000 from
the party that is the lessor under its land lease. The note is
payable in monthly installments of $2,175, including interest at
8%, over a 20-year period.
In 1994, the Partnership was notified by its franchisor, Quality
Inns International, Inc., that it was required to make certain
improvements to its motel property. In addition, the Partnership
decided to make certain discretionary improvements to its motel
property. The total estimated cost of these improvements was
approximately $111,900. Management made some of these
improvements in 1994, and plans to make the remainder in 1995 to
the extent of available cash. Approximately $25,000 of these
improvements remained to be made as of March 31, 1994.
The deferred rent liability represents amounts accrued under the
Partnership's land lease prior to April 1, 1993. Under the
original land lease, annual rent increases were based on the
greater of 2-1/2% or the increase in the Consumer Price Index.
The Partnership was required by generally accepted accounting
principles to record rent expense and a deferred rent liability
based on projecting the 2-1/2% minimum annual rent increase over
the 60-year term of the lease. Effective April 1, 1993, the land
lease was amended. Under the amended land lease, monthly rent
payments were reduced from $30,138 per month to $20,000 per
month. Annual rent increases are based on the lesser of the
increase in the Consumer Price Index or 5%, and there is no
minimum annual increase. Rent expense under the amended lease is
significantly lower than under the previous lease. In addition,
the deferred rent liability accrued prior to April 1, 1993 is
being credited to income on a straight-line basis over the
remaining term of the lease.
(Continued)
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations:
For the three months ended March 31, 1995, room revenues were
$388,280, the occupancy rate was 65.14% and the average daily
rate was $54.29. This compares to the three months ended March
31, 1994 when room revenues were $348,888, the occupancy rate was
57.54% and the average daily rate was $55.22.
City-wide occupancy rates are expected to increase slightly in
1995. The Mission Valley area still remains overbuilt and
downtown San Diego has become an alternative destination for both
corporate and leisure travelers. To help prevent occupancy rates
from falling, the Partnership has run advertisements in Los
Angeles and Phoenix offering competitive, lower rates. The
Partnership has increased its sales efforts to travel agents,
group tours and other leisure travelers, as well as to business.
San Diego is hosting several city-wide conventions during the
summer months which should generate high rates at the motel, and
the property manager continues to participate in co-op
advertising committees to gain more exposure for the motel.
Until March 31, 1993, rent expense on the land lease was based on
a straight-line recognition of the total minimum rentals over the
life of the lease including the effects of a 2-1/2% minimum
annual increase. Due to changes in the lease agreement,
effective April 1, 1993, rent expense is based on amounts
currently payable, and there is no deferred rent expense. The
deferred rent liability, which was incurred prior to April 1,
1993, is being credited to income over the remaining term of the
lease.
The effect of current operations on liquidity was net cash
provided by operating activities of $79,395 for the three months
ended March 31, 1995 and $68,923 for the three months ended March
31, 1994.
Seasonality:
The motel business is seasonal with the third quarter being the
strongest due to the tourist business and the last half of the
fourth quarter and the first half of the first quarter being the
weakest.
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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.
(REGISTRANT) MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
By: GHG Hospitality, Inc.
Corporate General Partner
BY (SIGNATURE) /s/ J. Mark Grosvenor
(NAME AND TITLE) J. Mark Grosvenor, President and Director
(DATE) May 5, 1995
BY (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Controller and Director
(DATE) May 5, 1995
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