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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, 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 1-9563
AIRCOA HOTEL PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 84-1042607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
5775 DTC Boulevard
Suite 300
Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 220-2000
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 twelve 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
----- -----
There were 5,340,214 Units outstanding of the Registrant's Class A Units as of
July 30, 1996.
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AIRCOA HOTEL PARTNERS, L.P.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 (Unaudited) and
December 31, 1995 2 - 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1996
and 1995 (Unaudited) 4
Consolidated Statement of Partners' Capital
Six Months Ended June 30, 1996
(Unaudited) 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
(Unaudited) 6
Notes to Consolidated Financial
Statements (Unaudited) 7 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 14
PART II. OTHER INFORMATION AND SIGNATURES 14 - 15
See accompanying notes to consolidated financial statements.
1
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
- ------- ---------------------
AIRCOA HOTEL PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
Assets June 30, 1996 December 31, 1995
- ------ -------------- ------------------
Current assets:
Cash and cash equivalents $ 3,929 $ 2,116
Accounts receivable:
Trade 2,241 2,479
Affiliates 78 143
Inventory 370 339
Prepaid expenses 431 482
-------- --------
Total current assets 7,049 5,559
-------- --------
Property and equipment, at cost:
Land and leasehold improvements 8,922 8,914
Buildings and leasehold improvements 66,893 66,838
Furniture, fixtures and equipment 19,147 18,332
-------- --------
94,962 94,084
Less accumulated depreciation and amortization (33,435) (31,329)
-------- --------
Net property and equipment 61,527 62,755
-------- --------
Other assets, including debt issue costs, net of
accumulated amortization of $421 in 1996 and
$237 in 1995 904 1,092
-------- --------
$ 69,480 $ 69,406
======== ========
(continued)
See accompanying notes to consolidated financial statements.
2
AIRCOA HOTEL PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In Thousands)
Liabilities and Partners' Capital June 30, 1996 December 31, 1995
- --------------------------------- ------------- -----------------
Current liabilities:
Current installments of long-term debt $ 1,080 $ 1,080
Accounts payable:
Trade 1,390 1,683
Affiliates 444 715
Interest payable to affiliate 60 --
Accrued liabilities:
Payroll 394 217
Taxes, other than income taxes 860 473
Other 1,972 1,848
Deferred revenue and advance deposits 1,077 1,995
------- -------
Total current liabilities 7,277 8,011
Long-term debt, excluding current installments 42,750 43,290
Notes payable to affiliate 8,100 8,100
Accrued administration fees, management fees and interest
payable to affiliate 379 253
------- -------
Total liabilities 58,506 59,654
------- -------
Partners' capital:
General Partner 255 236
Limited partners:
Class A Unitholders 14,228 13,603
Class B Unitholders (deficit) (3,509) (4,087)
------- -------
Total partners' capital 10,974 9,752
------- -------
$69,480 $69,406
======= =======
See accompanying notes to consolidated financial statements.
3
AIRCOA HOTEL PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In Thousands, Except Unit Data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1996 1995 1996 1995
--------- -------- -------- --------
Revenue:
Rooms 7,739 $ 7,184 $ 15,056 $ 13,692
Food and beverage 3,436 3,250 6,453 5,885
Other property operations 1,878 1,908 3,912 3,659
--------- -------- -------- --------
13,053 12,342 25,421 23,236
--------- -------- -------- --------
Costs and operating expenses:
Rooms 2,056 1,914 3,942 3,671
Food and beverage 2,373 2,292 4,560 4,339
Other property operations 760 841 1,721 1,786
Administrative and general 1,343 1,201 2,558 2,351
Marketing 1,050 1,011 2,184 2,069
Energy 599 573 1,216 1,151
Property maintenance 633 644 1,206 1,189
Rent, taxes and insurance 654 730 1,337 1,353
Management fees 518 491 1,010 925
Depreciation and amortization 1,053 1,003 2,106 2,016
--------- -------- -------- --------
11,039 10,700 21,840 20,850
--------- -------- -------- --------
Operating income 2,014 1,642 3,581 2,386
Interest expense, including
amortization of debt costs 1,164 1,168 2,359 2,402
--------- -------- -------- --------
Net income (loss) $ 850 $ 474 $ 1,222 $ (16)
========= ======== ======== ========
Net income (loss) per limited
partnership unit:
Class A Unitholders:
Net income (loss) - primary $.10 $.03 $.12 $(.11)
========= ======== ======== ========
Net income - fully diluted .07 - .10 -
========= ======== ======== ========
Class B Unitholders:
Net income $.32 $.33 $.61 $.61
========= ======== ======== ========
Weighted average number of units outstanding:
Class A - primary 5,340,214 5,340,214 5,340,214 5,340,214
Class A - fully diluted 15,775,810 - 16,043,220 -
Class B 950,000 950,000 950,000 950,000
See accompanying notes to consolidated financial statements.
4
AIRCOA HOTEL PARTNERS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
(In Thousands, Except Unit Data)
Limited Partners' Capital (Deficit)
----------------------------------------
Class A Unitholders Class B Unitholders Total
General ------------------- ------------------- Partners'
Partner Units Capital Units Deficit Capital
------- --------- -------- --------- --------- -------
Balances at
December 31, 1995 $236 5,340,214 $13,603 950,000 $(4,087) $9,752
Net income 19 - 625 - 578 1,222
---- --------- ------- ------- ------- -------
Balances at
June 30, 1996 $255 5,340,214 $14,228 950,000 $(3,509) $10,974
==== ========= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
5
AIRCOA HOTEL PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In Thousands)
1996 1995
-------- --------
Cash flows from operating activities:
Cash received from customers $ 23,948 $ 22,344
Cash paid to suppliers and vendors (13,626) (13,650)
Cash paid to employees (6,513) (6,507)
Interest paid (1,441) (1,919)
Other cash receipts, net 863 834
-------- --------
Net cash provided by operating activities 3,231 1,102
-------- --------
Cash flows from investing activities:
Capital expenditures (878) (411)
-------- --------
Net cash used by investing expenditures (878) (411)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (540) (42,455)
Proceeds from refinancing _ 45,000
Payments for debt issuance cost _ (882)
-------- --------
Net cash provided (used) by financing
activity (540) 1,663
-------- --------
Increase in cash and cash equivalents 1,813 2,354
Cash and cash equivalents at beginning
of period 2,116 1,261
-------- --------
Cash and cash equivalents at end of period $ 3,929 $ 3,615
======== ========
See accompanying notes to consolidated financial statements.
6
AIRCOA HOTEL PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
(1) BASIS OF PRESENTATION
AIRCOA Hotel Partners, L.P., a Delaware limited partnership (the
"Partnership") was organized in December 1986 to acquire, own and operate
hotel and resort properties. The Partnership owns and operates six hotel
and resort properties (the "Properties") through operating partnerships
(the "Operating Partnerships") which were acquired in 1986.
The Partnership holds a 99% limited partner interest in each of the six
Operating Partnerships, which hold title to the Properties and through
which the Partnership conducts all of its operations. AIRCOA Hospitality
Services, Inc. ("AHS"), a wholly owned subsidiary of Richfield Hospitality
Services, Inc. ("Richfield"), is the 1% General Partner of each of the
Operating Partnerships. Richfield operates the Properties for the
Partnership under certain management agreements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all information and disclosures necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, these financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary for a fair
presentation of the results of operations and financial position for the
interim periods presented. These interim financial statements should be
read in conjunction with the Annual Report on Form 10-K for the period
ended December 31, 1995. Operating results for the six months ended
June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
Certain amounts reported in the 1995 financial statements have been
reclassified to conform to the 1996 presentation.
(2) LONG-TERM DEBT
On June 8, 1995, the Partnership signed a credit agreement with a new
lender which provided a $45,000,000 first mortgage loan and a $1,000,000
revolving credit line. The proceeds of the $45,000,000 first mortgage loan
were used principally to refinance, on a long-term basis, the Partnership's
existing mortgage loan in the amount of $38,950,000 and the note payable to
bank of $1,790,000 which were due July 31, 1995 and October 31, 1995,
respectively, and to provide approximately $3,000,000 to fund hotel
property renovations. The balance of the funds was used for the payment of
a facility fee and closing costs.
The first mortgage loan interest rate at June 30, 1996 of 7.375% was based
on the current Eurodollar rate plus 2%, and has been fixed through
August 1, 1996. Repayment of the first mortgage loan is based on a twenty-
year amortization with a final maturity date in June 2000. Payments under
this loan consist of monthly installments of $90,000 plus interest on the
unpaid balance. The revolving credit line is renewable annually at the
option of the lender. No amounts have been drawn on the line at June 30,
1996.
Long-term debt is summarized as follows (in thousands):
June 30, December 31,
1996 1995
-------- ------------
Mortgage loan $43,830 $44,370
Less current installments 1,080 1,080
------- -------
Long-term debt, excluding current installments $42,750 $43,290
======= =======
7
AIRCOA HOTEL PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
The first mortgage loan and revolving credit line contain various covenants
including: minimum debt service ratios, restrictions on additional
indebtedness, limitations on annual cash distributions to Class A
Unitholders, limitations on the payment of principal on the affiliate notes
payable, prepayment premium during the first three years, deferral of
management fees payable to Richfield if minimum debt service ratios are not
achieved, maintenance of a capital expenditure reserve account equal to 5%
of gross revenue and a maximum loan-to-value ratio of 65% based on the
aggregate appraised values of the Properties. The first mortgage loan and
revolving credit line are subject to certain limited guarantees of an
affiliate of the General Partner. The first mortgage loan also requires the
lender's approval of any dilution in the present ownership interests of
affiliates of the General Partner in the Partnership.
In accordance with the Partnership Agreement, the General Partner received
a 1% financing fee, reduced by the amount of the financing fee paid to the
lender, for arranging the refinancing of the Partnership's indebtedness. In
addition, the Partnership pays an annual guarantee fee to an affiliate of
the General Partner for the limited guarantee of the first mortgage loan
and the revolving credit line. The guarantee fee is calculated at .5% of
the total of the outstanding mortgage loan balance at June 8th of each year
plus the revolving credit line amount.
(3) NOTES PAYABLE TO AFFILIATE
A condition of the credit agreement signed by the Partnership for the first
mortgage loan and revolving credit line required the subordination of the
$6,000,000 notes payable to AHS (the "Notes"), AHS has agreed to this
subordination, and as a result, on September 26, 1995 the Board of
Directors of AHS, in its capacity as General Partner, and the Advisory
Committee of AHP authorized the extension of the term and deferral of
certain past-due interest on the Notes.
Pursuant to this extension, the Notes, which originally matured in January
1995 are due on June 8, 2000 which is coterminous with the new mortgage
loan. The unpaid interest on the Notes accrued prior to January 1, 1995 in
the amount of $2,100,000 was converted into a new promissory note ("New
Note"), which also matures on June 8, 2000. The New Note accrues interest
at the rate of 12% per annum and is payable at maturity. Interest accrued
on the Notes after December 31, 1994 was paid at closing. Interest
incurred on the Notes subsequent to closing continues to be accrued at 12%
per annum and is paid monthly. These notes are convertible into Class A
Units of the Partnership at $16.60 per unit. In addition, the Notes and New
Note stipulate that 25% of any excess cash flow, as defined in the new
mortgage loan, will be applied against the principal of the notes
outstanding.
(4) PARTNERSHIP UNITS AND ALLOCATIONS
LIMITED PARTNERSHIP UNITS
The Class A Units entitle each Unitholder to a limited partnership interest
in a percentage of the profits and losses, tax allocations and
distributions of the Partnership, as described below.
The Class B Units entitle each Unitholder to a limited partnership interest
which is subordinate to the Class A Units, in certain circumstances. The
Class B Units are redeemable by the Partnership or convertible into Class A
Units, in certain circumstances. The Class B Units do not receive
distributions until the Class A Unitholders receive defined Minimum Annual
Distributions. Through 1996, the Class B Units are convertible into Class A
Units to the extent that distributable cash flow of the Partnership in the
previous year would have been sufficient to pay Minimum Annual
Distributions for the Class A Units, including the Class B Units to be
converted. Beginning in 1997,
8
AIRCOA HOTEL PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
during the 30-day period following the release of the Partnership's annual
audited financial statements, and each year thereafter through 2001, a
minimum of 250,000 Class B Units are required to be converted into Class A
Units annually through 2001 at a redemption value of $20.00 per Class B
Unit, by issuing Class A Units valued at the then current market price of
the Class A Units. Therefore, the number of Class A Units to be issued upon
conversion of a Class B Unit will be determined at the time of conversion
by dividing $20.00 by the then current market price of a Class A Unit.
CASH DISTRIBUTIONS
The Partnership Agreement provides for periodic distribution of
distributable cash flow, as defined, to the partners at the discretion of
the General Partner. Distributable cash flow is generally defined as cash
flow from operations of the hotel properties. Such cash is allocated and
distributed (net of AHS' 1% general partnership interest in the Operating
Partnerships) 99% to the Class A Unitholders and 1% to the General Partner
until the Class A Unitholders have received defined Minimum Annual
Distributions. At June 30, 1996, the cumulative unpaid Minimum Annual
Distribution per Class A Unit significantly exceeds the Partnerships' net
asset value per unit based on the December 31, 1995 appraised values of the
hotel properties.
According to the first mortgage loan, the maximum annual amount that the
Partnership may distribute to the Class A Unitholders is equal to 50% of
the excess cash flow, as defined. However, if the debt service coverage
ratio, as defined, is greater than 1.50, then the Partnership may
distribute up to 75% of the excess cash flow.
In addition, the Partnership may not make any distributions to the Class A
Unitholders if there are any amounts which are due and payable under the
loan agreement which are unpaid.
(5) RELATED PARTY TRANSACTIONS
The following amounts resulting from transactions with affiliates are
included in the accompanying consolidated statements of operations (in
thousands):
For the six
months ended June 30,
---------------------
1996 1995
---- ----
Partnership administration fees $ 95 $ 101
====== =====
Management fees $1,010 $ 925
====== =====
Allocated insurance expenses $ 692 $ 720
====== =====
Allocated data processing cost $ 44 $ 25
====== =====
Interest expense $ 486 $ 360
====== =====
Lease income $ 115 $ 101
====== =====
License fees $ 149 $ 106
====== =====
Guarantee and financing fees(included in interest expense) $ 112 $ 21
====== =====
The Properties are obligated to reimburse an affiliate for payroll,
professional fees, and certain out-of-pocket expenses incurred by the
affiliate on their behalf. Affiliates are also paid purchasing and design
fees in connection with renovations of the hotels and purchases of
furnishings, equipment and supplies.
Effective August 1, 1996, Sheraton University Center was converted to Regal
University Hotel. Accordingly, Regal University Hotel has a license
agreement with an affiliate to operate as a Regal hotel.
9
AIRCOA HOTEL PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
(6) INCOME TAXES
No current provision or benefit for income taxes is included in the
accompanying consolidated financial statements since the taxable income or
loss of the Partnership is included in the tax returns of the individual
partners of the Partnership.
The Partnership's only significant temporary difference is an excess of the
tax basis over the book basis of the Partnership's hotels of approximately
$6,500,000 which gives rise to a net deferred tax asset of approximately
$2,600,000. The Partnership has established a 100% valuation allowance on
these net deferred tax assets. Current federal income tax regulations will
subject the Partnership to corporate taxation beginning in 1998.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Partnership revenue for the three months ended June 30, 1996 increased
$711,000 or 5.8% compared to the three months ended June 30, 1995. Revenue
for the first six months of 1996 increased $2,185,000 or 9.4% compared to
the first six months of 1995. Average occupancy and daily room rates for
the portfolio of 1,586 rooms are summarized as follows:
Three months Six months
ended June 30, ended June 30,
-------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Average occupancy 83.7% 83.9% 79.9% 79.5%
Average daily room rates $63.90 $59.19 $65.11 $59.89
The Partnership's properties produced higher revenue for the three months
and six months ended June 30, 1996 when compared to the three months and
six months ended June 30, 1995, primarily as a result of increased average
daily room rates and increased food and beverage revenue. Rooms revenue is
primarily a function of the Properties' occupancy levels and room rates.
Net rooms margin (rooms revenue less rooms expenses) increased $413,000 or
7.8% for the three months ended June 30, 1996 as compared to the three
months ended June 30, 1995, as revenue increased by $555,000 or 7.7% while
expenses increased $142,000 or 7.4%. Net rooms margin increased $1,093,000
or 10.9% for the first six months of 1996 as compared to the first six
months of 1995, as revenues increased by $1,364,000 or 10.0% while expenses
only increased $271,000 or 7.4%. The largest increases in margin for the
three months and six months ended June 30, 1996 as compared to same periods
in 1995 occurred at Sheraton Lakeside, Regal University Hotel (formerly
Sheraton University Center) and Regal McCormick Ranch. The increases at
Sheraton Lakeside were generated through increases in room rates, primarily
in the leisure market segment, and increases in occupancy, primarily in the
wholesale and group segments. The increases at Regal McCormick Ranch and
Regal University Hotel were primarily generated through increases in room
rates, offset with slight decreases in occupancy. The room rate increases
at Regal McCormick Ranch were achieved in the group and leisure market
segments, while the rate increases at Regal University Hotel were primarily
achieved in the commercial and group market segments. Net rooms margin
increased at Sheraton Buffalo during the three months ended June 30, 1996
as compared to the three months ended June 30, 1995. This increase was
generated through an increase in room rates, primarily achieved in the
group and leisure market segments.
Net food and beverage margin (food and beverage revenue less food and
beverage expenses) increased $105,000 or 11.0% for the three months ended
June 30, 1996 as compared to the three months ended June 30, 1995, as
revenue increased by $186,000 or 5.7% while expenses increased $81,000 or
3.5%. Net food and beverage margin increased $347,000 or 22.4% for the
first six months of 1996 compared to the six months ended June 30, 1995, as
revenue increased $568,000 or 9.7% while expenses only increased $221,000
or 5.1%. This increase in food and beverage contribution was achieved
through improved margins on food costs.
Revenue from other property operations decreased slightly for the three
months ended June 30, 1996 as compared to the three months ended June 30,
1995 and increased $253,000 or 6.9% for the six months ended June 30, 1996
as compared to the same period in the prior year. This is primarily due to
increased activities at Regal McCormick Ranch during the first quarter of
1996 in the Scottsdale region, which benefited from Phoenix, Arizona
hosting the Super Bowl and Fiesta Bowl at the beginning of the year.
11
Operating income for the three months ended June 30, 1996 increased
$372,000 or 22.7% as compared to the three months ended June 30, 1995, as
revenue increased 5.8% while operating costs only increased 3.2%. Operating
income increased $1,195,000 or 50.0% for the six months ended June 30, 1996
as compared to the first six months of 1995, as revenue increased 9.4%
while operating costs only increased 4.7%.
Interest expense decreased slightly for the three months ended June 30,
1996 as compared to the three months ended June 30, 1995. For the six
months ended June 30, 1996, interest expense decreased $43,000 or 1.8% as
compared to the six months ended June 30, 1995, as the result of a decrease
in the average interest rate (inclusive of amortization of debt issue cost)
from 9.68% to 9.04%, offset in part by higher average debt levels.
Cash flow from operations differs from net income of the Partnership due to
the effects of depreciation, amortization and accruals as reflected in the
consolidated statements of cash flows. Net income/(loss) per Class A Unit
and the net income per Class B Unit reflect allocations of the net income
as required by the Partnership Agreement.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the first six months of 1996
was $3,231,000, an increase of $2,129,000 as compared with the same period
in 1995. The increase is primarily attributable to the increase in cash
received from customers of $1,604,000 and the decrease in interest paid of
$478,000. Cash used in investing activities increased $467,000 in the first
six months of 1996 compared to the first six months of 1995 due to
increased capital expenditures. Cash used in financing activities decreased
$2,203,000 in the first six months of 1996 as compared to the first six
months of 1995. The decrease is attributable to the Partnership refinancing
its long term debt in June 1995. This refinancing resulted in a new
$45,000,000 first mortgage loan and a $1,000,000 revolving line of credit.
The Partnership had indebtedness at June 30, 1996 of $51,930,000 as
compared to $52,470,000 at December 31, 1995. At June 30, 1996, the
Partnership had a working capital deficit of $354,000 compared to a working
capital deficit of $2,452,000 at December 31, 1995. The Partnership's
working capital requirements, debt service obligations and capital
expenditures are expected to be satisfied through a combination of
operating cash flows and draws on its revolving line of credit. During the
first six months of 1996 the Partnership spent $878,000 on capital
improvements and has approximately $2,300,000 planned for the remainder of
1996. These improvements will be primarily funded from hotel operations. In
accordance with the provisions of the mortgage loan agreement, which
requires certain minimum levels of capital expenditures, it is anticipated
that the Partnership will establish a capital reserve account of
approximately $500,000 at December 31, 1996.
The market value of the Partnership's properties differs significantly from
the historical cost of the properties as reflected in the Partnership's
balance sheet at June 30, 1996. As indicated under Item 2 in the
Partnership's 1995 Form 10-K, the aggregate appraised value of the hotel
properties at December 31, 1995 was $82,875,000. The December 1995
appraised value may not be representative of the appraised value which will
be obtained as of December 31, 1996 and is not necessarily indicative of
the ability of the Partnership to consummate a sale of the Properties or
the actual sale price to be realized from the sale of the Properties.
However, the appraised value does represent the appraiser's opinion of the
most probable price for which the hotel properties should sell in a
competitive market.
PARTNERSHIP DISTRIBUTIONS AND UNIT CONVERSIONS
The Partnership Agreement provides for periodic distribution of
distributable cash flow, as defined, to the partners subject to any
applicable restrictions and the discretion of the General Partner. The
Partnership has not made any distributions since 1990. Prior to making
future distributions, the Partnership will comply with its capital
expenditure and debt service reserve requirements as
12
specified in its mortgage loan agreement and maintain sufficient working
capital balances. The Partnership currently has a Minimum Annual
Distribution requirement of $2.16 per Class A Unit. At June 30, 1996, the
cumulative unpaid Minimum Annual Distribution per Class A Unit
significantly exceeds the Partnership's net asset value per unit based on
the December 31, 1995 appraised values of the hotel properties. At this
time, it is unlikely that there will be funds available for distribution to
the Class A Unitholders in 1996.
Beginning in 1997, during the 30-day period following the release of the
Partnership's annual audited financial statements, and each year thereafter
through 2001, a minimum of 250,000 Class B Units are required to be
converted at a redemption value of $20.00 per Class B Unit, by issuing
Class A Units valued at the then current market price of a Class A Unit.
Therefore, the number of Class A Units to be issued upon the conversion of
a Class B Unit will be determined at the time of conversion by dividing
$20.00 by the then current market price of a Class A Unit. Current market
price for this calculation is the average market price for a Class A Unit
during the last five days prior to conversion.
Based on current market prices of the Class A Units, such required
conversion is expected to result in substantial dilution to the
preconversion Class A Unitholders. For example, based on the average
monthly market price of Class A Units during the first six months of 1996
of approximately $1.86, the conversion of 250,000 Class B Units in the
first year of the required conversion period would result in an approximate
34% dilution to the Class A Unitholders upon conversion. This conversion
will result in the issuance of approximately 2,690,000 new Class A Units in
1997. The conversion of all 950,000 Class B Units would result in an
approximate 66% dilution to the preconversion Class A Unitholders at the
$1.86 per unit market price. In addition, using the same per unit market
price for a Class A Unit of $1.86, affiliate ownership of Class A Units
would increase to approximately 81% and 90% upon conversion of the first
250,000 Class B Units and conversion of all 950,000 Class B Units,
respectively. Changes in the market price of Class A Units will not result
in proportional changes in dilution. The market price of the Partnership's
Class A Units is subject to fluctuations and there is no assurance that
such prices upon conversion will approximate the average per unit market
price in the six months of 1996.
Due to the Partnership's positive operating results through June 30, 1996,
fully diluted earnings per Class A Unit disclosures are presented. For
purposes of this calculation, the conversion of the 950,000 Class B Units
into Class A Units was based on the Class A Unit average monthly market
price of $1.91 and $1.86 for the three months and six months ended June 30,
1996, respectively.
Pursuant to the Partnership Agreement, the Class A Units to be issued upon
conversion of the Class B Units must be identical to the Class A Units
existing prior to the conversion date. If the General Partner determines,
based on advice of counsel, that no reasonable allowable convention or
other method is available to preserve the uniformity of the intrinsic tax
characteristics of any specifically identifiable group of units, such units
will be separately identified, to the extent practicable, as distinct
classes to reflect these intrinsic tax differences, regardless of any such
non-uniformity.
OTHER MATTERS
Management of the Partnership, the Board of Directors of the General
Partner and the Advisory Committee are seeking to increase the value of the
Partnership for all of its Unitholders. Management has been evaluating and
will continue to evaluate different strategies for maximizing Unitholder
value including; (i) continued ownership and operation of the properties,
(ii) sale of one or more of the Partnership's properties in response to
exceptional offers, (iii) liquidation, sale or other similar transactions,
and (iv) combining the Partnership or its assets with other hotel-owning
entities.
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Unless and until such time as management identifies one or more preferable
strategic alternatives, the Partnership intends to pursue its current
strategy of owning and operating its existing portfolio of properties.
PART II. OTHER INFORMATION
All other items are either not applicable or would be answered in the
negative and accordingly have been omitted.
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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.
AIRCOA HOTEL PARTNERS, L.P.
By: AIRCOA Hospitality Services, Inc.,
General Partner
Date: August 13, 1996 By: /s/ Douglas M. Pasquale
------------------ -------------------------------------------
Douglas M. Pasquale
President and Director
(Principal Executive and Financial Officer)
of AIRCOA Hospitality Services, Inc.
By: /s/ David C. Ridgley
--------------------
David C. Ridgley
Vice President
and Chief Accounting Officer
(Duly Authorized Officer)
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