EXHIBIT 13.1
MANHATTAN BEACH HOTEL PARTNERS, L.P.
1996 ANNUAL REPORT
Manhattan Beach Hotel Partners, L.P.
In December 1987, Manhattan Beach Hotel Partners, L.P. acquired the Radisson
Plaza Hotel and Golf Course (the "Hotel"), a 384-room hotel located at 1400
Parkview Avenue in the City of Manhattan Beach, Los Angeles County, California,
three miles south of the Los Angeles International Airport. The Hotel and
adjoining nine-hole executive golf course are situated on a 26.3 acre site
leased from the City of Manhattan Beach. The Hotel, which is managed by a
subsidiary of Interstate Hotels Corporation, features a unique array of
amenities to appeal to both business and leisure travelers including 17,200
square feet of conference and banquet facilities, two restaurants, a lobby
lounge and sports bar, a health club, a swimming pool, and shuttle service to
the airport and Manhattan Beach. The resort-like atmosphere at the Hotel
combined with its location near the airport and several large office complexes
has made the Hotel a popular destination for business and leisure travelers.
The Partnership's operations are managed by its General Partner, Manhattan
Beach Commercial Properties III Inc.
Property Highlights
Average Average
Occupancy Room Rate
--------- ---------
1995 82.3% $77.58
1996 85.3% $83.59
% Change 3.6% 7.7%
Contents
1 Message to Investors
3 Financial Results Comparison
4 Financial Statements
7 Notes to the Financial Statements
14 Report of Independent Accountants
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
This 1996 Annual Report for Manhattan Beach Hotel Partners, L.P. (the
"Partnership") includes an update on the operations of the Radisson Plaza Hotel
and Golf Course (the "Hotel"), including the status of efforts to sell the
Hotel, a discussion of the hospitality industry environment, and the
Partnership's audited financial statements for the year ended
December 31, 1996.
Marketing of Hotel
- ------------------
As discussed in previous correspondence, the General Partner commenced
marketing the Hotel for sale in late 1996 and retained the services
of Eastdil Realty Company ("Eastdil"), a nationally- recognized real estate
firm, to assist with these efforts. We are pleased to report that on March 20,
1997, the Partnership executed a Letter of Intent (the "Letter of Intent") to
sell the Property to a joint venture comprised of Host Marriott Corporation and
Interstate Hotels Corporation (the "Buyer") for a cash purchase price of
$38,250,000 (the "Marriott/Interstate Sale"). A subsidiary of Interstate
Hotels Corporation currently manages the Hotel and has done so for more than
five years. The Buyer has 30 days in which to complete its due diligence
investigation of the Property, during which time the parties will attempt to
negotiate and execute a formal Purchase and Sale Contract (the "Contract"). It
is currently anticipated that the closing of the sale would be within 10
business days following the end of the due diligence period. Certain of the
conditions and terms in the Letter of Intent are not legally binding and are
subject to the execution of the Contract.
The decision to begin the marketing process was based on a number of factors,
including an improving hospitality industry nationwide, the significant
improvement in the Hotel's performance and recent unsolicited offers from
prospective buyers. Our objective is to maximize the selling price of the
Hotel and distribute the net sales proceeds to limited partners. While we
believe that the Hotel is likely to be sold in 1997, there can be no assurance
that the Marriott/Interstate Sale or any other sale of the Hotel will be
consummated, or that a sale, if completed, will result in any particular level
of distributable cash.
BAR GRAPH: Comparing United States, Los Angeles Airport Market and Radisson
(the Property) average occupancy rates in 1996 and 1995. All average
occupancy rates disclosed in text.
BAR GRAPH: Comparing United States, Los Angeles Airport Market and Radisson
(the Property) average room rates in 1996 and 1995. All average room rates
disclosed in text.
Market Update
- -------------
Operating conditions for hotels nationwide continued to improve throughout
1996, as the hospitality industry experienced overall increased profitability
during the year. For the year ended December 31, 1996, market analysts Smith
Travel Research reported that average occupancy and daily room rates for U.S.
hotels increased to 65.7% and $71.66, respectively, compared with 65.1% and
$67.17, respectively, for 1995.
Conditions for hotels in the Los Angeles Airport submarket also improved during
1996. This is due in large part to the fact that southern California, which
lagged the rest of the nation in its recovery, has been experiencing an
economic recovery stimulated by growth in the high-tech and entertainment
industries. This growth has positively impacted most businesses, including the
local hospitality market. According to Smith Travel Research, for the year
ended December 31, 1996, average occupancy and room rates for hotels in the Los
Angeles Airport submarket increased to 74.9% and $61.62, compared to 69.2% and
$58.14, respectively, for 1995.
Although the supply of rooms has remained relatively constant in recent years,
the Hotel faces considerable competition from existing hotels in the Los
Angeles Airport submarket. The General Partner has identified 11 hotels
totaling 6,755 rooms that currently compete to varying degrees with the Hotel.
Among these is the Los Angeles Airport Marriott, which is owned by a limited
partnership that was sponsored by an affiliate of the General Partner.
Although there are numerous additional hotels that exist in the market area,
the General Partner does not consider them to be directly competitive with the
Hotel due to disparities in markets served, quality of facilities, rate
structure, location and/or lack of affiliation with a major hotel chain.
Property Update
- ---------------
Operating results at the Hotel continued to improve in 1996, reflecting the
strengthening conditions discussed above. For the year ended
December 31, 1996, the average occupancy and room rate increased to 85.3% and
$83.59, compared with 82.3% and $77.58, respectively, for 1995. The
improvement in the Hotel's average occupancy and daily room rate led to a 12.7%
increase in total Hotel sales. This increase, coupled with efforts to contain
expenses, resulted in an 11.6% improvement in the Hotel's house profit.
As required by Financial Accounting Standards Statement No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", the Partnership wrote-down the net book value of the Hotel as of
December 31, 1996 to its estimated fair market value less costs to sell.
The determination of the estimated fair market value of the Hotel was based
upon the Letter of Intent executed by the Partnership to sell the Hotel. As
a result, the Partnership reported a net loss for 1996 compared with net
income in 1995. Excluding such loss, the Partnership reported an increase in
net income for 1996 over the previous year.
Unless the Hotel is sold, the ability of the Partnership to make future
distributions is dependent upon various factors, including cash flow
generated from Hotel operations, the adequacy of cash reserves and the outcome
of the Partnership's marketing efforts. There can be no assurance that future
cash flow will be sufficient to fund any such additional distributions. If
the Marriott/Interstate Sale occurs, we estimate that liquidating distributions
may exceed $5.00 per Unit. The amount is dependent on Hotel and Partnership
operations until closing, the timing of the closing and other factors, all of
which are uncertain at this time.
General Information
- -------------------
As you are probably aware, several third parties have commenced partial
tender offers to purchase units of the Partnership at what the General
Partner has advised are grossly inadequate prices which are substantially
below the Partnership's Net Asset Value. In response, we have recommended
that limited partners reject these offers because they do not reflect the
underlying value of the Partnership's assets. To date, holders of fewer
than 5% of the outstanding units have tendered.
Summary
- -------
The General Partner has continually monitored the operations of the
Hotel, the status of the hospitality industry and other factors to determine
the optimum time to sell the Hotel to maximize value. Given the improved
performance of the Hotel, the hospitality industry and the increased demand by
potential buyers, the General Partner believes it is in the best interest of
the Partnership to attempt to sell the Hotel at this time. In the interim, we
will continue to pursue methods for improving efficiency in operations in order
to achieve optimum profitability. We will keep you informed of our progress in
future investor reports.
Very truly yours,
Manhattan Beach Commercial Properties III Inc.
The General Partner
s/Jeffrey C. Carter/
Jeffrey C. Carter
President
March 28, 1997
Financial Results Comparison
- ----------------------------
The following chart summarizes the financial results of the Hotel and
Partnership for the indicated years.
As reported in the
As reported by Partnership's
Interstate Financial Statements
Total Total
Hotel House Partnership Partnership
Sales Profit(1) Income(2) Net Income
----- ------ --------- ----------
1995 $ 13,835,896 $ 4,013,122 $ 14,014,500 $ 232,226
1996 $ 15,594,871 $ 4,477,825 $ 15,743,147 $ 490,504 (3)
% Change 12.7% 11.6% 12.3% 111.2%
(1) House profit is the Hotel's operating profit prior to the payment of
certain other items including property taxes, insurance, ground rent,
equipment leases, Partnership general and administrative expenses,
and funding of the reserve account established for furniture, fixtures
and equipment.
(2) Total Partnership income includes Hotel revenues, interest income and
other income.
(3) Excluding the $4,797,429 loss on the write-down of the net book value of
the Hotel.
The Partnership's results of operations, excluding the write-down of the net
book value of the Hotel, improved substantially in 1996 relative to 1995,
primarily as a result of an increase in total revenues and the containment of
departmental expenses. Please refer to the accompanying financial statements
for more detail concerning the Partnership's financial results.
Selected Financial Data
- -----------------------
Selected Partnership financial data for the five years ended December 31
is shown below. This data should be read in conjunction with the Partnership's
financial statements included in this report.
For the periods ended
December 31, 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Total Partnership
income (1) $15,743,147 $14,014,500 $13,244,227 $13,070,254 $13,582,978
Partnership net
income (loss) 490,504(2) 232,226 (245,012) (767,542) (2,956,338)
Net loss per Limited
Partnership unit(3) (.61) 0 (.03) (.09) (.36)
Cash distributions
declared per unit(4) 0 .20 0 0 .14
Total Assets at
December 31 41,082,157 48,895,202 48,366,331 48,680,580 49,853,208
(1) Total Partnership income includes Hotel revenues, interest income and
other income.
(2) Excluding the $4,797,429 loss on the write-down of the net book value
of the Hotel.
(3) There are 6,975,000 units outstanding.
(4) A one-time distribution in the amount of $1,395,000 or $0.20 per Unit
from 1995 annual cash flow and surplus Partnership reserves was paid to
limited partners on February 1, 1996. All cash distributions for 1992
were paid from the Settlement Fund.
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Property held for disposition (note 2) $ 36,800,000 $ 0
Real estate, at cost (note 2):
Building 0 47,975,974
Furniture, fixtures and equipment 0 2,623,827
Leasehold improvements 0 3,333,141
------------ ------------
0 53,932,942
Less accumulated depreciation
and amortization 0 (11,006,481)
------------ ------------
0 42,926,461
Cash and cash equivalents 2,100,400 4,414,032
Restricted cash 413,229 187,464
Accounts receivable 1,386,303 992,941
Prepaid and other assets 382,225 374,304
------------ ------------
Total Assets $ 41,082,157 $ 48,895,202
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 1,549,286 $ 1,371,160
Due to affiliates (note 4) 63,495 2,338,650
Distribution payable 0 1,409,091
------------ ------------
Total Liabilities 1,612,781 5,118,901
------------ ------------
Partners' Capital (Deficit):
General Partner (1,634,727) (1,591,658)
Limited Partners (6,975,000
limited partnership units authorized,
issued and outstanding) 41,104,103 45,367,959
------------ ------------
Total Partners' Capital 39,469,376 43,776,301
------------ ------------
Total Liabilities and Partners' Capital $ 41,082,157 $ 48,895,202
============ ============
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $ (1,773,041) $ 46,971,219 $ 45,198,178
Net loss (36,752) (208,260) (245,012)
------------ ------------ ------------
Balance at December 31, 1994 (1,809,793) 46,762,959 44,953,166
Net income 232,226 0 232,226
Distributions (14,091) (1,395,000) (1,409,091)
------------ ------------ ------------
Balance at December 31, 1995 (1,591,658) 45,367,959 43,776,301
Net loss (43,069) (4,263,856) (4,306,925)
------------ ------------ ------------
Balance at December 31, 1996 $ (1,634,727) $ 41,104,103 $ 39,469,376
============ ============ ============
Statements of Operations
For the years ended December 31, 1996 1995 1994
Hotel Revenues
Rooms $ 9,920,606 $ 8,860,793 $ 8,301,912
Food and beverage 4,811,899 4,256,995 4,250,324
Telephone 644,751 599,598 485,629
Other 217,615 118,510 148,947
------------ ------------ ------------
Total Revenues 15,594,871 13,835,896 13,186,812
------------ ------------ ------------
Departmental Expenses
Rooms 2,764,245 2,399,499 2,356,431
Food and beverage 3,889,952 3,458,417 3,494,320
Telephone 348,964 319,083 314,893
Other 47,233 40,762 35,717
------------ ------------ ------------
Total Expenses 7,050,394 6,217,761 6,201,361
------------ ------------ ------------
Departmental Income 8,544,477 7,618,135 6,985,451
------------ ------------ ------------
Unallocated Partnership and Hotel Operating Expenses
Advertising and sales 614,194 549,649 596,360
General and administrative:
Hotel and other 2,393,998 2,034,318 1,875,222
Partnership 477,745 504,314 455,690
Utilities and maintenance 1,161,191 1,151,196 1,184,477
Ground rent (note 5) 735,756 655,948 623,457
Management fees (note 6) 501,197 424,773 304,261
Property taxes 396,729 393,194 417,494
Operating leases 84,879 115,380 150,645
Depreciation and amortization 1,836,560 1,735,741 1,680,272
Loss on write-down of real estate 4,797,429 0 0
------------ ------------ ------------
12,999,678 7,564,513 7,287,878
------------ ------------ ------------
Operating Income (Loss) (4,455,201) 53,622 (302,427)
------------ ------------ ------------
Other Income
Interest income 141,461 173,031 54,435
Other income, net 6,815 5,573 2,980
------------ ------------ ------------
148,276 178,604 57,415
------------ ------------ ------------
Net Income (Loss) $ (4,306,925) $ 232,226 $ (245,012)
============ ============ ============
Net Income (Loss) Allocated:
To the General Partner $ (43,069) $ 232,226 $ (36,752)
To the Limited Partners (4,263,856) 0 (208,260)
------------ ------------ ------------
$ (4,306,925) $ 232,226 $ (245,012)
============ ============ ============
Net Income (Loss)
Per limited partnership unit
(6,975,000 outstanding) $ (.61) $ 0 $ (.03)
------ --- ------
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net income (loss) $ (4,306,925) $ 232,226 $ (245,012)
Adjustments to reconcile net
income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,836,560 1,735,741 1,680,272
Loss on write-down of real estate 4,797,429 0 0
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Fundings of restricted cash (733,293) (568,309) (547,865)
Accounts receivable (393,362) (86,220) (340,776)
Prepaid and other assets (7,921) 6,771 (39,332)
Accounts payable and
accrued liabilities 178,126 46,778 (319,191)
Due to affiliates (2,275,155) 249,867 249,954
------------ ------------ ------------
Net cash provided by (used for)
operating activities (904,541) 1,616,854 438,050
------------ ------------ ------------
Cash Flows From Investing Activities:
Proceeds from restricted cash 507,528 651,334 277,376
Additions to real estate (507,528) (651,334) (101,658)
------------ ------------ ------------
Net cash provided by investing activities 0 0 175,718
------------ ------------ ------------
Cash Flows From Financing Activities:
Distributions (1,409,091) 0 0
------------ ------------ ------------
Net cash used for financing
activities (1,409,091) 0 0
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (2,313,632) 1,616,854 613,768
Cash and cash equivalents,
beginning of period 4,414,032 2,797,178 2,183,410
------------ ------------ ------------
Cash and cash equivalents,
end of period $ 2,100,400 $ 4,414,032 $ 2,797,178
============ ============ ============
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Manhattan Beach Hotel Partners, L.P. (the "Partnership"), formerly Shearson
California Radisson Plaza Partners, L.P. (see below), a Delaware limited
partnership, was organized on September 8, 1987 under the laws of the State
of Delaware for the purpose of acquiring, owning, leasing or operating,
and eventually selling the Radisson Plaza Hotel and Golf Course (the
"Property" or the "Hotel"). The Partnership purchased the Property on
December 1, 1987 for $56,500,000. The Partnership will terminate on
December 31, 2037, or earlier, in accordance with the terms of the Partnership
Agreement.
The general partner of the Partnership is Manhattan Beach Commercial Properties
III, Inc., (the "General Partner"), formerly Shearson Lehman Commercial
Properties III, Inc. (see below), a Delaware corporation and a wholly-owned
subsidiary of DA Group Holdings, Inc. (the "Group"), formerly Shearson Lehman
Brothers Group Inc. The original limited partner of the Partnership was
Shearson Lehman Commercial Properties Depositary III, Inc. (the "Assignor
Limited Partner"), a Delaware corporation and a wholly-owned subsidiary of the
Group.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. ("Lehman"). The transaction
did not affect the ownership of the General Partner. However, the assets
acquired by Smith Barney included the name "Shearson." Consequently, effective
October 21, 1993, the Shearson Lehman Commercial Properties III, Inc. General
Partner changed its name to Manhattan Beach Commercial Properties III, Inc.,
and effective December 2, 1993, the Partnership changed its name to Manhattan
Beach Hotel Partners, L.P.
Prior to the admission of public investors as Limited Partners, the
Partnership's losses were allocated 99% to the Assignor Limited Partner and 1%
to the General Partner. Upon admission of public investors, the Assignor
Limited Partner assigned its rights of ownership to the purchasers of Limited
Partnership interests.
During the year ended December 31, 1988, the Partnership, on behalf of the
Assignor Limited Partner, sold 6,975,000 depositary units representing gross
capital contributions of $69,750,000. Net proceeds to the Partnership amounted
to approximately $62,937,000 after deduction of offering costs and selling
commissions. The proceeds of the public offering were utilized to pay off the
promissory note secured by an all inclusive deed of trust.
On February 13, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, the General Partner adopted
a resolution that states, among other things, if a Change of Control (as
defined below) occurs, the General Partner may distribute the Partnership's
cash balances not required for its ordinary course day-to-day operations.
"Change of Control" means any purchase or offer to purchase more than 10% of
the Units that is not approved in advance by the General Partner. In
determining the amount of the distribution, the General Partner may take into
account all material factors. In addition, the Partnership will not be
obligated to make any distribution to any partner, and no partner will be
entitled to receive any distribution, until the General Partner has declared
the distribution and established a record date and distribution date for the
distribution.
2. Significant Accounting Policies
Property Held for Disposition
Property held for disposition is carried at the lower of carrying value or
fair market value less costs to sell. Effective December 31, 1996, real estate
assets were reclassified as "Property held for disposition" and will no longer
be depreciated. As further discussed in Note 5, the Partnership wrote down
the net book value of the Hotel by $ 4,797,429 to its estimated fair market
value less costs to sell.
Real Estate Investments
At December 31, 1995, real estate investments, which consisted of the Hotel
building, furniture, fixtures and equipment, and leasehold estate, were
recorded at cost less accumulated depreciation. Cost included the initial
purchase price of the property plus closing costs, acquisition and legal fees
and capital improvements. Depreciation of the real property was computed
using the straight-line method based on the estimated useful life of 40 years.
Depreciation of the personal property was computed using the straight-line
method over an estimated useful life of five years. Improvements were
amortized over the remaining life of the ground lease using the straight-line
method.
When building and personal property are sold or otherwise disposed of, when
required, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
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. FAS 121 also addresses the accounting for long- lived assets
that are expected to be disposed of. The Partnership adopted FAS 121 in the
fourth quarter of 1995.
Income Taxes
No income tax provision (benefit) has been recorded on the books
of the Partnership, as the respective shares of taxable income (loss) are
reportable by the partners on their individual tax returns.
For income tax purposes, the admission of Public Limited Partners on May 26,
1988 to the Partnership was treated as a deemed sale of the Assignor Limited
Partner's interest in accordance with the provision of Section 708(b)(1)(B) of
the Internal Revenue Code. The carrying values of the assets and related
capital accounts have been increased by the Limited Partners' interest for tax
purposes. There has been no readjustment of the carrying values of the assets
for financial reporting purposes.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid short-term investments
with maturities of three months or less from the date of issuance. The
carrying amount approximates fair value because of the short maturity of these
instruments.
Restricted Cash
Restricted cash consists of funds escrowed by the Partnership for future
hotel repairs and improvements.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash in excess of the
financial institutions' insurance limits. The Partnership invests available
cash with high credit quality financial institutions.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
3. Partnership Agreement
Upon the admission of the Limited Partners, the following provisions
of the Partnership Agreement became effective.
Under the terms of the Partnership Agreement, the Partnership's net cash flow
from operations, as defined, will be distributed 99% to the Limited Partners
and 1% to the General Partner until the sum of the amounts distributed equals
the preferred return. The preferred return is a cumulative 12% return per annum
of the Limited Partners' adjusted capital contribution, as defined, accruing on
a cumulative but noncompounding basis. Thereafter, the Partnership's cash flow
from operations will be distributed 85% to the Limited Partners and 15% to the
General Partner.
In general, the Partnership Agreement provides that all income and gain will be
allocated first to those partners with negative capital accounts, as defined,
until no partner has a negative capital account; then 99% to the Limited
Partners and 1% to the General Partner to the extent the Limited Partners'
adjusted capital contributions exceed their capital accounts; then to the
General Partner to the extent it has received a 15% distribution of net cash
flow; then 99% to the Limited Partners and 1% to the General Partner until the
Limited Partners have been allocated an amount equal to the preferred return,
as defined; and then 85% to the Limited Partners and 15% to the General
Partner. In general, losses will be allocated 85% to the Limited Partners and
15% to the General Partner until the sum of cumulative losses equals the sum of
cumulative distributions, and then 99% to the Limited Partners and 1% to the
General Partner.
Net proceeds from a sale or refinancing of the Partnership's assets will be
distributed 99% to the Limited Partners and 1% to the General Partner until
each Limited Partner has received an amount equal to any unpaid cumulative
return and their unrecovered capital, as defined. Thereafter, such net
proceeds will be distributed 99% to the Limited Partners and 1% to the General
Partner until each Limited Partner's adjusted capital contribution equals zero.
Any remaining net proceeds will be allocated and distributed 95% to the Limited
Partners and 5% to the General Partner.
4. Transactions with Related Parties
Under the Partnership Agreement, the General Partner is entitled to receive
a management oversight fee of $250,000 per year to cover costs incurred and
time expended by the General Partner in overseeing the operator of the
Property to ensure that operations and management are being conducted in the
best interests of the Partnership and in accordance with the ground lease and
management contract. For the years ended December 31, 1996, 1995 and 1994,
the General Partner earned oversight management fees in the amount of $250,000
per year. At December 31, 1996 and 1995, $62,500 and $1,750,000,
respectively, were due to the General Partner for the performance of these
services.
During 1989, certain legal and accounting fees were paid by the
General Partner in connection with the restructuring of the lease (see Note 6).
The costs have been deemed to be reimbursable by the Partnership. The total
amount owed to the General Partner at December 31, 1996 and 1995 was $ 0 and
$587,804, respectively.
Under the terms of the Partnership Agreement, the General Partner and its
affiliates are entitled to be reimbursed for out-of-pocket expenses.
Out-of-pocket expenses were $5,705, $7,455 and $7,373 for the years ended
December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996 and
1995, $995 and $846, respectively, remained unpaid.
Upon sale of the Property, the General Partner may receive a brokerage
commission equal to 3% of the sales price less any amounts payable as
commissions to unaffiliated third parties. However, any commission to the
General Partner is subordinate to the Limited Partners' recovering 100% of
their original investment.
Cash and Cash Equivalents
Certain cash and cash equivalents were on deposit with an affiliate of the
General Partner during a portion of 1996 and all of 1995. As of
December 31, 1996, no cash and cash equivalents were on deposit with an
affiliate of the General Partner or the Partnership.
5. Real Estate Investments
On December 1, 1987, the Partnership acquired the Property, a seven-story,
384-room, 287,965 square foot commercial hotel and nine-hole executive golf
course located on a 26.3 acre site in the City of Manhattan Beach, Los Angeles
County, California (the "City"). A 166,382 square foot, 600-space parking
garage is also part of the Property. Construction of the Property was
substantially completed in January 1987, and its final certificate of
occupancy was issued on March 17, 1987. The land upon which the Property
is situated was leased to the seller by the City pursuant to a ground lease
(the "Ground Lease") entered into on March 1, 1983 for an initial term of
50 years. The term is renewable for successive periods of 25
and 24 years.
Minimum ground lease payments for each of the next five years ending
December 31, and thereafter, are as follows:
1997 $400,000
1998 400,000
1999 400,000
2000 400,000
2001 400,000
Thereafter (cumulative) 12,466,667
-------------------------------------
Total $14,466,667
In addition to the minimum ground lease payments, the lease provides for
additional rents based upon percentages, ranging from 2.5% to 6.25%, as applied
to the Hotel's various revenue. Percentage rent is only applicable to the
extent that the total of such percentages exceeds the minimum annual rent. Such
excess lease payments amounted to $335,756, $255,948 and $223,457 in 1996, 1995
and 1994, respectively.
The golf course is operated by a third party in accordance with an operating
lease agreement entered into on December 12, 1986 which the Partnership assumed
upon its purchase of the Hotel. The agreement has a term of 10 years and
provides for rents payable to the Partnership ranging from 2% to 5% of gross
revenues during the term of the agreement. The operating agreement provided
for one five-year renewal option which the operator exercised in December 1996.
Further, the operator has a right of first refusal to extend the operating
lease another five years.
Effective December 31, 1996, the Partnership reclassified its real estate
assets to "Property held for disposition" and wrote down the net book value of
the Hotel by $4,797,429 to its estimated fair market value less costs to sell.
The determination of the estimated fair market value of the Hotel was based
upon the execution of a letter of intent by the Partnership to sell the Hotel.
On March 20, 1997, the Partnership executed a letter of intent to sell the
Hotel to a joint venture of Host Marriott Corporation and Interstate Hotels
Corporation (the "Buyer") for a cash purchase price of $38,250,000. The Buyer
has 30 days in which to complete its due diligence investigation of the Hotel,
during which time the parties will attempt to negotiate and execute a formal
purchase and sale contract (the "Contract"). The closing of the sale would be
within 10 business days following the end of the due diligence period. Certain
of the conditions and terms in the letter of intent are not legally binding
and are subject to the execution of the Contract.
6. Hotel Management Agreement
The Partnership entered into a management agreement with Manhattan Beach
Management Company (the "Management Company"), an affiliate of Interstate
Hotels Corporation, to manage and operate the Hotel. The term of the agreement
commenced on January 3, 1991 and continued through January 3, 1997. The
agreement provides for management fees of 1.75% of gross revenues with an
incentive fee calculated based upon a percentage, ranging from 10% to 17.5%,
of operating profits in excess of $1,500,000. The Partnership is responsible
for operating deficits and has committed to advance funds to the Hotel so as
to maintain a cash level of $300,000. In March 1997, the Partnership and the
Management Company extended the management agreement to January 2, 1998 on
the existing terms.
7. Reconciliation of Financial Statement Net Income (Loss) and Partners'
Capital to Federal Income Tax Basis Net Income (Loss) and Partners' Capital
1996 1995 1994
Financial statement net income (loss) $(4,306,925) $ 232,226 $ (245,012)
Tax basis depreciation over financial
statement depreciation (397,277) (760,812) (1,158,551)
Financial statement loss on write-down
of real estate 4,797,429 0 0
Other 166,811 (48,337) (99,769)
Federal income tax basis
net income (loss) $ 260,038 $ (576,923) $(1,503,332)
Financial statement partners' capital $39,469,376 $43,776,301 $44,953,166
Current year financial statement net
income (loss) (over) under federal
income tax basis net income (loss) 4,566,963 (809,149) (1,258,320)
Cumulative financial statement net
income (loss) over federal income
tax basis net income (loss) 4,527,225 5,336,374 6,594,694
Federal income tax basis
partners' capital $48,563,564 $48,303,526 $50,289,540
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
8. Litigation
As a result of the removal of the original tenants as operators of the Property
and the termination of a number of equipment leasing arrangements previously
entered into by the original tenants, a lawsuit related to the replacement of
the telephone system washas been filed naming the Partnership, among others,
as a defendant. The suit, entitled Communication Facility Management
Corporation ("CFMC") vs. Manhattan Beach Hotel Partners, L.P., et al, was
filed in June 1990 in Los Angeles Superior Court (the "Court"). On
November 7, 1994, the Court executed a formal dismissal order. CFMC
subsequently filed a motion to vacate the dismissal which was denied by the
Court on February 28, 1995. On February 16, 1996, CFMC filed an application
with the Court for an extension to file an appellant's opening brief. The
Court granted the extension and CFMC had until April 10, 1996 to file an
opening brief to appeal the suit. This matter has been successfully concluded
since CFMC permitted the time period for the filing of the opening brief to
expire.
Report of Independent Accountants
To the Partners of
Manhattan Beach Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Manhattan Beach Hotel
Partners, L.P. (formerly Shearson California Radisson Plaza Partners, L.P.),
a Delaware limited partnership, as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Manhattan Beach Hotel
Partners, L.P. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 14, 1997
Schedule III - Property Held for Disposition
December 31, 1996
Commercial Property: Hotel Complex Total
Location Manhattan Beach, CA na
Construction date 1987 na
Acquisition date 12-01-87 na
Life on which depreciation
in latest income statements
is computed (3) na
Encumbrances $ 0 $ 0
Initial cost to Partnership:
Land $ 0 $ 0
Building and
improvements $56,500,000 $56,500,000
Costs capitalized
subsequent to acquisition:
Building and improvements $ 8,080,555 $ 8,080,555
Write-off (4) $10,140,085 $10,140,085
Write-down adjustment $17,640,470 $17,640,470
Gross amount at which
carried at close of period: (2)
Land $ 0 $ 0
Building and improvements 36,800,000 36,800,000
$36,800,000 $36,800,000
Accumulated depreciation (1) $ 0 $ 0
(1) For Federal income tax purposes, the amount of accumulated depreciation
is $25,620,766.
(2) For Federal income tax purposes, the basis of land, building and personal
property is $65,443,014.
(3) Building and improvements - 40 years; personal property - 5 years.
(4) Fully depreciated furniture, fixtures and equipment of $ 10,140,085 were
written off in 1994.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $ 53,932,942 $ 53,281,608 $ 63,320,035
Additions 507,528 651,334 101,658
Write-down (17,640,470) 0 0
Write-off 0 0 (10,140,085)
End of year $ 36,800,000 $ 53,932,942 $ 53,281,608
Accumulated depreciation:
Beginning of year $ 11,006,481 $ 9,270,740 $ 17,730,553
Depreciation expense 1,836,560 1,735,741 1,680,272
Write-down (12,843,041) 0 0
Write-off 0 0 (10,140,085)
End of year $ 0 $ 11,006,481 $ 9,270,740
Report of Independent Accountants On Schedule
To Financial Statements
To the Partners of
Manhattan Beach Hotel Partners, L.P.:
Our report on the financial statements of Manhattan Beach Hotel Partners, L.P.
(formerly Shearson California Radisson Plaza Partners, L.P.), a Delaware
limited partnership, has been incorporated by reference in this Form 10-K from
the Annual Report to Unitholders of Manhattan Beach Hotel Partners, L.P. for
the year ended December 31, 1996. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 14, 1997