1
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 September 30, 1997
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 36-3370590
- -------------------------------------------- ----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
630 Dundee Road, Suite 220, Northbrook, Illinois 60062
- ------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(847)714-9600
-------------------------------------------------------------
(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 .
--- ---
2
PART I
ITEM 1.
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, 1997 December 31, 1996
------------------ -----------------
Cash and cash equivalents $ 548,089 $ 847,399
Interest receivable 29,664 29,664
----------------- ----------------
Total assets $ 577,753 $ 877,063
================= ================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Other accounts payable and accrued expenses:
Affiliates $ 4,712 $ 1,919
Nonaffiliates - 97,333
----------------- ----------------
Total liabilities 4,712 99,252
----------------- ----------------
Partners' capital (deficit)
General Partners (686,338) (684,087)
Limited Partners:
Portfolio I - 514 Interests 818,824 980,393
Portfolio II - 135 Interests 440,555 481,505
----------------- ----------------
Total partners' capital (deficit) 573,041 777,811
----------------- ----------------
Total liabilities and partners' capital (deficit) $ 577,753 $ 877,063
================== ================
The accompanying notes are an integral part of the combined financial
statements.
-2-
3
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
HOTEL OPERATIONS 1997 1996
------------------ --------------------
Revenues:
Rooms $ - $ 46,593,341
Food and beverage - 11,379,465
Telephone - 2,229,625
Other - 2,638,080
------------------ --------------------
Total hotel revenues - 62,840,511
Direct costs and expenses:
Rooms - 11,866,634
Food and beverage - 9,599,143
Telephone - 2,177,871
Other - 1,559,891
------------------ --------------------
Total direct hotel costs and expenses - 25,203,539
Unallocated expenses:
Administrative and general - 6,809,682
Management fees - 1,349,601
Marketing - 5,829,277
Energy - 2,978,149
Property operations and maintenance - 2,973,509
Property taxes and insurance - 2,490,445
Rent - 802,432
Mortgage interest expense - 16,455,405
------------------ --------------------
Total unallocated expenses - 39,688,500
------------------ --------------------
Loss from hotel operations - (2,051,528)
------------------ --------------------
PARTNERSHIP OPERATIONS
Revenues:
Interest on subscription notes - 62,655
Interest on temporary investments 25,222 33,596
------------------ --------------------
Total partnership revenues 25,222 96,251
------------------ --------------------
Expenses:
Managing General Partners' fees 50,000 1,010,589
Professional, consulting and other fees:
Affiliates 49,652 216,846
Nonaffiliates 130,340 85,120
------------------ --------------------
Total partnership expenses 229,992 1,312,555
------------------ --------------------
Loss from partnership operations (204,770) (1,216,304)
------------------ --------------------
REORGANIZATION ITEMS:
Professional, consulting and other fees - 275,000
------------------ --------------------
Total reorganization expenses - 275,000
------------------ --------------------
Loss before extraordinary gain from extinguishment of debt - (3,542,832)
Extraordinary gain from extinguishment of debt - 261,556,070
------------------ --------------------
Net income (loss) $ (204,770) $ 258,013,238
================== ====================
Net income (loss) allocated to General Partners $ (2,251) $ 2,835,566
================== ====================
Net income (loss) allocated to Limited Partners $ (202,519) $ 255,177,672
================== ====================
Loss before extraordinary item
Portfolio I (514 Interests) $ - $ (5,439)
================== ====================
Portfolio II (135 Interests) $ - $ (5,248)
================== ====================
Extraordinary item
Portfolio I (514 Interests) $ - $ 401,509
================== ====================
Portfolio II (135 Interests) $ - $ 387,452
================== ====================
Net income (loss)
Portfolio I (514 Interests) $ (314) $ 396,070
================== ====================
Portfolio II (135 Interests) $ (303) $ 382,204
================== ====================
The accompanying notes are an integral part of the combined financial
statements.
-3-
4
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
HOTEL OPERATIONS 1997 1996
------------------ --------------------
Revenues:
Rooms $ - $ 16,347,739
Food and beverage - 3,728,430
Telephone - 709,849
Other - 979,975
------------------ --------------------
Total hotel revenues - 21,765,993
Direct costs and expenses:
Rooms - 4,200,897
Food and beverage - 3,293,126
Telephone - 694,513
Other - 503,643
------------------ --------------------
Total direct hotel costs and expenses - 8,692,179
Unallocated expenses:
Administrative and general - 2,841,490
Management fees - 403,705
Marketing - 1,992,581
Energy - 1,085,071
Property operations and maintenance - 1,057,483
Property taxes and insurance - 821,373
Rent - 252,140
Mortgage interest expense - 8,471,486
------------------ --------------------
Total unallocated expenses - 16,925,329
------------------ --------------------
Loss from hotel operations - (3,851,515)
------------------ --------------------
PARTNERSHIP OPERATIONS
Revenues:
Interest on subscription notes - 19,189
Interest on temporary investments 7,787 5,986
------------------ --------------------
Total partnership revenues 7,787 25,175
------------------ --------------------
Expenses:
Managing General Partners' fees - 343,358
Professional, consulting and other fees:
Affiliates 18,573 82,661
Nonaffiliates 46,255 22,166
------------------ --------------------
Total partnership expenses 64,828 448,185
------------------ --------------------
Loss from partnership operations (57,041) (423,010)
------------------ --------------------
Loss before extraordinary gain from extinguishment of debt - (4,274,525)
Extraordinary gain from extinguishment of debt - 261,556,070
------------------ --------------------
Net income (loss) $ (57,041) $ 257,281,545
================== ====================
Net income (loss) allocated to General Partners $ (628) $ 2,827,524
================== ====================
Net income (loss) allocated to Limited Partners $ (56,413) $ 254,454,021
================== ====================
Loss before extraordinary item
Portfolio I (514 Interests) $ - $ (6,562)
================== ====================
Portfolio II (135 Interests) $ - $ (6,332)
================== ====================
Extraordinary item
Portfolio I (514 Interests) $ - $ 401,509
================== ====================
Portfolio II (135 Interests) $ - $ 387,452
================== ====================
Net income (loss)
Portfolio I (514 Interests) $ (87) $ 394,947
================== ====================
Portfolio II (135 Interests) $ (84) $ 381,120
================== ====================
The accompanying notes are an integral part of the combined financial
statements.
-4-
5
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
VMS National
Hotel
Partners VMS National Hotel Portfolio I
---------- ----------------------------------------------------------------
Limited Partners
---------------------------------------
General General Subscription
Partners Partners Total Notes Net Total
---------- ----------- ----------- ------------ ------------ ----------
Partners' capital (deficit)
at January 1, 1997 $ (75,693) $ (482,196) $ 2,140,280 $ (1,159,887) $ 980,393 $ 498,197
Net loss for the period (205) (1,632) (161,569) - (161,569) (163,201)
---------- ----------- ----------- ------------ ------------ ----------
Partners' capital (deficit)
at Sept. 30, 1997 $ (75,898) $ (483,828) $ 1,978,711 $ (1,159,887) $ 818,824 $ 334,996
========== =========== =========== ============ ============ ==========
VMS National Hotel Portfolio II
--------------------------------------------------------------
Limited Partners
------------------------------------
General Subscription Combined
Partners Total Notes Net Total Totals
---------- ----------- ------------ --------- ---------- ---------
Partners' capital (deficit)
at January 1, 1997 $ (126,198) $ 658,775 $ (177,270) $ 481,505 $ 355,307 $ 777,811
Net loss for the period (414) (40,950) - (40,950) (41,364) (204,770)
---------- ----------- ------------ --------- ---------- ---------
Partners' capital (deficit)
at Sept. 30, 1997 $ (126,612) $ 617,825 $ (177,270) $ 440,555 $ 313,943 $ 573,041
========== =========== ============ ========= ========== =========
The accompanying notes are an integral part of the combined financial
statements.
-5-
6
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net (loss) income $(204,770) $ 258,013,238
Adjustments to reconcile net (loss) income to net cash used in
operating and reorganization activities:
Extraordinary gain from the extinguishment of debt --- (261,556,070)
Changes in operating assets and liabilities:
Increase in accounts receivable --- (302,664)
Decrease in interest receivable --- 1,919
Decrease in prepaid expenses --- 736,702
Decrease in inventories --- 20,990
Decrease in other deferred costs --- 3,841
(Decrease) Increase in accounts payable and accrued expenses (94,540) 2,399,271
Decrease in accrued interest payable --- (3,148,216)
--------- -------------
NET CASH USED IN OPERATING ACTIVITIES (299,310) (3,830,989)
--------- -------------
INVESTING ACTIVITIES
Additions to property and improvements --- (1,904,608)
Net proceeds from sale of property and improvements --- 810,160
--------- -------------
NET CASH USED IN INVESTING ACTIVITIES --- (1,094,448)
--------- -------------
FINANCING ACTIVITIES
Partners' capital contributions --- 49,759
Increase in escrow and other deposits --- (6,012)
--------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES --- 43,747
--------- -------------
Net decrease in cash and cash equivalents (299,310) (4,881,690)
--------- -------------
Cash and cash equivalents at beginning of period 847,399 6,179,655
--------- -------------
Cash and cash equivalents at end of period $ 548,089 $ 1,297,965
========== =============
Interest Paid $ --- $ 19,603,621
========== =============
The accompanying notes are an integral part of the combined financial
statements.
-6-
7
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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 the opinion of the General Partner,
all adjustments necessary for fair presentation of the results of
operations for the nine months ended September 30, 1997 and 1996, 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, 1996.
On May 10, 1996, the Operating Partnership and affiliated
sub-partnerships filed for relief under Chapter 11 of the federal
bankruptcy laws in the United States Bankruptcy Court for the Northern
District of Illinois. This filing excludes Partnership I and
Partnership II. Pursuant to the Plan of Reorganization, the deeds to
the remaining hotels were transferred to the senior lender on September
26, 1996 in consideration for the cancellation of the senior
indebtedness (the "Transfer").
As a result of the Transfer, the Partnerships no longer have a source of
funds. A cash reserve is being maintained for payment of the
Partnerships' obligations and contingencies.
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 nine months ended
September 30, 1997
Paid Payable
Managing General Partner
Salary (1) $50,000 $ ---
Other services and costs (2) 46,859 4,712
------ ------
$96,859 $4,712
======= ======
(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.
-7-
8
VMS NATIONAL HOTEL PORTFOLIO I
VMS NATIONAL HOTEL PORTFOLIO II
VMS NATIONAL HOTEL PARTNERS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
(2) These fees represent reimbursement for partnership
accounting, printing, legal department, data processing and
travel and communication expenses incurred by affiliates for the
Managing General Partner for operation of the Partnerships.
3. 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, 1996 filed as of March 31, 1997 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.
8
9
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 unit rebate upon payment of their purchase price of $150,000 per unit.
On May 10, 1996, the Operating Partnership and affiliated sub-partnerships
filed for relief under Chapter 11 of the federal bankruptcy laws in the United
States Bankruptcy Court for the Northern District of Illinois. This filing
excludes Partnership I and Partnership II. Pursuant to the Plan of
Reorganization, the deeds to the remaining hotels were transferred to the
senior lender on September 26, 1996 in consideration for the cancellation of
the senior indebtedness (the "Transfer").
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Transfer in 1996, the Partnerships no longer have a source
of funds. A cash reserve is being maintained for payment of the Partnerships'
obligations and contingencies.
In the short term, the Partnerships will continue to maintain a cash reserve
for the payment of the remaining Partnerships' obligations and contingent
liabilities. In the long term, the Partnerships will wind-up their affairs and
will distribute any remaining Partnership' funds to their Limited Partners
after paying all Partnerships' expenses and the Partnerships will be dissolved
at that time.
As shown on the Combined Statements of Cash Flows, cash and cash equivalents
decreased $299,310 from December 31, 1996 to September 30, 1997. The decrease
is primarily the result of payments for Partnership obligations.
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, 1996.
9
10
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 (CONTINUED)
RESULTS OF OPERATIONS
The Operating Partnership had previously owned and operated 24 Holiday Inn
Hotels in 11 states. However, overall revenues and expenses for the hotel
operations and reorganization items in 1997 are zero due to the Transfer of the
remaining hotels to the senior lender on September 26, 1996.
Partnership revenues for the nine months ended September 30, 1997 decreased by
$71,029 from the same period in 1996. The decrease is due to the reduction in
interest income and interest on the collection of notes receivable in the
amounts of $8,374 and $62,655 respectively. The decrease in Partnership
revenue for 1997 is primarily due to the lack of collections of interest on
subscription notes. Also, the decrease in interest income can be attributed to
the transfer of the hotels.
Partnership expenses for the nine months ended September 30, 1997 decreased by
$1,082,563 from the same period in 1996. The decrease is primarily due to a
reduction of General Partners fees which are based on the gross revenues from
the hotels in the amount of $960,589. The decrease is also due to the
reduction in professional, consulting and other fees in the amount of $121,974
which is the result of the transfer of the hotels.
10
11
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 material developments or changes from Part I, Item 3 of the
Partnerships' report on Form 10-K for the year ended December 31, 1996, except
for the following two dismissed actions:
NAHOP Partners, L.P. and VMS National Hotel Partners v. G.B. Pacific, Inc.
Counterclaim: G.B. Pacific, Inc. v. VMS National Hotel Partners, an Illinois
general partnership, VMS Realty, Inc., an Illinois corporation, and NAHOP
Partners Limited Partnership, a Delaware limited partnership. Case Number
Adversary 96A01746 to 96B12185 (U.S. Bankruptcy Court for the Northern District
of Illinois, Eastern Division). VMS National Hotel Partners and G.B. Pacific,
Inc. (the "Parties") entered into a Purchase and Sales Agreement dated December
21, 1993 for the Holiday Inn Van Nuys ("Sales Contract"). In November, 1995,
the Parties entered into a First Amendment to the Purchase and Sales Agreement.
VMS National Hotel Partners and G.B. Pacific, Inc. did not obtain an order
approving the Sales Contract in VMS National Hotel Partners' first bankruptcy
proceeding (case number 93B17061). VMS National Hotel Partners and NAHOP
Partners, L.P. seek a declaratory judgment declaring the Sales Contract between
VMS National Hotel Partners and G. B. Pacific, Inc. terminated prior to
September 27, 1996, the date the Holiday Inn Van Nuys was transferred to NAHOP
Partners, L.P. G.B. Pacific, Inc. filed counterclaims for specific performance
of assumed contract and actual breach of assumed contract. This action has
been dismissed.
Michigan Department of Transportation v. VMS Michigan-Detroit Hotel Limited
Partnership, an Illinois limited partnership, Holiday Inns, Inc., a Tennessee
corporation, Security Pacific National Bank, VMS Short Term Income Trust, a
Massachusetts business trust, MellonBank, NA, VMS Hotel Mortgage, Inc., an
Illinois corp., Bank of Montreal, Holiday Inn Detroit-Metro Airport, Romulus
Chamber of Commerce, VMS Hotel Investment Trust, ABTS Investment Corporation,
and NEC America, Inc., Case No. 93-304774 CC (State of Michigan, Circuit Court
for the County of Wayne). Pursuant to 1980 PA 87, as amended, plaintiff is
specifically authorized and empowered to secure fee simple or lesser estates in
real property for highway purposes. This complaint was filed for the
acquisition of a portion of property owned by VMS Michigan-Detroit Hotel
Limited Partnership. Plaintiff made a good faith written offer to purchase the
property and the defendants have not accepted such offer. The Michigan
Department of Transportation took the portion of the property in exchange for
$120,155.00. This action has been dismissed.
ITEMS 2 THROUGH 4
Items 2 through 6 are omitted because of the absence of conditions under which
they are required.
11
12
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: November 6, 1997 By: /s/ Joel A. Stone
-------------------------
Joel A. Stone, President
Date: November 6, 1997 By: /s/ Thomas A. Gatti
-------------------------
Thomas A. Gatti,
Chief Financial Officer
By: VMS National Hotel Portfolio II
By: VMS Realty Investment, Ltd.,
Managing General Partner
By: JAS Realty Corporation
Date: November 6, 1997 By: /s/ Joel A. Stone
-------------------------
Joel A. Stone, President
Date: November 6, 1997 By: /s/ Thomas A. Gatti
-------------------------
Thomas A. Gatti,
Chief Financial Officer
12