SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Famous Host Lodging V, L.P.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$820
2) Form, Schedule or Registration Statement No.:
Schedule 14A
3) Filing Party:
Registrant
4) Dated Filed:
May 15, 1998
REVISED PRELIMINARY COPY
INFORMATION STATEMENT
PROPOSED ACTION BY WRITTEN CONSENT
OF LIMITED PARTNERS
OF
FAMOUS HOST LODGING V, L.P.
June ____, 1998
SOLICITATION OF CONSENTS
The limited partners (the "Limited Partners") of FAMOUS HOST LODGING V,
L.P., a California limited partnership (the "Partnership"), are being asked to
consider and approve by written consent the proposed sale of all of the
Partnership's interests in real property and related personal property (the
"Property"), for a purchase price of $4,100,000, which proposal is described
hereinafter. If the proposal is approved and the proposed sale is consummated,
among other things, all of the Partnership's assets will be liquidated and the
Partnership will be dissolved. (See "Effects of Approval of the Proposal"
below.)
THE ENCLOSED FORM OF ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS (THE
"CONSENT") IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND GROTEWOHL MANAGEMENT
SERVICES, INC., THE MANAGING GENERAL PARTNER OF THE PARTNERSHIP (THE "MANAGING
GENERAL PARTNER"). This Information Statement and the enclosed Consent were
first sent to the Limited Partners on or about June __, 1998.
Units of limited partnership interest in the Partnership (the "Units")
represented by Consents duly executed and returned to the Partnership on or
before July __, 1998 (unless extended by the Managing General Partner pursuant
to notice mailed to the Limited Partners) will be voted or not voted in
accordance with the instructions contained therein. If no instructions for the
proposal are given on an executed and returned Consent, Units so represented
will be voted in favor of the proposal. The Managing General Partner will take
no action with respect to the proposal addressed herein except as specified in
the duly executed and returned Consents.
The cost of this solicitation of Consents is being borne by the
Partnership. Such solicitation is being made by mail and, in addition, may be
made by officers and employees of the Partnership and the Managing General
Partner, either in person or by telephone or telegram.
REASONS FOR THE PROPOSAL
The Partnership was formed in 1984 and its motel property located in
Barstow, California opened for business during 1985.
This Information Statement has been prepared to ask the Limited
Partners to approve the sale of the Property for cash in the amount of the
appraised fair market value of $4,100,000.
It has always been the intention of the Partnership to liquidate the
Property when it became apparent that the best interests of the Limited Partners
would be served by doing so. The Managing General Partner has received inquiries
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over the years as to when the Property was to be sold and the Partnership
liquidated. Its response, until recently, has been that because of overbuilt and
depressed motel market conditions, the time was not right for a sale of the
Property. Conditions have changed, and the Managing General Partner believes
that the Property should be sold now and the Partnership liquidated.
During September and October 1997, Everest Properties II, LLC, a member
of an affiliated group of entities which is the second largest investor group in
the Partnership (the "Everest Group"), made an offer to purchase the Property
and the motel properties of four other California limited partnerships as to
which the Managing General Partner serves as general partner (the "GMS
Partnerships"). The purchase price set forth in the October offer was
$2,614,730, a price far below $4,100,000, the recent appraised value and the
price offered in the current proposal. The Managing General Partner rejected the
prior offer. Conflicts between the Everest Group and the Partnership resulted in
lawsuits. Inasmuch as the Managing General Partner agreed with the Everest Group
in principle that the Property should be sold, a settlement was reached whereby,
among other things, the Managing General Partner agreed to take steps to sell
the Property, and the lawsuits were dismissed.
As discussed more fully below under "Appraisal of the Property/Fairness
Opinion," the Property has been appraised by PKF Consulting, a highly-respected
national hospitality industry specialist. Its conclusion is that the aggregate
fair market value of the Property is $4,100,000, which is the proposed purchase
price of the Property. The purchase price is to be paid in cash, and the net
proceeds thereof will be distributed in accordance with the Partnership
Agreement upon the close of the sales transaction and the concomitant
dissolution of the Partnership. Termination of the Partnership will occur as
soon as the winding up process can be completed.
The Managing General Partner is recommending the approval of the
transaction by the Limited Partners for the following reasons:
The Managing General Partner believes that the sale value of the Property
is now at the crest of a seller's market which may not last much longer.
Although there can be no assurance that the Property's value will not
increase over time, the Managing General Partner believes that within the
next five years only modest increases in the Property's value can be
expected to occur. This belief is substantiated by the appraisals. The
Managing General Partner believes that now is the time to sell the
Property.
The Partnership's intention has always been to sell the Property when the
market conditions warranted sale. It was never an investment objective of
the Partnership to hold the Property permanently.
The Managing General Partner understands that the circumstances of many of
the Limited Partners have changed over the life of the Partnership and
believes that the Limited Partners should be presented with an opportunity
to liquidate their investments. In this regard, the Managing General
Partner believes it is important to understand that no true market exists
for the sale of Units. Heretofore, to dispose of their Units, Limited
Partners have had to arrange private sales, or accept tender offers, at
prices well below the correlative value of the underlying assets.
The Property is proposed to be sold to the Buyer for $4,100,000,
approximately $1,485,000 more than was offered for the Property in October
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1997 by the Everest Group. The sales price is equal to the appraised value
of the Property as determined by PKF Consulting, an independent real estate
advisory firm specializing in the valuation of lodging properties. The
proposed sale will be for all cash. PKF Consulting has rendered to the
Partnership a fairness opinion, stating its opinion that the sales price is
fair to the Partnership. The contract of sale between the Partnership and
the Buyer provides for a closing of the sale on July 15, 1998 or within 30
days after approval of the sale by the Limited Partners, whichever occurs
later. For these reasons, and because of the length of time that widespread
marketing of the Property might take, the Managing General Partner has not
actively marketed the Property for sale. There can, therefore, be no
assurance that the proposed sale of the Property to the Buyer is at the
highest price attainable for the Property.
As of May 31, 1998, the Limited Partners had already received, over the
life of the Partnership, the sum of $646.90 per Unit in the form of
quarterly distributions. Upon the sale of the Property pursuant to the
proposed transaction, the Limited Partners would receive an additional
pretax distribution in the estimated amount of approximately $439 per Unit.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The only outstanding class of voting securities of the Partnership is
the Units. Each Unit entitles its holder to one vote on the proposal.
All Limited Partners as of the date action is taken on the proposal
(the "Record Date") are entitled to notice of and to vote on the proposal. As of
April 13, 1998 there were 9,022 Units outstanding and a total of 1,764 Limited
Partners entitled to vote such Units. With respect to the proposal to be voted
upon, the favorable vote of Limited Partners holding in excess of 50% of the
Units outstanding as of the Record Date will be required for approval. There are
no rights of appraisal or similar rights of dissenters with regard to the
proposal to be voted upon.
As of April 13, 1998 no person or group of related persons was known by
the Partnership to be the beneficial owner of more than 5% of the Units, except
the following group of related Unit holders:
Everest Lodging Investors, LLC 261 Units 2.89%
Everest Madison Investors, LLC 298 Units 3.30%
-----------------------
Total 559 Units 6.19%
Neither the Managing General Partner nor any of its affiliates are the
beneficial owners of any Units.
No meeting will be held with regard to this solicitation of the Limited
Partners. Voting may be accomplished by completing and returning to the offices
of the Partnership, at 2030 J Street, Sacramento, California 95814, telephone:
(916) 442-9183, the form of Consent included herewith. Only Consents received
prior to the close of business on the date (the "Action Date") which is the
earlier of (i) the date on which the Partnership receives approval of the
proposal by a majority-in-interest of the Limited Partners, or (ii) July __,
1998 (unless extended by the Managing General Partner pursuant to notice mailed
to the Limited Partners), will be counted toward the vote on the proposal.
However, Limited Partners are urged to return their Consents at the earliest
practicable date.
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If a Limited Partner has delivered an executed Consent to the
Partnership, the Limited Partner may revoke such Consent not later than the
close of business on the date immediately prior to the Action Date. As of the
Action Date, the action which is the subject of this solicitation will either be
effective (if the requisite number of executed Consents have been received by
the Partnership) or the solicitation period will have expired without approval
of the proposal. The only method for revoking a Consent once it has been
delivered to the Partnership is by the delivery to the Partnership prior to the
Action Date of a written instrument executed by the Limited Partner who executed
the Consent which states that the Consent previously executed and delivered is
thereby revoked. Other than the substance of the revocation described above, no
specific form is required for such revocation. An instrument of revocation will
be effective only upon its actual receipt prior to the Action Date by the
Partnership or its authorized agent at the Partnership's place of business as
set forth in the foregoing paragraph.
CONSENT UNDER PARTNERSHIP AGREEMENT
Pursuant to Section 14.1(e) of the Partnership's Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"), a
majority-in-interest of the Limited Partners must approve or disapprove the sale
of all or substantially all of the Partnership's lodging properties and
interests therein. Because the Property constitutes all of the Partnership's
lodging properties and interests therein (as discussed below under "The Property
and the Partnership's Business"), the Managing General Partner and the
Partnership are seeking the approval of the proposed sale of the Property by a
majority-in-interest of the Limited Partners. If the proposal is approved by the
Limited Partners but the proposed sale of the Property described herein is not
consummated because one or more of the conditions precedent to the sale (see
"Purchase Agreement") is not satisfied (excluding the condition precedent that
the Limited Partners approve the proposed sale), the Managing General Partner
will consider the Limited Partners' approval of the proposal set forth herein to
constitute approval of any purchase offer for the Property if such purchase
offer is reflected in an executed purchase agreement no later than January 1,
1999, is consummated no later than June 30, 1999, is for "all cash," and is for
an amount equal to or greater than $4,100,000. If the Managing General Partner
should receive more than one such purchase offer, it would accept the best
offer, unless the Managing General Partner had already entered into a binding
contract for a less favorable offer. However, notwithstanding the preceding, if
prior to entering into a binding contract the Managing General Partner should
receive one or more "all cash" purchase offers and also should receive one or
more purchase offers in an amount greater than that set forth in the highest
"all cash" offer but entailing the receipt by the Partnership of a promissory
note for part of the purchase price, the Partnership would present all such
offers to the Limited Partners for approval.
In the event the Limited Partners do not approve the proposal, the
Partnership will not proceed to implement the proposed sale of the Property.
THE PROPERTY AND THE PARTNERSHIP'S BUSINESS
The Property consists of a leasehold interest in land located in
Barstow, California, the hotel property constructed thereon by the Partnership,
another leasehold interest in a restaurant, and the related personal property.
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Narrative Description of Business
(a) Franchise Agreements
The Partnership operates its hotel property as a franchisee of Holiday
Inns, Inc. Holiday Inns offer accommodations in the mid-range of the lodging
industry in terms of facilities and prices.
(b) Operation of the Hotel and Restaurant
Brown & Grotewohl, a California general partnership which is an
affiliate of the Managing General Partner (the "Manager"), manages and operates
the Partnership's hotel and restaurant. The Manager's management
responsibilities include, but are not limited to, supervision and direction of
the Partnership's employees having direct responsibility for the operation of
the hotel and restaurant, establishment of room rates and direction of the
promotional activities of the Partnership's employees. In addition, the Manager
directs the purchase of replacement equipment and supplies, maintenance activity
and the engagement or selection of all vendors, suppliers and independent
contractors. The Partnership's financial accounting activities are performed by
the hotel and restaurant staff and a centralized accounting staff, all of which
work under the direction of the Managing General Partner or the Manager.
Together, these staffs perform all bookkeeping duties in connection with the
hotel and restaurant, including all collections and all disbursements to be paid
out of funds generated by hotel and restaurant operations or otherwise supplied
by the Partnership.
As of December 31, 1997, the Partnership employed a total of 49
persons, either full or part-time, at its hotel and restaurant, including eight
desk clerks, 16 housekeeping and laundry personnel, four maintenance personnel,
one general manager, four cooks and dishwashers, 11 servers and bus persons,
four bartenders and one restaurant manager. In addition, and as of the same
date, the Partnership employed 11 persons in administrative positions at its
central office in Sacramento, California, all of whom worked for the Partnership
on a part-time basis. They included accounting, investor service, sales and
marketing and hotel supervisory personnel, secretarial personnel, and purchasing
personnel.
(c) Competition
As discussed in greater detail below, the Partnership faces intense
competition from hotels and motels of varying quality and size, including other
mid-range hotels and motels which are part of nationwide chains and which have
access to nationwide reservation systems.
Properties
On May 10, 1984, the Partnership entered into a long-term lease of 3.05
acres of unimproved land located on East Main Street in Barstow, California. The
leasehold is located within a 15-acre parcel which was developed as a lodging,
restaurant, retail and theater complex known as "Barstow Station Too!". The
Partnership's hotel is the only hotel or motel to be included in the complex.
The original term of the lease was for 50 years with the lessee's option to
renew for three additional 10-year periods.
The Barstow hotel, which consists of 148 guestrooms, was placed in
service on December 31, 1985, at which date 96 guestrooms were available for
occupancy. The remaining 52 guestrooms became available for occupancy on March
15, 1986.
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On June 15, 1987 the Partnership commenced operation of a family
restaurant and cocktail lounge immediately adjacent to the Barstow hotel. The
Partnership leases the restaurant facility from Fred Rosenberg, the lessor of
the hotel site.
On May 30, 1990, the Partnership entered into a written agreement with
the lessor for the amendment of the hotel and restaurant facility leases. The
restaurant facility lease term was extended from January 1, 1991 to December 31,
2010; however, the Partnership has the option of terminating the lease after
January 1, 2001 if the Partnership should terminate its license to operate the
hotel as a franchise of Holiday Inns, Inc. Additional rent for the hotel site
and restaurant facility was changed so as to be the amount by which 9% of the
combined annual gross sales from the hotel and restaurant facility exceeds the
combined annual minimum rent ($275,556 as of December 31, 1997; $280,116 as of
December 31, 1998) under the hotel site and restaurant facility leases.
The leases provide that the improvements constructed by the Partnership
on the leased premises will remain the property of the Partnership during the
lease term but that upon expiration of the leases, title to any such
improvements will pass to the lessor.
In 1997, the Partnership incurred a total of $285,302 in rent expense
for its Barstow hotel site and restaurant facility. In addition, the Partnership
pays all property taxes and assessments for each leasehold site.
The Partnership's hotel achieved the following average occupancy rates
and average room rates during 1997, 1996 and 1995:
1997 1996 1995
-------------------------------------------
Average Occupancy 68.6% 71.1% 74.9%
Rate
Average Room Rate $66.30 $64.63 $60.95
The following lodging facilities provide direct and indirect
competition to the Partnership's Barstow hotel:
Approximate
Number Distance
Facility Of Rooms From The Hotel
- -------------------------------------------------------------------------------
Quality Inn 100 Adjacent
Days Inn 113 0.25 Mile
Comfort Inn 62 0.50 Mile
Vagabond Inn 67 0.50 Mile
Best Western 79 0.50 Mile
Holiday Inn Express 65 3.00 Miles
The Barstow hotel's major sources of patronage are generated by local
military bases, with civilian Federal employees, military personnel and Federal
government contractors generating approximately 26% of the hotel's room revenue.
The Barstow area also attracts traveling salespeople and other commercial
travelers, as well as leisure travelers.
For a discussion of the revenue received by the Partnership from the
restaurant see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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PURCHASE AGREEMENT
On April 30, 1998, the Partnership entered into an agreement to sell
the Property to Tiburon Capital Corporation, San Francisco, California, or a
nominee of Tiburon Capital Corporation (the "Buyer"), for the sum of $4,100,000,
payable in cash at the close of escrow. Escrow was opened at Chicago Title
Company, San Francisco, California on June 10, 1998.
The following paragraph is based on information provided by the Buyer.
The Buyer is a California corporation formed in 1992. All of its stock has been
owned since its inception equally by William R. Dixon, Jr., Herbert J. Jaffe,
John L. Wright and John F. Dixon. Management and control persons of the Buyer
consist of its stockholders. The Buyer and its related entities, including
Pacific Management Group, Inc., NCM Management Ltd. and Capital Concepts
Investment Corp., are and have been involved in many business transactions,
including the ownership and asset or property management of real estate assets.
(The owners, management and the control persons of such related entities are two
or more of the owners of the Buyer.) In many instances, the real estate assets
were or are owned by limited partnerships or limited liability companies formed
and syndicated by the Buyer or its related entities for the specific purpose of
owning such assets. The form of an entity owning real estate assets is typically
dictated by investors and/or lenders. In like fashion, it is anticipated that a
nominee of the Buyer, which would be a limited liability company, would actually
purchase the Property instead of the Buyer. It is currently anticipated that the
members of such limited liability company would be two other limited liability
companies, one of which would be formed and syndicated by the Buyer and the
other of which would be formed and wholly-owned by Mark Grotewohl. In such
event, Mark Grotewohl would be entitled to up to a 50% indirect interest in the
owner of the Property, and in some way is expected to share in the management
and control of the owner of the Property and/or the management of the Property.
Mr. Grotewohl's ultimate rights and obligations are the subject of current
negotiation between him and the Buyer.
Mark Grotewohl is the son of Philip Grotewohl, the owner of 50% of the
stock of the Managing General Partner. He was employed until recently as the
marketing and sales director for the five GMS Partnerships. It might be
contended that Mark Grotewohl is, by virtue of his past relationship with the
Partnership, an Affiliate of the Partnership as defined in its Partnership
Agreement. Under Section 11.2 of the Partnership Agreement, the Partnership is
not permitted to sell its real property to "Affiliates" of the General Partners.
(The Partnership Agreement defines an "Affiliate" of a person as (i) any person
directly or indirectly controlling, controlled by, or under common control with
such person, (ii) any person owning or controlling 10% or more of the
outstanding voting securities or such person, (iii) any officer, director or
partner of such person, and (iv) any person who is an officer, director or
general partner of any of the foregoing. The Managing General Partner believes
that, based on the facts and circumstances, Mark Grotewohl is not an Affiliate
of the Partnership or the General Partners, because Mark Grotewohl neither (i)
possesses the power to direct or cause the direction of the management and
policies of the Partnership or the General Partners, and therefore does not
control the Partnership or the General Partners, (ii) owns any voting securities
in the Partnership or the General Partners, nor (iii) serves as an officer,
director or partner of the General Partners or the Partnership.
The Buyer has made a contemporaneous offer to purchase the motel
properties of the four other GMS Partnerships. The offers made by the Buyer for
the properties of each of the GMS Partnerships have been evaluated independently
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by the Managing General Partner. Other than with respect to the purchase price
of each motel, the offers are on identical terms. If the limited partners of the
other partnerships do not approve the sale of their respective properties to the
Buyer, the Buyer has the right and option not to proceed with the proposed
purchase of the Property from the Partnership, even if the Limited Partners
approve this sale. In this regard, the Partnership has not solicited any offers
to purchase the Property or the motel properties of the other GMS Partnerships,
has not listed the Property or the motel properties of the other GMS
Partnerships for sale with independent brokers, and has not otherwise actively
sought competing offers for the Property or the motel properties of the other
GMS Partnerships. Consequently, the offer presented by the Buyer is the only
offer that the Managing General Partner has received for the Property or the
motel properties of the other GMS Partnerships other than those presented by the
Everest Group.
There are a number of significant conditions to the consummation of the
proposed sale of the Property; therefore, there can be no assurance as to
whether, or when, such transaction will be consummated. Among these conditions
are the Partnership's receipt of the approval of the Limited Partners; the
Buyer's receipt (at the Partnership's expense) and approval of an ALTA Survey
and preliminary title report for the Property; the absence of any damage or loss
to the Property prior to the closing date in excess of $50,000; the decision by
the Buyer, in its unfettered discretion, to terminate the proposed purchase
prior to June 30, 1998; the Buyer's receipt prior to June 30, 1998 of a loan
commitment for financing in an amount of not less than 90% of the purchase price
of the Property, provided that the deadline may be extended upon request of the
Buyer for up to 15 days; and receipt by the Partnership of any necessary
approvals of the sale by, among others, the franchisor, and the landlords. The
Managing General Partner expects that such conditions will be satisfied;
however, there can be no assurances in this regard. No federal or state
regulatory requirements must be complied with, or approvals obtained, in
connection with the transaction.
The Buyer will deposit the sum of $21,000 into escrow on the later of
the expiration of the Buyer's inspection period referred to above or the date
the Partnership notifies the Buyer that the Limited Partners have approved the
proposed sale of the Property. Should the Buyer default in the performance of
its obligations under the purchase agreement, the Partnership will be entitled
to retain said deposit as its only damages.
The Partnership and the Buyer will share closing costs. The Managing
General Partner anticipates that the Partnership's share of aggregate closing
costs, including real estate brokerage commissions, will be approximately
$153,750. Included therein is a real estate brokerage commission payable to
Everest Financial, Inc., a member of the Everest Group, in an amount equal to
2.75% of the purchase price. Everest Financial, Inc. has agreed to reallow 1.25%
of the purchase price to the Buyer's broker or, at the Buyer's option, the Buyer
will be entitled to a credit against the purchase price in the amount of 1.25%
of the purchase price.
EFFECTS OF APPROVAL OF THE PROPOSAL
General
The consummation of the proposed sale of the Property and the
concomitant dissolution of the Partnership should result in the following
consequences for the Partnership, the Limited Partners and the General Partners:
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(i) The Limited Partners are expected to receive the distributions of net cash
proceeds from the sale of the Property as described below.
(ii) The Limited Partners and the General Partners are expected to realize the
Federal income tax consequences as described below.
(iii) All of the Partnership's assets will be liquidated and the Partnership
will be dissolved and terminated.
The consequences stated above are discussed in more detail in the
subsections which follow. Those subsections, in part, include computations as to
the cash proceeds to be received and distributed by the Partnership, and the
taxable gain and allocations thereof to be made by the Partnership, in the event
the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY
FOR THE PURPOSES OF EVALUATING THE PROPOSAL. ALL AMOUNTS ARE ESTIMATES ONLY. ALL
COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF
THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE)
WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO
INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED.
Determination and Use of Net Proceeds
The following is a summary of the projected amount of cash to be
received by the Partnership and the projected amount of cash to be distributed
to the Limited Partners, assuming the Property is sold for a gross sales price
of $4,100,000. This summary has been prepared by the Managing General Partner.
If the proposed transaction is consummated on September 30, 1998, it is
estimated that the Partnership would receive the following net proceeds:
Gross sales price $4,100,000
Less: Real estate commission (112,750)
Estimated escrow and closing costs (41,000)
-------
Net proceeds of sale $3,946,250
The Partnership's real property taxes are payable twice yearly on April
10 and December 10, partially in arrears, in the current amount of $31,560 each.
The Partnership's minimum lease payment for its leasehold interests is $23,343
monthly. Accordingly, if the proposed transaction is consummated, the actual
date of consummation will determine whether there is a credit to the Partnership
for prorated lease payments and/or a credit to the Buyer for prorated real
property taxes. Similarly, the amount indicated below as the estimate of
reserves available for distribution on dissolution of the Partnership will vary
depending on the actual date of consummation of the proposed transaction.
The net proceeds of $3,946,250 estimated to be received by the
Partnership from the proposed transaction, in the estimated amount of $437.40
per Unit based on a closing date of September 30, 1998, would be distributed
entirely to the Limited Partners. The Partnership's cash reserves would be
retained for the payment of accounts payable and other liabilities and expenses
incurred to that date or expected to be incurred in connection with the
operation of the Property through the date of sale and the operation and
winding-up of the Partnership through its termination, and the balance,
estimated to be $16,336 or $1.81 per Unit, also would be distributed entirely to
the Limited Partners. Alternatively, if the proposed sale is not approved, the
9
Partnership would continue to operate the Property for an indeterminate period
pending receipt of another purchase offer which is acceptable to the Limited
Partners. The Managing General Partner estimates that if the Property is not
sold the Partnership will make average annual distributions to the Limited
Partners of from zero to $324,792 ($36.00 per Unit) for the foreseeable future.
However, there can be no assurance that the Managing General Partner's estimate
in this regard will be borne out.
Federal Income Tax Consequences
(a) General. The following is a summary of the Federal income tax
consequences expected to result from consummation of the proposed transaction
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
laws, judicial decisions and administrative regulations, rulings and practices.
This summary is general in content and does not include considerations which
might affect certain Limited Partners, such as Limited Partners which are
trusts, corporations or tax-exempt entities, or Limited Partners who must pay an
alternative minimum tax. Except as otherwise specifically indicated, this
summary does not address any state or local tax consequences.
Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered
an opinion to the Partnership which states that the following summary has been
reviewed by it and, to the extent the summary involves matters of law,
represents its opinion, subject to the assumptions, qualifications, limitations
and uncertainties set forth therein.
(b) Characterization of Gain. Upon the sale of property, the owner
thereof measures his gain or loss by the difference between the amount of
consideration received in connection with the sale and the owner's adjusted
basis in the property. A gain will be recognized for Federal income tax
purposes. This is so because the depreciation used for Federal income tax
purposes, which decreases adjusted basis, was greater than that used for book
purposes.
The Property should constitute "Section 1231 property" (i.e., real
property and depreciable assets used in a trade or business which are held for
more than one year) rather than "dealer" property (i.e., property which is held
primarily for sale to customers in the ordinary course of business). While it is
possible that the Internal Revenue Service will argue that the Property is
"dealer" property, gain upon the sale of which would be taxed entirely as
ordinary income, tax counsel to the Partnership is of the opinion that it is
more likely than not that such an assertion would not be sustained by a court.
A Limited Partner's allocable share of Section 1231 gain from the sale
of the Property would be combined with any other Section 1231 gains or losses
incurred by him in the year of sale, and his net Section 1231 gains or losses
would be taxed as long-term capital gains or constitute ordinary losses, as the
case may be, except that a Limited Partner's net Section 1231 gains will be
treated as ordinary income to the extent of net Section 1231 losses for the five
most recent years which have not previously been offset against net Section 1231
gains.
Long-term gain on sale of Section 1231 property is taxed as follows:
(i) the excess of accelerated depreciation over straight-line depreciation is
taxed at ordinary income rates, (ii) to the extent that any other gain would be
treated as ordinary income if the property were depreciable personal property
10
rather than depreciable real property, at a maximum rate of 25%, and (iii) the
balance at a maximum rate of 20%.
Set forth below are the Managing General Partner's estimates of the
total taxable gain for Federal income tax purposes, and the allocations thereof,
which will result if the proposed sale of the Property is consummated, based on
an assumed closing date of September 30, 1998. These estimates do not include
any amounts relating to Partnership operations prior to the sale of the Property
or relating to dissolution of the Partnership. These estimates are not the
subject of an opinion of counsel.
Portion
Total Taxed As Portion Portion
Estimated Ordinary Taxed At Taxed At
Gain Income 25% Rate 20% Rate
------------------------------------------------------------
Limited Partners $2,676,000 $ 0 $2,676,000 $ 0
General Partner 27,000 0 27,000 0
------ ----- ------ -----
Total $2,703,000 $ 0 $2,703,000 $ 0
========= ===== ========= =====
Per Unit $296.61 $ 0 $296.61 $ 0
====== ===== ====== =====
Because of different methods of depreciation used for California income
tax purposes than for Federal income tax purposes, the Managing General Partner
anticipates that consummation of the proposed transaction would produce a gain
for California income tax purposes in the amount of approximately $1,978,000, of
which approximately $155,000 and $1,823,000 would be allocated to the General
Partners and to the Limited Partners, respectively.
Dissolution of the Partnership
Section 18.1(e) of the Partnership Agreement provides that the
Partnership shall be dissolved upon the sale of all lodging properties or
interests therein and the conversion into cash of any proceeds of sale
originally received in a form other than cash.
If the proposal is approved by a majority-in-interest of the Limited
Partners, and if the proposed sale of the Property is consummated, the
Partnership will be dissolved, the Managing General Partner will commence to
wind up the business of the Partnership, and after payment of all expenses of
the Partnership (including the expense of a final accounting for the
Partnership) the remaining cash reserves of the Partnership will be distributed
in accordance with the provisions of the Partnership Agreement. The Managing
General Partner will then take all necessary steps toward termination of the
Partnership's Certificate of Limited Partnership.
APPRAISAL OF THE PROPERTIES/FAIRNESS OPINION
The appraisal of the Property, dated February 20, 1998, was prepared by
PKF Consulting, San Francisco, California, and indicates that the current fair
market value as of January 1, 1998 was $4,100,000. PKF Consulting was selected
by the Managing General Partner based on its expertise in appraising hotel and
motel properties in the State of California. PKF Consulting also prepared
appraisals of the motel properties of the other GMS Partnerships.
11
The appraised value of the Property was determined through the use of two
methodologies: the sales comparison approach and the income capitalization
approach.
No limitations were imposed by the Managing General Partner on the
appraiser's investigation.
Upon request the Partnership will furnish to a Limited Partner, without
charge, a copy of the appraisal. In this regard Limited Partners are cautioned
to refer to the entire appraisal report, inasmuch as the opinion of value stated
therein is subject to the assumptions and limiting conditions stated therein.
Furthermore, Limited Partners should be aware that appraised values are opinions
and, as such, may not represent the realizable value of the Property.
Neither the appraiser, nor any of its affiliates, has had any prior
relationship with the Partnership, the Managing General Partner or any of their
affiliates other than as an appraiser of the Property and the properties of the
other GMS Partnerships and no future relationship other than as an appraiser is
contemplated.
The Partnership has also received an opinion from PKF Consulting to the
effect that the terms of the proposed sale are fair and equitable from a
financial standpoint to the Limited Partners.
12
FINANCIAL INFORMATION
Selected Partnership Financial Data
Following are selected financial data of the Partnership for the period
from January 1, 1993 to December 31, 1997.
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Guest room income $2,458,115 $2,489,982 $2,466,338 $2,526,730 $2,458,535
Restaurant income $690,622 $655,746 $636,141 $701,900 $775,129
Net income (loss) $(45,074) $14,787 $78,676 $188,470 $82,208
Per Partnership Unit:
Cash distributions $36.80 $36.80 $36.80 $34.40 $16.00
Net income (loss) $(4.95) $1.62 $8.63 $20.68 $9.02
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Total assets $2,430,463 $2,815,123 $3,127,918 $3,411,671 $3,523,707
Long-term debt ---- ---- ---- ---- ----
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Fiscal Year Financial Statements
(a) Liquidity and Capital Resources
The Managing General Partner believes that the Partnership's liquidity,
defined as its ability to generate sufficient cash to satisfy its cash needs, is
adequate. The Partnership's primary source of liquidity is its cash flow from
operations. The Partnership had, as of December 31, 1997, current assets of
$216,599, current liabilities of $176,765 and, therefore, an operating reserve
of $39,834. The Managing General Partner's reserves target is 5% of the adjusted
capital contributions, which are approximately $5,536,000. Current reserves are
below the $276,800 reserves target partially because the Managing General
Partner decided to pay for renovations and replacements from cash on hand rather
than by incurring debt. The reserve will be replenished during the coming fiscal
year to the extent made possible by operations.
The Partnership's Property is currently unencumbered. Although no
assurance can be had in this regard, the Managing General Partner believes that
the Partnership's equity in its Property provides a potential source of external
liquidity (through financing) in the event the Partnership's internal liquidity
is impaired.
During 1997, the Partnership expended $103,300 for renovations and
replacements, of which $50,387 was capitalized. The expenditures included
$25,714 for desk chairs, chairs and sleep sofas, $19,721 for parking lot
repairs, $12,341 for guestroom carpet, $6,200 for security equipment, $7,478 for
lamp and ballast upgrades, $5,700 for roof repairs and $7,132 for restaurant
signage.
During 1996, the Partnership expended $70,569 for renovations and
replacements, of which $29,643 was capitalized. The expenditures included
$11,148 for computer systems, $9,103 for replacement chairs, $5,797 for carpet,
$5,195 for tub refinishing, $4,745 for roof repairs and $4,000 for pool
replastering.
13
The Partnership currently has no material commitments for capital
expenditures. The Property is in full operation and no further property
acquisitions or extraordinary capital expenditures are planned. If the Property
is not sold the Managing General Partner is aware of no material trends or
changes with respect to the mix or relative cost of the Partnership's capital
resources. If the Property is retained adequate working capital is expected to
be generated by motel operations.
(b) Results of Operations
(i) Combined Financial Results
The following tables summarize the Partnership's operating results for
1995, 1996 and 1997 on a combined basis. Individual hotel and restaurant results
follow in separate subsections. The income and expense numbers in the following
tables are shown on an accrual basis and other payments on a cash basis.
Average Average
Hotel Hotel
Occupancy Room
Fiscal Year Ended: Rate Rate
- ------------------------------------------------------------------
December 31, 1995 74.9% $60.95
December 31, 1996 71.1% $64.63
December 31, 1997 68.6% $66.30
Total Partnership
Total Expenditures Cash Flow
Fiscal Year Ended: Revenues and Debt Service (1)
- -------------------------------------------------------------------------------
December 31, 1995 $3,213,820 $3,158,485 $55,335
December 31, 1996 $3,257,416 $2,961,860 $295,556
December 31, 1997 $3,250,726 $3,063,793 $186,933
(1) While Partnership Cash Flow as it is used here is not an amount
found in the financial statements, it is the best indicator of the annual change
in the amount, if any, available for distribution to the Limited Partners. These
calculations are reconciled to the financial statements in the following table.
14
A reconciliation of Partnership Cash Flow (from the chart above) to Net
Income (Loss) as shown on the Statements of Operations (in the audited financial
statements) is as follows:
1997 1996 1995
----------------------------------------------
Partnership Cash Flow $186,933 $295,556 $55,335
Net Additions to Fixed Assets 50,387 29,643 306,084
Depreciation and Amortization (281,791) (299,764) (278,574)
Other Items (603) (10,648) (4,169)
==============================================
Net Income ($45,074) $14,787 $78,676
==============================================
Following is a reconciliation of Partnership Cash Flow (shown above) to
the aggregate total of Cash Flow from Hotel Operations (shown in the succeeding
subsection) and the Total Restaurant Net Loss (shown in the second succeeding
subsection):
1997 1996 1995
---------------------------------------------
Cash Flow from Hotel Operations $408,473 $467,476 $251,271
Total Restaurant Net Loss (231,552) (182,081) (207,886)
----------------------------------------------
Aggregate Cash Flow from Property
Operations $176,921 285,395 43,385
Interest on Cash Reserves 6,938 9,131 11,825
Other Income (Net of Other Expenses)
Not Allocated to the Property 3,074 1,030 125
=============================================
Partnership Cash Flow $186,933 $295,556 $55,335
=============================================
(ii) Hotel Operations
The following table summarizes the operating results of the hotel for
1997, 1996, and 1995. Total expenditures include the operating expenses of the
hotel, together with the cost of capital improvements and those Partnership
expenses properly allocable to such hotel.
Cash Flow
from
Total Total Hotel
Fiscal Year Ended: Revenues Expenditures Operations
- ------------------------------------------------------------------------------
December 31, 1995 $2,565,636 $2,314,365 $251,271
December 31, 1996 $2,591,465 $2,123,989 $467,476
December 31, 1997 $2,553,167 $2,144,694 $408,473
The Partnership's hotel experienced a $38,298 or 1.5% decrease in total
revenues during 1997 as compared to 1996. The decrease in average occupancy rate
from 71.1% in 1996 to 68.6% in 1997 was partially offset by an increase in the
average daily rate from $64.63 in 1996 to $66.30 in 1997. The occupancy
generated by the group market segments declined while occupancy by the other
market segments stayed about the same. The average room rate for all market
segments increased due to rate increases.
The Partnership's hotel achieved a $25,829 or 1.0% increase in total
revenues during 1996 as compared to 1995. The 5% decline in the average
occupancy rate was offset by the $3.68 increase in the average room rate. The
occupancy generated by the government and corporate market segments declined
while occupancy by the other market segments increased. The average room rate
for all market segments increased due to rate increases.
15
The Barstow hotel's total expenditures increased $20,705 or 1.0% during
1997 as compared to 1996. This included increases of $7,855 for additional
billboards, $9,139 for central overhead allocation, $8,776 for travel agent
commissions, $8,145 for legal fees and $43,879 for renovations and replacements.
These increases were partially offset by reductions of $34,243 in security
services.
The Barstow hotel's total expenditures decreased $190,376 or 8.2%
during 1996 as compared to 1995. This decrease is primarily attributable to the
reduction in renovations and replacements. This decrease was partially offset by
increased expenditures of $69,170 for security services, of $9,858 for front
desk wages and salaries, of $8,589 in workers' compensation insurance, of $7,311
for print advertising, of $16,780 for commissions and of $7,250 for appraisal
fees.
(iii) Restaurant Operations
The following table summarizes the operating results of the restaurant
for 1997, 1996, and 1995:
1997 1996 1995
---- ---- ----
Food Sales $533,750 100.0% $506,255 100.0% $496,097 100.0%
Cost of Food Sales (229,820) -43.1% (203,022) -40.1% (183,583) -37.0%
---------------- -------------------- -----------------
Gross Profit from Food Sales $303,930 56.9% 303,233 59.9% 312,514 63.0%
Beverage Sales 156,871 100.0% 149,490 100.0% 140,044 100.0%
Cost of Beverages Sold (50,488) -32.2% (50,866) -34.0% (47,772) -34.1%
----------------
-------------------- -----------------
Gross Profit from Beverage Sales $106,383 67.8% 98,624 66.0% 92,272 65.9%
---------------- -------------------- -----------------
Combined Gross Profit $410,313 59.4% 401,857 61.3% 404,786 63.6%
Restaurant Operating Expenses (641,865) -92.9% (583,938) -89.0% (612,672) -96.3%
---------------- -------------------- -----------------
Total Restaurant Net Loss ($231,552) -33.5% $(182,081) -27.8% $(207,886) -32.7%
================ ==================== =================
The Partnership's restaurant experienced a $49,471 or 27.2% increase in
its net loss during 1997 as compared to 1996. There was an effort to increase
restaurant sales, but the costs rose faster than revenue. Holiday Inn has
modified its standards so that the restaurant operations can be reduced from 16
hours per day to six hours per day. Effective February 23, 1998, the restaurant
hours were reduced to seven hours per day. Financial projections of the modified
operation indicate that future restaurant operating losses will be much lower
than those experienced during the last three fiscal years.
The Partnership's restaurant achieved a $25,805 or 12.4% decrease in
its net loss during 1996 as compared to 1995. The improved performance is
attributable to the elimination of $20,000 in professional fees and some
renovations paid in the previous year.
II. Interim Financial Statements
(a) Liquidity and Capital Resources
As of March 31, 1998, the Partnership's current assets of $225,680 were
less than its current liabilities of $316,540. The deficit is due primarily to
the use of cash reserves for capital expenditures in prior years and to cash
distributions to the Limited Partners. The Statement of Cash Flows for the three
months ended March 31, 1998 shows that the Partnership continues to generate
cash sufficient to meet its cash needs.
16
The Partnership expended $14,018 on renovations and replacements during
the three months ended March 31, 1998, of which $10,221 was capitalized. The
expenditures included $5,221 for guestroom carpet and $5,000 for the restaurant
signs.
(b) Results of Operations
Total Partnership income decreased $69,539 or 7.9% for the first
quarter of 1998 as compared to the first quarter of 1997. Hotel room revenue
decreased $51,363 or 7.3% due to a decrease in occupancy from 80.1% to 72.9%
(which was partially offset by an increase in the average room rate from $66.03
to $67.23). The decrease in occupancy was due primarily to reduced military
activity at Fort Irwin which has not yet held its annual training event.
Restaurant revenue decreased $19,211 or 12.5% due to a reduction in daily
operating hours from 16 to seven.
Total Partnership expenses increased $97,786 or 12.4% primarily due to
increases in the minimum wage and to increases in legal, appraisal and other
costs associated with the proposed sale of the Property and liquidation of the
Partnership.
Other Financial Information
Items 304 and 305 of Regulation S-K promulgated by the Securities and
Exchange Commission are not applicable to the Partnership. Moreover, the
Managing General Partner is unaware of any "Year 2000" problems which could
impact the Partnership's operations.
17
FINANCIAL STATEMENTS
for
INFORMATION STATEMENT
of
FAMOUS HOST LODGING V, L.P.
June __, 1998
F-i
INDEX TO FINANCIAL STATEMENTS
FAMOUS HOST LODGING V, L.P. Page
INDEPENDENT AUDITORS' REPORT ............................................ F-1
FINANCIAL STATEMENTS:
Balance Sheets, December 31, 1997 and 1996............................... F-2
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.................................... F-3
Statements of Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995.............................. F-4
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.................................... F-5
Notes to Financial Statements............................................ F-7
Balance Sheets, March 31, 1998 and December 31, 1997 (Unaudited)......... F-12
Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)........................... F-13
Statements of Partners' Equity for the Three Months
Ended March 31, 1998 and 1998 (Unaudited)........................... F-14
Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)........................... F-15
Notes to Financial Statements............................................ F-16
F-ii
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Famous Host Lodging V, L.P.
We have audited the accompanying balance sheets of Famous Host Lodging V, L.P.,
a California limited partnership, as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity, and cash flows for each of
the years in the three year period ended December 31, 1997. 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 audits 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 Famous Host Lodging V, L.P. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 26, 1998
San Mateo, California
F-1
e-super8/s8597fs.wp8.wpd
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
------------ --------
Current Assets:
Cash and temporary investments (Notes 1, 3, 8 and 9) $ 146,113 $ 246,283
Accounts receivable 32,624 24,531
Prepaid expenses 37,862 39,762
---------- -----------
Total Current Assets 216,599 310,576
--------- ----------
Property and Equipment (Note 2):
Building 4,077,604 4,077,604
Furniture and equipment 1,294,151 1,253,417
Projects in progress - 58,444
------------- -----------
5,371,755 5,389,465
Accumulated depreciation and amortization (3,190,183) (2,917,212)
---------- ----------
Property and Equipment, Net 2,181,572 2,472,253
---------- ----------
Other Assets 32,294 32,294
----------- -----------
Total Assets $2,430,465 $2,815,123
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 165,909 $ 184,017
Due to related parties 10,856 322
---------- ------------
Total Liabilities 176,765 184,339
--------- -----------
Contingent Liabilities and Lease Commitments (Notes 4 and 5)
Partners' Equity:
General Partners 3,385 3,836
Limited Partners 2,250,315 2,626,948
--------- ----------
Total Partners' Equity 2,253,700 2,630,784
--------- ----------
Total Liabilities and Partners' Equity $2,430,465 $2,815,123
========== ==========
See accompanying notes to financial statements.
F-2
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
1997 1996 1995
------------ ------------ ---------
Income:
Guest room $2,458,115 $2,489,982 $2,466,338
Restaurant 690,622 655,746 636,141
Telephone and vending 55,707 65,512 54,893
Interest 6,938 9,131 11,825
Other 39,344 37,045 44,624
------------ ----------- ----------
Total Income 3,250,726 3,257,416 3,213,821
----------- ---------- ----------
Expenses:
Hotel and restaurant operations (Notes 4, 5 and 6) 2,774,813 2,701,717 2,634,845
General and administrative (Note 4) 77,356 78,787 61,637
Depreciation and amortization (Note 2) 281,791 299,764 278,574
Property management fees (Note 4) 161,840 162,361 160,089
----------- ----------- ----------
Total Expenses 3,295,800 3,242,629 3,135,145
---------- ---------- ----------
Net Income (Loss) $ (45,074) $ 14,787 $ 78,676
=========== =========== ===========
Net Income (Loss) Allocable to General Partners $(451) $148 $787
===== ==== ====
Net Income (Loss) Allocable to Limited Partners $(44,623) $14,639 $77,889
======== ======= =======
Net Income (Loss) Per Partnership Unit (Note 1) $4.95 $1.62 $8.63
===== ===== =====
Distributions to Limited Partners Per
Partnership Unit (Note 1) $36.80 $36.80 $36.80
====== ====== ======
See accompanying notes to financial statements.
F-3
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31:
1997 1996 1995
---------- ---------- --------
General Partners:
Balance, beginning of year $ 3,836 $ 3,688 $ 2,901
Net income (Loss) (451) 148 787
----------- ------------ ----------
Balance, End of Year 3,385 3,836 3,688
---------- ------------ ----------
Limited Partners:
Balance, beginning of year 2,626,948 2,944,319 3,198,440
Net income (Loss) (44,623) 14,639 77,889
Less: Cash distribution to limited partners (332,010) (332,010) (332,010)
----------- ----------- ----------
Balance, End of Year 2,250,315 2,626,948 2,944,319
---------- ---------- ----------
Total Partners' Equity $2,253,700 $2,630,784 $2,948,007
========== ========== ==========
See accompanying notes to financial statements.
F-4
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31:
1997 1996 1995
------------ ------------ --------
Cash Flows From Operating Activities:
Received from hotel and restaurant operations $3,237,065 $3,255,807 $3,224,408
Expended for hotel and restaurant operations
and general and administrative expenses (2,963,719) (2,942,661) (2,878,610)
Interest received 8,651 8,216 11,223
------------ ------------ -----------
Net Cash Provided by Operating Activities 281,997 321,362 357,021
----------- ----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of property and equipment 230 500 3,060
Purchases of property and equipment (50,387) (29,643) (306,084)
----------- ----------- ----------
Net Cash Used by Investing Activities (50,157) (29,143) (303,024)
----------- ----------- ----------
Cash Flows From Financing Activities:
Distributions paid to limited partners (332,010) (332,010) (332,010)
---------- ----------- ----------
Net Cash Used by Financing Activities (332,010) (332,010) (332,010)
---------- ----------- ----------
Net Increase (Decrease) in Cash
and Temporary Investments (100,170) (39,791) (278,013)
Cash and Temporary Investments:
Beginning of year 246,283 286,074 564,087
---------- ----------- ----------
End of Year $ 146,113 $ 246,283 $ 286,074
========= ========== ==========
See accompanying notes to financial statements.
F-5
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31:
1997 1996 1995
----------- ---------- -------
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities:
Net income (loss) $ (45,074) $ 14,787 $ 78,676
---------- -------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 281,791 299,764 278,574
(Gain) loss on disposition of property and equipment 59,047 (500) 4,170
(Increase) decrease in accounts receivable (8,093) 6,607 21,810
(Increase) decrease in prepaid expenses 1,900 (3,724) 5,210
(Increase) decrease in other assets - - (1,000)
Increase (decrease) in accounts payable and
accrued liabilities (18,108) 4,106 (18,863)
Increase (decrease) in due to related parties 10,534 322 (11,556)
---------- ---------- ---------
Total Adjustments 327,071 306,575 278,345
--------- -------- ---------
Net Cash Provided By Operating Activities $281,997 $321,362 $357,021
======== ======== ========
See accompanying notes to financial statements.
F-6
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Famous Host Lodging V, L.P. is a limited partnership organized under California
law on January 17, 1984, to acquire and/or develop and operate hotel properties
in the State of California. The term of the Partnership expires December 31,
2023, and may be dissolved earlier under certain circumstances. On February 13,
1991 the Partnership Agreement was amended to change the name of the Partnership
from "Super 8 Lodging V, Ltd." to "Famous Host Lodging V, L.P." The hotel in
Barstow, California was opened in December 1985. In 1987 the Partnership
commenced operation of a family restaurant and cocktail lounge immediately
adjacent to the hotel. The Partnership grants credit to customers, substantially
all of which are local businesses.
The managing general partner is Grotewohl Management Services, Inc., the fifty
percent stockholder and officer of which is Philip B. Grotewohl. In addition,
there is one individual associate general partner.
The net income or net loss of the Partnership is allocated 1% to the General
Partners and 99% to the Limited Partners. Net income (loss) and distributions
per partnership unit are based upon 9,022 units outstanding. All partnership
units are owned by the Limited Partners.
The partnership agreement requires that the Partnership maintain working capital
reserves for normal repairs, replacements, working capital and contingencies in
an amount of at least 5% of gross proceeds of the public offering of units as
adjusted for distributions of sales proceeds ($276,799 at December 31, 1997). As
of December 31, 1997, the Partnership had working capital of only $39,834 due to
capital renovations made during 1996 and distributions to limited partners in
1996 and 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income or loss are passed through to the individual
partners for income tax purposes, along with any income tax credits. Therefore,
no federal or California income taxes are provided for in the financial
statements of the Partnership. At December 31, 1997, assets and liabilities on a
tax basis were approximately $750,000 lower than on a book basis due to
accelerated depreciation methods used for tax purposes.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
----------- ------- ------------
Building and components 150% declining balance 10-25 years
and straight-line
Furniture and equipment 200% declining balance 4-7 years
and straight-line
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the lives of assets are
capitalized.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-7
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of December 31, 1997 and 1996 consist of the
following:
1997 1996
-------- ------
Cash in bank $ 71,809 $ 57,133
Money market accounts 74,304 89,150
Certificates of deposit - 100,000
-------- --------
Total Cash and Temporary Investments $146,113 $246,283
======== ========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments and all highly liquid marketable
securities with original maturities of five months or less to be cash
equivalents for purposes of the statement of cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Property Management Fees
The General Partners, or their affiliates, handle the management of the hotel
property of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations, as defined in the partnership agreement,
and amounted to $161,840 in 1997, $162,361 in 1996 and $160,089 in 1995.
Subordinated Distributions to General Partners
During the Partnership's operational stage, the General Partners are to receive
an aggregate of 10% of Partnership distributions from cash available for
distribution, of which 9% will constitute a fee for managing the Partnership and
1% will be on account of their interest in the income and losses of the
Partnership. These distributions are subordinated, however, to payment to each
Limited Partner during such year of distributions from cash available for
distribution equal to a 14% per annum non-cumulative return on his adjusted
capital contribution. Through December 31, 1997, the Limited Partners have not
received a 14% non-cumulative return in any year, therefore no distributions
have been made or have accrued to the General Partners.
Subordinated Incentive Distributions
Under the terms of the partnership agreement, the General Partners are to
receive an aggregate of 15% of Partnership distributions of net proceeds from
the sale or refinancing of Partnership properties. The aggregate distribution of
15% is composed of a 14% subordinated incentive fee as additional compensation
for services rendered by the General Partners and the 1% on account of their
interest in the income and losses of the Partnership. These distributions are
subordinated, however, to net proceeds from the sale or refinancing of
Partnership properties remaining after distribution to the Limited Partners of
any portion thereof required to cause distributions to the Limited Partners from
all sources to be equal to their capital contributions plus 10% per annum
cumulative return on their adjusted capital contributions. At December 31, 1997,
the Limited Partners had not received the 10% per annum cumulative return, and
accordingly, no such proceeds have been distributed to the General Partners.
F-8
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Administrative Expenses Shared by the Partnership and Its Affiliates
There are certain administrative expenses allocated between the Partnership and
other partnerships managed by the General Partners and their affiliates. These
expenses, which are allocated based on usage, are telephone, data processing,
rent of the administrative office, and administrative salaries. The
administrative expenses allocated to the Partnership were approximately $230,000
in 1997, $225,000 in 1996 and $223,000 in 1995 and are included in general and
administrative expenses and hotel and restaurant operations expenses in the
accompanying statements of operations. Included in administrative salaries are
allocated amounts paid to two employees who are related to Philip B. Grotewohl,
the fifty percent stockholder of Grotewohl Management Services, Inc. (see Note
1), the General Partner.
NOTE 5 - LEASE COMMITMENTS
The Partnership leases 3.05 acres of land in Barstow, California for a term of
50 years beginning in 1984. The Partnership has the right to extend the lease
for three consecutive periods of ten years each. The base rent payments are
subject to annual upward or downward adjustments based on changes in the
Consumer Price Index. The Partnership also leases the site adjacent to its
Barstow hotel that contains a restaurant and lounge. The lease provides for a
20-year term ending December 31, 2010 with an option to terminate this lease
after termination of the Holiday Inn license agreement. The option cannot be
exercised before the tenth year of the renewal term and requires six months
written notice.
Both leases contain provisions requiring the lessee to pay all property taxes
and assessments. The leases provide for payment of the excess of percentage rent
over the base rent. The percentage rent is 9% of the combined gross hotel room
revenues and gross restaurant and lounge sales.
Rental expense under these leases incurred by the Partnership amounted to
$299,375 in 1997, $299,569 in 1996 and $297,167 in 1995. Such amounts are
included in hotel and restaurant operations expense in the accompanying
statements of operations.
Future lease commitments at December 31, 1997, using the current minimum monthly
amounts, are as follows:
Years Ended Hotel Land Restaurant
December 31: Lease Lease Total
- ----------- ---------- ---------- -----
1998 $ 163,428 $ 116,688 $ 280,116
1999 163,428 116,688 280,116
2000 163,428 116,688 280,116
2001 163,428 116,688 280,116
2002 163,428 116,688 280,116
2003-2035 5,147,982 933,504 6,081,486
---------- ----------- ----------
Total minimum future lease payments $5,965,122 $1,516,944 $7,482,066
========== ========== ==========
F-9
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - HOTEL AND RESTAURANT OPERATING EXPENSES
The following table summarizes the major components of hotel and restaurant
operating expenses for the following years:
1997 1996 1995
---- ---- ----
Salaries and related expenses $ 866,496 $ 808,586 $ 789,516
Cost of food and beverage 280,607 253,888 231,355
Rent 301,054 301,606 297,168
Franchise, advertising and reservation fees 175,932 179,762 177,711
Utilities 201,671 204,251 214,662
Allocated costs, mainly indirect salaries 186,004 184,064 181,607
Renovations and replacements 52,913 40,926 77,384
Other operating expenses 710,136 728,634 665,442
---------- ----------- ---------
Total hotel and restaurant
operating expenses $2,774,813 $2,701,717 $2,634,845
========== ========== ==========
NOTE 7 - COMMITMENTS
Franchise Fees
In February 1991, the Partnership obtained a ten-year franchise agreement with
Holiday Inns, Inc. to operate its Barstow hotel and restaurant under the name
"Holiday Inn." The Partnership pays monthly franchise fees of 4% of gross room
revenues of the hotel and makes monthly contributions of 1 1/2% and 1% of guest
room revenues to a marketing fund and reservation fund, respectively.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and temporary investments approximates fair value
because of the short-term maturity of those investments.
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in five commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
uninsured cash balances (not reduced by outstanding checks) as of December 31,
1997 follows:
Total cash in all California banks $177,077
Portion insured by FDIC (131,674)
-------
Uninsured cash balance $ 45,403
========
F-10
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 10 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENT
On October 27, 1997, a complaint was filed in the United States District Court
by the Managing General Partner naming as defendants Everest/Madison Investors,
LLC, Everest Lodging Investors, LLC, Everest Properties II, LLC, Everest
Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital
Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J.
Kravit, and Stephen P. Enquist. The complaint alleged that the defendants
violated certain provisions of the Security and Exchange Act of 1934 and sought
injunctive and declarative relief.
On October 28, 1997, a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against the General Partners of the
Partnership and four other partnerships which have common general partners as
nominal defendants. The complaint pertained to the receipt by the defendants of
franchise fees and reimbursement of expenses, the indications of interest made
by the plaintiffs in purchasing the properties of the nominal defendants, and
the alleged refusal of the defendants to provide information required by the
terms of the Partnership's partnership agreement and California law.
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, the General Partner has agreed to proceed with the marketing for sale
of the properties of the Partnerships, among other things, if by June 30, 1998,
it receives an offer to purchase one or more properties for a cash price equal
to 75% or more of the appraised value. In addition, the General Partner has
agreed to submit the offer for approval to the limited partners as required by
the partnership agreements and applicable law. The General Partner has also
agreed that upon the sale of one or more properties, to distribute promptly the
proceeds of the sale after payment of payables and retention of reserves to pay
anticipated expenses. The Everest Defendants agreed not to generally solicit the
acquisition of any additional units of the Partnerships without first filing the
necessary documents with the SEC. Under the terms of the settlement agreement,
the Partnerships have agreed to reimburse the Everest Defendants for certain
costs not to exceed $60,000, to be allocated among the Partnerships. Of this
amount, the Partnership will pay approximately $12,000 during the year ended
December 31, 1998.
F-11
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
Statement of Operations
For the Three Months Ending March 31, 1998 and 1997
3/31/98 12/31/97
--------------------- ---------------------
ASSETS
Current Assets:
Cash and temporary investments $ 209,674 $ 146,113
Accounts receivable 30,534 32,624
Prepaid expenses 15,472 37,862
--------------------- ---------------------
Total current assets 255,680 216,599
--------------------- ---------------------
Property and Equipment:
Buildings 4,077,604 4,077,604
Furniture and equipment 1,304,372 1,294,151
--------------------- ---------------------
5,381,976 5,371,755
Accumulated depreciation (3,255,299) (3,190,183)
--------------------- ---------------------
Property and equipment, net 2,126,677 2,181,572
--------------------- ---------------------
Other Assets: 32,294 32,294
--------------------- ---------------------
Total Assets $ 2,414,651 $ 2,430,465
===================== =====================
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities 316,540 176,765
--------------------- ---------------------
Total liabilities 316,540 176,765
--------------------- ---------------------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 2,659 3,385
Limited Partners 2,095,452 2,250,315
--------------------- ---------------------
Total partners' equity 2,098,111 2,253,700
--------------------- ---------------------
Total Liabilities and Partners' Equity $ 2,414,651 $ 2,430,465
===================== =====================
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-12
e-super8/s8598fs.doc
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
Statement of Operations
For the Three Months Ending March 31, 1998 and 1997
Three Months Three Months
Ended Ended
3/31/98 3/31/97
------------------ ---------------------
Income:
Hotel room $ 652,776 $ 704,139
Restaurant 135,024 154,235
Telephone and vending 12,994 14,480
Interest 801 1,692
Other 13,292 9,880
---------------- ---------------------
Total Income 814,887 884,426
---------------- ---------------------
Expenses:
Motel operating expenses (Note 2) 629,363 652,966
General and administrative 152,477 22,756
Depreciation and amortization 65,116 69,753
Property management fees 40,518 44,213
---------------- ---------------------
Total Expenses 887,474 789,688
---------------- ---------------------
Net Income (Loss) $ (72,587) $ 94,738
================ =====================
Net Income (Loss) Allocable
to General Partners ($726) $947
================ =====================
Net Income (Loss) Allocable
to Limited Partners ($71,861) $93,791
================ =====================
Net Income (Loss)
per Partnership Unit ($7.97) $10.40
================ =====================
Distribution to Limited Partners
per Partnership Unit $9.20 $9.20
================ =====================
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-13
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
Statement of Changes in Partners' Equity
For the Three Months Ending March 31, 1998 and 1997
1998 1997
-------------------- ---------------------
General Partners:
Balance at beginning of year $ 3,385 $ 3,836
Net income (loss) (726) 947
----------------- ---------------------
Balance at end of period 2,659 4,783
----------------- ---------------------
Limited Partners:
Balance at beginning of year 2,250,315 2,626,948
Net income (loss) (71,861) 93,791
Distributions to limited partners (83,002) (83,002)
----------------- ---------------------
Balance at end of period 2,095,452 2,637,737
----------------- ---------------------
Total Partners' Equity $ 2,098,111 $ 2,642,520
================= =====================
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-14
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
Statement of Cash Flows
For the Three Months Ending March 31, 1998 and 1997
1998 1997
--------------------- ---------------------
Cash flows from operating activities:
Received from hotel and restaurant revenues $ 816,176 $ 873,307
Expended for hotel and restaurant operation
and general and administrative expenses (660,193) (645,610)
Interest received 801 1,187
--------------------- ---------------------
Net cash provided (used) by operating activities 156,784 228,884
--------------------- ---------------------
Cash flows from investing activities:
Purchases of property and equipment (10,221) (20,648)
Proceeds from sale of equipment 230
-
--------------------- ---------------------
Net cash provided (used) by investing activities (10,221) (20,418)
--------------------- ---------------------
Cash flows from financing activities:
Distributions paid to limited partners (83,002) (83,002)
--------------------- ---------------------
Net cash provided (used) by operating activities (83,002) (83,002)
--------------------- ---------------------
Net increase in cash and temporary investments 63,561 125,464
Cash and Temporary Investments:
Beginning of year 146,113 246,283
--------------------- ---------------------
End of Period $ 209,674 $ 371,747
===================== =====================
Reconciliation of net income (loss) to net cash provided (used) by operating
activities:
Net income (loss) $ (72,587) $ 94,738
--------------------- ---------------------
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 65,116 69,753
(Gain) loss on disposition of property and equipment - (230)
(Increase) decrease in accounts receivable 2,090 (9,932)
(Increase) decrease in prepaid expenses 22,390 18,031
Increase (decrease) in accounts payable
and accrued liabilities 139,775 56,524
--------------------- ---------------------
Total adjustments 229,371 134,146
--------------------- ---------------------
Net cash provided (used) by
operating activities $ 156,784 $ 228,884
===================== =====================
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-15
FAMOUS HOST LODGING V, L.P.
(A California Limited Partnership)
Notes to Financial Statements
March 31, 1998 and 1997
Note 1:
The attached interim financial statements include all adjustments (consisting of
only normal recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended December 31, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements
In accordance with the partnership agreement, the following information is
presented related to fees paid to the General Partners or affiliates for the
period.
Property Management Fees $40,518
In February, 1991 the Partnership terminated its franchise and its affiliation
with Super 8 Motels, Inc. and began operating as a Holiday Inn. Accordingly, no
franchise or advertising fees have been paid to the General Partners or their
affiliates for the period
Partnership management fees and subordinated incentive distributions are
contingent in nature and none have been accrued or paid during the current
period.
Note 2:
The following table summarizes the major components of hotel operating expenses
for the periods reported:
Three Months Three Months
Ended Ended
3/31/98 3/31/97
--------------------- ---------------------
Salaries and related expenses $ 200,632 $ 213,730
Cost of food and beverage 47,639 60,548
Rent 75,321 81,817
Franchise, advertising and reservation fees 46,533 49,846
Utilities 42,907 43,581
Allocated costs, mainly indirect salaries 49,761 44,110
Renovations and replacements 3,797 4,080
Other operating expenses 162,773 155,254
--------------------- ---------------------
Total hotel and restaurant operating expenses $ 629,363 $ 652,966
===================== =====================
The following additional material contingencies are required to be restated
in interim reports under federal securities law: None.
F-16
APPENDIX 1
REVISED PRELIMINARY COPY
FAMOUS HOST LODGING V, L.P.
______________________
Notice of Proposed Action By Written Consent
TO THE LIMITED PARTNERS OF
FAMOUS HOST LODGING V, L.P.:
The Limited Partners of FAMOUS HOST LODGING V, L.P. (the "Partnership"), are
being asked by the Partnership and the Managing General Partner to consider and
approve by written consent the proposed sale of substantially all of the
Partnership's assets.
The Limited Partners of the Partnership are entitled to vote on the proposal by
completing, executing and returning to the Partnership the enclosed form of
Action by Written Consent of Limited Partners.
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED POSTPAID CONSENT CARD AND RETURN IT
PROMPTLY. ONLY CONSENTS RECEIVED ON OR BEFORE JULY ____, 1998 (UNLESS EXTENDED
BY THE MANAGING GENERAL PARTNER PURSUANT TO NOTICE MAILED TO THE LIMITED
PARTNERS) WILL BE COUNTED TO DETERMINE WHETHER THE PROPOSAL IS APPROVED.
June ___, 1998
Grotewohl Management Services, Inc.,
a California corporation,
Managing General Partner
APPENDIX 2
REVISED PRELIMINARY COPY
ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS
FAMOUS HOST LODGING V, L.P.
2030 J Street
Sacramento, California 95814
(916) 442-9183
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE MANAGING GENERAL
PARTNER.
The undersigned votes all the units of limited partnership interest of Famous
Host Lodging V, L.P. of record by him, her or it as follows:
PROPOSAL TO APPROVE THE SALE OF SUBSTANTIALLY ALL OF THE
PARTNERSHIP'S ASSETS, as described in the Information
Statement dated June ___, 1998. Please mark one of the
following:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Consent, when properly executed and returned to the Partnership, will be
voted in the manner directed herein by the undersigned limited partner.
IF NO DIRECTION IS MADE, THIS CONSENT, IF SO EXECUTED AND RETURNED, WILL BE
VOTED FOR THE PROPOSAL SET FORTH ABOVE.
Please sign exactly as name appears below: When Units are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: , 1998
__________________________________
Signature
__________________________________
Additional signature, if held
jointly
PLEASE MARK, SIGN, DATE AND
RETURN THIS
POSTPAID CONSENT CARD.