<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-96716
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
16-1485632
(I.R.S. Employer Identification No.)
100 CORPORATE WOODS
ROCHESTER, NEW YORK 1623
(Address of principal executive office)
Registrant's telephone number, including area code: (716) 272-2300
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
As of August 1, 1996 a total of 1,909 Limited Partnership Units were
outstanding.
<PAGE> 2
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Essex Hospitality Associates IV L.P.
Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
Assets 1996
----
<S> <C>
Investments in real estate, at cost:
Land 2,638,672
Construction in progress 5,038,213
Less accumulated depreciation --
-----------
Net investments in real estate 7,676,885
-----------
Cash and cash equivalents 2,175,220
Deferred costs:
Debt issuance 652,221
Franchise 128,000
Other 121,795
-----------
902,016
Less accumulated amortization (40,366)
-----------
861,650
-----------
Other assets 75,850
-----------
Total assets 10,789,605
===========
Liabilities and Partners' Capital
Liabilities
Construction payable 1,347,036
Accounts payable and accrued expenses 8,143
Notes payable 6,143,000
Construction loan payable 1,177,149
Minority interest - Essex Glenmaura L.P. 996,417
-----------
Total liabilities 9,671,745
-----------
Commitments and contingencies (notes 5 and 6)
Partners' capital 1,288,670
Less notes receivable from partners (170,810)
-----------
Total partners' capital 1,117,860
-----------
Total liabilities and partners' capital 10,789,605
===========
</TABLE>
<PAGE> 3
Essex Hospitality Associates IV L.P.
Statement of Income
For the Quarter ended June 30, 1996
<TABLE>
<CAPTION>
1996
----
<S> <C>
Expenses:
Admin & general 749
Miscellaneous 9,911
-------
Total expenses 10,660
-------
Operating income (10,660)
-------
Interest expense (61,873)
Interest income 7,026
Amortization (10,995)
-------
Total other income (expenses) (65,842)
-------
Net income (76,502)
=======
</TABLE>
<PAGE> 4
Essex Hospitality Associates IV L.P.
Statement of Cash Flows
For the Quarter ended June 30, 1996
<TABLE>
<CAPTION>
1996
----
<S> <C>
Cash flows from operating activities
Cash received from customers 100
Cash paid to suppliers (148,905)
Interest received 7,026
Interest paid (61,873)
----------
Net cash from operating activities (203,652)
----------
Cash flows from investing activities
Payments for land and construction in progress (1,291,388)
Payments for deposits (33,986)
----------
Net cash used in investing activities (1,325,374)
----------
Cash flows from financing activities
Partners' capital contributions 580,631
Payments for syndication costs (62,181)
Proceeds from notes payable 797,000
Proceeds from construction loan 1,177,149
Payments for debt acquisition costs (117,621)
Payments for organization costs 0
Payments for distributions (24,997)
----------
Net cash from financing activities 2,349,981
----------
Net increase in cash and cash equivalents 820,955
Cash and cash equivalents - beginning of quarter 1,354,265
----------
Cash and cash equivalents - end of quarter 2,175,220
==========
Reconciliation of net income to net cash flows from
operating activities:
Net income (76,502)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 10,995
Changes in:
Shortterm assets (125,318)
Accounts payable and other expenses (12,827)
----------
(203,652)
==========
</TABLE>
<PAGE> 5
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(1) Organization
Essex Hospitality Associates IV L.P. (the Partnership) is a New York
limited partnership formed on August 30, 1995 for the purpose of
acquiring land and constructing, owning and operating a series of
hotels. The Partnership will also acquire a limited partnership
interest in an affiliated partnership, Essex Glenmaura L.P.
(Glenmaura), which will construct, own and operate a Courtyard by
Marriott hotel near Scranton, Pennsylvania (see note 6). The
Partnership may also lend funds to other partnerships that own hotels.
The Partnership is financing its activities through a public offering
of notes and limited partnership units.
The Partnership is in the development stage and is acquiring land in
order to construct and operate the hotels. In December 1995, land was
purchased in Solon, Ohio and Warwick, Rhode Island in anticipation of
the construction of a Hampton Inn and Suites hotel and a Homewood
Suites hotel, respectively. In January and March, 1996, a 12.5 unit
limited partnership interest was acquired in Essex Glenmaura L.P.
The Partnership's general partner is Essex Partners Inc. (Essex
Partners), a subsidiary of Essex Investment Group, Inc. (Essex).
The following is a general description of the allocation of income,
loss, and distributions. For a more comprehensive description see the
Partnership Agreement:
Allocation of income from operations will be allocated 99% to
the limited partners and 1% to the general partner until the
amount allocated to the limited partners equals the cumulative
annual return of 8% of their contribution. Any remaining
income from operations is allocated 80% to the limited
partners and 20% to the general partners. Income on the sale
of any or all of the hotels is allocated 99% to the limited
partners until each limited partner has been allocated income
in an amount equal to his or her pro rata share of the
nondeductible syndication expenses and sales commission and 1%
to the general partners. Thereafter, income on the sale of any
or all the hotels is allocated in the same manner as income
from operations.
Allocations of losses from operations will be allocated 80% to
the limited partners and 20% to the general partner in the
amounts sufficient to offset all income which was allocated
80% to the limited partners. Thereafter, operating losses are
allocated 99% to the limited
<PAGE> 6
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(1) Organization (continued)
partners and 1% to the general partner. Loss on the sale of
any or all of the hotels will be first allocated in the same
manner as losses from operations, except that the allocation
of such loss would be made prior to allocations of income from
operations. All other losses are allocated 99% to the limited
partners and 1% to the general partners.
Cash distributions will initially be made 99% to the limited
partners and 1% to the general partners. After the limited
partners have received a cumulative annual return of 8% of
their contribution, additional distributions may then be made
80% to the limited partners and 20% to the general partners.
Distributions of the net proceeds of sale or refinancing of
any or all hotels will be made 1% to the general partner and
99% to the limited partners until the limited partners have
received distributions from sale or refinance of hotels equal
to $1,000 per unit. Thereafter, distributions shall next be
made 1% to the general partner and 99% to the limited partners
until each limited partner has received any unpaid cumulative
return accrued through the date of the distribution.
Additional distributions will then be made 20% to the general
partner and 80% to the limited partners. The first
distribution was made in March, 1996.
Essex Partners and its affiliates are receiving substantial fees in
connection with the offering of notes and limited partnership units.
Additional fees will be paid to them in connection with the
acquisition, development and operation of the hotels and management of
the Partnership (see note 5).
(2) Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Partnership were prepared on the
accrual basis of accounting in conformity with generally accepted
accounting principles.
Investments in Partnerships
Investments in Partnerships with a 50% or less ownership interest will
be accounted for by the equity method. Ownership interests exceeding
50% will be accounted for under the consolidated method. The
Partnership owns a 54% interest in Essex
<PAGE> 7
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(2) Summary of Significant Accounting Policies (continued)
Glenmaura L.P. and is accounting for the investment under the
consolidated method
Investment in Real Estate
Investment in real estate is stated at cost. Depreciation will be
calculated using the straight-line method over the estimated useful
lives of the assets as each hotel commences operations.
Cash and Cash Equivalents
Cash investments with maturities of three months or less at the time of
purchase are considered to be cash equivalents.
Deferred Costs
Costs of issuing the subordinated notes payable will be amortized on a
straight-line basis over the term of the notes.
Franchise fees paid for the right to own and operate the hotels will be
amortized on a straight-line basis over the term of each franchise
agreement, beginning when a hotel is placed in service.
Syndication Costs
Selling commissions and legal, accounting, printing and other filing
costs totaling $253,330 related to the offering of the limited
partnership units were charged against the proceeds of the public
offering.
Income Taxes
No provision for income taxes has been provided since any liability is
the individual responsibility of the partners.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the managing general
partner to make estimates and assumptions that affect the reported
amounts of asset and liabilities and disclosure
<PAGE> 8
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(2) Summary of Significant Accounting Policies (continued)
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
(3) Subordinated Notes Payable
Subordinated notes payable bear interest at a rate of 10.5% per annum,
payable monthly, and mature December 31, 2001, unless extended by the
Partnership to December 31, 2002 upon payment to holders of an
extension fee equal to .5% of the principal amount of the subordinated
notes outstanding. The notes are issued as unsecured obligations of the
Partnership.
In accordance with the Partnership agreement, the ratio of gross
proceeds from the offering of limited partnership units to total gross
proceeds from the offering prior to the termination of the offering may
not be less that .15 to 1. As of June 30, 1996, that ratio was .27 to
1.
The carrying value of the subordinated notes payable approximates the
fair value based on a discounted cash flow analysis using an interest
rate currently being offered for loans with similar terms and credit
quality.
(4) Franchise Fees
In 1995, the Partnership entered into a license agreement with Promus
Corporation (Promus) to operate a Homewood Suites hotel in Warwick,
Rhode Island. An initial franchise fee of $40,000 has been paid. In
addition to the initial fee, the Partnership will be required to pay to
Promus a monthly royalty fee of 4% of gross room revenues, a monthly
marketing/reservation fee of 4% of gross room revenue, an initial
software license fee of $3,000 plus $85 per guest room with a monthly
maintenance charge of $200 to $350 per month, and a monthly amount
equal to any sales tax or similar tax imposed on Promus on payments
received under the license agreement.
In November 1995, the Partnership entered into a license agreement with
Promus to operate a Hampton Inn and Suites hotel for the Solon, Ohio
site. An initial franchise fee of $40,000 was paid. In addition to the
initial fee, the Partnership will be required to pay to Promus a
monthly royalty fee of 4% of gross room revenues, a monthly
marketing/reservation fee of 4% of gross room revenue, an initial
software license fee of $3,000 plus $85 per guest room with a monthly
maintenance charge of
<PAGE> 9
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(4) Franchise Fees (continued)
$200 to $350 per month and a monthly amount equal to any sales tax or
similar tax imposed on Promus on payments received under the license
agreement.
Promus requires the Partnership to establish a capital reserve escrow
account based on a percentage of gross revenues generated by each hotel
which will be used for product quality requirements of the hotel.
Cumulative funding of the reserve for the first five years increases
from 1% to 5% of gross revenues and stabilizes at 5% for the term of
the agreement.
The franchise agreements impose certain restrictions on the transfer of
limited partnership units. Promus restricts the sale, pledge or
transfer of units in excess of 25% without their consent.
(5) Related Party Transactions
A summary of fees earned by Essex Partners or its affiliates since
inception through June 30, 1996 under the terms of the Partnership
agreement follows:
<TABLE>
<CAPTION>
Type of Fee Amount of Fee
----------- -------------
<S> <C> <C>
Selling Commission Up to $80 per limited partnership unit and $55 per $1,000 $384,158
not sold
Organization and Offering 3.4% of the gross proceeds of the offering 214,790
Fee
Acquisition Fee $110,000 per hotel site 220,000
Development Fee $160,000 per hotel, plus 5% of the total cost of the 108,000
hotel in excess of $2.7 million (not to exceed $325,000 --------
per hotel)
$926,948
========
</TABLE>
Organization and offering fees are allocated to syndication costs and
debt issuance costs based on the pro-rata share of limited partner's
units and notes payable to the total offering:
<PAGE> 10
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(5) Related Party Transactions (continued)
The above fees are reflected in the accompanying financial statements
as follows:
<TABLE>
<S> <C>
Balance Sheet:
Investment in real estate $328,000
Deferred debt issuance costs 413,227
Syndication costs, charged to partner's capital 185,721
--------
$926,948
========
</TABLE>
Under the terms of the Partnership agreement, Essex Partners or its
affiliates will also earn other fees as follows:
<TABLE>
<CAPTION>
Type of Fee Amount of Fee
----------- -------------
<S> <C>
Investor Relations Fee .25% of the gross proceeds of the
offering payable annually in 1998
through 2001
Property Management Fee 4.5% of gross operating revenues from
the hotels
Partnership Management Fee .75% of gross operating revenues from
the hotels
Accounting Fee $800 per month
Refinancing Fee 1% of the gross proceeds of re-financing
any or all of the hotels
Sales Fee 3% of the gross sale price of any or all
of the hotels
</TABLE>
The Partnership will also be subject to a number of conflicts of
interest arising from its relationships with the general partner, its
owners and affiliates and due to other activities and entities in which
the general partner and its affiliates have or may have a direct or
indirect financial interest.
<PAGE> 11
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
June 30, 1996
(6) Investment in Affiliate - Essex Glenmaura L.P.
In January and March, 1996, the Partnership purchased a twelve and
one-half unit limited partnership investment in Essex Glenmaura L.P.
for $100,000 per unit. The purchase resulted in a 54% equity interest.
As of June 30, 1996, Glenmaura is constructing a Courtyard by Marriott
hotel near Scranton, Pennsylvania, and has invested $4,523,000 into the
land acquisition and construction costs. The financing of the land
acquisition, construction costs and all related fees and expenses
through June 30 1996 for the hotel project has been funded by
$1,500,000 in unsecured notes, construction loan proceeds of
$1,177,000 and $1,900,000 from partner equity.
<PAGE> 12
Item 2. Management's Discussion and Analysis or Plan of Operation
The Partnership was formed on August 30, 1995. The Partnership's public offering
of mortgage notes, subordinated notes and limited partnership units was declared
effective on November 24, 1995. Since the effective date, the Partnership has
been involved in raising capital, the acquisition and construction of properties
and the purchase of limited partnership units in another partnership. The two
sites specified in the Prospectus were acquired on December 29, 1995, a 2.535
acre site in Warwick, Rhode Island and a 2.28 acre site in Solon, Ohio. The
Partnership expects to begin construction of an 80-suite Homewood Suites hotel
in Warwick, Rhode Island in September, 1996, with opening expected in the
spring, 1997. The General Partner expects to secure first mortgage financing
from institutional lenders or affiliates of the franchisor, however, no external
financing source has issued a commitment to lend funds to the Partnership for
construction or permanent financing.
The Partnership had originally intended to build an Hampton Inn & Suites on the
site in Solon, Ohio, however, after receiving bids from prospective general
contractors, the General Partner concluded that the construction cost of the
Hampton Inn & Suites was too high relative to the room rates which could be
charged in the Solon area. Based on its knowledge of the Solon market, the
General Partner believed a Hampton Inn could be built and operated more
successfully. The General Partner secured approval from the Promus Hotel
Corporation, the franchisor, to change brand designations. Construction of a
100-room Hampton Inn is expected to start in the fall, 1996 with opening in the
spring, 1997. The General Partner expects to secure first mortgage financing
from institutional lenders or affiliates of the franchisor, however, no external
financing source has issued a commitment to lend funds to the Partnership for
construction or permanent financing.
The Partnership also invested $1,250,000 in another partnership, Essex Glenmaura
L.P. in two purchases in the first quarter of 1996. Essex Glenmaura L.P. is
constructing a 120-room Marriott Courtyard in Scranton, Pennsylvania. The hotel
is expected to open in August, 1996. The total cost of the project is expected
to be approximately $8.3 million, which is being funded by $2.3 million of
partner equity, $1.5 million of unsecured notes and a $4.5 million construction
mortgage loan provided by a bank. The construction loan, which bears interest at
prime plus 0.75%, will be replaced by a permanent mortgage loan to be provided
by Marriott International Capital Corporation. The permanent loan is expected to
close in October, 1996. The key terms of the permanent loan include a five year
term, 20-year amortization period and interest either floating at 325 basis
points over the 30-day LIBOR rate or fixed at 325 basis points over the
five-year treasury rates. The Partnership owns a 54% equity interest in Essex
Glenmaura L.P.. Essex Glenmaura L.P. represented 20% of the Partnership's assets
at June 30, 1996.
The Partnership is currently offering subordinated notes and limited partnership
units for sale to investors pursuant to the Prospectus. The mortgage notes have
not been offered for sale to investors as yet. Through August 5, 1996,
$6,733,000 has been raised. Gross offering proceeds of up to $21,000,000 may be
raised through the public offering. The Partnership
<PAGE> 13
does not have sufficient funds to complete construction of the two specified
properties. Although additional funding is not assured, based on the rate funds
are being raised, the timing of construction and expected availability of
external financing, the Partnership anticipates sufficient funds will be
available to pay for construction when required.
<PAGE> 14
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
There was one Report on Form 8-K filed in the second quarter,
1996. The Report was dated March 26, 1996 and described the
purchase of three and one-half limited partnership units in
Essex Glenmaura L.P.. No financial statements were required.
The report was filed on May 2, 1996.
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.
ESSEX HOSPITALITY ASSOCIATES IV L.P.
Registrant
Dated: August 6, 1996 /s/ Lorrie L. LoFaso
-------------------------------------------
Essex Hospitality Associates IV L.P.
Essex Partners Inc.
Lorrie L. LoFaso
Vice President and Chief Accounting Officer
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001000375
<NAME> ESSEX HOSPITALITY ASSOCIATES IV L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,175
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 7,677
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 10,790
<CURRENT-LIABILITIES> 0
<BONDS> 7,320
0
0
<COMMON> 0
<OTHER-SE> 1,118<F3>
<TOTAL-LIABILITY-AND-EQUITY> 10,790
<SALES> 0
<TOTAL-REVENUES> 7
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> (77)
<INCOME-TAX> 0
<INCOME-CONTINUING> (77)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F4>
<FN>
<F1>UNCLASSIFIED BALANCE USED
<F2>PROPERTY IS UNDER DEVELOPMENT, NOT IN USE
<F3>EQUITY IS PARTNERS' CAPITAL
<F4>ENTITY IS A PARTNERSHIP
</FN>
</TABLE>